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WT/DS251/R, WT/DS252/R,
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7.1571  The United States suggests that the numerical analysis also attempts to avoid attributing to
increased imports the negative price effects of increased capacity and minimill competition, the twoother factors that the USITC found to be causing injury during the 1998-2000 period.  These two
factors are related because, during the investigation period, almost all new capacity for CCFRS
products was minimill capacity.  The greatest increase in minimill capacity occurred in 1997, which is
the comparison year.
3629  Thus, the comparison year already reflects much of the capacity expansion
that the USITC found was having an effect on United States prices.  In 1998, the year with the second
highest level of increase in minimill capacity during the investigation period, capacity increases were
in line with increases in demand, so the analysis makes no adjustment to account for capacity andminimill competition in those years.
3630  Capacity increases in 1999 and 2000 were much smaller than
in previous years, and demand stayed at roughly the same level.  Imports remained in the market at
high levels, and at lower prices than in previous years.  Minimill shipments into the commercial
market were at higher levels than at the beginnin g of the investigation period, but still reflected unit
values higher than those for imports.  To compete with imports, domestic producers cut prices.Accordingly, the United States makes no adjustment for these factors.  The United States also makes
an adjustment to the estimate to reflect the USITC' s finding that the decrease in demand in the first
half of 2001 "contributed to the industry's continued deterioration at the end of the period".  For
purposes of the Article 5.1 analysis, and as a cons ervative assumption, the United States notes that
apparent domestic consumption of hot-rolled steel, cold-rolled steel, and coated steel was at levelscomparable to those in 1996 in the first half of 200 1.  Accordingly, for this period, the United States
reflects the decreased level of demand by using 1996 as the base period profit.  The USITC's findings
with regard to imports from Canada and Mexico require no adjustment to the estimate.
7.1572  The United States then explains that in the first step of the Article 5.1 evaluation, it uses a
base year of 1997 for all categories.  As a conservative estimate, the estimate reduces the base yearoperating income margin by half for the first half of 2001, to reflect that the USITC found that
declining demand was a factor in causing injury during this period, but was no more important than
increased imports.  In the second step, the analysis estimates the level to which domestic producers'
prices would have to increase during the pendency of a safeguard measure to eliminate the price
effects of increased imports and to counteract the negative effects of imports from 1998 to 2000.  This
involves estimating the unit value needed to raise operating margins by the amounts it describes, and
then adding an additional increase that would recoup the shortfall in operating income.  In the thirdstep, the process described previously produces an estimate for each category of the degree to which
import producers' prices would have to increase for domestic producers to achieve the operating
income margin described above.   Then the United States weight averages these amounts by net
commercial sales revenues.  As a fourth step, it estimates the additional duty that would be necessary
to achieve the target increase.  During the remedy phase of the investigation, the USITC staffprepared economic models on the United States market for CCFRS.  The USITC staff adjusted the
standard model to reflect linkages among the different categories of flat steel, and ran several
permutations.  This linked model indicated that a 30% increase in duties on all certain flat-rolled steel
(including slab and Mexico) would result in an increase of between 20.8 and 28.0% in the sale price
                                                     
3629 USITC Memorandum INV-Y-215, Tables G04-1, G02-1, G03-1, and G06-1.  Minimill capacity to
produce plate and hot-rolled steel increased as much in 1997 as in all other years of the investigation period,combined.
3630 For plate, cold rolled steel, and coated steel the increase in demand in 1998 was either greater than
or roughly equal to the increase in capacity in 1998.  The USITC indicated that capacity increases in line with
demand were not themselves injurious.  For hot-rolled steel, capacity increased by more than demand in 1998.
However, imports of hot-rolled steel increased by 68% in 1998, while production decreased, indicating that the
domestic producers were not engaged in competitive price reductions to gain market share and fill capacity,which the USITC identified as the way that extra minimill capacity would affect prices.  USITC Report,pp. 63-65.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 517
of imported CCFRS products (excluding Canada) in the United States.3631  This suggests that the 30%
tariff on CCFRS products is set at a magnitude that satisfies the requirements of Article 5.1.
7.1573  Based on the USITC's analysis, the United States considers that its estimation of the extent of
application of the CCFRS measure necessitated modifications to the approach outlined previously.
The USITC found that [t]he impact of the 1998 surge in imports on the domestic industry is
undeniable".  Operating income fell in spite of an increase in demand.3632  The USITC found further
that "[t]he import surge in 1998 altered the competitive strategy of domestic producers" in subsequent
years, leading to "repeated price cuts" that "while stemming somewhat the tide of imports and
increasing domestic shipments, did nothing to improve the industry's condition".3633  Consequently, in
2001, "[t]he domestic industry entered a period of falling demand already in a weakened condition
and deteriorated even further".3634
7.1574  Accordingly, the United States performs the modelling exercise described previously, but
based on data for 1998, 1999, and 2000 [sic], rather than just 2000.  More specifically, the United
States looks at the following sets of scenarios:  (i) the change in the price, volume, and revenue fordomestic products and imports if the remedy established by the President on 5 March 2002, had been
in effect in 2000;  and (ii) the change in the price, volume, and revenue associated with domestic
products and imports from various sources if imports had remained at 1996 levels in 1998, 1999, and
2000 [sic].  The price, volume, and revenue results for scenario (i) are in the same range as the price,
volume, and revenue results for scenario (ii) in 1998.
7.1575  The European Communities submits that with resp ect to the numerical analysis used by the
United States, an aggregated analysis has been used for the whole CCFRS product bundle
3635, but
details product-by-product tables in Exhibit US-56.  This confirms that the United States should have
undertaken a separate investigation for each of the 5 products comprised in the CCFRS category
instead of relying on an aggregated basis.  In addition, as a first step, the United States has chosen1997 as its "base" year and admits that only one adjustment has been made to take account of decline
in demand in 2001.  On the contrary, the United States has taken the view that no adjustment was
necessary to accommodate legacy costs, management decisions and purchaser consolidation since the
USITC has found that these factors had not caused injury to the domestic industry.  Moreover, the
United States admits that no adjustment has been made to take account of the injurious effect of
increased capacity and minimill competition.  More specifically, the United States relies on the fact
that its "base"  year (1997) already corresponds to the greatest capacity increase and that capacity
increases in the following year were in line with demand increase.  This argument is vitiated because
the mere fact that capacity increases allegedly remained in line with demand growth does not
guarantee that injurious excess capacity did not exist, especially if the initial excess capacity at the
outset required capacity reduction to get in keeping with demand.  The European Communities notes
that the United States also relies on the assertion that minimill shipments, although increasing, weresold at higher prices than imports.  This reasonin g ignores the fact that even if minimill prices were
higher than import prices, minimill competition had an injurious effect.  The negation of the injurious
effect of minimill prices is particularly surprising in the light of the US argument that imports prices,
                                                     
3631 Memorandum EC-Y-050 (US-65).  The public materials do not contain model results covering the
safeguard measure established by the President.  The United States notes that the exclusion of slab and Mexicoin the model of the President's remedy (US-57) shows a substantially lower effect on import prices.
3632 USITC Report, p. 60.
3633 USITC Report, p. 61.
3634 USITC Report, p. 63.
3635 United States' first written submission, paras. 1091-1099.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 518
although higher than domestic prices, could have caused injury.3636  If such is the case, the same must
also be true for minimill prices higher than import prices.
7.1576  The European Communities adds that, as a result of its numerical approach, the United States
seems to submit that an increase of 18.9% in imports prices would be in line with Article 5.13637,
whereas the USITC modelling indicated that a 30% additional tariff on imports including slabs and
Mexico but excluding Canada would result in an increase of between 20.8 and 28.0% in imports
prices.3638  There is no need to further argue that the relevant comparison (if any) would have been
with an USITC model run for imports from non-NAFTA sources.  It is worth noting that, as a matter
of fact, the USITC modelling for a 20% additional tariff results in an increase of between 14.0 and18.6% in imports prices which would strongly suggest that a tariff increase of maybe more than 20%
but surely less than 30% would have reached the targeted 18.9% increase in imports prices.
3639
7.1577  The European Communities submits3640 that in addition to these discrepancies3641, the USITC
modelling exercise had been performed with respect to imports of all CCFRS and taking account of
imports from Mexico, whereas the only relevant comparison (if any) would have been with an USITCmodel run for imports from non-NAFTA sources.   For the European Communities, the United States
itself admits that the exclusion of Mexico from its modelling of the President's remedy shows a
"substantially lower effect on import prices" .
3642  This might explain the large discrepancies between
the results of the USITC modelling exercise and the United States' ex post  numerical analysis, but
makes any comparison between them incoherent.  Therefore, the United States does not have anysupportive evidence that the USITC modelling suggests that a 30% tariff on CCFRS is "set at a
magnitude that satisfies the requirements of Article 5.1" .
3643
7.1578  The United States responds that imports from NAFTA countries were properly considered.
The United  States adds that some complainants as sert that the USITC "explicitly stated that a more
restrictive remedy would not be necessary to address the injury it has found to be caused by increasedimports".
3644  This, it argues, is incorrect.  The USITC actually stated that "[w]e do not agree with the
domestic industry, however, that an additional 35, 40, or 50% ad valorem  tariff is necessary to
achieve the desired result, or is otherwise appropriate".3645  The exclusion of a 30% tariff from this
enumeration suggests that the USITC did not fi nd a measure at that level to be excessive.3646  Further,
in any event, the USITC was evaluating four-year measures, while the President applied remedies for
                                                     
3636 United States' first written submission, paras. 548-549 (tin mill products).
3637 Exhibit US-56.
3638 United States' first written submission, para. 1099.
3639 European Communities' second written submission, paras. 422-528.
3640 European Communities' comments on replies to Panel question No. 54 at the second substantive
meeting.
3641 European Communities' second written submission, para. 527.
3642 United States' first written submission, footnote  1385. The European Communities also notes that
the United States improperly included slabs in the modelling of a remedy which excluded slabs.
3643 United States' first written submission, para. 1099.
3644 European Communities' written reply to Panel question No. 108 at the first substantive meeting.
3645 USITC Report, p. 363.
3646 Korea asserts that the USITC's explanation of  its recommendation for other welded pipe is
inconsistent with the measure established by the Pres ident.  Korea's written reply to Panel question No. 108 at
the first substantive meeting.  The United States argues it has showed in its first written submission that the
USITC's findings were not relevant to a consideration of consistency with Article 5.1.  United States' firstwritten submission, paras. 1205 thro ugh 1210.  These same points fully rebut the arguments make by Korea in
response to Panel question No. 108.WT/DS248/R, WT/DS249/R,
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Page 519
only three years.3647  Therefore, the complainants' analysis of the USITC recommendations does not
suggest any inconsistency with Article 5.1.3648
(ii) Tariff on tin mill products
7.1579  The United States3649 submits that the USITC demonstrated that increased imports from non-
NAFTA sources caused serious injury to the domestic tin mill steel industry and this is the starting
assumption of its justification.
7.1580  The United States recalls that for tin mill, three Commissioners found serious injury.  They
issued separate views, but agreed on certain key aspects of the injurious condition faced by the
domestic industry.  Commissioner Miller found serious injury based on a decline in capacityutilization, United States shipments and sales, operating margins, average unit values, capital
expenditures and employment during the period of the investigation.
3650  Commissioner Bragg treated
tin mill as a component part of a single flat-rolled like product, and found serious injury based on
decreasing revenues, operating margins, capacity utilization, wages and employment, and the lack of
ability to finance modernization in the last two and half years of the period of investigation.3651
Commissioner Devaney also treated tin mill as part of a single flat-rolled like product, and found
serious injury based on declines in capacity utilization, operating margins, average unit values, and
downward trends in employment and capital expe nditures in the later portion of the period of
investigation.3652
7.1581  For the United States, each of these determinations reflects a permissible analysis of the effect
of imports on the domestic industry.  Under United States law, multiple affirmative determinations by
individual Commissioners as to differently defined like products constitute an affirmative
determination of the USITC with regard to the largest product group that is subject to enough
affirmative determinations to form a majority sufficient to support a determination of the USITC.  It is
the injury experienced by the producers of tin mill – the product within the intersection of thedeterminations of Commissioners Miller, Bragg, and Devaney – that forms the basis for deciding the
extent of application of the safeguard measure.  The performance of these producers is evaluated in
light of the findings made by Commissioners Bragg and Devaney as to the larger industry comprising
producers of tin mill and flat-rolled products.
7.1582  The United States recalls that the Commissioners rendering affirmative determinations
focused on the following indicators of injury.  For tin mill, these were:
                                                     
3647  The panel in US – Line Pipe  found that the duration of a measur e was a valid factor in considering
whether it was applied to a lesser extent than a proposed measure with a longer duration. Panel Report, US –
Line Pipe , paras. 7.96-7.97.
3648 United States' second written submission, para. 205.
3649 United States' first written submission, paras. 1170-1186.
3650 USITC Report, pp. 72-74 and pp. 307-308.
3651 USITC Report, pp. 283-282.
3652 USITC Report, p. 345.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 520
1998 1999 2000 1st half 2000 1st half 2001
Revenues 2,120 2,033 1,974 1,008 880
Shipments 3,287 3,239 3,163 1,597 1,436
Market share 87.2% 82.3% 84.5% 84.4% 84.5%
Employment 6,322 6,075 5,733 5,884 5,584
Op. income (78) (141) (119) (25) (65)
Margin (3.9)% (6.9)% (6.1)% (2.5)% (7.4)%
Capital expenditures 120 146 97 29 15
Source:  USITC Report, p. FLAT-C-8.  Shipments in 1000 short tons;  employment in number of workers;
revenue, operating income and capital expenditures in US$1 million.
7.1583  The United States recalls that Commissioner Miller found that although the industry was
unprofitable before and throughout the period, it suffered a serious downturn in 1999 as imports
surged.  Despite the increase in demand in 1999, the domestic industry "realized no gain, and in fact a
serious loss, in profitability.  Imports also showed their greatest increase in United States market share
over this period".3653  Commissioner Bragg stated in her opinion that although the volume of imports
of carbon and alloy flat products declined towards the end of the period of the investigation, "they still
remained at relatively high levels and continued to negatively impact prices for the domestic product
throughout the period.  By forcing domestic prices lower, imports deprived domestic producers ofrevenue.  It should be recognized that given the worsening condition of the domestic industry over the
period of investigation, the amount (level) of imports sufficient to cause serious [injury]
declined correspondingly".
3654  Commissioner Miller analysed three additional potential causes of the
serious injury: declining demand, purchaser consolidation, and overcapacity.  Commissioner Bragg
identified several potential causes of serious injury other than imports, but determined that for all flatproducts, "any injury sustained by the domestic industry stems solely from increased imports".
3655
Commissioner Devaney found that declining demand, increased capacity, and competition fromminimills contributed to the deterioration of the industry encompassing all flat steel products.  He
found that declining demand had effect only at the end of the investigation period.
3656  Commissioner
Miller found that declining overall demand was not causing injury.  She noted that this conditionbegan long before the investigation period, and might account for the industry's weak state in 1996,
but that demand actually increased in 1999 with no improvement in the condition of the domestic
industry.
3657  Commissioner Miller found that purchaser consolidation existed throughout the
investigation period, and signalled the "intense price competition that exists for tin mill products, both
domestic and imported.3658  Since this factor existed throughout the investigation period, it may have
had negative effects throughout, but it would not be responsible for changes  in the industry's
                                                     
3653 USITC Report, p. 308.
3654 USITC Report, p. 294.
3655 USITC Report, p. 295.
3656 USITC Report, p. 63.  In footnote 224 of the USITC Report, p. 55, Commissioner Devaney joined
the analysis of the majority for the causation of injury in flat products, stating that the result is the same when
the analysis is performed over the entire industry as he has defined it, that is that imports are a substantial cause
of serious injury.
3657 USITC Report, pp. 308-309.
3658 USITC Report, p. 309.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 521
condition.  Commissioner Miller found that there was overcapacity during the investigation period,
but noted that the decrease in capacity utilization coincided with the import surge.  She also noted thatthe industry's overall capacity decreased during the investigation period, and that the tin mill industry
had taken steps to rationalize capacity.
3659  Although this factor may have had negative effects on the
industry during the investigation period, the decline in capacity indicates that it was not responsible
for any worsening in the condition of tin mill producers during the investigation period.3660
7.1584  The United States submits that the USITC Report details the relationship between increased
imports from non-FTA sources and injury to the domestic industry.  Commissioners Bragg, Devaney,
and Miller found that imports caused serious injury because when an upswing in demand occurred in1999, the domestic industry was unable to make any gain as imports surged.  Non-NAFTA imports
surged 51.5% between 1998 and 1999 resulting in the lowest profit margin (-6.9%) for any full year
of the period of investigation.  Domestic prices an d average unit values were also at their lowest in
1999.  Although non-NAFTA imports declined in 2000, they still were at higher levels than the 1996-
1998 period.  Commissioner Bragg in her analysis fo und that the "impact of opportunities lost during
an upswing in the given cycle would not only have an immediate impact on the domestic industry by
virtue of suppressed and depressed prices, lost sales, and resulting lost revenues, but would also be
expected to have lingering carryover effects on the domestic industry as the cycle turned lower".
3661
Commissioner Miller found that her analysis of tin mill would not change if she had excluded Canadaand Mexico.
3662  Commissioner Bragg found that her analysis that the domestic flat-rolled industry
suffered serious injury from imports would not change with the exclusion of NAFTA imports.3663
7.1585  The United States argues that if one of the Commissioners identified a factor as causing
injury, that factor caused injury regardless of the views of the other Commissioners.  Accordingly, for
purposes of evaluating whether the tin mill safeguard measure complied with Article 5.1, the United
States concludes that non-NAFTA imports were responsible for some of the reduction in domestic
producers' sales and market share, production, profits, wages, and employment beginning in 1999.
The United States submits that this is not to suggest that imports were not having a negative effect on
the domestic industry in preceding years.  Accordingly, for purposes of the evaluation of consistency
with Article 5.1, the United States explains that it treated increased capacity, competition with
minimills, and decline in demand in the latter part of the period of investigation as factors causing
injury to the domestic tin mill industry.
7.1586  In evaluating the safeguard measure, the United States also considers Commissioner Miller's
observation that the United States imposed anti-dumping duties on tin mill from Japan in the first half
of 2000.  She noted that, even so, imports continued to have a significant presence in the United
States.3664  Accordingly, the United States has not adjusted its estimate to reflect these anti-dumping
duty orders.
7.1587  The United States explains that for purposes of the estimate of consistency with Article 5.1, it
followed a volume-based approach for the numerical exercise.  Commissioner Miller noted the
significant volume of imports and the market share increase, both in 1999 and over the entirety of the
investigation period.3665  Accordingly, the United States has analysed this safeguard measure based on
                                                     
3659 USITC Report, p. 309.
3660 United States' first written submission, para. 1177.
3661 USITC Report, p. 293.
3662 USITC Report, p. 310, footnotes 28 and 29.
3663 Second Supplementary Report, p. 14.
3664 USITC Report, p. 308.
3665 USITC Report, p. 308.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 522
import volumes.  The United States notes that imports increased substantially between 1998 and 2000.
As a first step in the analysis, the United States estimates what non-NAFTA import volume wouldhave been if non-NAFTA imports had stayed at their 1998 market share in 1999 through 2001.  It then
compares the estimated import volumes with the actual import volumes for those periods, and finds
that non-NAFTA imports would have been, on average, approximately 23% lower.  This reduction
represents a reduction in import volume roughly equivalent to the USITC modelling associated with a
30% tariff, suggesting that the 30% tariff on tin mill is set at a magnitude that satisfies the
requirements of Article 5.1.
3666  Since this approach is based on the volume of non-NAFTA imports
alone, the United States explains that it has concluded that no adjustment to the estimate wasnecessary.  In order to calculate target import levels, the United States has used non-NAFTA market
share for 1998, the year immediately preceding the 1999 surge in imports, and then applied it to actual
apparent consumption for years 1999-2001.  The United States then compares calculated target import
levels to the actual import levels for each year.
7.1588  The United States then models two scenarios:  (i) the change in the price, volume, and
revenue for domestic products and imports if the remedy established by the President on 5 March
2002, had been in effect in 2000;  and (ii) the change in the price, volume, and revenue associated
with domestic products and imports from various sources if imports had remained at 1997 levels in
2000.  The United States submits that the results of this exercise appear in Modelling Worksheet I.
For the United States, they suggest that it applied the safeguard measure no more than the extentnecessary to prevent or remedy serious injury and to facilitate adjustment.
7.1589  Norway
3667, Japan3668 and Korea3669 challenge the justification and the safeguard remedy
imposed on tin mill.  Norway adds that the 30% tariff overshoots the target grossly.  As stated by
Commissioner Miller3670, there is intense price competition for tin mill products.  The effect of a 30%
tariff increase in such circumstances is clearly that imports will be drastically reduced.  That is alsogrosso modo  the result except for the products for which exclusions have been accorded.  Either this
was intended, which thus clearly is in breach of Article 5.1, or the United States had no basis for
establishing that a 23% reduction amounts to the alleged serious injury caused by increased imports
from non-NAFTA countries, which is also in clear breach of Article 5.1.
3671  The European
Communities, Norway, Japan, Korea and Brazil also argue that even if one were to argue that the
President can avail himself of the justifications presented by the three commissioners who voted in
favour of imposing tariffs on tin mill products, it is clear that their suggested measures do not complywith the requirements of Article 5.1 of the Agreement on Safeguards.
3672  These complainants
recall3673 that the only commissioner that specifically addressed a remedy with respect to tin mill
products, Commissioner Miller, suggested an additional tariff of 20% , declining over four years.3674
She explained the choice of this remedy inter alia  as follows:  "The Commission's economic analysis
shows that an additional tariff of 20% ad valorem  will result in a substantial increase in the domestic
industry's sales revenues and sales volumes during the first year of relief" and "The significant
declines in import volumes expected from the tariff  increase will help the domestic industry increase
its sales revenues substantially and allow it to make significant adjustments to import competition
                                                     
3666 USITC Memorandum EC-Y-046, p. FLAT-26.
3667 Norway's second written submission, para. 166.  Norway's first written submission, paras. 358-369.
3668 Japan's first written submission, paras. 208-213.
3669 Korea's first written submission, paras. 206-207.
3670 United States' first submission, para. 1176.
3671 Norway's second written submission, para. 166.
3672 Norway's second oral statement on behalf of all complainants, para. 31.
3673 Norway's first written submission, para. 367.
3674 USITC Report, Vol. I, at pp. 20 and 527.  (Exhibit CC-6)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 523
during the period.3675  The United States argues that if looking at the same time at the Commissioners
who included tin mill products in the broader category of flat products, Bragg and Devaney suggesteda four year tariff starting at 40% and ending at 31%.
3676  These complainants recall that Devaney
explained this choice by stating inter alia  that: "As I have stated previously, the form of remedy that I
have chosen seeks to address the ongoing injury that has occurred over a number of years, and not just
in the most recent period" and "Accordingly, I believe  that the significant declines in import volumes
resulting from the tariff will help the industry in crease it sales volumes substantially and allow it to
make significant adjustments to import competition during the period of relief".3677  They also recall
that Commissioner Bragg gives extensive explanations for her choice of remedy:  "I recognize thatdifferences exist between my injury findings and remedy recommendations, thus raising an issue as to
whether there is an appropriate level of symmetry between my injury findings and these remedy
recommendations.  Importantly I find that even the maximum remedy I am authorized by US law to
recommend to the President would be insufficient to address the level of serious injury I found to exist
for some of my defined domestic industries, as well as the product groupings covered at this stage ofthe proceedings".
3678 and "Tariffs also provide a revenue benefit directly to the US government, in
contrast to quotas which arguably provide a benefit to the foreign producers who receive the quota
rents".3679
7.1590  The above-mentioned complainants note that neither Commissioner Devaney nor
Commissioner Bragg gives an explanation of how exactly they arrived at their suggested percentages,and what the effects will actually be on imports.  Assuming that the Commission has performed only
one economic analysis, those complainants find it hard to understand how the same figures may
justify different suggestions on remedies by the other Commissioners.  Furthermore, not even
Commissioner Miller appropriately addressed the non-attribution aspects, which clearly should have
been done given that the three other Commissioners did not attribute the injury suffered by thedomestic injury to imports.  In her separate determination of serious injury
3680, she admitted to a
number of causes other than imports that are causing injury, but makes an affirmative determination
based on the USITC methodology of looking at whether other causes are equal to or greater than
imports.  However, in her injury determination for tin mill products3681, there was absolutely no
discussion of non-attribution of the injury from these other causes, in clear violation of Article 5.1.  It
is also noteworthy that she included imports from Canada (but not from Mexico, Israel and Jordan) in
her determination – and proposes that Canadian imports be subject to the proposed 20% tariff.3682
7.1591  Norway then argues that it is clear that the remedy suggested by Devaney, as explained by
him, goes beyond what is permitted under the Agreement on Safeguards .  Addressing not only current
injury, or injury suffered during the POI, but also alleged "past injuries" – giving a sort of "extra
punitive damages", cannot fulfil the requirements of Article 5.1  Furthermore, nowhere in his separate
views on remedy is there a discussion of how his suggested remedy will be limited to only address theserious injury attributed to the increased imports af fected by the measure.  For the complainants, it is
equally clear that the remedy suggested by Commissioner Bragg is not limited to the extent necessary
to address serious injury attributed to the increased  imports affected by the measure.  As she explains
                                                     
3675 USITC Report, Vol. I, at p. 528. (Exhibit CC-6)
3676 USITC Report, Vol. I, at p. 20. (Exhibit CC-6)
3677 USITC Report, Vol. I, at pp. 533 and 534. (Exhibit CC-6)
3678 USITC Report, Vol. I, at p. 520. (Exhibit CC-6)
3679 USITC Report, Vol. I, at p. 522. (Exhibit CC-6)
3680 USITC Report, Vol. I, at pp. 308-309. (Exhibit CC-6)
3681 USITC Report, Vol. I, at pp. 527-529. (Exhibit CC-6)
3682 Japan's first written submission, paras. 208-213;  Korea's first written submission, paras. 206-207;
Norway's second written submission, paras. 166-167.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 524
herself there are asymetries in her treatment of injury and remedy.  Furthermore, her criteria for
establishing the level of the tariff is not based on the serious injury that she attributes to imports, buton the level necessary to "significantly improve profitability" of domestic producers.
3683  B r a g g
explains that her exclusions of certain countries from the injury analysis would not change her injury
findings, but does not discuss and still not take into account the non-attribution aspects of other
factors to the injury in relation to  the establishment of the remedy.3684
7.1592  The European Communities argues that for tin mill products, the US Presidential
Proclamation relied on 3 separate affirmative determinations based on divergent product definitions,
where 3 different USITC Commissioners made 3 distin ct findings.  The United States has decided to
take account of all the alternative factors found to have caused injury to the domestic industry,
regardless of the views of other Commissioners3685, but eventually determined that no adjustment was
necessary in this respect.3686  Another difference in the application of the numerical analogy proposed
by the United States arises from the fact that the injurious effect of imports of tin mill products does
not rest on prices effect, but on losses of market shares.  For this reason, the United States hasproposed a volume-oriented approach, aiming at maintaining imports market share in 1999 to 2001 at
the level reached in 1998, prior to the 1999 imports surge.  The United States has noted that non-FTA
imports would then have been in average 23% lo wer, which would purportedly correspond to the
effect of a 30% tariff increase as modelled by the USITC.
3687  Even admitting arguendo that the
United States proposal for a numerical approach based on volume effects could have some relevance,the United States conclusion that a 23% decrease in imports would be " roughly equivalent " to the
USITC modelling associated with a 30% tariff increase would not be supported by the USITC
estimate of import decrease resulting from such tariff (from –50.5 to -29.1%).  Indeed, a 20% increase
in duty, resulting in a decrease in imports volume of between –30.7 to –16.6% would have appeared
more adequate.
3688
(iii) Tariff on hot-rolled bar
7.1593  The United States3689 submits that the USITC demonstrated that increased imports from non-
NAFTA sources caused serious injury to the domestic hot-rolled bar steel industry and this was the
starting assumption of its justification.
7.1594  According to the United States, the USITC identified four factors other than increased
imports that potentially caused injury:  competition among domestic producers, inefficient domestic
producers, changes in demand prior to 2001, and changes in input costs.  The USITC found that noneof these was a factor causing injury to the domestic industry.  The USITC did not attribute any injury
to competition among domestic producers.  It found that this cause might explain changes in the
relative market shares of domestic producers, but not their loss of 2.4 percentage points of market
share to imports.  The USITC also found Nucor – the source of competition among domestic
producers – was not a primary source of pricing declines.  Thus, increased imports were the onlyfactor causing injury to the domestic industry in 2000.  The USITC made no findings with regard to
declining demand in 1998 and 1999.  For purposes of this estimate, the United States notes that
demand increased in 1998.  Based on the USITC's finding of serious injury, for purposes of its
                                                     
3683 USITC Report, Vol. I, at p. 521. (Exhibit CC-6)
3684 Norway's first written submission, paras. 358-369.
3685 United States' first written submission, para. 1180.
3686 United States' first written submission, para. 1185.
3687 United States' first written submission, paras. 1183-1185.
3688 European Communities' second written submission, paras. 529-532.
3689 United States' first written submission, paras. 1102-1109.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 525
estimate, the United States treats the injury attributable to imports from 1997 to 2000 as continuing
into the first half of 2001.  Non-FTA imports undersold domestic products at levels comparable topreceding years
3690, and retained a market share well above 1996 and 1997 levels.  The USITC found
that the decline in hot-rolled bar consumption in this period led to "further deterioration".
7.1595  The United States then bases its analysis of the permissible remedy on the underselling data
rather than aggregate unit value data because, as the USITC noted:  for a product such as hot-rolled
bar which covers a broad range of product types and values, pricing data for a more specific product
can provide more probative information than average unit sales values.3691  In the first step, the United
States chooses 1997, the year before the year when the condition of the domestic industry began todeteriorate, as the appropriate comparison year, keeping in mind that imports may still have had some
negative effect on the industry.  It estimated that the revenue shortfall in 1998 and 2000, years in
which demand did not decline, was attributable to increased imports.  The United States explains that
it treated half of the decline in revenue in 1999 as attributable to increased imports, and for the first
half of 2001, treats the decline in revenue attributable to imports as equal to the level in 2000.  In thesecond step, the United States calculates the amount by which the 1997 operating income margin
would have to rise to recoup the shortfall in operating income described in the preceding
paragraph.
3692  In the third step, it bases the pricing analysis on the USITC pricing comparisons on
page LONG-87.  The United States notes the USITC' s findings with regard to imports from Canada
and Mexico and concluded that no adjustment to the estimate was necessary.  As a fourth step, theUnited States estimates the additional duty that would be necessary to achieve the target increase.  As
part of its investigation, the USITC prepared economic models on the United States hot-rolled bar
market.  These models indicated that a 30% increase in duties would result in an increase of between
19.6 and 24.2% in the sale price of imported hot-rolled bar in the United States.
3693  For the United
States, this suggests that the 30% tariff on hot-rolled bar is set at a magnitude that satisfies therequirements of Article 5.1.
7.1596  The United States then models two scenarios:  (i) the change in the price, volume, and
revenue for domestic products and imports if the remedy established by the President on 5 March
2002, had been in effect in 2000;  and (ii) the change in the price, volume, and revenue associated
with domestic products and imports from various sources if imports had remained at 1997 levels in
2000.  The United States submits that the results of this exercise suggest that it has applied the
safeguard measure no more than the extent necessary to prevent or remedy serious injury and tofacilitate adjustment.
7.1597  The European Communities argues that the United States starts off by recalling that the
USITC found that none of the four other factors invoked (competition among domestic producers,
inefficient domestic producers, changes in demand and changes in input costs) had injurious effects,
but admits that the USITC had made no finding with respect to declining demand in 1998 and1999.
3694  Then the United States chooses 1997 as its "base" year because the industry's condition
began to deteriorate that year (although one would have thought that it would chose the year before
the increase in imports – choosing the "base" year as the one prior to the decline in the industry's
                                                     
3690 The unit value of imports increased in 2001 as compared to 2000.  Since comparisons of
comparable items continued to show underselling, this development indicates that the mix of imported products
changed.
3691 USITC Report, p. 93, footnote 554.
3692 The United States does this by calculating the revenue shortfall in each year in which the USITC
identified imports as having an injurious effect, and dividing that by actual revenue for the same period.
3693 Memorandum EC-046, p. LONG-29 (US-64).
3694 United States' first written submission, paras. 1102-1104.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 526
performance, does not meet the requirement to address only the injury caused by increased imports).
The United States also admits that only one adjustment has been made for 1999.  Although the UnitedStates does not explicitly acknowledge it, this adjustment seems to reflect the decline in demand in
1999, although the injury caused by this other factor had (improperly) not been assessed in the
causation analysis.  As a result of its numerical approach, the United States has found that an increase
of 22.8% in imports prices would be in line with Article 5.1
3695, whereas the USITC modelling has
indicated that a 30% additional tariff on imports excluding Mexico but including Canada would result
in an increase of between 19.6 and 24.2% in imports prices.3696 3697
(iv) Tariff on cold-finished bar
7.1598  The United States3698 submits that the USITC demonstrated that increased imports from non-
NAFTA sources caused serious injury to the domes tic cold-finished bar industry and this was the
starting assumption of its justification.
7.1599  The United States explains that the USITC identified two factors other than increased imports
that potentially caused injury:  declining domestic demand for cold-finished bar and the effect of apurportedly inefficient domestic producer.  The USITC found that the inefficiency of RTI did not
cause injury to the domestic industry.  The USITC considered the effect of declining demand on the
domestic industry.  It noted the domestic producers' observation that prices for cold-finished bar
historically track demand, and observed that this appeared to be the case in 1999.  Accordingly, it
found the decline in the domestic industry's financial performance in 1999 to be "to a large extentattributable to declines in demand during that year".
3699  The USITC noted that demand increased in
2000, but that the domestic producers' prices decreased.  Accordingly the USITC found that changes
in demand did not explain the serious injury to the domestic cold-finished bar industry.  These
findings indicate that changes in demand were having a positive effect in 2000; therefore, no injury
should be attributed to this potential cause in 2000.  The USITC noted that demand declined in thefirst half of 2001, and that the domestic industry's performance further deteriorated.
3700  This finding
indicates that some of the injury in the first half  of 2001 is attributable to declining demand.  These
findings demonstrate that the entirety of the reduction in domestic producers' production, shipments,
market share, employment, revenue, and operating income in 2000 is properly attributed to increased
imports.  The USITC's findings further indicate that both increased imports and decreases in demand
had an injurious effect in 1999 and the first half of 2001.  This is not to suggest that imports in 1996
through 1998 had no negative effects.  Since the analysis of the USITC focused on changes inindustry performance, and as a conservative estimate of the injury attributable to imports, the United
States has decided to base its analysis for cold-finished bar on the changes from 1999 through the first
half of 2001 only.
7.1600  The United States argues that it has treated non-import factors as responsible for half of the
decline in the domestic industry's operating income in 1999.  It has assumed that decreased demandwas responsible for any change in performance in the first half of 2001 as compared with the full year
2000.  Accordingly, it has estimated that increased imports had the same negative effect in the first
half of 2001 that the United States has estimated for 2000.
                                                     
3695 See Exhibit US-56.
3696 United States' first written submission, para. 1108.
3697 European Communities' second written submission, paras. 533-536.
3698 United States' first written submission paras. 1110-1119.
3699 USITC Report, p. 107.
3700 USITC Report, p. 107.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 527
7.1601  The United States bases its analysis of the permissible remedy on the underselling data rather
than aggregate unit value data because, as the USITC noted: for a product such as hot-rolled barwhich covers a broad range of product types and values, pricing data for a more specific product can
provide more probative information than average unit sales values.
3701  In the first step, the United
States claims that as a conservative estimate it chose 1998, a year in which demand was equivalent to
its level in 2000, as the appropriate base year, keeping in mind that imports increased in that year and,
thus, may have had some negative effect on the industry.  To reflect the impact of non-import factors
on 1999, the United States halves the base operating income margin.  It estimates the revenue shortfall
in 1999 through the first half of 2001, periods in which the USITC indicated that imports caused someof the decline in the industry's performance.  In the second step, it estimates the amount by which the
1998 operating income margin would have to rise  to recoup the shortfall in operating income.
3702  In
the third step, it bases the pricing analysis on the USITC pricing comparisons on page LONG-92.3703
Finally, it notes the USITC's findings with regard to imports from Canada and Mexico and concluded
that no adjustment to the estimate was necessary.  As a fourth step, it estimates the additional dutythat would be necessary to achieve the target increase.  As part of the remedy phase of the
investigation, the USITC staff prepared economic models on the United States' cold-finished bar
market.  These models indicated that a 30% increase in duties would result in an increase of between
19.6 and 24.2% in the sale price of imported cold-finished bar (excluding bar from Canada) in the
United States.
3704  For the United States, this suggests that the 30% tariff on cold-finished bar is set at
a magnitude that satisfies the requirements of Article 5.1.
7.1602  The United States notes that these figures are lower than the tariff level of the safeguard
measures established by the President and recalls that "it is impossible to determine in advance with
any degree of precision the level of import duty necessary to enable the United States industry to
compete with overseas suppliers in the current competitive conditions of the United Statesmarket".
3705
7.1603  The United States then models two scenarios:  (i) the change in the price, volume, and
revenue for domestic products and imports if the remedy established by the President on 5 March
2002, had been in effect in 2000;  and (ii) the change in the price, volume, and revenue associated
with domestic products and imports from various sources if imports had remained at 1997 levels in
2000.  The United States submits that the results of this exercise suggest that it has the safeguard
measure no more than the extent necessary to prevent or remedy serious injury and to facilitateadjustment.
7.1604  The European Communities recalls that the United States has determined that 1998 should be
its "base" year and made adjustments to take account of the injurious effect of declining demand in
1999 and 2001, in line with the USITC findings that this other factor caused injury in these years.
Also consistent with the USITC findings, no ad justment has been made with respect to the
                                                     
3701 USITC Report, p. 103, footnote 614.
3702 The United States does this by calculating the revenue shortfall in each year in which the USITC
identified imports as having an injurious effect, and divided that by actual revenue for the same period.
3703 This table contains confidential information.  The United States has reproduced the results of this
step, but not the inputs.
3704 Memorandum EC-046, p. LONG-29 (US-64).
3705 US – Fur Felt Hats , para. 35.  The United States argues that in the case of cold-finished bar, it has
noted that it was relatively simple and inexpensive to convert a hot-rolled bar into a cold-finished bar.  If the
tariff level for these two products were different, it would create an incentive for foreign producers to
circumvent the safeguard measure by shifting their hot-rolled bar customers to cold-finished bar.  This wouldundermine the remedial effect of the measures on both hot-rolled and cold-finished bar.  Accordingly, theUnited States did not go beyond the extent necessary by applying a 30% tariff to imports of cold-finished bar.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 528
inefficiency of one domestic producer.3706  As a result of its numerical approach, the United States has
found that an increase of 14.4% in imports prices would be in line with Article 5.13707 and referred to
the USITC modelling indicating that a 30% additional tariff on imports excluding Mexico but
including Canada would result in an increase of between 19.6 and 24.2% in imports prices.  Admitting
arguendo  that the United States approach could be relevant, a 20% additional tariff, which would
have resulted in an increase of between 13.3 and 16.2% in imports prices, would appear more
adequate than a 30% additional tariff which patently overshoots the mark.  On this specific point, the
United States admits that the 30% additional tariff on cold-finished bar was designed to match the
duty increase for hot-rolled bar and prevent product shifting from hot to cold-finished bar.3708  This
being said, the purported need to prevent product shifting does not allow the United States to apply a
safeguard measure on cold-finished bar beyond the extent necessary to prevent or remedy serious
injury caused by increased imports.3709
(v) Tariff on rebar
7.1605  The United States3710 submits that the USITC demonstrated that increased imports from non-
NAFTA sources caused serious injury to the domestic rebar industry and this is the starting
assumption of its justification.  The USITC identified four factors other than increased imports that
potentially caused injury:  demand changes, ch anges in input costs, capacity increases, and
competition between domestic producers.  The USITC found that none of these caused injury to the
domestic industry.  These findings demonstrate that the entirety of the reduction in domesticproducers' performance from 1999 through 2001 was attributable to increased imports.  The United
States submits that this is not to suggest that imports in 1996 through 1998 had no negative effects.
The United States explains that since the US ITC's analysis focused on changes in industry
performance, and that performance began to decline in 1999, it based its estimate for rebar bar on the
changes from 1999 through the first half of 2001 only.  The United States also considered theUSITC's observation that the United States imposed anti-dumping duties on Turkey in 1996 and on
Belarus, China, Indonesia, Korea Latvia, Moldova, Poland, and Ukraine in 2001.  The USITC noted
in its remedy recommendation that, although the anti-dumping duties reduced imports from these
sources, imports from other sources took their place to a significant degree.
3711  In fact, even though
the anti-dumping duty orders took effect in Janu ary, 2001, non-FTA imports for the first half of 2001
were only slightly lower than in the first half of 2000.  Non-FTA unit values, while slightly higher
than in the first half of 2000, remained far below domestic unit values.3712
7.1606  The United States argues that it bases its analysis of the permissible remedy on the aggregate
value data, rather than the underselling data, because the USITC did not find, as it did for hot-rolled
bar and cold-finished bar, that rebar encompassed a wide spectrum of products.  In the first step, it
chooses 1998, the year before the industry's profitability began to decline, as the appropriate base
year, keeping in mind that imports increased in that year and, thus, may have had some negative effecton the prices and profitability of the domestic industry.  In the second and third steps, it uses data
pertaining to 1999 through the first half of 2001 to estimate how much prices would have to increase
to recoup the shortfall in revenue attributable to increased imports.  The United States claims that as a
conservative estimate of the effect of the 2001 anti-dumping duty orders, it assumes that they are
                                                     
3706 United States' first written submission, paras. 1110-1115.
3707 Exhibit US-56.
3708 United States' first written submission, footnote 1399.
3709 European Communities' second written submission, 537-540.
3710 United States' first written submission, paras. 1120-1127.
3711 USITC Report, p. 375, footnote 112.
3712 USITC Report, p. LONG-C-5.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 529
responsible for all of the 6.8% increase in average unit values in the first half of 2001 as compared
with the first half of 2000.  Then it deducts this  amount from the estimated increase in import prices
calculated in the first through third steps.  As a fourth step, it estimates the additional duty that would
be necessary to achieve the target increase.  As part of the remedy phase of the investigation, the
USITC staff prepared economic models on the United States' rebar bar market.  These models
indicated that a 15% increase in duties would result in an increase of between 8.2% and 10.9% in the
sale price of imported rebar (excluding rebar from Mexico and Canada) in the United States.3713  For
the United States, this suggests that the 15% tariff on rebar is set at a magnitude that satisfies the
requirements of Article 5.1.
7.1607  The United States then models two scenarios:  (i) the change in the price, volume, and
revenue for domestic products and imports if the remedy established by the President on 5 March
2002, had been in effect in 2000;  and (ii) the change in the price, volume, and revenue associated
with domestic products and imports from various sources if imports had remained at 1997 levels in
2000.  The United States submits that the results of this exercise suggest that it has applied thesafeguard measure no more than the extent necessary to prevent or remedy serious injury and to
facilitate adjustment.
7.1608  The European Communities recalls that the United States has chosen 1998, "a year before the
industry's profitability began to decline" as its "base" year.
3714  One adjustment had been made to take
account of the effect of anti-dumping orders on imports prices in 2001.  On the contrary, withreference to the USITC findings, no adjustment has been made concerning demand changes, input
costs, capacity increase and competition among domestic producers.  As a result of its numerical
approach, the United States has found that an increase of 29.1% in imports prices would be in line
with Article 5.1
3715 and referred to the USITC modelling indicating that a 15% additional tariff on
imports excluding Mexico and Canada would result in an increase of between 8.2% and 10.9% inimports prices.
3716 3717
(vi) Tariff on welded pipe
7.1609  The United States3718 submits that the USITC demonstrated that increased imports from non-
NAFTA sources caused the threat of serious injury to the domestic welded pipe industry and this is
the starting assumption of its justification.  The USITC identified two factors other than increased
imports that potentially caused the industry's weakened condition:  increased capacity on an overall
basis and cost increases at one significant producer ("Producer X") that were unrelated to increasedimports.  The USITC found that the increase in capacity did not contribute in more than a minor way
to the condition of the industry in 2000 or the first half of 2001.  It found that the 1.5 million ton
increase was only "modestly higher" than the increase in apparent domestic consumption and,
therefore, not "excessive".
3719  The USITC found that the main reason for Producer X's declining
performance was a drop in the unit value of sales beginning in 1999, and that the drop was largely aresult of increased imports.
3720  In other words, this development was not an alternative "cause" of
                                                     
3713 Memorandum EC-046, p. LONG-27 (US-64).
3714 United States' first written submission, para. 1124.
3715 Exhibit US-56.
3716 United States' first written submission, para. 1126.
3717 European Communities' second written submission, paras. 541-542.
3718 United States' first written submission,  paras. 1128-1138.
3719 USITC Report, p. 165.
3720 USITC Report, p. 165.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 530
injury, but a symptom of the injury caused by increased imports.  Thus, any injury to the industry as a
result of Producer X's performance was properly attributed to increased imports.
7.1610  For the United States, these findings of the USITC demonstrate that most of the reduction in
domestic producers' production, capacity utilization, shipments, number of workers, and profitability
in 2000 is properly attributed to increased imports.  This is not to suggest that imports were not having
a negative effect on the domestic industry in preceding years.  The USITC specifically found that
"imports have had a negative effect on the domestic industry over the period we have examined".3721
The United States notes that the USITC did find that the increase in capacity had a negative effect onthe industry in 2000, albeit a "minor" amount.  The data  suggest that the amount is quite minor.  Total
domestic capacity grew by approximately 350,000 tons from 1999 to 2000, an increase of only 4.4%.
The industry experienced an even higher increase in capacity, of approximately 488,000 tons, from
1998 to 1999 (an increase of 6.5%).  During that period, profits fell by only 0.2 percentage points.
3722
As an extremely conservative estimate, while recognizing the imports were causing injury to thedomestic industry in 1998, 1999, 2000, and 2001, the United States treats the decrease in the
industry's performance from 1999 to 2000 as attributable to increases in capacity.
7.1611  The United States claims that it bases its estimate of the permissible extent of application on
the aggregate unit value data.  The USITC did not determine, as it did for hot-rolled bar and cold-
finished bar, that a difference in product mix between domestic producers and importers might affect
the unit value data.  Moreover, the unit value data is  public, and the pricing data confidential.  In its
estimate regarding consistency with Article 5.1, the United States also considered two issues
addressed by the USITC:  existing anti-dumping duty orders and a likely increase in demand for large
diameter line pipe.  The USITC found that existing anti-dumping duty orders covered a limited
number of products and countries.  Although the orders had been in place since at least 1989, they did
not prevent the overall increase in imports, or ev en prevent increases in imports from the covered
countries.
3723  Moreover, the data gathered by the USITC reflects any effect on the industry that the
orders may have had.  Since the United States bases its estimate regarding the measure on that data, it
did not need to adjust the estimate to account for the effect of the anti-dumping duty orders.  As for
the likely increase in demand for large diameter line pipe, the USITC found as a general matter that
"rising demand tends to ameliorate the effect of a given volume of imports".  However, the United
States argues, the Commissioners also found that increasing [sic] demand for standard pipe was
offsetting the increase in demand for large diameter line pipe.3724  These findings by the USITC
indicate that there was no overall increase in demand for welded pipe and, therefore, no basis to
conclude that increased demand would lessen the future effect of increased imports.  Therefore, the
United States explains that it did not attempt to incorporate this factor into its analysis.
7.1612  The United States argues that, for the first step, in light of its conservative estimate that the
decrease in the domestic industry's financial performance in 2000 was attributable to increasedcapacity, it does not attempt to determine a domestic price that would increase operating income
margins above their 2000 levels.  In the second and third steps, it bases its estimate on data for 1998
through the first half of 2001, the period when imports were increasing.  As a fourth step, it estimates
the additional duty that would be necessary to achieve the target increase.  As part of the remedy
phase of the investigation, the USITC staff prepared economic models on the United States' weldedpipe market.  These models indicated that a 15% increase in duties would result in an increase of
between 9.3 and 11.5% in the sale price of imported welded pipe (excluding pipe from Canada) in the
                                                     
3721 USITC Report, p. 163.
3722 USITC Report, p. TUBULAR-C-4.
3723 USITC Report, p. 166.
3724 USITC Report, p. 166.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 531
United States.3725  For the United States, this suggests that the 15% tariff on welded pipe is set at a
magnitude that satisfies the requirements of Article 5.1.
7.1613  The United States models two scenarios:  (i) the change in the price, volume, and revenue for
domestic products and imports if the remedy established by the President on 5 March 2002, had been
in effect in 2000;  and (ii) the change in the price, volume, and revenue associated with domestic
products and imports from various sources if imports had remained at 1997 levels in 2000.  The
United States submits that the results of this exercise suggest that it has applied the safeguard measure
no more than the extent necessary to prevent or remedy serious injury and to facilitate adjustment.
7.1614  As regards welded tubular products, Switzerland maintains that the measure taken goes
beyond the extent necessary to prevent or remedy a threat of serious injury.  The Presidential
proclamation imposed a straight tariff without any further explanation, while the USITC
recommended a tariff rate quota.  A straight tariff is more trade restrictive than a tariff-rate quota
because the straight tariff imposed hits all imports whereas, with a tariff-rate quota, in quota imports
can take place at the normal tariff rate and only out of quota imports will be hit by the additionaltariff.  In the case of welded tubular products the USITC explicitly determined that the current level of
imports did not cause serious injury to the domestic industry concerned but that the industry was only
approaching a state of serious injury and that "a tariff-rate quota would best address the threat of
serious injury".  The USITC also said that a straight tariff would affect imports even at those levels it
found did not cause injury.
3726  Thus, the USITC recommended a tariff-rate quota in order to maintain
access to the United States market for the products concerned and to avoid creating shortfalls during
the period of relief.  In addition, the USITC recognized that 1996-1998 were years of good health for
the United States industry.  Therefore, the United States has admitted that the measure, which was
based on reducing import levels back to 1997 levels, exceeds the amount of relief necessary to prevent
a threat of serious injury.  In the case of welded tubular products, the USITC considered that the tariffrate quota it recommended was sufficient to prevent or remedy the threat of serious injury.  However,
the President of the United States without justifying the necessity of the measure, imposed a straight
tariff.  Because the remedy is the chosen measure and must be tailored to meet the relevant serious
injury, that is the serious injury attributed to increased imports Switzerland considers that the United
States must explain adequately and justify the extent of the application of the measure prior to
imposing a safeguard.  The United States did not provide such an adequate explanation and
justification before imposing the safeguard measure and thus did not comply with the requirements ofthe Agreement on Safeguards.
3727
7.1615  Similarly, Korea3728 argues that the measure finally imposed by the United States – a straight
15% tariff – had been judged by the USITC to be overly excessive, and not limited to the extent
necessary because it was applied to imports of injurious and non-injurious imports alike.  The USITC
provided a reasoned analysis of its recommended tariff-rate quota in the context of its threat of injuryfinding:
"Given that we have found threat of serious injury, the intent of our recommended
remedy is to prevent imports from rising to a level that would cause serious injury.  A
straight tariff would affect all welded pipe imports, even those at levels we have found
                                                     
3725 Memorandum EC-046, p. TUBULAR-21 (US-64).
3726 USITC Report, Vol. I, p. 383.
3727 Switzerland's second written submission, paras. 115-118.
3728 Korea's first written submission, paras. 208-213.WT/DS248/R, WT/DS249/R,
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did not cause serious injury .  In light of the diversity of welded pipe imports, we seek
to avoid creating supply shortfalls during the period of relief."3729
7.1616  Korea notes that the USITC finding of only "threat" (not serious injury) establishes the level
or extent of relief necessary since only that the threat of injury from imports needs to be
"prevented".3730  In fact, the USITC rejected the suggestion of Joint Respondents to use a base period
of 1998-2000 or 2001 (for imports other than line pipe for which no remedy should be imposed) for
purposes of establishing the in quota figure and recommended, instead, the higher level of imports
from 2000 as the base.3731  The USITC reasoned as follows:
"We estimate that the recommended tariff-rate quota on welded pipe products will
initially leave the market share, sales revenue, and profitability of the domestic
industry unchanged.  If import volumes increase beyond 2000 levels, then the tariff-
rate quote will begin to take effect, stabilizing prices without preventing the entry of
products at current levels.  The tariff-rate quota should limit import growth, thereby
preventing or restricting the negative impact of such growth on industry profitability.
At the same time, our proposal would maintain substantial competition in the US
market for welded pipe products and pose little likelihood of supply problems for
domestic consumers.  First, our proposed remedy for welded pipe products would still
permit the same quantity of imports as in 2000 at the current low rate of duty.  This
amount exceeds the amount that entered in any previous year of the period ofinvestigation."
3732
7.1617  Korea recalls that the USITC was careful to recommend a form of remedy that did not restrict
imports at levels found non-injurious and which responded at the same time to some of the concerns
inherent in its like product determination and causation analysis.3733  Thus, the USITC was careful to
recommend action that "does not exceed the amount necessary to prevent  serious injury"3734 and
recognized that demand for pipe in large-scale pipeline projects required a flexible remedy.3735  The
President disregarded the USITC's remedy recommendation and without explanation imposed a 15%
tariff on all imports of welded tube products.  The only reference to this choice of remedy versus the
tariff-rate quota proposed by the USITC is found in a Presidential Press Release and in a Report
Submitted to the United States Congress which merely asserts that it is a higher level of relief.3736
                                                     
3729 USITC Report, Vol. I, p. 383 (emphasis added) (Exhibit CC-6); USITC Report, Vol. I:   Views of
Vice Commissioner Deanna Tanner Okun on Remedy,  p. 483 (to the same effect that there was only a threat of
injury found) (Exhibit CC-6); USITC Report, Vol. I:  Views of Vice Chairman Deanna Tanner Okun on
Remedy , p. 482 (Exhibit CC-6) ("Given my finding of threat…I do not view increased tariffs as an appropriate
form of remedy….").
3730 Korea's first written submission, paras. 209-210.
3731 USITC Report, Vol. I:   View of Vice Chairman Deanna Tanner Okun on Remedy , p. 482,
footnote 266 (Exhibit CC-6).
3732 USITC Report, Vol. I, p. 386 (Exhibit CC-6).
3733 Korea's first written submission, paras. 211-212.
3734 USITC Report, Vol. I, pp. 385-386 (emphasis added) (Exhibit CC-6).
3735 USITC Report, Vol. I, Views of Chairman Deanna Tanner Okun on Remedy , p. 482
(Exhibit CC-6).
3736 Components of the Presidential Decision at Certain Tubular Products  and Report Submitted to the
United States Congress at Certain Tubular Products .  (Exhibit CC-88) ("A tariff of 15%…will provide a higher
level of relief than the tariff-rate quota recommended by a majority of the USITC Commissioners.")WT/DS248/R, WT/DS249/R,
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Page 533
7.1618  Korea submits that the most fundamental flaw in the President's remedy is that it does exactly
what the USITC had avoided in its remedy recomm endation – it imposes duties on imports that did
not cause serious injury.3737  The USITC clearly stated that "[a]  straight tariff would affect all welded
pipe imports, even those at levels we have found did not cause serious injury ".3738  Since the final
remedy of the United States affects all welded pipe imports, the measure, on its face, exceeds the level
necessary to prevent serious injury and is, therefore, in violation of the United States commitments
under the Agreement on Safeguards.3739  Given such facts, Korea argues that the United States failed
to provide a justification on how its measure was limited to the necessary extent.  The findings of
threat/serious injury are the proper "benchmark" by which the remedy must be assessed, as theAppellate Body has said.
3740  Moreover, Article 5.1 (last sentence) states that "Members should
choose measures most suitable for the achievement of these objectives."  The identified "objectives"
relate to, inter alia , whether serious injury needs to be remedied  or whether a threat of serious injury
needs to be prevented  (Article 5.1, first sentence).  So, for ex ample, if serious injury were found, then
current import levels were injurious.  This would support a remedy that should apply to those importlevels and a straight tariff would be appropriate.  The correct remedy, therefore, depends on the
particular findings by the authorities regarding the scope, nature, etc., of the increased imports, serious
injury or threat of serious injury, and causation as the Appellate Body instructed in US – Line Pipe .
3741
7.1619  The European Communities notes that despite the USITC findings that increased capacity had
not contributed to the injury in more than a minor way, the United States has decided to treat thedecrease in the industry's performance in 2000 as attributable to increase in capacity.
3742  According to
the European Communities, the United States, therefore, has not attempted to determine a domestic
price that would have increased income margin above 2000 levels.  As a result of its numerical
approach, the United States has found that an increase of 16.2% in imports prices would be in line
with Article 5.13743 and referred to the USITC modelling indicating that a 15% additional tariff on
imports excluding Canada but including Mexico woul d result in an increase of between 9.3 and 11.5%
in imports prices.3744 3745  China concludes that targeting the imports that remain below such level, and
have neither caused nor are threatening to cause serious injury, would imply a failure to meet the
requirements of Article 5.1, as clarified by the Appellate Body in US – Line Pipe , that "safeguard
measures may be applied only to the extent that they address serious injury attributed to increase
imports" .  Therefore, the USITC made a clear finding related to the permissible extent of the
safeguard measure on welded pipe, and a proper determination that the best way to address a threat ofserious injury would be to apply a tariff-rate quota.  Accordingly, by deciding to impose a straight
tariff that would affect all imports, including those that are not threatening to cause serious injury, the
United States adopted a measure that goes beyond the extent necessary to address the threat of serious
injury that the USITC found to be caused by increased imports.
3746
7.1620  The United States responds to Korea's argument that if other welded pipe imports were held
to 1997 levels, the estimated price for domestic products would be 4.3% to 6.7% higher, while the
                                                     
3737 Korea's first written submission, para. 213.
3738 USITC Report, Vol. I, p. 383 (emphasis added) (Exhibit CC-6).  USITC Report, Vol. I:   Views of
Vice Chairman Deanna Tanner Okun on Remedy , p. 438 (Exhibit CC-6) (the recommended remedy is "most
likely to address the threat of serious injury").
3739 Appellate Body Report, US  – Line Pipe , para. 236.
3740 Korea's second written submission, paras. 305-308.
3741 Korea's written reply to Panel question No. 106 at the first substantive meeting.
3742 United States' first written submission, para. 1132.
3743 Exhibit US-56.
3744 United States' first written submission, para. 1126.
3745 European Communities' second written submission, paras. 543-545.
3746 China's second written submission, paras. 307-308.WT/DS248/R, WT/DS249/R,
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Page 534
remedy would result in estimated price increases of 8.7% to 11.1%.  For the United States, by arguing
that Korea's criticism fails to recognize that th e other welded pipe remedy addressed a threat of
serious injury, and that the analysis based on data for 2000 would not establish what was necessary to
stop the evolution of the existing injurious effects of increased imports into the full manifestation of
that threat as serious injury.3747
(vii) Tariff on FFTJ
7.1621  The United States3748 submits that the USITC demonstrated that increased imports from non-
NAFTA sources caused serious injury to the domestic FFTJ industry and this is the starting
assumption of its justification.  The USITC identified five factors other than increased imports thatpotentially caused injury:  the business cycle for the oil and gas industry, increases in capacity and
intra-industry competition, the inefficiency of domestic producers' outdated facilities, shortage of
qualified workers, and purchaser consolidation.  The USITC found that the business cycle in the oil
and gas industry in 2000 and the first half of 2001;  capacity and intra-industry competition; and
inefficiencies in domestic producers' facilities or shortages of workers were not factors causingserious injury.  The USITC found that purchaser consolidation would put "some" pressure on
domestic producers' prices, but would not explain the reduction in domestic production, shipments,
employment and other non-price indicators that occurred.
3749  Thus, the USITC did not attribute any
of the decrease in non-price factors to purchaser consolidation, and only "some" of the decrease in
domestic prices.
7.1622  The United States points to the fact that the findings of the USITC indicate that most of the
reduction in domestic producers' production, capacity utilization, shipments, market share, number of
workers, wages, and profitability from 1999 through the first half of 2001 is properly attributed to
increased non-FTA imports.  For the United States, this is not to suggest that imports were not having
a negative effect on the domestic industry in preceding years.  Since the analysis of the USITCfocused on changes in industry performance, and as a conservative estimate of the injury attributable
to imports, the United States bases its analysis for FFTJ on the changes from 1999 through the first
half of 2001 only.  The USITC did not attribute any injury to four of the five other potential causes of
injury.  It attributed some of the decrease in FFTJ prices, but none of the other decreases in industry
performance, to purchaser consolidation.  The USITC attributed domestic producers' loss of market
share, decreased prices, and decreased profitability to increased imports, and to no other cause.
7.1623  The United States bases its analysis of the permissible remedy on the underselling data rather
than aggregate unit value data because, as the USITC noted that "[w]e are cautious of placing undue
weight on AUV information, as it may be influenced by issues of product mix".
3750  In the first step,
the United States explains that as a conservative estimate it chose 1998, the year following the first
significant increase in imports, as the appropriate base year, keeping in mind that imports increased
somewhat in that year, and thus may have had some negative effect on the industry.  The USITCfound that purchaser consolidation had negative effects on the industry.  The United States explains
that as a conservative estimate it treated one-half of  the reduction in operating income in each year as
attributable to purchaser consolidation.  It estimates the revenue shortfall in 1999 through the first half
of 2001, periods in which the USITC indicated that imports caused some of the decline in the
industry's performance.  In the second step, the United States estimates the amount by which the 1998operating income margin would have to rise to recoup the shortfall in operating income estimated in
                                                     
3747 United States' written reply to Panel question No. 50 at the second substantive meeting.
3748 United States' first written submission, paras. 1139-1147.
3749 USITC Report, p. 178.
3750 USITC Report, p. 176, footnote 1087.WT/DS248/R, WT/DS249/R,
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Page 535
step 1.3751  In the third step, it bases the pricing analysis on the USITC pricing comparisons on page
TUBULAR-59 of the USITC Report.  The United States notes the USITC's findings with regard toimports from Canada and Mexico and concluded that no adjustment to the estimate was necessary.
As a fourth step, it estimates the additional duty that would be necessary to achieve the target
increase.  As part of the remedy phase of the investigation, the USITC staff prepared economic
models on the United States' FFTJ market.  These models indicated that a 15% increase in duties
would result in an increase of between 10.5 and 12.5% in the sale price of imported FFTJ in the
United States.
3752  For the United States, this suggests that the 13% tariff on FFTJ is set at a magnitude
that satisfies the requirements of Article 5.1.
7.1624  The United States then models two scenarios:  (i) the change in the price, volume, and
revenue for domestic products and imports if the remedy established by the President on 5 March
2002, had been in effect in 2000;  and (ii) the change in the price, volume, and revenue associated
with domestic products and imports from various sources if imports had remained at 1997 levels in
2000.  The United States submits that the results of this exercise suggest that it has applied thesafeguard measure no more than the extent necessary to prevent or remedy serious injury and to
facilitate adjustment.
7.1625  The European Communities notes that the starting point is again the USITC findings that
among five other factors (business cycle for oil and gas industry, increase in capacity, intra-industry
competition, inefficiency of domestic producers, shortage of qualified workers and purchasers'consolidation), only the latter played a role on the decrease of domestic prices.
3753  As a first step in its
numerical analysis, the United States has chosen 1998, the year following the first significant increase
in imports as the "base" year and made one adjustment to take account of purchasers'
consolidation.3754  As a result of its numerical approach, the United States has found that an increase
of 30.2% in imports prices would be in line with Article 5.13755 and referred to the USITC modelling
indicating that a 15% additional tariff on imports excluding Canada but including Mexico would
result in an increase of between 10.5 and 12.5% in imports prices.3756 3757
(viii) Tariff on stainless steel bar
7.1626  For the United States3758, the USITC demonstrated that increased imports from non-NAFTA
sources caused serious injury to the domestic stainless steel bar industry and this is the starting
assumption of its justification.
7.1627  The United States first notes that the financial data on the stainless steel bar industry were
confidential in the USITC Report but notes that they were publicly available data in the prehearing
report.3759  The United States explains that it used these public data in making its estimate regarding
                                                     
3751 The United States states that it does this by estimating the revenue shortfall in each year in which
the USITC identified imports as having an injurious effect, and divided that by actual revenue for the sameperiod.
3752 Memorandum EC-046, p. TUBULAR-23 (US-64).
3753 United States' first written submission, paras. 1141-1142.
3754 United States' first written submission, para. 1144.
3755 Exhibit US-56.
3756 United States' first written submission, para. 1146.
3757 European Communities' second written submission, paras. 546-547.
3758 United States' first written submission, paras. 1148-1159.
3759 The United States submits that the USITC made da ta on the financial performance of the stainless
steel bar industry publicly available in its prehearing report.  Subsequent to issuance of that report, an additionalsmall producer submitted data.  Thus, public revelation of aggregate data available at the time of the USITCWT/DS248/R, WT/DS249/R,
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Page 536
compliance with Article 5.1, since no other public data are available.  The United States notes that
these data are generally reflective of the trends in indicators in the industry.  This data is presented inthe following table:
1998 1999 2000 1
st half 2000 1st half 2001
Production 175,171 164,376 179,090 94,890 81,750
Capacity utilization 57.8% 52.1% 55.8% 59.5% 49.6%
Shipments 169,515 158,861 173,582 92,878 84,186
Market share 60.5% 59.8% 53.5% 52.7% 54.9%
Employment 2,125 1,854 1,941 1,901 1,793
Op. income 20,885* 4,580* 2,266* 8,746* (1,389)*
Margin 3.7%* 0.9%* 0.4%* 2.8%* (0.5%)*
Capital exp. 81,120* 55,581* 25,250* 23,169* 12,794*
Inventory 21,130 21,302 19,392 19,435 14,894
Source:  USITC Report, p. STAINLESS-C-4 and USITC prehearing report, p. STAINLESS-C-4 (US-61).
Production, shipments and inventory in short tons;  employment in number of workers;  operating income andcapital expenditure in US$1 million.
* Indicates data made public in the USITC prehearing report.
7.1628  The United States argues that the USITC identified two factors other than increased imports
that potentially caused injury:  a downturn in demand for stainless steel bar and increase in energy
costs in late 2000 and the first half of 2001 and poor operations by domestic producers AL
Tech/Empire and Republic.  The USITC found th at poor operations by domestic producers AL
Tech/Empire and Republic, and the downturn in demand for stainless steel bar and increased energycosts prior to late 2000 were not factors that caused  injury to the domestic industry.  According to the
United States, these findings indicate that the injury to the domestic industry in 1999, as reflected in
the reduction in domestic producers' production, ship ments, market share, employment, revenue, and
operating income in 1999, is properly attributed to increased imports.  For the United States, this is
not to suggest that imports before 1999 had no negative effects.  Since the analysis of the USITC
focused on changes in industry performance, and as a conservative estimate of the injury attributable
to imports, the United States bases its analysis for stainless steel bar only on the changes in 1999 andafter.  The USITC found that declining demand and increased energy costs had an effect on the
domestic industry in 2000 and the first half of 2001, albeit one less important than the injury caused
by increased imports.  The USITC further indicated that the domestic industry could have increased
prices to cover increased costs in the absence of increased imports.  As a conservative estimate, it
treated half of the decline in the industry's performance in 2000 and the first half of 2001 asattributable to increased imports.  For the United States, non-FTA imports continued in the first half
2001 at unit values far below those of the domestic producers.  Although their volume and market
share declined, non-FTA imports maintained a market share two percentage points higher than at any
time prior to 2000 and five times higher than FTA imports.
                                                                                                                                                                    
Report would allow anyone to calculate that producer's proprietary data by subtracting out the data from the
preliminary report.  Accordingly, the USITC redacted all financial data on this industry from the final publicversion of the USITC Report.WT/DS248/R, WT/DS249/R,
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Page 537
7.1629  The United States explains that in its estimate regarding consistency with Article 5.1, it also
considers existing anti-dumping duty orders.  The USITC considered two groups of anti-dumpingduty orders – orders imposed on imports of stainless steel bar from Brazil, India, Japan, and Spain in
1995 and orders imposed on stainless steel angles from Japan, Korea, and Spain in May 2001.  The
USITC found that the 1995 orders did not limit subject countries from exporting substantial, and even
increased, quantities to the United States.  Moreover, the data gathered by the USITC reflects any
effect on the industry that the orders may have had.  Since the United States bases its estimate on that
data, it was of the view that it did not need to ad just the estimate to account for the effect of the 1995
orders.  The United States recalls that the USITC found that it was too early to assess the effect of the2001 orders.  The United States notes, however, that these covered angles alone, which represented at
most between 8 and 18% of the non-FTA imports covered by the stainless steel bar safeguard
measure, and a small number of countries.
3760  The United States explains that as a conservative
estimate for purposes of this calculation, it has diluted the amount of increase necessary to remedy
serious injury to reflect that a trade remedy whose effects may not currently be felt already applies tothese products.
7.1630  The United States explains that in its estimate regarding consistency with Article 5.1, it
followed the basic steps of the methodology previous ly outlined, with adaptations appropriate to the
facts of this domestic industry.  It bases the estimate on the unit values, as there is no suggestion in the
USITC Report that differences in the unit values reflect different product mixes.  Drawing on theUSITC's analysis, the United States uses 1998 as the comparison year.  It treats the full difference in
operating profits in 1999 versus 1998 and one-half of the difference in operating profits in 2000 and
the first half of 2001 as compared with 1998, as attributable to increased imports.  In the second and
third steps, it uses data for the period of 1999 through the first half of 2001.
7.1631  The United States notes the USITC's findings
3761 with regard to imports from Canada and
Mexico and concludes that no adjustment to the estimate was necessary.  As a fourth step, the United
States estimates the additional duty that would be necessary to achieve the target increase.  As part of
the remedy phase of the investigation, the USITC staff prepared economic models on the United
States' stainless steel bar market.  These models indicated that a 20% increase in duties would result in
an increase of between 10.2% and 14.7% in the sale price of imported stainless steel bar (excluding
Mexican products) in the United States.3762  For the United States, this suggests that the 20% tariff on
stainless steel bar is set at a magnitude that satisfies the requirements of Article 5.1.
                                                     
3760 Public USITC data on total imports of stainless steel angles (from all sources, both fairly and
unfairly traded) in the 1998-2000 investigation period show the following figures, which are compared in thefollowing table to total non-FTA imports of stainless steel bar from the USITC Report:
1998 1999 2000
Volume Value Volume Value Volume Value
Angles imports 9,802 20,931 16,399 27,163 17,148 32,152
Bar imports 97,552 248,724 92,341 204,223 131,184 302,546
Angles share 10.0% 8.4% 17,8% 13.3% 13.1% 10.6%
Source:  USITC Report;  Stainless Steel Angles From Japan, Korea and Spain, Inv. No. 731-TA-888-890 (Final)
USITC Pub. 3421, p. IV-2 (May 2001) (US-62).
3761 United States' first written submission, para 1157.
3762 Memorandum EC-046, p. STAINLESS-42 (US-64).WT/DS248/R, WT/DS249/R,
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7.1632  Then the United States modelled two scenarios:  (i) the change in the price, volume, and
revenue for domestic products and imports if the remedy established by the President on 5 March2002, had been in effect in 2000;  and (ii) the change in the price, volume, and revenue associated
with domestic products and imports from various sources if imports had remained at 1997 levels in
2000.  The United States submits that the results of this exercise suggest that it has applied the
safeguard measure no more than the extent necessary to prevent or remedy serious injury and to
facilitate adjustment.
7.1633  The European Communities notes that the United States has chosen 1998 as the "base" year
for its numerical analysis and made adjustments to take account of the injury caused by a downturn indemand and an increase in energy costs in 2000 and 2001, but refuses further adjustment with respect
to poor operation by two domestic producers, in line with the USITC findings.  The United States has
also taken into account anti-dumping orders decided in 2001.
3763  As a result of its numerical
approach, the United States has found that an increase of 35.1% in imports prices would be in line
with Article 5.13764 and referred to the USITC modelling indicating that a 20% additional tariff on
imports excluding Mexico but including Canada w ould result in an increase of between 10.2 and
14.7% in imports prices.3765
(ix) Tariff on stainless steel rod
7.1634  The United States3766 submits that the USITC demonstrated that increased imports from non-
NAFTA sources caused serious injury  to the domestic stainless steel rod industry and this is the
starting assumption of its justification.
7.1635  The United States first notes that most of the data are confidential, since the industry had a
small number of producers.  For purposes of explaining its estimate relating to compliance with
Article 5.1, the United States has obtained ranged data for producers representing a large portion of
the domestic industry.  These data are within a range either 10% greater or less than the actual data.This data is presented in the following table:
                                                     
3763 United States' first written submission, paras. 1148-1156.
3764 Exhibit US-56.
3765 United States' first written submission, para. 1158.
3766 United States' first written submission, paras. 1160-1169.WT/DS248/R, WT/DS249/R,
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Page 539
1996 1997 1998 1999 20001st half
20001st half
2001
Production 120,000 120,000 113,000 107,000 96,000 55,000 39,000
Shipments 118,000 119,000 111,000 107,000 96,000 54,000 40,000
Employment 1,000 1,000 900 900 800 800 700Wages 50,000 52,000 46,000 44,000 43,000 23,000 18,000Op. income 5,100 4,400 5,100 (1,300) (4,800) 1,800 (5,200)Margin 5.0% 4.0% 6.0% -0.2% -7.0% 4.0% -18.0%Inventory 1,600 1,000 2,300 400 900 1,900 -
Source: Stainless Steel Rod (US-63).  Production, shipments and inventory in short tons;  employment in
numbers of workers;  wages and operating income in US$1 million;  productivity in tons/1000 hours.
7.1636  The United States submits that the USITC identified two factors other than increased imports
that potentially caused injury:  downturn in dema nd and increased energy costs in late 2000 and the
first half of 2001 and poor operations by domestic producer AL Tech/Empire.  The USITC found that
the poor operations by AL Tech/Empire was not a factor that caused injury to the domestic industry.
The USITC found that declining demand and increased energy costs had an effect on the domestic
industry in 2000 and the first half of 2001, albeit one less important than the injury caused byincreased imports.  The USITC further indicated that the domestic industry could have increased
prices to cover increased costs in the absence of increased imports.  The findings of the USITC
indicate that the much of the poor industry performance is attributable to increased imports.  It also
indicated that declining demand and increased energy costs had an effect on the domestic industry in
2000 and the first half of 2001.  The United States explains that it based its analysis of the permissibleremedy on aggregate unit value data because the pricing series data for domestic industry is
confidential.
7.1637  The United States argues that in its estima te regarding consistency with Article 5.1, it
considered existing anti-dumping duty orders.  The USITC noted that anti-dumping and
countervailing duty orders were imposed in 1993, 1994, and 1998 against imports of stainless steelrod from Brazil, France, India, Italy, Japan, Korea, Spain, Sweden, and Taiwan.
3767  The USITC found
that the orders appeared not to have limited the ability of foreign producers in these countries to
increase exports to the United States in 1999 and 2000.  The data gathered by the USITC reflects any
effect on the industry that the orders may have had.  Since the United States bases its estimate on that
data, the United States does not need to adjust the estimate to account for the effect of the 1995orders.
7.1638  The United States explains that it followed the basic steps of the same methodology
previously outlined, with adaptations appropriate to the facts of this domestic industry.  To estimate
the extent of the permissible remedy, it began with the fact that in 1996 the condition of the domestic
industry had not yet begun to deteriorate.  Therefore, 1996 would be an appropriate comparison year,
keeping in mind that imports may still have been having some negative effect on the industry.  As
noted above, the USITC Report indicates that the inju ry, as reflected in the decrease in the domestic
industry's performance from 1997 to 1999, was due to increased imports.  Therefore, it was
                                                     
3767 USITC Report, p. 219.WT/DS248/R, WT/DS249/R,
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Page 540
reasonable to treat any amount by which operating income in each of these years is below operating
profits in 1996 has having been caused by increased imports.  As a conservative estimate, it treats halfof the decline in the industry's performance in 2000 and the first half of 2001 as attributable to this
factor.  In the second and third steps, the United States uses public data for 1997 through the first half
of 2001, using publicly available unit values from page STAINLESS-12 of the USITC Report.  The
United States notes the USITC's findings with re gard to imports from Canada and Mexico and
concluded that no adjustment to the estimate was necessary.  As a fourth step, the United States
estimates the additional duty that would be necessary to achieve the target increase.  As part of the
remedy phase of the investigation, the USITC staff prepared economic models on the United States'stainless steel rod market.  For the United States, these models suggest that the 15% tariff on stainless
steel rod (excluding rod from Canada and Mexico) is set at a magnitude that satisfies the requirements
of Article 5.1.
3768
7.1639  The United States then models two scenarios:  (i) the change in the price, volume, and
revenue for domestic products and imports if the remedy established by the President on 5 March2002, had been in effect in 2000;  and (ii) the change in the price, volume, and revenue associated
with domestic products and imports from various sources if imports had remained at 1997 levels in
2000.  The United States submits that the results of this exercise suggest that it has applied the
safeguard measure no more than the extent necessary to prevent or remedy serious injury and to
facilitate adjustment.
7.1640  The European Communities notes that the United States has determined 1996, a year when
the industry's condition hat not yet began to deteriorate, as the adequate "base" year for its numerical
analysis and made adjustments to take account of the injury caused by a downturn in demand and an
increase in energy costs in 2000 and 2001, but refused further adjustment with respect to poor
operation by two domestic producers, in line with the USITC findings.
3769  As a result of its numerical
approach, the United States has found that an increase of 39.0% in imports prices would be in line
with Article 5.13770 and referred to the USITC modelling to conclude that a 15% additional tariff on
imports excluding Mexico and Canada would suggest that a 15% increase in duty would be set at a
magnitude that satisfies the requirements of Article 5.1.3771  However, it is not possible to check the
latter assumption, since the results of the modelling exercise had been kept confidential and no non-
confidential summary has been provided.  Finally, the European Communities argues that the so-
called numerical analysis proposed by the United States does not demonstrate anything.3772
(x) Tariff on stainless steel wire
7.1641  The United States3773 recalls that for stainless steel wire, two Commissioners found a threat of
serious injury and one Commissioner found serious injury, and this is the starting assumption of its
justification.  They issued separate views, but agreed on certain key aspects of the injurious condition
faced by the domestic industry.  Chairman Koplan found a threat of serious injury based on a declinein sales and market share, increasing inventories,  and a downward trend in production, profits, wages,
productivity, and employment, indicating that the domestic producers could not generate adequate
capital for modernization.  Commissioner Bragg treated stainless steel wire as part of a single like
                                                     
3768 Memorandum EC-046, p. STAINLESS-41 (US-64) (the results of the modelling exercise are
confidential).
3769 United States' first written submission, paras. 1160-1163.
3770 Exhibit US-56.
3771 United States' first written submission, para. 1168.
3772 European Communities' second written submission, paras. 554-556.
3773 United States' first written submission, paras. 1187-1203.WT/DS248/R, WT/DS249/R,
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product with stainless steel wire rope (terming the combination "stainless steel wire products"), and
found a threat of serious injury based on decreasing domestic sales and market share in the first halfof 2001, increases in inventories throughout period of investigation, and lower trends in production,
profits, wages, productivity, and employment in the first half of 2001.
3774  Public data indicated that
the volume of stainless steel wire rope imported in to the United States was much smaller than the
volume of stainless steel wire, suggesting [sic].3775  Commissioner Devaney also treated stainless steel
wire as part of a single like product with stainl ess steel wire rope, but found serious injury based on
falling operating income levels and a decline in most indicators in the first half of 2001.3776
7.1642  The United States submits that each of these determinations reflects a permissible analysis of
the effect of imports on the domestic industry.  Under United States law, multiple affirmative
determinations by individual Commissioners as to differently defined like products constitute an
affirmative determination of the USITC with regard  to the largest product group that is subject to
enough affirmative determinations to form a majority of the USITC.  It is the injury experienced by
the producers of stainless steel wire – the product within the intersection of the determinations ofCommissioners Koplan, Bragg, and Devaney – that forms the basis for deciding the extent of
application of the safeguard measure.  The performance of these producers is evaluated in light of the
findings made by Commissioners Bragg and Devaney as to the larger industry comprising producers
of stainless steel wire and stainless steel rope.  For similar reasons, the overall determination of the
USITC is treated as a threat of material injury and refer to the Appellate Body statement in US – Line
Pipe.  In the terms adopted by the Appellate Body, treating the affirmative determination of the
USITC as threat of serious injury recognizes that all three Commissioners found the industry had at
least passed the lower threshold of a threat.  It is the degree of injury that is common to all three
determinations.  The Commissioners rendering affirmative determinations focused on the same
indicators of injury.  For stainless steel wire, these were:
1999 2000 1
st half 2000 1st half 2001
Production 103,484 106,547 56,698 43,347
Shipments 102,211 104,752 55,966 43,933
Market share 80.5% 77.0% 77.7% 72,7%Employment 1,022 1,017 1,021 935Wages 31 31 16 14Productivity 48 50 51 46Op. income* 7,401 5,854 7,808 (4,428)Margin* 2.0% 2.3% 5.5% (4.0%)Inventory 66,688 71,313 50,589 46,271
Source:  USITC Report, p. STAINLESS-C-7 and USITC Prehearing Report, p. STAINLESS-C-7.  Production,
shipments and inventory in short tons;  employment in numbers of workers;  wages and operating income inUS$1 million;  productivity in tons/1000 hours.
* Indicates data made public in the USITC prehearing report.
                                                     
3774 USITC Report, pp. 288-289.
3775 USITC Report, pp. STAINLESS-14 & STAINLESS-16.
3776 USITC Report, p. 345.WT/DS248/R, WT/DS249/R,
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7.1643  The USITC found that "increased imports at underselling prices have played a key role in
bringing about this negative trend", ending "at a point near serious injury".3777  One or m ore of the
Commissioners identified three other potential causes of the threat of serious injury:  declining
demand, raw material costs, and appreciation of the dollar.  The United States recalls that Chairman
Koplan and Commissioner Bragg found that some portion of the industry's declining performance in
the first half of 2001 is attributable to the decline in demand for stainless steel wire.  Chairman
Koplan found that the decline in demand alone did not explain the injury experienced by the domestic
producers, whose production and shipments declined more than apparent domestic consumption in the
first half of 2001.  Commissioner Bragg found that th e imminent impact of imports outweighed these
other factors.3778  Commissioners Koplan and Bragg found th at the industry's raw material costs had
and would continue to have an impact on the dom estic industry, but one outweighed by increased
imports.3779  Commissioner Bragg found that the appreciation of the dollar had and would continue to
have an impact of the domestic industry,  but one outweighed by increased imports.3780
7.1644  The United States argues that, in its view, the USITC Report details the relationship between
increased imports from non-FTA sources and injury to the domestic industry.  Commissioners Koplan
and Bragg found that imports caused the threat of serious injury because when domestic consumption
fell in the first half of 2001, after four years of steady increases, imports increased, resulting in a sharp
decrease in sales and market share.3781  As a result, domestic producers could not raise prices to cover
increased costs, and their operating income plummeted.3782  Commissioners Koplan, Bragg, and
Devaney all found that underselling by imported products played a role in causing serious injury.3783
7.1645  The United States explains that, as a conservative approach, if one of the Commissioners
identified another factor as causing injury, it consider ed that that factor caused injury regardless of the
views of the other Commissioners.  Accordingly, for purposes of demonstrating that the safeguard
measures complied with Article 5.1, the United States interprets the findings of the Commissioners asdemonstrating that non-FTA imports were responsible for some of the reduction in domestic
producers' sales and market share, increasing inventories, production, profits, wages, productivity, and
employment in the first half of 2001.  This is not to suggest that imports were not having a negative
effect on the domestic industry in preceding year s.  As Chairman Koplan found, "between 1996 and
2000, even though domestic consumption increased, the domestic industry kept prices of the domestic
product in line with costs and earned only low profits because of the presence of substitutable
stainless steel wire imports".
3784  Commissioner Bragg found that increased imports prevented
domestic producers from taking advantage of an upswing in the business cycle during the 1996 to
2000 period.3785  The United States assumes that the injury  was to some extent attributable to the
decline in demand, increasing raw material costs, and currency appreciation, but that none of the
injury is attributable to NAFTA imports.  The United States considers that the entirety of the decrease
in the industry's financial performance was due to these factors.
7.1646  Then the United States explains that it has performed a different analysis for stainless steel
wire because the Commissioners' causation analyses focused on the volume of imports and their
                                                     
3777 USITC Report, p. 164.
3778 USITC Report, pp. 259 and 302.  Commissioner Bragg treated this factor under the rubric of the
"general downturn in the economy".
3779 USITC Report, pp. 259 and 302.
3780 USITC Report, p. 302.
3781 USITC Report, pp. 259 and 302.
3782 USITC Report, p. 259.
3783 USITC Report, pp. 259, 294, and 346.
3784 USITC Report, p. 259.
3785 USITC Report, p. 302.WT/DS248/R, WT/DS249/R,
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Page 543
market share.  In addition, the underselling data cited by Commissioner Koplan was confidential, and
the average unit value data did not show similar patterns, making it unusable as a surrogate.Accordingly, the United States analyses this safeguard measure based on import volumes.  It noted
that imports increased substantially between 1999 and 2000.  As a first step in the analysis, the United
States calculates what non-NAFTA import volume  would have been if non-NAFTA imports had
stayed at their 1999 market share in 2000 and 2001.  It then compares the calculated import volumes
with the actual import volumes for those peri ods, and found that non-NAFTA imports would have
been, on average, approximately 20% lower.  This reduction represents a reduction in import volume
lower than the USITC modelling associated with a 10% tariff, indicating that the safeguard measurewas applied less than the extent necessary.
3786  Since, for the United States, this approach was based
on the volume of non-NAFTA imports alone, it concludes that no adjustment to the estimate was
necessary.  In a similar vein, no adjustment was necessary to reflect the United States' conservative
estimate that the decrease in the domestic industry's financial performance in 2000 was attributable to
the decline in demand or increasing raw material costs.  In addition, the United States argues thatsince its calculation did not make use of import prices, no adjustment was necessary to reflect its
estimate that currency appreciation was a cause of injury to the domestic industry.
7.1647  The United States then models two scenarios:  (i) the change in the price, volume, and
revenue for domestic products and imports if the remedy established by the President on 5 March
2002, had been in effect in 2000;  and (ii) the change in the price, volume, and revenue associatedwith domestic products and imports from various sources if imports had remained at 1997 levels in
2000.  The United States submits that the results of this exercise suggest that it has applied the
safeguard measure no more than the extent necessary to prevent or remedy serious injury and to
facilitate adjustment.
7.1648  The European Communities argues
3787 that the United States' arguments on Stainless Steel
Wire, like its arguments for other products, amount to a reconstruction of the USITC Report
unsupported by the facts on the record.  Turning first to the issue of non-attribution, the European
Communities explains that Commissioner Koplan had not considered the issue of rising costs, and had
not ensured that the injurious effect of rising costs was not attributed to increased imports.3788  The
United States expends five paragraphs trying to explain how Commissioner Koplan analysed costs,
distinguished and separated their effects, and ensured that they were not attributed to increased
imports.3789  This is five paragraphs more than the USITC.  Commissioner Koplan's opinion rested on
developments in interim 2001 which led him to consider that increased imports posed a threat of
serious injury.  He identified three factors "which contributed" to the domestic industry's decline.3790
The first two were imports and declining demand.  Thirdly, "unit costs of goods sold increased by ***percent" (all financial data for Stainless Steel Wire is confidential).
3791 He noted that "the falling
prices and rising costs led to a *** percentage point loss [sic] in the operating income to sales ratiobetween interim 2000 and interim 2001".
3792  The European Communities points out that that is all the
discussion of rising costs in interim 2001 that the USITC Report contains.  Five paragraphs in the
United States first written submission cannot make up for this total lack of reasoned and adequate
explanation.  As the financial data is confidential, there is no reasoned and adequate explanation of
how the facts support the findings, especially in the absence of a non-confidential indexed version of
                                                     
3786 USITC Memorandum EC-Y-046, p. STAINLESS-40.
3787 European Communities' second written submission, paras. 432-435.
3788 European Communities' first written submission, para. 579.
3789 United States' first written submission, paras. 736-740.
3790 USITC Report, Vol. I, p. 259.
3791 USITC Report, Vol. I, p. 259.
3792 USITC Report, Vol. I, p. 259.WT/DS248/R, WT/DS249/R,
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Page 544
the data.   There is no examination of the relevance or cause of increased costs, no separation and
distinction, and thus no non-attribution.  With respect to the correlation of trends, the EuropeanCommunities notes in its first written submission that three other Commissioners had found that
despite consistent underselling there was no correlation between pricing of imports and domestic
products.
3793  Commissioner Koplan did not deal with this  issue. Moreover, Commissioner Koplan did
not discuss underselling at all in his discussion of interim 2001 developments and, thus, did not
explain in a reasoned and adequate manner, how th ere was a correlation between pricing for imports
and domestic pricing sufficient to establish a causal link.  The USITC Report does not provide a
reasoned and adequate explanation of whether NAFTA imports were causing injury and how any suchinjury caused was not attributed to non-excluded imports.  Chairman Koplan simply concluded that
imports from neither Mexico or Canada were in the top five suppliers during the period of
investigation.  He did not even attempt to analyse whether such imports caused any injury and does
not, therefore, ensure that any such injury is not attributed to non-excluded imports.
2. General criticisms of the numerical analysis and economic model
3794
7.1649  Korea criticises the United States' ex post  justification of its measure which, it says, more than
confirms the reverse-engineered nature of the ex-post  methodologies.3795  Korea argues that only the
most significant errors are identified ( e.g., mathematical mistakes are not noted), but these errors
completely undermine the legitimacy of the United States' methodologies (the "simplified numerical
analysis"3796 and "simplified economic modelling" using the COMPAS Model3797) for purposes of
complying with Article 5.1 of the Agreement on Safeguards.3798
7.1650  In support of its allegations, Korea submits Exhibit 143799 that contains further details of its
criticism of the United States' methodology3800 as having the effect of overestimating the tariff
required to restore the domestic industry to profitability.  Korea submits that these methodological
errors are:  (i) the arbitrary and unsubstantiated addition of percentage increases to the percentincrease in revenues the United States believes are necessary to restore domestic producers to
profitability;  (ii) the arbitrary and unsubstantiated subtraction of actual operating income margins
                                                     
3793 European Communities' first written submission, paras. 580-581.
3794 The following section includes discussions from Korea's Exhibit 14, Korea's, United States' and the
European Communities' first and second written submission s, Korea's replies to Panel questions Nos. 48, 54 and
56 at the second substantive meeting as well as additional comments on those questions, all of which deal withthe United States' methodology for its justification pursuant to Article 5.1.
3795 Korea's second written submission, para. 247 and "Critique of US Justification of Its Safeguard
Measures on Certain Steel Products" (Korea Exhibit 14, "K-14").
3796 Found in "Safeguard Measures Worksheets" at United States' first written submission,
Exhibit US 56.
3797 Found in "Modelling Results Worksheets" at United States' first written submission, Exhibit US 57.
3798 Korea asserts that the United States' defense of the accuracy of its model is weak at best.  Given
that the Felt Hats  working party ( Report on the Withdrawal by the Unite d States of a Tariff Concession under
Article XIX of the General Agreement on Tariffs and Trade , GATT/CP/106, report adopted on 22 October 1951)
on which the United States seeks to rely was decided more than 50 years ago, Korea questions whether it is very
relevant to the issue of the required accuracy or usefulness of economic models.  In any event, the United States
seems to be arguing that the inherent imprecision in the "numeric exercise" and "rough estimate" is fine forpurposes of defending its measure even if such analysis might be problematic for a proper non-attribution
evaluation. ( US Responses to Questions from Panel , paras. 154-156) Korea does not agree.
3799 Supported by all complainants, Norway's second oral statement on behalf of all complainants,
para. 34.
3800 US Exhibit 56 "Safeguard Measure Worksheets" and US Exhibit 57 "Modelling Results
Worksheets"WT/DS248/R, WT/DS249/R,
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Page 545
from domestic average unit values (AUVs) before adjusting domestic AUVs upwards to reach
targeted commercial sales;  and (iii) the assumption that domestic and imported steel products areperfect substitutes for each other, and therefore that imported AUVs must rise to equally match
domestic AUVs.
3801
7.1651  By way of illustration, Korea submits that the end result for flat products is that the United
States should have concluded that imported AUVs needed to increase by 10.1% to remedy injury,
rather than by the 18.9% increase suggested.  This would mean that a 30% tariff that generates a
20.8% to 28.0% increase in the AUV of imports is, in fact, excessive.  In fact, the USITC's estimates
of the various effects of different tariff rates suggests that a tariff of about 11% to 12% would producenon-NAFTA import price increases closer to 10.1%.
3802  The United States' methodology with respect
to other welded pipe is completely indecipherable.  There is no justification for the targeted operating
margin selected, nor can one be divined from the US discussion in the text.3803
7.1652  By way of general comment, Korea submits that the numerical approach used by the United
States is nothing more than a snapshot of what would happen the day the tariffs are imposed.3804  It
holds constant everything that would vary two days after the tariffs are imposed (domestic quantity
sold, SG&A, COGS).  For example, when one impos es a tariff, import prices increase and quantity
declines.  Domestic prices increase and quantity sold increases (and therefore SG&A and COGS
would also increase).  So technically, to achieve the target total revenue needed to reach a particular
"profit" margin, the average unit value of domestic product sold may not need to increase as much asthe snap-shot approach would dictate.  Domestic producers can hit the desired target revenue by
selling more product at a slightly lower AUV than the snap-shot would dictate.
7.1653  Korea also submits that the numerical analysis and model also ignore the fact that tariffs have
two effects on imports – prices and quantities – not just on prices.
3805  The numerical analysis and
model ignore this effect and, therefore, overstate the increase in prices that must be achieved throughtariff levels.  When imports become more expensive, the United States industry can not only raise
prices to generate revenue, but it can increase the quantity of sales to generate revenue.  This is
particularly beneficial to a capital-intensive industry with excess capacity since increased volumes
also reduce unit costs.  The United States model ignores both effects.
7.1654  With respect to capture of volume-related cost decreases, the United States notes that Korea
argues that the numerical exercise does not capture cost savings that would occur when a safeguard
measure resulted in increased sales volume, allowing domestic producers to spread fixed costs over alarger volume.
3806  The criticism is misplaced.  As the United States notes in the first written
submission, the price-based exercise did not attempt to capture the injurious effects of increased
imports on domestic producers' sales volume or any factor other than price.3807  Thus, the adjustment
to reflect the cumulated injurious effects of imports did not include injurious effects associated
exclusively with the volume effects, or any other non-price effects, of imports.  Since the price-based
exercise omitted the injurious effects of import volume, the United States considered it appropriate to
                                                     
3801 Exhibit K-14, p.1.
3802 Exhibit K-14, p.1.
3803 Exhibit K-14, p.2.
3804 Exhibit K-14, p.2.
3805 Korea's written reply to Panel question No. 50 at the second substantive meeting.
3806 Exhibit K-14, p. 3.
3807 United States' first written submission, para. 1079.  Such factors would include productivity,
production, capacity utilization, employment, etc.WT/DS248/R, WT/DS249/R,
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omit the possible beneficial effects of reduced import volume that might accompany a safeguard
measure.
7.1655  With respect to the second step of the numerical analysis, Korea notes that the United States
calculates the percent difference in targeted revenues from Step 1 over actual revenues.3808  T h i s
should be all that is needed to the estimate the do mestic AUVs required to reach the target operating
margin deemed to represent an industry not injured by imports.  However, the United States then
further increases the percentage by which operating margin must increase "to counteract the negative
effects of imports from 1998 to 2000 and to facilitate adjustment".3809  The United States arbitrarily
picks the target operating margin rate as a measure of what it would take to do this (no rationale isoffered why the target operating margin is the appropriate rate that "counteracts" and "facilitates").
Restoring revenues to the level that would yield an operating income margin "equal to a level that
does not reflect the price effect of increased imports"
3810, (to a level  that "remedies" injury) should be
sufficient.  However, the United States  adds in  the target operating margin again, with no explanation
why this rate will accomplish the task.  Korea submits that this is arbitrary.  It results inoverestimating the target AUV, and hence the "required" tariff.  Korea submits that, in fact, this step
is completely unnecessary.  It would be sufficient to calculate the targeted revenues needed to achieve
the targeted operating margin in the First Ste p, and then proceed to the Third Step (but with
corrections).
7.1656  The United States responds that with regard to additions to target profit to reflect industry's
existing injured condition, the United States reiterates that the ordinary meaning of "remedy" means
to "rectify" or "make good"
3811, a concept that clearly encompasses addressing the accumulated effects
of increased imports.  The complainants have not actually disagreed with its analysis of the ordinary
meaning of "remedy" and its implications, including the observation that imports have cumulative
injurious effects.3812  The additions to the target profit in the second step of its numerical exercise
reflect the cumulative injurious effect of increased imports.  Omitting such an addition would ignore
those effects, something that the Agreement on Safeguards does not require.
7.1657  With respect to the third step of the numerical analysis, Korea submits that the methodology
employed is convoluted and arbitrary as well, and factually contradicts the USITC's finding that
imported and domestic products are imperfect substitutes for each other.3813  First, it is not clear why it
was necessary to decrease domestic AUVs by the actual operating margins for each year, and then
increase them by the (overstated) percentage calculated in Step Two.  Again, the resulting domesticAUVs are overstated.  Second, the United States assumes import AUVs need to rise to exactly equal
the target domestic AUVs to enable domestic producers to charge prices that generate those AUVs.
This assumes imported products and domestically-produced products are perfect substitutes for each
other, e.g., that imported plate must be priced at the same level as domestic plate at all times in all
cases.  The USITC in fact assumed that imported and domestically-produced steel products were not
                                                     
3808 Exhibit K-14, p.3.
3809 United States' first written submission, para. 1074.
3810 United States' first written submission, para. 1074.
3811 United States' second written submission, paras. 180-184.
3812 The United States argues that the European Communities has not addressed the substance of the
hypothetical in paragraph 128 of the United States' oral statement regarding the accumulated polluting effects ofa factory, other than to suggest that it treated imports as equivalent to pollution, when the United States' point
was that the pollution was analogous to injurious effects.  Thus, the United States concludes that the European
Communities does not disagree with our observation that imports may have a cumulative negative effect, andthat it does not disagree that these cumulative effects may be addressed by a safeguard measure.
3813 Exhibit K-14, p.3.WT/DS248/R, WT/DS249/R,
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perfect substitutes.3814  Imperfect substitutes (even moderate substitutes) mean that imports can be
priced lower than comparable domestic products, and domestic producers can still "make the sale".The impact of this assumption is that the percent change in import prices required to yield the target
domestic AUVs is overstated.
7.1658  Korea argues that the problem of a "one-year" base period approach is inherent to the
model.
3815  The model attributes all injury occurrin g in subsequent years as injury from imports
regardless of what effects the other factors may have had in the subsequent years.  The model assumes
that, ceteris paribus,  any injury after the base year is attributable to imports because it is assumed that
all other factors in the market remain constant.  But in Korea's opinion, ceteris paribus  does not apply.
It recommends looking simply at the developments in mini-mills versus integrated mills.3816  It also
recommends looking at the growth in capacity in pi pe and tube, where the ITC recognized that injury
did not exist even as late as mid-2001.  For Korea, the point is that once it is demonstrated that the
assumption of ceteris paribus  is not the case – i.e., other factors do not remain constant – the flaw in
the United States' argument is equally obvious.  All of the changes in US industry's economic andfinancial state are assumed by the United States' model to be attributed to imports.  Korea argues that
that is precisely the problem.
3817  The more isolated and fewer the data points, the less relevant the
analysis becomes as a predictor of future events.  The further in the past that benchmark is, the less
relevant it also potentially becomes since intervenin g events may well affect its validity as a predictor
of future behavior in the market.  For example, events  that gave rise to industry profitability for flat-
rolled in 1997 (which had nothing to do with im ports) may or may not replicate in the future ( e.g.,
high demand and favorable exchange rates gave rise to profitability in 1997).  To go forward saying
that 1997 is an appropriate ruler for the future, all st ars would have to realign in same way for that to
be a relevant benchmark for the future.  Korea concludes that it is impossible to hold everything
constant and the United States' model does not attempt to do so.3818  Moreover, for example, AUVs
for each flat-rolled product and welded pipe were of questionable value due to product mix issues as
specifically noted by the USITC3819 and discussed at length in Korea's Written Rebuttal.3820  Yet, in
the numerical analysis, the United States not only uses AUVs, but it also averages the AUVs for all
flat products.  The product mix issues multiply exponentially.  There were very distinct import trends
for each flat-rolled product over the period and very different prices for each flat-rolled product.  No
one-year "product mix" for "flat-rolled" makes any sense.  The variation is too great to make an
average meaningful.
7.1659  With respect to the fourth step of the numeric al analysis, Korea notes that the United States
compares the increase in imported AUVs required to put the industry in a state of non-injury to the
import price increases the USITC estimate would result from the tariff rate imposed.3821  F o r  f l a t
                                                     
3814 The USITC concluded:  "Based on data discussed in the final injury staff report, staff believes that,
while there are some differences in US-produced and imported flat products, overall there is a moderate to highdegree of substitution between certain US-produced and imported flat steel products". (USITC MemorandumEC-Y-046, 21 November 2001, p. FLAT-9 (Exhibit CC-10)  The substitution elasticities used for flat products
ranged from 2 to 7.  The low end of that range represents moderate substitutability; the higher end of that range
represents high substitutability, but "perfect" substitutability would be a number in the double-digits.
3815 Korea's written reply to Panel question No. 50 at the second substantive meeting.
3816 Korea's second written submission, paras. 169-176
3817 Korea's written reply to Panel question No. 72 at the second substantive meeting.
3818 Korea's written reply to Panel question No. 55 at the second substantive meeting.
3819 USITC Report, Vol. I, p. 61, footnote 279 (flat-rolled); p. 163, footnote 1006 (welded pipe)
(Exhibit CC-6).
3820 Korea's second written submission , paras. 251 and 264; Korea's Exhibit 14.
3821 Exhibit K-14. p.4.WT/DS248/R, WT/DS249/R,
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Page 548
products, the USITC used linked COMPAS models3822 (which, Korea submits, is appropriate), which
found that a 30% tariff on imports of all flat imports but tin would increase non-NAFTA import pricesby 20.8% to 28.0%.
3823  Apparently, this is "close enough" to the 18.9% average import price the US
numerical analysis generated.3824
7.1660  With respect to the use of average unit values, the United States reiterates that for the most
part, it based the calculations on unit values, as these captured all of the products under investigation.
For some products, the findings of the USITC or data in the USITC Report indicated that the
difference in unit values between imports and domestic products reflected different product mixes, as
well as the injurious effects of price underselling by non-FTA imports.  In those cases, the UnitedStates argues that it based its calculations on the item-specific pricing comparisons conducted by the
USITC.
3825 The United States argues that it sees nothing in Korea's argumentation that suggests any
infirmity in the choice of AUVs or item-speci fic pricing data for particular products.
7.1661  With respect to Korea's criticism of the decrease in domestic AUVs by the actual operating
margins for each year, and then their subsequent increase by the percentage calculated in StepTwo
3826, the United States argues that this step was necessary for an accurate calculation.  Had the
United States not "backed out" the actual operating margin before adding the target profit margin, the
estimate of the price increase necessary to achieve the target profit margin would have been higher.
This, in turn, would have inaccurately inflated the estimate of the increase in import prices necessary
to remedy the injurious price effects of increased imports.
7.1662  Korea submits3827 that using the United States' numerical approach and keeping its grossly
incorrect assumption about perfect substitutes, but correcting the other flaws noted above, yields the
following result:  Import prices for flat products would need to increase by no more than 10.1%, and
the President's 30% tariff which results in a 20.8% to 28.0% price increase is excessive. In fact, the
USITC's estimates of the various effects of different tariff rates suggests that a tariff of about 11-12%would produce non-NAFTA import price increases closer to 10.1%.
3828   Korea argues that it is not
possible to correct the other  welded pipe estimated import AUV increase (as done above for flat-
rolled)  of 16.2%3829 because the proper target operating margin is unclear.
7.1663  Korea notes3830 that the USITC found that each flat-rolled product was not a perfect
substitute.  They found moderate to high substitutability.3831  Yet, the model assumes that imports and
domestic production are "perfect substitutes".  The effect of this error is to overstate the amount by
which import AUVs needed to be increased because it assumes that import prices must equal UnitedStates prices for United States producers to "get the sale".  Since imports are not perfectly
substitutable, import prices do not need to be raised to the same level as those of domestic products so
a lower tariff is needed.  Hence, the United States ta riff is not limited to the "permissible extent".  The
United States defense that perfect substitutability is essentially the same as "moderate to high" is
indefensible from an economic point of view – which the United States knows full well.  The United
                                                     
3822 USITC Memorandum "Available Information on  Economic Models" (unnumbered; undated).
(Exhibit CC-10)
3823 USITC Memorandum EC-Y-050, 5 December 2001, Table 3. (Exhibit CC-10)
3824 "Safeguard Measures Worksheets". (Exhibit US 56).
3825 United States' first written submission, para. 1072, footnote 1375.
3826 Exhibit K-14, p. 3.
3827 Exhibit K-14, p.4.
3828 USITC Memorandum EC-Y-050 5 December 2001, Table 1. (Exhibit CC-10)
3829 "Safeguard Measures Worksheets". (Exhibit US 56).
3830 Korea's written reply to Panel question No. 50 at the second substantive meeting.
3831 USITC Report, Vol. I, p. 58; USITC Report, Vol.  II, p. FLAT-54. (Exhibit CC-6)WT/DS248/R, WT/DS249/R,
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Page 549
States then suggested before the Panel that the imported product might be superior in quality.
However, the USITC Report does not support that conclusion.3832  Moreover, the USITC's substitution
elasticity measure is relative to the United States product.  In other words, it measures customer
preference for the domestic product based on a variety of factors including quality, delivery times,
etc.3833  Quality is but one of a number of factors considered by the USITC in its measure of
substitution elasticity – and the overall substitutability was "moderate to high" compared to the United
States product.3834
7.1664  With respect to the treatment of domestic and imported products as perfect substitutes, the
United States argues that, in the price-based exercise, the United States estimated that imports wouldhave to sell at the same average unit value as domestic products for domestic products to achieve the
target operating income levels.  The complainants view this element of the calculation as
presupposing perfect substitutability between imported and domestic products, when the USITC
found a moderate to high degree of substitution.
3835  Assuming that domestic products would sell at a
given level if imported products also sold at that level is consistent with a finding of moderate to highsubstitutability.  To the extent that domestic and imported products could sell for different price
levels, the United States notes that many purchasers felt that imported products were of higher quality
than domestic products.
3836  This would suggest the existence of a price premium, such that domestic
products could achieve a given average price level only if imported products were sold at a higher
price level.  Thus, if Korea were correct, the assumption that domestic and imported products neededto sell at the same level would be conservative.
7.1665  The European Communities argues that neither the USITC model, nor the ex post  numerical
analysis, properly deal with NAFTA imports, and thus neither allows the United States to satisfy its
obligation under Article 5.1 to ensure that the measures remedies the injury allegedly caused by non-
excluded imports. The USITC included imports from NAFTA countries where they were found tocontribute importantly to injury, while the ex post numerical analysis excluded imports from NAFTA
countries entirely.  However, the United States was under an obligation to ensure that the injury
caused by NAFTA imports was not attributed to non-excluded imports. When it comes to assessing
the applicable remedy, the United States was required to determine the extent of the injury caused by
NAFTA imports, and ensure that the measure did not transfer the burden of remedying such injury to
non-excluded imports.  In other words, the remedy analysis should have ensured that the domestic
industry was not relieved  of the injury caused by FTA imports.  For the European Communities, it is
not enough that the USITC concluded that NAFTA imports did not contribute importantly to serious
injury. The concept of contributing importantly does not assess whether NAFTA imports caused
injury. There is thus a discrepancy between both analyses and the required analysis.
3837
                                                     
3832 USITC Report, Vol. II, Table FLAT-60. (Exhibit CC-6)
3833 USITC Report, Vol. II, pp. FLAT-58-60, footnote 42. (Exhibit CC-6)
3834 Korea's written reply to Panel question No. 50 at the second substantive meeting.
3835 Exhibit K-14, pp. 3-4.
3836 As a general rule, suggests the United States, the majority of purchasers viewed United States and
non-NAFTA products as comparable.  However, a significant number of them expressed a preference, generallyfinding non-NAFTA products to be superior by a two-to-one margin.  USITC Report, pp. FLAT-58, LONG-81,TUBULAR-49, STAINLESS-69.  The precise figures are:  flat-rolled steel, 129 comparable, 64 non-NAFTAsuperior, 33 United States superior; long steel, 136 comparable, 44 non-NAFTA superior, 22 United Statessuperior; tubular steel, 85 comparable, 28 non-NAFTA superior, 22 United States superior; stainless and tool
steel, 87 comparable, 26 non-NAFTA superior, 10 United States superior.  These evaluations of product quality
would suggest that, on average, non-NAFTA products would command a price premium over domesticproducts.
3837 European Communities' second written submission, para. 7.WT/DS248/R, WT/DS249/R,
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7.1666  The European Communities also argues that the United States also stresses the numerous
considerations which played a role in the President's decision (efforts engaged by workers and firms,economic and social costs and benefits of any safeguard, national economic interests).
3838  However
nowhere has the United States elaborated on these other considerations.3839
7.1667  For Korea, an economic analysis, just like any other form of proof, is only sufficient to the
extent that it is specific as to the facts, addresses the key issues in dispute, and takes into account the
proper variables.3840  For the same reason, mere assertions are not proof.  Mere assertions cannot
substitute for a full analysis of the facts and th e basis for the conclusions, nor can mere assertions
overcome a rebuttable presumption that the failure to satisfy Article 4.2(b) also fails to satisfyArticle 5.1 of the Agreement on Safeguards.  Yet, the United States suggests that given the inherent
imprecision of economic models, its ex post  analysis of the measure should be subject to lighter
scrutiny, such as whether it is in the "ballpark".  That is simply incorrect.  For the same reasons,
general theories about what might have occurred and what might have been addressed by the measure,
are not a sufficient justification for the actual measure.  It must be shown that the measure is limited
to the permissible extent – not that it might be.
7.1668  According to Korea, what is missing from the United States' economic model is any attempt
to tie the amount and nature of relief to the specific injury found.
3841  Why, for example, should the
United States assume that the "accumulated effects" which must be remedied, if at all, for flat-rolled
and the "accumulated effects" which must be remedied, if at all, for pipe and tube are the same?  TheUnited States does not even identify what precise accumulated effects it is targeting for each product
(as opposed to giving some examples) but it doubles the operating margin for both welded pipe and
flat-rolled.  It is obvious that the effects would vary by industry and, in particular, the effects would
vary (at least in degree) between an industry that wa s only threatened with injury versus one that was
suffering serious injury, but the United States simply doubles the profit margin for both.  Mereassertions that the United States took a "conservative" approach by merely doubling the profit margin
rather than triple it or quadruple it does not answer the question of whether even that relief was
necessary.
7.1669  For Korea, this "accumulated effects" analysis  also suffers from the same problem as the
"direct effect" they identify – imports were not the only cause of injury even by the USITC's own
admission.
3842  Therefore, these  "accumulated effects" might be from a number of causes other than
imports, but the US analysis, by its own explanation, does not limit the relief to those effects producedby imports.  Finally, the US analysis also ignores the fact that tariffs also have accumulated effects
over the period of the measure.  The more years during which the measure is to be in effect, the
greater the effect on the industry.
7.1670  Finally, Korea disputes the United States' argument, made at paragraph 130 of its oral
statement at the second substantive meeting, that the numerical analysis addressed only the "increase"in imports and not increased imports as a whole.  Its model only measures changes in profits (profit
shortfalls) so it is not correct that the model addresses only the increase in imports.
3843
                                                     
3838 United States' written reply to Panel question No. 88 at the first substantive meeting.
3839 European Communities' second written submission, para. 12.
3840 Korea's additional comments on Panel question No. 54 at the second substantive meeting.
3841 Korea's additional comments on Panel question No. 54 at the second substantive meeting.
3842 Korea's additional comments on Panel question No. 54 at the second substantive meeting.
3843 Korea's written reply to Panel question No. 47 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
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7.1671  By way of a general response, the United States observes again that any numerical analysis –
be it the price- or volume-based exercise or economic modelling – can only indicate the order ofmagnitude of a safeguard measure, and cannot set a precise level.
3844  Most of Korea's comments are
directed at the precision of the United States' numerical exercises, and do not detract from the United
States' observation that the exercises demonstrate the consistency of the steel safeguard measures with
Article 5.1.
7.1672  Finally, Korea submits that the USITC's COMPAS results do not confirm the results from the
United States ex post  analysis and model.  The results are completely distinct.  For flat-rolled, the
COMPAS shows that a 30% tariff would produc e a 20.8% to 28% increase in non-NAFTA import
unit values ("prices")3845 while the ex post  model shows that import unit values ("prices") would
increase 18.9%.3846
7.1673  In response, the United States submits that the price-based exercise and modelling exercise
presented by the United states "produce the same results" only in that both of these exercises confirm
that the steel safeguard measures were applied less than the extent necessary to prevent or remedyserious injury and to facilitate adjustment.  However, this does not suggest that these exercises (or the
modelling performed by the USITC staff) yield the same numerical results.
 3847
7.1674  The United States submits that, for example, the figures cited by Korea are not based on the
same economic model.  The 18.9% increase in import prices was calculated according to the
price-based exercise described in the United States' first written submission.3848  This figure represents
the estimated degree to which import prices would have to increase for domestic producers to achieve
the target operating income margin identified in our submission.  Thus, it is a goal rather than an
estimated effect.  The other figures cited by Korea – the 20.8% to 28.0% range of projected increases
in import prices – was the result produced by th e multi-market or linked COMPAS model for a 30%
tariff on CCFRS.3849  Thus, it is an estimated effect rather than a goal.  These are clearly two different
methods of analysis. The United States compared the two results solely for the purpose of showing
that a tariff of 30% would achieve import price increases in the range required to achieve the targeted
operating income margin.  Comparison for any other reason, such as that suggested by Korea, is both
improper and meaningless.  Korea's argument re garding the COMPAS results generated by the
USITC staff and price-based exercise in the US fi rst written submission is unclear.  It could be
interpreted in a variety of ways, each of which is incorrect.  If Korea is arguing that the COMPAS
results generated by the USITC staff are different from the modelling results referenced in the price-based exercise, it is plainly incorrect.  The price-based exercise compared an estimated import price
that would achieve target operating margins with the estimated price effect of a 30% tariff, as reported
in the USITC staff's COMPAS modelling.
3850  For each product, including CCFRS, there is no
difference as the exercise correctly reflected the results of the USITC staff's COMPAS modelling.3851
                                                     
3844 United States' first written submission, para. 1062.
3845 USITC Memorandum EC-Y-050, 5 December 2001, Table 3. (Exhibit CC-10)
3846 Exhibit K-14; Korea's written reply to and additional comments on its reply to Panel question No.
48 at the second substantive meeting.
3847 United States' additional comments on replies to Panel question No. 48, 54 and 56 at the second
substantive meeting, paras. 1-9.
3848 United States' first written submission, paras. 1065-1080; Exhibits US-56 and US-57.
3849 Memorandum EC-Y-050 (Exhibit US-65).  According to Korea, since the USITC staff ran the
model before the USITC issued its report, it treated only Canada as excluded from the measure.
3850 United States' first written submission, para. 1072.
3851 In this regard, the United States notes, the price-based exercise differed from the modelling
exercise.  The price-based exercise referenced the COMPAS results produced by the USITC staff, which reflectWT/DS248/R, WT/DS249/R,
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7.1675  The United States notes that if Korea is arguing that the estimated amount that import prices
would have to increase to eliminate downward  pressure on US producers' prices (18.9% for
CCFRS)3852 was a projection of the actual amount that prices would increase, it has misunderstood.
The 18.9% figure is clearly labeled "Needed Unit value increase for non-NAFTA imports".3853  I t
represents the hoped-for  increase in import prices, and not an estimate of what will actually happen.
In short, the written description of the price-base d exercise and the spreadsheets in Exhibit US-56
applying that exercise do not suggest a finding that "a 30% tariff yields an 18% increase in imports
prices".3854  If Korea's point is that the needed unit value increase of 18.9% is slightly below the low
end of the range of estimated effects of a 30% tariff, the United States explained that "numericalestimates are necessarily limited in their ability to precisely quantify and isolate the full effect of
imports and the appropriateness of remedial measures . . . .  Numerical estimates may be useful to test
whether a measure is set at an order of magnitude consistent with Article 5.1".
3855  The price-based
exercise demonstrates that this is the case for the safeguard measure on CCFRS, as well as the other
steel safeguard measures.
3. Criticisms with reference to specific products
7.1676  With respect to CCFRS, Korea argues that, in relation to the first step, there is no apparent
reason one can detect for selecting 7.5% as a target operating margin for 2001.3856  In fact, it appears it
should be –3.9%, the 1996 operating margin.  Correcting the methodology by eliminating step two,
increasing domestic prices in step three by the pe rcent needed to reach the target revenue (target
minus actual divided by target) and calculating the percent difference between the resulting domestic
AUVs and actual non-NAFTA import AUVs (this assumes perfect competition) results in the
following import AUV price increase requirements:
Slab 33.6%
Plate 7.8%Hot Rolled 17.4%
Cold Rolled 10.1%
Coated 5.4%
Average weighted by NCS 10.1%
7.1677  With regard to this comment, the United States  points out that the 7.5% figure was a clerical
error.  The United States notes that it revised the calculation using -3.9% as the target margin for
interim 2001.
3857  The correction does not change the results for certain carbon flat-rolled steel as a
whole.3858
                                                                                                                                                                    
tariff levels adopted by the President, but not the exclusion of both Canada and Mexico from all products.  In
contrast, the modelling exercise used the same inputs as the USITC did for elasticities and for full-year 2000data, but modelled the tariff levels and country exclusions adopted by the President.  The modelling exercise
also involved modelling of the change in imports during the investigation period, which the USITC did not do.
United States' written reply to Panel question No. 48 at the second substantive meeting.  Korea argues that thesedifferences in the use of the model would obviously change its numerical outputs.
3852 Exhibit US-56, table labelled "Weighted based on Net Commercial Sales for FLAT Products".
3853 Exhibit US-56, table labelled "Weighted based on Net Commercial Sales for FLAT Products".
3854 Korea's written reply to Panel question No. 48 at the second substantive meeting.
3855 United States' first written submission, para. 1062.
3856 Exhibit K-14, pp. 4-5.
3857 Exhibit US-96 contains a corrected version of the affected pages from Exhibit US-56.
3858 United States' written reply to Panel question No. 48 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
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7.1678  Korea responds to the United States' argument that the results of the USITC model and its ex
post analysis differ because the ex post  analysis is based on the actual remedy taken by the President.
Specifically, Korea notes that a key difference between the United States' ex post  economic analysis
and the remedy taken by the President is that the ex post  analysis included slab, which the President
excluded from the measure on flat-rolled.  Therefore, the United States has not established the basic
relevance of the model to the actual Presidential remedy.  Korea adds that another difference between
the USITC model and the US ex post  analysis is that the United States doubled profit margins,
apparently to account for "the cumulative injurious effect of increased imports."  Stated simply, the
USITC model does not assume an arbitrary doubling of profit margins.3859
7.1679  With respect to certain welded pipe, Korea notes that the tariffs were imposed on other
welded pipe as a result of a finding of threat of injury.3860  However, the United States suggests that
the domestic industry producing other welded pipe experienced injury caused by imports in 2000 and
before.3861  It then concentrates is numerical analysis on 2000 for Step 1; but for Steps 2 and 3, it uses
data for 1998 through the first half of 2001, "the period when imports were increasing".3862  Given that
this was a finding of threat, these increasing imports were not causing injury.3863
7.1680  Korea argues that the methodology for other welded pipe is completely unclear.3864  T h e
numerical analysis focuses only on 2001, but it is impossible to correct the flaws noted above because
the target operating margin appears to have no basis.  That margin, 5.7%3865, comes from no data in
the USITC staff report, nor can it be derived from various averaging options.  The end result was anincrease in non-NAFTA import AUVs of 16.2%.
3866  The US results3867 show price increases sought
of 4.3% to 6.7% if other welded  imports are held to 1997 levels (although there does not appear to be
any injury-related reason to do so), and 8.7% to 11.1% resulting from the President's remedy.   The
United States also notes that the USITC's models in the remedy phase of the investigation suggested
that the 15% tariff imposed would increase non-NAFTA imported AUVs by 9.3% to 11.5%.3868  That
same USITC model suggested that a 15% tariff would decrease non-NAFTA imports by 22% to 34%
below 2000 levels.
7.1681  Finally, with respect to the modelling results for other welded pipe, Korea notes that if other
welded pipe imports were held to 1997 levels, the estimated price for domestic products would be 4.3
to 6.7% higher, while the remedy would result in estimated price increases of 8.7 to 11.1%.  With
regard to this comment, according to the United St ates, Korea's criticism fails to recognize that the
other welded pipe remedy addressed a threat of serious injury, and that the analysis based on data for2000 would not establish what was necessary to stop the evolution of the existing injurious effects of
increased imports into the full manifestation of that threat as serious injury.
3869
                                                     
3859 Korea's additional comments on Panel question No. 48 at the second substantive meeting.
3860 Exhibit K-14, p.5.
3861 United States' first written submission, para. 1131;  United States' written reply to Panel question
No. 27 at the first substantive meeting.
3862 United States' first written submission, para. 1136.
3863 USITC Report, Vol. I, p. 159:  "We consider the industry's overall condition to be weak.  Although
it has not yet reached the point of serious injury, such injury appears imminent.... The years 1996 to 1998 were aperiod of generally good health".  (Exhibit CC-6)
3864 Exhibit K-14, p.6.
3865 "Safeguard Measure Worksheets". (Exhibit US 56)
3866 "Safeguard Measure Worksheets". (Exhibit US 56)
3867 "Modelling Results Worksheets". (Exhibit US 57)
3868 United States' first written submission, para. 1137.
3869 United States' written reply to Panel question No. 54 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
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7.1682  Korea adds3870 that the justification by the United States of the 5.7% profit margin for welded
pipe should, at the very least, be consistent with representations made by the United States regardingthe methodological approach the United States claims to have adopted ( e.g., the use of the one-year
base period
3871, when the United States actually used an average of two periods for welded pipe –
without explaining why two years was necessary rather than one3872).  However, of greater concern is
the fact that the United States now disavows its explanations of the source of the profit figures for
welded pipe (1998-2001) as a "typographical error".3873  Unfortunately, the errors are further
compounded by its new explanations.  The United States asserts that the tables in Exhibit US-56
"show that we based the target profit margin on 1999 and 2000 data, and did not use data for1998".
3874 First, Korea claims to see nothing in that Exhibit which identifies the source of the profit
figures.  The value appearing in that Exhibit actually seems to be the simple average of 1999 and 2001
(not 2000).  It is still not clear from this latest description what the United States intended to use.
Second, the United States now states: "We omitted data for 2000 from the calculation because the
USITC found that excess capacity had a 'minor' effect on the industry's performance in 2000".3875
However, this most recent explanation of how it selected the proper target profit years also conflicts
with its earlier explanations as to essential elements of its reasoning.  Tthe United States asserts that it
did not "determine a domestic price that would increase operating income margins above their 2000
levels".3876  The United States says that this limitation on the profit level was necessary because
profits declined in 2000 due to capacity increases (as opposed to imports).3877  However, the figure of
5.7%, which it actually used as the target profit margin, is above the profit level of  4.3% for 2000.3878
So, contrary to the US explanation, the measure did seek to increase profits to a level that exceeded2000 profit levels. The United States recognizes on the one hand that even in the absence of imports,
the industry would not have reached the 2000 level of profitability given the capacity increases, but
then proceeds to use a profit target which exceeds 2000 levels.  There is no consistency between thelogic and the actual figures used.  No more compelling is the US attempt to justify the use of 1997
import levels as a benchmark for the proper remedy for welded pipe.
3879  As noted by the USITC, the
industry was not seriously injured by imports even in 2001 and continued to be profitable even in
2001.   ("Our remedy is intended to halt deterioration of revenues, market share and profitability".3880)
In fact, the USITC found that no improvements in profitability were initially necessary.3881  Given the
threat of injury finding, using 1997 as the proper level of imports makes no sense.  Astonishingly, the
US ex post  analysis explicitly shows that the remedy imposed by the President was actually more
                                                     
3870 Korea' s additional comments on the replies to Panel question No. 54 at the second substantive
meeting.
3871 United States' written reply to Panel question No. 54 at the second substantive meeting.
3872 United States' written reply to Panel question No. 50 at the second substantive meeting.
3873 United States' written reply to Panel question No. 50 at the second substantive meeting,
footnote 141.
3874 United States' written reply to Panel question No. 50 at the second substantive meeting,
footnote 141. (emphasis added).
3875 United States' written reply to Panel question No. 50 at the second substantive meeting.  But, see
footnote 141.
3876 United States' first written submission, para. 1136.
3877 United States' first written submission, para. 1136; United States' written reply to Panel question
No. 50 at the second substantive meeting.
3878 USITC Report, Vol. II, Table TUBULAR-18, p. TUBULAR-22 (Exhibit CC-6).
3879 United States' written reply to Panel question No. 50 at the second substantive meeting.
3880 USITC Report, Vol. I:  Determinations and Views of The Commissioners, p. 386 (emphasis added)
(Exhibit CC-6).
3881 "We estimate that the recommended tariff-rate quota on welded pipe products will initially leave
the market share, sales revenue, and profitability of the domestic industry unchanged."  USITC Report, Vol. I,p. 386 (Exhibit CC-6).WT/DS248/R, WT/DS249/R,
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restrictive and had a greater effect on import (prices and quantities) than holding imports at 1997
levels.3882
7.1683  With regard to this comment, the United States indicates that the target margin of 5.7% does
not appear in the USITC Report.  This figure is the average of profit margins for 1999 and interim
2001.  The United States omitted data for 2000 from the calculation because the USITC found that
excess capacity had a "minor" effect on the industry's performance in 2000.3883 The United States adds
that it did not use the 2000 operating margin as a benchmark.  Instead, the United States used the
average of operating income margins in 1999 (8.1%) and the first half of 2001 (3.2%) to derive a
target margin of 5.65.3884  The United States maintains that a simple average is a conservative
estimate.  The 1999 margin represented 12 months of data and the 2001 margin six months.  A
weighted average would have resulted in a target margin of 6.5%.3885
7.1684  Korea argues that the methodologies used by the United States assume facts and methods of
analysis which are either not supported by the USITC's injury analysis or are directly contrary to the
requirements of the Agreement on Safeguards.3886  Korea refers to the errors in relation to the basic
premises of the "numerical analyses".  Korea submits that the numerical analyses for welded pipe and
flat-rolled are entirely based on an estimate of  the extent to which non-NAFTA import prices should
increase to attain the "desired condition".3887  Korea submits that a price analysis is not the appropriate
analysis for welded pipe since the USITC's focus was on the effect of future increases in import
volumes.  Korea further submits that the import and domestic "prices" used in the numerical analysesare not reliable.  The United States' numerical analyses for flat-rolled and welded pipe rely on import
AUV data, but the USITC specifically found that AUV data was not reliable for either flat-rolled or
welded pipe due to changes in product mix year-to-year.
3888  The United States does not justify its use
of AUVs or why they were considered reliable.  Further, the United States' numerical analysis merely
"weight-averaged" (by the net commercial sales of each product) the targeted AUVs for flat-rolled to
do its remedy calculation even though the USITC in its injury analysis never considered a "flat-rolled"
AUV but always considered prices by product and AUVs by product (for cold-rolled, hot-rolled, etc.).
7.1685  Korea submits that the numerical analyses assume a base year for profitability either before
the increase in imports or before the condition of the industry began to decline.3889  This is treated as a
surrogate for the condition of the industry prior to serious injury.  On its face, such an analysis is
inappropriate for welded pipe since the industry was never seriously injured so the concept of a
"surrogate" prior to serious injury or prior to impor t increases is meaningless.  Article 5.1 is clear that
                                                     
3882 US Exhibit 57, Modelling Worksheet E, discussed in United States' written reply to Panel question
No. 50 at the second substantive meeting.
3883 United States' first written submission, paras. 1132 and 1136.  Paragraph 1136 contains a
typographical error indicating that we used data for 1998 through the first half of 2001.  According to the UnitedStates, the tables in Exhibit US-56 show that the it based the target profit margin on 1999 and 2000 data, and didnot use data for 1998.
3884 The United States explains that since the spr eadsheets in Exhibit US-56 presented operating income
figures with one decimal place, this is rounded to 5.7% on the printout.  The electronic version of the
spreadsheet contains reflects the full 5.65% figure.
3885 United States' additional comments on its written reply to Panel question No. 54 at the second
substantive meeting.
3886 Korea's second written submission, paras. 248-251.
3887 United States' first written submission, para. 1071.
3888 USITC Report, Vol. I, p. 61, n. 279 and p. 163, n. 1006 (Exhibit CC-6).
3889 Korea's second written submission, para. 252.WT/DS248/R, WT/DS249/R,
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"prevent(ing) serious injury" is the basis for the permissible extent of the measure when threat of
injury is found.  As of 2001, the industry still was not seriously injured.3890
7.1686  Korea adds3891 that the numerical analyses improperly treat all the negative effects throughout
the period of investigation as attributable to imports, and failed to consider positive economic
forecasts in some instances:  (i) for flat-rolled, the United States admits that it made no adjustment to
reflect the injury caused by increased capacity or mini-mill competition3892, anti-dumping and
countervailing orders3893, or legacy costs of integrated producers;  (ii) for welded pipe, the numerical
analysis did not adjust for the effects of existing AD orders3894, the particular circumstances of one
significant US producer3895, or the effects of excess capacity over the entire period3896;  and (iii) for
welded pipe, the analysis fails to account for the USITC's conclusion that LDLP demand was likely to
increase.3897
7.1687  Korea argues that for flat-rolled, as detailed in the preceding section, the United States has
incorporated a number of concepts into its numerical analyses which are not properly substantiated, or
worse, are directly contradicted by the USITC record.3898  These deficiencies alone render the
numerical analyses for flat-rolled useless for purposes of the justification of  the permissible extent
(Article 5.1 of the Agreement on Safeguards).  Therefore, the United States has not demonstrated to
the Panel its compliance with the requirements that the measure be limited to the permissible extent.
As the Appellate Body stated in Korea – Dairy , such a requirement applies regardless of the form of
the measure imposed.3899  Moreover, as demonstrated in Korea Exhibit 14, after correcting the
numerical analyses of the United States, the correct calculation demonstrates that only a 10.1%
increase in import prices would have been necessary to achieve what the United States claims as the
targeted operating margin for the US industry in their numerical analysis.  However, according to the
USITC Economic Model (the results of which the United States embraced in its first written
submission)3900, the 30% tariff the President imposed was expected to increase import prices by
20.8% to 28%.3901  Therefore, the tariff imposed raises import prices by much more than is necessary
to reach the targeted operating margin.
7.1688  In the case of tin mill, Korea submits that there is no "finding" as such of serious injury to tin
mill products so there is no basis upon which any measure on tin mill products could be imposed.
Only one Commissioner found tin mill products to be seriously injured.3902  All the other
                                                     
3890 USITC Report, Vol. I, p. 159 (Exhibit CC-6).
3891 Korea's second written submission, para. 253.
3892 United States' first written submission, para. 1093.
3893 United States' first written submission, para. 1092.  In terms of anti-dumping and countervailing
orders, the United States defends its failure to adjust its estimate in its numerical analysis for the 1997 and 2000orders on plate and the 1999 order on hot-rolled, but gives no defense of its failure to account for the 2001 hot-
rolled orders.
3894 United States' first written submission, para. 1134.
3895 United States' first written submission, para. 1130.
3896 United States' first written submission, paras. 1128-1129.
3897 United States' first written submission, para. 1135; USITC Report, Vol. I, p. 166 (Exhibit CC-6).
3898 Korea's second written submission, paras. 254-257.
3899 Appellate Body Report, Korea – Dairy , para. 96.
3900 United States' first written submission, para. 1099, n. 1385, referring to the model in USITC
Memorandum EC-Y-050 (Exhibit US 65).
3901 United States' first written submission, para. 1099.
3902 Korea's second written submission, para. 258.WT/DS248/R, WT/DS249/R,
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Commissioners disagreed either as to the like product or whether there was serious injury.  There
certainly is no "benchmark" provided as to the prop er extent of the measure so the numerical analysis
based on tin mill are meaningless.  The numeric analysis used in this case for tin mill measures the
volume reductions (as opposed to price increases) in imports needed to achieve the benchmark
profitability.  It is based on tin mill imports considered alone but only one Commissioner who found
serious injury based her analysis on tin mill imports alone.
7.1689  For other welded pipe, Korea states that the United States imposed a remedy of 15% tariff on
all imports.3903  In contrast, the USITC had recommended a TRQ with a 20% tariff only on imports
exceeding 2.6 million short tons (Koplan and Miller including Canada and Mexico) and 1.4 millionshort tons (Okun and Hillman, excluding Canada and Mexico)
3904  This quota was equal to import
levels in 2000 because the USITC found that current levels of imports were not injurious.3905  Korea
submits that the United States seeks to substitute the USITC's specific finding regarding threat of
injury and the proper remedy for threat of injury, with an ex post  record  and a substitute analysis of
the timing and scope of present injury.3906 3907  As noted, this approach clearly deviates from the
holding of the Appellate Body in US – Line Pipe  because such an ex post  approach is fundamentally
inconsistent with and irreconcilable with the USITC's finding that imports were not causing serious
injury at any time in the period.3908
7.1690  Korea states that the United States made a number of erroneous assumptions:  (i) the US
construct presented to the Panel is based on the new objective of correcting "declines" in industryfactors during a period when the industry was not seriously injured by imports.  However, the USITC
specifically found that it would only be addi tional declines that needed to be prevented.
3909  According
to the new US analysis, a safeguard measure can now be imposed to remedy "negative effects".3910
However, Article 5.1 of the Agreement on Safeguards provides that the measure selected shall be the"most suitable" for "preventing serious injury"
3911 – not to remedy any "negative effects".  It was only
when the industry's overall condition transformed into an imminent threat of serious injury that such
increased imports became actionable and the USITC's measure correctly addressed the  need to was to
prevent further increases and prevent serious injury.  Secondly, the United States is wrong that the
USITC did not find problems of  product mix which called into question the use of AUV data.3912  In
fact, the wide disparities in products created a severe problem with such data.  The USITC itself
observed:  "We are cautious of placing undue weight on AUV information, as it is influenced by
issues of product mix".3913  Korea challenges the United States assertions that it can substitute a new
analysis of AUVs as the basis for its remedy instead of using the pricing data which the USITC
actually used in its injury analysis.  Thirdly, and more fundamentally, the United States cannot just
                                                     
3903 Korea's second written submission, paras. 259-260.
3904 USITC Report, Vol. I, p. 384 (Exhibit CC-6).
3905 USITC Report, Vol. I, p. 386 ("Our proposed remedy for welded pipe would still permit the same
quantity of imports as in 2000 at the current low rate of duty.") (Exhibit CC-6)
3906 United States' first written submission, para. 1077.
3907 Korea's second written submission, paras. 261-273.
3908 USITC Report, Vol. I, p. 159 (Exhibit CC-6).
3909 USITC Report, Vol. I, p. 386 (Exhibit CC-6).
3910 United States' first written submission, para. 1132.
3911 "A Member shall apply safeguard measures only to the extent necessary to prevent or remedy
serious injury ... Members should choose measures most suitable for the achievement of these objectives."
Article 5.1 of the Agreement on Safeguards.
3912 United States' first written submission, para. 1133.
3913 USITC Report, Vol. I, p. 163, n. 1006 (Exhibit CC-6).WT/DS248/R, WT/DS249/R,
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Page 558
string together piecemeal data and reach conclusions directly at odds with the underlying threat of
injury determination.  Korea gives three examples in this regard:  (i) The United States maintains thatthe President's safeguard measure on welded pipe wa s intended to raise prices, not to affect volumes
of imports.
3914  However, price levels for welded pipe were not found to be injurious by the USITC
(unlike for flat-rolled).3915  The United States' ex post numeric analysis confirms that the remedy was
intended exclusively to achieve increasing prices.  The United States has apparently adopted an
ex post  methodology for defending its measures which is "one size fits all" irrespective of the
threat/serious injury finding.  However, the US ITC specifically relied on increasing volumes as
threatening injury3916 and those increasing volumes had to be prevented.3917  Therefore, the US
measure does not find its benchmark in the threat of injury determination.  Moreover, it is not the
measure "commensurate with the goals of preventing...serious injury"3918;  (ii) Despite the claims by
the United States that it was not seeking a volume reduction in imports, the USITC economic analysis
which the United States cites as consistent with its ex post  analysis3919 demonstrates that if the 15%
tariff had been imposed in 2000, it would have resulted in a 34 to 21.8% reduction in imports.Moreover, the United States confirms that the USITC's economic analysis of a 15% tariff
demonstrates that based on the year 2000 imports, if the tariff had been imposed in 2000, imports
would be reduced by 34 to 21.8%.
3920  Yet, the United States does not seek to reconcile this result
with its statement in the previous question that it is not seeking volume reductions.3921  Nor i s any
reconciliation apparent.3922  In its analysis of welded pipe, the United States asserts that it is basing the
target revenue for the industry on the levels of operating income margins in 2000.  However, the
operating profit levels for welded pipe in 2000 were 4.3% and the United States uses a targeted base
operating income margin of 5.7% in its worksheet.  The United States never explains this discrepancy.
(The United States then incorporates a completely unexplained additional profit margin increase, to
yield a 7.6% operating income margin as the target, which exceeds the 4.3% in 2000, which theUSITC found non-injurious.);  and (iii) The United States seeks to substantiate its own ex post
reasoning in the COMPAS analysis on the grounds that it achieves revenue levels by reducing imports
to 1997 levels.
3923  But, such reductions in imports cannot be justified.  In fact, the USITC recognized
that 1996-1998 were years of  "good health".3924  Even 1999 was a year of "mixed performance" –
profitability remained stable.3925  In fact, the USITC specifically noted that it was only in 2000 and
into 2001 that the industry was "... approaching a state of serious injury".3926  There is absolutely no
basis in that determination for trying to set a remedy that achieves 1997 import levels.  By its own
                                                     
3914 United States' written replies to questions from other Parties, paras. 59-60.
3915 USITC Report, Vol. I, p. 164 (Exhibit CC-6).
3916 USITC Report, Vol. I, p. 164 (Exhibit CC-6).
3917 USITC Report, Vol. I, p. 386; Prices needed to be "stabilized" with the tariff only if current import
levels were exceeded, p. 386 (Exhibit CC-6).
3918 Appellate Body Report, Korea – Dairy , para. 96.
3919 United States' first written submission, para. 1137, n. 1409 (citing to USITC Memorandum
EC-046, p. TUBULAR-21).
3920 Korea appreciates the United States note that the figures cited by Korea were for a 10% tariff.
With a 15% tariff, the reduction is even greater.
3921 The United States instead makes the obvious point that economic analysis is always based on past
results.
3922 The USITC did not project increases in demand or price increases, which might indicate a change
in market conditions moderating the effect of the 15% tariff.
3923 United States' first written submission, para. 1138, "Simplified Economic Model" "COMPAS
Results for Certain Welded Pipe" (Exhibit US 57).
3924 USITC Report, Vol. I, p. 159 (Exhibit CC-6).
3925 USITC Report, Vol. I, p. 160 (Exhibit CC-6).
3926 USITC Report, Vol. I, p. 162 (Exhibit CC-6).WT/DS248/R, WT/DS249/R,
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Page 559
admission, a measure based on achieving import levels in 1997 exceeds the amount necessary to
prevent threat of serious injury.
7.1691  The United States notes that the arguments summarized in paragraphs 7.1695 and 7.1696
apply equally to the Korean arguments reflected in paragraph 7.1690.
4. Choice of one-year base period
7.1692  Korea, Japan and Norway argue that the chosen year must be evaluated in terms of its
representative nature in all respects including supply, demand, and other factors of injury.3927
Therefore, the United States would need first to establish the representativeness with respect to allthese issues to demonstrate that it is representative period.  The complainants submit that the UnitedStates has demonstrated that no single year of the review period is unaffected by other factors of
injury in the case of flat-rolled and other welded pipe.
3928  The European Communities, Korea and
Norway add that, generally, it is not sufficient to  base the benchmark income margin on figures for
one year alone.3929 3930
7.1693  Korea adds that for flat-rolled, 1997 was used as the pre-injury from imports benchmark year
for 1998-2000, and 1996 was used for 2001.  However, the United States did not ensure that any
"other factors" would not also distinguish the two periods such as the fact that mini-mills added
significant capacity between 1996 and 20003931 which increased price pressure on the market.3932
Korea argues that the United States simplistically suggests that it can use 1996 as the benchmark for2001 for flat-rolled because 1996 was also a period of depressed demand so that this other factor ofinjury has been isolated.
3933  Additionally, the United States' choices of 1996 and 1997 for its analysis
as years prior to injury does not account for the ef fect of legacy costs, which the USITC found was a
problem for the industry throughout the period of investigation.3934  In the case of welded pipe, it is
not even clear where the United States got its targeted benchmark3935 so it is impossible to comment
on the validity of that benchmark apart from the fact that there is no basis in the record for the numberused.  Korea notes that the other welded pipe industry had excess capacity from the very beginning of
the period, so there was no year that was unaffected by this other factor of injury.  Further, the United
                                                     
3927 Appellate Body Report, US  – Lamb , paras. 138-139.
3928 Complainants' written replies to Panel question No. 54 at the second substantive meeting.
3929 European Communities', Korea's and Norway's written replies to Panel question No. 54 at the
second substantive meeting.
3930 The complainants' written replies to Panel question No. 54 at the second substantive meeting.
3931 Korea's written reply to Panel question No. 54 at the second substantive meeting; Korea's second
written submission , para. 169.
3932 Korea's second written submission, paras. 173-175.  Korea points out that the use of the 1996
benchmark as a surrogate for the uninjured condition of industry in 2001 does not relate to imports alone.  The
year 1996 is in fact a year in which mini-mill competition was also substantially lower than at any other point in
the period.
3933 United States' first written submission, para. 1094.
3934 USITC Report, Vol. I, p. 64 (Exhibit CC-6).
3935 According to Korea, the United States does not state in its first written submission which year it
chose as the benchmark year for welded other pipe.  Ho wever, in US Exhibit 56, the United States Safeguard
Measure Worksheets show in Step 2 that it selects a base target operating margin of 5.7% for the welded other
industry for 2001 (its additional calculations manipulate this figure, however, to result in a target operatingmargin of 7.6%.)  The 5.7% base target operating margin does not correspond to any operating margin
experienced by the other welded industry in any year of  the period of investigation.  The welded pipe industry
had a healthy 4.3% operating margin in 2000, a year in which the USITC did not consider the industry to beinjured (USITC Report, Vol. I, p. 386 (Exhibit CC-6)), so it is unclear why the United States would not havechosen a base operating margin of 4.3%, and the year 2000 as the benchmark year.WT/DS248/R, WT/DS249/R,
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States industry's performance was affected beginning in 1999 by certain cost increases for one United
States producer.3936  Korea also notes that the USITC found only a threat of serious injury because it
concluded that as of mid-2001, increased imports were not the cause of serious injury to the United
States industry.  If the industry was suffering injury, it could well have been the result also of other
factors, not imports.  (The USITC only concluded that imports played a "key role" in the negative
trends.3937)  The only finding by the USITC was that the industry was not seriously injured by imports
as of the first half of 2001.  Yet, it is clear that the United States action restrained imports to levels
below 2000 and 2001 to improve operating results vis-à-vis an "earlier" benchmark.  Therefore, the
remedy should have been limited to the threat of serious injury caused by increased imports, and theuse of a benchmark prior to 2001 cannot be justified.
3938
7.1694  Brazil believes that there are two issues relating to the choice of one year basis.  First, is the
period chosen representative in terms of operations of the domestic industry prior to the serious injury
caused by imports?  Second, have the income margins been adjusted to reflect the effects on non-
import factors on the margin in the representative period?  The representative period may be one yearor several years.  Brazil suggests, however, that the year of peak industry performance is not a
representative year and, therefore, 1997 is not representative.
3939
7.1695  The United States responds that the price-based exercise was based on the year that best
reflected the injurious effects of factors other than imports, while minimizing the injurious effects of
increased imports.  Data from other years would necessarily be a second-best choice, and lower thereliability of the exercise.  The United States has described the basis for choosing the comparison year
for each product.
3940  Moreover, for many products, the USITC found that imports had injurious
effects for much of the investigation period.  Fo r example, for CCFRS, the USITC found that imports
had injurious effects in 1998, 1999, and 2000 and did not identify injurious effects for 1996 and 1997.
Thus, for purposes of confirming the Article 5.1 consistency of the President's safeguard measures,only for 1996 and 1997 was it possible to conclude that data for 1996 or 1997 reflected minimal or no
injurious effects, which would make them appropriate for use in deriving a target profit margin.  The
limited number of years that could provide a reasonable benchmark meant that only one would be
acceptable.  In many cases, the available periods did not fully reflect the profitability levels that the
relevant industry would achieve absent the injuriou s effects of increased imports.  For example, the
price-based exercise used 1997 as the target year for CCFRS, even though profit levels in that year
did not reflect greatly increased demand in 1998 through 2000, which should have resulted in higherprofits, rather than the lower profits and losses that actually occurred.  Thus, for CCFRS, 1997 profit
margins provide a conservative estimate of the profits the domestic industry should have made in the
1998-2000 period.
3941
7.1696  Moreover, the United States recalled that Korea criticizes the United States on the grounds
that the "choices of 1996 and 1997 . . . as years prior to injury does not account for the effect oflegacy costs".
3942  However legacy costs were borne by the domestic industry throughout the entire
period investigated.  Korea also objects that no control is made for the increase in minimill capacity
over the period3943,  but as the United States has already observed, the largest increase in minimill
                                                     
3936 Korea's first written submission, para. 161; Korea's  second written submission, para. 189.
3937 USITC Report, Vol. I, p. 164 (Exhibit CC-6).
3938 Korea's written reply to Panel question No. 54 at the second substantive meeting.
3939 Brazil's written reply to Panel question No. 54 at the second substantive meeting.
3940 United States' first written submission, paras. 1089, 1096, 1106, 1115, 1124, 1136, 1144, 1156 and
1166.
3941 United States' written reply to Panel question No. 54 at the second substantive meeting.
3942 Korea's written reply to Panel question No. 54 at the second substantive meeting.
3943 Brazil's written reply to Panel question No. 54 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
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capacity was in 1997, the year chosen as the benchmark for the analysis for flat-rolled.  Second,
Brazil objects to the fact that 1997 was a year of peak industry performance over the period andtherefore cannot be representative.
3944  This ignores the fact that the years 1998 through 2000 were
years of even higher demand for flat-rolled products than that seen in 1997.3945   Thus 1997 was a
conservative choice to use as a benchmark.  It was a peak year in terms of industry performance
during the period of investigation only because increased imports had negative effects on domestic
prices in later years.
5. The use of AUV
7.1697  On the use of AUV, Brazil, Korea, Japan, Norway argue that the USITC itself has admitted
that issues of changing product mix may affect the reliability of AUVs for purposes of analysis.3946
AUVs are also inherently unreliable because they mask the dynamics of individual sources bycollapsing them into a single average.  For exam ple, AUVs are totally irrelevant to determining who
is exercising downward pressure on price and who is the price leader in the market.  A more relevant
analysis would be a comparison of the pricing behaviour of those domestic mills that are gainingmarket share with those domestic mills that are losing market share.  This would allow the USITC to
determine the price leader among the domestic mills.  One could then look at how the domestic mill
price leader's prices compare over time with offshore sources and whether the domestic price leader is
gaining or losing market share to these offshore sources.  In this case, prices for specific pricing
products would be relevant, not AUVs, since AUVs do not account for how prices for products withidentical or even similar specifications vary depending on the domestic mill source or the foreign
source.  Again, however, averages of prices for specific pricing products are of limited utility in
determining price leadership in that an average does not distinguish between mills that are pricing
aggressively and those that are not.  The point be ing that a simple comparison of AUVs tells the
authority nothing about who is leading the prices downward in the market.  The use of AUVs asprobative of pricing behavior in the market is further attenuated by the bundling of multiple products
into a single CCFRS category.  A comparison of AUVs for CCFRS is meaningless in that the
proportions of slab, hot-rolled, cold rolled, plate and coated steel within the import AUV calculation
bears absolutely no relationship to the proportions with the domestic AUV calculation.  For imports,
lower value added slab and hot-rolled product account for the majority of sales, whereas in the
domestic market only 0.9% of slab produced is sold and only approximately 1/3 of hot-rolled
produced is sold (i.e.  higher value added cold rolled and corrosion resistant products make up themajority of sales of domestic product).
3947
7.1698  Korea adds that the United States now states for the first time that the underselling data is
confidential and it could not use it for that reason.  No specific products are cited.  However, the
pricing data for non-NAFTA flat-rolled imports is largely available and is not confidential.  The
United States used non-NAFTA AUVs for its numerical analysis3948 so it could have used the actual
pricing data for those products.  Finally, Korea argues that the United States cannot simply use
                                                     
3944 Brazil's written reply to Panel question No. 54 at the second substantive meeting.
3945 "By any measure, the period of investigation saw significant growth in US demand for certain
carbon flat-rolled steel." USITC Report,  Steel , Inv. No. TA-201-73, USITC Pub. No. 3479, p. 56,
December 2001.
3946 Views of the Commission – USITC Report, Vol. I, p. 61, n.  279.
3947 Complainants' written reply to Panel question No. 53 at the second substantive meeting.
3948 United States' second oral statement, para. 130.WT/DS248/R, WT/DS249/R,
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whatever is "available" if it is not reliable.  Moreover, the numerical analysis averaged all flat-rolled
AUVs creating additional distortions.3949
7.1699  For Norway, the important question is not whether one uses actual sales in a given base year
or "average unit values", but the factors that are included to achieve the AUV, the choice of the base
year and – not least – what is not adjusted for in the comparisons (non-attribution).  For CCFRS, the
AUV comparisons do not adjust for legacy costs, management decisions and capacity increases.3950
Nor do the comparisons and injury offsets take into account purchaser consolidation3951, declining
demand3952, dumping and CVD orders3953 and minimill competition.3954  Furthermore, the use of 1996
as the base year for profits3955 instead of an average for the years preceding the increase in 1998 – or
the year preceding (1997) is not well explained.3956
7.1700  The United States argues that the use of unit values is appropriate when imports and domestic
products have comparable product mixes, as was the case for most of the products under
consideration by the USITC.3957  If products do not have comparable product mixes, a preponderance
of inexpensive items in one group may create the impression that the group is selling for a lower pricethan another group with a preponderance of high-priced items, even if individual comparable items
are priced identically.  Where there are no product mix issues, unit values are useful because they
reflect the entirety of the imported and domestic products.  However, in some situations, a difference
in product mix for imported and domestic products might limit the usefulness of unit values.  In those
cases, where possible, the United States relies on alternative sources of data, such as item-specificpricing data.
3958
6. Adjustments for NAFTA imports
7.1701  The United States explains that no adjustment for NAFTA imports was necessary in the
modelling exercise, which excluded NAFTA parties and developing country WTO Members
accounting for less than 3% of total imports.  Thus, in both of the two scenarios used in the modelling
exercise – one holding covered imports in 2000 at pre-increase levels and the other subjecting covered
imports in 2000 to the safeguard measures – the model results reflects changes in covered imports.3959
The modelling of the effects of the safeguard measures treats imports from NAFTA countries andexcludes developing countries as not subject to safeguard measures.  The modelling of the increase in
imports involves only the increase from covered sources.  Since excluded sources were treated the
same in each scenario, they should not affect the comparison of the price, volume, and revenue effects
of the increase in imports on the one hand and the safeguard measures on the other.
3960  In addition,
                                                     
3949 Korea's written reply to Panel question No. 50 at the second substantive meeting.
3950 United States' first written submission, paras. 1085 and 1093.
3951 United States' first written submission, para. 1085.
3952 United States' first written submission, para. 1086.
3953 United States' first written submission, para. 1092.
3954 United States' first written submission, para. 1093.
3955 United States' first written submission, para. 1094.
3956 Norway's written reply to Panel question No. 53 at the second substantive meeting.
3957 The discussion of the numeric exercise in the United States' first written submission indicates the
United States' reasons for considering AUVs to be preferable with regard to particular products.
3958 United States' written reply to Panel question No. 53 at the second substantive meeting.
3959 According to the United States, the results of this modelling appear in the COMPAS Results tables
in Exhibit US-57.  The "other included" lin e reflects changes for these covered imports.
3960 The United States points out that although NAFTA imports were held constant as an input, the
model estimates that if imports had not been at increased levels in 2000 (or if the safeguard measures were ineffect during that year) the price and volume of NAFTA imports would have been higher.  The changes are atWT/DS248/R, WT/DS249/R,
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for most products, the price, volume, and revenue  of domestic products and NAFTA imports change
by similar amounts.  The United States also concludes that no adjustment was necessary for the price-or volume- based exercises.  For eight products, the exercise was based on data reflecting prices,
either the unit values or the item-specific pricing data.  For reasons previously explained, the exercises
for tin mill steel and stainless steel wire were based on the market share effects of imports.
3961  For the
two products subject to the volume-based exercise, the United States bases the analysis on whether
the measure would return non-NAFTA imports to thei r market share prior to the increase in imports.
The inputs into the exercise are the market share of non-NAFTA imports, the volume of non-NAFTA
imports, and United States apparent domestic consumption prior to and during the increase inimports.
3962  This exercise focuses on the volume of non-NAFTA imports, and does not seek to
guarantee domestic producers a particular volume or market share in comparison with excluded
NAFTA products.  Therefore, according to the Unit ed States, there is no risk that injurious volume
effects (or any other injurious effects) of NAFTA imports will be attributed to non-NAFTA imports.
Thus, no adjustment was necessary.3963
7.1702  For the eight products subject to price-based exercises, the United States also concludes that
no adjustment was necessary.  These conclusions are based on the USITC findings regarding each
product. With respect to certain carbon flat-rolled steel, the USITC found that imports from Canada
decreased over the course of the investigation period in both absolute and relative terms, and did not
contribute importantly to serious injury.  In item-specific comparisons, Mexican products showedmixed underselling.
3964  In addition, the USITC found in the second supplemental response that
exclusion of Canadian and Mexican products "does not appreciably change price trends" and that non-
NAFTA imports "were generally priced below domes tically-produced certain carbon flat-rolled steel"
and "led to the decline in domestic prices".3965  Thus, for purposes of evaluating the Article 5.1
consistency of the President's safeguard measure, the United States submits that it considered thatNAFTA imports traded on essentially the same terms as domestic products and, accordingly, did not
have effects on domestic pricing that required an adjustment to its price-based exercise.  With respect
to hot-rolled bar , the USITC found that Canadian imports contributed importantly to serious injury
                                                                                                                                                                    
roughly the same level as those to domestic products, reflecting that the exclusion of NAFTA imports is not
undermining the remedial effect of the safeguard measures.
3961 United States' first written submission, paras. 1173, 1183, 1197, and 1200-1201.  The United States
notes in addition that Chairman Koplan found with regard to stainless steel wire that "[t]he increase in imports
and the decline in the proportion of the domestic market supplied by domestic producers, at a time of falling
domestic consumption indicates that imports are an importa nt cause of the threat of serious injury".  USITC
Report, p. 259.  Commissioner Bragg found with regard to stainless steel wire and wire rope that "both domesticsales and market share turned sharply lower in interim 2001", along with unfavorable developments in
inventories, production, profits, wages, productivity and employments, demonstrating a threat of serious injury.
She did not discuss price.  USITC Report, pp. 288-289.
3962 The United States notes in this regard that restor ation of the pre-increase market share is the source
for the 23% reduction in imports that the United States calculated for tin mill steel, and which Norway criticizedat the Panel meeting.  Norway's second oral statement (Article 5.1), para. 34.  For 1999, 2000, and the first halfof 2001 the United States calculated what the volume of non-NAFTA imports would have been if they had
retained their 1998 market share of 10.5 percent.  The United States then calculates the difference between that
figure and actual imports, and calculated the average reductio n over three years.  According to the United States,
this exercise, which appears in Exhibit US-56, indicates that import volume would have been 23.13% lower ifimports had not increased their market share.
3963 United States' written reply to Panel question No. 53 at the second substantive meeting.
3964 USITC Report, pp. 66-67.
3965 Second Supplementary Report, p. 5.  According to the United States, NAFTA imports sold for
prices lower than comparable domestic items in only 19% of the USITC's comparisons, while non-NAFTAimports sold for less than comparable domestic items in 58% of comparisons.  USITC Report, p. FLAT-74,Table FLAT-77.  The United States argues that this is a marked difference in the level of underselling.WT/DS248/R, WT/DS249/R,
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based on "the sheer volume of the Canadian incr ease", without mentioning any price effect.  The
USITC found that Mexico did not contribute importantly to serious injury, as its imports actuallydecreased over the period of investigation.
3966  Moreover, it found that unit values for non-NAFTA
imports fell to a greater degree than those for NAFTA imports, and that item-specific prices for non-
NAFTA imports were less than comparable NAFTA imports.3967  Thus, for purposes of evaluating the
Article 5.1 consistency of the President's safeguard measure, the United States concluded that
whatever the volume effect of NAFTA imports, they did not have an effect on the domestic industry's
prices that required an adjustment to the price-based exercise.
7.1703  With respect to cold-finished bar , the USITC found that Canadian imports contributed
importantly to serious injury based on Canada's "elevated share of the market in 2000" and "large
percentage of total cold-finished bar imports".  Howe ver, it did not indicate that these imports affected
domestic prices.  The USITC found that Mexico's share of imports was "very small and declining"
and did not contribute to serious injury.3968  Thus, for purposes of evaluating the Article 5.1
consistency of the President's safeguard measure, the United States concluded that there was no needto make an adjustment to its price-based exercise.  With respect to rebar , all parties to the proceeding
agreed that the USITC should make a negative injury finding with regard to Canadian and Mexican
imports.
3969  The USITC found that the volumes of Canadian rebar were "consistently very small",
and that the volume of Mexican rebar declined by 81% over the investigation period.  The USITC
also noted that there were no comparisons of Canadian imports with comparable products from
domestic or other import sources, and that rebar from Mexico was sold at higher prices than
comparable items from other import sources.3970  Thus, for purposes of evaluating the Article 5.1
consistency of the President's safeguard measure, the United States concluded that there was no need
to make an adjustment to the price-based exercise.  With respect to other welded pipe , the USITC
found that imports from Canada and Mexico, while substantial, did not contribute importantly to thethreat of serious injury.  The USITC plurality on this issue found that NAFTA imports were
decreasing at the very end of the investigation period, while imports from other sources were
increasing.  The plurality also noted that Canadian standard pipe, a high-volume product, sold for
higher prices than comparable pipe from non- NAFTA sources.  The plurality found that, although
Mexican pipe undersold comparable domestic products early in the investigation period, there were
no comparisons for 2000 and interim 2001.  Since they had made a threat of serious injury finding, the
Commissioners in the plurality directed their focus mainly to the most recent import trends.
3971  For
similar reasons, the price-based exercise relied on data for the later part of the investigation period.3972
In light of the findings of decreasing import volume, overselling for Canadian products, and reducedsales of comparable domestic and Mexican products at the end of the investigation period, for
purposes of evaluating the Article 5.1 consistency of the President's safeguard measure, the United
States concluded that there was no need to make  an adjustment to the price-based exercise.
7.1704  With respect to FFTJ, the USITC found that imports from both Canada and Mexico were
substantial and contributed importantly to serious injury.  The USITC found that imports from Canada
had a large and increasing volume.  The unit values for Canadian FFTJ were twice as high as those for
                                                     
3966 USITC Report, pp. 100-102.
3967 Second Supplementary Report, p. 6.
3968 USITC Report, p. 108.
3969 USITC Report, pp. 115-116, footnotes 698 and 701.
3970 USITC, pp. 115-116 and footnote 704.
3971 USITC Report, pp. 168-170.  The USITC made a divided finding with regard to whether Canadian
imports were substantial and contributed importantly to serious injury.  (The finding regarding Mexico a 4-2
vote.)  The views of Vice Chairman Okun and Commissioner Hillman, which are discussed here, represent twoof three votes for exclusion of Canadian imports.
3972 United States' first written submission, paras. 1133-1137.WT/DS248/R, WT/DS249/R,
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other imports or the domestic product, but the USITC expressed concern that the discrepancy might
reflect different product mix.  There was no item-specific pricing information to confirm thatCanadian FFTJ sold for higher prices than comparable imported FFTJ.
3973  In light of these findings,
for purposes of evaluating the Article 5.1 consistency of the President's safeguard measure, the United
States concluded that there was no need to make an adjustment to its price-based exercise to account
for Canadian imports.  The USITC also found that  FFTJ from Mexico undersold comparable domestic
products "by substantial and increasing margins".3974  The price-based exercise indicated that a
measure of up to 30% would be commensurate with the injury related to increased imports, while the
safeguard measure was a tariff of 13% in the first year.  Imports of FFTJ from Mexico neveraccounted for more than 9% of apparent domestic consumption, and had fallen to 5.8% of domestic
consumption in 2000.
3975  Accordingly, for purposes of evaluating the Article 5.1 consistency of the
President's safeguard measure, the United States considers that an adjustment to reflect the injurious
effects of imports from Mexico would not change the conclusion that the safeguard measure was
applied no more than the extent necessary to prevent or remedy serious injury and to facilitateadjustment.
7.1705  With respect to stainless steel bar , the USITC found that imports from Canada contributed
importantly to serious injury, while imports from Mexico did not.  Although imports from Canada
increased at a lesser rate than other imports from other sources for most of the period, they increased
at a higher rate in the first half of 2001.
3976  While imports from Canada sold for less than comparable
domestic stainless bar in seven of ten comparisons, they sold at higher prices than comparable non-
NAFTA imports.3977  In fact, non-NAFTA imports sold for less  than comparable domestic products in
40 of 43 comparisons.3978  Imports from Mexico decreased over the course of the investigation period,
and accounted for "an extremely small percentage of total imports".  There were no pricing
comparisons for Mexican imports.3979  The USITC also found that imports from non-NAFTA sources
accounted for all of the domestic industry's market share loss during the 1996-2000 period.3980  I n
light of the larger number of instances of underselling by non-NAFTA imports, and the fact that
prices for non-NAFTA imports were lower than prices for comparable NAFTA imports, we
concluded that there was no need to make an adjustment to its price-based exercise.  Finally, with
respect to stainless steel rod , the USITC found that imports of stainless steel rod from Canada and
Mexico did not contribute importantly to serious injury.  Imports from Canada and Mexico declined
over the investigation period, while "Mexico exported an extremely small volume of stainless rod tothe United States in 1999 and did not export any stainless rod to the United States in 1998, 2000, and
interim 2001".
3981  In light of these findings, the United States concluded that there was no need to
make an adjustment to its price-based exercise.3982
7.1706  Korea argues that the injury from NAFTA imports was not isolated as required by
Article 4.2(b) and also Article 5.1 of the Agreemen t on Safeguards, and the selection of a benchmark
year did not correct in any way for this deficiency.  The United States simply focused on non-NAFTA
imports without regard to the in jurious effects of NAFTA imports.3983  Also the United States failed to
                                                     
3973 USITC Report, p. 179.
3974 USITC Report, p. 180.
3975 USITC Report, p. TUBULAR-C-6.
3976 USITC Report, p. 213.
3977 USITC Report, p. 214; Second Supplementary Report, p. 9.
3978 USITC Report, p. STAINLESS-86, Table STAINLESS-99.
3979 USITC Report, p. 214 and footnote 1361.
3980 Second Supplementary Report, p. 9.
3981 USITC Report, pp. 222-223.
3982 United States' written reply to Panel question No. 52 at the second substantive meeting.
3983 Korea's second written submission, paras. 213-216 and 235.WT/DS248/R, WT/DS249/R,
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take into account the extent to which such NAFTA im ports were likely to increase if all other sources
are controlled, and whether such imports would effect or dilute the remedial effects of the measure.3984
7. Reduction in the level of the measures over a three-year period
7.1707  The United States notes that it decided to reduce the steel safeguard measures over time
because Article 7.4 of the Agreement on Safeguards (and United States law) require progressive
liberalization of all safeguard measures of more than  one year in duration.  The United States did not
consider modelling results in choosing the schedule for progressive liberalization.  Since the model is
based on limited data from a historic time period, its results would, with the passage of time, become
less reflective of the price, volume, and revenue effects of increased imports and of the measure itself.In addition, the application of the safeguard measures would itself change the effect of imports in the
future, redoubling the difficulty of estimating the effect of a phased liberalization of the measures.
3985
7.1708  In line with the Working Party's findings in US – Fur Felt Hats , the United States recalls that
it did not attempt to predict future developments.  Rather, the United States chose a level and schedule
of progressive liberalization of the steel safeguard measures that would provide the relevant industriessufficient resources to adjust, while bringing the level of each measure down sufficiently that a
transition to removal of the measure after the third year would not be too abrupt.  The United States
applied the safeguard measures for a period that would require a mid-term review, at which time it
could evaluate the condition of the domestic industry and the role of imports to decide whether these
required action of some sort.
3986
7.1709  Korea notes that there is no discussion of this point in either the economic or numerical
analysis.  Moreover, there is no discussion or consideration of the relevant basis for such liberalization
required by Article 7.4 "to facilitate adjustment" (cross-referenced in Article 5.1 "to facilitate
adjustment") in any documents forming the record of  this proceeding.  In terms of the President's
liberalization schedule for flat-rolled, for example, the tariff declines from 30% to 24% to 18%, whilethe USITC decline is from 20% to 17% to 14%.  For "welded other", the President's measure
decreases from a 15% tariff to 12% to a 9% tariff, while obviously the USITC recommended a TRQ.
In the USITC remedy memos, there is no modelling of liberalization.  The different scenarios take
into account lower levels of measures ( e.g., a 5% tariff and a 10% tariff) but none use exactly the
levels proposed by the USITC majority.  Nor is it apparent how the President determined the
liberalization schedule and therefore limited the measure to the permissible extent as required by
Article 5.1.
3987
8. Difference between the economic models to be  used for non-attribution (Article 4.2(b))
and for the assessment of the measure to be applied (Article 5.1)
7.1710  Korea3988 and Brazil3989 argue that there is at least one significant difference in undertaking a
modelling exercise for Article 4.2(b) purposes and that required for Article 5.1 purposes.  Under
Article 4.2(b), one is modelling past events and factors affecting those events.  Thus, the outcome is agiven and what is being modelled is the relative importance of the various factors which led to the
outcome.  Under Article 5.1, one is attempting to predict or obtain a future outcome based on past
                                                     
3984 Korea's written reply to Panel question No. 52 at the second substantive meeting.
3985 United States' written reply to Panel question No. 55 at the second substantive meeting.
3986 United States' written reply to Panel question No. 55 at the second substantive meeting.
3987 Korea's written reply to Panel question No. 51 at the second substantive meeting.
3988 Korea's written reply to Panel question No. 44 at the second substantive meeting.
3989 Brazil's written reply to Panel question No. 36 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
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events and the influence of various factors on those events.  This means that one has to make certain
assumptions about, for example, supply from domestic mills and demand.  If these assumptions provecorrect, the model will likely provide the desired result.  However, if the assumptions prove incorrect
(for example, demand is stronger than assumed), the model likely will not provide the desired result.
Thus, it is important that the assumptions on which the model is based be reasonable.  For example, a
model which does not take into account the existence of anti-dumping and countervailing duty orders
and their effects on price and volume based on historical experience will not accurately predict the
effect of tariffs at various levels on import volume and price.
7.1711  The European Communities
3990 submits that although the objectives of a non-attribution
analysis under Article 4.2(b) and the calculation of the extent of a safeguard measure for purposes of
Article 5.1 are different, the basic parameters and characteristics of the models used could be the
same.  For the purposes of Article 4.2(b), the data on imports and the state of the domestic industry
will be a given and the model would be used to assess the correlation between increases in imports
and the state of the domestic industry compared with that of other factors impacting the domesticindustry and therefore to measure the extent to which serious injury suffered by the domestic industry
is attributable to increased imports.  For the purposes of Article 5.1, the same model could be used to
test the effect that a proposed safeguard measure (a given variable) would have on the economic
factors considered to constitute serious injury (dependent variables) and whether this effect would
correspond to that properly attributed to increased imports.  The model would not provide a completeanswer to the inquiry required under Article 5.1.  According to the European Communities, a WTO
Member seeking to apply a safeguard measure would also have to assess, in addition, whether a
safeguard measure that goes no further than preventing and remedying serious injury properly
attributed to increased imports, will in fact facilita te adjustment and is in fact needed to facilitate
adjustment.  That is, whether the domestic industry would use the relief granted to adjust and is notable to adjust to increased imports without the assistance of safeguard measures.
9. Conclusions
7.1712  On behalf of the complainants, Norway concludes that given the legal errors committed by
the United States in defining the permissible extent of the measure, it seems very unlikely that the
USITC statement has any truth to it.  This is al so inconceivable, given the flaws in its causation
analysis as well as its failure to adequately perform a non-attribution analysis.  Furthermore, the
USITC statement is not supported by any facts – making it a mere allegation of consistency that doesnot in any way rebut the arguments presented by the complainants.  However even assuming, for the
sake of argument, that none of the other violations of preceding Articles existed, the measures would
still fail to live up to the substantive requirements of Article 5.1 of the Agreement on Safeguards.  The
United States claims in this respect that it can rebut the complainants' prima facie  case of
inconsistency with Article 5.1, by showing that the measures were commensurate with the injuriouseffects attributable to increased imports.
3991  The United States refers to the USITC Report and its
presentation of "indicators of injury" and the description of the "interplay among those factors"3992,
but none of this represents a sufficiently detailed analysis of injurious effects attributable to imports.
This is clearly not enough to rebut the presumption that the complainants so clearly establish of a
prima facie  case of violation of Article 5.1.  In this respect it should be noted that the President chose
                                                     
3990 European Communities' written reply to Panel question No. 44 at the second substantive meeting.
3991 United States' second written submission, para. 220; Norway argues that when this paragraph is
read in conjunction with the United States' written repl y to Panel question No. 114 at the first substantive
meeting, the United States seems to agree that it has the burden of proving that its measures do not go beyondwhat is necessary.
3992 United States' second written submission, para. 221.WT/DS248/R, WT/DS249/R,
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measures not proposed or evaluated by the USITC.  Finally, even if the Panel were to accept that the
United States present only ex post facto  justifications, this has not been done either, as Korea details
in Exhibit 14 and other related documents.  The United States' failure to explain and justify its
measures is clearly a breach of Articles 3.1, 4.2(b) and 4.2(c) – as well as Article 5.1 of the
Agreement on Safeguards.3993
7.1713  The United States concludes by stating that, in accordance with Article 5.1, the steel
safeguard measures were applied no more than to the extent necessary to prevent or remedy serious
injury caused by increased imports.  The United States submits that the complainants offer arguments
based on misinterpretations of Article 5.1, attempt to layer requirements onto the Agreement onSafeguards that have no grounding in the text, and assert claims that, if accepted, would undermine
the fundamental purpose of the Agreement on Safeguards.  Furthermore, the complainants have failed
to establish a prima facie case that the United States has acted inconsistently with Article 5.1.
3994
J. ARTICLE  7
7.1714  Norway argues that having established that the US measures go beyond the extent necessary
to remedy injury caused by imports, a violation of the requirement in Article 7.1 that the remedy
should only be applied for such period of time as may be necessary is an automatic consequence.3995
7.1715  The United States responds that an inconsistency with Article 5.1 does not automatically
result in an inconsistency with Article 7.1 because the two provisions cover different aspects of a
safeguard measure.  In particular, Article 5.1 requires that the safeguard measure not be appliedbeyond the extent necessary to prevent or remedy serious injury and facilitate adjustment.  As the
panel in US – Line Pipe  explained, in examining which of two measures is applied to a greater extent,
the analysis should "compare[] the application of the measures as a whole" and not "compare[] the
application of the separate constituent parts of the measure in isolation".
3996  In performing this
analysis, the panel considered the type of measure (TRQ versus quantitative restriction), the level ofrestriction (amount subject to lower duty rate versus quota) and duration.
3997  The United States
submits that, in contrast, Article 7.1 addresses only one constituent part of the measure – the duration
– which may be "only for such period of time as may be necessary to prevent or remedy serious injury
and to facilitate adjustment".  A measure might be found inconsistent with Article 5.1 because its
level was too high even though the chosen duration wa s permissible.  According to the United States,
therefore, an inconsistency with Article 5.1 does not automatically result in an inconsistency with
Article 7.1.  Norway's arguments regarding Article 5.1, even if accepted by the Panel, do not meet itsburden of proof to establish an inconsistency with Article 7.1.
3998
7.1716  Norway recalls that Article 7.1 is the temporal corollary to the requirement in Article 5.1 on
the level of the remedy, and they both come as a package, as the United States seems to admit.3999
Norway submits that the Panel should, therefore, find that the breach of Article 5.1 also entails abreach of Article 7.1 of the Agreement on Safeguards.
4000
                                                     
3993 Norway's, second oral statement on behalf of the complainants, paras. 29-37.
3994 United States' second written submission, para. 179.
3995 Norway's first written submission, paras. 370-371.
3996 Panel Report, US – Line Pipe , para. 7.97.
3997 Ibid., para. 7.96.
3998 United States' first written submission, paras. 1212-1214.
3999 United States' first written submission., para. 1212.
4000 Norway's second oral statement on behalf of all complainants, paras. 36-37.WT/DS248/R, WT/DS249/R,
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K. PARALLELISM
1. Basis and features of the parallelism requirement
7.1717  Japan and Brazil point out that Articles 2.1 and 2.2 establish the basic requirements for
imposing safeguards measures.  Article 2.1 requires a determination of:  (1) increased quantities of the
"product … being imported ";  (2) serious injury or threat thereof to a domestic industry;  and (3) a
causal link between "such increased imports" and seri ous injury, or threat thereof, to the domestic
industry.  Article 2.2 provides that "[s]afeguard measures shall be applied to a product being imported
irrespective of its source".  The Appellate Body held  that Articles 2.1 and 2.2, read in concert, create a
"parallelism" requirement for safeguard measures.4001
7.1718  The European Communities, Japan, Korea, Switzerland, Norway and New Zealand point out
that the Appellate Body has emphasized several times the requirement that there must be a parallelism
between the scope of a safeguard investigation and the scope of the measures imposed as a result
thereof: "the imports included in the determinations made under Articles 2.1 and 4.2 should
correspond to the imports included in the application of the measure, under Article 2.2".4002  A gap
between imports covered under the investigation and imports falling within the scope of the measure
can be justified only "if the competent authorities "establish explicitly" that imports from sources
covered by the measure "satisf[y] the conditions for the application of a safeguard measure, as set out
in Article 2.1 and elaborated in Article 4.2 of the Agreement on Safeguards".4003 4004
7.1719  The complainants recall that the Appellate Body found in  US – Wheat Gluten  that the United
States' approach of including NAFTA imports in the scope of the investigation but excluding them –
under certain conditions – from the scope of safeguard measures violates this principle, unless it is
established through reasoned and adequate explanation that non-NAFTA imports alone satisfied the
conditions for the application of a safeguard measure.  In a subsequent case also involving a United
States safeguard measure before the Appellate Body ( US – Line Pipe ), a footnote had been inserted in
the relevant USITC Report which purported to conc lude that non-NAFTA imports alone satisfy the
conditions of the Agreement on Safeguards.  However, the Appellate Body considered that the
reasoning in this footnote did not amount to "reasoned and adequate explanation".4005
7.1720  The European Communities points out that the requirement of parallelism is nothing but an
obligation to carry out the full analysis required under Articles 2.1 and 4.2 of the Agreement on
Safeguards .  If the parallelism requirement is not respected, a safeguard measure is imposed on
products that have not been found to be imported in increased quantities or have not been found tocause serious injury.  The wrongly included products may be of a different kind than those found to
                                                     
4001 Japan's first written submission, paras. 301-302; Brazil's first written submission, para. 222
(emphasis added).
4002 Appellate Body Report, US – Wheat Gluten , para. 96.  This principle was already established in
Appellate Body Report, Argentina – Footwear (EC) , paras. 111-113 and most recently confirmed in Appellate
Body Report, US – Line Pipe , paras. 188 and 198.
4003 Appellate Body Report, US – Wheat Gluten , para. 98.
4004 European Communities' first written submission, paras. 598-599; Japan's first written submission,
paras. 302-305; Korea's first written submission, para. 182; Switzerland's first written submission, paras.324-325; Norway's first written submission, paras. 364-366; New Zealand's first written submission, paras.4.169 and 4.172.
4005 European Communities' first written submission, paras. 600, 602; Japan's first written submission,
para. 304; Korea's first written submission, para. 181; China's first written submission, paras. 559-562;Switzerland's first written submission, paras. 326-327; Norway's first written submission, paras. 379-380; NewZealand's first written submission, paras. 4.170-4.171; Brazil's first written submission, para. 223.WT/DS248/R, WT/DS249/R,
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have been imported in increased quantities and to cause serious injury or to come from different
sources than those subject to the determinations.4006
7.1721  The United States notes that several complainants conclude from the Appellate Body's
reasoning in US – Line Pipe  that the competent authorities must conduct a separate parallelism
evaluation of each of the Article 4.2(a) factors, the establishment of a causal link based on trends in
imports and other indicators, and non-attribution.4007 The United States argues that the sole
requirements under Articles 3.1 and 4.2(c) are for the competent authorities to publish "a report
setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law,"
and providing "a detailed analysis of the case under investigation as well as a demonstration of therelevance of the factors examined."  The Agreement does not require the use of a particular structure
or format for the report, or a particular analysis. As the Appellate Body concluded in US – Line Pipe :
"[W]e are not concerned with how the competent authorities of WTO Members reach their
determinations in applying safeguard measures.
4008 4009
2. Scope of the parallelism requirement
(a) Exclusions of imports from free-trade areas
7.1722  The European Communities argues that the exclusion by the United States of four countries
from the safeguard measures (Canada, Mexico, Israel and Jordan) infringes the parallelism
principle.4010  Similarly, Japan and Brazil argue that the safeguard measures in this case violate the
principle of "parallelism" in Articles 2.1 and 2.2 because the President excluded NAFTA countriesfrom the measure without an adequate and reasoned investigation of non-NAFTA imports.  The
USITC's analysis of non-NAFTA imports in its report in this case was far too abbreviated and
incomplete to comply with the Agreement on Sa feguards.  The USITC's follow-up in response to
USTR's request for information offered little improvement.
4011  Likewise, New Zealand submits that
the United States has failed to respect the parall elism requirement.  The United States has excluded
certain imports that were included in its investigation among the increased imports causing "serious
injury" from the application of a safeguard measure, but it has failed to establish "explicitly" or to
provide a "reasoned and adequate explanation" to show that the imports not excluded from the
measure meet the conditions for the application of a safeguard.  This lack of parallelism relates to,
inter alia , the exclusion of imports from the United States FTA partners. 4012 4013  Norway argues that
exclusion of imports from FTA partners is not precluded per se , but requires that all the necessary
determinations be made – and explained in a reasoned and adequate manner – on the basis of theimports that are subject to the measure. One consequence of this is that correct increased imports and
causation analyses have to be made after  the exclusion from the investigation.
4014  Having failed on
these counts, Norway submits that the United States violates the parallelism principle.4015
                                                     
4006 European Communities' first written submission, para. 601.
4007 Japan's first written submssion , para. 305
4008 Appellate Body Report, US – Line Pipe, para. 158.
4009 United States' first written submission, paras. 748-749
4010 European Communities' first written submission, paras. 594-595.
4011 Japan's first written submission, para. 308; Brazil's first written submission, para. 228.
4012 The factual background to these exclusions is outlined above in Part II A, paras. 2.11-2.12.
4013 New Zealand's first written submission, para. 4.174.
4014 Norway's second written submission, para. 182.
4015 Norway's first written submission, paras. 396-397; Norway's second written submission, para. 187.WT/DS248/R, WT/DS249/R,
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(i) Exclusion of NAFTA imports
7.1723  New Zealand argues that the United States has done here precisely what it did in US – Wheat
Gluten and US – Line Pipe .  It conducted its safeguards investigation on the basis of the total quantity
of subject imports, but then imposed the measure only on the products of those countries that are not
members of the NAFTA.4016  In both US – Wheat Gluten and US – Line Pipe , the Appellate Body held
that the failure to correlate imports subject to  the measure with the imports on which the injury
determination was based, violated the parallelism requirement.4017
7.1724  New Zealand contends that the United States did not meet the key parallelism requirements in
the case of their investigation into steel imports.  In its Report, the USITC made affirmative findings
that imports from both Mexico and Canada of CCFRS constituted a substantial share of total imports
and that imports from Mexico contributed importantly to the serious injury allegedly caused by
imports.  The important role played by imports from NAFTA sources as part of the USITC's
investigation into imports from all sources was quite explicit. 4018  New Zealand submits that the
finding in the Second Supplementary Report is just as flawed as the similar finding by the USITC in
the US – Line Pipe  case.  In that case, the United States argued that the determination in respect of
non-NAFTA imports had been substantiated by the USITC in footnote 168 to its report.  In that
footnote, the USITC had indicated that it would have reached the same result "had we excluded
imports from Canada and Mexico from our analysis".4019  The USITC noted that non-NAFTA imports
increased significantly over the period of investigation and that the level of non-NAFTA imports washigher during the later part of the period of investigation than in the first years.
4020  It also stated that
the average unit prices of the non-NAFTA imports placed these imports among the lowest-priced
imports.4021 The Supplementary Report makes an assertion that "increased imports of CCFRS from
non-NAFTA countries are a substantial cause of serious injury to the domestic industry".  However,
this assertion is not supported by any reasoned or adequate analysis.  According to New Zealand, theUSITC, failed to evaluate the share of the domestic market taken by non-NAFTA imports and failed
to evaluate other factors relevant to the situation of the industry concerned.  It did not examine the
impact of NAFTA imports on the domestic industry if these exports were to be excluded from the
measure.  The USITC also failed to make any finding on the relationship between the movements in
imports (volume and market share) and the movements in injury factors, and it failed to demonstrate
the causal link between increased imports from non-NAFTA sources and serious injury involving a
genuine and substantial relationship of cause and effect.  Moreover, there is no acknowledgement inthe Second Supplementary Report that the USITC had earlier determined that imports of both Mexico
and Canada, considered individually, accounted for a "substantial share" of total imports and that
imports from Mexico "contributed importantly" to the serious injury.  The failure by the USITC to
explain in its Supplementary Report its earlier findings reinforces the conclusion that the United
States has failed to provide an adequate and reasoned explanation to support its exclusion of importsfrom its NAFTA partners from the application of the safeguard measure.
4022
                                                     
4016 Appellate Body Report, US – Line Pipe,  para 186;  Appellate Body Report, US – Wheat Gluten ,
para 98.
4017 Appellate Body Report, US – Line Pipe , para 197;  Appellate Body Report, US –  Wheat Gluten,
para 98.
4018 New Zealand's first written submission, paras. 4.177-179; see also Japan's first written submission,
para. 309-311.
4019 USITC statement quoted in Appellate Body Report, US – Line Pipe , para 189.
4020 Ibid.
4021 Ibid.
4022 New Zealand's first written submission, paras. 4.181-4.185.WT/DS248/R, WT/DS249/R,
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7.1725  Similarly, China and Switzerland submit that neither the USITC Report (and the supplemental
report) nor the Presidential Proclamation indicated whether imports from Canada and Mexico wereexcluded from the scope of the investigation.  China and Switzerland consider that it is established,
prima facie, that the United States included these imports in the scope of its investigation for each of
the products concerned.
4023  The United States failed to show that imports actually included in the
scope of the safeguard measure alone satisfied the requirements of Articles 2.1 and 4.2 of the
Agreement on Safeguards.  The Second Supplement ary Report of the USITC is not a sufficient
analysis establishing through an adequate and reasoned explanation that all other imports without
those of Canada and Mexico (and Jordan and Israel) alone fulfilled the conditions of being importedin such increased quantities so as to cause or threaten to cause serious injury to the domestic
industry.
4024
(ii) Exclusion of imports from Israel and Jordan
7.1726  China, Switzerland, Norway and the European Communties consider that the exclusion of
Israel and Jordan from the application of the measures is inconsistent with the United Statesobligations under Articles 2.1 and 4.2 of the Agreement on Safeguards.
4025  The complainants argue
that the USITC Report should have mentioned that imports from Israel and Jordan were "excluded"
from the scope of the investigation.  Secondly, if such mention is not present, it should be concluded,
a priori , that these imports were included in the scope of the investigation for each of the products
concerned.  China submits that in the present case, neither the USITC Report (and the SecondSupplementary report) nor the Presidential Proclamation indicated whether imports from Israel and
Jordan were excluded from the scope of the investigation.  Without any proof to the contrary, China
considers that it is established, prima facie, that the United States included these imports in the scope
of its investigation.
4026
7.1727  China notes in this regard that the USITC Second Supplementary Report only indicates on
this point that "the Commission indicates, in accord with its findings in the Views on Remedy, that
exclusion of imports from Israel and Jordan woul d not change the conclusions of the Commission or
of individual Commissioners".4027  Commissioner Bragg states only that "Given that imports from
Israel and Jordan, respectively, are either negligible or nonexistent for each of my affirmative
determinations, as discussed in my separate views on remedy, I note that the recommended exclusion
of imports from Israel and Jordan, respectively, from my injury analyses does not change my analyses
or affirmative injury findings"4028  In light of the precise determinations of the Appellate Body,
especially in the US – Line Pipe  case, China and Norway submit that the United States failed to
establish "explicitly" that increased imports from sources other than Israel and Jordan satisfy the
conditions as set out in Article 2.1 and elaborated in Article 4.2 of the Agreement on Safeguards.4029
Norway adds that the violation of parallelism doe s not address whether Jordan and Israel could have
been excluded from the measure by virtue of Article 9 of the Agreement on Safeguards .4030
                                                     
4023 China's first written submission, para. 580; Switzerland's first written submission, para. 346.
4024 China's first written submission, para. 588.
4025 European Communities' first written submission, paras. 612;  Switzerland's first written
submission, para. 33 et seq.;  Norway's first written submission, para. 390.
4026 The complainant's first oral statement on parallelism, para. 729;  China's first written submission,
paras. 571-572.
4027 USITC Supplementary Report, 4 February 2002, p. 4.
4028 USITC Supplementary Report, 4 February 2002, p. 19.
4029 China's first written submission, paras. 576-578; Norway's first written submission, para. 379;
Switzerland's first written submission, paras. 337-345.
4030 Norway's first written submission, para. 380.WT/DS248/R, WT/DS249/R,
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7.1728  New Zealand also argues that the exclusion of imports from Israel and Jordan is inconsistent
with the parallelism requirement.  Imports from all sources, including Israel and Jordan, were
included in the USITC's increased imports determination.  However, Section 403 of the Trade and
Tariff Act of 1984, 19 U.S.C. & 2112, and Section 221 of the United States-Jordan Free Trade Area
Implementation Act authorize the President to exclude imports from Israel and Jordan, respectively,
from any safeguard action under Section 201.  In line with the recommendations made by the USITC
on Remedy4031 Proclamation No. 7529 clearly states that the safeguard measures applied to CCFRS do
not apply to imports originating from, inter alia , Israel and Jordan.  New Zealand submits that the
United States should have provided a reasoned and adequate explanation establishing explicitly thatimports from sources other than Israel and Jordan "satisfied the conditions for the application of a
safeguard measure, as set out in Article 2.1 and elaborated in Article 4.2 of the Agreement on
Safeguards".  Yet no such reasoned or adequate explanation is provided in the USITC Report.  The
statements of the USITC
4032 and of Commissioner Bragg4033 in the Second Supplementary Report do
not meet the requirements for justifying an absence of parallelism.  Accordingly, the exclusion ofIsrael and Jordan from the application of the measur es is therefore also inconsistent with the United
States obligations under Articles 2.1 and 4.2 of the Agreement on Safeguards.
4034 4035
7.1729  The United States contends that the USITC's findings regarding the minuscule quantity of
imports from Israel and Jordan satisfy the requirement to provide findings and reasoned conclusions
that imports from other sources by themselves caused serious injury.  The USITC found that importsfrom Israel were "small and sporadic" and that there were "virtually no imports" from Jordan.  The
USITC's finding that the exclusion of imports from Israel and Jordan would not change its
conclusions met the requirements of Articles 3.1 and 4.2(c).
4036  In fact, since the USITC Reported
percentages with a single decimal place, imports from Jordan were less than the rounding error in
some of the USITC's statistics.  During the entirety of the investigation period, there were no importsfrom Israel for four of the ten covered products (cold-finished bar, rebar, stainless steel rod, and tin
mill ).  For CCFRS and hot-rolled bar, imports from Israel were never more than 0.01% of total
imports.  For stainless steel wire, imports from Israel never rose above 0.1% of total imports.  For
welded pipe, there were essentially no imports after 1998, and imports before that time never
amounted to more than 0.4% of total imports.  For FFTJ and stainless steel bar, imports after 1997
were never more than 0.3% of total imports.  In this situation, the observation that there were
"virtually no imports from Jordan" and that imports from Israel were "small and sporadic" provides asuccinct – and thoroughly reasonable and adequate – explanation of why exclusion of such imports
would not change the determinations of the USITC or of the individual Commissioners.  Any further
analysis would simply repeat verbatim the conclusions provided elsewhere in the USITC Report.  It
comports with the Article 3.1 requirement of findings and reasoned conclusions.  If a particular factor
is so insignificant that it does not change the results of the analysis – which the record shows was thecase for imports from Israel and Jordan – a reasoned explanation of that conclusion says just that, and
no more.  There was nothing more to be said about imports from sources other than Israel and Jordan
except what the USITC said – that exclusion would not change the conclusions of the USITC or the
                                                     
4031 USITC Report, Vol. 1, p 366 and footnote 69.
4032 Second Supplementary Report, 4 February 2002, p 4 (Exhibit CC-11).
4033 Ibid., p 19 (Exhibit CC-11).
4034 It was noted that, in contrast to the substantial level of imports to the United States from Canada
and Mexico, imports to the United States from Israel and Jo rdan were negligible.  It would also appear that the
United States could exclude imports from Jordan under Article 9 of the Agreement on Safeguards.
Nevertheless, the approach taken by the United States to  excluding imports from Jordan and Israel from the
application of the safeguard remains inconsistent with its obligations in regard to parallelism.
4035 New Zealand's first written submission, para. 4.187-4.189.
4036  USITC Report, p. 366; Second Supplementary Report, p. 4.WT/DS248/R, WT/DS249/R,
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individual Commissioners.4037  Article 3.1 of the Agreement on Safeguards requires that a competent
authority set forth findings and reasoned conclusions on all issues of fact and law.  The USITC setforth such findings and reasoned conclusions – both for all imports and for non-NAFTA imports.
Because exclusion of imports from Israel and Jordan could not have affected the data on which the
USITC relied to make its findings and conclusions, it could not have affected the findings and
conclusions themselves with respect to either all imports or non-NAFTA imports.  In other words, the
findings and conclusions the USITC reached were equally applicable if imports from Israel and
Jordan were excluded.  Additionally, Article 3.1 requires an authority to address all "pertinent" issues
in its report.  Consequently, the report need not address issues that are not "pertinent", which wouldbe the case if that issue did not affect the underlying data on which the authority relied to make its
findings and conclusions.
4038
(iii) Existence of a de minimis rule?
7.1730  The European Communities and New Zealand argue that in relation to Israel and Jordan, the
USITC appears to have applied a de minimis  exception instead of providing the detailed analysis and
evaluations required by Article 4.2 of the Agreement on Safeguards.  It considers that these imports
were indeed small and sporadic but nowhere substantiated this and nowhere established that the
remaining imports would have satisfied the Agreement on Safeguards.  The European Communities
submits that there is no de minimis  rule in the Agreement on Safeguards.  Where fair trade is
restricted, every ton counts.4039
7.1731  In response, the United States submits that the reasoning expressed above in relation to Israel
and Jordan does not, as the European Communities charges, read a de minimis  rule into the
Agreement on Safeguards.  Rather, it comports with the Article 3.1 requirement of findings and
reasoned conclusions.4040
7.1732  The European Communities and Switzerland respond that the United States has not
provided a legal basis for a de minimis  clause for FTA partners in the Agreement on Safeguards.  The
United States tries to excuse its failure to comply with the substantive requirements in the Agreement
on Safeguards by referring to Article 3.1.  The European Communities' claim is, however, not merely
one of defective statement of reasons.  Failure to provide an adequate explanation to show that a
substantive requirement has been met is a violation of the substantive requirement.4041  The European
Communities and Switzerland point out that the USITC Report of October 2001 contains no separatedetermination whatsoever for Israel and Jordan, whose import data are not even disaggregated from
the "all minus NAFTA" data.
4042  Since there is no such thing as a de minimis  rule for FTA partners in
the Agreement on Safeguards4043, and since the principle of parallelism was enunciated by the
Appellate Body in broad and unqualified terms, even if excluded countries were the smallest exporters
of a particular product, the United States is not entitled to rebut the prima facie case made be the
European Communities by relying on the magnitude of the unlawful exclusion.  Also, even assuming
that the hypothetical assertion made by the United States was relevant, it was not demonstrated
                                                     
4037 United States' first written submission, paras. 754-759.
4038 United States' written reply to Panel question No. 97 at the first substantive meeting.
4039 European Communities' first written submission, paras. 616, 621; New Zealand's second written
submission, para. 3.147.
4040 United States' first written submission, paras. 754-759.
4041 European Communities' second written submission, para. 438; Switzerland's second written
submission, para.108.
4042 European Communities' second written submission, para. 450; Switzerland's second written
submission, para.108.
4043 European Communities' first written submission, paras. 616 and 621.WT/DS248/R, WT/DS249/R,
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through a reasoned and adequate explanation before the relevant determinations were made or before
the measures were taken.  A fortiori  it cannot be justified ex post  in dispute settlement.4044 4045  The
European Communities insists that a de minimis  exclusion in favour of the United States FTA partners
– Israel and Jordan, and also NAFTA countries – is not in the text of the Agreement on Safeguards.
This, says the European Communities,  must be contrasted with the de minimis  clause which is in the
Agreement on Safeguards – that is, the one set out in Article 9.1 in favour of developing countries.
The European Communities also notes that there are several other WTO texts where de minimis
clauses are clearly set out, such as Article 5.8 of the Anti-Dumping Agreement, Articles 27.10, 27.11
and 27.12 of the SCM Agreement and Article 6.4 of the Agreement on Agriculture.  The EuropeanCommunities argues that if the drafters of the Agreement on Safeguards had wanted to write a
de minimis  clause for FTAs in the Agreement, they perfectly knew how to write it.
4046
7.1733  The European Communities also contends that it  is not possible to claim that there is any
determination whatsoever on imports from all sources minus NAFTA, Israel and Jordan amongst
those identified by the United States as the determinations under review.  As for Jordan, footnote 69to the USITC remedy recommendations
4047 makes clear that the United States legislation on the basis
of which the United States eventually excluded Jordan from the safeguard measures4048 entered into
force about two months after the October determinations were made.  This further confirms that the
October determinations do not exclude imports from Jordan.  It also shows that later findings and
decisions based on such legislation cannot be related to the original October 2001 determinations.4049
Furthermore, even in the Second Supplementary Report, the only references to Jordan and Israel are
cross-references to the remedy recommendations pages of the October 2001 USITC Report,
supplemented by a generic and unreasoned statement that excluding imports from Israel and Jordan
would not change the conclusions of the Commission or individual Commissioners.4050  However,
without a reasoned and adequate supporting explanation, such conclusion should have the same fateas that reviewed by the Appellate Body in US – Line Pipe .
4051  Two irrelevant findings in the Second
Supplementary Report do not make a relevant one.  In other words, the sum of the findings on non-
NAFTA imports, and the statements on the individual impact of imports from Israel and Jordan does
not amount to a finding that the imports caught by  the safeguard measures, alone, underwent a recent
sudden sharp and substantial increase consistently with Article 2.1 of the Agreement on Safeguards
and, moreover, caused serious injury to the domestic industry.  The remedy recommendations are not,
even under United States law, increased imports and injury determinations .  For some product groups,
moreover, imports from Israel are not discussed at all.4052  Furthermore, there is no breakdown of
imports from Israel and Jordan in the Second Supplementary Report either.
7.1734  As regards what the United States means by "small and sporadic" imports which "could not
have affected any of the data the USITC used", the European Communities points to the imports of
hot-rolled bar from Israel during all the five y ears of the period of investigation.  The European
                                                     
4044 For the avoidance of doubt, the European Co mmunities provides in Exhibit CC-108 to this
submission some examples of the size of excluded NAFTA imports compared to imports from includedcountries in the present case.
4045 European Communities' second written submission, para. 459.
4046 European Communities' written reply to Panel question No. 60 at the second substantive meeting
4047 USITC Report, Vol. I, p. 366.
4048 United States-Jordan Free Trade Area Implementation Act , Public Law 107–43—28 September
2001, 19 U.S.C. 2112, available on the internet at the address: "http://thomas.loc.gov/".
4049 European Communities' second written submission, paras. 4.66-4.68.
4050 USITC Second Supplementary Report, p. 4; see also United States first written submission, paras.
755-769.
4051 Appellate Body Report, US – Line Pipe , para. 196.
4052 USITC Report, Vol. I, pp. 399 and 405.WT/DS248/R, WT/DS249/R,
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Communities argues that if these imports were legitimately excluded because, to use the United States
formula, they are small and sporadic, then the so urces of Denmark, New Z ealand, Ireland, Singapore,
Hong Kong, Cyprus and Monaco should also have been so considered.4053  The European
Communities points out that it was forced to reso rt to sources outside the USITC Report to compile
these data, since no breakdown of import data from Israel and Jordan can be found in the USITC
Report.  Thus, even if a de minimis  exclusion for FTA partners was allowed, quod non , and even if
there was an implied determination, quod non , there is certainly no reasoned and adequate explanation
therefor in the Report.  Although the size of excluded exports from Israel and Jordan might appear
small in this case, upholding this type of exclusion paves the way for an uncontrolled and unlimitedrelaxation of the standards in the Agreement on Safeguards.  The European Communities questions
what is the limit to de minimis ? 
4054
7.1735  New Zealand submits that it, in no way, disputes the fact that imports from Jordan and Israel
may indeed be considered negligible.  The point is that if the United States wished to exclude imports
from Israel and Jordan from the application of the safeguard, it could have excluded them at the outsetof its investigation to determine imports causing injury.  However it did not do so.  Accordingly, this
means that the United States cannot now seek to avoid its obligation to provide a "reasoned and
adequate explanation that establishes explicitly" that imports covered by the measure "satisfy the
conditions for the application of a safeguard measure".
4055  A statement that simply notes the
negligible nature of certain imports certainly does not meet these conditions.4056  The reasoned and
adequate explanation that the Appellate Body spoke of is an explanation that would "establish
explicitly" that imports covered by the measure "satisfy the conditions for the application of a
safeguard measure".4057  The United States seeks to twist this by referring instead to a "reasonable and
adequate explanation of the findings by the USITC … that the exclusion of imports from these FTA
partners would not change their conclusions".4058 4059
7.1736  The United States repeats that it is not arguing that a de minimis  rule should be read into the
parallelism analysis articulated by the Appellate Body.  Instead, the United States has argued that,
when imports from certain countries are so minuscule that their exclusion will – quite literally – not
change the numeric data examined by a competent authority in its causation analysis, the competent
authority has fully complied with its obligation under the Agreement to provide a reasoned and
adequate analysis of the issue by explaining that exclusion of these volumes will have no impact at all
on its findings in a particular case.  As a substantive matter, parallelism requires that imports fromsources that were not excluded (the "covered sources"), by themselves, satisfy the requirements of the
Agreement on Safeguards.  Article 3.1 would require findings and reasoned conclusions for that
finding.  In the case of imports from sources that are zero, or essentially zero when compared with
imports from covered sources, a full and complete explanation would indicate that the findings and
reasoned conclusions remain unchanged because the exclusion of imports from such sources does notchange the underlying data in any way.  That is exactly the explanation that the USITC provided.
Thus, the United States does not contend that the Agreement on Safeguards contains a de minimis
requirement, as it does not.  Rather, as a legal matter, the USITC Report complied with Articles 3.1
and 4.2(c) by stating that imports from Israel and Jordan were isolated and sporadic, and did not
                                                     
4053 European Communities' second written submission, para. 473.
4054 European Communities' second written submission, paras. 475-476.
4055 Appellate Body Report,  US – Line Pipe , para 188.
4056 New Zealand's second written submission, paras. 3.145-3.146.
4057 Ibid.
4058 United States' first written submission, para 754.
4059 New Zealand's second written submission, para. 3.147.WT/DS248/R, WT/DS249/R,
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change the analysis in any way.  Thus, Articles 3.1 and 4.2(c) do not require any further
explanation.4060
(b) Developing country exclusions
7.1737  The United States contends that there was no obligation to perform a parallelism analysis with
regard to excluded developing countries.  The exclusion of WTO Members from application of a
safeguard measure pursuant to Article 9.1 is an exception to Article 2.2 and, as such, is not subject to
parallelism.  Parallelism derives from the use of the term "products . . . being imported" in both
paragraphs 1 and 2 of Article 2.  Article 9.1 provides that "[s]afeguard measures shall not be applied
against a product originating in a developing country Member" under certain conditions.  Thus, it actsas an exception to the Article 2.2 obligation that "[s]afeguard measures shall be applied to a product
being imported irrespective of source".  This exce ption relates exclusively to the application of a
safeguard measure, and not to the underlying investigation or determination of serious injury.  Thus, a
Member may include developing country Members in the investigation and determination of serious
injury, but still exclude them from the safeguard measure if the Article 9.1 criteria so require.  In US –
Wheat Gluten , the Appellate Body confirmed that Article 9.1 acts as an exception to parallelism.
Since Article 9.1 acts as an exception only to the application of the safeguard measure, the United
States argues that it was under no obligation to exclude developing country exports from the analysis
of whether imports increased.  Indeed, Article 4.2(a) requires the competent authorities to evaluate
"the rate and amount of the increase in imports of th e product concerned".  Absent an exception to this
requirement, which Article 9.1 does not provide, the USITC was required to include developing
country imports in its analysis of injury.
4061
(c) Product exclusions
7.1738  The European Communities argues that another fa ilure to respect parallelism arises from the
fact that many specific products were excluded from the safeguard measures on the basis of individualrequests.  The European Communities and China argue that these exclusions have been made without
carrying out a proper increased imports and injury determination, i.e. more precisely without
determining whether or not serious injury could still be caused by imports of products other than the
ones concerned by the exclusions.
4062
7.1739  More specifically, New Zealand points out that Proclamation No. 7529 provided for the
exclusion from the application of the safeguard measure of certain specified products and provided
that requests for the exclusion of other products would be considered in the future.  Since 5 March2002, in total 727 products have been excluded from the application of the safeguard measure.  All of
these products were included in the USITC's investigation and determination that increased imports
were causing serious injury to the United States domestic industry.  New Zealand argues that in this
regard, as with the exclusion of FTA partners, the United States fails to comply with the requirement
of parallelism.  The United States has at no time established "explicitly", or provided any "reasonedand adequate explanation" to show, that imports of non-excluded products taken alone meet the
conditions for the imposition of a safeguard measure.  The exclusion of certain imports from the
application of the safeguard measure on a product-by-product basis, in the manner followed under the
United States "products exclusions" process, when those imports were included in determining
whether all of the requirements of the Agreement on Safeguards had been met for the taking of a
                                                     
4060 United States' written reply to Panel question No. 60 at the second substantive meeting.
4061 United States' first written submission, paras. 775-777.
4062 European Communities' first written submission, paras. 609-611; China's first written submission,
para. 618.WT/DS248/R, WT/DS249/R,
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safeguard measure, has implications for all aspects of the USITC's determination and undermines the
conclusions reached by the USITC on each aspect of that determination.  New Zealand submits that itdeprives the safeguard measures in this case of any legal basis.  As a result, the United States has not
acted in conformity with its obligations under the Agreement on Safeguards.
4063
7.1740  The United States contends that the Agreement on Safeguards does not support the
complainants' assertion of a new type of parallelism, which would preclude the exclusion from a
safeguard measure of an imported item covered by the determination of serious injury.  "Parallelism"
as enunciated by the Appellate Body derives from the obligation under Article 2.2 to apply safeguard
measures to an imported good "irrespective of its source".  Since exclusions based on physicalcharacteristics are neutral as to source, they do not raise parallelism concerns.
4064  The United States
argues that other provisions of the Agreement on Safeguards confirm that scope parallelism is not
required.  Article 5.1, first sentence, allows a Member to apply a safeguard measure "only to the
extent necessary to prevent or remedy serious injury and to facilitate adjustment".  The obligation
under the first sentence places a limit on the application of a safeguard measure, but does not restrict aMember's discretion to apply a measure to a lesser extent.  The admonition to "choose measures most
suitable for the achievement of these objectives" indicates further that there are many permissible
options for the extent to apply a safeguard measure, and that a Member is free to choose among them.
The text of Article 5 indicates, further, that a safeguard measure need not apply equally to all of the
items covered by a determination of serious injury.  The second sentence of Article 5.1 envisages theapplication of quantitative restrictions, which place no restriction on imports below the quota level,
while prohibiting imports above that level.  The Appellate Body has also recognized that a safeguard
measure may take the form of a tariff-rate quota.
4065  In that situation, one tariff applies to imports
below a specified level, and another tariff to imports above that level.  Exclusion of products from the
scope of a safeguard measure is no different from the application of a tariff rate quota or quota, in thatsome imports covered by the determination of serious injury are unaffected by the measure, while
others are.
4066
7.1741  The United States also points out that it undertook the exclusion of particular products from
the scope of the safeguard measures at the behest of exporters and exporting Members, including the
European Communities.4067  Exporting Members' desire for exclusions was the subject of
consultations under Article 12.3 of the Agreement on Safeguards.  European Communities officials
made public statements to the effect that satisfactory resolution of exclusion requests was necessary todefuse the dispute regarding application of the steel safeguard measures.
4068 The United States
assumed that Members such as the European Communities would not request exclusions if they
believed such an action to be inconsistent with the United States' WTO commitments.  That the
European Communities, having received the treatment it requested, now considers such treatment to
be inconsistent with WTO rules, appears to be a change in its position.  In any event, if it now has adifferent view, it would seem to be more logical to seek revocation of the exclusions, rather than
performing an additional parallelism inquiry.
4069
                                                     
4063 New Zealand's first written submission, paras. 4.190-4.192.
4064 United States' first written submission, paras. 760-763.
4065 Appellate Body Report, Korea – Dairy , para. 96.
4066 United States' first written submission, paras. 764-766.
4067 "Lamy Waffles on Steel Compensation", Highlights Exclusions, Inside US Trade  (28 June 2002)
(Exhibit US-59).
4068 Ibid.
4069 United States' first written submission, paras. 767-768.WT/DS248/R, WT/DS249/R,
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Page 579
7.1742  New Zealand responds that there is no legal basis in the Agreement on Safeguards nor in
general international law for a restraint or prohibition on a WTO Member which is harmed by aviolation of the WTO Agreements, from seeking to mitigate that harm and then proceeding to a legal
challenge. A relevant analogy from domestic law is the position of a party to a contract who seeks to
mitigate its loss arising from breach by another part y, but does not thereby lose the right to sue for
breach. Indeed in some legal traditions, the wronged party is under a duty to mitigate their loss.
4070
7.1743  The European Communities considers that the principle of parallelism has been enounced in
more general terms than the United States suggests.  In US – Wheat Gluten , the Appellate Body
clarified that the imports included in the determinations made under Article 2.1 and 4.2 of theAgreement on Safeguards should correspond to the imports included in the application of the
measure, under Article 2.2.
4071  However, the Appellate Body based itself on the phrase "product
being imported" – which is in no way linked to the origin notion in Article 2.2.  The Appellate Body's
conclusion that "a product" must have the same measuring for the purposes of the investigation as
when it comes to imposing a measure is not dependent on the origin of the product.  The EuropeanCommunities submits that it should be noted that Article 2.2 does not employ the term "origin" but
the broader term "source", which is sufficiently broad to cover situations like the product exclusions
at issue in this dispute.  Furthermore, by its te rms, the obligation in Article 2.2 of the Agreement on
Safeguards is not limited to the case when all imports with a certain origin are first included in the
investigation and later excluded from a measure.  A partial discrimination based on the "source" is asprohibited as a total discrimination.
4072
7.1744  The European Communities notes that the United States tries to defend its product exclusions
by relying on Article 5.1 of the Agreement on Safeguards.  To start with, even if the product
exclusions may not violate Article 5.1 of the Agreement on Safeguards, this would not make them
ipso facto  consistent with Articles 2 and 4.  The European Communities further disagrees that such
exclusions comply with Article 5.1 since all the products eventually excluded were counted in making
findings under Article 2 and 4 of the Agreement on  Safeguards, when the United States' authorities
decided the level of remedy necessary to remedy serious injury they had before them the injury
allegedly caused by all increased imports.  A "lesser extent" decision must be spread over all the
products investigated.4073
7.1745  The European Communities considers that the ther e is no logical or legal reason to distinguish
cases where, on the one hand, the two import scopes diverge because all imports originating in acertain country are excluded from the measures, and those in which the two import scopes diverge
because certain imports are excluded on the basis of the importing/using interest of certain United
States companies, or still other criteria.  In bot h cases, the imports included in the determinations
made under Articles 2.1 and 4.2 do not correspond to the imports included in the application of the
measures, contrary to the Appellate Body's teachings.
4074  The language of Article 2.2 of the
Agreement on Safeguards is sufficiently broad to allow the same rationale developed so far by the
Appellate Body to what the United States terms as "product exclusions".  Indeed, the principle of
parallelism is inherent in the whole Agreement on Safeguards: not just in Article 2.2 or Article 2
altogether, but also in Articles 4 and 5.  The European Communities points out that in Argentina –
Footwear (EC) , the case in which the principle was first enounced by the Appellate Body, the
                                                     
4070 New Zealand's written response to the Panel question 93 at the first substantive meeting.
4071 United States' first written submission, para. 761, referring to Appellate Body Report, US – Wheat
Gluten , para. 96.
4072 European Communities' second written submission, paras. 488-495.
4073 European Communities' second written submission, paras. 488-495.
4074 Appellate Body Report, US – Line Pipe , para. 181.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
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European Communities had not brought a claim under Article 2.2 of the Agreement on Safeguards.
Rather, it had relied on the logical continuum set out in Article 2.1 and underlying the entireAgreement.  If the Appellate Body had exclusively linked the principle of parallelism to Article 2.2, in
finding its violation in Argentina – Footwear (EC) it would have made findings extra petitum , i.e.
beyond the claims made by the complainant, contrary to its own teachings.
4075  It is clear from the
wording of Article 9.1 that when the drafters of the Agreement on Safeguards wanted to limit a
provision to certain country origin they knew how to do and actually did so.  When enouncing the
principle of parallelism the Appellate Body had before it clear language in the Agreement on
Safeguards referring to country-based scope limitations.  Yet it did not so limit the principle ofparallelism.  It rather referred to parallelism between sources investigated and sources covered by the
measures.
4076 4077
7.1746  The European Communities further points out that there are other WTO texts where the term
"source" is employed in a broader sense than the term "origin" or "country of origin".  Thus, for
example, the Illustrative List of TRIMS annexed to the Agreement on Trade-–Related InvestmentMeasures mentions as a TRIM "the purchase or use by an enterprise of products of domestic origin  or
from any domestic source ".
4078   Also, in the Anti-Dumping Agreement, the reference to " sources
found to be dumped" in Article 9.2 is a reference to sources of supply, not to countries of origin.  If
the Panel were to accept the US-created labels such as "scope parallelism" and "product exclusions",
it would enable the United States, next time it takes a safeguard measure, to carefully fashion its"product exclusions" to cover even all products from Canada, or Mexico, or Israel, or Jordan, or all of
them together, and then claim that, because it achieved this result through what it terms "product
exclusions", it is not subject to the principle of pa rallelism.  It would be too easy indeed to circumvent
the principle of parallelism.
7.1747  Similarly, for China, the parallelism requirement contained in Article 2.1 and 4.2 of the
Agreement on Safeguards is also relevant to the practice of excluding certain products that were
included in the injury determination from the applic ation of the measure.  There is nothing in WTO
case law to suggest that the requirement of parallelism should be limited to the sources of imports.
The basic rationale is the same.  A safeguard measure should only be applied to products if the data
relating to increased imports of those products meets the relevant threshold of "increased imports",
and if the data relating to those products shows that the increased imports are causing serious injury a
safeguard measures can be imposed on those same products.
4079  China disagrees with the United
States which considers that if the products covered by the injury determination are broader than the
products covered by the measure itself, the measure should be viewed as less restrictive and therefore
consistent with Article 5.1 of the Agreement on Safeguards, and with the spirit of the WTO overall.
In fact, China considers that the proportionality requirement of Article 5.1 does not allow an authority
to reduce the scope of application of a measure comp ared to its scope of investigation, and that the
parallelism requirement fully applies to the scope of products.  China adds that the only solution
legally possible to exclude, from the scope of application of measures, products included in the scope
of investigation, would possibly to rely on the notion of "public interest" contained in Article 3.1 of
the Agreement on Safeguards. However, this would require reasoned and adequate explanation in
                                                     
4075 Appellate Body Report, India – Patents (US) , para. 92, where the Appellate Body concluded that
"[t]he jurisdiction of a panel is established by that panel's terms of reference, which are governed by Article 7 ofthe DSU.  A panel may consider only those claims that it has the authority to consider under its terms of reference."
4076 Appellate Body Report, Argentina – Footwear (EC) , paras. 113-114.
4077 European Communities' written reply to Panel question No. 62 at the second substantive meeting.
4078 Illustrative List, para. 1(a) (emphasis added).
4079 China's second written submission, paras. 313-314.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
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Page 581
accordance with Article 3.1 but, according to China, this has never been forthcoming from the United
States.4080
7.1748  In contrast, Japan contends that the parallelism obligation applies only to sources subject to
the investigation, not to specific products.  Curren t jurisprudence on parallelism is limited to sources,
i.e. countries, and not products.  The fundamental textual basis for the Appellate Body's interpretation
of the parallelism requirement in all of the disputes addressing this issue to date is Article 2.2.  In
US – Wheat Gluten,  the Appellate Body held that Articles 2.1 and 2.2, read in concert, create the
requirement stating: "[t]o include imports from all sources in the determination that increased imports
are causing serious injury, and then to exclude imports from one source from the application of themeasure, would be to give the phrase 'product being imported' a different meaning in Articles 2.1 and
2.2 of the Agreement on Safeguards.  In Article 2.1, the phrase would embrace imports from
all sources whereas, in Article 2.2, it would exclude imports from certain sources.  This would be
incongruous and unwarranted".
4081  Article 2.2, in setting the general MFN rule for safeguard
measures, is first and foremost aimed at addressing the source of imports, and together with Articles2.1 and 4.2, requires that injury and remedy be based on the same universe of sources.  Indeed, in
Japan's view, if the products covered by the injury determination are broader than the products
covered by the measure itself, the measure is less restrictive than it would be otherwise, which is
consistent with the purpose of Article 5.1.  It should be noted that Article 5.1 provides the maximum
limit of the protection.  A WTO Member can lessen the degree of protection, within its discretion, bynarrowing the scope of products subject to a safeguard measure.  Moreover, Article 3.1 reads
"exporters and other interested parties could present evidence and their views…as to whether or not
the application of a safeguard measure would be in the public interest".  This implies that the
Agreement on Safeguards allows Members to exercise discretion to take into consideration a broad
range of economic interests other than that of the injured domestic industry.  Indeed, during the courseof an investigation the competent authority should ga ther information on such other interests so that it
can inform the final decision.  In some cases, a portion of the products subject to a safeguard measure
could be essential to maintaining the competitiveness or high-quality of products produced by
downstream industries in an importing country.  If  damage to such downstream industries outweighs
the benefit enjoyed by the domestic industry producing products which are generally like or directly
competitive with the imports, then a small part of  the imported products could be excluded from the
measure for the sake of the public interest.  This is particularly true in this case, as restrictions on steelimports can have extensive negative effects on United States industrial users.  It is important to
understand that the product exclusions issued by the United States in this particular case apply on an
MFN basis.  Hence there is no discrimination between countries, either de jure  or de facto .  If
producers in other countries are able to produce and ship to the specification as set forth in the
excluded product definition, they are entitled to reap the benefits of that exclusion.  Indeed, this iswhy some requesters have strenuously objected to any quantity restrictions being placed on their
exclusions.
4082  Japan also finds it odd that a country whose exporters have benefited from exclusions
would now find fault with this limited method by which the United States has tried to liberalize the
measure.  Yet, the exclusions in themselves do not absolve the United States from abiding by its
obligations under the Agreement.  The fact that a limited set of products are not subject to the measuredoes not change this fundamental fact.
4083
                                                     
4080 China's second written submission, paras. 342-344.
4081 See Appellate Body Report, US – Wheat Gluten,  para. 96 (emphasis original);  see also Appellate
Body Report, US – Line Pipe,  para. 180.
4082 Japan's second written submission, paras. 191-194;  Japan's written reply to Panel question No. 92
at the first substantive meeting.
4083 Japan's written reply to Panel question No. 93 at the first substantive meeting.WT/DS248/R, WT/DS249/R,
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7.1749  Similarly, Brazil submits that product exclusions are addressed by Article 5.1,which limits a
remedy to the extent necessary to prevent or remedy serious injury and to facilitate adjustment.Authorities are at liberty to adjust the scope of th e remedy to ensure that it is limited to the extent
necessary to prevent or remedy serious injury.  Article 2.2 is only relevant in that exclusions must be
on an MFN basis.
4084  Korea also does not agree with the position of New Zealand concerning "scope
parallelism".  In Korea's view, parallelism in Articles 2.1 and 2.2 of the Agreement on Safeguards
refer to sources of imports.  National authorities always retain the ability not to impose safeguard
measures even when conditions for safeguard relief have been met.  So long as the exclusion of
certain products is done on an MFN basis, the fact that certain products are excluded from a measureis not in itself a violation of parallelism.  Indeed, to contend the opposite is tantamount to requiring
the United States to impose a measure that is  greater  than it knows to be necessary.
4085  Korea also
argues that product exclusions are not addressed by Article 2.2 since that Article deals with the MFN
requirement concerning product sources.4086
7.1750  New Zealand submits that Article 2.1 provides that a Member can only apply a safeguard
measure to "a product", if "such product" meets the conditions relating to increased imports, causation
and serious injury.  The purpose of parallelism is to ensure that the products subject to the safeguard
measure have themselves met the conditions necessary to justify the application of that measure.
Where, as a result of exclusions, the products to which the safeguard measures apply no longer meet
the conditions of Article 2, then there is no justification under the Agreement for the application of asafeguard measure.
4087  New Zealand recalls that the exclusions process has "resulted in the exclusion
of approximately one-quarter of covered steel imports from the safeguards investigation".4088
Accordingly, the excluded products represent a very substantial portion of the total importsconsidered by the USITC, which provided the basis for the United States imposition of a safeguard
measure.  In relying on Article 5.1 in defence, the United States appears to be admitting that certain
products – around one quarter of the total – that they had counted in their determination of increased
imports causing injury were in fact not in any way responsible for that injury.  Indeed, the published
criteria for excluding products from the safeguard measure – which focus on whether or not
competitor domestic products exist – suggests that these products could not have caused serious injury
in the first place.  The USTR Federal Register Notice relating to exclusions reads in relevant part:
4089
"Each request will be evaluated on a case-by-case basis.  USTR will grant only thoseexclusions that do not undermine the objectives of the safeguard measures. Inanalysing the requests, USTR will consider whether the product is currently being
produced in the United States, whether substitution of the product is possible,
whether qualification requirements affect the requestor's ability to use domestic
products, inventories, whether the requested product is under development by a
United States producer who will imminently be able to produce it in marketablequantities and any other relevant factors."
7.1751  New Zealand appreciates the candour with which the United States, having utilized imports of
such products to establish the necessary thresholds for the imposition of a safeguard measure, now
admits that such products were apparently all along not causing injury.  This would of course also
appear to carry the implication that such products should have been excluded from the "like product"
                                                     
4084 Brazil's written reply to Panel question No. 59 at the second substantive meeting.
4085 Korea's written response to Panel question No. 92 at the first substantive meeting.
4086 Korea's written reply to Panel question No. 62 at the second substantive meeting.
4087 New Zealand's written reply to Panel question No. 62 at the second substantive meeting.
4088 United States' first written submission, para 40.
4089 Federal Register Vol. 67 No 75, 18 April 2002 (Exhibit CC-19).WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
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Page 583
groupings utilized by the United States; further underlines the flawed nature of the United States
causation analysis which proceeded on the basis that these products like all others included in the likeproduct category caused serious injury; and demonstrates the inherently flawed nature of the United
States approach to remedy.  The United States could have excluded such products from its
determination at the outset of its investigation on the basis that they were not like products.  However,
as with FTA imports, it did not do so and included them in its investigation and subsequent
determination.  Accordingly, to the extent that the United States may wish after making this
determination to exclude such products, just as in the case of FTA exclusions, the United States is
obliged to provide a "reasoned and adequate explanation" that establishes "explicitly" that imports ofnon-excluded products taken alone meet the conditions for the imposition of a safeguard measure.
The United States has at no time made any attempt to provide such an explanation.
4090
7.1752  New Zealand insists that there is no basis in terms of logic or principle for a distinction
between "scope" parallelism and "source" parallelism.  The Appellate Body's decisions in US – Wheat
Gluten and US – Line Pipe  were focussed on exclusions of products by source , but the reasoning and
language used in those decisions must logically extend also to exclusions of product types .  The basis
of the Wheat Gluten decision, as confirmed by US – Line Pipe , is that the phrase "product being
imported" has the " same  meaning … in both Articles 2.1 and 2.2".4091  In support, New Zealand relies
on the broad principle enunciated by the Appellate Body which counters any suggestion that the
restrictive focus on sources was deliberate: "… the imports included in the determinations made underArticles 2.1 and 4.2 should correspond to the imports included in the application of the measure,
under Article 2.2".
4092  The Appellate Body also saw the concept as one relating broadly to the issue
of parallelism between the "scope" of the investigation and of the measure in US – Wheat Gluten ,
where it rejected the United States' argument based on Article 9.1 of the Agreement on Safeguards as
irrelevant.  The United States argument that exclusion of products "is no different from a tariff ratequota or quota, in that some imports covered by the determination of serious injury are unaffected by
the measure, while others are"
4093 is nonsensical.  In the case of a tariff-rate quota or quota, the
measure is still imposed on the basis of a determination of increased imports causing injury of the
products to which the tariff-rate quota or quota is subsequently applied.  The situation flowing from
product exclusions is quite different – it results in a situation where safeguard measures are imposed
on a certain group of products on the basis of a determination based on an analysis of imports of a
much larger group of products.  This situation is one in which the legal foundation for the veryimposition of the safeguard measure is flawed since the data analysed to substantiate the measures
relates to products that do not correlate to the products that are actually subject to the safeguard.
4094  
7.1753  The United States insists that Article 5.1 clearly allows a Member to apply a safeguard
measure less than the extent necessary to remedy or prevent serious injury, as long as it complies with
the MFN obligation under Article 2.2.  Thus, a Member has discretion to exclude particular itemsentirely from the measure or to grant a limited quant ity exclusion with regard to particular items.
However, New Zealand argues that the Appellate Body reports stand for the "broad principle" of
scope parallelism.  The United States submits that no such principle exists.  Therefore, either
complete exclusion (or reduced application of a safeguard measure) to particular items within the like
product is consistent with the Agreement on Safeguards.  That does not suggest that exclusion orreduced application is required.  complainants essentially accept that exclusions are not mandatory.
4095
                                                     
4090 New Zealand's second written submission, para.3.157-3.160.
4091 Appellate Body Report, US – Wheat Gluten , para 96 (emphasis in original).
4092 Ibid.
4093 United States' first written submission, para 766.
4094 New Zealand's second written submission, paras. 3.161-3.163.
4095 United States' second written submission, paras. 206-209.WT/DS248/R, WT/DS249/R,
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Article 2.2 states that "[s]afeguard measures shall be applied to a product being imported irrespective
of its source". This text places a limitation on application of a safeguard measure, namely that it beapplied without regard to the source of the product.  In this sense, source can have only one meaning –
referring to the origin of the product in question.
4096  This limitation is unrelated to the type of the
product in question.  Thus, it does not affect a Memb er's discretion to apply the measure at different
levels to different types of the product, as long as the measure does not differentiate among types of
product based upon their source.4097
7.1754  Norway argues that if the decision to exclude a particular product is based on an incorrect
definition of the imported product, i.e. on artificial groupings of different products as in the presentcase, then the whole analysis is flaw ed and so also the product exclusion.  This is particularly so as the
overbroad categories will have led to injury findings in respect of a broader category of products.
When some products within the category is later excluded their contribution to the "increased
imports" and "serious injury" will still be factored into the remedy decision for the remaining products
- making the remedy exceed the level permitted by Article 5.1.  If a proper definition of the importedproduct has been performed, then any product exclusion will relate to the "whole" of the product as
there are no "sub-products", meaning that the remedy is set at zero.  This is permitted.
4098
7.1755  The United States also notes that the European Communities' position on this question
remains self-contradictory.  European Communities steel producers continue to request exclusions
from the steel safeguard measures.  The European  Communities itself has never suggested to the
administrative authorities considering these requests th at they are inconsistent with WTO rules.  Nor
has the European Communities requested the United States to revoke exclusions previously granted at
the request of European Communities steel producers, which would be the fastest way to secure the
removal of exclusions that the European Communities professes to find inconsistent with WTO
rules.4099
7.1756  The European Communities disagrees with the view that the fact that a Member may have
expressed a position in respect of product exclusions affects its right to claim their illegality.4100  That
right is nowhere restricted under the Agreement on Safeguards and, in the absence of such a
restriction, a WTO Member has broad discretion in deciding whether to bring a claim against another
Member under the DSU.4101  Product exclusions, moreover, are not granted to WTO Members.  Even
assuming that product exclusions were a benefit accruing to Members, quod non , admitting that
soliciting such exclusions would take away a Member's right to challenge them as WTO-incompatible
                                                     
4096 The New Shorter Oxford English Dictionary defines "source" as "[t]he derivation of a material
thing; a place or thing from which something material is obtained or originates." The New Shorter Oxford
English Dictionary, p. 2957.  The dictionary gives as an example of this definition "Transylvania was the oldestsource of gold in the classical world."  Ibid.
4097 United States' written reply to Panel question No. 62 at the second substantive meeting.
4098 Norway's written reply to Panel question No. 58 at the second substantive meeting.
4099 United States' written reply to Panel question No. 62 at the second substantive meeting.
4100 United States' first written submission, para. 760.  The United States refers to the press article in its
Exhibit US-59 in support of its contention.  The European Communities would observe that CommissionerLamy's statements reported in the press article were made  while clarifying that exclusions "would not solve the
underlying problem of the illegality of the United States safeguard, which is litigated in the World TradeOrganization" (Ibid., p. 2, in fine ).  The exclusions were discussed in the context of the European Communities'
evaluating whether or not to exercise its right, under Article 8.3 of the Agreement on Safeguards, to suspend
equivalent concessions to the value of products which were granted safeguard relief in the absence of an
absolute increase in imports, after the United States had refused the European Communities requests for tariffcuts as the appropriate form of compensation under Article 8.
4101 Appellate Body Report, EC – Bananas III , para. 135.WT/DS248/R, WT/DS249/R,
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would be like asserting that the victim of a usurer cannot denounce him because she asked a delay or
reduction in the repayment of usurious interests.4102
3. The findings required
(a) General discussion
7.1757  The European Communities, China, Norway and Switzerland submit that in order to comply
with the parallelism requirement, competent authorities must establish, through an analysis of the
imports that are covered by the safeguard measures, that these are being imported in increased
quantities and that they are causing serious injury.4103  Japan, China, Switzerland and Norway add that
if a WTO Member decides to exclude a country from the application of a safeguard measure, it mustestablish "explicitly" that increased imports from sources covered by the measure satisfy the
conditions set out in Article 2.1 and elaborated in Article 4.2 of the Agreement on Safeguards.
Furthermore, the WTO Member must provide a "reasoned and adequate explanation" of how the facts
support such a determination.
4104
7.1758  China adds that the findings of the competent authorities must be based on a sufficient
"reasoned and adequate explanation" of how the facts support the determination, in light of the
conditions for the application of a safeguard measure set out in Articles 2.1 and elaborated in
Article 4.2 of the Agreement on Safeguards.  In other wo rds, it is not sufficient to indicate "explicitly"
that the non-NAFTA imports "alone " caused injury in order to comply with the obligation of
"parallelism".  The following elements should, at le ast, be contained in the findings of the competent
authorities:  (i) evaluation of each of the factors listed in Article 4.2(a) of the Agreement on
Safeguards (i.e. the rate and amount of the increase in imports of the product concerned in absolute and
relative terms, the share of the domestic market take n by increased imports, changes in the level of sales,
production, productivity, capacity utilization, profits and losses, and employment)4105;  (ii) evaluation of
other factors relevant to the situation of the industry concerned4106;  relationship between the
movements in imports (volume and market share) and the movements in injury factors4107; and (iii) a
determination whether "the causal link" exists between increased imports and serious injury, and
whether this causal link involves a genuine and substantial relationship of cause and effect between
these two elements.4108 4109
7.1759  Korea recalls that the Appellate Body in US – Line Pipe  further clarified what a complainant
is required to show to make a prima facie case that a safeguard measure has been imposed in violation
of such requirement.  The Appellate Body said that it was enough to make a prima facie  case of theabsence of parallelism to demonstrate that the USITC considered imports from all sources in its
investigation and that that exports from Canada and Mexico were excluded from the safeguard
measure at issue.
4110  Then, it is up to the imposing party to show that the competent authorities have
established explicitly, through a reasoned and adequate explanation, that imports from non-excluded
                                                     
4102 European Communities' second written submission, paras. 488-495.
4103 European Communities' first written submission, para. 603.
4104 Japan's second written submission, para. 184;  China's first written submission, para. 563;
Switzerland's first written submission, para. 328;  Norway's first written submission, paras. 367 and 371.
4105 See Appellate Body Report, Argentina – Footwear (EC) , para. 136.
4106 See Appellate Body Report, Argentina –  Footwear (EC) , para. 136.
4107 See Appellate Body Report, Argentina –  Footwear (EC) , para. 144.
4108 See Appellate Body Report US – Wheat Gluten , para. 69.
4109 China's first written submission, paras. 587 and 589.
4110 Appellate Body Report, US – Line Pipe , para. 187.WT/DS248/R, WT/DS249/R,
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sources alone were correctly found to support affirmative determinations under Articles 2 and 4 of the
Agreement on Safeguards.4111 4112
7.1760  The United States contends that the text of the Agreement on Safeguards, as interpreted by
panels and the Appellate Body, does not require separate findings specific to non-NAFTA imports for
all the Article 4.2 factors.  The sole requirements under Articles 3.1 and 4.2(c) are for the competent
authorities to publish "a report setting forth their findings and reasoned conclusions reached on all
pertinent issues of fact and law", and providing "a detailed analysis of the case under investigation as
well as a demonstration of the relevance of the factors examined".  The Agreement does not require
the use of a particular structure or format for the report, or a particular analysis.  As the AppellateBody concluded in US – Line Pipe : "we are not concerned with how the competent authorities of
WTO Members reach their determinations in applying safeguard measures.  The Agreement on
Safeguards does not prescribe the internal decision-making process for making such a determination.
That is entirely up to WTO Members in the exercise of their sovereignty.  We are concerned only with
the determination itself … ".
4113 4114
7.1761  In response, Japan asks how else – without separate findings specific to non-NAFTA imports
for all Article 4.2 factors – would a Member ever know that the imports subject to the safeguard
measure are, in fact, the ones causing serious injury if no causation evaluation is completed for these
imports by the competent authority.  Japan submits that the United States expects the complainants to
simply accept that the examination of the various factors having an impact on the domestic industrywould have produced the same results had the USITC considered them in comparison with non-
NAFTA imports.  Even more appalling, according to Japan, is the United States' reasoning for its
repeated failure to comply with the parallelism re quirement.  It boldly believes that it only needs to
state explicitly the conclusion that non-NAFTA imports alone caused or threatened to cause serious
injury, and does not need to provide an explanation for such findings including the results of each stepof the analytical process leading to that conclusion.
4115 4116
7.1762  China argues that, far from being redundant, separate findings specific to non-NAFTA
imports for all the Article 4.2 factors – as an other factor of injury – was the only way for the United
States to comply with the WTO requirements, i. e. with the need to show that non-NAFTA imports
were able, alone, to cause serious injury to the United States industry.4117
7.1763  Japan adds that "[t]o be explicit, a statement must express distinctly all that is meant; it must
leave nothing merely implied or suggested; it must be clear and unambiguous".4118  As the Appellate
Body found in US – Wheat Gluten and US – Line Pipe , a mere recitation of the facts without a
detailed analysis of whether the non-NAFTA imports alone cause serious injury is insufficient to limit
the application of the measure to any subset of total imports.4119
7.1764  The United States points out that the complainan ts return repeatedly to the argument that the
USITC's analysis of non-NAFTA imports does no t meet the Appellate Body's requirement in US –
                                                     
4111 Appellate Body Report, US – Line Pipe , paras. 187-188 and 198.
4112 Korea's second written submission, paras. 207-208.
4113 Appellate Body Report, US – Line Pipe , para. 158.
4114 United States' first written submission, paras. 749-750.
4115 United States'  first written submission, paras. 752-753;  United States' written replies to the
questions from the Parties, para. 18 (in response to a question posed by the European Communities).
4116 Japan's second written submission, paras. 185-190.
4117 China's second written submission, para. 318.
4118 Appellate Body Report, US – Line Pipe , para. 194.
4119 Japan's first written submission, para. 304.WT/DS248/R, WT/DS249/R,
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Line Pipe  to provide "a reasoned and adequate explanation that establishes explicitly" that non-FTA
imports caused serious injury.4120  This focus improperly elevates the Appellate Body's description of
an obligation above the words of the text.  Articles 3 and 4 do not require an "explicit" finding, and
the Appellate Body has never related such a requirement to the text of the Agreement on Safeguards.
Nor is "explicitness" necessary to provide the findings and reasoned conclusions required under
Article 3.1, or the "detailed analysis" required under Article 4.2(c).  Appellate Body reports do not
make an "explicit" explanation a separate requirement.  The term first appeared in the context of
parallelism in US – Wheat Gluten , in the finding that the USITC's analysis of imports from Canada
did not provide an "explicit determination relating to increased imports, excluding imports from
Canada ".4121  The Appellate Body then used the same term in US – Line Pipe  to describe its finding
that the USITC's more detailed analysis in that case still did not establish explicitly that increased
imports from non-NAFTA sources alone caused serious injury.4122  In both cases, it used the term in
connection with the absence of a "clear and unambiguous" statement that increased imports from non-
NAFTA sources alone caused serious injury.  It then inquired as to whether the explanations of thestatements that the USITC did make provided a "reasoned and adequate explanation", but did not
require that the explanation be "explicit".  Thus, the Appellate Body's use of the term "explicit" is best
understood as referring to the competent authorities' formal conclusion as to whether non-FTA
imports have caused serious injury, and does not require an "explicit" recitation of the results of each
step of the analytical process leading to that conclusion.
4123 4124
7.1765  New Zealand does not agree that the Appellate Body guidance can be "best understood" in
this way.  For this would reduce the requirement for a "reasoned and adequate explanation" to a
simple requirement for a conclusion by way of mere assertion that even if FTA imports had not been
included, the result would have been the same.  This is of course precisely the basis on which the
United States seeks to justify itself in relation to NAFTA imports.  It is also precisely the basis on
which the Appellate Body in Korea – Line Pipe  rejected footnote 168 of the USITC Report as a
"reasoned and adequate explanation of how the facts support [the] determination".4125  It should be
recalled that the Appellate Body noted in that case that the explanation must "leave nothing merely
implied or suggested; it must be clear and unambiguous".4126  Further, as the Appellate Body found in
that case  as well as in  US – Wheat Gluten,  a mere recitation of the facts without a detailed analysis of
whether the non-NAFTA imports alone cause serious in jury is insufficient to apply the measure to
less than total imports.4127
7.1766  Similarly, the European Communities argues that the United States  engages in a series of
rather extraordinary propositions many of which fly in the face of the Appellate Body's reports
addressing the principle of parallelism.4128  It is true that the Agreement on Safeguards does not
contain the words "explicit findings", it does not ev en contain the word parallelism altogether.  Yet,
                                                     
4120 China's first written submission, paras. 588-89;  Japan's first written submission, para. 316;
New Zealand's first written submission, paras. 4.178-179;  Switzerland's first written submission,paras. 355-357.
4121 Appellate Body Report, US – Wheat Gluten , para. 98 (emphasis in original).
4122 Appellate Body Report, US – Line Pipe , para. 194.
4123 The Appellate Body has found with regard to a finding of causation that "[t]hese steps are not legal
'tests' mandated by the text of the Agreement on Safeguards, nor is it imperative that each step be the subject ofa separate finding or a reasoned conclusion by the competent authorities."  Appellate Body Report, US – Lamb ,
para. 178.
4124 United States' first written submission, paras. 752-753.
4125 Appellate Body Report, US – Line Pipe , para 195.
4126 Ibid., para. 194.
4127 New Zealand's second written submission, para. 3.151.
4128 European Communities' second written submission, para. 452.WT/DS248/R, WT/DS249/R,
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the "parallelism" requirement is clearly discernible from the text, and the Appellate Body has clarified
that such legal principle does exist and that it entails that there must be an explicit finding and areasoned explanation that imports covered by a measure, these alone, satisfy the requirements of
Articles 2 and 4 of the Agreement on Safeguards.  The absence of expressed findings and/or reasoned
explanations was precisely the flaw that the Appellate Body found in the measures at issue in  US –
Line Pipe .
4129  The United States also insists that the Appellate Body did not require that the
underlying justification for conclusions relating to non-excluded imports be explicit.  The European
Communities submits, however, that it fails to show how an explanation which is not even spelled out
may really be adequate in the light of the Appellate Body's clear indications and its conclusion thatthe sum of findings on all imports and findings on Canada and Mexico does not yield a finding on "all
imports minus NAFTA".
4130  In fact, there is not even an implicit finding.4131
7.1767  Switzerland also argues that the United States plays with words and in any case did not even
provide an adequate and reasoned explanation es tablishing that non-FTA imports caused serious
injury. The Appellate Body4132 said that the United States had to demonstrate that the USITC provided
a reasoned and adequate explanation that establishes explicitly that imports from non-NAFTA sources
satisfied the conditions for the application of a safeguard measure.4133
(b) Findings made by the USITC in this case
(i) Imports from free-trade areas
7.1768  The European Communities argues that there is no consideration in the main USITC Report
of the need to ensure parallelism between the findings of increased imports, serious injury and the
measures to be imposed.  There is however a belated, but inadequate, attempt to take into account the
principle of parallelism in the Second Supplementary Report.4134
7.1769  According to the European Communities, the explanation in the Second Supplementary
Report relates to the exclusion of Canada and Mexico from the scope of the safeguard measure inrelation to six of the ten products (i.e. all excluding tin mill products, rebar, stainless steel rod and
stainless steel wire).  With respect to imports fro m Israel and Jordan, the USITC merely "indicates, in
accord with its findings in the Views on Remedy, that exclusion of imports from Israel and Jordan
would not change the conclusions of th e Commission or individual Commissioners".
4135 4136
7.1770  The European Communities submits that the explanations in the Second Supplementary
Report are insufficient to repair the failure to respect the principle of parallelism in the main
Report.4137 A finding that imports from Canada or Mexico, individually, do not constitute a substantial
share or did not contribute importantly has no relation with the issue of whether non-excluded imports
alone meet the standards for imposition of safeguard measures.  Furthermore, the references to the
                                                     
4129 Appellate Body Report, US – Line Pipe , para. 196.
4130 Appellate Body Report, US – Line Pipe , para. 196.
4131 European Communities' second written submission, paras. 454-457.
4132 Appellate Body Report, US – Line Pipe , para. 188
4133 Switzerland's second written submission, para. 105.
4134 European Communities' first written submission, paras. 604-605.
4135 Second Supplementary Report, p. 4.
4136 European Communities' first written submission, paras. 606-608.
4137 European Communities' first written submission, para. 613.WT/DS248/R, WT/DS249/R,
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USITC October 2001 Report upon which the United States relies do not consider the most recent
import trends (full 2001).4138
7.1771  As regards tin mill products, rebar, stainless steel rod and stainless steel wire, the European
Communities submits that the Panel can already conclude that the United States violated Articles 2.1
and 4.2 of the Agreement on Safeguards on the basis that the United States has not even made a
finding that those particular imports covered by the safeguard measures alone fulfilled the conditions
contained in the Agreement.4139
7.1772  According to the European Communities, the analysis provided in the Second Supplementary
Report for the remaining six products is flawed as it suffers from the same defects as the main Report.For example, it does not consider the most recent period or contain data on 2001 imports even though
this was available when the Second Supplementary Report was produced.  In any event, there is no
demonstration or adequate explanation for a sudden, recent sharp and significant surge in non-
NAFTA imports of CCFRS, hot-rolled bar, cold-finished bar, carbon and alloy fittings, stainless steel
bar and certain tubular products.
4140
7.1773  Switzerland maintains that, in its original Report, the USITC unquestionably analysed the
various safeguard factors based on total imports, including FTA imports.  In addition, instead of
making all necessary determinations on the basis of the imports that are subject to the measure, the
USITC simply adds the recurrent assertion that exclusion would not change the determination based
on all imports.  These unfounded generalisations do not correspond to the Appellate Body's standardand are clearly wrong.  The United States only writes about what it thinks it does not have to do, but it
does not and cannot show that that it did fulfil th e WTO requirements.  According to Switzerland and
Norway, the principle of parallelism does not mean that a WTO Member can exclude whatever
imports it wishes by saying that such exclusions would not affect the end result.  As the Appellate
Body clarified, what competent authorities have to establish is that imports from sources outside freetrade areas alone meet the requirements of Article 2.1 and 4.2 of the Agreement on Safeguards.
4141
This means that, assuming that the exclusion of certain imports from the measure is allowed, all thenecessary determinations must be made – and explained in a reasoned and adequate manner – on the
basis of imports that are subject to the measure.
4142  Norway adds that one consequence of this is that
correct increased imports and causation analyses have to be made after the exclusion from the
investigation.4143
7.1774  In this case, the United States competent authorities' explanation relevant to the question of
parallelism appeared in various sections of the USITC Report.  Some of the discussion appeared in the
portions of the report containing the analysis for all imports.  Some of the discussion also appeared in
the analysis specifically pertaining to non-FTA imports in the Second Supplementary Report.  These
two documents were meant to be read together, as reflected in the designation of the later-prepared
portion as "supplemental".  The USITC's findings with regard to most of the requirements of
Article 4.2 appeared in the USITC's analysis of all imports.  Insofar as the exclusion of FTA imports
did not change these findings, the USITC was not required to repeat them.  For example, the
exclusion of FTA imports did not change the shipments of the domestic producers, their employment
                                                     
4138 European Communities' second written submission, para. 482.
4139 European Communities' first written submission, para. 614.
4140 European Communities' first written submission, paras. 620, 622, 623.
4141 Appellate Body Report, US – Line Pipe , para. 198.
4142 Switzerland's second written submission, paras. 103-104;  Norway's second written submission,
para. 182.
4143 Norway's second written submission, para. 182.WT/DS248/R, WT/DS249/R,
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levels, their profits and losses, or trends in those indicators.  The Agreement on Safeguards did not
require the USITC to perform these analyses again to satisfy the parallelism requirement.4144
7.1775  The United States argues in response that in order to support its conclusions concerning non-
NAFTA imports, the USITC Report contains for each industry:  (i) a specific finding that non-
NAFTA imports increased;  (ii) a finding, in the anal ysis of all imports, that the industry was seriously
injured; (iii) findings, in the analysis of all imports, concerning the pertinent conditions of competition
in the industry;  (iv) a specific finding descri bing the causal link between the non-NAFTA imports
and the domestic industry's serious injury;  and (v) findings, in the analysis of all imports, concerning
factors other than imports that were alleged to cause serious injury.4145
7.1776  The United States insists that the USITC's provision of findings and analysis concerning non-
FTA imports, and continued reliance on portions of its analysis of all imports that remained
applicable, was a permissible means to comply with Articles 3.1 and 4.2(c).  The USITC's issuance of
the supplementary report after it finished its analysis of all imports does not make the supplemental
report an " ex post facto  analysis".  The USITC provided the response prior to the decision to apply the
safeguard measures, which meets the requirement under Article 2.1 of the Agreement on Safeguards
to apply a measure "only if that Member has determined" that increased imports of a product are
causing serious injury.4146
7.1777  The European Communities takes issue with the proposition that the scope of imports has no
impact on the assessment of the domestic industry situation.4147  For one thing, the first of the factors
that domestic authorities must evaluate under Article 4.2(a) is precisely concerned with import trends.
Given the symmetry that must exist between the import data used for the determinations and the
imports subject to a measure, clearly this means that import trends that are relevant under
Article 4.2(a) must be assessed exclusively on the basis of imports to be covered by the measure.4148
The European Communities recalls that the USITC had made "affirmative determinations" (that is, it
had found that these imports did not meet the statutory standards for exclusion) for hot-rolled bar,
cold-finished bar, carbon and alloy fittings, and st ainless steel bar originating in Canada and CCFRS
and carbon and alloy stee l fittings from Mexico.4149  To the extent that Proclamation No. 7529
excluded those imports from the scope of the measures4150, it cannot have been based on the October
2001 determinations, which did not determine that they could be excluded.4151
7.1778  The European Communities submits that adding some ex post  comments on all imports minus
NAFTA is not tantamount to meeting the requirements of the Agreement on Safeguards in respect of"all imports minus FTAs".  In other words, even the ex post  conclusions in the Second Supplementary
Report still include imports from sources – Israel and Jordan – which were later excluded from the
safeguard measures.  Finally, there is no reasoned or adequate explanation in the USITC Report as to
why making an injury finding for non-FTA imports was "redundant".
4152  Further elaborating its
argument, the European Communities adds that USITC determinations on pp. 17-18 of its Report are:(i) determinations on imports from all sources, or (ii) determinations on imports from Canada and (iii)
                                                     
4144 United States' first written submission, paras. 749-750.
4145 United States' first written submission, paras. 778-788.
4146 United States' first written submission, para. 751.
4147 See e.g. United States' first written submission, para. 750; United States' written reply to Panel
question No. 95 at the first substantive meeting.
4148 European Communities' second written submission, paras. 460-463.
4149 Proclamation No. 7529, para. 5.
4150 Proclamation No. 7529, para. 8.
4151 European Communities' second written submission, para. 449.
4152 European Communities' second written submission, paras. 460-463.WT/DS248/R, WT/DS249/R,
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from Mexico, individually considered.  The determinations on imports from all sources are neither
modified nor, more specifically, turned into determinations complying with the principle of
parallelism, by the individual determinations on imports from Canada and Mexico.  Thus, even
assuming that only imports from Canada and Mexico, and not also Israel and Jordan, had been
exempted from the United States measures under review, those measures and their underlying
findings and determinations do not comply with the principle of parallelism.  They remain
determinations that do not establish explicitly, through a reasoned and adequate explanation, that
imports covered by the measures, alone, were being imported in such increased quantities and under
such conditions as to cause serious injury.  Specifically, one cannot in any way "subtract" from adetermination based on imports from all sources the additional determinations relating to Mexico
and/or Canada and claim that, by implication, the result of this "subtraction" is a determination and an
explanation that satisfies the parallelism principle.
4153
7.1779  New Zealand argues that in its December 2001 Report, the USITC had made affirmative
findings that imports from both Mexico and Canada of CCFRS constituted a substantial share of total
imports and that imports from Mexico contributed importantly to the serious injury allegedly caused
by imports.  The important role played by imports from NAFTA sources as part of the USITC's
investigation into imports from all sources was quite explicit.  These earlier findings are then
studiously avoided in the Second Supplementary Report.  The failure by the USITC to explain its
earlier findings reinforces the conclusion that the Unit ed States has failed to provide an adequate and
reasoned explanation to support its exclusion of imports from its NAFTA partners from the
application of the safeguard measure.  While the United States claims that the necessary analysis of
non-NAFTA imports is somewhere to be found in the more general analysis applicable to all imports,
these claims have no foundation.  The USITC Report and Second Supplementary Report fail to
evaluate the share of the domestic market taken by non-NAFTA imports and failed to evaluate other
factors relevant to the situation of the industry concerned.  The USITC did not examine the impact
that NAFTA imports would have on the domestic industry if these exports were to be excluded from
the measure.  The USITC also failed to make any finding on the relationship between the movements
in imports (volume and market share) and the movements in injury factors, and it failed to
demonstrate the causal link between increased imports from non-NAFTA sources and serious injury
involving a genuine and substantial relationship of cause and effect.4154
7.1780  The European Communities recalls that, for several product groups, the USITC made
affirmative determinations against imports from Canada and/or Mexico4155 – that is, it determined that
imports from Mexico and/or Canada did "account for a substantial share of total imports" and did
"contribute importantly to the serious inju ry" pursuant to Section 311(a) of the NAFTA
Implementation Act.4156  At any rate, the individual determinations on imports from Mexico and
Canada are irrelevant to show compliance with the principle of parallelism because they are based ona standard – that in Section 311(a) of the NAFTA Implementation Act – that is quite different from
the WTO ones.  Under WTO rules, all imports must be counted (or excluded from the beginning), not
only the first five exporting countries, and all injury causes must be evaluated.  A further reason is
that the determinations of 22 October 2001 do not disaggregate the import data from Israel and Jordan
                                                     
4153 European Communities' second written submission, paras. 466-467; European Communities'
second oral statement on Parallelism, para. 4.
4154 New Zealand's second written submission, paras. 3.152-3.153.
4155 These are the product groups listed at para. 449 of the European Communities' second written
submission (for Canada: Hot-Rolled Bar, Cold-Finished Bar, Carbon and Alloy Fittings, Stainless Steel Bar; forMexico, Certain Flat Steel and Carbon and Alloy Steel Fittings).
4156 Quoted in the European Communities' second written submission, para. 444, footnote 349.WT/DS248/R, WT/DS249/R,
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(in fact, not even the Second Supplementary Report does).4157  In conclusion, all one is left with (in
the sense of relevant determinations) after examining the original USITC Report are determinationsbased on imports from all sources.
4158
7.1781  The United States responds that a consequence if the European Communities' argument were
to be upheld would be that competent authorities could never revise their report, once issued, or
provide additional information if the Member evaluating application of a safeguard measure
considered that additional information related to their determination would be useful.  Indeed, if the
European Communities were correct, the competent authorities could not even correct ministerial
errors in the report.  Nothing suggests that the Ag reement on Safeguards places such a straitjacket on
the competent authorities.4159
7.1782  The European Communities submits that the United States ' position is contradictory.  On the
one hand, the United States argues that all the relevant determinations are contained in the USITC
Report of 22 October 2001.  Clearly these determinations do not relate to non-FTA imports alone .
Therefore, they do not support the measures taken by Proclamation No. 7529.  On the other hand, the
United States appears to contradict itself because, in its attempt to show that it complied with theparallelism requirement, it refers to information that was "reported" by the USITC on 4 February
2002 and appears to treat it as if it were new findings able to justify the safeguard measures.
4160
Should the United States argue, that these additional "reports" are in fact new determinations that the
conditions for the application of safeguard measures are met, and should the Panel accept them as
determinations or additional explanation relevant to the October 2001 determinations, the EuropeanCommunities submits that they are also inadequate because they disregard 2001 data, and fail to
consider excluded imports in the causation analysis.
4161  The determinations contained on pp. 1 and
17-18 of the USITC Report of 22 October 2001 include no "increased imports" determinations
exclusively referring to imports from excluded sour ces.  On the contrary, they concern imports from
all sources.  The legal conclusions of the competent authorities are that increased imports  from all
sources  caused injury to the United States industry.  In view of these determinations, the measures
taken by the President, excluding imports from certain sources, are without legal basis and cannot
stand.4162
(ii) Demonstration required with respect to non-excluded imports
7.1783  Norway argues that NAFTA imports were used by the United States to justify a finding both
of "increased imports" and "serious injury".4163  Japan submits that non-NAFTA imports must be
analysed on their own.  In other words, it is not possible to make any conclusions about non-NAFTA
imports based on analyses of total imports on the one hand and NAFTA imports on the other.4164
Similarly, China argues that there must be a reasoned and adequate explanation that establishesexplicitly that imports from non-FTA partners satisfied the conditions for the application of a
safeguard measure, and in particular that injury was not due to FTA partners, treated as 'other
                                                     
4157 European Communities' second written submission, paras. 466-467; Oral statement presented by
the European Communities on Parallelism at the second substantive meeting of the Panel, para. 4.
4158 European Communities' written reply to Panel question No. 59 at the second substantive meeting.
4159 United States' written reply to Panel question No. 59 at the second substantive meeting.
4160 United States' written reply to Panel question No. 129, para. 239;  United States' first written
submission, para. 751.
4161 European Communities' second written submission, paras. 439-440.
4162 European Communities' second written submission, paras. 441-442.
4163 Norway's written reply to Panel question No. 59 at the second substantive meeting.
4164 Japan's written reply to Panel question No. 59 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
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factors'.4165  Likewise, Korea submits that the Appellate Body has made clear that, in order to satisfy
the parallelism requirement, the United States must meet  all the conditions of Article 2.1 on the basis
of the same imports that are subject to the measure under Article 2.2.4166  Therefore, all conditions of
Articles 2.1 and 4.2 of the Agreement on Safeguards must be satisfied before the parallelism analysis
is complete.  Imports from non-NAFTA countries must be clearly and unambiguously shown to
satisfy all the conditions of Articles 2.1 and 4.2.  It also follows directly from that analysis that
imports from NAFTA countries thus become a potenti al "other factor" of injury.  Finally, Korea
stresses that "mere assertions" cannot substitute for the complete and detailed analysis4167 required by
Articles 3 and 4 of the Agreement on Safeguards.4168
7.1784  Norway argues that the USITC's general discussion of causation, and the role of alternative
causes, never once addressed the role of non-NAFTA imports as distinguished from all imports. No
attempt at factual  analysis for non-NAFTA imports was ever made.  The response to USTR request
was no better.  Norway argues that there was no factual analysis, only the simple statement  that "the
same considerations that led us to conclude that increased imports of CCFRS are a substantial causeof serious injury to the domestic industry are also applicable  to increased imports of CCFRS from all
sources other than Canada and Mexico". 
4169 4170  According to Norway, it should be clear that such a
statement does not fulfil the requirements of the Agreement on Safeguards.4171
7.1785  The United States admits that the discussion the USITC provided in its analysis of all imports
concerning the issues of increased imports and causal link would not automatically be applicable tonon-NAFTA imports.  However, for each pertinent domestic industry, the USITC provided a
particularized discussion of increased imports and causal link for non-NAFTA imports.  The USITC
frequently found in its analysis of increased imports that overall import trends were the same for non-
NAFTA imports as they were for all imports.  In such circumstances, the USITC's analysis of causal
link for non-NAFTA imports focused on the same periods as did the analysis for all imports.  Thisfollows from the point that the nature and timing of the serious injury suffered by the domestic
industry were the same regardless of the set of imports examined.  Additionally, in its discussion of
causal link for all imports, the USITC made findings concerning factors other than imports that were
alleged to cause serious injury.  As discussed further below, these findings often focused on data
pertaining to the United States industry or the United States marketplace as a whole.  Such findings
were equally applicable with respect to an analysis pertaining to non-NAFTA imports as they were to
an analysis pertaining to all imports.  This consequently was another set of findings that the USITCwas not obliged to repeat in the sections of its report dealing specifically with non-NAFTA
imports.
4172
7.1786  The European Communities also points out an examination of the actual text of the Second
Supplementary Report reveals additional flaws:  as regards the increased imports assessment, for the
"absolute increase" the USITC simply provides the import data and observes that "imports have
                                                     
4165 China's second written submission, para. 310.
4166 Korea does not agree that this parallelism can be achieved legally except on the basis of a finding
that all imports meet the conditions of Article 2.1 and that all imports are the subject of the measure inArticle 2.2 as discussed at length in the subsequent section on MFN.
4167 See United States' first written submission, para. 770;  Appellate Body Report, US – Line Pipe ,
para. 194.
4168 Korea's second written submission, paras. 216-219.
4169 USITC's Second Supplementary Report, dated 4 February 2002, p. 5 (Exhibit CC-11).
4170 Norway's second written submission, para. 183.
4171 Norway's second written submission, paras. 184-187.
4172 United States' first written submission, paras. 784-786.WT/DS248/R, WT/DS249/R,
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increased" without any further qualification.4173  This effectively continues applying the "any
increase" standard which the Appellate Body has clearly ruled out.4174  To the extent that the USITC
refers to import projections for 2001-20024175, it underlines that the same projections were not made
for other product bundles.  As regards causation, the USITC failed to separate and distinguish the
impact of excluded imports and did not attribute them to the imports covered by the measures.  The
underselling analysis was not performed for all the product bundles, or was limited to one product.4176
There is no analysis of coincidence in trends.4177
7.1787  The United States reiterates that the complainants  continue to disregard that findings relevant
to the parallelism analysis are found throughout the USITC Report.  While many of the pertinentfindings are in the section of the report issued as the Second Supplementary Report, which deals
specifically with non-NAFTA imports, there are also pe rtinent findings in the analysis of all imports.
The findings are not limited to a discrete section of the report.  First, the USITC expressly found, for
each pertinent like product, that increased non-NAFTA imports caused serious injury or threat of
serious injury.  Second, the analysis of non-NAFTA imports contains not only a description of how
such imports increased, but a particularized causation analysis.  Third, the USITC's analysis of all
imports contains findings concerning serious injury, conditions of competition, and causes of serious
injury that were also equally pertinent to and part of the analysis of non-NAFTA imports.  The
USITC's particularized causation analysis served to separate and distinguish the effects of non-
NAFTA imports from the effects of NAFTA imports.  Because in the particularized causation analysisthe USITC considered only non-NAFTA imports, the USITC separated the volume and pricing effects
of non-NAFTA imports from those of  NAFTA imports.  The USITC's analysis also incorporated from
the analysis of all imports those factors that were unchanged regardless of which imports were
analysed.
4178
7.1788  The European Communities argues that a major omission, and indeed a fatal flaw, of the
Second Supplementary Report is that it nowhere considers imports from Canada, Mexico, Israel and
Jordan as an "other factor" causing injury and did not measure its nature and extent, so as to ensure
that injury caused by imports from these four coun tries is not attributed to the imports on which the
actual measures were imposed.  The USITC directly jumped into some generalizations about the
injurious effects caused by non-NAFTA imports and concluded that "the same considerations that led
us to conclude that increased imports [of each of the seven products] are a substantial cause of serious
injury are also applicable to increased imports [of these products] from all other sources other thanCanada and Mexico".
4179  However, these conclusions are fundamentally vitiated for each of these
seven products, because the USITC did not redo the causation analysis by considering the excluded
imports as other factor.4180  The failure of the USITC to consider excluded imports as an "other factor"
for injury is all the more glaring as the USITC itself acknowledges in its Report that these imports
contributed importantly to the serious injury caused by the total imports.  Specifically, the USITC
                                                     
4173 See e.g. USITC Second Supplementary Report, p. 5 (Carbon and Alloy Hot-Rolled Bar); p. 6
(Cold-Finished Bar).
4174 Appellate Body Report, Argentina – Footwear (EC) , para. 129, upholding the findings in Panel
Report, Argentina – Footwear (EC) , para. 8.161; see also Section C above.
4175 United States' first written submission, para. 867, concerning certain tubular products other than
OCTG.
4176 USITC Second Supplementary Report, p. 7 (Cold Finished Bar), where the underselling analysis
was only performed for "one inch round C12 L 14", and based on confidential data; p. 8 (Carbon and AlloyFittings).
4177 European Communities' second written submission, paras. 478-481, 486.
4178 United States' second written submission, paras. 158-161.
4179 Second Supplementary Report, pp. 6, 7, 8, 10, 11, clarification added.
4180 See Sections IV.F.6 (b), (d), (e), (g), (h), (i), above.WT/DS248/R, WT/DS249/R,
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found that the following imports from NAFTA countries accounted for a "substantial share of total
imports and contributed importantly to the serious injury suffered by the domestic industry": CCFRS(from Mexico); hot-rolled bar (from Canada); cold-finished bar (from Canada); certain tubular
products (both from Canada and Mexico); carbon a nd alloy fittings (both from Canada and Mexico);
stainless steel bar (Canada).
4181  The European Communities adds that the reference to "other factors"
(as opposed to imports) in the Appellate Body Report in US – Lamb  and "factors other than increased
imports" in Article 4.2(b) must be read as a reference to other factors than imports covered by the
measure.  It would be absurd if at the same time, a Member imposing safeguard measures could assess
the causal link without proceeding to "non-attribution" of the effects of NAFTA imports.  In fact, itwould be tantamount to making an assessment of the causal link based on all imports, included
NAFTA imports, since in that case the competent authorities would not have "ensured that the
injurious effects of the other causal factors were not included in the assessment of the injury ascribed
to increased imports".
4182  Basing itself on this statutory standard, the USITC did not examine whether
NAFTA imports caused serious injury. It only examined whether they contributed importantly to
serious injury. The very conclusion, for some of them, that imports from certain sources "did not
contribute importantly " does not mean that there such imports did not cause injury, and did not
require, therefore, to be subjected to non-attribution.4183
7.1789  Japan submits that the shorthand method used by the United States in determining whether
non-NAFTA imports are a substantial cause of serious  injury, is tantamount to a finding that non-
NAFTA imports alone satisfy the requirements of increased imports and causation.  This approach
was found to be insufficient by the Appellate Body in both US – Wheat Gluten and US – Line Pipe .
All of the analyses required for finding serious injury caused by increased imports must be performed
with respect to non-FTA imports only in order to justify imposition of a safeguard measure on non-
FTA imports only.4184
7.1790  The United States responds that, in concluding that non-FTA imports are a substantial cause
of serious injury, the USITC made findings that non-FTA imports, viewed alone, satisfied the
increased imports and causation requirements.4185  The United States also argues that parallelism did
not require the USITC to treat excluded imports from FTA partners as a "factor other than increased
imports" under Article 4.2(b).  The USITC Report contai ns the USITC's analysis with regard to total
imports, its analysis of non-FTA imports, and its analysis of FTA imports.  The findings and reasoned
conclusions in these analyses separate and distinguish the injury attributable to non-FTA imports fromthe injury attributable to FTA imports, and ensure that the one was not attributed to the other.
4186  The
USITC Report contains the USITC's explicit conclusions with regard to total imports, its explicit
conclusions that the exclusion of FTA imports would not change those conclusions, and explicit
conclusions that non-FTA imports were a substantial cause of serious injury.  This combination of
conclusions has the effect of separating and distinguishing the injury attributable to non-FTA importsfrom the injury attributable to FTA imports. The USITC began its analysis by making a series of
conclusions regarding total imports and the injury they caused to the domestic industry.  These
conclusions identified the injury attributable to total imports, separated and distinguished the injury
attributable to increased imports from injury attr ibutable to other factors, and ensured that injury
attributable to other factors was not attributed to total imports.  This process would by itself separateinjury attributable to the combination of FTA and non-FTA imports from injury attributable to other
                                                     
4181 European Communities' first written submission, paras. 624-626.
4182 Appellate Body Report, US – Lamb , para. 185.
4183 European Communities' written reply to Panel question No. 91 at the first substantive meeting.
4184 Japan's written reply to Panel question No. 96 at the first substantive meeting.
4185 United States' written reply to Panel question No. 96 at the first substantive meeting.
4186 United States' first written submission, para. 769.WT/DS248/R, WT/DS249/R,
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factors.  The USITC also analysed the injury caused by non-FTA imports.  It typically couched the
results of this analysis in terms of whether the exclusion of FTA imports would change its conclusionswith regard to total imports.  Since there were only two factors – non-FTA imports and FTA imports –
that could possibly be responsible for the injury attributable to imports from all sources, the
comparison of conclusions with regard to non-FTA im ports with the conclusions with regard to total
imports by process of elimination indicates any injury attributable to FTA imports.
4187
7.1791  For example, the United States points out that with regard to hot-rolled bar, the USITC noted
that non-NAFTA imports increased at a greater rate than imports from other sources (i.e ., FTA
imports).  It noted further that  non-NAFTA imports increased signif icantly in both absolute and
relative terms, especially at the end of the period, which caused domestic producers to lose market
share, suffer decreased profits and, in some cases, enter bankruptcy.  It noted that the bulk of the
domestic industry loss in market share was a result of non-NAFTA imports, and that unit values for
non-NAFTA imports decreased at a greater rate than unit values for total imports.  Finally, the USITC
noted that non-NAFTA imports undersold domestic products by greater margins than did totalimports.
4188  Therefore, FTA imports were responsible for a minor portion of domestic producers' lost
market share, suffered a shallower decrease in unit values, and did not set the low prices in the
market.4189
7.1792  China responds that the parallelism principle implies that NAFTA imports be excluded from
both the scope of application of the measure and the scope of the investigation.  As a consequence,they must be considered as "another factor" and must be subject to a proper non-application analysis.
The non-analysis requirement is contained in the parallelism requirement.
4190  The United States is
wrong when it affirms that "the findings and reasoned conclusions in these analyses separate and
distinguish the injury attributable to non-FTA imports from the injury attributable to FTA imports,
and ensure that the one was not attributed to the other".  The analysis conducted by the United Stateswas superficial and incompatible with the WTO requirements.
4191  The "causal link" analysis also
requires a coincidence in time between the increased imports and the injury suffered by the domestic
industry.  It may well be, in this particular case, that imports from NAFTA pa rtners are, for example,
the only one which mainly coincided in time with the injury suffered by the domestic industry.
However, without carrying out a "causal link" analysis specific to NAFTA imports (or non-NAFTA
imports), the United States were not in a position to establish "explicitly" that the injury suffered by
the industry was caused by increased imports from sources covered by the measure, and not byincreased imports from NAFTA partners.
4192  China also argues that the United States wrongly
considers that for each product analysed in the report, the USITC properly established that increased
imports from non-NAFTA countries caused serious injury to the domestic industry.4193
7.1793  Korea argues that, to achieve that parallelism, the Appellate Body has made clear that all the
conditions of Article 2.1 must be examined on the basis of the same imports which are subject to themeasure under Article 2.2.  It also follows directly from that analysis that imports from NAFTA
countries become an "other factor" of injury.  As the Appellate Body has stated in other contexts, the
only means for determining whether imports caused injury is to establish that "other factors" causing
                                                     
4187 United States' first written submission, paras. 770-772.
4188 Second Supplementary Report, pp. 5-6.
4189 United States' first written submission, para. 773.
4190 China's written reply to Panel question No. 30 at the second substantive meeting.
4191 China's second written submission, paras. 319-320.
4192 China's second written submission, para. 323.
4193 China's second written submission, para. 326.WT/DS248/R, WT/DS249/R,
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injury were separated and distinguished.4194  Since non-NAFTA imports alone  ("by themselves") must
cause serious  injury4195, then the injurious effects of NAFTA imports must be separated and
distinguished.  In the place of such an analysis, the United States proposes that the Panel simply
"assume" that "FTA imports did not change these findings, (so) the USITC was not required to repeat
them".4196   According to the United States approach, the Appellate Body admonition regarding the
need to establish "explicitly" or "clearly and unambiguously"4197, would be substituted with an
assumption.4198  Korea adds that a key element of a paralle lism analysis is to ensure that injury from
NAFTA imports is not attributed to non-NAFTA imports, thereby justifying safeguard action based
on all imports but imposing safeguard relief only on some imports.  The underlying theory ofparallelism is that the term "imports" has the same meaning in Article 2.1 and Article 2.2.  Therefore,
since NAFTA imports should not be considered "imports" for purposes of Article 2.2, imports from
NAFTA suppliers should be separately evaluated as a "factor other than increased imports" to ensure
that the injurious effects, if any, from NAFTA imports are not improperly attributed to non-NAFTA
imports.  The United States' position would mean that injury could well be caused by NAFTAimports, but such imports could still be excluded from the measure.  A measure could then be applied
to repair injury caused by NAFTA imports only against non-NAFTA imports.  This would violate the
fundamental principle behind parallelism.
4199
7.1794  Korea also argues that, alternatively, the United States maintains that it was obvious that
NAFTA imports were not an "other factor" of injury.  It also states that NAFTA imports may be soinsignificant that a separate analysis is not necessary.
4200  Yet, Canada and Mexico were very
significant suppliers in flat-rolled and welded non-OCTG.  In flat-rolled, the USITC noted that
Canada and Mexico were among the five largest suppliers4201 and that Mexico's import increases were
greater than all non-Mexican sources4202 and Mexican AUVs were the lowest of all imports.4203  In the
case of welded non-OCTG, Canada accounted for 35% of all non-OCTG welded pipe imports."Canada was the top supplier of welded non-OCTG products...for each of the most recent three
years...(,)141% greater than (those)...from the second largest source ...".
4204  Mexico was also among
the five largest suppliers and significantly undersold United States producers and increased imports by
94% over the period.4205  Clearly, those NAFTA imports could have caused injury.  However, the
United States did not conduct an analysis of the Article 4.2 factors including the injurious effects of
those imports because it maintains that none is necessary or required.4206  Neither the facts nor the
Agreement on Safeguards support this position.  The remaining United States arguments are equallyunconvincing.  The United States would like to substitute its analysis that NAFTA imports did not
constitute a substantial share of imports and did not "contribute importantly" to the injury in the place
of the required non-attribution analysis under the Agreement on Safeguards.  This analysis may meet
                                                     
4194 Appellate Body Report, US – Line Pipe , para. 211 (affirming Appellate Body Report, US – Lamb ,
para. 179).
4195 Appellate Body Report, US – Line Pipe , para. 194.
4196 United States' first written submission , para. 750.
4197 Appellate Body Report, US – Line Pipe , para. 194.
4198 Korea's second written submission, paras. 210-212.
4199 Korea's written reply to Panel question No. 30 at the second substantive meeting.
4200 United States' first written submission, para. 750.
4201 USITC  Report, Vol. I , p. 66 (Exhibit CC-6).
4202 USITC  Report, Vol. I , p. 66 (Exhibit CC-6).
4203 USITC  Report, Vol. I , p. 66 (Exhibit CC-6).
4204 USITC  Report , Vol. I , p. 167 (Exhibit CC-6).
4205 USITC  Report , Vol. I , p. 168 (Exhibit CC-6).
4206 United States' first written submission, paras. 749 and 769.WT/DS248/R, WT/DS249/R,
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the United States law, but it does not satisfy the requirements of Article 4.2 of the Agreement of
Safeguards.4207
7.1795  Brazil submits that the NAFTA imports have two effects which must be accounted for in the
analysis. First, they increase the level of imports and affect the competitive situation between the
imports and the domestic like product.  Thus, the analysis of the role of imports in causing serious
injury to the domestic industry is changed by th e exclusion of NAFTA imports and this must be
reflected in the analysis of the causal link between imports and serious injury.  Second, NAFTA
imports may themselves be a cause of the serious injury to the domestic industry.  As such, NAFTA
imports are a factor other than the imports subject to investigation/remedies that fall under the non-attribution requirement of Article 4.2(b).  Unless the analysis is adjusted to reflect both of these
effects of excluding NAFTA imports, the parallelism requirement cannot be met.
4208  Brazil also
argues that, absent an appropriate non-attribution an alysis of non-NAFTA imports, an analysis such as
is required under Article 4.2(b) for all other factors, it is impossible to determine whether there is a
genuine and substantial link between non-NAFTA imports and serious injury to the domesticindustry.  The effects of a factor which could, either individually or in combination with other factors,
be the predominant cause of serious injury would simply not have been distinguished from the effects
of the subject imports.
4209  The United States' contention that it need not conduct a non-attribution
analysis treating excluded NAFTA imports as a "factor other than increased imports" under
Article 4.2(b) is contrary to the logic underpinning the Appellate Body's holdings in US – Wheat
Gluten  and US – Line Pipe .  Controlling for the effect of imports from excluded NAFTA sources is
part and parcel of this requirement.  Thus, increased imports coming from sources that are eventually
excluded from the safeguard measure must be treated as an "other" factor in the causation/non-
attribution analysis.  Imports are a causal factor with respect to the issue of serious injury because
they compete with the domestic like product.  It would undermine the causation analysis required by
the Agreement on Safeguards if a competent authority could render some portion of those importsmeaningless simply by excluding certain sources from a measure.  It is necessary to control for the
causal importance of imports from excluded sources, so as not to attribute injury to subject imports
caused by imports from those excluded sources.  This is fundamental to the non-attribution
requirement.  A competent authority cannot ascertain a genuine and substantial causal link unless it
separates and distinguishes other causal factors.  While it may be true in any given investigation thatthere is a genuine and substantial relationship of cause and effect between increased imports and
serious injury, the relevant issue is different where import sources are excluded.  Under such
circumstances, it is not enough that the competent authority separates and distinguishes all of the
other causal factors other than the subject and excluded imports.  If the competent authority does not
separate and distinguish the effect of imports from excluded sources, it could potentially sanction a
measure against subject imports for which there may not be a genuine and substantial causal link to
serious injury.
4210 4211
7.1796  Brazil submits that the USITC did not conduct any specific evaluation of non-NAFTA
imports.  Rather, it evaluated NAFTA imports, c oncluding that the exclusion of NAFTA imports
                                                     
4207 Korea's second written submission, paras. 213-215.
4208 Brazil's written reply to Panel question No. 91 at the first substantive meeting.
4209 Brazil's written reply to Panel question No. 30 at the second substantive meeting.
4210 The causation standard is affirmatively not just a contributory cause standard.  As the Appellate
Body has held, there must be a " genuine and substantial  relationship of cause and effect between increased
imports and serious injury." Appellate Body Report, US – Lamb  at para. 179 (emphasis added), citing  Appellate
Body Report, US – Wheat Gluten .
4211 Brazil's second written submission, paras. 102-105.WT/DS248/R, WT/DS249/R,
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would not change its findings of injury and causation as to total imports.4212  However, this finding
does not meet the obligation to explain how the facts support a finding that non-NAFTA importsalone caused serious injury or threat of serious injury.  As such, it does not reflect a proper non-
attribution analysis of NAFTA imports.  The USITC' s analysis of non-NAFTA imports, therefore, did
not meet the Appellate Body's standard as set forth in US – Line Pipe , which requires a "reasoned and
adequate explanation that establishes explicitly" that such imports alone caused serious injury to the
domestic industry.
4213
7.1797  Similarly, Norway maintains that it is clearly the implication of the statement by the
Appellate Body in US – Line Pipe that the United States had to perform a separate non-attribution
analysis in order to "demonstrate, consistent with our ruling in US – Wheat Gluten , that the USITC
provided a reasoned and adequate explanation that establishes explicitly that imports from non-
NAFTA sources 'satisfied the conditions for the application of a safeguard measure …'".4214  The
United States is, therefore, under an obligation to analyse excluded imports as an alternative cause of
injury, and consequently to conduct a non-attribution analysis for such excluded imports, togetherwith any other factors found to be causing injury.  As the Appellate Body has stated, the United States
must provide a reasoned and adequate explanation which establishes explicitly, in a manner which
leaves nothing merely implied or suggested and which is clear and unambiguous that the injury
caused by excluded imports is not attributed to non-excluded imports.  The United States did not
perform this analysis – thus failing to meet this criterion.
4215
7.1798  The United States insists that it is not required to treat NAFTA imports as an "other" possible
cause of injury in its "parallelism" analysis.  Such an analysis is not required under Article 4.2 of the
Agreement on Safeguards.  The second sentence of Article 4.2(b) of the Agreement – which is the
provision of the Agreement that requires a competent authority not to attribute to imports the effects
of other factors – specifically states that, "when factors other than increased imports are causing injuryto the domestic industry at the same time, such injury shall not be attributed to increased imports".
4216
Accordingly, the Agreement on Safeguards indicates that a non-attribution analysis is only requiredfor factors "other than imports" that may be cau sing injury to the domestic industry, even when
certain imports are excluded from the remedy.  Article 4.2(b), thus, does not require that an authority
conduct the same type of analysis with respect to imports from sources not included in the remedy as
it does for factors other than imports.  The United States submits that, accordingly, as a matter of law,
the complainants' arguments have no foundation in the language of the Agreement.  Notwithstandingthe lack of an explicit requirement in the Agreement on Safeguards, however, the USITC did, in fact,
properly isolate the effects of NAFTA from non-NAFTA imports in its parallelism analysis.  In
particular, the United States expressly separated and distinguished the price and volume effects of
                                                     
4212 As noted in Brazil's first written submission, the USITC actually found in several cases that imports
from NAFTA countries contributed importantly to the serious injuries of the domestic industry!  For example, in
the USITC's flat-rolled steel analysis, the USITC found that imports from NAFTA accounted for a substantialshare of total imports and Mexican imports contributed importantly to the serious injury caused by imports.USITC Report Vol. I at 66.  Similarly, in its hot-rolled bar and cold-finished bar analysis, the USITC found thatCanadian imports represented a substantial share of total imports and contributed importantly to serious injurycaused by imports.  Ibid.,  at 100, 107.
4213 Brazil's second written submission, paras. 102-105.
4214 Appellate Body Report, US – Line Pipe , para. 188.
4215 Norway's second written submission, paras. 198-199.
4216 Agreement on Safeguards, Article 4.2(b).WT/DS248/R, WT/DS249/R,
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non-NAFTA imports from those of NAFTA imports as an integral part of the its parallelism
analysis.4217 4218
7.1799  Moreover, insofar as the complainants contend that the USITC attributed to non-NAFTA
imports effects due to NAFTA imports, the United States contends that they have misread the USITC
Report. These complainants overlook that the USITC, in its analysis of non-NAFTA imports, found a
causal link between non-NAFTA imports, viewed alone , and the serious injury experienced by the
pertinent domestic industry.  Because NAFTA imports were not considered in the USITC's
particularized causal link analysis, their effects were already excluded when the USITC found that
there was a causal link between the non-NAFTA imports and the serious injury.  Further analysingNAFTA imports as an alternate cause of serious injury, as advocated by the European Communities
and Korea, would have been redundant and hence was unnecessary.
4219
7.1800  Japan submits that treating NAFTA imports as "other factor" for the purposes of non-
attribution would make it abundantly clear that if a measure is imposed on non-NAFTA imports only,
then the injury analysis must likewise be conducted on this basis.4220  New Zealand argues that the
"parallelism requirement" is a broad one and goes well beyond one aspect (namely non-attribution) of
one stage (namely, a determination as to causation) of establishing the conditions for the application
of a safeguard measure.  The Appellate Body made clear that the competent authority must provide "a
reasoned and adequate explanation  that establishes explicitly " that the non-excluded imports
"satisfied the conditions for the application of a safeguard measure, as set out in Article 2.1 andelaborated in Article 4.2 of the Agreement on Safeguards".
4221 The 'conditions for the application of a
safeguard measure' include but go well beyond simply establishing causation.  For example, a
competent authority would also have to establish that the increased imports requirement had been
met.4222
7.1801  The United States finally reiterates that the USITC's analysis fully satisfies the requirements
of Articles 2 and 4 of the Agreement, as articulated by the Appellate Body in US – Line Pipe,  that an
authority establishes explicitly "through a reasoned and adequate explanation, that imports from
sources outside the free-trade area, alone, satisfied the conditions for application of a safeguard
measure …"4223  The USITC found that non-NAFTA imports, considered alone, satisfied the
conditions for application of a safeguard measure when it separated and distinguished non-NAFTA
imports in its analysis of increased imports and causation, the areas in which distinguishing between
imports from different sources was appropriate and necessary, and adopted other pertinent portions ofits analysis of all imports that did not change depending on the set of imports examined.
4224
                                                     
4217 United States' first written submission, paras. 451-455 and 769-774;  United States' written reply to
Panel question No. 95 at the first substantive meeting.
4218 United States' second written submission, paras. 149-151 and 162.
4219 United States' second written submission, paras. 162-165.
4220 Japan's written reply to Panel question No. 30 at the second substantive meeting; Japan's written
reply to Panel question No. 91 at the first substantive meeting.
4221 Appellate Body Report, US – Line Pipe , para 188 (emphasis in original).
4222 New Zealand's written reply to Panel question No. 30 at the second substantive meeting.
4223 Appellate Body Report, US – Line Pipe , para. 198.
4224 United States' second written submission, para. 166.