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7.1094  In counter-response, Japan argues2669 that the United States analysis is based on incorrect
data.  Japan submits that United States and the USITC rely on figures that merely add togethershipments of each type of CCFRS, ignoring the fact that these figures reflect double and triple
counting of tons of steel as they go through the various stages of production – an ironic ploy, given
that the mills' vertical integration was the reason for conjoining these products into a single like
product.  A more proper measure of apparent domestic consumption – imports of each distinct
finished CCFRS like product plus domestic commercial  shipments of those products – shows the clear
drop in demand as early as 1999:
Table 4:  Change In Apparent  Domestic Consumption: 1996-2000
2670
Year Apparent Domestic Consumption Change
1996 75.8 –
1997 78.1 +2.3
1998 84.1 +6.0
1999 82.4 -1.7
2000 83.1 +0.7
7.1095  According to Japan, after strong growth in 1997 and 1998, demand fell noticeably in 1999
and remained low in 2000 – the very period when the domestic industry operating profits began to
fall.2671
7.1096  Japan argues2672 that, in fact, during 2000, there were sharp changes in demand, as illustrated
below:
Table 5:  Change In Apparent Domest ic Consumption:  Interim Periods 2000-20012673
Year Apparent Domestic Consumption Change
1H 2000 45.0
2H 2000 38.1 -6.9
1H 2001 36.7 -1.4
7.1097  According to Japan, the USITC analysis is also too static.  The United States argues that
demand in 2000 was higher than in 1996.2674  This statement may be true, but it is largely irrelevant.
In most markets, demand increases over time.  The issue for understanding the competitive dynamics
is not a mechanical comparison of 2000 to 1996, but an analysis of the trends from year to year within
                                                     
2669 Japan's second written submission, para. 128.
2670 Sum of total domestic commercial shipments reported in USITC Report Vol. II at  Tables FLAT-12,
13, 14, 15 and 17 plus, total imports reported in Tables FLAT- 3, 4, 5, 6, 7 and 9 (Exhibit CC-6.)  The additionof the five flat-rolled products is provided in Japan First Submission ANNEX B.  Tin mill and GOES are
excluded from this analysis.  Note the figures here differ from those provided in Japan's first written submission
(para. 257) because there exports were not excluded.  The United States industry did not export commercially
significant quantities, therefore the difference is immaterial.
2671 According to Japan, the USITC makes another mi stake: to consider only aggregate CCFRS demand
is to ignore a key difference in trends between finished and semi-finished CCFRS.  Increasing imports of semi-finished steel at the end of the period mask the decline in demand for finished steel.
2672 Japan's second written submission, para. 129.
2673 USITC Report Vol. II at Tables FLAT-12, 13, 14, 15 and 17 plus, total imports reported in Tables
FLAT- 3, 4, 5, 6, 7 and 9 (Exhibit CC-6), See also, Japan's first written submission, Annex B.
2674 United States' first written submission, para. 485.WT/DS248/R, WT/DS249/R,
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Page 373
the overall period of investigation, and, if available, the trends within a year.  Japan submits that it is
ludicrous for the United States to try to ignore the collapse in demand in the second half of 2000, andthe role that collapse had on prices and the condition of the domestic industry.
2675
7.1098  According to Japan, the United States tries to dismiss the correlation between declining
demand and declining operating performance.2676  If one considers the trends in apparent domestic
consumption and imports from 1999 to 2001, the relative importance of the two factors is obvious.
From 1999 to 2001, as imports retreated from the market and as the domestic industry captured more
and more of the market, operating performance declined.  Thus, the decline in domestic industry
operating performance correlates with declining demand, not with increased levels of imports.  In anyevent, no effort at all was made to separate and distinguish the effects of demand from imports.
2677
7.1099  In response, the United States notes that, in its analysis, the USITC explicitly recognized that
demand for CCFRS had declined substantially during the last three quarters of the period of
investigation.  It specifically noted that this demand decline occurred only very late in the period,
beginning with the fourth quarter of 2000 and lasting through the first two quarters of 2001.  Itcorrectly noted, however, that demand had increased consistently during each of the five years before
interim 2001, and that the industry had been experiencing serious injury because of imports since at
least 1998, even though demand was still rising in th at year.  Moreover, the USITC found that, as a
result of import competition, the industry's condition continued to deteriorate in 1999 and 2000, even
though demand continued to rise during these years.  As a result, the USITC properly concluded thatthe demand declines in interim 2001 had only exacerbated the industry's level of serious injury during
that period, and had not been the cause of injury during prior periods.  It is clear then that the USITC
properly discounted these declines in demand as a significant cause of injury during the period.
2678
7.1100  In counter-response, New Zealand questions ho w can a factor "exacerbate" injury – or
"contribute to" injury, to use the USITC's language, but not be a cause?2679  New Zealand also submits
that the data compiled by the USITC itself shows a very strong coincidence, in 2000-2001, between
the decrease in demand of 14.9%, and the deterioration in operating margins from –1.4% to –11.5%.
During the same period, absolute import volumes decreased by 40% (over 30% down on 1996) and
import market share decreased by 2.9%.2680  According to New Zealand, the United States does not
rebut these figures because it cannot.2681  New Zealand submits further that there was  no serious injury
in 1998 contrary to the USITC's and United States oft repeated claims – here as elsewhere the USITC
ignored its own figures, which showed the domestic industry producing certain flat steel returning a
healthy profit margin of 4% in 1998.2682
Domestic capacity increases
7.1101  New Zealand notes that the USITC acknowledged that increase in domestic capacity explains
"in significant part" the decline in the rate of domestic capacity utilization over the period of
investigation2683, which it had earlier found to be an indicator of serious injury, and identified a
                                                     
2675 Japan's second written submission, para. 130.
2676 United States' second written submission, para. 487.
2677 Japan's second written submission, para. 131.
2678 United States' first written submission, para. 485.
2679 New Zealand's second written submission, para. 3.118.
2680 New Zealand's second written submission, para. 3.119.
2681 New Zealand's second written submission, para. 3.120.
2682 New Zealand's second written submission, para. 3.121.
2683 USITC Report Vol. I, p. 63.WT/DS248/R, WT/DS249/R,
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reduction in capacity as necessary for the industry's improvement.2684  It also noted the arguments of
respondents that the presence of new capacity, combined with the failure of the industry to retireolder, less efficient capacity, put tremendous pressure on the domestic industry to cut costs in order to
generate sales to fill the new capacity, and agreed that "there is a significant incentive to maximize the
use of steelmaking assets".  "Increased capacity" the USITC concluded, "while likely playing a role in
the price declines that helped cause injury, was not an important cause of serious injury to the
domestic industry equal to or greater than the injury caused by increased imports".
2685 2686
7.1102  The European Communities, Japan, Korea, China and Brazil argue that the USITC
acknowledged that domestic capacity increases caused injury.2687  However, Japan, Korea and Brazil
argue that the USITC made no effort to try to determine how much of the injury should be attributed
to the capacity increases.2688  More particularly, New Zealand argues that the USITC made no serious
attempt to assess the nature and extent of the injury which it acknowledged increased capacity
caused.2689
7.1103  China reiterates that the Agreement on Safeguards as interpreted by the Appellate Body in
US – Line Pipe case requires the investigating authority to identify the nature and extent of the
alternative factors.2690  China submits2691 that in order to identify the extent of an effect, it is necessary
to evaluate its size, amount, volume.  China argues that the USITC evaluated the effects qualitatively
by comparing the "importance" of those factors, but refrained from providing such a "quantitative"
evaluation:
"[B]y finding that capacity increases had some effect on domestic pricing but imports
had a far more substantial effect, the USITC appropriately made a qualitative finding
on the general level of injury that should be attributed to each factor."
7.1104  According to China, as the USITC failed to evaluate the capacity increase in an adequate way,
it was not able to establish that the effects of this factor were not attributed to the imports.2692
7.1105  In China's view, the impact of capacity increase on the situation of the domestic industry was
under-rated.  In this regard, China refers to the following chart, comparing net increases in capacity
over demand and imports between 1996 and 2000.2693
                                                     
2684 Ibid., para. 358, footnote 22.
2685 USITC Report Vol. I, p 64.
2686 New Zealand's second written submission, paras. 3.122 and 3.123..
2687 Japan's first written submission, para. 262;  Korea's first written submission, para. 125;  China's
first written submission, paras. 359 and 361;  Brazil's first written submission, para. 186; European
Communities' first written submission, para. 468.
2688 Japan's first written submission, para. 262;  Korea's first written submission, para. 125; Brazil's first
written submission, para. 186.
2689 New Zealand's first written submission, para. 4.155;  New Zealand's second written submission,
para. 3.123.
2690 China's second written submission, paras. 210 and 211.
2691 China's second written submission, para. 212.
2692 China's second written submission, para. 213.
2693 Brazil's first oral statement, Annex-Figure 3, referred to in China's second written submission,
para. 214; Brazil's first written submission, Figure 22; Japan's first written submission, para. 266.WT/DS248/R, WT/DS249/R,
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-2,000,000-1,000,00001,000,0002,000,0003,000,0004,000,0005,000,0006,000,000
To
ns
Increase in Excess Capacity
Over Demand5,066,262 3,859,821 3,168,027 2,041,785 2,319,790
Increase in Imports 962,409 -986,589 2,194,557 172,400 179,022Slab Plate Hot-Rolled Cold-Rolled Coated
7.1106  On the basis of the foregoing, China argues that as to the alleged negative influence of
imports on the pricing dynamics, given the capacity increase and dominant market share of the
domestic companies, it is clear that these companies would set the market prices and imports would
react to these prices.2694
7.1107  Japan and Brazil argue that had the USITC engaged in a more careful analysis, it would have
found that domestic capacity increases prompted the domestic industry to lead prices downward.2695
Japan and Brazil submit that the domestic share of the total CCFRS steel market grew from 70% in
1998 to 75% in 1999 and 2000 and then to 81.5% in 2001.  This gain in domestic share resulted from
aggressive domestic pricing.  In 2000 and 2001, when industry operating income declined
significantly, the combination of excess domestic capacity and declining demand meant that domestic
firms were desperately competing for cash flow, all the time with more and more capacity to fill.2696
New Zealand argues that imports lost substantial market share after 1998 and particularly sharply in
the period most recently preceding the USITC's investigation.  During the same period, domestic
prices decreased more sharply than import prices and, in some cases, undercut import prices by a
substantial margin.2697  Japan argues that, ironically, the less imported steel in the market, the more
domestic prices fell.  The only way to explain this phenomenon is that competition among domestic
mills fuelled by growing excess capacity drove down the prices.  In Japan's view, it is difficult to see
how declining import volumes, rather than increasing capacity and domestic shipments, couldsomehow cause declines in prices and operating performance.
2698
7.1108  Korea argues that United States' producers captured virtually all of the increase in
consumption, maintained a market share of over 90%, and still suffered from significant overcapacity.
Korea further argues that not coincidentally, domestic prices fell and the industry experienced losses.
In 2000, the year of the highest production during the period, the industry maintained 34 million tonsof excess capacity as it produced 199.9 million tons of CCFRS with a capacity of 234.6 million tons.
Korea submits that these numbers are staggering and place the 2.5 million ton increase in CCFRS
imports over the entire period into proper perspective.
2699
                                                     
2694 China's second written submission, para. 215.
2695 Japan's first written submission, para. 263;  Brazil's first written submission, para. 187.
2696 Japan's first written submission, para. 264;  Brazil's first written submission, para. 187.
2697 New Zealand's first written submission, para. 4.152.
2698 Japan's first written submission, para. 265.
2699 Korea's first written submission, para. 126.WT/DS248/R, WT/DS249/R,
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7.1109  In response, the United States argues that the record indicated that increased imports, not
domestic capacity increases, were primarily causing the price declines in the latter part of the periodof investigation.  In its analysis of this issue, the USITC discussed the nature and impact of these
capacity increases on domestic pricing behavior, noting that the industry had added capacity during
the period of investigation, and concluded that the capacity additions had outstripped increases in
demand during the same period.  Although it found that these increases in capacity were generally
justified because there had been consistent demand increases in the market, it also recognized that this
increased capacity provided the industry with "a significant incentive to maximize the use of steel
making assets," which would have an "effect [on] producers' pricing behavior."
2700
7.1110  However, the United States argues, the USITC also examined the ample record data on
pricing to assess the nature and scope of the price effects of both imports and this increased capacity
in the market.  The record data on pricing – both the price comparison data and the data on average
unit values – showed that imports consistently undersold the domestic industry (including minimill
producers) throughout the period of investigation2701, that the large surge of lower-priced imports in
1998 had caused a significant drop in prices in that year, and that imports continued to lead prices
down, or keep them suppressed, by consistent underselling through 1999 and 2000.  Moreover, even
though  minimills had added the large bulk of this additional capacity and this additional lower-cost
capacity had some effect on prices,  the USITC also correctly found that imports of hot-rolled
merchandise had consistently undersold the merchandise sold by minimills during the period from1998 and 2000.  Thus, the United States asserts, the USITC properly found that it was increased
imports, not capacity increases, that were primarily causing the price declines that occurred during the
period from 1998 to 2000.
2702
7.1111  In response, the United States argues that the complainants ignore the fact that the record
clearly showed, as the USITC found, that imports led prices down and kept them suppressed during
the period from 1998 through 2000, not the domestic industry.  Moreover, although the industry did
manage to regain some of its lost market sh are in 1999 and 2000 by ac tively follow ing downward
import prices in those years, the record did not sh ow that the industry utilized its increasing capacity
to wrest market share from imports that was held by imports at the beginning of the period.  In other
words, by following import prices downward in 1998, 1999 and 2000, the industry was only able to
regain some of its market share losses, but it was not able to increase its market share over the level it
held in 1996.2703
7.1112  In counter-response, New Zealand argues that th e United States forgets that it is increased
imports, not merely cheaper imports, which must cause serious injury.  New Zealand submits that as
has been established, from 1999 onwards, imports were in sharp decline.  New Zealand argues that the
United States ignores data from 2001, by which time imports were down over 30% on 1996 figures,
there was a 15.1% increase in domestic capacity on 1996 figures, contrasting with an 8.3% decreasein consumption on 1996 figures.
2704
7.1113  Japan, New Zealand and Brazil also argue that the USITC refused to discuss the fact that the
growth in excess domestic capacity dwarfed the modest increases in imports.2705  Brazil notes that the
                                                     
2700 United States' first written submission, para. 491.
2701 USITC Report, p. 63-64 and Tables FLAT-66 to FLAT-71.
2702 United States' first written submission, para. 492-93.
2703 United States' first written submission, para. 499.
2704 New Zealand's second written submission, para. 3.126.
2705 Japan's first written submission, para. 266;  New Zealand's first written submission, para. 4.153;
Brazil's first written submission, para. 189.WT/DS248/R, WT/DS249/R,
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USITC acknowledged that it "is true, as alleged by respondents, that capacity increases did exceed the
increases in domestic consumption".  However, according to Brazil, the USITC never related thatexcess capacity to changes in import levels or the shrinking market, as if domestic mills cutting prices
and trying to maintain volume in a shrinking market was beyond reasonable consideration.
2706  Japan
and New Zealand argue that with respect to all five CCFRS products, the excess capacity exceeded
the modest change in imports over the period.  For four out of five products, the excess capacity
dwarfs the modest change in imports.2707  With so much excess capacity chasing a shrinking total
market, Japan argues that it is no wonder that domestic mills were cutting prices and trying to
maintain volume.  In Japan's view, it makes no sense to blame the modest and declining level ofimports for this problem.
2708
7.1114  In response, the United States submits that the complainants' argument is premised on an
"apples" to "oranges" comparison of factors that have differing price effect characteristics.  More
specifically, instead of comparing the domestic industry's capacity increases during the period to the
foreign industry's capacity increases, the compla inants simply compared the industry's capacity
increases to increases in import shipments.  As a th eoretical matter, the distinction is critical, because
actual shipments of merchandise, whether domestic or import, have a more direct effect on pricing
behavior in the market than capacity increases in  that shipments reflect actual pricing and sales
competition in the market place.  The United States submits that, in essence, while the availability of
capacity might have some impact on pricing behavior in a market place, the actual price effects ofincreased capacity are only directly and substantially transmitted to the market when that capacity is
used to produce and ship merchandise.
2709
7.1115  The United States argues that, accordingly, the complainants should have compared the
domestic industry's capacity increases to the foreign industry's capacity increases during the period of
investigation.  If they had, they would have reco gnized that the foreign industry's capacity increase
during the period of investigation was substantially larger than the domestic industry's capacity
increases during this period.2710  More specifically, foreign production capacity grew by 44 million
tons during the period from 1996 to 2000, while the domestic industry's production capacity grew by
32.2 million tons.  In other words, during a period in which demand in the Asian and other markets
was significantly affected by the Asian financial crisis and the continuing deterioration of the steel
markets in the former Soviet Union, foreign steel producers increased their aggregate capacity levels
by an amount that was 37 percent larger than the domestic industry's capacity increases.  The UnitedStates argues that, moreover, if complainants had also compared the increase in import shipments
during the period with the increase in the indu stry's shipments between 1996 and 1998, they would
have recognized that the import increase during this period was 2.6 million tons, or 60%, larger than
the increase in domestic shipments during the same period.  Given the substantial increase in import
volumes in 1998 and the significant reduction in their pricing levels, it should again not be surprisingthat the USITC found that increasing import shipments at lower prices had a more substantial impact
on pricing levels in the market than did domestic capacity increases and domestic shipments.
2711
                                                     
2706 Brazil's first written submission, para. 190.
2707 Japan's first written submission, para. 267;  New Zealand's first written submission, para. 4.154.
2708 Japan's first written submission, para. 267.
2709 United States' first written submission, para. 496.
2710 United States' first written submission, para. 497.
2711 United States' first written submission, para. 498.WT/DS248/R, WT/DS249/R,
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7.1116  According to Japan, as a matter of economic theory, it is incorrect to argue that capacity only
matters when it is turned into actual shipments.2712 2713  Japan submits that one needs to consider
capacity in light of barriers to entry facing that capacity.  Domestic capacity has no barriers;  domestic
shipments can easily enter the market.  Import capac ity has intrinsic disadvantages, due to the lead
times and uncertainty.  Japan argues that, in this case, uncertainty increased dramatically because of
the numerous anti-dumping and countervailing  investigations that chased imports from the
market.2714
7.1117  According to Japan, the United States tries to sh ift the focus to the role of foreign capacity.2715
Japan argues that this argument is fundamentally misleading, since so little of foreign capacity goes to
the United States market.  The United States argues that 44 million tons of new foreign capacity is
more important than 32.2 million tons of domestic capacity.  Yet over the five-year period of
investigation, virtually all United States  capacity was dedicated to the United States' market2716, as
reflected in the USITC's export statistics, while less than 4% of foreign capacity went to the United
States' market.2717  Japan submits that, by any reasonable measure, domestic capacity mattered much
more than foreign capacity, but the USITC did not even try to isolate its effects.2718
7.1118  Japan submits that the United States also tries to shift the focus away from domestic capacity
by focusing on shipment levels.2719  This argument disingenuously concentrates only on 1998, which
is fundamentally misleading.  In 1999 and 2000 – the years when domestic industry performance
deteriorated – import shipments were down, but domestic shipments were up and domestic capacitywas up.  In 1999 and 2000, import share of the market was stable at about 10.5% in both years, a level
consistent with 1996 and 1997.
Table 6:  Change in Import and Domestic Shipments,
Domestic Operating Performance:  1997-20002720
YearChange in Import
Shipments from Prior YearChange in Domestic
Shipments from Prior YearOperating Performance
in that Year
1997 902 1619 6.1
1998 6031 -111 4.01999 -4488 3119 -0.7
2000 77 1190 -1.4
7.1119  Japan says that in 1999 and 2000, when domestic industry operating performance declined,
imports were retreating from the market, and domestic shipments were increasing.  In both 1999 and2000, increasing domestic shipments dwarfed changes in the import levels.  Japan argues that it is
wrong to blame declining imports and to ignore the increasing domestic capacity that was fuelling
increasing domestic shipments.  At the very least, the impact of domestic capacity increases should
                                                     
2712 See Joint Respondents' Posthearing Brief on Flat-Rolled Steel (1 Oct. 2001) (filed by the Law Firm
of Willkie Farr & Gallagher) (responding to Commissioner Hillman's question how capacity, as opposed to
actual shipments, can affect price.) at 93 (Exhibit CC-55).
2713 Japan's second written submission, para. 139.
2714 Japan's second written submission, para. 140.
2715 United States' first written submission, para. 497.
2716 USITC Report, Vol. II, at Tables FLAT-16-21.
2717 Ibid., at Tables FLAT-30, 33, 36, 39 and 43.
2718 Japan's second written submission, para. 141.
2719 United States' first written submission, para. 498.
2720 Japan's second written submission, para. 142, citing USITC Report, Vol. II, at Tables FLAT-12-17
and FLAT- 20-25, and  Japan's first written submission, ANNEX B.WT/DS248/R, WT/DS249/R,
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have been separated and distinguished from imports to test the USITC's theories and ensure that their
effect was not mistakenly attributed to imports. 2721
7.1120  New Zealand also argues that the United States does not seek to challenge the factual
observation that excess domestic capacity (i.e. the extent to which capacity exceeded demand, not
merely "capacity increases") was over six times greater  than the modest increase in imports measured
over the period 1996-2000.2722  The United States does not acknowledge the implications of this fact
in terms of the relative effect on price of increased domestic capacity as opposed to imports.  Instead,
the United States responds weakly that the proper comparison is between foreign capacity increases
(not actual imports) and domestic capacity increases.2723 2724  According to New Zealand, this has to
be wrong on two counts.  First, Article 4.2(b) re quires the establishment of the causal link between
increased imports and serious injury to the domestic industry, as distinguished and separated from
other factors causing injury to that industry (such as greatly increased excess domestic capacity).
Second, a reference to a mere increase in foreign capacity is also economically meaningless absent
any consideration of the extent to which this exceeds demand and influences the level of imports intothe United States market.
2725
7.1121  Japan and Brazil also note that the USITC also pointed to low capacity utilization rates as
evidence of injury caused by imports.  Brazil and Japa n make reference in this regard to the Appellate
Body decision in US – Wheat Gluten , where the Appellate Body specifically discussed the need to
carefully consider increases in capacity and decreases in capacity utilization.  However, according toJapan and Brazil, the USITC did not perform the analysis set forth in US – Wheat Gluten , including
considering the capacity utilization rate, if capacity  had remained stable over the period rather than
increasing.  Japan and Brazil argue that had it performed the analysis, perhaps it would not have
rushed to its conclusion.
2726
7.1122  In response, the United States argues that the USITC did assess whether capacity increases
had caused the industry's capacity utilization declines.  The USITC recognized that the industry's
production capacity had increased by 15.9% from 1996 to 2000 and that the industry's capacity had
increased at a rate that was higher than the increase in demand during that same period, given that
consumption had grown by 7.8%.  It also correctly recognized that the industry's production levels,
while growing, had not kept pace with the increases in the industry's capacity levels.  Moreover, after
considering the relationship of these two trends, the USITC correctly found that imports were not a
significant cause of declines in the industry's capacity utilization rates.  Instead, it found that thesecapacity utilization declines were due "in significant part" to the increase in industry capacity over the
period.
2727  The United States also argues that, because the USITC did not ascribe any declines in the
industry's capacity utilization rates to im ports, the Appellate Body's holding in US - Wheat Gluten  is
inapposite to the USITC's CCFRS analys is.  As the Appellate Body noted in Wheat Gluten , the
USITC explicitly found that declines in the industry's capacity utilization rates were the direct resultof the increase in imports.
2728  Here, the USITC has held the opposite.2729
                                                     
2721 Japan's second written submission, para. 142.
2722 New Zealand's second written submission, para 3.127.
2723 United States' first written submission, para 496.
2724 New Zealand's second written submission, para. 3.127.
2725 New Zealand's second written submission, para. 3.128.
2726 Japan's first written submission, para. 267;  Brazil's first written submission, para. 191.
2727 United States' first written submission, paras. 489-90.
2728 Appellate Body Report, US – Wheat Gluten , paras. 82-84.
2729 United States' first written submission, para. 490, fn. 619.WT/DS248/R, WT/DS249/R,
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7.1123  Japan and Brazil submit that in 1996, before any alleged import surges, the domestic industry
had utilization rates between 80% and 90%.  The USITC found the domestic industry to havereasonable operating profits at those operating rates.
2730  Japan and Brazil argue that but for the
massive increases in new domestic capacity, the industry could have been operating at full capacity
and more profitably in 2000.  According to Japan and Brazil, the USITC did not even contemplate this
analysis.2731
7.1124  In response, the United States submits that the above argument is misplaced in two significant
respects.  First, it ignores the fact, recognized by the USITC, that an industry can be expected to
increase its capacity in response to consistent growth in demand in a market, as occurred in theCCFRS market during 1996 through 2000.  Second, and more importantly, they ignore the fact that,
even if the industry had not increased its capacity  levels, imports would still have surged into the
market in 1998 at low-prices and led prices downw ard through the remainder of the period.  Thus,
even if these domestic capacity increases had not occurred, the record shows that imports would still
have caused the substantial price declines seen in the market during the period from 1998 through2000.  In this regard, the record shows, for example, that the AUV of imports fell by 10.1% during
this period, with all of this decline being represented by lower prices in 1998, 1999 and 2000.
2732
7.1125  Korea notes that the United States says that the USITC "distinguished and separated the price
declines attributable to imports from the price declines attributable to capacity increases".2733  Korea
states that it agrees that this is what the USITC should have done but it is not what the USITC did.  As
the United States explicitly admits, the USITC actually did not focus on separating out the effectsattributable to each factor at all and, in fact, merely found that these capacity increases were
substantial and therefore "were likely" to have "some" effect on prices but that imports were "far more
significant" than capacity increases.2734
7.1126  Korea and New Zealand submit that the USITC failed to establish explicitly, through a
reasoned and adequate explanation, that injury caused by this factor was not attributed to increased
imports.2735 More particularly, Korea argues that the US ITC never explained how it determined that it
was imports, not excess domestic capacity, that led prices down.  Since the US industry was suffering
from low capacity utilization and the relative price of imports continued to rise into the latter part of
the period of investigation, it was "plausible" that the domestic industry led prices down in order to
increase the market share.  Irrespective of all these facts, Korea argues that the USITC did not provide
a reasoned and adequate explanation for its conclusive statement that imports, not excess domesticcapacity, led prices downward.
2736  Similarly, China argues that, while the USITC concluded by
stating that this factor likely played a role in the pr ice declines that helped cause the injury, it did not
explain how it played this role, nor at which moment it played this role.  Moreover, according to
China, the USITC did not explain to what extent this factor played a role on the overall situation of
the industry.2737
                                                     
2730 Japan's first written submission, para. 268;  Brazil's first written submission, para. 191.
2731 Japan's first written submission, para. 268;  Brazil's first written submission, para. 192.
2732 United States' first written submission, para. 500.
2733 United States' first written submission, para. 494.
2734 United States' first written submission, para. 494.
2735 Korea's first written submission, para. 128;  New Zealand's first written submission, paras. 4.146
and 4.155.
2736 Korea's first written submission, para. 128.
2737 China's first written submission, para. 367.WT/DS248/R, WT/DS249/R,
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7.1127  Korea submits that a more precise consideration of time periods, exact effects, and the means
by which prices were affected, are obvious additional analytical tools that could have beenemployed.
2738  Korea submits that such an analytical approach would have revealed what the USITC
ignored.  The obvious effect of capacity increases on producer performance was to stimulate
production and increase sales in order to maximize the efficient use of capacity.  In a capital-intensive
industry like the steel industry, capacity utilization rate s are key.  It is self-evident that excess capacity
would cause producers to lower prices to sell that additional production to maintain efficient
utilization.2739
7.1128  Brazil asks what makes the USITC conjecture on capacity that the Appellate Body found
invalid in US – Wheat Gluten2740 any different from the USITC's "analysis" in this case regarding
capacity.  In light of substantial domestic capacity increases in excess of demand, the USITC
recognized "there is a significant incentive to maximize the use of steelmaking assets, which can
affect producers' pricing behavior".2741 2742  Brazil submits that, nonetheless, it offers only a
conclusory statement that:
"[I]f increased domestic capacity were in fact the source of the injury to the domestic
industry, we would have expected to see the domestic industry lead prices downward,
and wrest market share from imports.  Therefore, we find that increased production
capacity, while likely playing a role in the price declines that helped cause injury, was
not an important cause of serious injury equal to or greater than the injury caused byincreased imports."
2743
7.1129  Brazil questions wherethe USITC actually separates and distinguishes causes in this
statement;  where  the reasoned and adequate explanation to support the conclusion is;  and where the
USITC's actual analysis of the injurious effects of increased excess capacity on the industry are.
Because imports are a more important cause of injury than capacity increases, Brazil further questionswhether the  USITC actually found that there was a genuine and substantial causal link between
increased imports and serious injury.
2744
Intra-industry competition
7.1130  New Zealand notes that cheap and rapidly increasing minimill production, which the United
States concedes accounted for a third of total CCFRS production in the United States2745 and was
"pertinent" to the issue of causation2746, was a critical factor in the decline of domestic prices and
operating margins.2747 2748
                                                     
2738 Korea's second written submission, para. 164.
2739 Korea's second written submission, para. 165.
2740 Appellate Body Report, US – Wheat Gluten,  paras. 90-92.
2741 USITC Report, Vol. I, at 63.
2742 Brazil's second written submission, para. 77.
2743 USITC Report, Vol.1, at 64.
2744 Brazil's second written submission, para. 77.
2745 United States first written submission, para 353, footnote 381.
2746 Ibid., para 353.
2747 New Zealand's first written submission, para 4.158.
2748 New Zealand's second written submission, para. 3.136.WT/DS248/R, WT/DS249/R,
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7.1131  The European Communities and New Zealand further note2749 that the USITC acknowledged
the injurious effect of intra-industry competition – "the addition of a greater volume of lower-costcapacity would be expected to have an effect on prices, and we find that it did" – but then, after
noting, without explanation, that "imports, rather th an minimills, typically led prices downward", the
USITC recited its standard mantra:
"[W]e find that minimills were not primarily responsible for the declines in domestic
prices or an important cause of serious injury to the domestic industry … equal to or
greater than the injury caused by increased imports."
2750
7.1132  China and New Zealand argue that by statin g that intra-industry competition was not
"primarily" responsible for serious injury to the industry, the USITC recognized that minimills were
nevertheless responsible, although in a less significant way.2751
7.1133  Japan argues that in relation to intra-industry competition, it is clear that the USITC decision
does not satisfy the non-attribution requirement of Article 4.2(b).  In particular, Japan argues that the
evidence is both compelling and measurable and s hows that each intra-industry competition is a more
important cause of the domestic industry's injury than imports.  In Japan's view, had the USITC
separated and distinguished these alternative causes, it could not have concluded that increased
imports caused any serious injury.2752  Similarly, New Zealand submits that while the USITC
acknowledged that minimill competition had an injurious effect on the domestic industry, it did not
explain what these effects were, as distinguished and separated from the serious injury caused byincreased imports.
2753
7.1134  Japan and Brazil argue that dramatically expanding capacity and shipments by certain
segments of the domestic industry had given rise to deleterious competition among domestic
producers.2754  In this regard, Japan and Brazil argue that intra-industry competition in the CCFRS
market was driven by changes in production technology.  The emergence of minimills withdramatically lower cost structures placed less efficient integrated mills on their heels.
2755  Japan and
Korea argue that with an extremely competitive cost  structure, minimills could charge lower prices
and yet still earn attractive operating profits.  Weaker integrated mills, using the more traditional blast
furnace technology, decided they had to sell CCFRS steel to generate cash flow regardless of the
price.  Japan submits that competing largely with minimills in the commodity segment of the market,
the integrated firms had little choice but to compete with minimills that had much lower costs.2756
7.1135  Confronted with tremendous evidence on this account, Japan and Brazil argue that the USITC
made no effort to separate and distinguish this alternative cause.2757  Japan, Korea and Brazil argue
that the USITC recognized the competitive advantag e of minimills but failed to fully consider the
effects on the rest of the industry because they were not "primarily" responsible for the injury.  More
specifically, Japan and Brazil state that the USITC noted that minimills "did typically enjoy cost
advantages over integrated producers", and that "a greater volume of lower-cost capacity would be
                                                     
2749 New Zealand's second written submission, para. 3.135; European Communities' first written
submission, para 468.
2750 USITC Report Vol I, p. 65.
2751 China's first written submission, paras. 359 and 363.
2752 Japan's first written submission, para. 255.
2753 New Zealand's second written submission, para. 3.136.
2754 Japan's first written submission, para. 269;  Brazil's first written submission, para. 192.
2755 Japan's first written submission, para. 270;  Brazil's first written submission, para. 193.
2756 Japan's first written submission, para. 270;  Korea's first written submission, para. 136.
2757 Japan's first written submission, para. 269;  Brazil's first written submission, para. 192.WT/DS248/R, WT/DS249/R,
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Page 383
expected to have an effect on prices, and we find that it did".  It then dismissed the factor by pointing
to a quick and flawed examination of hot-rolled prices; import prices apparently were lower thanminimill prices.  This attempt to dismiss the role of intra-industry competition fails on several
counts.
2758
7.1136  Japan, Korea and Brazil submit that if the USITC had properly considered this factor, it
would have found that mini-mills had low-cost structures that allowed them to price below other
domestic producers, yet remain profitable.2759  Korea also argues that while the USITC acknowledged
that minimills maintain a cost advantage over integrated producers, it dismissed the significance of
this fact by observing that that cost advantage existed throughout the period, that is, before and afterinjury.
2760
7.1137  New Zealand argues that nowhere in the USITC Report does the USITC segregate the
production and pricing data of minimills and integrated producers so that it can assess the effects of
minimill production on the industry as a whole.  Nor does the USITC consider the obvious
competitive disadvantage suffered by integrated mills as a result of legacy and other costs far higherthan those borne by minimills.
2761
7.1138  In response, the United States notes that USITC thoroughly discussed the nature and extent of
minimill competition on domestic pricing for CCFRS.  In particular, the USITC correctly recognized
that the record data showed that minimills "did typically enjoy cost advantages over integrated
producers," noting that these advantages were due to minimill's lower raw materials costs and thedifferent product mixes of the two categories of producer.  As a result of these cost advantages, the
USITC found that it was reasonable to expect that the addition of a greater volume of lower cost
capacity would have some indirect effect on prices.  Based on its assessment of the record, therefore,
it concluded that the addition of this lower-cost capacity had some effect on domestic pricing during
the period of investigation.
2762
7.1139  Moreover, the United States submits that the USITC did not simply assume that the pricing
decisions of minimill operators did not cause the substantial price declines that hit the CCFRS market
between 1998 and interim 2001.  The USITC appropriately examined the ample record evidence that
was available on the nature of price competition between minimills, imports and integrated
producers.2763  As the USITC noted in its discussion of the competitive effects of minimills, the data
indicated that, even though minimills were lower-cost producers than integrated producers, imports,
not minimills, were the price leaders in the market place and led prices downward throughout the
                                                     
2758 Japan's first written submission, para. 271;  Korea's first writen submission, para. 135; Brazil's first
written submission, para. 194.
2759 Japan's first written submission, para. 271;  Korea's first written submission, para. 135; Brazil's first
written submission, para. 193.
2760 Korea's first written submission, para. 136.
2761 New Zealand's first written submission, para. 4.160.
2762 United States' first written submission, para. 507.
2763 In this regard, the United States notes that, duri ng its investigation, the USITC prepared a series of
specific charts breaking out the financial and production operations for minimill and integrated producers,separately, and a series of quarterly price comparison  charts showing underselling/overselling patterns between
minimills, imports and integrated producers.  See, e.g ., INV-Y-215, pp. 3-11 (US-38);   See also Minimill Trade
Data (US-60).  While some of this material may not be released because it is confidential, the USITC did, in
fact, prepare such data and examine it, as can be seen in  US-38.  Accordingly, New Zealand's assertion that the
USITC did not segregate data for these producers in its Report is highly misleading.  New Zealand's  firstwritten submission, para. 4.160.WT/DS248/R, WT/DS249/R,
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period of investigation.2764  Indeed, as the USITC pointed out in its analysis, the price comparison data
showed that imports consistently undersold minimill producers throughout the entire period ofinvestigation on its sales of hot-rolled merchandise, which accounted for the bulk of minimill
shipments during the period.
2765  Moreover, the record showed that imports undersold minimills
consistently on plate and cold-rolled as well during the period as well.2766  Given this record evidence,
the USITC properly concluded that it was not "low-cost" minimills, but imports, that led prices in the
CCFRS market down so consistently during the period from 1998 to 2001.2767  Thus, although the
USITC reasonably concluded that minimills had played some role in price declines in the market, it
also correctly found that it was increased imports, not the operations of minimills, that were theprimary cause of the price declines that occurred during the period from 1998 to 2000.
2768
7.1140  Further, the United States argues that although it was true that the USITC recognized in its
analysis that "minimill producers may have been in a better position to withstand low-priced import
competition than other domestic producers" due to their cost advantages, the record does not show
that minimills were able to maintain a healthy profit margin throughout the period of investigation inthe face of lower prices.  The United States submits that, instead, the unit operating income for
minimills declined from a profit of approximately  US$28 per ton in 1997 to a loss of approximately
US$4 per ton in 1998, when imports surged in the market.  Moreover, even though minimills were
able to improve their operating income to approximately US$7 and US$16 per ton in 1999 and 2000,
respectively, the returns obtained by minimills in  these two years remained significantly below the
strong level obtained by minimills in 1997, that is, before the import surge occurred.  Further,
minimills' operating income declined to a loss again in interim 2001, as prices fell even further in the
market.  In other words, despite the complainant's arguments to the contrary, the record shows not that
minimills were able to continue earning strong profits throughout the period of investigation, even as
prices fell, but that minimills experienced the same operating income declines as integrated producersas a result of the surge of low-priced imports that occurred in 1998.
2769
7.1141  China notes2770 that concerning the intra-industry competition and increased imports, the
USITC stated in its report that:
"[I]ndeed, the only way in which the USITC could have more specifically identified
the distinct amount of pricing effects caused by these factors would have been to
place a quantitative value on the effects caused by each. However, as we have
previously noted, the test of the Agreement on Safeguards does not require a
                                                     
2764 USITC Report, p. 65.
2765 In this regard, the United States notes that it was entirely reasonable for the Commission to rely on
its price comparison data for two hot-rolled products when assessing whether imports consistently undersold themerchandise sold by minimills.   In this regard, the r ecord indicated that hot-rolled steel accounted for the large
majority of minimill producers' commercial shipments.  Compare,  Table FLAT-1 (Minimill Trade Data for
Carbon Flat-rolled Steel) with Table G03-1 (Table for Minimill Hot-rolled Steel Trade Date) (US-60).Accordingly, Brazil's assertion that the USITC improperly relied on this data to support its analysis is simply
misplaced.  Brazil's first written submission, para. 197.
2766 The United States notes that although the quarterly pricing comparisons are confidential, the record
shows that imports undersold minimills on their sales of plate, hot-rolled and cold-rolled steel in the largemajority of possible price comparisons during the period, with imports underselling minimills in 64% ofpossible comparisons (70 of 110 comparisons),  at margins ranging up to 30.6%.  Ibid.   Imports undersoldminimills in 76% of possible comparisons (50 of 66) involving plate and hot-rolled merchandise.  Ibid.
2767 USITC Report, p. 65.
2768 USITC Report, p. 65;  United States' first written submission, para. 508.
2769 United States' first written submission, para. 513.
2770 China's second written submission, para. 217.WT/DS248/R, WT/DS249/R,
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quantitative valuation of the effects attributable to imports or no-imports factors,
respectively, nor has the Appellate Body or any panels construed the Agreement onSafeguards to do so."
7.1142  China argues that the USITC did not perform a quantitative evaluation of the effects of
competition between efficient, low cost minimill production and the integrated producers despite the
fact that the Agreement on Safeguards as interpreted by the Appellate Body in US – Line Pipe case
requires the investigating authority to identify the nature and extent of the alternative factors.
2771
China argues that the USITC found that the intra-industry competition between minimills andintegrated producers resulted in lowered sales for domestic products and subsequent price cuts.  Chinasubmits that, obviously, the intra-industry competition had negative effects on the industry, which
should have been evaluated.
2772
7.1143  China points to2773 the following data on minimill shipments and imports of CCFRS
products:2774
Table 7:  Flat-Rolled Imports
Thousands of tons 1996 1997 1998 1999 2000Interim
2000Interim
2001
Minimillsshipments17,951 27,206 31,197 34,516 37,838 17,845 19,322
Imports 18,372 19,274 25,305 20,816 20,893 11,483 6,930
7.1144  China argues that the evidence at hand demonstrates that the intra-industry competition
played a certain role in the developments of prices in the market.2775  More particularly, New Zealand
argues that data available to the USITC shows intra-industry competition to be a critical factor in thedecline of domestic prices and operating margins.
2776  According to New Zealand, by 2001 minimill
production of raw steel had reached 47.5% of to tal United States production. However, in New
Zealand's view, not only did the increase in dome stic capacity (which was largely from minimill
production) far outstrip demand, but the cheap and efficient nature of this increased capacity
accentuated its price-lowering effect.  New Zealand submits that minimill production comprised arapidly growing supply of steel at a time when the USITC itself acknowledged domestic prices were
falling.  New Zealand argues that the USITC erroneously ascribed this fall in prices to imports,
ignoring the fact that it was the growing domestic supply of steel that exerted downward pressure on
prices.
2777  The European Communities states that there is no attempt to distinguish and separate the
effect of downward pressure resulting from intra-industry competition from the downward pressure
allegedly caused by increased imports.  The European Communities submits that, therefore, there was
no explicit establishment and no clear, unambig uous and straightforward explanation of how the
effects of the other factors are not attributed to increased imports.2778
                                                     
2771 Appellate Body Report, US – Line Pipe,  para. 215
2772 China's second written submission, para. 219.
2773 China's second written submission, para. 220.
2774 USITC Report Vol. II, table FLAT-1, FLAT-3
2775 China's second written submission, para. 221.
2776 New Zealand's first written submission, para. 4.158.
2777 New Zealand's first written submission, para. 4.159.
2778 European Communities' first written submission, para. 468.WT/DS248/R, WT/DS249/R,
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7.1145  Japan and Brazil argue that the USITC ignored evidence that as minimill pricing fell,
minimills still had stronger financial performance.  Minimills increased their shipments of all CCFRSand decreased their average unit sales values.
2779  Japan argues that, remarkably, as minimill volumes
increased and prices fell, their profits still increased.  According to Japan, the contrast between
minimill and non-minimill operating results is dramatic.  Minimills did much better in 1999 and 2000
precisely when the other mills began to experience financial difficulties.2780
7.1146  Japan and Brazil argue that although the USITC decision applied to all CCFRS products, the
USITC analysis cites only an isolated example for a single product, hot-rolled steel.  Minimills also
make and sell plate, cold-rolled, and even some coated steel.  The USITC extrapolates to these otherproducts without any factual basis.
2781  Japan and Brazil also argue, that the USITC ignored
substantial evidence to the contrary.  The USITC never evaluated the role of minimill competition in
different segments of the CCFRS  industry, or addressed arguments that minimill pricing was in fact
leading integrated mill pricing.2782
7.1147  Brazil argues further that the USITC acknowledged that minimills producing CCFRS
accounted for most of the increase of capacity in the United States steel industry during the 1990s.
Brazil further argues that there was not just a "greater" volume of lower-cost capacity entering market,
it was an enormous volume.  More importantly, the evidence revealed that minimills were not simply
locked into capacity expansion resulting from investment made prior to 1998.  Rather, minimills were
still investing in capacity expansion during 1998, 1999 and 2000, when the USITC found the industrysituation to be drastically deteriorating.
2783
7.1148  In this regard, Korea notes that between 1996 and 2000, the domestic industry's CCFRS
capacity increased by 32 million tons.  Most of the increase of capacity in the United States' steel
industry during the 1990s was accounted for by the minimills utilizing thin-slab technology.
According to Korea, the small incr ease in imports of 2.5 million tons pales in comparison to the huge
increase in the low-cost minimill capacity.  Still,  the USITC brushed aside the impact of minimills'
competition with the unsubstantiated conclusive statement that imports "led" prices down.2784  Korea
argues that even if it were true that the imports, not minimills, led prices down, the volume of low-
cost capacity did have an effect on prices, as the USITC admits.  Thus, the USITC had an obligation
to identify, distinguish and separate the injury arising from low-cost minimill supplies.2785
7.1149  Korea adds2786 that over the period 1996 through 2000, minimill CCFRS capacity increased
by 19.9 million tons, with an additional 1.48 million tons added in interim 2001 vis-à-vis interim2000.
2787  More to the point, 8.12 million tons of that mini-mill capacity was added between 1998
through June 20012788, the period during which the United States industry was allegedly being injured
by imports.  During this same period of 1998 – 2001, however, imports were declining.  Thus, at the
                                                     
2779 Japan's first written submission, para. 274;  Brazil's first written submission, para. 197.
2780 Japan's first written submission, para. 274.
2781 Japan's first written submission, para. 272;  Brazil's first written submission, para. 195.
2782 Japan's first written submission, para. 273;  Brazil's first written submission, para. 196.
2783 Brazil's first written submission, para. 199.
2784 Korea's first written submission, para. 137.
2785 Korea's first written submission, para. 138.
2786 Korea's second written submission, para. 169.
2787 United States' first written submission, Minimill Trade Data, Table FLAT-1 (Exhibit US 60).
2788 United States' first written submission, Minimill Trade Data, Table FLAT-1 (Exhibit US 60).WT/DS248/R, WT/DS249/R,
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beginning of the period, mini-mill CCFRS capacity was less than imports.  By the end of the period,
minimill CCFRS capacity was approximately three times  imports.2789
Table 8:  Comparison of Minimill Capacity to Flat-Rolled Imports (in thousands of tons)
1996 1997 1998 1999 2000Jan-June
2000Jan-June
2001
Minimills 17,951 27,206 31,197 34,516 37,838 17,845 19,322
Imports 18,372 19,274 25,305 20,816 20,893 11,483 6,930
Sources:  Minimill Capacity from Table FLAT-1 (Exhibit United States  60); Import Data from USITC
Memorandum No. INV-Y-209, Table FLAT-ALT7 (Exhibit CC-90).
7.1150  The United States submits that this argument is flawed in several respects.  First, the
argument fails because it is based on an "apples" to "oranges" comparison of non-comparable factors.
In particular, complainants' mistakenly compare the capacity increases of minimill producers to
import shipments during the period, when the more appropriate comparison is to compare the
minimills' capacity increases to capacity increases of  foreign producers.  If the complainants had
performed this more appropriate comparison, they would have recognized that the foreign industry'scapacity increases during the period of investigation were substantially larger than the capacity
increases undertaken by minimills during this period.  Given this substantial difference in the capacity
increases of the two sets of producers, it should not be surprising that the USITC concluded that
imports were a more significant cause of price declines in the market than minimills.
2790
7.1151  The United States argues that, in this same vein, the record shows that there was a
substantially larger volume of imports shipped into the market than there was of merchandise shipped
by minimills.  In particular, the volume of imports shipped into the US market ranged between
18.3 million and 25.3 million tons on annual basis during the period from 1996 to 2000.  By way of
comparison, the total volume of all carbon flat-rolled shipments (including GOES and tin mill steel)
made by minimill producers into the commercial market never exceeded more than 11.9 million tons
on an annual basis.2791  Further, the United States argues that the record evidence established that
imports routinely and consistently undersold domestic and minimill merchandise throughout theperiod of investigation, including the years 1998, 1999, and 2000.  Accordingly, the record clearly
confirms that the USITC was correct when it found that imports had a more substantial impact on
market pricing than minimills during the period from 1998 to 2000.
2792
7.1152  Korea argues2793 that a comparison of minimill shipments with both shipments by integrated
producers and imports demonstrates how the failure to analyse growth in the minimill sector masksthe events in the United States market affecting United States producers.  Overall United States
shipments of CCFRS steel showed an increase of 13.3 million tons between 1996-2000.  However,
the data presented by the United States shows that virtually all of that growth was accounted for by
                                                     
2789 The United States argues (United States' first written submission, para. 497) that domestic industry
capacity should be compared to foreign capacity, not to  imports.  But, clearly, since at least 99% of United
States industry capacity is directed to the United States market (See USITC Memorandum INV-Y-209, Table
FLAT-ALT-7 (Exhibit CC-90)), while roughly a maximum of 3% of foreign capacity is shipped to the UnitedStates market (USITC Report, Vol. II, Table FLAT-27 at FLAT-30 (Exhibit CC-6)), the proper comparison is
clearly between United States capacity and imports.
2790 United States' first written submission, para. 511.
2791 Table FLAT-1 (US-60).
2792 United States' first written submission, para. 512.
2793 Korea's second written submission, para. 170.WT/DS248/R, WT/DS249/R,
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minimills alone:  shipments by integrated producers increased by only 1.1 million tons between 1996
-2000 while minimill shipments increased by 12.2 million tons.  Domestic shipments by integratedproducers in the interim period – when the greatest losses occurred – fell by 13.5 million tons (from
91.2 million tons to 77.7 million tons).  In contrast, mini-mill shipments increased by 588 thousand
tons. In 1996, minimill shipments accounted for 8.5% of United States shipments.  By 2001, minimill
shipments had doubled their shar e of United States shipments.
Table 9:  United States Shipments of Flat-Rolled Steel by Minimills,
Integrated Mills, and Total (in thousands of tons)
1996 1997 1998 1999 2000Jan-June
2000Jan-June
2001
Minimills 15,749 19,549 21,874 26,040 27,306 14,778 15,366
Integrated* 169,058 168,898 167,269 170,573 170,163 91,221 77,689
Total 184,807 188,447 189,143 196,613 198,069 105,999 93,055
Minimills as apercentage of
total United
States
shipments8.5% 10.4% 11.6% 13.2% 14.1% 13.9% 16.5%
*Integrated is the difference between Total and Mini-Mill.
Sources:  Mini-Mill Capacity from Table FLAT-1 (Exhibit United States  60); Total United States Shipments
from  USITC Memorandum No. INV-Y-209, Table FLAT-ALT7 (Exhibit CC-90).
7.1153  Korea submits that in comparison to the impact of minimills, especially in the key period of
1998-2001 (when imports are alleged to have caused injury), imports had a diminished role in the
market.  Comparing the increase in minimill shipment s to the increase in imports, it is clear that the
overall growth in minimill shipments over the period dwarfed the growth in imports (12.2 million tons
to 2.6 million tons).  It is also clear that while mini-mill shipments grew by 6 million tons during the
period in which the United States "industry was allegedly injured by imports", (1998-2000) imports
were falling by 4.4 million tons through 2000 and fell by an additional 4.6 million tons in the interim
period.  Thus, at the beginning of the period of investigation imports were greater than minimillshipments.  By the end of the period, minimill shipments were over twice as large as imports.
2794
                                                     
2794 Korea's second written submission, para. 171.WT/DS248/R, WT/DS249/R,
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Table 10:  Comparison of Minimill United States Shipments
to Imports of Flat-Rolled (in thousands of tons)
1996 1997 1998 1999 2000Jan-June
2000Jan-June
2001
Minimills 15,749 19,549 21,874 26,040 27,906 14,778 15,366
Imports 18,372 19,274 25,305 20,816 20,893 11,483 6,930
Minimills and
import
shipments 34,121 38,823 47,179 46,856 48,799 26,261 22,296
Minimills as apercentage of
minimill and
importshipments46.2% 50.4% 46.4% 55.6% 57.2% 56.3% 68.9%
Sources:  Minimill Shipments from Table FLAT-1 (Exhibit United States  60); Imports from USITC
Memorandum No. INV-Y-209, Table FLAT-ALT7 (Exhibit CC-90).
7.1154  Korea submits that the impressive growth of minimill shipments both in relation to integrated
producers and in relation to imports throughout the period – and especially in the period between
1998-2001 – raises serious doubts about the claim that imports "led prices down" during the1998-2001 period.
2795 2796  According to Korea2797, these doubts are confirmed by examining the
difference in per unit costs of minimills and integrated producers.  A comparison of these unit costs
shows that in 1996, unit costs of mini-mills were US$26/ton lower than those of integrated producers
in 1996, a figure which grew to US$70/ton in 2000 before reaching a stunning US$100/ton in interim
2001.  This competitive advantage manifested itself in the market share gains described below.
Table 11:  Comparison of Minimills and Integrated Cost of Goods
Sold for Hot Rolled ($/ton)
1996 1997 1998 1999 2000Jan-June
2000Jan-June
2001
Minimills $311.21 301.77 293.67 250.23 257.24 266.91 232.61
Integrated $337.26 333.64 324.46 300.07 326.84 315.70 332.18
Minimills
below
integrated $26.05 31.87 30.79 49.84 69.60 48.79 99.58
Source:  Public Versions of Supplementary Material Cited in Views of Commissioners in Investigation No. TA-
201-73, Steel , Memorandum No. INV-Y-215 (1 May 2002) ("USITC Memorandum No. INV-Y-215"), Tables
STL20H3I.WK4 (Flat: Hot-Rolled Integrated) and STL20H3M.WK4 (Flat:  Hot-Rolled Minimill)  (KoreaExhibit 10, "K-10").
7.1155  Korea further argues that not coincidentally, the cost advantage was used by minimills to
lower prices and gain market share at the expense of both integrated producers and imports.
Moreover, even when integrated producers were consistently selling hot-rolled steel at higher prices
than minimills, those prices of integrated producers were below their Cost of Goods Sold in 2000 and
                                                     
2795 United States' first written submission, para. 509.
2796 Korea's second written submission, para. 172.
2797 Korea's second written submission, para. 173.WT/DS248/R, WT/DS249/R,
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2001.  In contrast, minimill prices were always above their Cost of Goods Sold throughout the period
of investigation.2798
Table 12:  Unit Selling Price of Hot-Rolled/Comparison of Minimill
and Integrated Prices (unit: US$/ton)
1996 1997 1998 1999 2000Jan-June
2000Jan-June
2001
Minimills prices $321.20 $328.62 $296.32 $271.12 $283.66 $316.81 $233.51
Integrated prices $353.24 $365.16 $350.00 $308.23 $320.14 $332.97 $269.07
Minimills below
integrated$32.04 $36.54 $53.68 $37.11 $36.48 $16.16 $35.56
Source:  USITC Memorandum No. INV-Y-215, Tables STL20H3I.WK4 (Flat: Hot-Rolled Integrated) and
STL20H3M.WK4 (Flat:  Hot-Rolled Mini-Mill)  (Exhibit K-10).
7.1156  According to Korea2799, a comparison of the difference in profitability between mini-mills and
integrated producers reveals that: between 1999-2001, the only period in which mini-mills had a
negative operating profit was in interim 2001, when imports had declined to their absolute low point
in terms of both absolute and relative levels.  Moreover, this was the period (first half of 2001) when
the negative effect of a major demand downturn was felt as the USITC and the United Statesadmit.
2800  In fact, the United States uses 1996 as the base profit in its numerical analysis due to the
similarity of demand in 1996 and the first half of 2001.  Mini-mills also lost money in 1996.2801
Table 13:  Comparison of Mini-Mill and Integrated Mill
Operating Profitability and Imports as a Percentage of United States Production
1996 1997 1998 1999 2000Jan-June
2000Jan-June
2001
Minimill operatingprofitability-1.5% 4.1% -3.4% 2.8% 4.9% 11.7% -4.1%
Integrated mill
operating profitability-0.7% 4.1% 1.6% -10.4% -8.1% -0.1% -30.1%
Imports relative to all
flat-rolled production10.0% 10.2% 13.2% 10.6% 10.5% 10.8% 7.4%
Sources:  USITC Memorandum No. INV-Y-215, Tables STL20H3I.WK4 (Flat: Hot-Rolled Integrated) and
STL20H3M.WK4 (Flat:  Hot-Rolled Mini-Mill)  (Exhibit K-10); Korea first written submission , para. 84,
Chart 3.
7.1157  According to Korea, a proper analysis of the role of minimills calls into serious question the
USITC's causation analysis that declining imports "led prices down" when it was mini-mills alone that
gained market share between 1998 through interim 2001.  More importantly, an analysis of the
minimill part of the industry shows that an analys is of integrated and minimills together masks the
relative movements in domestic industry indicators and the role of imports in the market.  The USITC
                                                     
2798 Korea's second written submission, para. 174.
2799 Korea's second written submission, para. 175.
2800 United States' first written submission, para. 1094.
2801 United States' first written submission, para 1094.WT/DS248/R, WT/DS249/R,
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failed to properly identify and separate these significant effects from intra-industry competition and
instead, attributed them to imports.2802
7.1158  Further, New Zealand argues that alt hough the USITC acknowledged that minimill
production had an effect on prices and that it contributed in some part to the alleged injury, it failed to
assess the full impact of intra-industry competition or provide a reasoned and adequate explanation of
the relationship  of injury caused by this factor to any injury allegedly caused by imports.2803  China
and New Zealand argue that the USITC failed to identify, and explain, the nature and extent of the
injurious effects of intra-industry competition as distinguished from the alleged injurious effects of
increased imports, and to establish explicitly through a reasoned and adequate explanation, that injurycaused by this factor has not been attributed to increased imports.
2804
7.1159  Brazil asks what makes the USITC's simplistic explanation that: "…the loss of Wool Act
payment hurt lamb growers and feeders and cause d some to withdraw from the industry", found
invalid by the Appellate Body in US – Lamb2805, any different from the USITC's "analysis" in this
case regarding intra-industry competition.  Acknowle dging the greater volume of lower-cost minimill
capacity in the market, and finding that this lower- cost capacity did have an effect on prices, the
USITC offers yet another conclusory statement:
"[W]e find that minimills were not primarily responsible for the declines in domestic
prices or an important cause of serious injury to the domestic industry, which is equal
to or greater than the injury caused by increased imports."2806
7.1160  Again, Brazil questions where the USITC actually separates and distinguishes causes in this
statement;  where the reasoned and adequate explanation to support the conclusion are;  and where
the USITC's actual analysis of the injurious effects of increased excess capacity on the industry is.
Because imports are a more important cause of injury than capacity increases, Brazil further questions
whether the USITC actually found that there was a genuine and substantial causal link betweenincreased imports and serious injury.
2807
7.1161  Finally, the United States cautions the Panel not to rely on Korea's comparisons of the
volumes of minimill and import shipments.  Accord ing to the United States, these comparisons are
misleading because they compare double-counted minimill shipments (and capacity and production)
data to import shipment data that is not double-counted.2808  The minimill shipment numbers used by
Korea all double-count shipments of slab, hot-rolled carbon steel, and cold-rolled steel that were
internally consumed by minimills in the production of downstream CCFRS products.  For example,the record indicates that, of the 27.9 million tons of CCFRS shipped by minimills overall in 2000,
16.043 million tons (or more than 57%) was internally transferred for the production of downstream
products, the vast majority of which consisted of plate, hot-rolled and cold-rolled carbon flat steel.
2809
In other words, if double-counting of internal tran sfers is eliminated, the actual tonnage of CCFRS
shipped by the minimills is overstated in Korea's charts by at least a factor of two.  By way ofcontrast, the import shipment data used in Korea's charts do not double-count import shipments
because, when these shipments are imported and used to produce downstream merchandise, they are
                                                     
2802 Korea's second written submission, para. 176.
2803 New Zealand's first written submission, para. 4.161.
2804 China's first written submission, para. 369;  New Zealand's first written submission, para. 4.156.
2805 Appellate Body Report,  US – Lamb , paras. 185 and 186.
2806 USITC Report Vol. I at 65.
2807 Brazil's second written submission, para. 77.
2808  These comparisons are contained in Korea's second written submission, paras. 169-176
2809  See  Minimill Trade Data, p. 1 (Exhibit US-60).WT/DS248/R, WT/DS249/R,
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then considered domestic production and shipments.  The United States submits that, in other words,
Korea's analysis relies on comparisons of  overstated volumes of minimill shipments against importshipment data that are not overstated.  In order to properly compare minimill shipment volumes
against import volumes, Korea should have comp ared commercial shipments by minimills against
import shipments (as the United States did in its first written submission) because these numbers do
not double-count the internal transfers of CCFRS products made by minimills.  When the Panel does
so, it will recognize that there was a substantially smaller volume of shipments of CCFRS for
minimills than for imports during each year of the period of investigation, thus making clear that
imports were more likely to have a serious and adverse impact on domestic pricing during the periodthan minimills.
2810
7.1162  In counter-response, Korea notes that in the second substantive meeting the United States
conceded that the mini-mill data cited by Korea in its first written submission is accurate.  It limited
its objections to whether it was proper to compare import volumes to mini-mill shipments that
included both commercial and internal shipments (the so-called "double count").  As Korea noted inits response, the mini-mill shipments reported by Korea in paragraphs 170 and 171 are stated on the
same basis that those shipments were included in the total US shipments in USITC Memorandum No.
INV-Y-209, Table FLAT-ALT-7.
2811 It is apparent that imports are being compared to total US
shipments reported in Table FLAT-ALT-7, so it is equally apparent that imports are properly
compared to the mini-mill component of that figure.2812
7.1163  In counter-response, New Zealand notes that the United States seeks to retrospectively justify
the USITC's conclusions by relying on evidence that was deleted from its report, in particular price
information that allegedly suggested imports were underselling minimill production2813 and that
import volumes exceeded minimill production.2814  This data can form no part of the record for the
purposes of this case.  The United States had to demonstrate non-attribution "explicitly, through areasoned and adequate explanation" before applying the safeguard measure.  As New Zealand has
pointed out, the data does not appear anywhere in th e USITC Report and it is too late to try to justify
the USITC finding now, by reference to data not included in the USITC Report.
2815
7.1164  Also in counter-response, Japan argues that the USITC ignored evidence that Nucor, a
domestic minimill, was the price leader for hot-rolled and cold rolled steel products, two of the most
important categories of CCFRS steel.2816  Thisblind eye says Japan, is quite surprising, since the
                                                     
2810 United States' written reply to Panel question No. 40 at the second substantive meeting.
2811 Korea's second written submission, paras. 170-171; Table FLAT-1 (US Exhibit 60), and Public
Versions of Supplemental Material Cited in Views of Commissioners in Investigation No. TA-201-73, Steel,
Memorandum No. INV-Y-209 (1 May 2002) ("USITC Memorandum No. INV-Y-209") (Exhibit CC-90).
2812 Korea also points out that, as noted at the Second  Substantive Meeting, any "double counting" issue
is the direct result of the overly broad definition of the flat-rolled like product.  No Respondent at the ITCendorsed the "flatrolled" like product. Respondents clearly argued that slab, hot-rolled, cold-rolled, corrosion-resistant, and plate constituted five separate like products.
2813 United States' first written submission, paras. 508,  473-474, relying on Table Flat-1 in the USITC
Report Vol. II at Flat-4, which has been blanked out.
2814 Ibid., para. 512, relying on Table Flat-1 in the USITC Report, Vol. II at Flat-4, which has been
blanked out.
2815 New Zealand's second written submission, para. 3.137.
2816 Joint Respondents' Post Hearing Brief on Flat-Rolled Steel (1 Oct. 2001) (filed by the Law Firm
Willkie Farr & Gallagher) at 94 (Exhibit CC-53) (At the USITC's hearings in the recent AD investigation of
hot-rolled steel, Nucor's CEO testified, "If our order book is weak in the present quarter, we will lower ourprices to increase orders.  What happened in 2000?  A period of very strong demand for hot-rolled.  By the endof the first quarter and through the year, our order book for hot-rolled was falling.  We responded by reducingWT/DS248/R, WT/DS249/R,
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USITC had explicitly relied on this evidence in ot her recent trade proceedings involving cold rolled
steel.2817 2818
7.1165  Japan also submits2819 that the USITC ignored data showing that minimills gained market
share with lower prices, particularly in 2000 and 2001:
Table 14:  Minimill / Import / Integrated Market Shares2820
Period Import Share Minimill Share Integrated Share
1H00 26.7% 21.8% 51.5%
2H00 22.2% 25.9% 51.9%
1H01 13.1% 31.4% 55.5%
7.1166  According to Japan, not surprisingly, given that  in 2001 most import sources were shut out of
the market by anti-dumping and countervailing duties orders, minimills were disproportionately the
beneficiaries, gaining twice as much market share as integrated firms.
7.1167  Japan submits that the United States again tries to shift the focus to foreign capacity.2821
Japan reiterates that this comparison of crude aggregate capacity is incorrect.  Since virtually all
United States capacity stays in the United States  market, minimill capacity remains almost
exclusively in the United States market.  Moreover, the USITC knows that minimills historically have
priced to fill their mills, and try to maintain high rates of capacity utilization.2822  With such a business
model, new minimill capacity is much more likely to affect domestic price levels than foreign
capacity.2823
7.1168  Japan also submits that the United States also  tries to shift the focus to aggregate shipment
levels.2824 However, in doing so, the United States fails to acknowledge that minimills produce
predominately plate, hot-rolled, and cold rolled steel, and produce only limited galvanized steel and
no slab.2825  The United States also considers only the level of shipments, not the trends over time.
                                                                                                                                                                    
our prices."  Ibid., citing Certain Hot -Rolled Steel from Argentina and South Africa,  USITC Pub. 3446, Inv.
Nos. 701-TA-404 (Final) and 731-TA-898 and 905 (Final) (Aug. 2001), Transcript at 57-58 (statement of Mr.DiMicco).  He also stated, "Based on our previous ex perience, we believe as a low-cost producer worldwide its
certainly better to run at high capacity utilization with low prices than at low capacity utilization with low
prices.").
2817 See Exhibit CC-34, Certain Cold-Rolled Steel Products from Argentina, Brazil, Japan, Russia,
South Africa and Thailand , Inv. Nos. 701-TA-393 and 731-TA-829-830, 833-8324, 836, and 838 (Final) USITC
Pub. 3283 (Mar. 2000) at 22-23.
2818 Japan's second written submission, para. 145.
2819 Japan's second written submission, para. 146.
2820 United States' first written submission, Exhibit US-60.
2821 United States' first written submission, para. 511.
2822 Joint Respondents' Prehearing Brief on Cold Rolled Steel (11 Sept. 2001) (filed by the Law Firm of
Willkie Farr & Gallagher) (discussing how the United States domestic industry has consistently created andfully utilized its production facilities as evidenced by  increasing shipments throughout the period) at 20-23
(Exhibit CC-53).
2823 Japan's second written submission, para. 147.
2824 United States' first written submission, para. 512.
2825 USITC Report at 65 ("Hot rolled steel is the primary commercial product for minimills.").WT/DS248/R, WT/DS249/R,
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From 1999 to 2001, when the domestic industry began to experience problems, import shipments
were falling and minimill shipments were increasing.2826
Legacy costs
7.1169  Korea argues that there is no question that legacy costs were a significant factor explaining
the poor condition of the industry.  Korea, China, New Zealand and Brazil argue that the USITC
acknowledged that legacy costs were causing injury to the domestic industry at the same time as
imports.2827
7.1170  Korea and Brazil assert that, without question, the USITC appreciated the severity of the
legacy cost situation.  Even with import relief, th e USITC admitted that the future viability and health
of the industry could only be ensured by addressing these costs.2828 New Zealand further notes that the
USITC found that the funding of legacy costs is a "vexing problem for the domestic industry";  that
these costs "have prevented needed consolidation within the domestic industry"; pointed to "[t]he
difficulties in meeting these obligations"; described them as a "longstanding problem"; and concluded
they "may have left certain members of the domestic industry less able to compete with low-pricedimports".
2829
7.1171  However, according to Korea and Brazil, the USITC then rejected the importance of legacy
costs claiming that "respondents have offered no reason why the industry's longstanding problems
would cause no injury in 1996 or 1997 but then begin to depress prices and strangle revenue in 1998-
2000".  Brazil argues that this statement defies the record and ignores the dramatic distinctionsbetween different segments of the industry on this issue.
2830  Korea argues clearly, legacy costs
continued to significantly impact the health of the industry and legacy costs were the reason that the
integrated sector performed more poorly than the minimill sector of the industry.  Therefore,
according to Korea, the USITC should have identified, distinguished, and separated those injurious
effects of legacy costs, which they so clearly understood, before concluding that there was asubstantial relationship between imports and the serious injury to the industry.
2831
7.1172  Brazil argues that the USITC's cursory examination and explanation of the legacy cost issue
did not match what the USITC clearly saw as a significant problem for the industry.  According to
Brazil, implicit in its statements was the reality th at legacy costs were affecting the domestic industry
at the same time as imports.  However, Brazil argues that the USITC did not ensure that it was not
imputing to imports injury caused by this other ad mittedly important factor and that, therefore, the
USITC's analysis was not sufficient to meet the standard of Article 4.2(b).2832
7.1173  In response, the United States notes that in its analysis, the USITC acknowledged that the
legacy costs had been, and continued to be, a long term obstacle to the prospects of consolidation in
the industry.2833   It noted, however, the issue of the industry's legacy costs had predated the period of
investigation and that these costs had not prevented the industry from earning a reasonable rate of
                                                     
2826 Japan's second written submission, para. 148.
2827 Korea's second written submission, para. 177;  China's first written submission, paras. 359 and 362;
New Zealand's first written submission, para. 4.163; Brazil's first written submission, para. 204.
2828 Korea's first written submission, para. 129;  Brazil's first written submission, para. 207.
2829 New Zealand's second written submission, para. 3.130.
2830 Korea's second written submission, para. 177;  Brazil's first written submission, para. 204.
2831 Korea's first written submission, para. 131.
2832 Brazil's first written submission, para. 207.
2833 USITC Report, p. 64.  Indeed, the USITC's factual report sets forth a lengthy discussion of the
impact these costs have had on the industry's condition.  USITC Report, p. OVERVIEW-31-35.WT/DS248/R, WT/DS249/R,
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return in 1996 and 1997, before the surge of imports in 1998.2834  Moreover, although the USITC
explicitly recognized that the burden of legacy costs varied between producers and had left certainproducers more vulnerable to injury from imports, it found that there was no record evidence linking
legacy costs to the price declines that caused serious injury to the industry during the latter part of the
period of investigation.
2835  Accordingly, the USITC reasonably discounted these costs as an other
factor causing injury to the industry during the period of investigation.2836
7.1174  In counter-response, New Zealand argues2837 that despite the fact that the USITC clearly
appreciated the severity of the legacy cost situation, the USITC still managed to conclude, against the
weight of its own reasoning and the evidence, that legacy costs,
"[A]re not responsible for the low prices that have injured the industry. We therefore
find that legacy costs are not a source of injury to the domestic industry equal to or
greater than increased imports."2838
7.1175  New Zealand argues that there is an obvious non-sequitur  here – why was the USITC only
prepared to take legacy costs seriously if they depressed domestic prices, having just listed a range ofother negative impacts? 
2839
7.1176  The United States argues further that the USITC's finding that legacy costs had not
contributed to the declines in the industry's condition during the period is fully supported by the
record evidence.  In this regard, the USITC prepared an analysis of the financial impact these costs
had on the financial results of the industry in its Report.2840  That analysis shows not only that legacy
costs did not contribute to the declines in the industry's financial condition during the period from
1996 to 2000 but that the change in these "costs" actua lly benefitted the industry with respect to its
operating results during this period.2841  In this regard, that analysis shows that the aggregate net
period cost for steel producers who had either defined benefit or defined contribution plans actually
declined over the period;  more specifically, the aggregate net periodic cost of the post-employmentpension and non-pension benefits for both defined benefit and defined contribution employers fell by
US$447 million during the period from 1996 to 2000.
2842  Since these are the costs that are reflected in
the operating results of the industry2843, the industry's "legacy costs" did not increase the industry's
costs over the period, as complainants suggest;  instead, the industry's legacy "costs" actually reduced
                                                     
2834 USITC Report, p. 64.
2835 USITC Report, p. 64.
2836 United States' first written submission, para. 503.
2837 New Zealand's second written submission, para. 3.130.
2838 USITC Report Vol. 1, p 64 .
2839 New Zealand's second written submission, para. 3.131.
2840 USITC Report, Table OVERVIEW-9.
2841 USITC Report, Table OVERVIEW-9.
2842 USITC Report, Table OVERVIEW-9.  In this regard, the aggregate net periodic cost for these firms
for legacy costs consistently declined during the pe riod, from 1.123 billion dollars in 1996 to 834 million dollars
in 1998 to 676 million dollars in 2000. Ibid.  The aggregate net periodic cost of these expenses is calculated byadding the net periodic costs (or benefits) of post-employment pension and non-pension benefits for definedbenefit plan employers to the net pension plan expense and other post-employment benefits for definedcontribution plan employers.  Ibid.  These are th e amounts recognized in a company's operating income
statements.  Ibid.
2843 It is important to note that the items marked "amounts recognized in financial statements" in Table
OVERVIEW-9 reflect liability or asset amounts that are included in a company's balance sheet, not itsstatements of operating results. USITC Report, pp. 33 and 35.WT/DS248/R, WT/DS249/R,
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the industry's aggregate COGS over the period, thus increasing the industry's operating income levels
somewhat during the period of investigation.2844
7.1177  The United States argues that the USITC was therefore correct when it found that the
industry's legacy costs had not contributed to the serious injury being experienced by the industry
during the period of investigation.  Although the complainants correctly note that the USITC
recognized that legacy costs represented a "vexing problem" for the industry, they ignore the fact that
the USITC clearly stated that the legacy cost issue was a problem predating the period of investigation
that would hinder the industry's future efforts to adjust, but did not contribute significantly to the
pricing or cost issues that caused the industry's injury during the period of investigation.2845
7.1178  In counter-response, New Zealand submits that the USITC Report actually concluded the
opposite.  It conceded a range of injurious effects caused by legacy costs, but then sidelined them.  As
a result, it made no attempt whatsoever to assess their nature and extent and their injurious effect as
separated and distinguished from increased imports.2846
7.1179  Brazil argues that despite the fact that the USITC notes that "the issue of legacy costs varies
tremendously among domestic producers", no effort was made by the USITC to distinguish between
producers with massive legacy cost burdens and producers with no such burdens.  In the CCFRS
industry, it would have discovered that the dist inction falls along the type of technology used to
produce steel.  Integrated mills shoulder an overwhelmingly disproportionate share of the legacy costs
within the industry.  Yet, according to Brazil, th e USITC's analysis was oblivious to the distinction,
including what it meant for the integrated industry as massive increases in minimill capacity were
being ramped up well into 2000.2847  In this regard, New Zealand argues that the fact that "the burden
of legacy costs varies tremendously among domestic producers" is not a reason to dismiss legacy
costs as a cause of injury.  In fact, according to New Zealand, it confirms the conclusion already
reached that this simply served to intensify the al ready severe effects on integrated mills of domestic
intra-industry competition.2848
7.1180  In New Zealand's view, the fact that the problem of legacy costs may have predated the period
of investigation and did not comprise a new issue for the industry, is irrelevant if, as they did, those
costs continued to erode competitiveness and profit during that period.  New Zealand submits that in
terms of Article 4.2(b), they "are causing injury to the domestic industry at the same time [as
increased imports]".  New Zealand also argues that the fact that certain parts of the industry were able
to operate profitably at one point in the period of investigation is also, by itself, irrelevant:  Thequestion is whether legacy costs nevertheless caused injury, at this or at other points.
2849   N e w
Zealand submits that clearly, the fact that legacy costs have been present for some time is irrelevant so
long as legacy costs are still "causing injury to the domestic industry at the same time as [increased
imports]", in terms of Article 4.2(b). 2850 2851
7.1181  New Zealand notes costs of between US$30 and US$65 per ton of steel produced by
integrated mills existed, totalling across the industry between US$1.7 and US$3.6 b illion.  In terms of
current costs, integrated producers surveyed by  the USITC had to cover US$742 million in post
                                                     
2844 United States' first written submission, para. 504.
2845 United States' first written submission, para. 505.
2846 New Zealand's second written submission, para. 3.133.
2847 Brazil's first written submission, para. 206.
2848 New Zealand's first written submission, para. 4.167.
2849 New Zealand's first written submission, para. 4.166.
2850 New Zealand's first written submission, para 4.166.
2851 New Zealand's second written submission, para. 3.134.WT/DS248/R, WT/DS249/R,
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employment benefits in 2000.  Further, during the same year, the benefit obligations of steel
producers surveyed by the USITC exceeded fund assets by US$6.6 billion.2852
7.1182  Korea notes2853 that the United States now cites  tables in the Staff Report and data to suggest
that the short-term portion of legacy costs, which, says Korea, were enormous, declined somewhat
during the period.2854  Korea submits that whether or not they declined, the absolute weight of such
legacy costs on the performance of the integrated producers in the industry is undeniable2855 and was
reaffirmed by the USITC in its remedy recommendation to the President.  As Commissioner Okun
observed:
"[W]hile the Commission did not find these alternative causes [pension costs,
healthcare costs, environmental clean-up costs, and certain labor-related issues] to be
a more important cause of injury...than imports, this does  not mean that these issues
should not be addressed as part of a remedy that will facilitate positive adjustment to
import competition by lowering costs and allowing the industry to restructure."2856
7.1183  China and New Zealand argue that the USITC's analysis of legacy costs fails to identify and
explain the nature and extent of the injurious effects of legacy costs  as distinguished from the alleged
injurious effects of increased imports, and to establish explicitly through a reasoned and adequate
explanation, that injury caused by this factor is not attributed to increased imports.2857 In particular,
China argues that the USITC failed to explain why legacy costs were a problem, how this problem
impacted on the situation of the industry, how legacy costs had prevented needed consolidation andthe result that this had on the industry.
2858
Buyer consolidation
7.1184  China argues that the USITC acknowledged  buyer consolidation as a cause of injury.2859
China further argues that the USITC failed to explain the nature and extent of that impact.  According
to China, it is not enough to merely state that a factor cannot, on its own, explain a substantial declinein prices.  Rather, the requirements of the Agreement on Safeguards dictate that the injurious effects
of all factors be identified.
2860
7.1185  In defence, the United States argues the USITC addressed the argument made by foreign
respondents that buyer consolidation had impacted the bargaining power and profits of the
industry.2861  After recognizing that there had been some consolidation of buying operations by
automotive manufacturers and other steel purchasing sectors, the USITC discounted this factor as a
cause of injury, noting that it had been on-going for a number of years and that it pre-dated 1998, the
                                                     
2852 New Zealand's first written submission, paras. 4.164-4.165;  New Zealand's second written
submission, para. 3.133.
2853 Korea's second written submission, para. 179.
2854 United States'  first written submission, para. 504.
2855 The Chairman of Bethlehem Steel specifically testified as to the magnitude of these costs, as
Commissioner Okun noted: "We now have 13,000 active workers trying to support 74,000 dependent families
which is over a hundred thousand actual people that small work base is trying to support."  USITC Report, Vol.
I, p. 442, n. 70 (Exhibit CC-6).
2856 USITC Report, Vol.  I, p. 442, n. 69 (emphasis added) (Exhibit CC-6).
2857 China's first written submission, para. 368;  New Zealand's first written submission, para. 4.162.
2858 China's first written submission, para. 368.
2859 China's first written submission, paras. 359 and 364.
2860 China's first written submission, para. 370.
2861 USITC Report, p. 65.WT/DS248/R, WT/DS249/R,
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Page 398
year of the import surge.2862  Moreover, it stated that it found no evidence indicating that this
consolidation had an impact on domestic pricing or that it had been a cause of serious injury to theindustry.
2863
7.1186  The United States argues that given that China has not offered any substance to support its
arguments, it is clear that the USITC's findings in this regard are reasonable and that the USITC
properly discounted the argument that purchaser consolidation was a source of injury to the
industry.2864
7.1187  China argues that purchaser consolidations are an on-going process covering the whole period
of investigation.  As they are able to reduce the bargaining power and the profit margins of domesticproducers, the USITC should have distinguished these effects from the impact of imports and nourish
its findings with 'substance'.  China submits that the USITC failed to do so.
2865
Poor management
7.1188  China notes that the respondents argued before the USITC that bad corporate decisions
increased companies' debt load and were responsible for poor financial performance and bankruptcies.According to China, the USITC, in response, merely  stated that since the financial position of the
industry "weakened after imports surged", it result ed from injury caused by increased imports and,
thus, poor financial decisions cannot be a cause of injury, especially since increased debt load cannot
explain the price declines.  China argues that this is not an answer.  When the USITC states that a
factor is not a cause because another factor is the cause, it does not give the reasons why the former isnot a cause.  In China's view no e xplanation whatsoever was provided.
2866
7.1189  In response, the United States notes that the USITC addressed the argument made by
importers and foreign producers that bad management decisions, such as the industry's capital
investment decisions, had caused injury to the industry.2867  The USITC found this argument
"unpersuasive", noting that the increased debt load and other management decisions of the industrydid not explain the decline in prices that occurred during the period.
2868  Moreover, the USITC stated
that the record showed that substantial declines in the industry's performance first began in 1998,
when imports surged into the market  and began driving prices downward.2869  It noted that these
imports prevented the industry from maintaining or achieving high levels of profitability and that the
industry's degree of debt was a result of that import competition, rather than being a cause of
injury.2870  In sum, the USITC properly identified the nature and extent of the injury caused by this
other factor, found that there was no evidence that bad management decisions caused injury to theindustry, and reasonably dismissed this alleged "injury" factor as a possible source of injury.
2871
                                                     
2862 USITC Report, p. 65.
2863 USITC Report, p. 65.
2864 United States' first written submission, para. 517.
2865 China's second written submission, para. 222.
2866 China's first written submission, para. 375.
2867 USITC Report, p. 64.
2868 Ibid.
2869 Ibid.
2870 Ibid.
2871 United States' first written submission, paras. 515-517.WT/DS248/R, WT/DS249/R,
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7.1190  The United States argues that given that China has not offered any substance to support its
arguments, it is clear that the USITC's findings in this regard are reasonable and that the USITCproperly discounted the argument that poor management was a source of injury to the industry.
2872
NAFTA imports
7.1191  China notes that the determination of the existence of a causal link between the increased
imports and serious injury to the domestic certain flat steel industry, which is found in the USITC
Report was made on the grounds of data which included imports from NAFTA countries.  However,
China believes that, since imports from NAFTA countries were excluded from the application of the
safeguard measure, the USITC had to determine whether total increased imports, with the exceptionof imports from NAFTA-countries, caused serious injury to the domestic industry.  China argues that
as a result, since the determination of causality required that "increased imports" only consist of
imports originating from non-NAFTA countries, the movements in imports from Canada and Mexico
had to be regarded as "an other factor". Article 4.2(b) of the Agreement on Safeguards also required
that injury caused by movements in imports from Canada and Mexico not be attributed to increasedimports (from non-NAFTA countries).
2873
7.1192  China further argues that in the Supplementary Report, the USITC was required to assess the
injury caused by imports from Mexico and Canada and to ensure that this injury would not be
attributed to increased imports from non-NAFTA countries.  China argues that it did not do so.  China
further argues that the USITC provided no explanation whatsoever that injury caused by imports fromMexico and Canada was not attributed to increased imports and there is no reason to believe that
injury caused by imports from Mexico and Canada were not in fact attributed to increased imports.
2874
7.1193  In this regard, the European Communities notes that the USITC concluded that imports from
Mexico accounted for a substantial share of total imports and "contributed importantly" to injury.  The
European Communities notes that the President later decided to exclude imports from Mexico fromthe scope of the measure.
2875  China notes that Canada and Mexico belonged to the five top suppliers
of CCFRS products during the period of investigation.  The rate of increase in imports from Mexico
was higher than the rate of increase in total imports, and the AUV for imports of the product
concerned from Mexico were consistently below average unit value of imports from other sources2876-
able to undersell United States  producers.2877
7.1194  In light of the foregoing, the European Co mmunities, China New Zealand and Brazil submit
that, clearly, the NAFTA imports that were excluded  from the measure were an "other" factor for the
purposes of non-attribution.  However, the United States failed to analyse this factor and to establish
explicitly that its effects were not attributed to non-NAFTA imports.2878  More particularly, the
European Communities argues that despite finding that Canada was one of the top five importers and
that Mexican imports contributed importantly to the serious injury suffered by the domestic industry,
the USITC did not undertake a non-attribution analysis for the injurious effects of these excludedimports.
                                                     
2872 United States' first written submission, paras. 515-516.
2873 China's first written submission, para. 380.
2874 China's first written submission, para. 383.
2875 European Communities' first written submission, para. 469.
2876 USITC Report, Vol. I, p.66.
2877 China's second written submission, para. 224.
2878 European Communities' second written submission, para. 376;  China's second written submission,
para. 224;  New Zealand's written reply to Panel question No. 82 at the first substantive meeting;  Brazil's firstwritten submission, para. 230;WT/DS248/R, WT/DS249/R,
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7.1195  The United States simply insists that it is not required to undertake such an analysis.  For the
United States' response, see paragraph 7.1066 et seq . 2879
7.1196  Brazil argues that the USITC's treatment of injury and causation was perfunctory and
inadequate with regard to NAFTA imports.  The USITC only noted that "…we would have reached
the same result had we excluded imports from Canada from our injury analysis."  Yet, according to
Brazil, the general discussion of causation and the role of alternative causes by the USITC never once
mentioned the role of non-NAFTA imports as distinguished from all imports.  Brazil argues that no
attempt at factual  analysis for non-NAFTA imports was ever attempted.2880  Brazil argues that the
USITC's response to the USTR with regard to NAFTA imports was no better than its originalanalysis.  In Brazil's view, there was no factual analysis and only the simple statement
 that "the same
considerations that led us to conclude that increased imports of CCFRS are a substantial cause of
serious injury to the domestic industry are also applicable  to increased imports of CCFRS from all
sources other than Canada and Mexico."2881
7.1197  Relying upon the Appellate Body decisions in US – Wheat Gluten and US – Line Pipe , Brazil
argues that a cursory USITC analysis of non-NAFTA imports does not meet the parallelism
requirement under the Agreement on Safeguards.  In the instant case, Brazil argues that the USITC
did not conduct any specific evaluation of non-NAFTA imports as required by parallelism.  Rather, it
evaluated NAFTA imports, concluding that the ex clusion of NAFTA imports would not change its
findings of injury and causation as to total imports.  Brazil submits that in doing do, it repeated thevery same mistakes previously highlighted by the Appellate Body.
2882  Brazil argues that the USITC's
unsupported conclusion that it "would have reached the same result" in justifying the exclusion
NAFTA countries from the recommended measure was the very same language the Appellate Body
found to fail the parallelism requirement in US – Line Pipe .  Brazil asserts that the statement does not
meet the obligation to explain how the facts support a finding that non-NAFTA imports alone causedserious injury or threat of serious injury.
2883
7.1198  Brazil further argues that the USITC failed to fulfil its obligation to provide a "reasoned and
adequate explanation that establishes explicitly" that imports alone caused serious injury to the
domestic industry because it failed to establish that non-NAFTA imports alone caused serious injury;
its conclusions about the causal link between non-NAFTA imports and serious injury were vague and
merely implied or suggested why non-NAFTA imports alone caused serious injury.  The USITC's
analysis therefore did not satisfy the parallelism requirement.2884
Existing anti-dumping and counterva iling duty proceedings and orders
7.1199  Korea and Brazil note that the USITC admitted that anti-dumping and countervailing duties
orders "to some extent staunched the flow of imports after 1998".2885  However, Korea argues that the
USITC failed to properly consider the effect of anti-dumping and countervailing duties, which
substantially limited import volumes and repaired injury caused by unfairly traded imports.  The vast
                                                     
2879 European Communities' second written submission, para. 376.
2880 Brazil's first written submission, para. 230.
2881 Brazil's first written submission, para. 230.
2882 Brazil's first written submission, para. 231.
2883 Brazil's first written submission, para. 232.
2884 Brazil's first written submission, para. 233.
2885 Korea's first written submission, para. 139;  Brazil's first written submission, para. 208.WT/DS248/R, WT/DS249/R,
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Page 401
majority of imports which had increased in the 1997-1998 period were hot-rolled products which
were subject to significant restrictions in the form of anti-dumping and countervailing duties.2886
7.1200  Brazil argues that, in fact, overall, imports were down significantly from 1998 levels, and flat
in 1999 and 2000.  Individual imports subject to anti-dumping and countervailing duties orders and
investigations were down sharply.  For finished  CCFRS products, the trend was also down sharply.
According to Brazil, only slab imports increased,  driven by the domestic industry's own demand for
that product.2887
7.1201  Korea argues that the scope of the injury caused by unfairly traded imports and repaired by
the anti-dumping and countervailing duties orders should have been separately identified andseparated.  Such an analysis, if performed, woul d have shown that the injury remaining was that
caused by the other factors discussed above.
2888
7.1202  In response, the United States argues that, as a legal matter, there is no provision in the
Agreement on Safeguards that requires a competent authority to exclude imports subject to anti-
dumping or countervailing duty orders from its calc ulus of assessing the contribution of imports to
injury.  On the contrary, the basic provisions of the Agreement on Safeguards require a competent
authority to assess serious injury and causation by examining whether "imports" – that is, all imports,
not only "fairly traded" imports – have caused serious injury to the domestic industry producing the
like or directly competitive article.  Indeed, unless a particular exception in the Agreement applies, the
remedy imposed must apply to all imports of the product concerned "irrespective of its source",without regard to whether some imports are subjec t to anti-dumping or countervailing duty orders.
The Agreement does not suggest that a competent authority should treat imports subject to
anti-dumping or countervailing duty orders as though they were a "non-import" injury factor.
2889
7.1203  The United States also submits that the premise of Brazil's and Korea's argument is that the
imposition of anti-dumping or countervailing duties on imports from a particular country eliminatesall of the injurious effects these imports have had, or could have, on an industry.  Under the AD and
SCM Agreements, an investigating authority may impose duties on imports if dumped or subsidized
imports are causing "material" injury to a domestic industry producing the like product.  As the
Appellate Body has stated, the "material" injury standard contained in these Agreements requires a
lower amount of injury than does the "serious injury" standard of the Agreement on Safeguards.
Thus, an investigating authority need only dete rmine in an anti-dumping or countervailing duty
investigation whether there is the requisite amount of injury – i.e., "material" injury – needed tosatisfy the requirements of the AD and SCM Agreements;  the authority has no need to assess whether
the industry is suffering a higher – i.e., "serious" – level of injury than the "material" level required
under the AD and SCM Agreements.
2890 Accordingly, although anti-dumping duties and
countervailing duties are remedial duties intended to offset the level of subsidies or the amount of
"dumping" found for imports from a country and, by doing so, to remedy the "material" injury causedby these dumped or subsidized imports, they do not, and indeed may not, offset all of the injury that
an industry can suffer as a result of those imports.  Indeed, oftentimes, the orders do not offset all of
the material injury caused by unfairly traded imports even after their imposition.  In other words, even
with the imposition of duties to offset these "unfair" trade practices, imports subject to anti-dumping
                                                     
2886 Korea's first written submission, para. 139.
2887 Brazil's first written submission, para. 209.
2888 Korea's first written submission, para. 140.
2889 United States' first written submission, para. 524.
2890 United States' first written submission, para. 525.WT/DS248/R, WT/DS249/R,
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Page 402
an countervailing duty orders can still cause addi tional injury to the industry that would qualify as
serious injury under the Agreement on Safeguards .2891
7.1204  The United States argues that indeed, the record did not show that the orders imposed on
CCFRS products during the period of investigation had eliminated the injurious effects of these
imports.  The United States submits that, as the USITC correctly noted in its decision, although
imposition of orders on hot-rolled carbon steel and plate stemmed the flow of these imports to some
extent, the record data showed that reasonably substantial volumes of imports from the countries
covered by the orders still continued to enter the United States, as did much more substantial volumes
of imports from countries not covered by the orders.  For example, despite the fact that anti-dumpingduty orders were imposed on carbon steel plate imports from China, Russia and the Ukraine in
October 1997, China, Russia and the Ukraine remained the third, fourth and ninth largest exporters of
plate to the United States in the year 2000.
2892  Moreover, even with the imposition of anti-dumping
duty orders on hot-rolled steel from Russia, Japan, a nd Brazil, prices for hot-rolled steel continued to
be depressed in the market after imposition of the orders.  Although anti-dumping orders wereimposed on these imports in June and July 1999, the USITC correctly noted, the "corrosive effects" of
these low-priced imports still continued to impact the industry's pricing levels, as evidenced by the
fact that the pricing levels for hot-rolled did not come close to recovering to their 1997 levels, even
after imposition of the orders.  On the contrary, after imposition of these orders, the record indicated
that hot-rolled prices continued declining through the end of June 2001, after a small initial boost inthe first two quarters of 2000.
2893
7.1205  In counter-response, Korea argues that the United States mischaracterizes Korea's argument
regarding the required non-attribution analysis with respect to unfair trade practices remedied by anti-
dumping and countervailing duties orders.2894  Korea is not maintaining that the imposition of these
duties on imports automatically eliminated "all of the injurious effects".  Rather, Korea's position isthat the United States had to examine the extent to which the orders and duties had eliminated some or
all of the injurious effects of imports.  Clearly, the orders could have remedied the injury caused by
unfairly traded imports entirely or to some extent.
2895  According to Korea, the USITC did not
investigate this and merely concluded that "the orders had not fully eliminated the injurious
effects".2896  In Korea's view, this "analysis" does not establish the extent of injury caused by those
unfairly traded imports and accordingly remedied by such orders, if any, and therefore, the United
States has not complied with its obligations under Article 4.2(b) of the Agreement on Safeguards.2897
7.1206  Korea submits, however, that the United States failed to examine the anti-dumping and
countervailing duties orders and its remedial effects on the injury caused by unfairly traded imports to
the industry concerned in the current case. 2898
                                                     
2891 United States' first written submission, para. 526.
2892 United States' first written submission, para. 528.
2893 United States' first written submission, para. 529.
2894 United States first written submission, para. 525.
2895 Korea's second written submission, para. 182.
2896 United States'  first written submission, para. 528.  It is interesting that the United States suggests
that imports of plate continued to enter at injurious levels when imports of plate had declined so low as theresult of anti-dumping and countervailing duties orders that even the domestic industry conceded that imports of
plate were not causing injury to plate producers.  See Korea's first written submission, para. 88 and
footnote 131.
2897 Korea's second written submission, para. 183.
2898 Korea's second written submission, para. 184.WT/DS248/R, WT/DS249/R,
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Economic analyses submitted to the USITC
7.1207  For a broader discussion on this issue see paragraph 7.997 et seq .  In addition, Japan and
Brazil argue that instead of attempting to separate and distinguish alternative causes as required by the
Agreement, the USITC held steadfast to rudimentary (and often wrong) trends analysis as the sole
means of assessing the effect of alternative causes on the performance of the domestic industry.  The
USITC had at its disposal econometric studies containing evidence of the relative role of different
causes, which demonstrated qualitatively and quantitatively that several of these causes were
dramatically more important than imports and that one could separate and distinguish the various
economic factors.  However, the USITC dismissed these studies that had been prepared byrespondents with respect to the three most important CCFRS products – hot-rolled steel, cold-rolled
steel, and corrosion resistant steel.
2899
7.1208  Japan and Brazil argue that the USITC ignored these studies, although they were a prominent
part of the respondents' written briefs and oral presentations at the hearing.  In the final decision, the
USITC made little mention of them, relegating a reference to them to a footnote and, thus, providedscant recognition of what could have been the most relevant evidence for meeting the obligation to
separate and distinguish the role of alternative causes.
2900
7.1209  Japan and Brazil further argue that the USITC also seems to have ignored its own staff
assessment of the studies.  In a memo requested by Commissioner Bragg, USITC staff reported that
both the respondents' and the petitioners' econometric studies demonstrated that the imports of cold-rolled steel and corrosion resistant steel had no discernible impact on domestic price levels.  The only
point of disagreement was with respect to hot-rolled steel.  Brazil and Japan argue that this consensus
evidence by all of the economists that cold-rolled and corrosion resistant imports had no effect on
domestic price levels was simply ignored by the USITC.
2901
7.1210  Japan and Brazil also argue that whereas the studies provided product-specific data, the
USITC seemed content to discard the more specific evidence in light of its single like product that
combined all CCFRS products.  Brazil and Japan submit that the USITC did have to consider specific
product pricing evidence as it was impossible to generate prices for "CCFRS steel".  However, Brazil
argues that when it came to considering product-specific economic studies which led to conclusions it
did not like, the USITC "placed little weight" on them, opting instead to rely on aggregate information
for its super generic – like product.2902
7.1211  In response, the United States argues that the USITC properly dismissed the conclusions in
the econometric study and those in a similar study submitted by the domestic industry because both
studies had "serious" methodological limitations.  The two studies in question both purported to be
comprehensive economic studies establishing the extent to which imports impacted pricing in the
CCFRS market.  Not surprisingly, the study submitted by the domestic industry purported to show
that "imports were the most important determinant of the decline in domestic hot- and cold-rolledsteel products", while the study submitted by foreign respondents purported to show that imports were
                                                     
2899 Japan's first written submission, para. 276;  Brazil's first written submission, para. 212.
2900 Japan's first written submission, para. 278;  Brazil's first written submission, para. 213.
2901 Japan's first written submission, para. 280;  Brazil's first written submission, para. 214.
2902 Japan's first written submission, para. 279;  Brazil's first written submission, para. 215.WT/DS248/R, WT/DS249/R,
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not a particularly important factor in price declines for hot-rolled, cold-rolled and galvanized (i.e.,
corrosion-resistant) steel.2903
7.1212  The United States submits that, as can be seen from the staff memorandum analysing the
studies, the USITC's economic staff found that the economic "models" in both studies contained
substantial analytical flaws.  The USITC staff found that the domestic industry's study was flawed
because it assumed, without laying an evidentiary foundation, that integrated producers would make
changes in their production patterns due to changes in profitability levels.  Moreover, the staff noted
that the domestic industry's study failed to make the necessary distinctions between factors reflecting
demand variations and variations in domestic and foreign competition in the market.   As a result, thestaff concluded, the domestic study simply did not provide sufficient statistical evidence of its
conclusions, that is, that the "effect of import competition was significantly greater than the effect of
other factors".  In other words, the USITC staff f ound that the author of the study had not proved his
thesis.
2904
7.1213  According to the United States, the USITC staff found that the study submitted by the foreign
respondents had serious methodological flaws as well.  Its most significant flaw, they noted, was that
the study was not actually a "formal" economic model but simply reflected an "informal" argument
that "'massive' increases in domestic capacity, primarily by low-cost mills, [had] driven down prices".
The staff noted, the study's "main argument[,] that domestic competition was the biggest source of
domestic price decline[,] is only weakly supported by the empirical results".  In their final word on thematter, the USITC economic staff stated that the auth or of the study "did not provide evidence that the
effect of import prices and volumes was significantly less than the other factors".  In other words, the
USITC staff found that the author of this study had not provided support for his basic argument.
2905  In
sum, the USITC reasonably chose to discount these studies because the USITC and staff both found
the two studies to be deeply flawed.2906
7.1214  In counter-response, Japan argues that the Panel should read the main body of the USITC
staff memorandum, not just the summary conclusions to which the United States tries to direct
attention.  The main body makes clear two keys point s.  First, the criticism of how the interested
parties' study modeled intra-industry competition applies only to that factor – not to the other factors
that were studied.  Thus, the USITC's own staff economists implicitly embraced the findings about the
relative roles of demand and imports, changing raw material prices and imports, and domestic
capacity and imports.  Even if one were to discount interested parties' arguments about minimillcompetition, the other factors overwhelmingly matter more than imports in explaining price declines.
There is simply no basis in the body of the memorandum to support the overbroad conclusion that the
interested parties' studies should be rejected.
2907  Japan submits that, the USITC staff memorandum
notes that the domestic industry study and the interested parties' study reached essentially identical
conclusions on cold rolled steel and galvanized steel.  Both studies found that imports of those twokey CCFRS products had no meaningful effect on price levels.
2908  In Japan's view, the USITC
ignored this finding because it substantially undercut its decision to bundle various CCFRS products
into one like product.  Having decided on such an over-broad like product grouping, the USITC
                                                     
2903 United States' first written submission, para. 519;  United States' second written submission,
para. 132.
2904 United States' first written submission, para. 520.
2905 United States' first written submission, para. 521.
2906 United States' first written submission, para. 522.
2907 Japan's second written submission, para. 153.
2908 USITC Staff Memorandum (EC-Y-042) to Commissioner Bragg, Inv. No. TA-201-73 Steel
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proceeded to ignore any inconvenient evidence about the individual steel products that made up that
grouping.  In the end, a single Commissioner requested an analysis from a staff economist to justifyignoring the studies.
2909  The resulting perfunctory memorandum contained a conclusion that only
loosely connected to the discussion in the main body of the memorandum.  The Commission then
largely ignored the studies, rather than giving them the careful attention they deserved.2910
7.1215  The United States responds by noting that the models submitted by both the respondent and
domestic parties during the steel investigation did not indicate that imports of carbon flat-rolled
merchandise had a minimal impact on domestic cold-rolled and corrosion-resistant prices during the
period of investigation.  As Brazil should be aware, the econometric model provided by the domesticsteel industry to the USITC was intended to show that imports of carbon flat-rolled steel "were the
most important factor for determining the price of flat steel products" in the US market.  In addition to
claiming that imports of plate and hot-rolled steel had important price effects on the domestic price of
plate and hot-rolled steel products, the model also  showed that imports of cold-rolled steel had
important "own price" effects on domestic cold-rolled prices in the US market, while the price of allcarbon flat-rolled imports had important price effects on the price of galvanized (corrosion-resistant)
products.  Further, as the economic consultant for the domestic industry testified during the hearing,
the domestic industry's model also showed that demand and the price of factor inputs had only a
"secondary impact" on domestic prices, while capacity utilization was not statistically significant and
had a small effect on domestic prices.
2911
7.1216  The United States also submits that the foreign respondents' economic model did not quantify
the overall level of injury caused by imports.  As both Japan and Brazil concede2912, the model only
purported to estimate the effects of imports on domestic prices, which is only one of several factors
that should be considered by a competent authority under the Agreement on Safeguards.  The model
did not "quantify" the effects of imports and other injury factors on the industry's production,shipment, or sales revenue levels, its productivity and employment levels, its capacity utilization rates,
its profitability levels, or its capital investment levels.
2913  In other words, neither Japan nor Brazil has
come close to describing a model that addresses all of the factors set forth in the Agreement on
Safeguards.
7.1217  The United States notes that although Japan and Brazil explicitly concede that the  Agreement
on Safeguards does not require the use of econometric models, Japan and Brazil assert that a
competent authority must, in fact, use an econometric analysis in its analysis if such an analysis is
submitted by a party to the investigation and the data is available.2914  The Agreement on Safeguards
simply does not contain language suggesting that parties have a right to dictate the analytical
methodology that should be used by a competent authority in its causation analysis, nor have Japan
and Brazil pointed to any such language in the Agreement.2915  While parties are clearly free to
suggest possible analytical approaches during the course of an investigation, the Agreement does notrequire the competent authority to respond to thes e suggestions by conducting a full-blown causation
analysis to account for every methodology offered by the parties.   Moreover, as long as the United
States complies with its obligation to adequately and clearly explain why there is a "genuine and
                                                     
2909 Ibid.
2910 Japan's second written submission, para. 154.
2911 United States' written reply to Panel question No. 38 at the second substantive meeting.
2912 Japan's written reply to Panel question No. 85 at the first substantive meeting;  Brazil's written
reply to Panel question No. 85 at the first substantive meeting.
2913 United States' second written submission, para. 133.
2914 Japan's written reply to Panel question No. 85 at the first substantive meeting;  Brazil's written
reply to Panel question No. 85 at the first substantive meeting.
2915 See Agreement on Safeguards, Article 3.1.WT/DS248/R, WT/DS249/R,
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substantial" causal link between imports and the seri ous injury being suffered by the industry, there is
nothing in the Agreement that suggests that United St ates must "test" its conclusions by performing a
series of economic modelling exercises.2916
Failure to provide a reasoned and adequate explanation
7.1218  The European Communities, Japan and Brazil argue that the USITC Report fails to meet the
standard of "an adequate explanation" which "addresses fully the nature and complexities of the data".
2917  In particular, Brazil notes that the USITC identifies in its report six "alternate sources of injury"
that were the source of exhaustive discussion during the USITC investigation.  Japan and Brazil argue
that the USITC failed to meet its obligation in explaining the effects of these other factors.  Japanargues in particular that with respect to the USITC's explanation of how it met the non-attribution
obligation, the USITC discussion is disappointingly sparse.  Although there had been extensive
argumentation and data on each of the alternative causes, the USITC devotes only a paragraph or two
to summarily dismissing these alternative causes.
2918  The European Communities, Japan and New
Zealand and Brazil argue that what little explanation was offered did not meet the requirement to"establish explicitly, with a reasoned and adequate explanation" that injury caused by these factors
was not attributed to increased imports as most recently reiterated by the Appellate Body in US – Line
Pipe.
2919
7.1219  Japan argues that each of the factors discussed above was important and collectively they
severed any credible connection between imports and the condition of the domestic industry.  If onecombines the impact of the other factors, and compares them to imports, a reasonable authority simply
could not conclude that imports caused the problems.
2920  Japan further argues that the effects of these
various factors are interrelated and mutually reinforcing, particularly at the end of the period of
investigation, when the United States industry encountered its only significant decline in operating
results.2921  Yet, Japan argues that the USITC analysis provides no discussion of these interactions.
Instead, the USITC superficially evaluated the importance of each other factor in isolation relative to
increased imports, and did not either separate or distinguish the injury attributable to such other
factors, thus failing to meet its obligation to address fully the complexities of the data.2922
7.1220  In response, the United States submits that like Japan, the United States agrees that the effects
of most injury factors, including increased imports, are oftentimes "interrelated and mutually
reinforcing" and are therefore difficult to disentangle.  Similarly, the United States agrees that, when
one of these factors intensifies its injurious effect over time, it is likely that it will also intensify theinjury experienced by the industry due to the interplay of that factor with other factors causing injury,
such as increased imports.  In fact, it is precisely for these reasons that the United States has
consistently taken the position in WTO disputes that it is not realistic as an economic matter to expect
a competent authority to precisely identify and separate the injury effects of individual factors in
complex and sophisticated markets, such as the steel market.
2923  Nonetheless, Japan is clearly
mistaken in asserting that a competent authority must assess whether imports are a more important
                                                     
2916 United States' second written submission, para. 134.
2917 European Communities' first written submission, para. 468;  Japan's first written submission,
para. 251;  Brazil's first written submission, para. 160.
2918 Japan's first written submission, para. 251; Brazil's first written submission, para. 178.
2919 European Communities' first written submission, para. 476;  Japan's first written submission,
para. 251, New Zealand's first written submission, para. 4.138;  Brazil's first written submission, para. 178.
2920 Japan's first written submission, para. 282.
2921 Japan's first written submission, para. 283.
2922 Japan's first written submission, para. 285.
2923 United States' first written submission, para. 532.WT/DS248/R, WT/DS249/R,
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Page 407
cause of serious injury than all other possible factors before imposing a safeguards remedy.  The
Agreement on Safeguards simply does not contain a requirement that a competent authority find thatthe injurious effects of imports are greater than the cumulated effects of all other injurious factors.  In
fact, the Agreement contains no language requiring a competent authority to weigh the importance of
the injurious effects of increased imports against any factor, either individually or collectively, nor has
Japan pointed to such a requirement in its argument .  Instead, as long as there is a "genuine and
substantial" causal relationship between increased imports and a significant overall impairment in the
condition of the industry, and as long as the competent authority does not attribute the effects of other
factors causing injury to imports, the requirements of the Agreement on Safeguards  are satisfied.Indeed, even the Appellate Body has interpreted the Agreement as requiring a competent authority to
"separate and distinguish" the injurious effects of individual factors causing injury from one another
when performing its injury analysis.  Even though this separation and distinction of individual injury
factors may be "difficult", the Appella te Body has directed that it be done.
2924
7.1221  The United States argues that accordingly, in its steel determination, the USITC has taken
great pains to identify the nature and scope of the injury caused by both imports and other individual
factors, to assess the extent of injury, if any, th at each of these individual factors has caused to the
industry, and to ensure that it does not attribute the effects of non-import factors to imports in its
causation analysis.  Indeed, even Japan appears to concede that the United States did actually "isolate"
the injurious effects of each of the factors by evaluating the importance of each factor in relation toincreased imports.  The USITC's efforts in this re gard are in full compliance with the principles
outlined by the Appellate Body in US – Wheat Gluten  and other cases, i.e., that competent authorities
"separate" and "distinguish" the effects of increased imports from those of all other individual injury
factors in safeguards investigations.
2925
7.1222  The United States argues that the USITC's cau sation analysis with respect to CCFRS is a
well-reasoned and cogent analytical discussion that takes into account the complexities of a large and
sophisticated market for a raw material critical to any large economy.  In its analysis, the USITC
performed a thorough and objective analysis of the record.  It established that there was a genuine and
substantial causal link between trends in the volume and market share of imports of CCFRS and the
significant declines in the condition of the CCFRS industry during the latter half of the period of
investigation.  Moreover, the USITC analysed a number of other factors alleged to be causing injury
to the industry (such as demand declines, increased domestic capacity, and intra-industrycompetition), identified the nature and scope of the injury caused by these factors, if any, and ensured
that it did not attribute the effects of these factors to imports.  The USITC's analysis is fully consistent
with the requirements of the Agreement on Safeguards .
2926
Relevance of like product analysis for CCFRS
7.1223  Japan and Brazil argue that the USITC's discussion of alternative causes illustrates the
difficulties, if not the error, in finding a single super-generic like product that combined all CCFRS
steel.  According to Brazil and Japan, there was si mply no means of analysing such an abstraction.
All the pertinent data and underlying factors could only be assessed for specific products, reflecting
the vastly different producers, products and markets involved. Japan and Brazil refer in particular to
differences in demand2927, excess capacity2928, intra-industry competition.2929  Yet, the USITC seemed
                                                     
2924 United States' first written submission, para. 533.
2925 United States' first written submission, para. 534.
2926 United States' first written submission, para. 536.
2927 Japan's first written submission, para. 288;  Brazil's first written submission, para. 217.
2928 Japan's first written submission, para. 288;  Brazil's first written submission, para. 217.WT/DS248/R, WT/DS249/R,
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to believe it could measure such indicia as total combined demand or capacity in a coherent manner
that could support its causation findings.2930  Japan and Brazil argue that these distinctions and the
degree to which the USITC ignored them, demonstrate the failure of the USITC to meet the standards
set by Article 4.2(b) by distinguishing and evaluating different injurious effects caused by alternative
factors.2931  Brazil and Japan also argue that by its use of an overly broad single "like" product, itself a
violation of United States  WTO obligations, the USITC compounded the depth of its errors by
forcing itself into a flawed analytical approach to causation.2932
7.1224  Japan, Korea and Brazil also argue that the USITC failed to satisfy the non-attribution
requirement under the second sentence of Article 4.2(b) of the Agreement on Safeguards because,amongst other things, the USITC's flawed like-product meant that the USITC violated the non-
attribution requirement under Article 4.2(b), second sentence, as interpreted by the Appellate Body.
Specifically, grouping "unlike" products and industries together makes it impossible to separate and
distinguish causal factors, since the "other factors"  affecting each like product varied in relevance and
scope depending on the like product analysed.
2933
7.1225  According to Korea, by incorrectly defini ng the like product, the USITC, in essence,
attributed causation for all CCFRS products to increased imports of hot-rolled steel alone.2934  Th e
failure to properly define the like product masked the actual effects of other factors on the industry.2935
The European Communities, Korea and Brazil also argue that when the domestic industry is
improperly defined, a competent authority cannot iden tify any distinction in the performance of the
merged industries.2936
7.1226  New Zealand argues that an analysis of whether increased imports have caused serious injury
to a domestic industry cannot be carried out if that industry is incorrectly identified.  Assessing
causation in respect of the wrong domestic industry must also lead to a "legal mistake as regards
causation itself" because Article 2.1 requires, as a prerequisite to applying a safeguard measure, thatincreased imports have caused serious injury "to the domestic industry that produces like …
products".
2937  The European Communities, Korea and Brazil argue that, likewise, when distinct like
products are improperly merged, it is impossible to determine the causal importance of the individual
like products on the industry producing the merged products.2938  Korea elaborates that by improperly
defining the like product, the causation analysis cannot properly assess the weight and significance to
be given to a particular "other factor" of injury since each factor may affect each actual like product
differently.2939  The European Communities submits that improperly combining like products and
                                                                                                                                                                    
2929 Japan's first written submission, para. 289;  Brazil's first written submission, para. 218.
2930 Japan's first written submission, para. 286;  Brazil's first written submission, para. 216.
2931 Japan's first written submission, para. 290;  Brazil's first written submission, para. 219.
2932 Japan's first written submission, para. 291;  Brazil's first written submission, para. 219.
2933 Japan's written reply to Panel question No. 80 (a) at the first substantive meeting; Korea's first
written submission, para. 122; Korea's second written submission, para. 131; Brazil's written reply to Panelquestion No. 80 (a) at the first substantive meeting.
2934 Korea's first written submission, para. 104.
2935 Korea's second written submission, para. 131.
2936 European Communities' written reply to Panel question No. 80 at the first substantive meeting;
Korea's written reply to Panel question No. 80 at the first substantive meeting; Brazil's written reply to Panelquestion No. 80 at the first substantive meeting.
2937 New Zealand's written reply to Panel question No. 80 at the first substantive meeting.
2938 European Communities' written reply to Panel question No. 80 at the first substantive meeting;
Korea's written reply to Panel question No. 80(a) at the first substantive meeting;  Brazil's written reply to Panelquestion No. 80 at the first substantive meeting.
2939 Korea's written reply to Panel question No. 80(a) at the first substantive meeting.WT/DS248/R, WT/DS249/R,
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domestic industries creates the possibility that increased imports which are not causing serious injury
to the industry producing the like product may be found to have caused serious injury to anotherindustry which has been artificially included in the definition of industry.
2940 2941
(ii) Tin mill products
Decision-making
7.1227  China and Norway note that the only commissioner who voted in the affirmative concerning
tin mill, and who defined tin mill as a separate li ke product, is Commissioner Miller.  Consequently, it
is the determination of Commissioner Miller which becomes relevant to examine, for she is the only
Commissioner to have made a separate determination for a product on which the President imposed aseparate safeguard measure.
2942  China argues that as the other two Commissioners, Bragg and
Devaney, developed their analysis on a different like product' definition, their findings do not
represent a correct basis for the examination of the tin mill products.  If the basis of the findings is
erroneous, it is logical that the result of th e analysis cannot lead to a correct determination.2943
Similarly, the European Communities argues that it cannot see how the findings of the two
Commissioners who found increased imports, serious injury and causation for CCFRS as a whole can
purport to provide a reasoned and adequate explanation of a causal link between increased imports
and serious injury for a product which they never disaggregated from the whole.  While the United
States may wish to rely on these determinations, they cannot be regarded under the Agreement on
Safeguards as even purporting to provide a reasoned and adequate explanation sufficient todemonstrate the causal link required by Article 2.1 and Article 4.2 of the Agreement on Safeguard s.
Thus, it is only Commissioner Miller's analysis which can purport to provide such a reasoned and
adequate explanation and thus only her analysis which requires examination.
2944
7.1228  The United States notes that several complainants  mistakenly assert in their briefs that the
President relied solely on Commissioner Miller's causation findings for tin mill products whendetermining to impose a safeguard remedy on tin mill steel.   Three Commissioners found that tin mill
steel was causing serious injury to the domestic tin mill industry:  Commissioners Miller, Bragg and
Devaney.  Commissioner Miller found tin mill steel to be a separate like product and made an
affirmative injury finding for that product, while Commissioners Bragg and Devaney found tin mill
steel to be part of the same like product as other CCFRS and made an affirmative determination for
that like product.
2945 Under the United States statute, the President cannot decide to treat an
affirmative finding of one Commissioner as a basis for imposing a remedy, as the complainantsallege.  Instead, under the United States statute, the President may only impose a remedy if at least
one-half of the Commissioners then in office make an affirmative finding of injury and causation.  In
this case, the President was only able to impose a remedy on tin mill products because three of the six
sitting Commissioners had found that tin mill steel, whether or not treated as a separate like product,
had caused serious injury to a domestic industry.  In fact, in his official announcement of theimposition of these remedies, the President specifically stated that he considered the "determinations
of the groups of Commissioners voting in the affirmative with regard to" tin mill products to be the
determination of the USITC.   In other words, the President specifically and clearly identified the
                                                     
2940 European Communities' written reply to Panel question No. 80 at the first substantive meeting.
2941 Brazil's written reply to Panel question No. 80  at the first substantive meeting.
2942 China's first written submission, para. 509; China's second written submission, para. 272;
Norway's first written submission, para. 315.
2943 China's second written submission, para. 274.
2944 European Communities' second written submission, para. 379.
2945 United States' first written submission, para. 538.WT/DS248/R, WT/DS249/R,
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affirmative determinations of Commissioners Miller, Bragg and Devaney as the decision of the
Commission for tin mill steel.   Accordingly, even though complainants argue otherwise, thePresident's remedy finding does not indicate that he adopted the like product decision or injury
finding of Commissioner Miller as his own.
2946
7.1229  On the basis of the foregoing, the United States  asserts that it is incorrect both legally and
factually for the complainants to assert that the President adopted the injury and causation findings of
Commissioner Miller as the sole grounds for his findings.  Nonetheless, because the complainants
focus their arguments concerning tin mill products almost entirely on Commissioner Miller's
causation analysis for tin mill, the United States also focuses its discussion on Commissioner Miller'sanalysis as well.
2947  However, the United States does note that complainants have not seriously
challenged the affirmative findings of Commissioners Bragg and Devaney with respect to tin mill
products and other CCFRS products.  Accordingly, the complainants have failed to make a prima
facie case showing that Commissioners Bragg and Devaney's analysis with respect to these products
violated the causation requirements of the Agreement on Safeguards.  The Panel should thereforeshould find that the causation analysis of these Commissioners has not been placed at issue by
complainants in this proceeding and should find that the determinations of these Commissioners are
proper under the Agreement.
2948
7.1230  Further, the United States argues that the comp lainants' argument ignores the fact that there
was, in actuality, a substantial degree of agreement between Commissioner Miller and the other threeCommissioners with respect to the basic legal issues in the case.   In this regard, Commissioner Miller
agreed with and joined the findings of the three other Commissioners that tin mill steel was the
appropriate like product, that there had been increased imports of tin mill steel during the period of
investigation, and that the industry had suffered serious injury during the period of investigation.
Moreover, Commissioner Miller also identified similar conditions of competition as governing themanner in which imports and domestic merchandise competed in the market and even identified the
same other factors that might be causing injury to the industry in her analysis.  While she disagreed
with respect to whether imports were a substantial cause of the serious injury being suffered by the
industry, there was, nonetheless, a substantial agreement on the basic issues driving the case.
2949  The
United States argues, further, that the simple fact that three Commissioners disagreed with
Commissioner Miller no more makes her decision unreasonable than does Commissioner Miller's
disagreement with those three Commissioners make their decision unreasonable.  To put it another
way, Commissioner Miller and the three other Commissioners all analysed a complex record,
thoroughly discussed the record evidence relating to causation, and issued a decision that is cogent
and reasonable.  The issue for this Panel, therefore, is whether Commissioner Miller performed an
adequate and thorough analysis of the record and established that there was a genuine and substantial
causal relationship between increased imports and the declines in the industry's condition.2950
7.1231  In counter-response, Korea notes that according to the United States, the USITC relied on the
affirmative determinations of Commissioners Bragg and Devaney as well as Miller's.2951  Nonetheless,
the United States only analyses the causation analysis of Commissioner Miller alone and fails to
explain how the affirmative determinations of Commissioners Bragg and Devaney support causation
                                                     
2946 United States' first written submission, para. 539.
2947 United States' first written submission, para. 540.
2948 United States' first written submission, para. 541.
2949 United States' first written submission, para. 569.
2950 United States' first written submission, para. 570.
2951 United States' first written submission, paras. 538-541.WT/DS248/R, WT/DS249/R,
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with respect to tin mill products.2952  Korea submits that, in fact, the failure by the United States to
explain how the affirmative determinations of Commissioners Bragg and Devaney support anaffirmative finding of causation with respect to tin mill products is exactly the point.  The United
States cannot explain it because those Commissioners did not perform that analysis.  In the absence of
such analysis of increased imports of tin mill or an analysis of the causes of injury to the domestic
producers of tin mill products alone, these Commissioners cannot show any coincidence of trends nor
causation.
2953
Factors considered by the USITC
Declining demand
7.1232  The European Communities points out that Commissioner Miller noted that declining demand
"may account in part for the fact that the industry was already in a weakened state in 1996".2954 The
other Commissioners who examined tin mill products as a separate product concluded that "the
decline in consumption of tin mill products is an important cause of the injury suffered by the
industry" which, together with purchaser consolidation and the fact that a substantial proportion ofimported products were not available domestically, was such as to lead to the conclusion that
"increased imports is not a cause that is greater than any other cause".
2955 The European Communities,
China and Norway argue that it is quite clear that Commissioner Miller and the other Commissioners
considered that declines in demand were a cause of the serious injury throughout the period of
investigation.  That the financial performance of the domestic industry worsened when demandincreased does not mean that demand declines are not a cause of the industry's injury.
2956
7.1233  The European Communities, Japan and Brazil submit that Commissioner Miller's conclusion
that "declining demand is not a cause of serious injury to the domestic industry that is equal to or
greater than increased imports" does not, as the Appellate Body has held in the past, purport to
separate and distinguish the injurious effects of other factors from imports, and ensure that sucheffects are not attributed to increased imports.
2957 The United States cannot dress up this failure.2958
Further, China and Norway argue that there is no information on the role that this factor played and towhat extent it was responsible for the serious injury to the industry, although three other
commissioners stated that "the evidence demonstrates that the decline in the consumption of tin mill
products is an important cause of the injury suffered by the industry".
2959
7.1234  According to Japan and Brazil, the other three Commissioners, finding a separate like
product, found declining demand to be an important alternative cause.2960  In contrast, according to
Japan, Korea and Brazil, Commissioner Miller asserted that demand recovered in 1999, but ignored
the fact that the increase was modest, only 5%, and short-lived.2961  In 2000, demand fell lower than
                                                     
2952 Korea's second written submission, para. 150.
2953 Korea's second written submission, para. 151.
2954 USITC Report, Vol. I, p. 309.
2955 USITC Report, Vol. I, p. 76-77.
2956 European Communities' second written submission, para. 381; China's first written submission,
para. 513;  Norway's first written submission, para. 321.
2957 USITC Report, Vol. I, p. 309.
2958 European Communities' second written submission, para. 381; Japan's first written submission,
para. 297; Brazil's first written submission, para. 261.
2959 China's first written submission, para. 516;  Norway's first written submission, para. 324.
2960 Japan's first written submission, para. 297;  Brazil's first written submission, para. 261.
2961 Japan's first written submission, para. 297;  Korea's first written submission, para. 145; Brazil's first
written submission, para. 261.WT/DS248/R, WT/DS249/R,
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1998, and in 2001 demand was at record lows for the period. Japan and Brazil assert that such a
narrow focus on a single year simply cannot satisfy the demands of Article 4.2(b) for a careful reviewof the entire period.
2962
7.1235  The United States argues that Commissioner Miller thoroughly discussed the nature and the
extent of the injury that was attributable to demand declines during the period.  She noted that demand
had been declining generally in the tin mill market and that it had declined overall during the period.
She correctly noted, however, that the industry lost significant market share and suffered its heaviest
losses of the period in 1999, despite the fact that demand increased considerably in that year.  In other
words, as she found, demand declines could not possibly have contributed to the serious declines inthe condition of the industry that occurred during 1999, when demand was, in fact, increasing.
2963  By
performing an analysis that assessed whether imports caused injury to the industry during a period of
increasing demand, she was able to distinguish the effects of the demand declines later in the period
from those attributable to imports in 1999.  As a result, Commissioner Miller was able to ensure that it
did not attribute the injury caused by these later demand declines to imports.2964
7.1236  The United States also argues that Commissioner Miller recognized that there was not a
correlation between changes in demand and changes in the industry's prices and operating margins
during the period of investigation itself.  Althoug h Commissioner Miller recognized that the long-
term decline in demand might have caused the industry to be in a weakened state prior to the period,
she also correctly noted that demand changes did not appear to correlate directly to changes in the
industry's condition.  For example, in 1999, when demand increased to the same levels seen in 1996
and 1997 (the beginning of the period), the industry's unit prices and operating income margins
dropped dramatically.  As Commissioner Miller re asonably noted, if changes in demand had been a
cause of deterioration in the industry's condition during the period of investigation, the domestic
industry should have experienced some recovery in 1999 when demand increased considerably.However, the industry's condition did not improve.  Instead, due to the massive surge of imports in
that year, the industry lost significant market share and experienced its heaviest losses of the entire
period of investigation.
2965
7.1237  China further argues that given that Commissioner Miller identified decline in demand as an
alternative source of the injury, decline in demands as an 'other' injurious factor should have been
subjected to a non-attribution analysis.2966  China submits that for the purpose of the non-attribution
analysis, the competent authority is required to identify and separate the effect of the 'other' factor.Instead Commissioner Miller analysed imports only.  According to China, moreover, she disregarded
the part of the period of investigation when demands were declining and instead, analysed the
increased imports in the absence of the "other" factor, i.e. when demands were increasing.
2967  China
argues that this seems to be a very weak argumentation and questions how  one could perform
identification of nature and extent of a factor if the subject of the identification is not present.2968
China submits that it is evident that the United St ates  failed to rebut China's argument.  According to
China, the injurious effects of this 'other' factor were not properly assessed and it was not established
                                                     
2962 Japan's first written submission, para. 297;  Brazil's first written submission, para. 261.
2963 USITC Report, p. 309.
2964 United States' first written submission, para. 558.
2965 United States' first written submission, para. 557.
2966 China's second written submission, para. 277.
2967 China's second written submission, para. 279.
2968 China's second written submission, para. 280.WT/DS248/R, WT/DS249/R,
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in a clear and unambiguous way that the effects of the demand decline were not attributed to increased
imports.2969
Purchaser consolidation
7.1238  China states that it believes that Commissioner Miller acknowledged that purchaser
consolidation was causing injury.2970  In particular, China and Norway argue that Commissioner
Miller's conclusions regarding purchaser consolidation indicate that she believed that purchaser
consolidation was a cause of serious injury, although this factor was not chiefly responsible for the
injury.2971 Similarly, the European Communities notes that Commissioner Miller found that imports
were "chiefly responsible" for the decline in industry performance in 1999, without separating anddistinguishing the injurious effect of purchaser consolidation, which, must be presumed to be partly
responsible for some of the injury suffered.
2972 China and Norway argue that Commissioner Miller did
not give any information on the role of purchaser consolidation.2973  The European Communities
argues that there is nothing in the USITC Report which explains why such purchaser consolidation
would not, as the United States claims, have any effect in 1999.2974  The mere assertion that it may
have taken place before 1999 does not prove this fact, nor does it prove that purchaser consolidation
was not having continuing effects in 1999.2975
7.1239  In response, the United States notes that Commissioner Miller also examined whether
purchaser consolidation was an "other" factor that had a negative effect on the tin mill industry during
the period of investigation.2976  In her analysis of this issue, she explained, in a reasoned and thorough
manner, the nature and extent of the injurious effects of purchaser consolidation during the period.
After performing her analysis, she reasonably concluded that purchaser consolidation was not a factor
that contributed significantly to the decline in the industry's condition during the period of
investigation.  According to the United States, in her analysis, Commissioner Miller discussed the
nature and extent of purchaser consolidation in detail.2977  She first noted that the number of large tin
mill purchasers declined from 49 in 1990 to 26 in 2000, with four to six manufacturers accounting for
75-80% of all consumption in 2000.2978  She also recognized that this consolidation had enhanced the
negotiating power of purchasers in the tin mill market during this period.2979  However, she also
correctly noted that most of this consolidation occurred prior to the period of investigation, and found
therefore that purchaser consolidation was not a significant factor in the declines in the condition of
the industry during 1999, 2000, and 2001.2980  In this regard, she found that price competition in the
market was fiercest in 1999 when imports made thei r largest surge into the market, which showed that
imports, not purchaser consolidation, were "chiefly responsible" for industry declines in 1999 and
thereafter. Given her analysis of this issue, the United States argues that  it is clear that Commissioner
Miller thoroughly and adequately discussed the nature and extent of the injury caused by purchaser
                                                     
2969 China's second written submission, para. 281.
2970 China's first written submission, para. 512.
2971 China's first written submission, para. 514;  Norway's first written submission, para. 322.
2972 USITC Report, Vol. I, p. 309.
2973 China's first written submission, para. 516;  Norway's first written submission, para. 322.
2974 United States' first written submission, paras. 560-562.
2975 European Communities' second written submission, para. 382.
2976 USITC Report, p. 309.
2977 USITC Report, p. 307.
2978 USITC Report, p. 307.
2979 USITC Report, p. 307.
2980 USITC Report, p. 309.  Moreover, she added, that this consolidation process was an indication of
the intense pricing competition between domestic producers and imports that existed throughout the period.USITC Report, p. 309.WT/DS248/R, WT/DS249/R,
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Page 414
consolidation.  She reasonably found that purchaser consolidation had not been a significant cause of
the injury the industry suffered during the latter half of the period of investigation.  CommissionerMiller correctly acknowledged that the process of purchaser consolidation had generally predated the
period of investigation and did not explain the massive declines in the industry's condition that
occurred during 1999, 2000, and 2001.  Accordingly, she correctly found that the weight of the record
evidence established that imports were chiefly responsible for the declines in the industry's condition
in 1999 and properly discounted purchaser consolidation as a source of injury to the industry.
2981
7.1240  In counter-response, China notes that the data in the USITC Report indicates that the
consolidation process starting in 1990 resulted in four to six manufacturers accounting for 75-80% ofall consumption of tin mill products in the year 2000.  China submits that this factor not only
predated, but also was present during the entire period of investigation.
2982  China concludes that the
Commissioner wrongly identified the nature and extent of the purchaser consolidations and failed to
establish that the injurious effects of this factor were not attributed to increased imports.  The United
States' counter-argument that the Commissioner addressed this issue adequately has no merit.2983
Domestic overcapacity
7.1241  Korea asserts that Commissioner Miller suggested that overcapacity was not a problem
because the industry reduced capacity between 1998-2001 (after increasing capacity between
1996-1998).2984  However, in 1996 the industry achieved its highest capacity utilization of 78.3% –
and it increased capacity over the following two years.2985  Korea argues that in 1996, the industry had
1 million tons of excess unused capacity and in 2000, that figure had grown to 1.2 million tons.2986
Korea argues that capacity utilization of 75% and lower simply does not support the proposition thatdomestic excess capacity was not a more significant problem than imports.
2987
7.1242  In response, the United States argues that Commissioner Miller explained, in a reasoned and
thorough manner, the nature and extent of the effects of "excess" capacity on the condition of theindustry.  After noting that the industry had "some excess capacity" during the early part of the period,
she found that the domestic industry had reduced its capacity in this manner as a means of "taking
steps to rationalize their production" in the face of the demand declines in the tin mill market.  Having
noted that the industry had reduced its capacity levels during the period, Commissioner Miller
discounted this "excess" capacity as a significant source of injury to the industry.  In particular, she
noted that the industry's "excess" capacity levels had not led to the declines in the industry's capacity
utilization rates during the latter half of the period, noting that the industry had reduced theiraggregate capacity by 3.7 percent between 1996 and 2000, and reduced them even further in 2001.
2988
Anti-dumping orders
7.1243  Korea argues that Commissioner Miller noted that an anti-dumping order was imposed on
imports of tin mill products from Japan in the second half of 2000, but determined that imports from
Japan continued to have a significant presence in the United States market.  According to Korea, shefailed to note, however, that the reason for continued importation from Japan was that the United
                                                     
2981 United States' first written submission, paras.560-562.
2982 China's second written submission, para. 283.
2983 China's second written submission, para. 286.
2984 USITC Report, Vol. I, p. 309 (Exhibit CC-6).
2985 USITC Report, Vol. II, Table FLAT-18, p. FLAT-22 (Exhibit CC-6).
2986 USITC Report, Vol. II, Table FLAT-18, p. FLAT-22 (Exhibit CC-6).
2987 Korea's first written submission, para. 145.
2988 United States' first written submission, para. 564.WT/DS248/R, WT/DS249/R,
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Page 415
States  industry had explicitly agreed that a number of tin mill products should be excluded from the
anti-dumping order because the United States industry did not produce those products.2989
NAFTA imports
7.1244  China argues that Commissioner Miller's determination of the existence of a causal link
between the increased imports and serious injury to the domestic tin mill industry was made on the
grounds of data which included imports from NAFTA countries.  However, China believes that, since
imports from NAFTA countries were excluded from the application of the safeguard measure, what
had to be determined is in fact whether total increased imports, with the exception of imports from
NAFTA-countries, have caused serious injury to the domestic industry.  According to China, as aresult, since the determination of causality at hand required that "increased imports" only consisted of
imports originating from non-NAFTA countries, the movements in imports from Canada and Mexico
had to be regarded as "another factor".  Thus, in respect of Article 4.2(b) of the Agreement on
Safeguards, this new determination also required that injury caused by movements in imports from
Canada and Mexico not be attributed to increased imports (from non-NAFTA countries).
2990  China
argues that such a new determination was not done concerning this product.  China argues that this is
especially surprising, given that it was acknowledged that "imports of tin mill products from Canada
account for a substantial share of total imports a nd contribute importantly to the serious injury".2991
Korea argues that since the USITC did not proceed to a new determination of causality between
increased imports from non-NAFTA countries and the serious injury to the domestic industry, therewas consequently a failure to assess the injury caused by imports from Mexico and Canada and a
failure to ensure that this injury would not be attributed to increased imports from non-NAFTA
countries. Therefore, the investigating authority did not comply with Articles 2(1) and 4.2(b) of the
Agreement on Safeguards.
2992
7.1245  Norway notes that Commissioner Miller did consider imports from Canada to "contribute
importantly" to the serious injury suffered by th e domestic industry.  However, according to Norway,
she did not single out these imports and recommended that the remedy apply also to these imports, a
conclusion that the President did not follow.  Here again, Norway argues, there is thus no finding at
all that this recognized injury has not been at tributed by the President to imports from other
sources.2993
7.1246  The European Communities argues that in fail ing to analyse imports from Canada, Israel,
Jordan and Mexico as alternative causes of injury, the USITC also acted inconsistently withArticle 4.2(b).
2994  The European Communities adds that Commissioner Miller found that Mexican
imports accounted for a substantial share of imports and contributed importantly to the serious injury,
but did not subject the injurious effects of these imports to a non-attribution analysis.2995
7.1247  For the United States' general response, see paragraph 7.1066 et seq .
                                                     
2989 Korea's first written submission, para. 145.
2990 China's first written submission, para. 527.
2991 China's first written submission, para. 528.
2992 China's first written submission, para. 529;  China's second written submission, para. 286.
2993 Norway's first written submission, para. 325.
2994 European Communities' first written submission, para. 480.
2995 European Communities' second written submission, para. 385.WT/DS248/R, WT/DS249/R,
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Page 416
Factors not considered by the USITC
7.1248  The European Communities, Japan, Korea, Norway and Brazil argue that the other three
Commissioners who found a separate like product also found that a large portion of purchasers
testified that they imported specific products that the domestic industry simply did not make.2996
According to Japan and Brazil, this factual finding argues strongly that imports could not be the causeof serious injury.  Yet Commissioner Miller did not address this finding at all.
2997  The European
Communities also argues that Commissioner Miller fails to deal with the extent to which injury was
caused by the massive over-capacity in the United States  industry.2998
7.1249  In response, the United States argues that the complainants mistakenly assert that
Commissioner Miller "failed" to take into account that a "substantial portion" of imports consisted of
tin mill products that were not available domestically, a fact relied on by three other Commissioners
who made a negative determination for tin mill steel.  In fact, Commissioner Miller did address this
very issue, although in a different manner than the other Commissioners, when she found that
purchasers considered imported tin mill steel and domestic merchandise to be substitutable for oneanother.  Because the level of substitutability measures the degree to which products are considered
similar to one another for pricing purposes, Commissioner Miller's finding indicates that she
concluded that the "substantial" difference in product mix between imports and domestic product did
not significantly affect the extent to which imports and domestic merchandise competed in the
market.
2999  The United States submits that, moreover, although the other three Commissioners found
the percentage of imports that were not available from the industry to be "substantial", the record
showed that this percentage (although confidential) was actually substantially lower than 33% of all
imported tin mill steel.  As a result, while it was clearly reasonable for the three other Commissioners
to consider this percentage to account for a "substantial" percentage of imports, it was just as
reasonable for Commissioner Miller to consider that percentage did not significantly reduce thesubstitutability of the imported and domestic merchandise.
3000
7.1250  China and Norway argue that given that the industry was already injured before imports
increased in 1998 and 1999 and given that the industry did not recover once imports were declining in
2000 and interim 2001, there had to be other existing injury factors besides imports.  According to
China and Norway, since, without any doubt, other factors existed, Commissioner Miller had the
obligation to identify them, in order to ensure that injury would not be wrongly attributed to increased
imports.  She did not do so.3001
7.1251  In response, the United States argues that Commissioner Miller performed a thorough and
objective analysis of the record.  She established that there was a genuine and substantial causal link
between trends in the volume and market share of imports of tin mill steel and the significant declines
in the condition of the tin mill industry during the last two-and-a-half years of the period of
investigation.  Moreover, she thoroughly assessed the nature and extent of the injury caused by other
                                                     
2996 European Communities' first written submission, para. 484;  Japan's first written submission,
para. 298;  Korea's first written submission, para. 145;  Norway's first written submission, paras. 336 and 337;Brazil's first written submission, para. 262.
2997 Japan's first written submission, para. 298;  Brazil's first written submission, para. 262, para. 484.
2998 European Communities' first written submission, para. 484.
2999 United States' first written submission, para. 550.
3000 United States' first written submission, para. 551.
3001 China's first written submission, para. 522;  Norway's first written submission, para. 331.WT/DS248/R, WT/DS249/R,
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Page 417
factors in the market and ensured that she did not attribute the effects of these factors, if any, to
imports.3002
7.1252  Moreover, the United States adds that the co mplainants fail to recognize that there was a
substantial degree of agreement between Commissioner Miller and the other three Commissioners
with respect to the basic legal issues in the case.  In this regard, Commissioner Miller agreed with --
and joined – the findings of the three other Commissioners that tin mill steel was the appropriate like
product, that there had been increased imports of tin mill steel during the period of investigation, and
that the industry had suffered serious injury during the period of investigation.  Moreover,
Commissioner Miller also identified similar conditions of competition as governing the manner inwhich imports and domestic merchandise competed in the market and even identified the same other
factors that might be causing injury to the industry in her analysis.  While she disagreed with respect
to whether imports were a substantial cause of the serious injury being suffered by the industry, there
was, nonetheless, a substantial agreement on the basic issues driving the case.  Indeed, the United
States asserts,  the simple fact that three Commissioners disagreed with Commissioner Miller no moremakes her decision unreasonable than does Commissioner Miller's disagreement with those three
Commissioners make their decision unreasonable.
3003
7.1253  The European Communities also argues that Commissioner Miller also failed to take note of
the decision of Wierton (one of the major United States producers of tin mill products) to cease
production during 1999, forcing consumers of tin mill products to source their requirements fromimported products.
3004  The three Commissioners who found there was no causal link between
increased imports and serious injury found that this decision accounted for at least part of the increase
in imports, and consequently, the poor performance of the domestic industry in 1999.  Commissioner
Miller failed both to discuss this situation, and to en sure that the self-inflicted injury caused by this
decision was not attributed to increased imports. For these reasons, the USITC did not, and the UnitedStates cannot pretend that it did, conduct the non-attribution analysis required by the Agreement on
Safeguards.
3005
Relevance of "like product" analysis
7.1254  The European Communities, Japan and Korea and Norway note that three of the four
Commissioners who considered tin mill products as a separate product found that increased imports
were not a "substantial cause" of serious injury.3006  Japan argues that of the four Commissioners who
treated tin mill products as a separate and distinct like product, three specifically found that othercauses were more important than imports in explaining the problems in the domestic tin mill
industry.
3007  These Commissioners found that decline in consumption of tin mill products (as
consumers turned to plastics), slow rationalisation of domestic capacity, increased consolidation of
purchasers and the fact that a "substantial portion" of imports of tin mill products were not produced
in the United States, meant that increased imports were not a "substantial cause" of serious injury.3008
                                                     
3002 United States' first written submission, para. 572.
3003 United States' first written submission, paras. 569-570.
3004 USITC Report, Vol. I, p. 76, footnote 418.
3005 European Communities' second written submission, para. 383.
3006 European Communities' first written submission, para. 478;  Japan's first written submission,
para. 293;  Korea's first written submission, para. 142;  Norway's first written submission, para. 317
3007 Japan's first written submission, para. 293.
3008 European Communities' first written submission, para. 478;  Norway's first written submission,
para. 317.WT/DS248/R, WT/DS249/R,
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Page 418
7.1255  Korea argues that the remaining Commissioners, Bragg and Devaney, had lumped tin mill
products together in the "CCFRS" like product and found serious injury on that basis.  They nevereven looked at other factors that were responsible for the condition of the tin mill products industry
because their like product decision prevented such an analysis.
3009  According to Korea, the majority
of Commissioners who analysed tin mill produc ts correctly concluded that other causes were
responsible for the condition of the United States industry producing tin mill products.  The other
Commissioners who found serious injury, whose decisions were the basis for the safeguard measure
imposed, failed to properly separate and identify the other causes of injury to the United States
industry.3010
7.1256  The European Communities, Korea and Norway note that Commissioner Miller treated tin
mill products as a separate like product and yet voted that imports of tin mill products were the
substantial cause of serious injury.3011  She considered that the domestic industry suffered its worst
results in 1999, which was also the period when imports increased.  Commissioner Miller accepted
that decreasing demand may "account in part" for the weakened state of the industry.  However, it wasnot a cause of serious injury "equal to or greater than increased imports".  Commissioner Miller also
concluded "that increased imports, not purchaser consolidation (which existed throughout the period
examined), were chiefly responsible for the industry's serious decline in 1999" and that purchaser
consolidation was not a cause of injury "equal to or greater than increased imports".  According to the
European Communities, it is unclear whether the Commissioner also considered excess capacity tohave caused serious injury.  The Commissioner simply states that domestic over-capacity was not a
cause of injury "equal to or greater than" increa sed imports.  The European Communities asserts that
it isnevertheless clear that the Commissioner also considered imports from Canada to "contribute
importantly" to the serious injury suffered by the domestic industry.
3012
Failure to provide reasoned and adequate explanation
7.1257  China and Norway state that they believe that the injurious effects of the other factors that
have caused the injury at the same time as the increased imports have not been properly assessed.
Thus, it is impossible to determine whether the injurious effects of these factors were properly
separated from the injurious effects of the increased imports.3013  They argue that, as a result, it was
not established explicitly, with a reasoned and adequate explanation, that injury caused by other
factors was not attributed to increased imports.  This conclusion would also remain the same, should
the Panel not agree with China that Commissioner Miller acknowledged that other factors are causing
injury to the domestic industry at the same time as increased imports.3014 They further argue that,
indeed, if the investigating authority believes that an alleged factor is not causing injury, it must,
likewise, explicitly, clearly and unambiguously, state that such a factor is not causing injury and
explain the reasons why.  The explanation must be straightforward.  To proceed otherwise would not
ensure that alleged factors have been examined closely enough to establish that they are notcontributing to the injury. As a result, there would be no guarantee that injury caused by other factors
has not been wrongfully attributed to increased imports.
3015
                                                     
3009 Korea's first written submission, para. 146.
3010 Korea's first written submission, para. 147.
3011 European Communities' first written submission, para. 479;  Korea's first written submission,
para. 144;  Norway's first written submission, para. 318
3012 European Communities' first written submission, para. 479.
3013 China's first written submission, para. 517;  Norway's first written submission, para. 326.
3014 China's first written submission, para. 518;  Norway's first written submission, para. 327.
3015 China's first written submission, para. 519;  Norway's first written submission, para. 328.WT/DS248/R, WT/DS249/R,
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Page 419
7.1258  China and Norway also argue that when Commissioner Miller placed emphasis on the
substantial cause methodology, she failed to fulfill the requirements of Article 4.2(b) of theAgreement on Safeguards.  Indeed, a conclusion to the effect that "increased imports are a substantial
cause of serious injury to the domestic industry in that they are a cause which is important and not less
than any other cause", is not clear, unambiguous nor straightforward, since it is not established that
other factors did not cause injury and that injury caused by other factors was not attributed to
increased imports.  Moreover, they argue that the explanations given by the Commissioner to support
this conclusion are not clear, straightforward, unambiguous; they certainly are not reasoned and
adequate.
3016  They submit, in particular, Commissioner Miller should have given great consideration
to the explanations of the three commissioners who made a negative finding on the "substantial cause
of serious injury". Indeed, these three commissioners found that long-term continuing decline in
demand, the consolidated market and the fact that a substantial portion of imports were reportedly not
domestically available caused serious injury to the domestic industry.  Since half of the members of
the investigating authority had explicitly recogn ized that these factors were causing injury,
Commissioner Miller had the obligation to explain, in her view, how injury caused by these factors
was not attributed to imports.3017
7.1259  Japan similarly argues that Commissioner Miller failed to separate and distinguish alternative
causes and that given that three of her colleagues read the record very differently, one might expect
Commissioner Miller to elaborate at some length why she reached a different conclusion.  Instead, sheprovided three short paragraphs.  With respect to each alternative cause, she failed to meet the
standard required by Article 4.2(b).
3018
7.1260  The European Communities argues that having identified at least three alternative sources of
possible serious injury, the USITC (Commissioner Miller) was under an obligation to separate out and
distinguish the effects of the different factors and ensure that no such effects were attributed to seriousinjury allegedly caused by increased imports.  The European Communities, Japan and Korea argue
that this was not done, and the United States is in breach, therefore, of its obligations under
Article 4.2(b).
3019
7.1261  The United States responds by arguing that Commissioner Miller established, through a
thorough and objective assessment of the record evidence, a genuine and substantial cause and effect
relationship between increased imports and serious injury.  Her analysis showed that there was a clear
correlation between increases in the volume of increasingly low-priced imports of tin mill steel andthe significant declines in the overall condition of the tin mill steel industry that occurred during the
latter half of the period of investigation.  She conducted a thorough and objective examination of the
nature and extent of the effects of other factors and ensured that she did not attribute the effects, if
any, of these factors to imports in her analysis.
3020
                                                     
3016 China's first written submission, para. 520;  Norway's first written submission, para. 329.
3017 China's first written submission, para. 521;  Norway's first written submission, para. 330.
3018 Japan's first written submission, para. 296.
3019 European Communities' first written submission, para. 480;  Japan's first written submission,
para. 296;  Korea's first written submission, para. 148.
3020 United States' first written submission, para. 537.WT/DS248/R, WT/DS249/R,
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Page 420
(iii) Hot-rolled bar
Factors considered by the USITC
Competition among domestic producers
7.1262  China argues that the USITC acknowledged that this factor was causing injury at the same
time as increased imports.3021  China further argues that concerning competition among domestic
producers, the USITC did not explain the nature and extent of the loss of market shares.  Nor did it
explain on which domestic producers this had an impact.  Moreover, although the USITC said that
this factor could not provide an explanation for cert ain indicia of injury, it did not say how it could
provide an explanation for the remaining indicia.3022
7.1263  In response, the United States notes that the USITC found that this factor provided no
explanation for the domestic industry's serious inju ry.  Intra-industry competition could not explain
why the domestic industry overall lost market share to imports.  Additionally, the pricing data
available to the Commission did not indicate that Nucor was a primary source of pricing declines or
that its pricing practices otherwise contributed to the industry's difficulties.3023
7.1264  The United States argues that China's statements  to the effect that the USITC recognized that
intra-industry competition was an alternative source of injury blatantly misreads the USITC's opinion.
As the USITC explained, competition between domestic producers provides utterly no explanation for
the industry's overall decline in market share during the period of investigation.3024
Inefficient producers
7.1265  The European Communities argues that with re spect to the inefficient producers, the USITC
arrives at a contradictory conclusion, stating first that their performance cannot explain the serious
injury and then that "the alleged inefficiency of these two firms cannot be a more important cause of
injury than increased imports".3025
7.1266  The European Communities and China argue the USITC appears to conclude that inefficient
producers were a cause of the domestic industry's injury.3026  More particularly, the European
Communities submits that if the USITC concluded that they did not cause injury, it would not have to
explain that this factor was not a cause which was less important than increased imports.  At the very
least, the USITC did not establish explicitly, first, whether this factor was causing injury, and second,
as a result, how it ensured that the injurious effects of this factor were not attributed to increased
imports.3027
7.1267  China further argues that the USITC did not explain the nature and extent of the injurious
effect of this factor.  All that had been said by the USITC was is that inefficient producers could not
                                                     
3021 China's first written submission, paras. 387 and 388.
3022 China's first written submission, para. 393.
3023 USITC Report, pp. 97-98; United States' first written submission, para. 578.
3024 United States' first written submission, para. 579.
3025 European Communities' second written submission, para. 387.
3026 European Communities' second written submission, para. 388;  China's first written submission,
paras. 387 and 389.
3027 European Communities' second written submission, para. 388.WT/DS248/R, WT/DS249/R,
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Page 421
be held accountable for the overall situation of the domestic industry.  According to China, this is far
from being sufficient.3028
7.1268  In response, the United States argues that th e USITC also found that this factor provided no
explanation for the domestic industry's serious injury.  The United States producers identified as
"inefficient", due to higher cost structures, did not lose market share to other, more "efficient"
domestic producers during the period of investigation.  Moreover, the performance trends of the so-
called "inefficient" firms did not differ from more "efficient" domestic producers.3029
Changes in input costs
7.1269  The European Communities notes that the USITC concludes:
"[B]ecause we cannot attribute the domestic industry's declines in operating
performance in 2000 to increased in COGS, we conclude that changes in input costs
cannot be as important a cause of serious injury as increased imports."3030
7.1270  The European Communities and China further argue the USITC appears to conclude that
increases in input costs were a cause of the domestic industry's injury.3031 More particularly, the
European Communities submits that if the USITC concluded that they did not cause injury, it would
not have to explain that this factors was not a cause which was less important than increased imports.
At the very least, the USITC did not establish explicitly, first, whether this factor was causing injury,
and second, as a result, how it ensured that the injurious effects of this factors was not attributed to
increased imports.3032
7.1271  China argues that this factor should have received more attention from the investigating
authority, since it had to have had an impact on prices.  Indeed, although demand was high, capacity
also remained high throughout the period of invest igation and, thus, there was in no way a shortage of
supply which could have prevented prices from declining.  Moreover, the market for hot-rolled bar is
very open and prices had to decline as costs declined, contrary to a monopoly situation in whichprices would have remained high.
3033  China also notes that the USITC states that changes in input
costs are in part responsible for price decline.  Ho wever, according to China, there is no information
on the nature and extent of that decline.3034
7.1272  In defence, the United States notes that the USITC found that unit raw materials costs
declined throughout the period of investigation and that unit COGS decreased from 1996 to 1999
before increasing from 1999 to 2000.  It observed that, generally speaking, declines in input costs
cannot be a "cause" of injury in and of themselves.  At most, they may be an alternative explanationfor price declines.  It found that the declines in input costs could not explain the much larger price
declines that occurred from 1996 to 1999.  Indeed, because demand increased during this period,
prices should have declined less than input cost s.  From 1999 to 2000, unit COGS increased but prices
                                                     
3028 China's first written submission, para. 394.
3029 USITC Report, p. 98;  United States' first written submission, para. 578.
3030 USITC Report, Vol. I, p. 99.
3031 European Communities' second written submission, para. 388;  China's first written submission,
paras. 387 and 390.
3032 European Communities' second written submission, para. 388.
3033 China's first written submission, para. 400.
3034 China's first written submission, para. 395.WT/DS248/R, WT/DS249/R,
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Page 422
did not.  Instead, domestic producers' attempts to increase prices during the first portion of 2000 could
not be sustained because of the import surge.3035
7.1273  The United States argues that China's statement that the decline in costs from 1996 to 1999
"should have received more attention from the investigating authority," appears misguided.  The
USITC's focus was on how cost levels in 2000, not 1999, correlated with price levels in 2000.  In any
event, the USITC fully explained that declines in prices from 1996 to 1999 were much greater than
declines in unit input costs, notwithstanding increasing demand.  China appears to posit that this
divergence may have been a function of increased domestic supply.  This explanation, however,
cannot be reconciled with the record.  The domestic industry's capacity utilization in 1999 was higherthan it was in 1996.  If anything, tighter domestic supplies, as reflected by increasing capacity
utilization, together with increasing domestic demand, should have resulted in domestic hot-rolled bar
prices declining less than input costs did.  There was, however, another source of increased supply in
the US market that China overlooks: the imports.  Because of the increased imports, the decline in
prices from 1996 to 1999 was in fact greater than the decline in unit input costs.
3036
7.1274  The European Communities submits3037 that the USITC's dismissal of the effect of increased
COGS in 2000 is not a reasoned and adequate explanation of its conclusions, supported by the facts.
While raw material costs fell in 1999 and 2000, there was a substantial increase in costs associated
with direct labour and other factory costs, which negated the increased income the domestic industry
could have expected from the fall in raw material costs.  The European Communities submits that,indeed, the USITC implicitly noted the diverging development of raw material costs and other costs
where it stated:
"[U]nit COGS declined from US$399 in 1996 to US$362 in 1999 and then increased
toUS$380 in 2000; unit raw material costs declined throughout the period
examined."
3038
7.1275  The European Communities submits3039 that the USITC thus recognized that the increase in
COGS in 2000 was not caused by increases in raw material costs, but rather by increases in other
costs forming part of COGS; i.e. direct labour a nd other factory costs.  The USITC, however, never
investigated further this factual situation, and slipped into a general assertion that when demand
increases producers "normally need not cut their prices to reflect fully declines in COGS".3040  This
assumes, however, that domestic producers can let othe r costs increase and still expect to have them
covered by their sales prices.  In this case, other costs did increase substantially – had they not thenthe domestic industry would have continued to make a comfortable profit – this is illustrated in the
table below.
                                                     
3035 USITC Report, p. 99;  United States' first written submission, para. 578.
3036 United States' first written submission, footnote 302.
3037 European Communities' second written submission, para. 389.
3038 USITC Report, Vol. I, p. 99.
3039 European Communities' second written submission, para. 390.
3040 USITC Report, Vol. I, p. 99.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 423
Table 15:  Hot-Rolled Bar – Unit Value of Commercial Sales and Costs (1998-2001)3041
1998
(actual)1999
(actual)1999
(constant)2000
(actual)2000
(constant)2001
(actual)2001
(constant)
Net. Comm.
Sales431 399 399 399 399 381 381
Raw
materials169 138 138 135 135 122 122
Direct labor 55 52 52 61 52 61 52
Other factory
costs162 172 162 184 162 199 162
COGS Total 387 362 352 380 349 381 336
Gross Profit 44 37 47 19 50 0 45
SG&A 22 22 22 22 22 24 24
Operating
Income (loss)22 15 25 (3) 28 (24) 21
7.1276  According to the European Communities, while admitting this cost development, the USITC
does not examine the reasons for it.  Thus, even with prices falling between 1998 and 1999 and then
remaining stable in 2000, had it not been for incr eased costs, the domestic industry would have
continued to make a comfortable profit. Even in interim 2001, when prices fell from their 1999 levels,
given continuing falls in raw material costs, had it  not been for increases in other costs, the domestic
industry would have had an operating income per unit comparable to the levels of 1998.
Consequently, the USITC did not provide a reasoned and adequate explanation of how its conclusions
were supported by the factual findings it had made.3042
7.1277  In response, the United States argues that the European Communities and China misread the
USITC's opinion concerning the impact of changes in input costs.  Because the USITC based its
conclusion on serious injury principally on data concerning the domestic industry's condition during
and after 2000, the most pertinent part of the USITC's discussion concerns input costs in 2000.  Here,
the USITC found that while unit COGS increased from US$362 in 1999 to US$380 in 2000, neitherunit sales values nor prices increased during this period.  The USITC specifically stated that "[i]f the
domestic industry could have increased its average unit sales values in 2000 to reflect increasing
COGS – a reasonable expectation during a year of increasing demand – the industry could have
maintained positive operating margins of at least the levels of 1999".  However, the industry could not
raise its prices because of the increased imports during that year.  Thus, the USITC expressly analysedthe nature and effect of the change in input costs from 1999 to 2000 and demonstrated that it was not
increased input costs, but the industry's inability to increase its prices to reflect those increased costs
because of increased imports, that caused the industry's difficulties in 2000.
3043
NAFTA imports
7.1278  China notes that the determination of the existence of a causal link between the increased
imports and serious injury to the domestic hot-rolled bar industry, which is found in the USITC
                                                     
3041 European Communities' second written submission, para. 390, based on USITC Report, Vol. II, p.
LONG-33, table LONG-27. In the columns marked "const ant" the data for "other factory costs" and "direct
labor" has been kept constant for 1999, 2000 and interim 2001. Figures which have been kept constant have
been italicized, and figures which change as a result of the simulation are put in bold.
3042 European Communities' second written submission, para. 391.
3043 United States' first written submission, para. 580.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
WT/DS258/R, WT/DS259/R
Page 424
Report, was made on the grounds of data which included imports from NAFTA countries.  However,
China believes that, since imports from NAFTA countries were excluded from the application of thesafeguard measure, the USITC had to determine whether total increased imports, with the exception
of imports from NAFTA-countries, caused serious injury to the domestic industry.  China argues that
as a result, since the determination of causality required that "increased imports' only consist of
imports originating from non-NAFTA countries, the movements in imports from Canada and Mexico
had to be regarded as "an other factor". Article 4.2(b) of the Agreement on Safeguards also required
that injury caused by movements in imports from Canada and Mexico not be attributed to increased
imports (from non-NAFTA countries).
3044
7.1279  China further argues that in the Supplementary Report, the USITC was required to assess the
injury caused by imports from Mexico and Canada and to ensure that this injury would not be
attributed to increased imports from non-NAFTA countries.  China argues that it did not do so.  China
further argues that the USITC provided no explanation whatsoever that injury caused by imports from
Mexico and Canada was not attributed to increased imports and there is no reason to believe thatinjury caused by imports from Mexico and Canada were not in fact attributed to increased imports.  In
this regard, the European Communities notes that in its separate findings on NAFTA imports, the
USITC concluded that the sheer volume of the Canadian increase supported its finding that imports
from Canada contributed importantly to the serious injury caused by imports.
3045
7.1280  The European Communities notes that the United States has not tried to explain how it
ensured that the injurious effects of excluded imports were not attributed to non-excluded imports,
despite the fact that in 2000 imports from Canada and Mexico alone accounted for 52% of all
imports.3046 3047  The European Communities argues that the USITC failed to even consider Canadian
imports as an alternative cause of injury and, thus, did not separate and distinguish the effects of
Canadian imports nor did it ensure that such effects were not attributed to increased imports fromnon-NAFTA sources.
3048  On the basis of the foregoing, in the view of the European Communities and
China, the USITC failed to comply with Articles 2(1) and 4.2(b) of the Agreement on Safeguards.3049
7.1281  For the United States' response, see paragraph 7.1066 et seq .
Factors not considered by the USITC
7.1282  The European Communities argues that there are a number of factors apparent in the data
before the USITC which the USITC did not examine and which would tend to bring its conclusion
that imports were the cause of serious injury into doubt.3050  In particular, the European Communities
notes that the domestic industry's "interest expenses" and "other expenses" leapt between 1998 and
1999.3051   The European Communities argues that these quite noticeable developments occurred
precisely when the USITC notes operating margins and net incomes start to decline.  Yet there is no
explanation of these developments.3052
                                                     
3044 China's first written submission, para. 407.
3045 European Communities' first written submission, para. 488.
3046 USITC Report, Vol. II, p. LONG-9, table LONG-5.
3047 European Communities' second written submission, para. 393.
3048 European Communities' first written submission, paras. 489 and 491.
3049 China's first written submission, para. 410;   China's second written submission, para. 230.
3050 European Communities' first written submission, para. 494.
3051 European Communities' first written submission, para. 495.
3052 European Communities' first written submission, para. 496.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
WT/DS258/R, WT/DS259/R
Page 425
7.1283  The European Communities also argues that there was a substantial drop in domestic prices
between 1998 and 1999, a period in which imports decreased, and in 1999 demand fell away to 1996levels.  According to the European Communities, th e decrease in domestic prices coincided with a
substantial decrease in raw material costs in 1999.  However, also between 1998 and 1999, there was
a sharp increase in "other factory costs" which continued into 2000.  Further, between 1999 and 2000
there was a sharp increase in direct labour costs (these trends continued into interim 2001).
According to the European Communities, no explana tion was provided in the USITC Report of the
effect of these substantial changes on the financial performance of the industry.
3053
7.1284  In response, the United States submits that the European Communities fails to recognize that
the USITC's analysis of the poor financial condition of the domestic hot-rolled bar industry was based
on operating income and operating margin data.  Interest expenses and "other" expenses were not a
component of operating income, as computed by the USITC.  Instead, the USITC deducted interest
expenses and "other" expenses from operating income to derive net income.3054  It argues that,
therefore, increases in interest expenses and "other" expenses could not provide any explanation forthe 2000 operating losses cited by the USITC.  Consequently, there was no requirement under
Article 4.2 for the USITC to have engaged in a further non-attribution analysis concerning these
expenses.
3055
Failure to provide a reasoned and adequate explanation
7.1285  The European Communities and China argue that th e USITC failed to adequately evaluate the
complexity of the alleged injury factors.  It al so failed to provide a sound, clear and straightforward
explanation of how it ensured that injury caused by other factors was not attributed to increased
imports.3056  China argues that the USITC did not explain the nature of the "large extent" of the
decline in operating performance in 1999 due to the decline in demand.  Moreover, the USITC stated
that "prices for cold finished bar have historically tracked demand conditions", but it did not explainthe impact of demand on the overall situation of the industry.
3057
7.1286  In response, the United States argues that the USITC conducted a reasoned and adequate
examination of the injury purportedly caused by factors other than increased imports and ensured that
any injury caused by these other factors was not attributed to imports.  It notes that the USITC
examined four asserted causes of injury to the domestic hot-rolled bar industry other than increased
imports and concluded that the "alternative causes cannot individually or collectively explain the
serious injury to the domestic industry, particularly the declining market share over the course of theperiod examined, and the deteriorating operating performance leading to negative operating margins
for the domestic industry in 2000".  Moreover, the USITC did consider demand conditions in the
market, finding that US apparent consumption of hot-rolled bar increased by 11.7 percent from 1996
to 2000, and that it increased on a year-to-year basis for every available comparison except that for
1998 to 1999.  The USITC observed that apparent U.S. consumption increased from 1999 to 2000, theyear that domestic industry performance reached injurious levels.  Consequently, it concluded that
changes in demand could not explain the industry's condition in 2000.
3058
                                                     
3053 European Communities' first written submission, para. 497.
3054 United States' first written submission, para. 581.
3055 United States' first written submission, para. 582.
3056 European Communities' first written submission, para. 498; China's first written submission,
para. 401.
3057 China's first written submission, para. 415.
3058 United States' first written submission, para. 578.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
WT/DS258/R, WT/DS259/R
Page 426
(iv) Cold-finished bar
Factors considered by the USITC
Declines in demand
7.1287  The European Communities notes that the USITC found that: "The domestic industry
acknowledges that prices for cold-finished bar have historically tracked demand conditions. Indeed,
the domestic industry's decline in operating performance in 1999, a year when import volume and
market penetration declined, appears to a large extent attributable to the declines in demand during
that year".3059  China and the European Communities argue that it is thus clear that the USITC
considered that changes in demand were a cause of the serious injury.3060 China argues that the USITC
recognized that declines in domestic demand contributed to cause the injury to the domestic
industry.3061
7.1288  China submits that the USITC firstly focused its analysis on the year 2000 – when declining
demand was not an issue.  Then it demonstrated that the industry was seriously injured even during
this period, and that in this way the USITC fulfilled the requirements of the Article 4.2(b) of theAgreement on Safeguards.
3062  According to China, such an ap proach clearly misses the assessment of
the nature and extent of the declines in demand.  China questions how the USITC could have properly
evaluated this factor by focusing on year 2000 when "decline was not an issue".  In China's view, as a
consequence, the non-attribution analysis of the declines in demand in the domestic market could not
have been performed.3063
7.1289  In response, the United States argues that the USITC concluded that the domestic industry's
performance in 1999, a year when import volume and market penetration declined, appeared largely
attributable to declines in demand that year.  The USITC emphasized, however, that US demand for
cold-finished bar was higher in 2000 than it was in 1999.  Nevertheless, prices were lower in 2000
than in 1999, and the per unit difference between  average unit values and COGS was lower in 2000
than in any full year of the period of investigat ion other than 1999.  Notwithstanding that 2000 was a
year in which demand increased, the industry's operating margin that year was less than half the levels
of 1997 and 1998.3064  In this regard, the United States argues that the USITC ensured that it did not
attribute to imports any injury due to declining demand.  It did this by focusing on the domestic
industry's condition during a period when declining demand was not an issue – 2000, which was not
only the most recent full year of the period of investigation, but one in which United States  apparent
consumption increased from the level of the prior year.  The USITC found that in 2000, the domesticindustry suffered from depressed pricing and poor financial performance.  By demonstrating that the
domestic cold-finished bar industry was in a seriously injured condition even during a period where
demand was increasing, the United States submits that the USITC clearly satisfied its obligation under
Article 4.2(b) not to attribute to increased imports injury due to declines in demand.
3065
                                                     
3059 European Communities' first written submission, para. 500.
3060 European Communities' first written submission, para. 501;  China's first written submission,
para. 414.
3061 China's first written submission, para. 414.
3062 China's second written submission, para. 233.
3063 China's second written submission, para. 234.
3064 United States' first written submission, para. 594.
3065 United States' first written submission, para. 596.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
WT/DS258/R, WT/DS259/R
Page 427
NAFTA imports
7.1290  China notes that the determination of the existence of a causal link between the increased
imports and serious injury to the domestic cold-rolled bar industry, which is found in the USITC
Report was made on the grounds of data which included imports from NAFTA countries.  However,
China believes that, since imports from NAFTA countries were excluded from the application of the
safeguard measure, the USITC had to determine whether total increased imports, with the exception
of imports from NAFTA-countries, caused serious injury to the domestic industry.  China argues that
as a result, since the determination of causality required that "increased imports' only consist of
imports originating from non-NAFTA countries, the movements in imports from Canada and Mexicohad to be regarded as "an other factor". Article 4.2(b) of the Agreement on Safeguards also required
that injury caused by movements in imports from Canada and Mexico not be attributed to increased
imports (from non-NAFTA countries).
3066
7.1291  China further argues that in the Supplementary Report, the USITC was required to assess the
injury caused by imports from Mexico and Canada and to ensure that this injury would not beattributed to increased imports from non-NAFTA countries.  China argues that it did not do so.  China
further argues that the USITC provided no explanation whatsoever that injury caused by imports from
Mexico and Canada was not attributed to increased imports and there is no reason to believe that
injury caused by imports from Mexico and Canada were not in fact attributed to increased imports.
3067
7.1292  The European Communities argues that the USITC identified declining demand and imports
from Canada as other sources of serious injury to the domestic industry.  However, according to the
European Communities, it did not attempt to separate and distinguish the effects of these other factors,
and thus did not ensure that injury caused by these factors was not attributed to increased imports.
The European Communities and China argue that the United States, in imposing measures, has
therefore acted inconsistently with Article 4.2(b) of the Agreement on Safeguards.  Moreover, theUnited States has not determined, through the provision of a reasoned and adequate explanation, that
increased imports have caused serious injury.
3068  The European Communities further submits that the
United States has not argued that it has ensured the non-attribution of the injurious effects of FTA
imports.  It has simply claimed that it is not required to.  However, the European Communities notes
that it has explained why the United States was under an obligation to undertake such a non-
attribution analysis.3069
7.1293  For the United States' response, see paragraph 7.1066 et seq .
Factors not considered by the USITC
7.1294  The European Communities argues that the USITC did not consider in any detail the reasons
for the fall in profits in 1999, other than to note th at it was "to a large extent attributable to the
declines in demand during that year".  However,  according to the European Communities, a close
analysis of the data in the USITC Report suggests a major fall in the price of raw materials in 1999which was accompanied by a substantial increase in other costs.  According to the European
Communities, this evolution appears to have combin ed with developments in demand to explain the
                                                     
3066 China's first written submission, para. 418.
3067 China's first written submission, para. 421;  China's second written submission, para. 235.
3068 European Communities' first written submission, para. 504;  China's first written submission,
para. 421;  China's second written submission, para. 235.
3069 European Communities' first written submission, para. 399.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
WT/DS258/R, WT/DS259/R
Page 428
financial performance of the industry in 1999 and 2000. None of these developments are even
mentioned in the USITC Report.3070
7.1295  In response, the United States submits that the European Communities' argument that price
declines for cold-finished bar were the function of declines in unit raw material costs overlooks the
fact that the USITC placed particular emphasis on the price declines that occurred between 1999 and
2000.  The United States argues that, during this period, unit raw material costs increased.3071
7.1296  The European Communities argues that, moreover, there were a whole series of expenses
which were subject to a substantial leap in 1999 and 2000 which clearly had a significant effect on the
industry's financial performance.3072  According to the European Communities, the USITC's Report
does not even examine these developments, which coincide with the beginning of the serious injury
allegedly suffered by the domestic industry.  The European Communities states that it is quite clear
that the fall in raw material prices must have had an effect on prices on the market, and that the
increase in "other factory costs" must have had an effect on the profit margins which the domestic
industry could expect to obtain.3073
7.1297  In response, the United States submits that with respect to the European Communities'
argument that the declines in domestic industry performance in 1999 and 2000 appeared to be a
function of increased interest and "other" expenses and depreciation, and that this fact was overlooked
by the USITC, the European Communities fails to recognize that the USITC's analysis of the poor
financial condition of the domestic cold-finished bar industry was based on operating income andoperating margin data.  Interest and "other" expenses and depreciation were not components of
operating income, as computed by the USITC.  Instead, the USITC deducted interest expenses and
"other" expenses from operating income to derive net income.  USITC then added depreciation and
amortization to net income to derive cash flow.
3074  The United States argues that, accordingly,
increases in interest and "other" expenses and depreciation could not provide any explanation for thepoor operating performance in 2000 cited by the USITC.  Consequently, there was no requirement
under Article 4.2 for the USITC to have engaged in a further non-attribution analysis concerning these
factors.
3075
7.1298  In counter-response, the European Communities argues3076 that the United States, like the
USITC, ignores an important issue previously raised by the European Communities, which purports to
be an alternative explanation of the changed financial performance of the industry in 1999 and 2000.
The European Communities submits that this shows that but for massive changes in "other factory
costs" in 1999 and 2000 the domestic cold-finished bar industry would have had a more than
comfortable operating income in those years, even in the face of allegedly declining prices.  This is
because huge potential savings brought about by a decrease in raw material costs were nullified by
huge increases in other costs.  The European Communities submits that this is shown in the table
below:
                                                     
3070 European Communities' first written submission, para. 509.
3071 United States' first written submission, para. 592.
3072 European Communities' first written submission, para. 510.
3073 European Communities' first written submission, para. 511.
3074 United States' first written submission, para. 597.
3075 United States' first written submission, para. 598.
3076 European Communities' second written submission, para. 397.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
WT/DS258/R, WT/DS259/R
Page 429
Table 16:  Cold-Finished Bar – Unit Value of Commercial Sales and Costs (1998-2001)3077
1998
(actual)1999
(actual)1999
(constant)2000
(actual)2000
(constant)2001
(actual)2001
(constant)
Net. Comm.
Sales711 667 667 668 668 671 671
Raw
materials480 347 347 368 368 364 364
Direct labor 45 51 51 54 54 58 58
Other factory
costs98 212 98 184 98 203 98
COGS Total 623 609 496 605 520 625 520
Gross Profit 88 57 171 63 148 47 151
SG&A 44 49 49 44 44 48 48
Operating
Income (loss)44 8 122 19 104 (1) 103
7.1299  According to the European Communities, such wa s the decline in raw material costs that if
the industry had managed to keep "other factory costs" stable, it would have made substantial profits
in 1999, 2000 and interim 2001.  The European Communities submits that a competent authority,seeing such a development, should first check whether this data was correct and second examine very
closely the reasons for such cost developments, in or der to make sure that it did not err in attributing
the injury seen in 1999 and 2000 to increased imports.  Given that between 1998 and 1999 capacity
utilization of the industry increased, and the volume of sales declined by only 10,000 tons, the
European Communities argues that these cost developments cannot be explained by effects on thedomestic industry caused by increased imports.  In the absence of any discussion of this factor, the
European Communities argues that the USITC cannot be considered to have provided a reasoned and
adequate explanation of its determination.
3078 3079
(v) Rebar
Factors considered by the USITC
Domestic capacity increases
7.1300  China argues that the USITC did not address the question of whether capacity increases could
have caused injury at the same time as increased imports.3080
7.1301  In response, the United States argues that the USITC did examine increases in domestic
capacity.  According to the United States, the USITC concluded that this could not be an alternativecause of injury because the 26.6% increase in domestic productive capacity from 1996 to 2000 was
                                                     
3077 European Communities' second written submission, para. 347; USITC Report, Vol. II, p. LONG-
34, table LONG-28.  In the columns marked "constant" the data for "other factory costs" has been kept constant.Figures which have been kept constant have been italicized, and figures which change as a result of thesimulation are put in bold.
3078 The United States misinterprets and dismisses th is argument of the European Communities;  See
United States' first written submission, para. 592.
3079 European Communities' second written submission, para. 398.
3080 China's first written submission, para. 428.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
WT/DS258/R, WT/DS259/R
Page 430
much smaller than the 48.1% increase in United States  apparent consumption during that period.
Moreover, capacity utilization generally increased during the period of investigation.3081
7.1302  The United States submits that, therefore, contrary to China's argument, the USITC clearly
and unambiguously stated that increased capacity was not a cause of injury.  According to the United
States, China does not provide any basis for the Panel to conclude that the USITC did not objectively
examine the evidence concerning this factor and explain the basis for its conclusion.3082
Changes in input costs
7.1303  China argues that the USITC did not clearly indicate whether this factor contributed in
causing injury.  Moreover, according to China, th e USITC failed to properly examine to what extent
this factor could have had an impact on prices.  The USITC merely stated that the fall in costs was not
as important as the decrease in prices and that, ther efore, falling costs were not responsible for falling
prices.  China argues that this explanation is obviously wrong.  Falling costs must have had some
effect on falling prices.  Indeed, for prices to increase as demand increases, all other factors must
remain unchanged.  China asserts that this was not the case here.  With increases in the United States'production and productivity, supply of rebar also increased.  This had suppressed prices.  Moreover, if
one can assume that falling production costs do not necessarily translate into falling prices in a
monopoly or oligopoly market, it would be false to assume the same thing in an open market.
Competition in an open market will necessarily put pressure on prices if production costs decrease.
3083
7.1304  The European Communities argues that because of the lack of clarity of the USITC Report on
alternative causes of injury, the USITC failed to es tablish explicitly whether increased costs were an
alternative cause of injury to the rebar industry.  The European Communities argues either that the
USITC had found that increased costs were an alternative source of injury or, if the USITC had not
made such a finding, that the USITC had ignored and consequently failed to separate and distinguish
and ensure non-attribution, of this alternative factor. 3084
7.1305  The United States argues that the USITC examin ed changes in input costs in details for the
period from 1998 to 2000. The USITC noted that unit COGS fell from 1998 to 1999. It stated that, in
light of the large increase in demand during this period, this decline in costs should not necessarily
have led to a decline in prices. However, there was a decline in unit sales values that exceeded the
decline in unit input values. The USITC thus reasonably concluded that the decline in prices was not
mererly a function of input cost declines. Instead, it found that the increased imports prevented
domestic rebar producers from obtaining the full be nefits of declining input costs in a growing
market. The USITC also performed a detailed examination of changes in input costs from 1999-2000.
During this period, demand increased and per unit COGS increased, yet prices declined.
Consequently, the United States argues, there was no possible causal nexus during this period
bewteen price declines and changes in input costs.3085
7.1306  The United States argues that the USITC's detailed and comprehensive examination of
changes in input costs contrasts markedly with th e cursory and inconsistent arguments advanced by
the European Communities in its submission.  In one paragraph, the European Communities asserts
that the USITC should have concluded that the price decline from 1999 to 2000 was merely a function
                                                     
3081 United States' first written submission, para. 608.
3082 United States' first written submission, para. 609.
3083 China's first written submission, para. 429.
3084 European Communities' second written submission, para. 402.
3085 United States' first written submission, paras. 610-611WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
WT/DS258/R, WT/DS259/R
Page 431
of decline in raw material costs.3086  Just three paragraphs later, the European Communities states that
the USITC should have concluded that the domestic rebar industry's financial problems in 2000 weredue to an inability to increase prices commensurate ly with increases in costs such as other factory
costs.
3087  What the European Communities appears to overlook is that both raw material costs and
other factory costs are components of COGS.  Changes in input costs from 1999 to 2000 would have
either dictated an increase in prices or a decrease in prices in light of changes in other conditions of
competition, such as demand.  Input cost changes could not, as the European Communities  seems to
envision, have dictated both price increases and declines simultaneously.3088
7.1307  According to the United States, in marked cont rast to the European Communities, the USITC
used a coherent and objective approach in assessing changes in input costs. The USITC properly
examined all components of COGS in determining th at input costs rose from 1999 to 2000.  It is not
disputed that prices did not follow suit.3089  This raises the question of why the domestic rebar
industry could not recover increasing input costs, as well as the increasing selling, general, and
administrative expenses cited by the European Communitites, from 1999 to 2000.  As the EuropeanCommunitites  notes, this period was "when United States  production and capacity utilization was at
its highest;"
3090 moreover, demand was rising.  In such a market, one would anticipate that prices
would follow costs.3091  The reason that prices for United States-produced rebar did not follow costs in
2000 is the one overlooked by the European Communities: the imports.3092
NAFTA imports
7.1308  China notes that the determination of the existence of a causal link between the increased
imports and serious injury to the domestic rebar industry, which is found in the USITC Report, was
made on the grounds of data which included imports from NAFTA countries.  However, China
believes that, since imports from NAFTA countries were excluded from the application of the
safeguard measure, the USITC had to determine whether total increased imports, with the exceptionof imports from NAFTA-countries, caused serious injury to the domestic industry.  China argues that
as a result, since the determination of causality required that "increased imports' only consist of
imports originating from non-NAFTA countries, the movements in imports from Canada and Mexico
had to be regarded as "an other factor". Article 4.2(b) of the Agreement on Safeguards also required
that injury caused by movements in imports from Canada and Mexico not be attributed to increased
imports (from non-NAFTA countries).
3093
7.1309  China argues that such a new determination was not done concerning this product.  This, it
states, is especially surprising, given that the USITC acknowledged that imports from Canada and
Mexico were causing injury by stating that "im ports from Canada did not contribute importantly to
the serious injury" and "imports from Mexico did not contribute importantly to the serious injury".  In
other words, imports from NAFTA countries contributed in causing the injury, although this
contribution was not substantial.3094  China argues that since the USITC did not proceed to a new
                                                     
3086 European Communities' first written submission, para. 521.
3087 European Communities' first written submission, para. 524.
3088 United States' first written submission, para. 612.
3089 United States' first written submission, para. 617.
3090 European Communities' first written submission, para. 524.
3091  Indeed, when it attempts to divorce "relatively low prices" from "developments of costs" in
para. 524 of its first written submission, the European Communties appears to overlook that absent price
suppression or depression there normally will be a direct relationship between a company's costs and its prices.
3092 United States' first written submission, para. 614.
3093 China's first written submission, para. 437;  China's second written submission, para. 245.
3094 China's first written submission, para. 438.WT/DS248/R, WT/DS249/R,
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determination of causality between increased imports from non-NAFTA countries and the serious
injury to the domestic industry, it failed to assess the injury caused by imports from Mexico andCanada and it failed to ensure that this injury would not be attributed to increased imports from non-
NAFTA countries.  Therefore, China argues that the USITC did not comply with Articles 2(1) and
4.2(b) of the Agreement on Safeguards.
3095
7.1310  Similarly, the European Communities argues that, in failing to analyse imports from Canada,
Mexico, Israel and Jordan as alternative causes of  injury the USITC also acted inconsistently with
Article 4.2(b).3096
7.1311  For the United States' response, see paragraph 7.1066 et seq .
Factors not considered by the USITC
7.1312  The European Communities notes that the USITC considered that price declines in 1999,
which continued into 2000 allegedly led by imports, were responsible for the poor performance of the
domestic industry in 2000.3097  According to the European Comm unities, it is far from clear that
imports can be regarded as price setters in what the USITC admitted is a commodity market.  Importsachieved their highest level of market share in 1999 with 22% of the market.  According to the
European Communities, it had not been demonstrated that price would be set by 22% of the market
taken up by imports, rather than the 78% taken up by domestic production.  The USITC's purported
justification of the price leadership of imports does not survive detailed examination.
3098
7.1313  With regard to the argument that it is "far from clear that imports can be regarded as price
setters in what the USITC has admitted is a comm odity market", the United States submits that this
argument ignores two uncontested USITC findin gs.  First, the USITC found that rebar was a
commodity product sold on the basis of price – a proposition no party has disputed.  Second, the
USITC found that the imports undersold domestically produced rebar by margins over 20% since
1998.3099  The United States further argues that in a commodity market where purchasing decisions
are made on the basis of price, significant volumes of a low-priced product will drive all prices down.
The increased quantities of rebar imports were priced much lower than the domestically produced
product.  The United States submits that, as the USITC found, to meet this competition the domestic
industry was forced to cut prices to avoid losing  even more market share to the imports than it
actually did.3100
7.1314  The European Communities argues that it would appear that the price declines in 1999 and
2000 were closely linked to declines in the cost of raw materials.  The declines in those two years
closely followed declines in raw material prices.  However, as noted, in 1999 the domestic industry
continued to make a comfortable operating income while in 2000 a substantial loss was suffered.
Close analysis of the data in the report shows subs tantial increases in both "other factory costs" and
SG&A expenses.3101  According to the European Communities, it was not the relatively low price
obtaining on the United States  domestic market which led the domestic industry to suffer injury, butit was the developments of costs, in particular "other factory costs" and SG&A expenses, which led to
the alleged serious injury.  The European Communities argues that these costs increased when                                                     
3095 China's first written submission, para. 439.
3096 European Communities' first written submission, para. 517.
3097 European Communities' first written submission, para. 519.
3098 European Communities' first written submission, para. 520.
3099 United States' first written submission, para. 604.
3100 United States' first written submission, para. 605.
3101 European Communities' first written submission, para. 521.WT/DS248/R, WT/DS249/R,
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United States production and capacity utilization was at its highest. However, the European
Communities asserts that the USITC Report does not even mention these developments, nor assesstheir effect on the situation of the domestic industry.
3102  The European Communities argues that the
USITC does not attempt to explain the striking fact that in 1996 the domestic industry made an
operating loss of US$72,000, which was the year in which the domestic industry had its highest
market share and was characterised by relatively high prices and a low level of imports.  Demand,
however, was lower in 1996 than in any other year during the investigation period.  According to the
European Communities, evidently, this loss could not have been caused by increased imports. This
fact, which is immediately obvious is never explained. This is probably because it suggests thatsomething other than imports is responsible for the problems of the domestic industry.
3103
7.1315  In response, the United States argues that the USITC's detailed and comprehensive
examination of changes in input costs contrasts markedly with the cursory and inconsistent arguments
advanced by the European Communities in its submission.  In one paragraph, the European
Communities asserts that the USITC should have concluded that the price decline from 1999 to 2000was merely a function of decline in raw material co sts.   Later, the European Communities states that
the USITC should have concluded that the domestic rebar industry's financial problems in 2000 were
due to an inability to increase prices commensurate ly with increases in costs such as other factory
costs.  What the European Communities appears to overlook is that both raw material costs and other
factory costs are components of COGS.  Changes in  input costs from 1999 to 2000 would have either
dictated an increase in prices or a decrease in prices in light of changes in other conditions of
competition, such as demand.  Input cost changes could not, as the European Communities seems to
envision, have dictated both price increases and declines simultaneously.
3104  The United States
submits that in marked contrast to the European Communities, the USITC used a coherent and
objective approach in assessing changes in input costs.  The USITC properly examined allcomponents of COGS in determining that input cost s rose from 1999 to 2000.  It is not disputed that
prices did not follow suit.
3105  This raises the question of why the domestic rebar industry could not
recover increasing input costs, as well as the increasing selling, general, and administrative expenses
cited by the European Communities, from 1999 to 2000.  As the European Communities notes, this
period was "when United States production and capacity utilization was at its highest";  moreover,
demand was rising.  In such a market, one would anticipate that prices would follow costs.   The
reason that prices for United States-produced rebar did not follow costs in 2000 is the one overlookedby the European Communities: the imports.
3106
7.1316  In counter-response, the European Communities argues that the USITC's discussion of input
costs is entirely phrased in terms of whether they caused prices to fall.  According to the European
Communities, the USITC recognized that declines  in the COGS in 1999 could not explain the
magnitude of price declines observed in that year (although such declines must have had an effect).However, the European Communities' argument was that increases in other factory costs and SG&A
expenses in 2000 (which form part of COGS), th e year in which operating income declined and thus
serious injury was allegedly found
3107, are a more probable cause of injury than price declines caused
by increased imports.3108  Indeed, absent the increased costs, the domestic rebar industry would have
                                                     
3102 European Communities' first written submission, para. 524.
3103 European Communities' first written submission, para, 514.
3104 United States' first written submission, para. 612.
3105 United States' first written submission, para. 613.
3106 United States' first written submission, para. 614.
3107 There was only a marginal decline in operating income in 1999, with operating income above 1996
and 1997 levels.
3108 European Communities' first written submission, paras. 521-525.WT/DS248/R, WT/DS249/R,
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had an operating income of US$68,368,692 rather than a loss of US$24,669,000, a respectable level
given operating income in 1999 of US$74,412,000.3109 The USITC Report contains no discussion of
this increase in costs, nor of the reasons be hind it.  The European Communities notes that the
domestic industry increased its capacity utilization and its volume of sales in 2000.  Increased costs do
not result from such developments.  That it did not, suggests that other developments, which the
USITC did not explore but which it clearly should have explored, were a more probable cause of
injury than increased imports.  The European Communities asserts that the United States has not
addressed this issue.  The European Communities argues that, consequently, the USITC's report does
not provide a reasoned and adequate explanation of its findings.3110
Failure to provide reasoned and adequate explanation
7.1317  China argues that the USITC neither assessed injury caused by other factors nor did it clearly
state that other factors were not causing injury and explained the reasons why.3111  China argues  that
the USITC failed to adequately evaluate the complexity of the alleged injury factors.  It also failed to
provide a sound, clear and straightforward explanation of how it ensured that injury caused by otherfactors was not attributed to increased imports.  Therefore, China believes that the USITC acted
inconsistently with Articles 2(1) and 4.2(b) of the Agreement on Safeguards.
3112
7.1318  The United States argues that the USITC conducted a reasoned and adequate examination of
the injury purportedly caused by factors other than increased imports and ensured that any injury
caused by these other factors was not attributed to imports.  Consequently, the USITC's non-attribution analysis for rebar satisfied the requirements of Articles 2.1 and 4.2 of the Agreement on
Safeguards.  The USITC separated and distinguished from the serious injury caused by increased
imports any injury attributable to other factors.
3113
(vi) Welded pipe
Factors considered by the USITC
Declines in demand
7.1319  Korea argues that the USITC's failure to properly define the like products in the other welded
pipe category prevented the USITC from properly considering declines in demand, an important
"other factor" affecting the industry.  According to Korea, the declines in demand were most
pronounced for other welded pipe (excluding LDLP).3114
7.1320  Korea argues that the USITC's findings in the concurrent anti-dumping investigation of
welded pipe are instructive.  As noted there, declines in domestic industry performance at the end ofthe investigation period "occurred in the context of a decline in the overall economy and total
                                                     
3109 The figure of US$68,368,692 is calculated by multiplying the operating income per unit which
would have been achieved if other factory costs and SG&A expenses are kept constant compared to 1999 (i.e.US$12 per unit – see Figure 43, Rebar; Evolution of costs with 1999 values held constant, EuropeanCommunities' first written submission, para. 523.) by the volume of commercial sales in 2000 (i.e. 5,697,391tons – see USITC Report, Vol. II, p. LONG-35, Table LONG-29)).
3110 European Communities' second written submission, para. 403.
3111 China's first written submission, para. 427.
3112 China's first written submission, para. 430.
3113 United States' first written submission, paras. 607 and 616.
3114 Korea's first written submission, para. 151.WT/DS248/R, WT/DS249/R,
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Page 435
apparent domestic consumption of standard pipe".3115  Korea argues that, consequently, the USITC
concluded in that investigation that the United States  welded pipe industry – during the same periodof the investigation as used in the Section 201 investigation – was not materially injured or threatened
with material injury by reason of imports of standard pipe from China and that industry declines were
due to softening demand.
3116  In Korea's view, if there was no "material" injury arising from imports,
imports could not be responsible for "serious" injury.  In view of these facts, strongly suggesting that
serious injury was not due to imports, the USITC should have identified, distinguished, and separated
the serious injury arising from declines in demand.3117
7.1321  Korea also argues that, conversely, as the USITC acknowledged, demand for LDLP was
increasing towards the end of the period.  While the USITC agreed that "rising demand tends to
ameliorate the impact of a given volume of imports",  it noted that "even with a recent rise in LDLP
demand, overall demand for covered welded tubular products has been relatively constant on a full
year basis since 1998, as well as between interim periods.  Thus, we do not consider the likely
increase in demand for LDLP as eliminating the threat to serious injury".  However, according toKorea, the true trends were masked by consider ing the two separate like products together so that
demand appeared "stable".
3118
7.1322  Korea further argues that, irrespective of the analytical flaws caused by the improper
definition of like product, the USITC did not separate and distinguish the effects of this other factor
affecting the United States industry's performance as required by Article 4.2 of the Agreement onSafeguards.
3119
7.1323  In response, the United States submits that the USITC noted that several parties had argued
that the welded pipe industry was not threatened with serious injury because of increasing demand in
the LDLP sector of the market but rejected this argument.  The USITC stated that the record evidence
did, in fact, indicate that there had been a growth in demand for LDLP in the market and that thegrowth in demand for that product, which was expect ed to continue, might ameliorate the impact of
these imports on the welded pipe industry.  However, it also noted that LDLP only accounted for 20
to 30% of market demand for the overall welded pipe product category and that demand in the overall
welded pipe market had been constant between 1998 and interim 2001, even with the substantial
growth in demand for LDLP.  Accordingly, the USIT C reasonably rejected this factor as indicating
that the industry would not continue to deteriorate or  that imports would not continue to increase their
presence in the market.
3120
7.1324  The United States argues further that the USITC clearly did discuss this issue and properly
considered it in the appropriate legal context, that is, in the context of how demand trends affected
competition in the market for welded pipe, the relevant like product in this proceeding.  The United
States submits that Korea's argument is simply wrong-headed because it suggests that the USITC
should have placed greater weight on demand trends for a sub-segment of the like product, LDLP,than on demand trends for the like product, all certain welded pipe.  For this reason, its argument
should be rejected.
3121
                                                     
3115 Korea's first written submission, para. 151.
3116 Korea's first written submission, para. 152.
3117 Korea's first written submission, para. 153.
3118 Korea's first written submission, para. 154.
3119 Korea's first written submission, para. 155.
3120 United States' first written submission, para. 637.
3121 United States' first written submission, para. 638.WT/DS248/R, WT/DS249/R,
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7.1325  In counter-response, Korea notes that the United States countered that demand in the overall
welded pipe market had been constant even with the substantial growth in demand for LDLP.  Korea
submits that this is exactly the complainants' point.  The only reason that the overall growth in
demand for other welded pipe between 1998 and interim 2001 was able to remain constant was due to
the substantial growth in demand for LDLP, which stabilized the declining demand for other welded
pipe.   Thus, the USITC failed to take into account and distinguish demand changes which affected
the performance of the other welded pipe producers.3122
Domestic industry overcapacity
7.1326  China and Switzerland note that the USITC stated in its report that increased domestic
capacity was not contributing in a more than minor way to the condition of the industry, yet it did not
explain the nature and extent of this contribution.3123  The European Communities argues that it is
clear from the USITC's statements that it considered that increased capacity had some effect on the
situation of the domestic industry.3124
7.1327  China, the European Communities and Switzerland argue that the increase in capacity was not
looked at closely enough and given sufficient importance.  The increase in domestic capacity over the
period of investigation was 1.5 million short tons and the increase in consumption was 1.2 million
short tons.  The USITC states that domestic capacity did not increase much more than consumption
and thus it did not have an important impact on prices.  The complainants argue that this is wrong.
According to the European Communities, China and Switzerland, such a significant increase incapacity must have had a greater impact on prices than the USITC recognized.
3125  The European
Communities argues that it is insufficient just to compare capacity and consumption on an end-to-end
basis.  There is a clear trend of increasing capacity while United States'  apparent consumption
flattens off.  The effects of increases in over-capacity would have had a more serious effect in 1999
and 2000, driving prices down, yet were not subjected to detailed examination.3126
7.1328  Korea further argues that the record demonstrates that domestic capacity exceeded apparent
United States  consumption as early as 1996 and that the evidence demonstrates that the low capacity
utilization was the direct result of capacity expansion beyond even the most favorable projections of
market demand.3127  Korea argues that these capacity increases and low capacity utilization rates
raised costs and intensified competition among domestic producers which, in turn, reduced prices.3128
Korea argues that irrespective of such a clear dec line in the already low capacity utilization rate and
its impact on the condition of the industry, the USITC failed to consider separately the effect ofexcess capacity and low capacity utilization on the industry's performance at the end of the period to
assure that such effects were not attributed to imports.
3129
7.1329  In response, the United States submits that th e USITC clearly did pay close attention to the
record evidence concerning capacity increases and discussed in some detail whether the increases had
an impact on domestic prices.3130  The United States submits that the USITC correctly noted that
                                                     
3122 Korea's second written submission, para. 192.
3123 China's first written submission, para. 444;  Switzerland's first written submission, para. 302.
3124 European Communities' first written submission, para. 527.
3125 European Communities' first written submission, para. 527; China's first written submission,
para. 448;  Switzerland's first written submission, para. 306.
3126 European Communities' first written submission, para. 533.
3127 Korea's first written submission, para. 158.
3128 Korea's first written submission, para. 159.
3129 Korea's first written submission, para. 160.
3130 United States' first written submission, paras. 630-632.WT/DS248/R, WT/DS249/R,
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domestic capacity had increased during the period but also noted that this increase had tracked the
growth in demand during the period of investigation to a substantial degree so that capacity increaseshad only a minimal impact on price levels in the market.  Moreover, the USITC also correctly found
that, even with this increase in capacity, the domestic industry's production levels had actually
declined during the last years of the period, which showed that the industry had not been able to take
advantage of its increased capacity as a result of import increases during these years.
3131  The United
States concludes that since the production levels of the industry declined in 1999 and 2000, this
additional capacity could have, at best, only a minimal and indirect effect on market prices during
those two years.  Instead, the addition of more than 360 thousand tons of import merchandise to themarket on 1999 and 2000 – sold at consistently lower prices than domestic merchandise – clearly had
a much more substantial and direct impact on prices during that period, as the USITC reasonably
found.
3132  The United States submits that, given these facts, it is clear that the USITC examined the
record evidence concerning capacity in detail and correctly rejected the argument that this increased
capacity had had a significant impact on prices during the last two years of the period ofinvestigation.
3133
7.1330  In counter-response, China submits that with respect to domestic capacity increases, the
USITC qualitatively evaluated effects of increased imports and the effects of capacity increases on the
situation of the industry.  As a result of this approach, in China's view, the USITC neither could
provide an analysis which would properly identify the nature and extent of these factors nor could itestablish explicitly that the effects were distinguished from increased imports.
3134  China submits that
an extensive, and often speculative interpretation of the Commissioners' findings by the United States
in its submissions cannot replace the lack of an explicit, reasoned and adequate explanation that the
effects of 'other' factors were not attributed to imports, and the lack of an appropriate assessment of
the injurious effects of other factors in the USITC Report.3135
7.1331  Also in counter-response, the European Communities argues that the mere finding that
increased capacity contributed in a "minor way" does not establish, in an explicit manner, how the
USITC separated and distinguished the injurious effects of increased capacity and ensured that those
effects, along with the injurious effects of other factors, were not attributed to increased imports.
Moreover, the European Communities reiterates that capacity increased substantially in 1999 and
2000 while consumption remained stable thus showing that an end-to-end comparison of the increase
in consumption was insufficient to properly ex amine the interrelationship between changes in
capacity and consumption.3136 3137
7.1332  Korea notes that in the case of the welded pipe industry's capacity increases, the USITC
ignored the fact that the industry had too much absolute capacity even at the beginning of the period.
According to Korea, capacity exceeded total United States demand at the beginning of the period of
investigation.3138  Yet, the industry kept adding capacity.3139 3140  Korea submits that the full effects of
                                                     
3131 United States' first written submission, para. 625.
3132 United States' first written submission, para. 632.
3133 United States' first written submission, para. 625.
3134 China's second written submission, para. 248.
3135 China's second written submission, para. 249.
3136 European Communities' first written submission, para. 532, 533 and figure 44.
3137 European Communities' second written submission, para. 407.
3138 See USITC Report, Vol. II, TUBULAR-15 and Table TUBULAR-43 at TUBULAR-37
(Exhibit CC-6).
3139 USITC Report, Vol. II, TUBULAR-15(Exhibit CC-6).
3140 Korea's second written submission, para. 186.WT/DS248/R, WT/DS249/R,
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that overcapacity really surfaced in its most problematic form when demand started to decline.3141
Obviously, such overcapacity in a declining market would have led to severe declines in industry
performance, even if imports had been absent from the market.  Certainly, such a significant factor
causing injury should have been carefully separated by the United States and the injurious effects of
those factors should have been examined.3142  Instead, the United States merely asserts that the USITC
properly assessed the effect and concluded that the increased capacity levels of the industry were not
responsible in more than a minor way for any declines in the industry's condition.3143  According to
Korea, such an assertion does not satisfy the non-attribution requirement under Article 4.2(b) of the
Agreement on Safeguards.  The nature and extent of the impact on the market caused by the increasedcapacity should have been separated and distinguished from the effect caused by imports.
3144
Aberrational performance of one member of the industry
7.1333  The European Communities argues that the USITC's findings regarding the situation of the
significant domestic producer suggest that factors other than imports were responsible for at least
some of the decline of the company's financial performance.3145  However, the USITC does not
separate and distinguish the effects of these alternative causes, and thus does not ensure that the
effects of these factors are not attributed to increased imports. The United States has, consequently,
acted inconsistently with Article 4.2(b) of the Agreement on Safeguards.3146
7.1334  China and Switzerland argue that as regard "the events pertaining to a significant producer",
the USITC merely briefly explained what the main factor for the decline in the financial performancewas, but it did not give any hint concerning the role that non-import related events have played.
Further, when the USITC concluded that the exclusion of this "significant" producer did not
substantially alter the downward trend in industry profitability, it failed to specify the extent to which
this downward trend had nevertheless been altered.
3147
7.1335  Korea also argues that the USITC failed to properly segregate and consider the effects on the
performance of the United States' industry of one very unprofitable producer whose performance
declines were caused by well-documented problems entirely unrelated to other welded pipe
imports.3148  According to Korea, the USITC completely  disregarded the evidence on the record that
demonstrated that this company's declines were not caused by imports.  Moreover, the USITC's
conclusion that this company's performance was caused by the drop in unit values (which, in turn, was
supposedly caused by increased imports) is equally unreliable as the USITC itself was admittedly
"cautious of placing undue weight on average unit value, as it is influenced by issues of productmix".
3149
7.1336  In response, the United States argues that although the details of the producer's problems and
its operating results are confidential, the USITC clearl y examined the record evidence relating to these
issues and discussed the nature and extent of this producer's performance in detail.3150  It specifically
noted the arguments made on this issue by the foreign producers and rejected their assertions that the
                                                     
3141 USITC Report, Vol. I, p. 148 (Exhibit CC-6).
3142 Korea's second written submission, para. 187.
3143 United States' first written submission, para. 631.
3144 Korea's second written submission, para. 188.
3145 European Communities' first written submission, para. 527.
3146 European Communities' first written submission, para. 528.
3147 China's first written submission, para. 444;  Switzerland's first written submission, para. 302.
3148 Korea's first written submission, para. 161.
3149 Korea's first written submission, para. 162.
3150 USITC Report, p. 165.WT/DS248/R, WT/DS249/R,
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industry's operating results had been skewed by the non-import problems of the producer.3151  I t
concluded that certain costs of the company appeared to have increased but that the main reason forthe decline in the industry's financial performance was the "substantial drop in the unit values of the
company's sales beginning in 1999", which was due to the substantial increase in imports.
3152
Moreover, the USITC noted, the exclusion of the company from the industry data did not substantiallyalter the downward trends in the industry's condition in those years.
3153  By conducting this analysis,
the USITC properly distinguished the effects attributable to this producer's operations from the effects
of imports and found that the industry's problems were genuinely and substantially the result of
increased imports.3154  According to the United States, the complainants' assertions that the USITC did
not conduct such an analysis have no foundation.3155 3156
7.1337  Korea notes that once again, the United States merely asserts that the USITC did assess the
extent to which the difficulties experienced by one of the domestic producers caused declines in the
industry's performance.  The United States concludes by simply saying that the USITC noted that the
exclusion of the company from the industry data did not substantially alter the downward trends in the
industry's condition in those years.3157  This statement confirms that the USITC found that this
company at issue did alter the downward trends in  the industry's condition.  Nonetheless, the USITC
failed to analyse how and to what extent  that was the case.  Without such analysis, it cannot be shown
that the USITC properly distinguished the effects attributable to this producer's operations from the
effects of imports.3158
NAFTA imports
7.1338  China notes that the determination of the existence of a causal link between the increased
imports and the threat of serious injury to the domestic certain tubular products industry, which is
found in the USITC Report was made on the grounds of data which included imports from NAFTA
countries.  However, China believes that, since imports from NAFTA countries were excluded fromthe application of the safeguard measure, the USITC had to determine whether total increased
imports, with the exception of imports from NAFTA-countries, threatened to cause serious injury to
the domestic industry.  China argues that, as a result, since the determination of causality required that
"increased imports' only consist of imports originating from non-NAFTA countries, the movements in
imports from Canada and Mexico had to be regarded as "an other factor". Article 4.2(b) of the
Agreement on Safeguards also required that injury caused by movements in imports from Canada and
Mexico not be attributed to increased imports (from non-NAFTA countries).
3159
                                                     
3151 USITC Report, p. 165.
3152 USITC Report, p. 165.
3153 USITC Report, p. 165.
3154  In this regard, the United States notes that the complainants' argument is, in essence, an assertion
that the USITC should conduct its causation assessment for only a portion of the industry producing welded
pipe.  As the complainants are aware, however, the USITC is required by the Agreement on Safeguards to assess
whether imports are causing serious injury to the industry as a whole, not subsegments of it.   Thus, even if thisproducer were affected to some effect by non-import factors, the USITC would nonetheless still need to includethis producer in the industry and assess whether the industry as a whole were injured by imports.
3155 European Communities' first written submission, para. 527;  Korea's first written submission,
para. 162;  China's first written submission, para. 444;  Switzerland's first written submission, para. 302.
3156 United States' first written submission, para. 635.
3157 United States' first written submission, para. 635.
3158 Korea's second written submission, para. 189.
3159 China's first written submission, para. 450.  China's second written submission, para. 250.