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7.1339  China further argues that in the Supplementary Report, the USITC was required to assess the
injury caused by imports from Mexico and Canada and to ensure that this injury would not beattributed to increased imports from non-NAFTA countries.  China argues that it did not do so.  China
further argues that the USITC provided no explanation whatsoever that injury caused by imports from
Mexico and Canada was not attributed to increased imports and there is no reason to believe that
injury caused by imports from Mexico and Canada were not in fact attributed to increased imports.
3160
7.1340  In this regard, the European Communities argues that a proper analysis of imports from
Canada and Mexico would have been important because imports from Canada and Mexico
represented, taking 2000 as an example, 45.9% of all imports.  However, the European Communitiessubmits that the USITC analysis is unclear becau se two Commissioners concluded that Canadian and
Mexican imports "contribute importantly" to the threat of serious injury, two Commissioners
concluded that Canadian and Mexican imports did not "contribute importantly" to the threat, one
Commissioner found serious injury for welded products (i.e. OCTG and non-OCTG welded tubular
products) and that Canadian imports "contributed importantly", while the sixth Commissioner classedthe products in the same manner and found serious injury but that Canadian imports did not
"contribute importantly".  Since this was taken as a tie vote, the President decided that imports from
Canada do not contribute importantly to the serious injury or threat thereof.
3161  The European
Communities argues that, however, the mere fact that Canadian and Mexican imports were overall
considered not to "contribute importantly" does not mean that they are not having an effect on thedomestic industry, and should not be factored into th e causal analysis which must also form part of a
threat determination.  In order to find that NAF TA imports did not "contribute importantly", the
USITC must find that the growth rate in such imports  is appreciably lower than that of other imports.
Thus, a simple finding that, according to United States law, NAFTA imports did not contribute
importantly does not mean that they had no effect on the domestic industry. Imports of the magnitudeinvolved here evidently affect the domestic industry.
3162
7.1341  The European Communities argues that a compet ent authority is required to assess the effect
of such excluded imports on the domestic industry, to separate and distinguish those effects, and to
make sure those effects are not attributed to increased imports from other sources.  Consequently,
China and the European Communities submit that the United States has acted inconsistently with
Article 4.2(b) of the Agreement on Safeguards. It is hardly conceivable that 45.9% of imports (again
based on 2000), which, in the case of Mexican imports consistently undersold domestic products,could have no effect on a domestic industry.
3163  The European Communities further argues that a case
where NAFTA imports represent 45.9% of all imports provides a very good example of why the non-
attribution analysis in respect of excluded imports is necessary.3164
7.1342  For the United States' response, see paragraph 7.1066 et seq .
Factors not considered by the USITC
7.1343  According to the European Communities, there are a number of other factors, some of which
have been ignored, which were having an effect on the domestic industry.  Also, because these factors
have not been properly analysed, the USITC has failed to provide a reasoned and adequate
                                                     
3160 China's first written submission, para. 454.
3161 European Communities' first written submission, para. 529.
3162 European Communities' second written submission, para. 410.
3163 European Communities' first written submission, para. 530;  China's first written submission,
para. 454.
3164 European Communities' second written submission, para. 410.WT/DS248/R, WT/DS249/R,
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explanation of its findings.3165  In particular, the European Communities argues that there were
notable increases in "other factory costs" and SG&A expenses in 1999 and 2000, and of raw materialsin 2000 which also must have had an effect on the domestic industry but which are not explained.
3166
7.1344  In response, the United States submits that the European Communities' argument is not
persuasive.  It is true, as the European Communities contends, that the industry did experience some
increase in its unit other factory costs and unit SG&A expenses between the first three years of the
period of investigation and the last two years of the period.   However, as can be seen from the
USITC's Report, the increases in these costs were more than offset by declines in the industry's unit
raw materials costs and its unit direct labour costs during this same period.  As a result, the industry'soverall unit costs of goods sold declined substantia lly between the first three years and the last two
years of the period of investigation, falling from a range of US$537 to US$545 per ton during the
three-year period from 1996 to 1998 to a range of US$502 to US$515 per ton in 1999 and 2000.  Even
with the increases in its other factory and SG&A e xpenses, therefore, the industry's overall costs of
goods sold declined during the two years in which imports made their largest inroads into the market.
The United States submits that, given this, it is clear why the USITC placed little weight on the
changes in the industry's other factory and SG&A costs when assessing whether imports had caused
the declines in the industry's profitability levels in the latter part of the period of investigation.
3167
7.1345  In counter-response, the European Communities notes3168 that, in fact, the unit values for the
individual items for COGS do not add up to total COGS on which the USITC based itself.  This is
illustrated below:
Table 17:  Welded Pipe Products – COGS Data 20003169
As recorded in USITC ReportConsistent with reported
unit values
Raw materials 340 340
Direct labor 51 51
Other factory costs 106 106
Total COGS 515 497
Gross profit (unit) 76 94
SG&A expenses 51 51
Operating Income (unit) 25 43
Operating income (total) 118,464,000 202,183,893
7.1346  The European Communities submits that, thus, when correctly added up, the total COGS is
US$497 per unit rather than US$515.  This means that the gross profit is US$94 per unit and notUS$76, and that operating income is US$43 per unit and not US$25 as is presently reported in the
USITC Report.  Applying this to the volume of commercial sales, operating income almost doubles,
and indicates a minor fall from the 1999 level of US$246,626,000 and not the fairly substantial fall
which the data used in the USITC Report suggests (operating income per unit in 1999 was US$49 as
against US$43 in 2000 if the USITC Report is corrected).  Thus, either the USITC Report has failed
                                                     
3165 European Communities' first written submission, para. 531.
3166 European Communities' first written submission, para. 534.
3167 United States' first written submission, para. 626.
3168 European Communities' second written submission, para. 408.
3169 European Communities' second written submission, para. 408; USITC Report, Vol. II
p. TUBULAR-22, table TUBULAR 18. Figures in bold indicate differences with the data actually recorded inthe USITC Report.WT/DS248/R, WT/DS249/R,
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to show some development in costs which might ha ve a material bearing on any causation analysis, or
its data on operating income is entirely inaccurate, meaning that the findings based on operatingincome are not a reasoned and adequate explanation supported by the facts.  The USITC's
determination of the existence of a threat of serious injury is brought into question if there was only a
minor fall in profits in 2000 compared to the substantial fall which the USITC alleges actually took
place.
3170
Relevance of like product analysis for welded pipe
7.1347  Korea argues that in the case of welded pipe, the USITC failed to properly consider the effect
of demand trends because they simply "added togeth er" increases for LDLP and declines for all other
welded pipe and concluded that the increases did not  offset the decreases since LDLP was a small part
of the overall category of other welded pipe.  This led to incorrect conclusions regarding causation.  If
the like product of LDLP had been examined then the decreases in imports in an expanding market
might have led to a different conclusion regarding causation.3171
7.1348  For a summary of the United States' position on this issue, see paragraph 7.1324 above.
Failure to provide a reasoned and adequate explanation
7.1349  Switzerland submits that if the investigating authority believes that an alleged factor is not
threatening to cause injury, it must , likewise, explicitly, clearly, and unambiguously, state that such a
factor is not threatening to cause injury and explain the reasons why.  The explanation must be
straightforward.  To proceed otherwise would not ensure that alleged factors have been examinedclosely enough to establish that they are not contributing to the threat of injury.  As a result, there
would be no guarantee that threat of injury due to other factors has not been wrongfully attributed to
increased imports.
3172
7.1350  Switzerland argues that since the injurious effect s of the two factors that were threatening to
cause injury at the same time as the increased imports had not been properly assessed by the USITC,it is impossible to determine whether the USITC properly separated the injurious effects of these
factors from the injurious effects of the increased imports.
3173  China and Switzerland argue that as a
result, the the USITC failed to adequately evaluate the complexity of the alleged injury factors.  It also
failed to provide a sound, clear and straightforward explanation of how it ensured that injury caused
by other factors was not attributed to increased imports.  Therefore, China and Switzerland believe
that the USITC acted inconsistently with Articles 2(1) and 4.2(b) of the Agreement on Safeguards.3174
7.1351  The United States argues that the USITC performed a thorough and objective analysis of the
record.  It established that there was a genuine and substantial causal link between trends in the
volume and market share of imports of certain welded pipe and the significant declines in the
condition of the welded pipe industry during the last years of the period of investigation and how
serious injury by such imports was imminent.  Moreover, it thoroughly assessed the nature and scope
of the effects of other factors and ensured that it did not attribute the effects of these factors toimports.
3175  The United States also argues that, a "reasoned and adequate" explanation of the
                                                     
3170 European Communities' second written submission, para. 409.
3171 Korea's written reply to Panel question No. 80 (a) at the first substantive meeting.
3172 Switzerland's first written submission, para. 305.
3173 Switzerland's first written submission, para. 303.
3174 China's first written submission, para. 449;  Switzerland's first written submission, paras. 304
and 307.
3175 United States' first written submission, para. 639.WT/DS248/R, WT/DS249/R,
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injurious effects of imports and non-import factors will properly take into account the manner in
which the interplay of various factors (both import and non-import) have caused injury to an industry.The United States believes that the USITC's analysis of the injurious effects of imports and non-
import factors identified the nature and extent of the injury attributable to all non-import factors, and
therefore adequately assured that injury caused by other factors was not attributed to the imports.
3176
(vii) FFTJ
Factors considered by the USITC
Increased capacity
7.1352  China argues that the USITC acknowledged that the increase in capacity exercised some
pressure on prices.3177
7.1353  In response, the United States argues that it is wrong to say that USITC acknowledged
capacity to be an alternative source of injury to the domestic industry.  The USITC found that
increased capacity could not have been a source of injury to the domestic industry, because over the
period of investigation capacity increased less than United States' apparent consumption.  Moreover,from 1999 to 2000, when imports had their largest annual increase in volume and market share during
the period of investigation and the domestic industry ceased to operate profitably, United States
capacity actually declined to its lowest level since 1996.  Having found that increased capacity was
not an alternative cause of the serious injury it observed, the USITC satisfied its non-attribution
obligation under Article 4.2(b).
3178
7.1354  In counter-response, China contends its understanding of the USITC's wording is that: "the
increase in capacity would not be expected to place substantial pressure on domestic prices", because
the capacity increased at a rate less than the increase in apparent consumption.  However, according to
China, the pressure is present even if it is not substa ntial.  China argues that the capacity increase is to
be seen to be an alternative source of injury and it must be subject to a causality/non-attributionanalysis.
3179  In light of the foregoing, China argues that the United States' arguments are without
merit.  The capacity increases were to be treated as an alternative source of injury and non-attribution
of this factor should have been explained clearly and unambiguously.3180
Purchaser consolidation
7.1355  China argues that it is possible to conclude from the USITC's comments that purchaser
consolidation put pressure on domestic prices.3181
7.1356  In response, the United States argues that China misunderstands the USITC's discussion of
purchaser consolidation.  The USITC acknowledged that purchaser consolidation may have had some
impact on prices of the domestic FFTJ industry could charge, because fewer purchasers would have
relatively greater bargaining power vis-à-vis pr oducers.  There was no basis, however, to conclude
that purchaser consolidation would reduce demand for FFTJ;  to the contrary, United States  apparent
consumption of the product was generally stable during the latter portion of the period of
                                                     
3176 United States' written reply to Panel question No. 32 at the second substantive meeting.
3177 China's first written submission, para. 459.
3178 United States' first written submission, paras. 656-657.
3179 China's second written submission, para. 256.
3180 China's second written submission, para. 258.
3181 China's first written submission, para. 460.WT/DS248/R, WT/DS249/R,
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investigation.  Moreover, many of the indicators of serious injury which the USITC identified were
not price based.  These included declines in market share, declines in shipments and sales quantities,and declines in employment.  By explaining that the serious injury it observed for the FFTJ industry
was different in nature and broader in scope than the relatively limited price effects that could be
attributed to purchaser consolidation, the USITC satisfied its obligation not to attribute to purchaser
consolidation serious injury caused by the increased imports.
3182
7.1357  China notes in counter-response that the USITC stated that the purchaser consolidations put
some pressure on the domestic prices.3183  In light of the foregoing, China argues that the United
States' arguments are without merit.  Purchaser consolidation was to be treated as an alternativesource of injury and non-attribution of this factor should have been explained clearly and
unambiguously.
3184
NAFTA imports
7.1358  China notes that the determination of the existence of a causal link between the increased
imports and serious injury to the domestic FFTJ industry, which is found in the USITC Report wasmade on the grounds of data which included imports from NAFTA countries.  However, China
believes that, since imports from NAFTA countries were excluded from the application of the
safeguard measure, the USITC had to determine whether total increased imports, with the exception
of imports from NAFTA-countries, caused serious injury to the domestic industry.  China argues that
as a result, since the determination of causality required that "increased imports' only consist ofimports originating from non-NAFTA countries, the movements in imports from Canada and Mexico
had to be regarded as "an other factor". Article 4.2(b) of the Agreement on Safeguards also required
that injury caused by movements in imports from Canada and Mexico not be attributed to increased
imports (from non-NAFTA countries).
3185
7.1359  The European Communities argues that while the USITC's position with respect to the
alternative causes cited in the domestic investigation is unclear, its findings with respect to Canada
and Mexico are unambiguous; imports from both countries caused serious injury.  The European
Communities asserts that Mexican and Canadian imports were not analysed by the USITC as
alternative causes of injury.  This was not done either in the Second Supplementary Report.  Thus, the
USITC did not separate and distinguish the effects of NAFTA imports, and did not make sure that
such effects were not attributed to increased imports.  The European Communities argues that this is
all the more serious because of the importance of imports from these countries on the United Statesmarket.  As a result, it is argued that the United States has acted inconsistently with Article 4.2(b) of
the Agreement on Safeguards.
3186
7.1360  For the United States' response, see paragraph 7.1066 et seq .
Factors not considered by the USITC
7.1361  The European Communities argues that data  which the USITC gathered is far from
conclusive in proving that any serious injury has been caused by low-priced imports.  Indeed, while
imports may have increased overall, such increased imports appear to have had little effect on prices.
                                                     
3182 United States' first written submission, para. 658.
3183 China's second written submission, para. 257.
3184 China's second written submission, para. 258.
3185 China's first written submission, para. 466;  China's second written submission, para. 259.
3186 European Communities' first written submission, para. 539.WT/DS248/R, WT/DS249/R,
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The COGS has, however, increased significantly, as have SG&A expenses.3187  The European
Communities asserts that there is only a substantial increase in imports between 1999 and 2000.However, according to the European Communities, th e fall in profitability of the domestic industry
occurred between 1997 and 1998 and cannot be explained, therefore, by any sudden, recent, increase
in imports.  The European Communities argues that the change in profitability would appear to be
more closely linked to changes in costs.  However, despite the fact that the development in costs was
readily apparent on the basis of a simple examination of the data collected, the USITC did not analyse
this issue.
3188
7.1362  The United States submits that the USITC explained that lower production and shipments
during the period of investigation contributed to increases in unit costs.3189  In particular, per unit
increases after 1997 in other factory costs and SG&A expenses, both of which are emphasized by the
European Communities, can be attributed to the fact that the industry had to spread its costs over a
smaller quantity of sales.3190
7.1363  In counter-response, the European Communities submits that the claim by the United States
that the USITC did analyse these costs, because the USITC stated that increases in per unit costs
occurred as sales fell, is not borne out by the USITC Report which shows that increases in raw
materials cost and other factory costs occurred between 1997 and 1998.  According to the European
Communities, commercial sales in 1998 were similar in volume to 1996, but higher in value, yet a
comparison of costs between 1996 and 1998 shows a substantial increase, the reasons for which arenever explained in the USITC Report.
3191  Thus, increases in volume cannot explain the increases in
per unit costs.  The USITC, despite the United States best efforts, did not therefore provide a reasoned
and adequate explanation of its findings on increased costs, and thus failed to properly ensure non-
attribution.3192
Failure to provide reasoned and adequate explanation
7.1364  The European Communities notes that the USITC used the data it had gathered on sales of
Product 22, that is:  "Carbon steel butt-weld pipe fitting, 6 inch nominal diameter, 90 degree elbow,
long radius, standard weight, meeting ASTM A-234, grade WPB or equivalent specification …".  The
USITC explained, however, that for the specific products for which it had requested data in the
tubular section, of which Product 22 was one, pricing data coverage tended to be very low (usually
less than 5%) due to the wide heterogeneity among tubular products in all five categories.  The
European Communities argues that given that the USITC found that imports were "generally" higherpriced than domestic products, even though imports were always higher priced, it was forced to have
recourse to other data to show that imports were priced below domestic products, which must be, for a
commodity product group, the determinant issue.
3193  The European Communities argues that the data
for Product 22 in terms of value, demonstrates that Product 22 is not representative.  On the basis of a
product representing 1.2% of domestic commercial sales on the whole product category the EuropeanCommunities argues that such a conclusion cannot be considered reasoned and adequate.
3194
                                                     
3187 European Communities' first written submission, para. 548.
3188 European Communities' first written submission, para. 550.
3189 USITC Report, p. 176.
3190 United States' first written submission, para. 654.
3191 USITC Report, Vol. II, P. Tubular 24, table Tubular 20
3192 European Communities' second written submission, para. 412.
3193 European Communities' first written submission, para. 545.
3194 European Communities' first written submission, para. 547.WT/DS248/R, WT/DS249/R,
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7.1365  In response, the United States argues that by suggesting that the USITC staff chose to collect
data on very low volume products, the European Communities ignores and distorts information in theUSITC's report.  The USITC staff did not seek pricin g data on a FFTJ product that it believed would
yield low data coverage, as the European Communities implies.  The staff stated instead that there
was no single FFTJ product on which it could obtain extensive coverage.  Indeed, there was not even
a combination of products that could provide the type of coverage the European Communities asserts
is necessary.  In a portion of the report apparently overlooked by the European Communities, the staff
explained that "it is difficult to find high-volume pricing products in a heterogenous market such as
the steel tubular market".  The report, read in context, indicated that the FFTJ product on which theUSITC obtained pricing data was a "high volume" product within the group of FFTJ products.
3195  In
this regard, the United States submits that the A ppellate Body has observed that no provision of the
Agreement on Safegaurds specifically addresses the extent to which an investigating authority must
collect data.  In particular, no provision of the Agreement requires an authority to collect any specific
quantum of data, or any data at all, pertaining to pricing.  The USITC furthered the goal of conducting
a thorough investigation, and acted in an objective manner, by collecting pricing data for a particular
FFTJ product that would provide data on a high volume of sales relative to other products on which
data could be collected.  Such conduct cannot in any way contravene the obligations of the United
States under the Agreement on Safeguards.3196
7.1366  In counter-response, the European Communities argues that given the importance of the
examination of pricing, and the lack of other pricing data showing underselling, pricing for the
specific product is evidently an important part of the USITC's finding.  The United States defends
itself by arguing that the USITC staff did not deliberately seek a low volume product for specific
comparison.3197 The European Communities has no reason to believe that the USITC staff would
choose a product deliberately because of its lack of representativeness.  However, the EuropeanCommunities does consider, that if the USITC wanted to make a reasoned and adequate explanation,
it might have requested data on several specific products, so that it had several sets of data on which
to base its findings.  The USITC did not provide a reasoned and adequate explanation of its
findings.
3198
7.1367  The United States submits that the USITC also  explained the limited probative value of the
average unit value data on which the European Communities apparently believes the USITC should
have relied.  Average unit value data may serve as a useful proxy for pricing data for some industries.However, in an industry such as the FFTJ industry that is characterized by a wide variety of products,
variance between AUV is often indicative of differences in product mix (i.e., the imports are
concentrated in higher-value items, while domestic production is concentrated in lower-value items)
rather than differences in price.  For this reason, while the USITC referred to the average unit value
data for the FFTJ industry, it stated that it was cautious of placing undue weight on the data becauseof concerns with product mix.   The USITC thus had an objective basis, which it fully explained, for
relying principally on pricing data relating to an individual product, rather than on the average unit
value data relating to a mix of products.
3199
7.1368  China argues that the USITC failed to assess the injurious effects of  other factors such as
increased capacity and purchaser consolidation since not a word is written on the nature and extent ofthe injury caused by these two factors. Thus, accordin g to China, it is impossible to determine whether
                                                     
3195 United States' first written submission, para. 650.
3196 United States' first written submission, para. 651.
3197 United States'  first written submission, para. 650.
3198 European Communities' second written submission, para. 414.
3199 United States' first written submission, para. 652.WT/DS248/R, WT/DS249/R,
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the USITC properly separated the injurious effects of these factors from the injurious effects of the
increased imports.  China agues, in sum, that the USITC failed to adequately evaluate the complexity
of the alleged injury factors. It also failed to provide a sound, clear and straightforward explanation of
how it ensured that injury caused by other factors was not attributed to increased imports. Therefore,
China believes that the USITC acted inconsistently with Articles 2(1) and 4.2(b) of the Agreement on
Safeguards.3200
7.1369  The United States argues that the USITC conducted a reasoned and adequate examination of
the injury purportedly caused by these factors and ensured that any injury caused by these other
factors was not attributed to imports.  In particular, the USITC found that increased capacity was notan explanation for the serious injury experienced by the domestic industry.  It stated that capacity
increased during the period of investigation at a rate less than the increase in US apparent
consumption and thus should not have placed substantial pressure on domestic prices.  The USITC
also acknowledged that purchaser consolidation would be expected to place some pressure on
domestic prices.  The USITC found, however, that demand for FFTJ was generally stable toincreasing during the latter portion of its period of investigation.  Moreover, the USITC did not rely
solely on price effects in finding that the domestic FFTJ industry was seriously injured but also cited
declines in non-price indicators, such as market share, domestic production, shipments, and
employment.  The USITC stated that purchaser consolidation could not explain the declines  that
occurred in these non-price indicators.
3201
(viii) Stainless steel bar
Factors considered by the USITC
Downturn in demand
7.1370  China argues that the USITC acknowledged that the downturn in demand in late 2000 and
interim 2001 was causing injury at the same time as increased imports.  China submits that if importshad a greater impact than demand declines it was necessarily because this factor also had an impact on
the declines in the industry's conditions.
3202 China argues that concerning declining demand in 2000
and interim 2001, all that the USITC explained was that there had already been changes in the
industry's condition prior to 2000.  It did not explain anything concerning 2000 and 2001.  China
argues that, clearly, this is insufficient.3203
7.1371  The European Communities suggests that the USITC's conclusion that decreased demand was
a less important cause than imports is far from clear.  In any event, it argues that the USITC does notattempt to distinguish the effect of decreased demand from the effects of imports and other factors
and, thus, does not ensure that the effect of such developments was not attributed to increased
imports.
3204
7.1372  The European Communities notes3205 that for demand declines the USITC stated no more
than:
                                                     
3200 China's first written submission, para. 465.
3201 United States' first written submission, para. 656.
3202 China's first written submission, para. 475.
3203 China's first written submission, para. 481
3204 European Communities' first written submission, para. 556.
3205 European Communities' second written submission, para. 426.WT/DS248/R, WT/DS249/R,
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"Although the record does show  a downturn in demand for stainless bar [sic] and an
increase in energy costs in late 2000 and interim 2001 there were substantial declinesin the industry's production, sales and profitability levels during the years prior to
2000 and interim 2001. In particular, the industry's market share, production volumes,
employment levels and profitability levels all declined during the period from 1996 to
1999 in the face of increase import volumes, despite the fact that there were only
small changes overall in the amount of stainless rod consumed in the United States
market and despite the fact that there is little evidence that energy costs were
increasing substantially in these periods.  Considering this, it is clear that imports hada greater impact on the declines in the industry's condition in 2000 and interim 2001
than demand declines and energy cost increased, especially given the substantial
increase in import quantities and market share during the last year and a half of the
period."
3206
7.1373  The European Communities and China argue that quite apart from the fact that the only
increased imports which could potentially satisfy the requirements of the Agreement on Safeguards
took place in 2000, and that therefore increased imports could not, even potentially, be held
responsible under the Agreement on Safeguards for the injury suffered by the industry up to 2000, this
statement of the USITC clearly recognizes that demand declines caused some injury.3207  However,
the USITC goes no further in its analysis, and thus does not establish explicitly, in a reasoned andadequate manner, how it has separated and distinguished such injury and ensured it was not attributed
to increased imports.
3208
7.1374  The United States argues that the USTIC properly ensured that that it did not attribute any
injury caused by late period demand declines to imports. It asserts that the ITC recognised that, after
growing 1996 to late 2000, demand for stainless steel bar did decline in late 2000 and interim 2001.However, the USITC correctly noted that the industry had been experiencing serious declines in its
market share, production volumes, sales levels, employment levels, and profitability levels during the
years prior to 2000 and 2001, when imports had been increasing as well. Indeed, it specfically found
that the industry's in ability to maintain its oper ating profits in the face of demand changes in late
2000 and 2001 were the "direct result of the increasing share of the market obtained by imports and
their continued underselling of domestic merchandise during the period," not the result of demand
declines.
3209
7.1375  The United States asserts that the USITC closely examined the effects that were attributable
to demand declines during the period. In particular, the USITC properly noted that demand declines
had become evident only during the final three quarters of the period of investigation. However, it
also correctly noted that these late-period demand declines could  not possibly have contributed to
thes serious declines in the condition of the industry during the three years prior to this period, whendemand was, in fact, increasing. Moreover, given that demand actually increased, substantially on a
full year basis in 2000 as well, it is clear that demand declines were not a cause of injury to the
industry in that year as well. Given the foregoing, the USITC reasonably concluded that the declines
                                                     
3206 USITC Report, Vol. I, p. 221.
3207 United States' first written submission, paras. 709 and 712 talks of injury being "primarily caused"
by imports.
3208 European Communities' second written submission, para. 427; China's first written submission,
paras. 492 and 498.
3209 United States' first written submission para. 679WT/DS248/R, WT/DS249/R,
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in the industry's condition that occures during interim 2001 were primarily caused by imports, even
with the decline in demand in that period.3210
7.1376  In counter-response, the European Communities argues that the USITC recognized that
demand declines had an effect on the domestic industry – by concluding that this cause is less
important than increased imports, the USITC did not separate and distinguish the effects of alternative
causes and increased imports.3211
Increases in capacity
7.1377  The European Communities argues that the USITC did not examine the effect of capacity
increases greater than increases in demand on the operations of the domestic industry.  According tothe European Communities, it is immediately obvious that such capacity increases must have had an
effect on the United States industry's performance.
3212  In particular, the European Communities
argues that substantial increases in capacity were made in a period during which demand for stainless
bar dropped away.  According to the European Communities, price developments mirrored
developments in demand and were obviously affected by developments in capacity.  However, theeffect of developments in demand allied to increased capacity were not assessed in the USITC Report
and, thus, no effort was made to separate and distinguish the effect of these factors from the effect of
imports.
3213  The European Communities argues further that the domestic industry continued to
increase capacity  well in excess of the rate of domestic demand during the investigation period.
While the USITC did not deal with this issue, th e European Communities argues that this would tend
to suggest that serious injury has not been caused by imports but, rather, by developments in the
domestic industry.3214
7.1378  In response, the United States submits that it is factually wrong to argue that the USITC failed
to consider that the industry's capacity "continued to increase" well in excess of the rate of domestic
demand during the period and it mischaracterizes the USITC's opinion.  It is factually wrong becausethe industry's capacity increases did not, in fact, exceed the growth in demand during the period.
More specifically, the industry's capacity levels only increased by 5.5% between 1996 and 2000.
Apparent US consumption grew by 17.2% between those years.  In fact, because of this differential,
the industry's total capacity was slightly lower than total demand in 2000.  Thus, although there were
fluctuations in demand during the period, the record does not indicate that the industry's capacity
increases were in excess of the growth in market demand.
3215
7.1379  The United States argues further that the USITC clearly did discuss the industry's capacity
increases during the period, noting specifically that industry capacity had grown during the period and
that capacity utilization had declined.  Moreover, the USITC directly addressed the relationship of
these capacity increases to demand changes in the market and their impact on the condition of the
industry.  In particular, it found that the industry's capacity increases had not enabled the industry to
take advantage of the growth in the market during the period.  Given this discussion, it is unclear howthe European Communities could possibly believe that the USITC ignored the relationship between
the industry's capacity increases and the growth in demand.  The USITC clearly considered the
                                                     
3210 United States' first written submission, para. 680.
3211 European Communities' second written submission, para. 420.
3212 European Communities' first written submission, para. 558.
3213 European Communities' first written submission, para. 559.
3214 European Communities' first written submission, para. 568.
3215 United States' first written submission, para. 671.WT/DS248/R, WT/DS249/R,
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growth in industry capacity in its analysis and reasonably explained why it was not a factor in the
decline in market prices or in the industry's condition.3216
7.1380  In counter-response, the European Communities refers to the United States attempts to rebut
the European Communities' arguments by comparing capacity and consumption on an end to end
basis.3217  However, since the causation analysis is essentially about identifying trends, it is
insufficient to analyse this issue in such a superficial manner. Indeed, the coincidence of increases in
capacity, decreases in demand, and decreases in operating income should have alerted the USITC to
the possibility that capacity increases, allied with demand developments, might well have been
responsible for the situation of the industry.  The USITC failed to examine this issue in the detailwhich it clearly merited, and in so failing, did not provide a reasoned and adequate explanation of
how the facts support its findings.
3218
Increases in energy costs
7.1381  China argues that the USITC acknowledged that the increase in energy costs in late 2000 and
interim 2001 was causing injury at the same time as increased imports.  If imports had a greaterimpact than energy costs increases, it was necessarily  because this factor also had an impact on the
declines in the industry's conditions.
3219 China argues that concerning the increase in energy costs in
2000 and interim 2001, all that the USITC explained was that there had already been changes in the
industry's condition prior to 2000.  It did not explain anything concerning 2000 and 2001.  China
argues that, clearly, this is insufficient.3220
7.1382  The European Communities suggests that the US ITC's conclusion that increased energy costs
was a less important cause than imports is far from clear.  In any event, it argues that the USITC does
not attempt to distinguish the effect of increased energy prices  from the effects of imports and other
factors and, thus, does not ensure that the effect of such developments was not attributed to increased
imports.3221
7.1383  The European Communities notes3222 that for increased energy costs, the USITC stated no
more than:
"Although the record does show  a downturn in demand for stainless bar [sic] and an
increase in energy costs in late 2000 and interim 2001 there were substantial declines
in the industry's production, sales and profitability levels during the years prior to
2000 and interim 2001. In particular, the industry's market share, production volumes,
employment levels and profitability levels all declined during the period from 1996 to1999 in the face of increase import volumes, despite the fact that there were only
small changes overall in the amount of stainless rod consumed in the United States
market and despite the fact that there is little evidence that energy costs were
increasing substantially in these periods. Considering this, it is clear that imports had
a greater impact on the declines in the industry's condition in 2000 and interim 2001than demand declines and energy cost increased, especially given the substantial
                                                     
3216 United States' first written submission, para. 672.
3217 United States' first written submission, para. 671.
3218 European Communities' second written submission, para. 421.
3219 China's first written submission, para. 475.
3220 China's first written submission, para. 481.
3221 European Communities' first written submission, para. 556.
3222 European Communities' second written submission, para. 426.WT/DS248/R, WT/DS249/R,
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Page 451
increase in import quantities and market share during the last year and a half of the
period."3223
7.1384  The European Communities argues that quite ap art from the fact that the only increased
imports which could potentially satisfy the requirements of the Agreement on Safeguard s took place
in 2000, and that therefore increased imports could not, even potentially, be held responsible under
the Agreement on Safeguards for the injury suffered by the industry up to 2000, this statement of the
USITC clearly recognizes that increased energy costs caused some injury.3224 However, the USITC
goes no further in its analysis, and thus does not establish explicitly, in a reasoned and adequate
manner, how it has separated and distinguished such injury and ensured it was not attributed toincreased imports.
3225
7.1385  The United States argues in response that the USITC closely examined the effects of energy
cost increases on the industry during the period of investigation.  In particular, the USITC properly
noted that energy cost issues had been become ev ident only during the final three quarters of the
period of investigation.3226  It also correctly noted that these late-period energy cost increases did not
significantly contribute to the decline in the condition of the industry during the three years prior to
this period, when there was no evidence of significant changes in energy costs.3227  By performing an
analysis that assessed whether imports appeared to be causing injury to the industry during a period
without substantial energy cost increases, the USITC was able to distinguish the effects of these
increases in the final three quarters of the period of investigation from those attributable to importsduring prior periods.  As a result, the USITC was able to ensure that did not attribute any injury
caused by energy costs to imports. Moreover, even for the period 2000 and interim 2001, the USITC
qualitatively assessed whether imports had a more substantial impact on the condition of the industry
than did energy cost increases.   By doing so, and by concluding that even the injury suffered by the
industry in 2000 and interim 2001 was primarily caused by imports and not energy costs, the USITCappropriately assessed the extent of the injury attributable to imports even in those periods.
3228  I n
sum, the USITC properly separated and distinguished the effects of increases in energy costs from
those of imports in its analysis, despite the complainants' arguments to the contrary.3229
7.1386  China notes in counter–response that the United States  states that it qualitatively assessed
that imports had a more substantial impact than energy cost increase.  The United States claims that
by doing so it appropriately assessed the extent of the injury attributable to imports.3230  C h i n a
questions how the United States was able to define the extent of the injury caused by imports by amere comparison of two factors.  China argues that the misleading interpretations in the submissions
of the United States cannot prove that a proper assessment of the extent and nature of the injurious
factors, and their non-attribution to the imports effects took place.
3231
                                                     
3223 USITC Report, Vol. I, p. 221.
3224 United States' first written submission, paras. 709 and 712 talks of injury being "primarily caused"
by imports.
3225 European Communities' second written submission, para. 427; China's first written submission,
para. 492.
3226 USITC Report, p. 221.
3227 USITC Report, p. 221.
3228 It bears repeating that, since demand did not decline on an overall basis in 2000, there was clearly
no injurious impact of a demand decline in that year on the industry on an overall basis.
3229 United States' first written submission, para. 711.
3230 China's second written submission, para. 267.
3231 China's second written submission, para. 268.WT/DS248/R, WT/DS249/R,
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7.1387  The United States responds by arguing that the USITC considered whether energy cost
increases during the last months of that period of investigation were a source of injury to the domesticindustry. In its analysis, the USITC recognized that there was an increase in energy costs during late
2000 and interim 2001. However, the USITC correctly noted that there was no record evidence of
specific energy cost increases in the period prior to late 2000 and 2001, and that the industry had been
experiencing serious declines in its market share, production volumes, sales levels, employment
levels, and profitability levels as a result of increasing import volumes in the years prior to 2000 and
2001 as well. Indeed, the USITC specifically found that the industry's inability to maintain its
operating profits in the face of energy cost increases in late 2000 and 2001 were the "direct result ofthe increasing share of the market obtained by imports and their consistent underselling of domestic
merchandise during the period."
3232
7.1388  The United States also argues that the USITC closely examined the effects of energy cost
increases in the condition of the industry during the period of investigation. In particular, the USITC
properly noted that energy cost issues had become evident only during the final three quarters of theperiod of investigation. However, it is also correctly noted that these late-period energy cost increases
could not possibly have contributed to serious declines in the condition of the industry during the
three years prior to this period, when there was no evidence of significant changes in energy costs. As
a result, it reasonably concluded that the declines in the industry's condition that occurred during 2000
and interim 2001 were substantially caused by imports, even though energy costs increased during thelatter months of 2000 and in interim 2001.
3233
7.1389  In counter-response, the European Communities argues that the USITC recognizes that
energy costs had an effect on the domestic industry – by concluding that this causes is less important
than increased imports, the USITC did not separate and distinguish the effects of alternative causes
and increased imports.3234
Increases in nickel prices
7.1390  The European Communities submits that the USITC acknowledged that stainless steel bar
prices "track the price of nickel" and that nickel prices rose in 1999 and 2000.  Yet, according to the
European Communities, it baldly concluded that price underselling by imports "suppressed and
depressed prices to a serious degree" without attempting to separate the effect of developments in the
nickel price on prices and not to attribute it to increased imports.  The European Communities submits
that, in fact, the industry's poor performance broadly coincides with decreases in the prices ofnickel.
3235 The European Communities further argues that given the close correlation in prices and the
collapse of the price of nickel from 1995 to 1998, it s eems likely that, with the price of nickel falling,
forcing down the price of stainless bar, the United States domestic industry had difficulty covering its
fixed costs.3236
7.1391  In response, the United States notes that price is an important factor in purchasing decisions
for stainless steel bar.  Price is directly affected by the price of nickel.   Indeed, to account for
fluctuations in the price of nickel, producers impose a surcharge on the price of stainless steel bar
                                                     
3232 United States' first written submission, para. 682
3233 United States' first written submission, para. 683.
3234 European Communities' second written submission, para. 420.
3235 European Communities' first written submission, para. 555.
3236 European Communities' first written submission, para. 568.WT/DS248/R, WT/DS249/R,
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Page 453
when nickel prices increase to a specified level.  Nickel prices fell through 1998 but then increased
significantly in 1999 and the first half of 2000.  Nickel prices then fell through interim 2001.3237
7.1392  The United States also questions the European Communities' assertion that the USITC "baldly
conclude[d]" that imports suppressed or depressed prices in the market "without attempting to
separate the effects of developments in the nickel price" on domestic prices in light of the fact that the
USITC discussed this issue at length in its opinion.3238  In its analysis, the USITC examined the
relationship between nickel price movements and movements in the price of stainless steel bar in its
opinion and concluded that nickel price movements had not caused the price suppression in the
market.  In particular, the USITC specifically found that market participants expect stainless prices tomove in tandem with nickel prices because of the importance of nickel in the production of stainless
steel bar.  As a result, it specifically analysed wh ether movements in the industry's net unit prices for
stainless steel bar and its costs had tracked the pr ice of nickel during the period.  Although it found
that stainless bar prices had tracked nickel prices somewhat during the first years of the period, it also
stated that the industry's net sales revenues and unit sales prices failed to keep pace with movementsin nickel prices during the second half of the period of investigation, which resulted in decreasing unit
profitability margins for the industry during this period.  Moreover, the USITC found, the decreasing
spread between its unit costs and unit prices  – the result of price declines exceeding declines in its
COGS, including nickel costs – directly caused declines in the industry's net sales values and its
operating income margins during the last two-and-a-half years of the period of investigation, even asnickel prices increased.
3239  The United States argues that clearly, then, the USITC did examine this
issue in detail and correctly concluded that nickel prices had not caused the declines in the industry's
profitability levels during the period.  The European Communities' argument concerning the USITC's
discussion of nickel prices has no merit whatsoever.3240
7.1393  The United States argues that by focusing on the change in spread between the industry's
costs (which included its nickel costs) and its sales values in its discussion of the impact of nickel
costs on domestic pricing, the USITC was clearly able to assess the extent to which the industry was
unable to increase its prices to fully recover its nickel costs because of import competition.
Accordingly, the USITC clearly separated and distinguished the effects of imports from the effects of
nickel cost changes in its analysis.3241
Poor operations of Al Tech/Empire and Republic
7.1394  The European Communities argues that the USITC did not explain what it determined with
respect to arguments raised on the poor operations of Al Tech/Empire and Republic.  This information
was kept confidential.  However, the USITC implied that these operations were also a source of injury
to the domestic industry since it claimed that the trends it had identified would have continued even if
the operations of those two companies were factored out of the data analysed.3242
7.1395   The United States responds by arguing that the USITC considered whether the poor
performance of two particular domestic producers was a possible source of injury to the industry
during the period of investigation.  Although the specific information on these producers' problems
and their operating results are confidential, the USITC's discussion of the issue makes clear that it
                                                     
3237 USITC Report, p. 209;  United States' first written submission, para. 663.
3238 United States' first written submission, para. 673.
3239 United States' first written submission, para. 674.
3240 United States' first written submission, para. 675.
3241 United States' first written submission, para. 688.
3242 European Communities' first written submission, para. 557.WT/DS248/R, WT/DS249/R,
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Page 454
examined the record evidence relating to these issues and discussed the nature and extent of these
producers' difficulties in detail.3243  In this regard, it specifically noted that it took into account the
arguments made by the foreign producers and rejected their assertions that the industry's operating
results had been skewed by the non-import problems of the producers.  Moreover, the USITC
considered whether exclusion of the two companies from the industry data would substantially alter
the downward trends in the industry's condition in thos e years, and found that it did not.  By engaging
in this analysis, the USITC clearly separated and distinguished the impact of imports on the industry
from the effects of these producers operations and found that the industry's problems were genuinely
and substantially the result of increased imports.3244
NAFTA imports
7.1396  China notes that the determination of the existence of a causal link between the increased
imports and serious injury to the domestic stainless steel bar industry, which is found in the USITC
Report was made on the grounds of data which included imports from NAFTA countries.  However,
China believes that, since imports from NAFTA countries were excluded from the application of thesafeguard measure, the USITC had to determine whether total increased imports, with the exception
of imports from NAFTA-countries, caused serious injury to the domestic industry.  China argues that
as a result, since the determination of causality required that "increased imports' only consist of
imports originating from non-NAFTA countries, the movements in imports from Canada and Mexico
had to be regarded as "an other factor". Article 4.2(b) of the Agreement on Safeguards also requiredthat injury caused by movements in imports from Canada and Mexico not be attributed to increased
imports (from non-NAFTA countries).
3245
7.1397  China further argues that in the Supplementary Report, the USITC was required to assess the
injury caused by imports from Mexico and Canada and to ensure that this injury would not be
attributed to increased imports from non-NAFTA countries.  China argues that it did not do so.  Chinafurther argues that the USITC provided no explanation whatsoever that injury caused by imports from
Mexico and Canada was not attributed to increased imports and there is no reason to believe that
injury caused by imports from Mexico and Canada were not in fact attributed to increased imports.
3246
7.1398  In this regard, the European Communities notes that the USITC concluded that "imports from
Canada contributed importantly to the serious injury suffered by the domestic industry".  However,
the European Communities submits that this finding was made after the USITC had already
concluded that "increased imports are a substantial cause of serious injury" and the USITC did noteven attempt to factor this element into its analysis of the alleged causal link between serious injury
and increased imports. Indeed, according to the European Communities, it is quite obvious that the
USITC's initial analysis included imports from Canada in assessing whether increased imports have
caused serious injury.  The European Communities argues that no effort is made to distinguish the
effect of Canadian imports and to make sure that the such effects are not attributed to imports fromother sources.
3247  In light of the foregoing, it is China's view that the USITC failed to comply with
Article 4.2(b) of the Agreement on Safeguards.3248
7.1399  For the United States' response, see paragraph 7.1066 et seq .
                                                     
3243 USITC Report, p. 212.
3244 United States' first written submission, paras. 685-86.
3245 China's first written submission, para. 483.
3246 China's first written submission, para. 486;  China's second written submission, para. 263
3247 European Communities' first written submission, para. 560.
3248 China's first written submission, para. 486;  China's second written submission, para. 263WT/DS248/R, WT/DS249/R,
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Failure to provide reasoned and adequate explanation
7.1400  China argues that to be certain that the injury caused by these other factors, downturn in
demand and increases in energy costs, whatever their magnitude, was not attributed to imports, the
USITC had to assess the injurious effects of these other factors.  However, according to China, the
USITC failed to do so, as there is no information to that effect in the USITC Reports.3249  China states
that, in sum, China believes that the injurious effects of the other factors that have caused the injury at
the same time as the increased imports had not been properly assessed by the USITC.  Thus, it is
impossible to determine whether the USITC properly separated the injurious effects of these factors
from the injurious effects of the increased imports.3250  China further argues that the USITC failed to
adequately evaluate the complexity of the alle ged injury factors.  According to the European
Communities and China, it also failed to provide a sound, clear and straightforward explanation of
how it ensured that injury caused by other factors was not attributed to increased imports.  Therefore,
China believes that the USITC acted inconsistently with Articles 2(1) and 4.2(b) of the Agreement on
Safeguards.3251
7.1401  The United States argues that the USITC performed a thorough and objective analysis of the
record.  It thoroughly assessed the nature and scope of the effects of other factors and ensured that it
did not attribute the effects of these factors to imports.3252
(ix) Stainless steel wire
Decision-making
7.1402  China notes that it is the determination of Chairman Koplan which becomes relevant to
examine in relation to stainless steel wire for he is the only Commissioner to have made his
determination on the product on which the President imposed a safeguard measure.3253
7.1403  In response, the United States submits as an initial matter, that China mistakenly asserts in its
brief that the President relied solely on Commissioner Koplan's causation findings for stainless steelwire products when determining to impose a safeguard remedy on stainless steel wire.  Three
Commissioners found that stainless steel wire was causing serious injury or threatening to cause such
injury to the domestic tin mill industry:  Commi ssioners Koplan, Bragg and Devaney.   Commissioner
Koplan found stainless steel wire to be a separate like product and made an affirmative threat of injury
finding for that product; Commissioners Bragg and Devaney found stainless wire to be part of the
same like product as stainless steel wire rope and made an affirmative determination for that like
product.
3254
7.1404  The United States further submits that under the United States statute, the President cannot
simply decide to treat an individual affirmative fi nding of one Commissioner as a basis for imposing a
remedy, as the complainants allege.  Instead, under the United States statute, the President may only
impose a remedy if at least half of the Commissioners then in office make an affirmative finding of
causation and injury.  In this case, the President was able to impose a remedy on stainless steel wireonly because three of the six Commissioners had found that stainless steel wire, whether or not treated
                                                     
3249 China's first written submission, para. 476.
3250 China's first written submission, para. 477.
3251 European Communities' first written submission, para. 569;  China's first written submission,
para. 482.
3252 United States' first written submission, para. 689.
3253 China's first written submission, para. 534.
3254 United States' first written submission, para. 723.WT/DS248/R, WT/DS249/R,
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as a separate like product, had caused or threatened to cause serious injury to the industry.  Indeed, in
his official announcement of the imposition of these remedies, the President specifically stated that heconsidered the "determinations of the groups of Co mmissioners voting in the affirmative with regard
to" stainless steel wire to be the determination of the USITC.  In other words, the President
specifically and clearly stated that he relied on the affirmative determinations of Commissioners
Koplan, Bragg, and Devaney as grounds for his stainless steel wire remedy.  Accordingly, the
President's remedy finding simply does not indicate that he adopted the like product decision or injury
finding of Commissioner Koplan as his own.
3255
7.1405  The United States argues that, therefore, it is legally and factually incorrect for China to assert
that the President adopted the injury and causation findings of Commissioner Koplan as the sole basis
for his remedy decision.  Nonetheless, because China and the European Communities focus their
arguments concerning stainless steel wire entire ly on Commissioner Koplan's causation analysis for
stainless steel wire, the United States also focuses its discussion on his analysis as well.3256  However,
the United States notes that neither China nor the European Communities make any argumentschallenging the affirmative injury findings of Commissioners Bragg and Devaney on stainless steel
wire and rope.  Accordingly, they have failed to make a prima facie showing that Commissioners
Bragg and Devaney's analysis violated the causation requirements of the Agreement on Safeguards.
The United States argues that the panel should therefore find that the causation analyses of these
Commissioners have not been placed at issue in these proceedings and should affirm them.
3257
7.1406  In counter-response, China argues that in its view, only Commissioner Koplan correctly
identified the like product – stainless steel wire – to be a separate like product, in contrast to
Commissioners Bragg and Devaney w ho found stainless wire to be part of the "stainless steel wire
and rope" product category.  Therefore, according to China, only Commissioner's Koplan findings
could have been taken as the correct basis for imposing a remedy.3258
Factors considered by the USITC
Decline in consumption
7.1407  China argues that although Chairman Koplan refers to the extent of the decline in
consumption, there is no information on his view concerning the extent of the contribution of the
decline in consumption and the increase in unit costs on the overall situation of the industry.
Similarly, Chairman Koplan did not state what portion of the decline in the industry's performance
was attributable to the decline in demand for stainless steel wire.3259
7.1408  In response, the United States submits that Commissioner Koplan thoroughly examined the
record evidence relating to the demand decline in interim 2001 and discussed the nature and extent of
that decline in detail.  In this regard, he recognized that apparent consumption of stainless steel wire
declined by 16.1% between interim 2000 and 2001 and noted that the decline was related to the
overall decline in the United States economy in interim 2001.  He specifically acknowledged that thedemand decline in interim 2001 had together with imports caused prices to fall in the market interim
2001 and that therefore "some portion of the observed declines in the industry's performance between
the interim periods is attributable to an apparent decline in demand".  Nonetheless, he also found that
                                                     
3255 United States' first written submission, para. 724.
3256 United States' first written submission, para. 725.
3257 United States' first written submission, para. 726.
3258 China's second written submission, paras. 289 and 290.
3259 China's first written submission, para. 538.WT/DS248/R, WT/DS249/R,
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the decline in demand did not "explain the rapid deterioration in the domestic industry's financial
performance" in interim 2001, because the "decline in United States production and shipmentsexceeded the total decline in apparent domestic consumption".  After noting that there had been a
"significant increase in imports" and a "rapid increase in the proportion of the domestic market
supplied by imports" during interim 2001, he correctly concluded that imports had had a greater
impact on domestic price and profitability declines in interim 2001 than demand declines.
3260
7.1409  The United States submits that, given the foregoing, it is clear that Commissioner Koplan
thoroughly and adequately discussed the nature and extent of the effects of the demand declines in
interim 2001 and distinguished the effects of this decline from that of imports during the period ofinvestigation.  In particular, he acknowledged that some of the price and profitability declines suffered
by the industry were attributable to the demand decline in interim 2001, but he also found that the
industry's production and shipment levels had declined at a substantially faster rate than demand in
interim 2001, which was due to the substantial increase in import market share during interim
2001.
3261  The United States argues that given these trends, it was reasonable for Commissioner
Koplan to conclude that imports had had a greater hand in price declines in interim 2001 than
demand.  Moreover, by focusing on the fact that there was a faster rate of change for industry
production levels than demand in interim 2001, he was able to separate and distinguish the effects of
the demand declines from those attributable to imports in interim 2001.  In other words, by examining
the differences in the rates of decline between industry production and shipment levels and demanddeclines in interim 2001, he was able to conclude that the differential between these declines had been
caused by the substantial increases in import volumes and market share in interim 2001.   As a result,
he was able to, and did, attribute to imports the bulk of the declines in the industry's pricing and
profitability levels that occurred in interim 2001.   By performing this qualitative assessment of the
extent of the effects attributable to imports, he was able to distinguish the effects of the two factorsand ensure that he did not attribute to imports the effects of the demand decline.
3262
COGS
7.1410  The European Communities argues that whil e Chairman Koplan weighed the effect of
decrease in demand against increases in imports and found that domestic production had fallen further
than the decrease in demand, he did not consider the effect of increased COGS on the deteriorating
operating margin of domestic producers.  The European Communities submits that had he examined
this factor, he may have found that increased COGS had such an effect that increased imports did notcause the decline in operating margins registered in this period. In failing to do so, Chairman Koplan
failed to separate out and distinguish the effects of other factors and failed to ensure that the effects of
these factors were not attributed to increased imports, thus acting inconsistently with Article 4.2(b) of
the Agreement on Safeguards..
3263
7.1411  In response, the United States argues that  Commissioner Koplan very clearly did "consider
the effects of increased costs of goods sold on the deteriorating operating margin of the industry".  In
particular, he discussed in detail the nature and extent of the effects that cost increases had on the
condition of the industry.  Although the industry's unit costs had increased in interim 2001,
Commissioner Koplan correctly acknowledged that th e industry had not been able to maintain its
profitability margins in interim 2001 as it had earlier in the period, by keeping its prices in line withchanges in its unit costs.  He also reasonably concluded that the price declines in interim 2001, which
                                                     
3260 United States' first written submission, para. 742
3261 United States' first written submission, para. 743
3262 United States' first written submission, para. 744
3263 European Communities' first written submission, para. 579.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 458
directly led to reduced industry profitability, had been caused by imports and demand changes, after
noting that the two major changes in the market in interim 2001 had been a substantial increase in
import market share and a decline in demand.3264  The United States argues that by focusing on the
changes in unit margins that occurred during interim 2001, he was able to separate and distinguish the
effects of increasing costs from those of imports and demand changes in his analysis.  In this regard,
his examination of the unit profits of the industry, and the relationship between the industry's profits,
costs and prices, enabled him to establish that the decline in industry profitability in interim 2001 was
caused not by rising costs but by a decline in the prices related to price competition from imports
during a period of demand decline.  Accordingly, it is clear that he properly assessed the amount ofeffect that these cost increases had had on declines in domestic operating income levels during interim
2001 and reasonably concluded that these declines were more appropriately considered to be a result
of falling prices, not increasing costs.  By doing so, he ensured that he was able to distinguish the
effects of the cost increases from those of imports on the declines in the industry's condition and
ensured that he did not attribute to imports the effects of these cost increases.
3265
7.1412  In counter-response, the European Communities argues that 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.3266 The first two were imports and declining demand. Thirdly, "unit costs of goods sold
increased by ***%" (all financial data for Stainless Steel Wire is confidential).3267 He noted that "the
falling prices and rising costs led to a *** percentage point loss [sic] in the operating income to sales
ratio between interim 2000 and interim 2001".3268 That is all the discussion of rising costs in interim
2001 that the USITC Report contains. The European Communities submits that the discussion in the
United States' submissions 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 factssupport the findings, especially in the absence of a non-confidential indexed version of the data.
There is no examination of the relevance or cause of increased costs, no separation and distinction,
and thus no non-attribution.
3269
NAFTA imports
7.1413  China argues that Chairman Koplan's determination of the existence of a causal link between
the increased imports and the threat of serious injury to the domestic stainless steel wire industry, was
made on the grounds of data which included imports from NAFTA countries.  However, Chinabelieves that, since imports from NAFTA countries were excluded from the application of the
safeguard measure, what had to be determined was in fact whether total increased imports, with the
exception of imports from NAFTA-countries, threaten ed to cause serious injury to the domestic
industry. As a result, since the determination of causality at hand required that "increased imports"
only consist of imports originating from non-NAFTA countries, the movements in imports fromCanada and Mexico had to be regarded as "another factor".  Thus, in respect of Article 4.2(b) of the
Agreement on Safeguards, this new determination also required that threat of injury due to
movements in imports from Canada and Mexico not be attributed to increased imports (from non-
NAFTA countries).
3270  China argues that such a new determination was not done concerning this
                                                     
3264 United States' first written submission, para. 738.
3265 United States' first written submission, para. 739.
3266 USITC Report, Vol. I, p. 259.
3267 USITC Report, Vol. I, p. 259.
3268 USITC Report, Vol. I, p. 259.
3269 European Communities' second written submission, para. 433.
3270 China's first written submission, para. 541.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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product.  According to China, this is especially surprising, given that the Chairman Koplan
acknowledged that imports from Canada and Mexico were threatening to cause injury by stating that
"imports of stainless steel wire from Canada […] did not contribute importantly to the serious injury"
and "imports of stainless steel wire from Mexico […] did not contribute importantly to the serious
injury".  In other words, imports from NAFTA c ountries contributed in threatening to cause the
injury, although this contribution was not substantial.3271  China asserts that since it did not proceed to
a new determination of causality between increased imports from non-NAFTA countries and the
threat of serious injury to the domestic industry , there was consequently a failure to assess the
injurious effects caused by imports from Mexico and Canada and a failure to ensure that they wouldnot be attributed to increased imports from non-NAFTA countries.  Therefore, the investigating
authority did not comply with Articles 2(1)  and 4.2(b) of the Agreement on Safeguards.
3272
7.1414  The European Communities also argues that in failing to analyse imports from Canada and
Mexico as alternative causes of injury, the USITC also acted inconsistently with Article 4.2(b).3273
The European Communities argues that the USITC Report does not provide a reasoned and adequate
explanation of whether NAFTA imports were causing injury and how any such injury caused was not
attributed to non-excluded imports. Chairman Koplan  simply concludes that imports from neither
Mexico or Canada were in the top five suppliers during the period of investigation. He does 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.3274
7.1415  For the United States' response, see paragraph 7.1066 et seq .
Failure to provide reasoned and adequate explanation
7.1416  The European Communities and China note, that in his separate views on injury, Chairman
Koplan expressly stated that three other factors contributed to the threat of injury, i.e. a rapid decline
in consumption, an increase in the unit costs of goods sold and declining demand.3275  The European
Communities argues that Chairman Koplan's conclusions, upon which it asserts that the safeguard
measure for stainless steel wire are based, are directly contradicted by the opinion of the majority.3276
The European Communities argues that in order to  provide a reasoned and adequate explanation  of
Chairman Koplan's findings there would have to be a clear rebuttal of this finding.  There is none, and
this brings into question, therefore, the basis for the finding of a causal link between increased imports
and a threat of serious injury.  For this reason, the European Communities argues that the safeguard
measures imposed on this basis are unjustified and are thus inconsistent with Article 2.1 and 4.2(b) ofthe Agreement on Safeguards, and additionally Articles 3.1 and 4.2(c).
3277
7.1417  In response, the United States submits that, as an initial matter, the Agreement on Safeguards
does not require that all six individual decision-makers reach the same conclusion, or that the
individual Commissioners must rebut  the findings of others with different conclusions, but requires
that the determination, as the Appellate Body said in US – Line Pipe , meets the obligations contained
in the Agreement on Safeguards.  The determination of Commissioner Koplan meets those
requirements.  Indeed, the fact that Commi ssioners Miller, Hillman and Okun disagreed with
                                                     
3271 China's first written submission, para. 542.
3272 China's first written submission, para. 543;  China's second written submission, para. 293
3273 European Communities' first written submission, para. 579.
3274 European Communities' first written submission, para. 435.
3275 European Communities' first written submission, para. 578.
3276 European Communities' first written submission, para. 580; China's first written submission,
para. 535.
3277 European Communities' first written submission, para. 581.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 460
Commissioner Koplan no more makes his analysis unreasonable than his disagreement with them
makes their analysis unreasonable.3278
7.1418  The United States submits further that Commissioner Koplan's pricing analysis is actually not
inconsistent with the pricing findings of Commi ssioners Miller, Hillman and Okun.  Like these three
Commissioners, Commissioner Koplan specifically found that imports had consistently undersold
domestic stainless steel wire during the period from 1996 to 2000, but that this consistent underselling
had not impacted domestic pricing adversely because the "domestic industry had kept prices of the
domestic [wire] product in line with its costs" during that five year period.  However, unlike the other
three Commissioners, Commissioner Koplan also focused his analysis on pricing data for imports anddomestic product in interim 2001 and noticed that lowered import pricing had begun interfering with
the ability of domestic industry to keep its prices in line with its costs.  In particular, he found that, in
combination with declining demand, the increase in import volumes and market share caused the price
of domestic wire to fall during a period of rising costs and led directly to a decline in the industry's
operating income levels in interim 2001.  As a result, he reasonably found, the increase in imports andtheir concurrent underselling had caused the substantial declines in the industry's condition in the final
months of the period of investigation, thus s howing that imports thre atened the industry with
imminent serious injury.  In other words, Commissioner Koplan's findings about price competition in
the market during the first five years of the period were, in fact, consistent with the findings of the
other three Commissioners.  However, Commissioner Koplan simply placed more emphasis than theother Commissioners on the pricing effects of imports  during the last six months of the period, which
is a reasonable choice given his finding that imports threatened serious injury to the stainless steel
wire industry.
3279
7.1419  China argues that to be certain that the injury caused by these three other factors, that is a
rapid decline in consumption, an increase in the unit costs of goods sold and declining demandwhatever their magnitude, was not attributed to imports, the USITC had to assess the injurious effects
of these other factors. China believes that it failed to do so.
3280  China states that, in sum, China
believes that the injurious effects of the three other factors that were threatening to cause injury at the
same time as the increased imports were not properly assessed by Chairman Koplan.  Thus, it is
impossible to determine whether he properly separated the injurious effects of these factors from the
injurious effects of the increased imports.3281  China argues that, as a result, the investigating authority
also failed to establish explicitly, with a reasoned and adequate explanation, that threat of injury dueto other factors was not attributed to increased imports. Therefore, China believes that the "substantial
cause" determination was inconsistent with Articles 2(1) and 4.2(b) of the Agreement on
Safeguards.
3282
(x) Stainless steel rod
Factors considered by the USITC
Downturn in demand
7.1420  The United States argues that the USITC explained, in a reasoned and thorough manner, the
nature and extent of the injurious effect attributable to these demand declines, and distinguished that
                                                     
3278 United States' first written submission, para. 732
3279 United States' first written submission, para. 733.
3280 China's first written submission, para. 537.
3281 China's first written submission, para. 539.
3282 China's first written submission, para. 540.WT/DS248/R, WT/DS249/R,
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Page 461
effect from the effects of imports.  More specifically, the USITC recognized that, after remaining
stable through most of the period of investigation, demand for stainless steel rod did decline in late2000 and interim 2001.  However, the USITC correctly noted that the industry had been experiencing
declines in its market share, production volumes, sales levels, employment levels, and profitability
levels during the period from 1996 to 1999, when imports had exhibited increasing volumes as well.
Moreover, it also specifically found that "it is clear imports had a greater impact on the declines in the
industry's condition in 2000 and interim 2001 than demand declines" because there had been a
"substantial increase in import quantities and market share during the last year-and-a-half of the
period" of investigation.
3283
7.1421  The United States argues that it is clear that the USITC closely examined the nature of the
injury that was attributable to demand declines during the period.  In particular, the USITC properly
noted that demand declines had become evident only during the final three quarters of the period of
investigation.  However, it also correctly noted that these late-period demand declines could not
possibly have contributed to the serious declines in the condition of the industry during the three yearsprior to this period, when demand remained stable.  Indeed, given that demand not only remained
stable but actually increased slightly in 2000 over 1999 and 1998, it is clear that demand declines had
no impact at all on the condition of the industry during 2000 as well.  By examining whether imports
caused injury to the industry during a period of increasing demand, the USITC was able to distinguish
the effects of the demand declines in the final quarters of the period of investigation from thoseattributable to imports during prior periods.  Accordingly, the USITC properly separated and
distinguished the effects of demand declines from those of imports in its analysis.
3284
Increases in capacity
7.1422  The European Communities argues that the USITC Report indicates that substantial increases
in capacity were made in 1998 to 2000 and 2001.  However, according to the European Communities,there is no analysis of the extent to which such increased capacity might have caused injury to the
domestic industry.
3285
7.1423  In response, the United States submits that none of the parties argued before the USITC that
the industry's increased capacity levels was a source of injury to the industry during the period of
investigation.  While Members are not barred from raising before panels issues that were not raised
before the USITC during its investigation, it remains the case, however, that the European
Communities's arguments on this score, if valid, should have been significant enough for theEuropean rod producers to have raised this as an argument before the USITC.  The fact that they did
not strongly suggests, as a matter of fact, that the European participants in the stainless steel rod
market did not view industry capacity as an especially significant factor in the industry's declines
during the period of investigation.
3286
7.1424  The United States argues, secondly, that the USITC clearly did recognize the fact that the
industry had increased its aggregate capacity levels during the period and that the industry's capacity
utilization rates declined during the period as well.   However, even with this capacity increase, the
record also showed as the USITC found that th e industry's actual production levels and shipments
actually declined during the period from 1996 through 2000, primarily because imports increased
their volumes and market share through price underselling during the period of investigation.
                                                     
3283 United States' first written submission, paras. 706-707.
3284 United States' first written submission, paras. 708-709.
3285 European Communities' first written submission, para. 573.
3286 United States' first written submission, para. 717.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 462
Accordingly, the USITC properly recognized that th e industry's capacity increases had little effect in
the market because the industry's production, shipment and market share levels would have declinedby the same amounts even if the industry had not increased its capacity levels.  Moreover, because the
industry's production and shipment levels declined substantially from 1996 through 2000 as a result of
import competition, it is also clear that the import increases had an effect on the industry's capacity
utilization rates as well, as the USITC found.
3287
7.1425  The United States argues, in sum, that the USITC was aware of the industry's capacity
increases, discussed them in some detail, and correctly found that they had not had an impact on the
declines in the industry's overall condition.  The USITC properly considered their effects anddiscounted them as a source of serious injury.
3288
7.1426  In counter-response, the European Communities notes that capacity increases occurred
between 1998 and 2000, and it has been established, that while imports only increased slightly
between 1998 and 1999, the industry's operating income "dropped dramatically to a loss of US$***
million in 1999 and a loss of US$*** million in 2000".3289 The United States tried to explain this
away by claiming that that the industry's produc tion levels and shipments declined between 1996 and
2000.3290  However, a decline in production levels and shipments does not necessarily mean that an
industry makes losses – such events could also incur when an industry is profitable.  Rather, an
industry makes losses when the value at which it sells does not cover its costs.  Increasing capacity,
especially when demand is stable3291, will only lead to increased costs, and must be an element
explaining the "dramatic" losses in 1999. However, the USITC does not provide a reasoned and
adequate explanation of the effects such capacity increases had on the industry's performance, and it is
impossible to fully comprehend the underlying trends in the absence of data or on indexed summary
of such data.3292
NAFTA imports
7.1427  China notes that the determination of the existence of a causal link between the increased
imports and serious injury to the domestic stainless steel rod industry, which is found in the USITC
Report was made on the grounds of data which included imports from NAFTA countries.  However,
China believes that, since imports from NAFTA countries were excluded from the application of the
safeguard measure, the USITC had to determine whether total increased imports, with the exception
of imports from NAFTA-countries, caused serious injury to the domestic industry.  China argues that
as a result, since the determination of causality required that "increased imports' only consist ofimports originating from non-NAFTA countries, the movements in imports from Canada and Mexico
had to be regarded as "an other factor".  Article 4.2(b) of the Agreement on Safeguards also required
that injury caused by movements in imports from Canada and Mexico not be attributed to increased
imports (from non-NAFTA countries).
3293The European Communities also argues that in failing to
analyse imports from Canada and Mexico as alternative causes of injury, the USITC also actedinconsistently with Article 4.2(b).
3294  The European Communities notes in this regard that the USITC
concluded, both for Canada and Mexico, that NAFTA imports did not "contribute importantly" to
                                                     
3287 United States' first written submission, para. 718.
3288 United States' first written submission, para. 719.
3289 USITC Report, Vol. I, pages 215 and 216.
3290 United States' first written submission, para. 718.
3291 USITC Report, Vol. I, p. 217.
3292 European Communities' second written submission, para. 428.
3293 China's first written submission, para. 500.
3294 European Communities' first written submission, para. 572.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 463
serious injury.  According to the European Communitie s, this does not suggest that such imports had
no effect – the USITC failed to separate and distinguish this effect, and ensure that it was notattributed to non-excluded imports.
3295
7.1428  For the United States' response, see paragraph 7.1066 et seq .
Failure to Provide Reasoned and Adequate Explanation
7.1429  China argues that to be certain that the injury caused by these other factors, downturn in
demand and increases in energy costs, whatever their magnitude, was not attributed to imports, the
USITC had to assess the injurious effects of these other factors.  However, the USITC failed to do so,
as there is no information to that effect in the USITC Reports.3296  China states that, in sum, China
believes that the injurious effects of the other factors that have caused the injury at the same time as
the increased imports had not been properly assessed by the USITC.  Thus, it is impossible to
determine whether the USITC properly separated the injurious effects of these factors from the
injurious effects of the increased imports.3297 China argues that, in sum, the USITC failed to
adequately evaluate the complexity of the alleged in jury factors.  It also failed to provide a sound,
clear and straightforward explanation of how it ensured that injury caused by other factors was not
attributed to increased imports.  Therefore, China believes that the USITC acted inconsistently with
Articles 2(1) and 4.2(b) of the Agreement on Safeguards.3298
7.1430  The European Communities further argues that it is practically impossible to ascertain
whether the USITC's determination with respect to stainless steel rod is justified since all data otherthan absolute imports has been kept confidential.
3299
7.1431  In response, the United States notes that the USITC has treated as confidential and therefore
not disclosed the bulk of the trade, employment, and financial data for the stainless steel rod industry.
The USITC redacted this data from its opinion because the stainless rod industry is dominated by the
only large domestic producer of stainless steel rod, Carpenter/Talley  and Carpenter/Talley's operatingand trade data essentially are the same as the aggregate industry data.  Disclosing the aggregate
confidential competitive data of the industry would therefore actually reveal the specific details of
Carpenter/Talley's operations.  The USITC is barred by United States law – as well as Article 3.2 of
the Agreement on Safeguards – from disclosing such confidential company-specific competitive
information without the consent of the provider.  However, when the USITC is prohibited from
disclosing confidential competitive data for a company, the USITC treats only the specific numeric
data of the company as confidential;  it may and does discuss trends in industry data (or otherconfidential data) in general but descriptive terms.
3300
7.1432  The United States argues that, bearing this in mind, the European Communities' contention
that the USITC failed to provide an adequate statement of its rationale for stainless steel rod is
misplaced.  First, as the United States had previously discussed, the Agreement on  Safeguards not
only permits, but indeed requires, a competent authority not to disclose any information that issubmitted to it on a confidential basis, unless the submitting party consents to the disclosure.   In fact,
two panels have stated that the  Agreement on Safeguards authorizes the United States not to disclose
                                                     
3295 European Communities' second written submission, para. 431.
3296 China's first written submission, para. 493.
3297 China's first written submission, para. 494.
3298 China's first written submission, para. 499.
3299 European Communities' first written submission, para. 570.
3300 United States' first written submission, para. 693.WT/DS248/R, WT/DS249/R,
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WT/DS253/R, WT/DS254/R,
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Page 464
confidential data in its determination, even if that data is aggregated data.   Moreover, these panels
have rejected the argument that the USITC's analysis does not constitute a "reasoned and adequateexplanation" of its findings simply because it has not disclosed confidential data in its analysis.
3301
Second, even though a substantial amount of confidential industry data is redacted from the USITC'sopinion, its analysis is still sufficiently detailed and clear that the Panel can read the analysis and
assess whether it meets the causation requirements of the  Agreement on Safeguards.  The USITC's
decision, while deleting specific numeric data reflecting the operations of a company
Carpenter/Talley, nonetheless describes in detail the trends in import and industry data, the clear
correlations between those trends, and the extent to which other factors impacted the industry.  It isclear that redaction of the data should not hamper the Panel's review of the USITC's analysis,
especially given that redaction of this data is fully consistent with the provisions of the Agreement on
Safeguards .
3302
4. Effect of violations of other provisions of the Agreement on Safeguards
7.1433  The European Communities and Switzerland argue that the USITC's causation analysis will
automatically be flawed if the Panel finds that th e United States' determination of increased imports is
flawed.3303 More particularly, the European Communities argues that the USITC's analysis of
increased imports which is based on an end-to-end comparison over the investigation period is
inconsistent with the United States'  obligation on ly to find increased imports where it determines the
existence of an increase of imports recent enough, sudden enough, sharp enough and significantenough qualify as increased imports in the sense of the Agreement on Safeguards.  The European
Communities argues that this analytical error taints the USITC's causation analysis more generally,
because the USITC only attempts to determine whether imports which have increased over the period
of investigation have caused serious injury.  It does not determine whether imports which have
increased recently enough, suddenly enough, sharply enough and significantly enough are causingserious injury.  This has two operational consequences. First, injury which has manifested itself before
such increased imports cannot be ascribed to these increased imports. Second, if the level of imports
increases and then drops away, injury which appears as imports drop away cannot be ascribed to such
lower level imports even if they are low priced, because they are not recent enough, sudden enough,
sharp enough or significant enough.  Injury which appears after the level of imports has dropped away
must be shown to be caused by imports which were, as a matter of fact, recent enough, sudden
enough, sharp enough and significant enough to meet the standards of the Agreement on Safeguards.The further the lapse in time between such increased imports and the serious injury to the domestic
industry, the more compelling must be the analysis of causal link.
3304 3305
7.1434  Korea argues that Article 3.1 of the Agreement on Safeguards imposes an obligation on the
competent authorities to publish "their findings and reasoned conclusions" regarding "all pertinent
issues of fact and law".  Article 4.2(c) of the Agreement on Safeguards requires the competentauthorities to "publish promptly" a detailed analysis  of the results of the investigation, including "the
relevance of the factors examined".  Finding causality between an increase in imports and the serious
injury is a "pertinent issue of fact and law".  The United States did not provide any explanation on
                                                     
3301 United States' first written submission, para. 694.
3302 United States' first written submission, para. 695.
3303 European Communities' first written submission, para. 432;  Switzerland's first written submission,
para. 277.
3304 Appellate Body Report, Argentina – Footwear (EC)  para. 144.
3305 European Communities' second written submission, para. 369.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
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how the increase in import of tin mill caused the serious injury of the United States industry
producing the like product.3306
7.1435  Korea also argues that there is only one reasoned explanation in the USITC Report regarding
causation for tin mill products.3307  That reasoned explanation demonstrates why, in the view of the
USITC, the increase in imports of tin mill products is not a substantial cause of serious injury to the
domestic tin mill industry.  The published report of the United States does not contain any findings or
explanation to dispute or contradict the cited r easoned explanation contained in the USITC Report.
Since the United States reached a legal conclusion that imports were a substantial cause of serious
injury to the domestic industry without providing any explanation to support the conclusion, the
United States is in violation of Articles 2, 3 and 4 of the Agreement on Safeguards.3308
I. ARTICLE  5
1. Requirements of Article 5.1
(a) General
7.1436  The remedy recommendations made by the USITC are listed in paragraph Error! Reference
source not found. .  The safeguard measures finally imposed by the US President are listed in
paragraph Error! Reference source not found. .
7.1437  The complainants claim that Article 5.1 of the Agreement on Safeguards imposes on
Members an obligation to ensure that the measure applied is proportionate, i.e.  that it does not go
beyond what is necessary to prevent or remedy the serious injury.  They refer to the Appellate Body inKorea – Dairy  which stated that Members must ensure that the measure applied is commensurate with
the goals of preventing or remedying serious injury and of facilitating adjustment and that this
obligation applies regardless of the particular form that a safeguard measure might take.
3309  Norway,
on behalf of the complainants, argued that the United States has not fulfilled its obligations under the
Agreement on Safeguards in determining whether safeguard measures could be imposed in the firstplace.  Therefore an infringement of these requirements automatically raises ipso facto  or, at least,
prima facie a presumption of violation of Article 5.1 of the Agreement on Safeguards.  Should the
Panel, however, reach a different conclusion on the preceding claims made by the complainants, the
complainants are of the view that the United States, in any case, also violated the requirement laid
down in Articles 5.1 of the Agreement on Safeguards that the safeguard measures be applied only to
the extent necessary.
3310  Finally, they claim that the remedy and the choice of measure needed to be
explained and justified before, or at the time, it was applied and that this was not done in this case.3311
7.1438  The United States responds that its safeguard measures were imposed to a level and for a
duration that complies with the requirements of Article 5 of the Agreement on Safeguards.  It is
evident, through both a qualitative and a quantitative assessment of the effects of imports on the
relevant domestic industries and of the measure taken, that the relief provided was only to the extent
necessary to prevent or remedy serious injury and to facilitate adjustment.  It emphasizes that it is
                                                     
3306 Korea's first written submission, para. 167.
3307 USITC Report, Vol. I, pp. 74-77 (Exhibit CC-6).
3308 Korea's first written submission, para. 168.
3309 Norway's  first oral statement on behalf of all complainants, para. 6, citing Appellate Body Report,
Korea – Dairy , para. 96; Norway's first written submission, paras. 347-348; Japan's first written submission,
paras. 317-318.
3310 Norway's second oral statement on behalf of the complainants, paras. 1-7 and Chapter III.
3311 Norway's second oral statement on behalf of the complainants, paras. 8 and 22-27.WT/DS248/R, WT/DS249/R,
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"impossible to determine in advance with any degr ee of precision the level of import duty necessary
to enable the United States industry to compete with overseas suppliers in the current competitive
conditions … ".3312  The United States adds that any numerical analysis is, at best, an approximation
that might assist a Member or a panel in evaluating whether a measure is commensurate with the
injury caused by increased imports and the need for adjustment  While numerical estimates are
necessarily limited in their ability to precisely quantify and isolate the full effect of imports and the
appropriateness of remedial measures, they may be useful to test whether a measure is set at an order
of magnitude consistent with Article 5.1.3313  It also claims that it has rebutted all allegations of
inconsistency of its safeguard measure with Articles 2 and 4 and, thus, the burden of proof that itssafeguard measures are inconsistent with Article 5.1 is on the complainants.  Moreover, the United
States asserts that it was under no obligation to explain, justify or publish anything relating to its
choice of remedy until challenged in a WTO dispute settlement process.
3314
7.1439  The United States also contends that Member may apply a safeguard measure in any form and
at any level that falls within the parameters of Article 5.1, which states that a safeguard measure maybe applied to "to prevent or remedy serious injury and to facilitate adjustment."  It also states that a
Member may apply a safeguard measure "only to the extent necessary" for these purposes.  Article 5.1
does not restrict a Member's discretion to act within this limitation.  The Member may choose any
form for the measure – for example, a tariff, tariff_r ate quota, or quantitative restriction.  Within this
limitation, the Member may also choose the level of the measure – an ad valorem duty rate, a specific
duty amount, the volume subject to a quota, etc.
3315
(b) Extent and level of the safeguard measures
(i) "… to the extent necessary …"
7.1440  New Zealand argues3316 that the requirement to apply a safeguard measure only to the extent
necessary to remedy serious injury caused by imports and to facilitate adjustment by the domesticindustry also carries with it the consequence that the least trade restrictive measure must be chosen.
Furthermore, as panels in US – Gasoline  and Canada – Periodicals  have pointed out, a measure must
be capable of achieving its objectives before it can be determined to be "necessary".
3317
7.1441  The United States disagrees with New Zealand's argument that the measure should be no
more restrictive than necessary.  The United States argues that the Appellate Body did not state that
Article 5.1 requires that safeguard measures be "no more restrictive than necessary".  Its actual
statement was that safeguard measures "may be applied only to the extent necessary" – a direct quotefrom Article 5.1.
3318 3319  In the United States' view, New Zealand's interpretation conflicts with the
ordinary meaning of Article 5.1 and the object and purpose of the Agreement on Safeguards.  It
suggests that the term "necessary" in Article 5.1 is linked to the words "to prevent or remedy serious
injury and to facilitate adjustment".  Thus, "necessary" relates to the preventive, remedial, and
facilitative effect of the measure, and not to its trade restrictive effect.  In short, the need for relief andadjustment defines what is "necessary".  The final sentence of Article 5.1 advises that "Members
should choose measures most suitable for the achievement of these objectives".  This admonition
                                                     
3312 US – Fur Felt Hats , para. 35.
3313 United States' first written submission, paras. 1060-1062.
3314 United States' second oral statement, paras. 114-121.
3315 The United States' executive summary of its first written submission, para. 111.
3316 New Zealand's first written submission, para. 4.196.
3317 Panel Report, US – Gasoline , para. 6.31; Panel Report, Canada – Periodicals , para. 5.7.
3318 Appellate Body Report, US – Line Pipe , para. 260.
3319 United States' first written submission, para. 1031.WT/DS248/R, WT/DS249/R,
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shows that many potential measures might satisfy the requirements of the first sentence of Article 5.1,
and that Members have discretion in choosing which, among them, best meets the objectives ofpreventing or remedying serious injury and facilitating adjustment.  The cited passages of US –
Gasoline  and Canada – Periodicals did not equate necessity with the capability to achieve objectives.
Even if "necessary" had been given the meaning attributed to it by New Zealand, the safeguard
measures applied by the United States are capable of preventing or remedying serious injury and
facilitating the adjustment of the relevant domestic industries.
3320
7.1442  New Zealand responds that, in an effort to blunt the remedy standard to the point where it is
impossible to make an objective determination as to whether it has been met, the United Statessuggests that what the standard really means is a measure can be applied " as long as it is necessary  to
remedy (or prevent) the serious injury and to facilitate adjustment"
3321, thereby taking the
emphasis away from the limitation inherent in "extent".  According to New Zealand, in this way, the
United States seeks to unjustifiably broaden the scope of Article 5.1 so that any measure a Member
asserts as being for the purpose of remedying or preventing serious injury and facilitating adjustmentwould be permitted.  For this reason, the United States disputes
3322 New Zealand's statement that, in
accordance with US – Gasoline  and Canada – Periodicals, a measure must be capable of achieving its
objectives before it can be determined to be "necessary".3323  In doing so, New Zealand asks, is the
United States seriously asking the Panel to conclude that a measure can be necessary to achieve an
objective, without actually being capable of achievi ng it?  To do so would be to render meaningless
the concept of "to the extent necessary" as it appears in Article 5.1.  New Zealand submits that the
United States seeks to argue that the remedy standard in Article 5.1 implies a broad discretion, noting
that a Member has the discretion to apply a measure that is "less than necessary".3324  Yet New
Zealand queries why a Member genuinely concerned with the effect of increased imports on its
domestic industry would consciously choose a remedy th at would be less than effective in remedying
the serious injury caused by those imports.  According to New Zealand, the United States point goes
nowhere.  It is simply a device used by the United States to support the notion of a broad discretion in
Article 5.1 that disregards the actual standard contained in Article 5.1.  As the Appellate Body has
made clear, Article 5.1 instructs WTO Members to focus on what is "necessary" to fulfil that limited
objective.3325  Therefore, the clear purpose of safeguard measures is to prevent or remedy serious
injury and facilitate adjustment.  This was recognized by the Appellate Body in Korea – Dairy  when
it stated that a Member must ensure that the measure applied "is commensurate with the goals of
preventing or remedying serious injury and of facilitating adjustment".3326
7.1443  New Zealand submits that in a further attempt to negate the words of Article 5.1, the United
States also challenges New Zealand's statement that the requirement to apply a safeguard measure
only to the extent necessary to remedy a serious injury caused by imports and facilitate adjustment by
the domestic industry also carries with it the consequence that the least trade restrictive measure mustbe chosen.  The implication appears to be that the United States interprets Article 5.1 as allowing a
Member to take a more trade restrictive measure to achieve the objective of remedying serious injury
caused by imports and facilitate adjustment when a less trade restrictive measure could achieve the
same objective.  Such an interpretation ignores a ltogether the requirement that a measure be applied
                                                     
3320 United States' first written submission, paras. 1029-1031.
3321 United States' first written submission, para. 1021 (emphasis added).
3322 United States' first written submission, para. 1031.
3323 New Zealand's first written submission, para. 4.196, citing Panel Report, US – Gasoline , and Panel
Report, Canada – Periodicals .
3324 United States' written reply to Panel question No. 100 at the first substantive meeting.
3325 Appellate Body Report, US – Line Pipe , para. 246.
3326 Appellate Body Report, Korea – Dairy , para. 96, (emphasis added).WT/DS248/R, WT/DS249/R,
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"only to the extent necessary" to achieve the specified objectives.  It also ignores the requirement that
Members choose measures "most suitable" for the achievement of those objectives.
7.1444  Japan adds that when Article 5.1 says "only to the extent necessary", the text imposes a strict
standard.  The use of "only" means that the measure can be less restrictive than necessary, but cannot
be more restrictive than necessary.  Thus, when there is doubt regarding the effect of a remedy, the
authorities must err on the side of a less restrictive measure.3327  Japan puts forth the following simple
example.  Suppose the authority concludes it needs to raise domestic prices by 10% to remedy the
injury.  The economic studies show that a 12% tariff will raise prices by some amount between 8 and
10%.  The economic studies also show that a 14% tariff will raise prices by some amount between 10and 12%.  It is common for such studies to provide reliable indications of ranges, but not precise
figures.  In this situation, the authorities could impose a 12% tariff but not the 14% tariff.  In each
case, Japan suggests, the tariff might completely elim inate the injury.  However the possibility that the
14% tariff might over compensate renders that tariff level WTO inconsistent.
3328
7.1445  The United States notes that Japan argues that when an economic model produces a range of
estimated effects of imports, Article 5.1 allows the safeguard measure to address only the lowest
estimated effect because "the possibility that the 14% tariff might over compensate renders that tariff
level WTO inconsistent".3329  The United States argues that this argument rests on three fallacies.
First, it incorrectly views "no more than the extent necessary" in Article 5.1 as requiring a Member
to ensure from the outset that a measure will never exceed the extent necessary. The GATTContracting Parties recognized in US – Fur Felt Hats  that such certainty is impossible.  Moreover, the
chance that a safeguard measure consistent with Article 5.1 may need modification in the course of
events is built into the requirement under Article 7.4 for a Member to "review the situation" at the
mid-term of a safeguard measure and "if appropriate, withdraw it or increase the pace of
liberalization".  This provision would be unnecessary if Article 5.1 required a Member to apply asafeguard measure less than the lowest possible effect of increased imports.  Second, Japan fails to
account for progressive liberalization of safeguard measures under Article 7.4.  Automatic reductions
in the extent of application of the measure lessen any uncertainty over whether the overall effect of
the measure over its lifetime is consistent with Article 5.1.  In this regard, it is noteworthy that an
aggressive rate of liberalization is built into the steel safeguard measures – 6% per year for the 30%
tariffs.  Third, Japan mistakenly views the range of outputs of an economic model as actual effects of
a measure and actual effects of increased imports that can be compared with pinpoint accuracy.  Theyare not.  At most, they indicate the general magnitudes of injurious and remedial effects.  The
Appellate Body recognized the inherent uncertainty of such a comparison when it described
Article 5.1 as requiring that a safeguard measure be "commensurate" with – not equivalent or equal to
– "the goals of preventing or remedying serious injury and facilitating adjustment".
3330  The United
States argues that that is what it has done, and is the reason the Panel should find the measures to beconsistent with Article 5.1.
3331
(ii) "… to prevent serious injury attributed to 'increased imports' "
7.1446  The complainants submit that only the effects of the increase in imports and not the totality of
the imports are to be remedied by a safeguard measure.  Indeed, competition against imports is a
normal feature in an open free trade system and the objective of safeguard measures cannot be the
                                                     
3327 Japan's written reply to Panel question No. 115 at the first substantive meeting.
3328 Japan's written reply to Panel question No. 112 at the first substantive meeting.
3329 Japan's written reply to Panel question No. 155 at the first substantive meeting.
3330 Appellate Body Report, Korea – Dairy , para. 96.
3331 United States' second written submission, paras. 224-226.WT/DS248/R, WT/DS249/R,
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eradication of all imports.  Safeguard measures cannot target adjustment to competition against
imports as a whole and remain below the maximum permitted level under Article 5.1.  The AppellateBody has interpreted the whole phrase "only to the extent necessary to prevent or remedy serious
injury and to facilitate adjustment" as requiring that safeguard measures apply only to the extent that
they address serious injury attributed to increased imports.  This conclusion clearly rules out any
interpretation which would allow safeguard measures to address more than the injury caused by
increased imports on the basis that it would be nece ssary "to facilitate adjustment".  In other words,
the objective of "facilitating adjustment" does not mean that safeguard measures can address
competition against the totality of imports.
3332
7.1447  Switzerland submits that more particularly in US – Line Pipe3333, the Appellate Body stated
that Article 5.1, first sentence does not permit a Member to apply a safeguard measure to prevent or
remedy "the entirety  of the serious injury experienced by the domestic industry".  The Appellate Body
goes on to say that the words "only to the extent necessary" instruct WTO Members to focus on what
is "necessary" to fulfil that limited objective, wh ich is to prevent or remedy serious injury and
facilitate adjustment".3334 3335  The European Communities and Japan suggest that this interpretation is
supported by the second sentence of Article 5.1, which sets a limit to safeguard measures
implemented in the form of quantitative restrictions.  Indeed, quantitative restrictions cannot reduce
the quantity of imports below the level of a recent period which shall be the average of imports in the
last three representative years for which statistics are available, unless clear justification is given thata different level is necessary to prevent or remedy serious injury.  Thus, the second sentence of
Article 5.1 prohibits, in principle, remedies which w ould have an impact on the totality of the imports
and strongly suggests that safeguard measures can only address the increase in imports.  The
maximum permitted level of the safeguard measures should, in practical terms, be lower if the remedy
can address only the increase in imports than if it is  permissible to tackle the totality of the imports.
In particular, safeguard measures cannot aim at cutting back imports to below the non-injurious level
preceding the increase.
3336
7.1448  Japan argues that the Agreement on Safeguards is meant to address changes in the
competitive dynamic between imports and the domestic industry, whether it manifests itself as an
absolute increase in imports or an increase relative to domestic production.  The issue is not the
effects of imports per se , but the effects of the import increase.  It is critical also that the measure not
attempt to address the effects of other factors, and that it take into account the remedial effects alreadyat work in the market, such as anti-dumping and countervailing duties measures imposed since the
increase in imports occurred.
3337  Norway adds that competition against imports is a normal feature in
an open rule based free trading system and the objective of safeguard measures cannot be the
eradication of all imports.  It is only the sudden, recent and sharp increase which causes the serious
injury that the measure can address.3338
7.1449  Korea submits that the difference between focussing on all imports and only on imports that
have increased can be important.  First, the authorities could quantitatively determine the amount of
injury caused by increased imports alone (e.g ., imports caused a 20% decline in profitability).
                                                     
3332 Norway's second oral statement on behalf of all complainants, paras. 9, 13 and 14.
3333 Appellate Body Report, US – Line Pipe , para. 243.
3334 Appellate Body Report, US – Line Pipe , para. 246.
3335 Switzerland's second written submission, paras. 109-110.
3336 Complainants' written replies to Panel question No. 153 at the first substantive meeting.
3337 Japan's written reply to Panel question No. 153 at the first substantive meeting.
3338 Japan's written replies to Panel questions Nos. 112 and 115 at the fist substantive meeting;
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Therefore, the remedy would be to return the indust ry to that level of profitability (20%).  In this
example, only the increase in imports would be addressed.  Second, if the authorities are unable tospecifically identify the exact amount of injury  from increased imports, the measure should address
the volume of import increases by reducing the volume of the increase to the extent of increase and its
injurious effects.  This is an alternative approach. Under either approach, if the entire amount of the
imports rather than the increase is used, the result would be very different.  In fact, it was only when
the imports reached a certain level that they became injurious.
3339
7.1450  Brazil adds that the entire safeguard mechanism is dependent on there being increased
imports.  This is what triggers an investigation and is a threshold condition under Article 2.1 for theapplication of safeguard measures.  It is clear that the central purpose of safeguard measures is to
address serious injury or the threat thereof from increased imports.  Article 5.1 cannot be interpreted
in a manner contrary to this purpose.  In Brazil's view, Article 5.1 itself supports the notion that the
purpose of the Agreement on Safeguards is to restore the status quo ante , specifically the condition of
the domestic industry before the effect of increased imports.  The limitation of quantitative measuresto the average of the last three representative years is indicative of restoring the status quo ante .  In
effect, it suggests a rollback to the pre-increase in imports level and puts the burden on the competent
authorities to justify quantitative restrictions which roll back imports below a representative former
period.
3340  The European Communities, Korea and Brazil add that they would distinguish between
the application of safeguard measures to imports as a whole and the application of safeguard measuresto remedy the serious injury from increased imports.  Because safeguard measures are on the face of
the Agreement on Safeguards about remedying serious injury from increased imports, this limitation
is implicit in Article 5.1.  However, in their opinion, Article 5.1 does not limit the application of
safeguard measures only to the increased imports, but rather permits competent authorities to apply
safeguard measures to all imports so long as the remedial effect is limited to remedying the seriousinjury from increased imports.
3341
7.1451  The United States responds that, based on the reasoning leading up to paragraph 260 of the
US – Line Pipe  Appellate Body Report, which relied heavily on Article 4.23342, "increased imports" in
that paragraph must be read as referring to "i ncreased imports" within the meaning the meaning of
Article 4.2.  "Increased" is a past participle modifying imports, so the ordinary meaning of the
expression is imports that have "become greater in size, amount, duration, or degree; enlarge[d],
extend[ed], intensif[ied]".3343  Since the imports that have increased are all imports, the expression is
to be understood as referring to the totality of imports.  The United States submits that this expression
must have a different meaning from the expression the "increase in imports".  In that case, "increase"
is a noun, and means "[t]he result of increasing; the amount by which something is increased, an
addition".3344  Thus, "increase in imports" is equivalent to the expression "only the increase".  The
context of the expression "increased imports" and "increase in imports" in Article 4 confirms thisinterpretation.  Under Article 4.2(a), the "rate and amount of the increase in imports" and "the share of
the domestic market taken by increased imports" are both factors that the competent authorities must
consider in their analysis of whether increased imports have caused serious injury.  Since a rate is
relevant only in evaluating a change, "increase in imports" would indicate the change in imports from
their previous levels – that is, it would refer to "o nly the imports".  In contrast, "increased imports" is
                                                     
3339 Korea's written reply to Panel question No. 154 at the first substantive meeting.
3340 Brazil's written reply to Panel question No. 46 at the second substantive meeting.
3341 The European Communities, Brazil's and Korea's written reply to Panel question No. 47 at the
second substantive meeting.
3342 Appellate Body Report, US – Line Pipe , paras. 249-252.
3343 The New Shorter Oxford English Dictionary, p. 1342.
3344 The New Shorter Oxford English Dictionary, p. 1342.WT/DS248/R, WT/DS249/R,
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the one factor listed in Article 4.2(a) that is not characterized as a "rate of increase" or a "change in
the level".  Thus, it must refer to "the totality of imports, including the increase".3345
7.1452  The United States submits that Article 4.2(b) further confirms this understanding.  It calls for
a finding of a causal link between "increased imports" and serious injury, and provides for non-
attribution when "factors other than increased imports are causing injury to the domestic industry at
the same time".  If "increased imports" meant only the increase in imports, then the causation analysis
would apply only to the increase, and would have to ignore pre-existing import levels.  If the
Agreement on Safeguards required such an artificial analysis, the United States argues that it would
expect it to say so in clearer terms.  Practical considerations further support this conclusion.  Unlikeimports of a certain type of product, imports from a particular source, or products of a particular
company, it is impossible to identify the "increase in imports" as a discrete presence in the market and
determine its effect on the domestic industry.  For example, if imports from all sources increase from
100 units to 150 units between 1999 and 2000 there is clearly a 50 unit increase.  However the
competent authorities cannot identify any particular 50 of the 150 units imported in 2000 as "theincrease".  It would, therefore, be impossible for them to perform an analysis of "the increase" by
itself that would satisfy the requirements of the Agreement on Safeguards.
3346
7.1453  The United States also reiterates that nothing in Article 5.1 indicates that safeguard measures
are limited to the increase in imports, as opposed to all of the imports that have increased, arguing that
Article 1 confirms this conclusion. Article 1 defines a safeguard measure as a "measure[] provided forin Article XIX of GATT 1994".  That provision, in turn, provides that if:
"[A] product  is being imported into the territory  of [a Member] in such increased
quantities and under such conditions as to cause or threaten serious injury to domestic
producers ... of like or directly competitive products, the [Member] shall be free, in
respect of such product  ... to suspend the obligation in whole or in part or to withdraw
or modify the concession."
7.1454  The United States argues that, therefore, by definition, a safeguard measure may be applied to
a product as such, and not merely to the increase in imports of that product.  Article 2.1 mirrors
Article XIX in specifying that a Member "may apply a safeguard measure to a product " only if it
determines that "such product  is being imported in such increased quantities and under such
conditions as to cause or threaten to cause serious injury".  Thus, the determination of serious injury
also applies to the entirety of the imported product.  Article 4 lays out the requirements for makingsuch a determination, which Article 4.2(a) describes as the determination "whether increased imports
have caused or are threatening to cause serious injury ..."  Thus, the determination described in
Article 4.2 is the same as the determination described in Article 2.1.
3347  Accordingly, "increased
imports" in Article 4.2(a) – and elsewhere in that Article – refers to the "product being imported in
such increased quantities and under such conditions" under Article 2.1.3348  Thus, the determination
under Article 4.2 has the same scope as the determination described in Article 2.1 – increased imports
                                                     
3345 United States' written reply to Panel question No. 153 at the first substantive meeting.
3346 United States' written reply to Panel question No. 153 at the first substantive meeting.
3347 The Appellate Body has found that Article 2.1 "as elaborated in Article 4 of the Agreement on
Safeguards , sets forth the conditions  for imposing a safeguard measure".  Appellate Body Report, US – Wheat
Gluten , para. 95.
3348 As the Appellate Body noted in US – Wheat Gluten , "[i]n the usual course, therefore, the imports
included in the determinations made under Articles 2.1 and 4.2 should correspond to the imports included in theapplication of the measure, under Article 2.2". Appellate Body Report, US – Wheat Gluten , para. 96.WT/DS248/R, WT/DS249/R,
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as a whole.  Article 4.2(a) uses the term "increase in imports" to refer to the change in imports, and
the term "increased imports" to refer to all imports.3349
7.1455  For the United States, the above-mentioned provisions of the Agreement on Safeguards and
Article XIX indicate that the investigation of serious injury, determination of the competent
authorities, and resulting application of a safeguard measure are all with regard to increased imports
as a whole, and not merely the increase in imports.  The United States submits that it is clear that the
inquiry under Article 5.1 is based on imports as a whole.3350
(c) "Facilitate adjustment"
7.1456  The United States submits that the ordinary meaning of the words in Article 5.1 indicates
what effect a safeguard measure may have.  "Prevent" means "to forestall or thwart by previous or
precautionary measures;" "provide beforehand against the occurrence of (something); make
impracticable or impossible by anticipatory action; stop from happening".3351  "Remedy" means "put
right, reform, (a state of things); rectify, make good".3352  Thus, a safeguard measure is permissible if
it rectifies existing injury attributed to increased imports or forestalls such injury in the future.
"Facilitate adjustment" means to promote the adaptation to changed circumstances.3353  Practice under
GATT 1947 indicates that the comparison between the remedial effect of a measure and the injury
caused by increased imports is not a matter of scientific precision and this was already recognized in
the US – Fur Felt Hats  Working Party which stated 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 tocompete with overseas suppliers in the current competitive conditions of the United States market,
and that it would be desirable that the position be reviewed by the United States from time to time in
the light of experience of the actual effect of the higher import duties.
3354 3355
7.1457  The United States argues that "facilitate adjustment" means to promote the adaptation to
changed circumstances.3356  In light of the other provisions of the Agreement on Safeguards, the
United States considers that the changed circumstances in question are the continuation of imports in
such increased quantities and under such conditions as to cause or threaten serious injury, which the
domestic industry will have to face after the termination of a safeguard measure.  Serious injury is
defined in terms of the factors listed in Article 4.2(a).  A remedy to "facilitate adjustment" could
address all of these factors.  The United States submits that the reference to "facilitate adjustment" in
Article 5.1 means adjustment to a "product ... being imported ... in such increased quantities, absolute
or relative to domestic production, and under such conditions as to cause serious injury ..." underArticle 2.1.  A safeguard measure may facilitate adjustment to both the injurious effects of the
increased imports and also the "conditions" associated with those imports that cause serious injury,
such as the prices of those imports.  The United States further submits that Article 5.1 contains an
additive authorization – the measure may both prevent or remedy serious injury and facilitate
                                                     
3349 United States' written reply to Panel question No. 47 at the second substantive meeting.
3350 Appellate Body Report, US – Line Pipe , para. 262.
3351 New Shorter Oxford English Dictionary, p. 2348.
3352 New Shorter Oxford English Dictionary, p. 2540.
3353 New Shorter Oxford English Dictionary, pp. 27 and 903.
3354 US – Fur Felt Hats , para. 35.  The Appellate Body cited this report as part of the GATT 1947
acquis .  Appellate Body Report, US – Line Pipe , para. 174.
3355 United States' first written submission, para. 1025.
3356 United States' first written submission, para. 1025, citing The New Shorter Oxford English
Dictionary , pp. 27 and 903(defining facilitate as "[m]ake easy or easier; promote, help forward (an action,
result, etc.)" and adjustment as "the process of adjusting", which is defined in turn as "[a]dapt oneself ( to); get
used to changed circumstances, etc.").WT/DS248/R, WT/DS249/R,
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adjustment.  Thus, if a measure that fully remedies serious injury does not fully facilitate adjustment
to increased import competition, a Member may apply a measure to a greater extent.  The UnitedStates clarifies that "facilitate adjustment" means to promote the domestic industry's adaptation to
increased imports, not to other potential causes of injury.  For example, if the competent authorities
determine that factors other than increased imports – such as bad managerial decisions or decreased
demand – also caused injurious effects to the domestic industry, Article 5.1 would not authorize
application of a measure to facilitate adjustment with respect to those injurious effects.  In the United
States' view, this is not an issue that the Panel n eed address in this dispute, since the United States
applied the safeguard measure to the relevant product no more than the extent necessary to remedy theinjurious effects of imports.  The level of the application of the measures was not increased to
facilitate adjustment.
3357
7.1458  The United States submits that any numerical approach focusing merely on remedying the
lost profits suffered by a domestic industry during a period of investigation and returning it to a
normal level of profitability cannot adequately capture the full breadth of the need to "facilitateadjustment" to import competition pursuant to Article 5.1.  To facilitate adjustment, the relief in
question must, among other things, allow firms to make necessary new capital investments, consider
restructuring and consolidation measures, improve their ability to raise capital, and often take
extraordinary steps to make up for lost ground during the period of injury caused by imports.  To this
extent, such numerical estimates are, of necessity, inadequate to fully account for both the injurysuffered by a domestic industry and the remedial measures necessary to facilitate adjustment.
3358
7.1459  For the complainants, the permitted maximum level of the remedy under Article 5.1, as
regards the profitability of the domestic industry, should be an improvement of that profitability
limited to the extent that it has been depressed by increased imports.  For instance, if increased
imports have been found the cause of an X% decline in the profitability of the domestic industry, thenthe remedy cannot aim at raising profitability by more than X%.  This pre-supposes a determination of
the extent of the injury suffered by the domestic industry in terms of profitability decline as a result of
increased imports.
3359
7.1460  In the opinion of the United States, the complainants ignore the ordinary meaning of the
words.  They argue that "the permitted maximum level of the remedy ... should be an improvement of
that profitability limited to the extent that it has been depressed by increased imports".3360  However,
their view ignores the accumulation of injurious effects caused by increased imports, which may be asgrave a problem as the ongoing injury.  Their interpretation of "remedy" also ignores the immediate
context of the Article 5.1 reference to "facilitat[ing] adjustment".  A measure that only returned the
status quo  in prices or profitability might give the industry a three-year respite, but leave it in no
better position to respond to increased imports than it was prior to the measure.  The United States
further submits that the complainants' view that the measure can only remedy injury attributed to
increased imports
3361, disregards the Appellate Body's silence on the significance of "and to facilitate
adjustment".3362  In any event, Article 3.2 of the DSU clearly prohibits the European Communities'
                                                     
3357 United States' written reply to question No. 56 at the second substantive meeting.
3358 United States' first written submission, para. 1063.
3359 See, for example, European Communities' written reply to Panel question no. 113 at the first
substantive meeting.
3360 European Communities' written reply to Panel question No. 112 at the first substantive meeting;
Korea and Brazil make similar points in their written rep lies to Panel question No. 112 at the first substantive
meeting.
3361 European Communities' written reply to Panel question No. 153 at the first substantive meeting;
Korea adopts a similar position in its written reply to Panel question No. 115 at the first substantive meeting.
3362 Appellate Body Report, US – Line Pipe , para. 243.WT/DS248/R, WT/DS249/R,
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Page 474
interpretation, as it would effectively excise the words "and to facilitate adjustment" from Article 5.1.
Therefore, for the United States, the Agreement on Safeguards establishes "to prevent or remedyserious injury" and "to facilitate adjustment" as additive objectives.  The Appellate Body has
recognized that one of the objectives of Article 5.1 is to facilitate adjustment.
3363  In fact, "facilitating
adjustment" and preventing or remedying serious injury are equally important objectives.  Absent
adjustment, a safeguard measure would serve no purpose other than to provide a temporary respite,
after which the industry would be no better off than it was when the measure began.  On the other
hand, if the measure succeeded in promoting adjustment, the industry might emerge from the
safeguard measure better able to face import competition without the need of trade remedies.Furthermore, the preamble of the Agreement on Safeguards "[r]ecogniz[es] the importance of
structural adjustment and the need to enhance rather  than limit competition in international markets".
By allowing a domestic industry to adjust to import competition, a safeguard measure may enhance
the competitiveness or efficiency of that industry, thereby bolstering the long-term degree of
competition in international markets.
7.1461  The complainants contest the notion advanced by the United States that it is entitled to
remedy or, rather, "compensate" its industry for the accumulated effects of past increased imports.
3364
They also argue that there is no authority in Articl e 5.1 to remedy injury other than serious injury,
suggesting that even if compensation for past seri ous injury were permitted, the competent authorities
would have to determine precisely when serious injury caused by increased imports occurred in orderto determine the level of compensation permitted.  The European Communities adds that it is strange
that the United States applies an accumulation theory  to increased imports but refuses to "accumulate"
the effects of the various causes of injury other than increased imports in its non-attribution and
causation analysis.  This should be especially tr ue for alternative causes of injury that are more
sensitive to accumulated effects, such as legacy costs or over capacity, for which an analysis of thetrends is obviously not enough.  Indeed, legacy costs and over capacity do not only have injurious
effect if they increase over the period of investigation, but also and mostly because they
accumulate.
3365
7.1462  The European Communities recalls the text of the Presidential Proclamation where it is said
that the measures were designed to facilitate efforts by the domestic industry to make a positive
adjustment to import competition and provide greater economic and social benefits than costs.3366  The
European Communities' submits that, according to the United States, a domestic industry is entitled to
a further bonanza (going beyond the "bonanza" of protecting against all imports rather than just the
increase in imports) when it secures a safeguard measure since the United States considers that
"facilitate adjustment to import competition" includes enabling firms to make necessary new capital
investments and improve their ability to raise capital.  For the United States, returning to a "normal
level of profitability" would not be enough and it would be necessary to allow investment,restructuring and capital raising.  The European Communities disagrees and submits that the fact that
the United States designed its safeguard measures "to facilitate efforts by the domestic industry to
make a positive adjustment to import competition and provide greater economic and social benefits
than costs" demonstrates by itself that the safeguard measures go beyond the extent allowed by
Article 5.1 of the Agreement on Safeguards.
3367
                                                     
3363 Appellate Body Report, Korea – Dairy , para. 96 (obligation " to ensure that the measure applied is
commensurate with the goals of preventing or remedy ing serious injury and of facilitating adjustment ".).
3364 Norway's second oral statement on behalf of the complainants, paras. 16-19.
3365 Complainants' written replies to Panel question No. 46 at the second substantive meeting.
3366 Presidential Proclamation No. 7529 of 5 March 2002, para. 14 (Exhibit CC-13).
3367 European Communities' second written submission, paras. 508-512.WT/DS248/R, WT/DS249/R,
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Page 475
7.1463  The United States reiterates that Article 5.1 treats the two objectives of preventing or
remedying serious injury and facilitating adjustment as additive.  That is, if application of a measurenecessary to prevent or remedy injury attributed to increased imports would not fully facilitate
adjustment to increased imports, a Member could apply the measure to a greater extent.
3368  T h e
United States submits that, however, even if the steel safeguard measures were judged solely on the
basis of their necessity to prevent or remedy serious injury, they would meet the requirements of
Article 5.1.  The United States argues that the numerical analyses (explained below) demonstrate that
the safeguard measures did precisely that.3369
7.1464  Japan and Korea challenge3370 the United States' interpretation of Article 5.1 as being
"additive".  According to the United States, if a measure is sufficient to remedy serious injury but will
not facilitate adjustment, a more restrictive measure is allowed under Article 5.1.  According to Japan
and Korea, the United States asserts that adjustment is not limited to that adjustment which is required
in response to increased imports.  In sum, the United States appears to claim that it can impose
measures sufficient to remedy serious injury from all sources and, if necessary, increase that remedyto facilitate adjustment from all sources of that injury.  For Japan
3371, this is inconsistent with the
rationale in US – Line Pipe , which  links the Article 4.2(b) non-attribution analysis to the extent of the
measures under Article 5.1.  It is also contrary to the limitations on quantitative measures under
Article 5.1, which imply restoration of the status quo ante  as a limitation on measures in general.3372
Korea3373 notes that the United States is basically justifying its additional level of relief by arguing
that there are direct injurious effects from imports (which their base period corrects), but then
somehow there are additional injurious effects that have "accumulated" which justify doubling the
profit margin shortfall.3374
7.1465  The complainants argue that the United States tries to justify its view by stating that an
industry that has suffered from import competition should not only be placed in the same position asbefore the increase in imports occur, but in an even better position through extra resources to perform
a structural adjustment.
3375  In their opinion, the United States claims that the objective to "facilitate
adjustment" is "additive"  to remedying the serious injury.3376  Article 5.1 of the Agreement on
Safeguards imposes two cumulative limits  on the extent of a safeguard measure.  The first limit is "the
extent necessary to prevent or remedy serious injury" and the second limit is "the extent necessary ...
to facilitate adjustment". If the domestic industry already has some ability to adjust to the increase in
imports then the relief provided cannot remove all the injury caused by the increased imports, but only
                                                     
3368 The United States writes that this formulation does not suggest that a Member may apply a measure
to facilitate adjustment to injury attributable to factor s other than increased imports.  Rather, this formulation
recognizes that remedying injury attributable to increased imports and facilitating adjustment to increased
imports  are both equally valid objectives of a safeguard measure under Article 5.1.  For example, if a Member
considered that a measure that remedied injury attributable to increased imports would not facilitate adjustmentto those imports, it might apply the measure to a greater ex tent.  However, if it considered that the same measure
did not facilitate adjustment to other factors – such as decreased demand – applying the measure to a greaterextent would not be permitted.
3369 United States' first written submission, para. 1079.
3370 Japan's and Brazil's written replies to Panel question No. 112 at the first substantive meeting.
3371 Japan's written reply to Panel question No. 112 at the first substantive meeting.
3372 Japan's second written submission, para. 166, Brazil's second written submission, para 111.
3373 Korea's written reply to Panel question No. 46 at the second substantive meeting.
3374 United States' Step 2 in its "Safeguard Measure Worksheets" at US Exhibit 56.
3375 United States' second written submission, paras. 184 and 187.  United States' written reply to Panel
question No. 112 at the first substantive meeting.  Norway's second oral statement on behalf of all complainants,paras. 15-17.
3376 United States' second written submission, para. 189.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
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Page 476
that which the domestic industry cannot achieve itself.3377  In this regard, Brazil3378 argues that
"facilitate" is defined by The New Shorter Oxford English Dictionary as: make easy or easier;
promote, help forward (an action, result, etc.).  Notably, Article 5.1 is not written in terms of "ensure
adjustment", "make certain of adjustment", or "accomplish adjustment", all phrases which imply
something more than simply facilitating or assistin g adjustment.  Brazil believes that the "facilitate
adjustment" language of Article 5.1 is intended to impose a limitation on safeguard measures beyond
"only to the extent necessary to prevent or remedy serious injury".  The additional limitation is that
the measures necessary to prevent or remedy serious injury must also facilitate adjustment.  That is,
measures which prevent or remedy serious injury may be excessive to the extent that those measuresdo not facilitate adjustment.  Put differently, measures may not be imposed unless:  (i) they are limited
to the extent necessary to prevent or remedy serious injury;  and (ii) within this limitation, they
facilitate adjustment.  This reading of Article 5.1 is consistent with the preamble of the Agreement on
Safeguards which indicates the desire to balance "the importance of structural adjustment" with "the
need to enhance rather than limit competition in international markets".  Consistent with these
objectives, a measure which prevents or remedies serious injury but does not facilitate adjustment is
excessive.  In terms of the injury that is remedied and the adjustment that is facilitated, these are
limited to the effects of increased imports.  The Appellate Body in US – Line Pipe  makes this
clear.
3379  The objective of the Agreement on Safeguards is to provide a temporary period during
which a domestic industry can adjust to import competition which has manifest itself in the form ofincreased imports.  The objective of the Agreement on Safeguards  is not to prevent or remedy injury
from non-import sources or to facilitate the ability of a domestic industry to cope with competitive
factors other than increased imports.  Thus, the fact that the affected industry may be financially
stronger after a period of protection is irrelevant unless it has made adjustments which will make it
more able to compete against imports, in view of the circumstances which led to the increasedimports, after the relief expires.
3380
7.1466  Korea notes that the model used by the United States in its 5.1 analysis doubled operating
margins over that of the base period ostensibly to take account of the need to facilitate adjustment.3381
If the United States did not intend to rely on this "injury plus adjustment" approach3382 – and the
United States cannot, as the Appellate Body has already stated in US – Line Pipe  – then the entire
United States justification is fatally flawed.3383
7.1467  In response, the United States argues that increased imports may have immediate injurious
effects on the domestic industry.  For example, the mere fact of an increase may cause the domestic
industry to lose sales volume and market share, wh ich would translate into a loss in revenue.  This
development might impel the domestic industry to redu ce its prices to regain volume or market share.
The circumstances of the increased imports – that is, the conditions under which they are being
imported – may also have immediate injurious effects.   In either case, the industry will immediately
                                                     
3377 Norway's second oral statement on behalf of the complainants, paras. 15-17.
3378 Brazil's written reply to Panel question No. 56 at the second substantive meeting.
3379 Appellate Body Report, US – Line Pipe , para. 260.
3380 Brazil's written reply to Panel question No. 56 at the second substantive meeting.
3381 United States'  first written submission, para. 1074 states "Any price increase would have to return
domestic prices at least to a level that would provide operating income equal to a level that does not reflect theprice effect of increased imports and then increase prices  by a further amount to counteract the negative effects
of imports from 1998 to 2000 and to facilitate adjustment ". (emphasis added). United States'  first written
submission, para. 1097 and Exhibit US-56, "Safeguard Measures Worksheets", calculations in Step 2 for each
product.  Korea's Exhibit 14 criticizing the necessity of this additional adjustment in the targeted operating
income.
3382 United States' second written submission, para. 189.
3383 Korea's written reply to Panel question No. 46 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 477
suffer a reduction in revenue and profits, and probably a reduction in its profit margin.  The decrease
in revenue is also likely to reduce the industry's cash flow.  These immediate effects may also lead tolong-term effects.  An industry suffering an import-related decrease in revenue, sales volume, prices,
and/or profits will have fewer funds to spend on buying necessary new equipment or facilities,
maintaining existing equipment and facilities, improving employee training, or implementing cost
reduction programs.  The industry may have to release trained workers or cut spending on research
and development necessary for its products to remain  competitive.  Losses may force the industry to
spend cash reserves.  Lenders faced with this deteriorated financial condition may charge higher
interest rates (to reflect the heightened risk of default) or refuse to lend at all.  For publicly tradedproducers, share prices will be likely to fall, reducing their ability to fund new projects through equity
financing.  According to the United States, in addition to the effects of imports on the price, volume,
and revenue of the domestic industry, there will be effects on the industry's underlying condition – its
asset base, cash reserves, trained workforce, and ability to raise capital.  If the immediate effects of
imports go unremedied, the underlying condition of the industry will progressively worsen.  TheUnited States refers to this as the accumulation of injurious effects, and argues that the USITC data
demonstrate how the injurious effects of imports can accumulate.
 3384
7.1468  By way of example, the United States notes that the state of the domestic CCFRS declined
throughout the investigation period, in marked contrast to the steady and significant increase in
demand that also characterized that period.3385  In 1996 and 1997, the domestic industry earned
reasonable operating profits and made substantial capital investments in a growing domestic market.
In the latter part of the investigation period, however, the condition of the industry substantially
deteriorated, to the point of significant losses at the very end of the period.3386  These losses had
significant adverse effects on the cash flow to the domestic industry.  In 1996, the CCFRS industry
saw US$2.1 billion in cash flow, rising in 1997 to US$2.7 billion, and dipping to US$2.1 billion in1998.  In 1999, cash flow had dropped to US$0.9 billion (just one-third of the 1997 level) and fell
further in 2000 to US$0.7 billion.  In the first six months of 2001, the domestic industry had a
negative cash flow of US$0.8 billion, compared to the US$1.2 billion positive cash flow in the first
six months of 2000.
3387  The change from operating income to operating losses and the loss of cash
flow accompanied the decline in AUV for commercial shipments of CCFRS.  In 1996, the AUV for
CCFRS was US$470.  By 2000, this amount had declined  by 11% to US$418.  In the first six months
of 2001, the AUV of CCFRS had fallen to US$373, representing a 20% decline in price since1996.
3388  The number of production workers remained steady from 1996 to 1998, but then, between
1998 and 1999, the number of production and related workers dropped by over 4,000 workers or over
4.2%.3389  The number of hours worked followed the same pattern.  Both the number of hours worked
and the number of production and related workers was lower in the first half of 2001 than in the first
half of 2000.  As the financial performance of the industry declined, capital expenditures fell off as
                                                     
3384 United States' written reply to Panel question No. 46 at the second substantive meeting.
3385 USITC Report, pp. 56 and 60.
3386 The United States submits that in 1996 and 1997, the domestic industry had positive operating
income margins of 4.3 and 6.1% of sales respectively.  The percentage dropped to 4.0 in 1998, and into a 0.7%
loss in 1999 and a 1.4% loss in 2000.  In the first half of 2001, operating losses plummeted to 11.5 percent.
USITC Report, p. 53.  In dollar terms, the domestic industry posted an operating income of US$1.2 billion in1996, which rose to US$1.8 billion in 1997, and then fell to US$1.1 billion in 1998.  After this point, operating
income turned to continually deepening losses – US$181 million loss in 1999 and a US$370 million loss in
2000.  In the first six months of 2001, operating lo sses reached US$1.3 billion, compared to an operating
income of US$538 million in the first six months of 2000.  USITC Report, pp. FLAT-24 – FLAT-28, Tables
FLAT-20 – FLAT-25.
3387 Ibid.
3388 USITC Report, p. 53.
3389 USITC Report, p. 54.WT/DS248/R, WT/DS249/R,
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Page 478
well.  From 1996 to 1998, the domestic industry devoted US$2.3 billion, US$2.5 billion, and US$2.3
billion to capital expenditures respectively.  By 1999, this amount had fallen to US$1.8 billion,dropping further to US$1.5 billion in 2000.  A comparison of interim period data for 2000 and 2001
demonstrates a further decline, as US$478 million was spent in the first six months of 2000, compared
to US$361 million in the same period for 2001.
3390 3391
7.1469  Similarly, for rebar, the United States explains how imports peaked in 1999, and remained at
high levels afterward.  However even when imports moderated somewhat in interim 2001, they
continued to have injurious effects that combined with the accumulated and continuing injurious
effects of imports in prior years.  Specifically, imports of rebar (both including and excluding NAFTAimports) peaked in 1999, the second to last year of the investigation period.  Total rebar imports
reached 1.83 million tons in that year, an increase  of more than 300% from 1996 import levels.  Total
imports then declined slightly to 1.67 million tons in 2000, before increasing to 852,000 tons in
interim 2001.
3392  Although the peak of rebar imports occurred in 1999, import levels remained
substantially higher in 2000 and interim 2001 than they were in 1996 through 1998.  According to theUnited States, the result was to drive prices even lower in 2000 and interim 2001 than they were in
1999.  Unit values of domestic shipments fell from US$274/ton in 1999 to US$269/ton in 2000 and
US$265/ton in interim 2001, as domestic producers cut prices in response to sustained higher levels of
imports.  (Net commercial sales values also bottomed out in 2000 and interim 2001, at US$266/ton.
Steel, vol.  2, at LONG-35.)  Rebar unit values fell another US$9 per ton from 1999 to June 2001, asimport levels moderated slightly from their peak in 1999.
3393  United States  rebar producers reported
modest operating income of US$43.9 million in 1999, the year that imports peaked.  However, the
continued high levels of imports combined with lo wer selling prices resulted in an operating loss of
US$59.9 million by 2000.3394  As a percentage of net commercial sales, the industry's operating profit
of 5.0% in 1999 became an operating loss of negative 1.6%.  The decline in profitability resulted incash flow, capital expenditures, and R&D expenses reaching their lowest levels in 2000.  Capital
expenditures fell from US$108 million in 1996 to US$62.1 million in 1999, and fell again to US$49.4
million in 2000.
3395  Because major capital expenditures in the steel industry require advance
planning, the United States claims that it is to be expected that import surges from earlier in the
investigation period would lead domestic producers to reduce their capital expenditures later in the
period.  (In fact, given the lead times for capital spending, an exact match in timing between an import
surge and declining expenditures could be purely coincidental.) 3396
7.1470  For Japan and Korea3397, the remedy must be limited to the increased imports because that is
what "proportionality" means.  The adjustment must be to increases in imports and not to other market
conditions, etc.  After all, the industry must be in a position to compete with imports after the relief
ends.  This "temporary breathing room" provided by safeguards must be used to adjust to increased
import competition.  Korea adds3398 that to suggest that the Agreement on Safeguards does not require
that the relief be tailored to the industry's ability to  adjust to increased imports flies in the face of the
entire object and purpose of the Agreement on Safeguards.  First, Article 5.1 is quite clear – there are
two mutual conditions to the imposition of relief – it must be limited to the extent necessary to
                                                     
3390 USITC Report, pp. FLAT-24 – FLAT-28, Tables FLAT-20 – FLAT-25.  The United States derives
these figures by adding the reported capital expenditures.
3391 United States' written reply to Panel question No. 46 at the second substantive meeting.
3392 USITC Report, p. LONG-11.
3393 USITC Report, p. LONG-23.
3394 USITC Report, p. LONG-35.
3395 USITC Report, p. LONG-35.
3396 United States' written reply to Panel question No. 46 at the second substantive meeting.
3397 Japan's and Korea's written replies to Panel question No. 56 at the second substantive meeting.
3398 Korea's additional comments on Panel question No. 56 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
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Page 479
prevent or remedy serious injury and to facilitate adjustment to increased imports.  Moreover, the
entire object and purpose of the Agreement on Safeguards would be defeated if the relief were notlimited to the relief necessary to allow for adjustment to increased imports.  Taking the most extreme
case, if an industry were incapable of adjusting to increased imports, there would be no purpose to any
relief;  the need for "emergency action" would not be present.  The Preamble to the Agreement on
Safeguards reconfirms the "importance of structural adjustment and the need to enhance rather than
limit competition".  (If an industry cannot adjust to import competition, structural adjustment should
occur.)  Article 7.2 of the Agreement on Safeguards repeats the dual conditions for extending relief
(i.e., "evidence" that the industry is adjusting) and Article 7.4 makes clear that every effort should be
made to facilitate adjustment by progressively liberalizing the measure.  In other words, taken as a
whole, the terms of the Agreement on Safeguards ma ke clear that facilitating adjustment to increased
imports must be a key factor in establishing the level of relief, liberalizing the level of relief, or
extending the relief.  Logically, the adjustment of the industry to import competition must be the goal
of the  measure, and any remedy which exceeds the relief necessary to accomplish that goal would notbe limited to the permissible extent.  Further evidence that such adjustment must be to import
competition is found in Article 7.4, which states that the measure should be liberalized ( i.e., lessen the
restrictions on imports) in order to "facilitate adjustme nt".  Obviously, the relief is phased out so that
the adjustment is made to import competition.  To comply, there should be a finding that the industry
is able to adjust to import competition and that it has a plan for doing this, so that such a finding is
adequately substantiated by facts.  In some circumstances, an industry may be injured by imports but
be incapable of adjusting, so relief would not be justified.  In other words, both requirements of
Article 5.1 limit the permissible extent of relief so either requirement could result in limiting or
reducing the permissible extent of the measure.  Ko rea submits that, in any event, there is no record
evidence or even evidence presented to the Panel by the United States which explains how the reliefwas necessary to allow for adjustment at all, let alone to adjust to increased imports alone.  The
United States has even denied that adjustment was a consideration in establishing the level of
relief.
3399 3400
7.1471  China submits that the reference to "facilitate adjustments" in Article 5.1 may mean to relieve
pressure of the increased imports on the domestic industry.  As the measures may be applied only to
the extent necessary to remedy injury caused by the surge in imports, the adjustment should not cover
the imports below the trigger level for application of the safeguards measures.3401
7.1472  The United States challenges Korea's assertions that "[t]o comply, there should be a finding
that the industry is able to adjust to import competit ion and that it has a plan for doing this".  For the
United States, nothing in the Agreement on Safeguards requires that an industry present an adjustment
plan, or that the competent authorities (or the Memb er itself) determine that the industry is "able to
adjust".  Article 4.2(a) is specific about what the competent authorities must consider – "all relevantfactors of an objective and quantifiable nature having a bearing on the situation of the industry".  The
Article establishes this obligation as part of the "investigation to determine whether increased imports
have caused or are threatening to cause serious injury".  It does not mention the facilitation of
adjustment.  Thus, the "relevant" factors are those relating to injury or causation.  The industry's
ability to adjust to import competition (or any industry adjustment plans) do not advance this inquiryand, therefore, are not "relevant" in the sense of Article 4.2(a).  The United States submits that
Article 5.1 addresses imposition of safeguard measures, and does not require the consideration of
specific factors.  Therefore, it does not obligate a Member to address the industry's ability to adjust, or
to require an adjustment plan from the domestic industry.  Indeed, reading the Agreement on
                                                     
3399 United States' second oral statement, para. 119.
3400 Japan's and Korea's written reply to Panel question No. 56 at the second substantive meeting.
3401 China's written reply to Panel question No. 56 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
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Page 480
Safeguards to require the industry as a whole to agree on what adjustment efforts to undertake would
suggest the existence of a requirement to create cartels or an endorsement of collusion among thedomestic producers.  Nothing in the Agreement on Safeguards supports such a conclusion.
3402
7.1473  Also with regard to Korea's assertion, it is unclear exactly what provision Korea sees as
requiring such compliance.  Korea also notes that Article 7.2 requires evidence that the industry "is
adjusting", and Article 7.4 requires progressive liberalization of the measure "in order to facilitate
adjustment"3403, the United States submits that Korea does not explain how either of these obligations
is relevant to the initial decision whether and to what extent to apply a safeguard measure.  Indeed,
Article 7.2 envisages an analysis of the effectiveness of the measure after it has been in place, which aMember surely cannot perform before applying the measure.  Article 7.4, which is not subject to a
claim raised by any of the parties, addresses the reduction in the level of application of a measure after
its initial application.  It is difficult to imagine how this provision would be applicable to the decision
on the initial level of application of a measure, as opposed to any subsequent reductions in
application.  In any event, an adjustment plan or pre-application findings regarding adjustment are notnecessary for a Member to determine at a later date whether adjustment has occurred.  Thus, a
Member is not obliged to seek an industry adjustme nt plan or to make a finding that the industry is
"able to adjust" in order "to comply" with Articles 7.2 and 7.4.
3404
7.1474  The United States adds that Korea asserts that "to facilitate adjustment" in Article 5.1 means
that "the industry must be in a position to compete with imports after the relief ends" and that "'thetemporary breathing room' provided by safeguards must be used to adjust to increased import
competition".
3405  These statements mistake the objective of a safeguard measure – to facilitate the
domestic industry's adjustment to import competition – for an obligation.  A Member cannot
guarantee in advance that a safeguard measure will achieve a full adjustment to import competition.
Other forces could frustrate the success of a measure.  The United States submits that Korea'sinterpretation would also disregard the word "facilitate".  As the European Communities and Brazil
point out, "facilitate" means "make easy or easier; promote, help forward (an action, result, etc.)".
3406
Further, according to the European Communities, "it therefore implies a contribution to a result – notthe assurance of a result".
3407  Thus, Article 5.1 cannot be interpreted to require a Member to ensure
before taking a safeguard measure that the industry will be able to compete with imports after
termination of a safeguard measure.3408
                                                     
3402 United States' additional comment on Panel question No. 56 at the second substantive meeting.
3403 Korea's written reply to Panel question No. 56 at the second substantive meeting.
3404 United States' additional comment on Panel question No. 56 at the second substantive meeting.
3405 Korea's written reply to Panel question No. 56 at the second substantive meeting.
3406 European Communities' written reply to Panel question No. 56 at the second substantive meeting,
quoting the New Shorter Oxford English Dictionary (electronic version) (January 1997).  Brazil raises a similarpoint in its written reply to Panel question No. 56 at the second substantive meeting.
3407 European Communities' written reply to Panel question No. 56 at the second substantive meeting;
Brazil makes a similar point in its written reply to Panel question No. 56 at the second substantive meeting."The United States agrees with this interpretation of 'f acilitate'.  (Indeed, para. 1025 of the United States' first
written submission cited the definition.)  However, the United States disagrees with the conclusion by theEuropean Communiteis and Brazil that this means that a Member's ability to facilitate the adjustment to importcompetition is delimited by the need to prevent or remedy serious injury.  If "making easier" or "promoting"
adjustment to the injurious effects of imports (as distinguished from the effects of other factors having injurious
effects) requires application of a measure beyond the extent of remedying the injurious effects of imports,Article 5.1 would permit such a measure".
3408 United States' additional comment on Panel question No. 56 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
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7.1475  The United States argues that, therefore, Article 5.1 does not support Korea's view that a
Member should require the domestic industry to submit an adjustment plan, and make a finding thatthe industry is able to adjust.  Articles 5.1, 7.2, and 7.4 are the only provisions of the WTO covered
agreements that appear in Korea's response.  Si nce they do not support Korea's argument, the Panel
should reject it.  Finally, although Article 5.1 does not require adjustment plans, or analysis of the
industry's ability to adjust, the United States safeguard statute envisages the submission of adjustment
plans by domestic producers.
3409  Many of the domestic producers of the ten products subject to steel
safeguard measures submitted plans.  In addition, the USITC asked producers to indicate what actions
they would take to adjust to import competition.  Producers provided this information primarily in the
form of company-specific (and generally confidential) objectives.3410 3411
7.1476  The United States also challenges Korea's assertion that "there is no record evidence or even
evidence presented to the Panel by the United States which explains how relief was necessary to allow
for adjustment at all, let alone to adjust to increased imports alone".  The United States notes rather
that, rather, the record does contain such eviden ce.  For CCFRSS, hot-rolled bar, cold-finished bar,
rebar, welded pipe, FFTJ, stainless steel bar, and stainless steel rod, the USITC majority found that
imports undersold domestic products, and that this condition had a negative effect on domestic
producers' prices.3412  The USITC found further that declining prices contributed to declining
profitability.  Finally, the USITC found that the domestic industries' capital and research and
development efforts were impaired.  For each of the products, data on import volumes and valuesindicate that foreign producers were willing and able to increase greatly their sales of these low-priced
products.  For the United States, the mechanism for the suppression and depression of prices is
obvious.  When increased imports sell for prices lower than comparable domestic products,
purchasers can switch to lower priced imports.  The threat of losing sales can force domestic
producers to lower their prices.  As long as imports remain in the market at prices lower thancomparable domestic products, it is difficult or impossible for domestic producers to improve their
situation by raising prices.  By demonstrating that imports can increase dramatically, a recent surge
would give credibility to customers' threats to replace domestic sales with imports, and would
increase their ability to obtain pricing concessions.  The effect on the industry's ability to adjust is
equally obvious.  An industry with low or negative profitability cannot attract the funds necessary to
pay for adjustment.  Banks will not lend and investors will not contribute capital needed to
restructure, to buy more efficient equipment, to retrain workers, or to take any other steps that wouldfacilitate adjustment.
3413
7.1477  The United States argues that it is beyond dispute that application of the safeguard measures
would facilitate the industry's adjustment.  An increase in the price for imports would lessen their
negative effect on domestic producers' prices, which would likely boost profitability.  The data in the
USITC record demonstrate that, at least in the first half of 2001, market conditions were not such thatimport prices would rise sufficiently by themselves.  A safeguard measure would bolster import prices
                                                     
3409 Section 202(a)(4) of the Trade Act of 1974, 19 U.S.C. § 2252(a)(4) ("A Petitioner under paragraph
(1) may submit to the Commission and the United States Trade Representative . . . either with the petition, or at
any time within 120 days after the date of filing of the petition, a plan to facilitate positive adjustment to import
competition").  Of course, the fact that the US statute – independent of the Agreement on Safeguards orArticle XIX of the General Agreement on Tariffs and Trade 1994 envisages adjustment plans does not elevatethem to the status of an international obligation.
3410 A summary of these plans appears on pp. 361-362, 374, 382, 389, 396, 403, and 412 of the USITC
Report.  Tabulations of proposed adjustment efforts appear on pp. FLAT-78, LONG-102 – LONG-103,
TUBULAR-66, and STAINLESS-91of the USITC Report.
3411 United States' additional comment on Panel question No. 56 at the second substantive meeting.
3412 USITC Report, pp. 61-62, 97, 106, 113, 163, 176, 211, and 220-221.
3413 United States' additional comment on Panel question No. 56 at the second substantive meeting.WT/DS248/R, WT/DS249/R,
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and relieve pressure on domestic producers' prices.  No party suggested an alternative means to
increase domestic and import prices.  Thus, the safeguard measures were necessary both to raisingdomestic prices and thereby providing the funds that would facilitate adjustment.  There should be no
concern that the tariff measures applied by the United States would also address the effects of other
causes that putatively had a negative effect on the various industries.  For example, they would not
eliminate excess capacity, revive flagging demand, or address problems allegedly faced by particular
producers, among other things.  Thus, it is clear that the steel safeguard measures will facilitate the
industry's adjustment to import competition.
3414
7.1478  Finally, the United States3415 challenges Korea's assertion that "[t]he United States has even
denied that adjustment was a consideration in establishing the level of relief".  For the United States,
this assertion represents something of a reversal, in  that complainants had previously argued that the
United States was focusing on the need to facilitate adjustment, and disregarding the prevention or
remedy of serious injury.3416  The only support Korea cites for its exactly opposite characterization of
the United States position is paragraph 119 of the US second oral statement.3417  That paragraph
states:
"As we noted in our first written submission, our numerical exercises are based solely
on remedying the injurious effects of increased imports as identified by the USITC,
and do not assert that adjustment to import competition required application of a
safeguard measure beyond that extent ."  (emphasis added).
However, Korea ignores the preceding paragraph, which states:
"It is also clear that the concepts of remedying serious injury and facilitating
adjustment overlap to a degree.  'Rectifying' or 'making good' the injurious effects of
increased imports will provide the industry  with resources that will enable it to
compete more successfully with imports upon termination of the safeguard measure.
Indeed, that is the purpose of a safeguard measure – to provide temporary breathing
space so the industry can adjust."3418
7.1479  These two paragraphs reflect that the United States did consider the need to facilitate
adjustment to import competition in deciding to apply the steel safeguard measures.  This has been
clear from the outset.  In Proclamation 7529, which established the measures, the President
"determined that these safeguard measures will facilitate efforts by the domestic industry to make apositive adjustment to import competition".
3419  These two paragraphs also reflect the point that the
United States did not consider in this proceeding the need to facilitate adjustment as a factor
indicating that any of the steel safeguard measures should be applied beyond the extent necessary to
prevent or remedy the injurious effects attributable to increased imports.  The United States insists
that it did show that under Article 5.1, preventing or remedying serious injury and facilitatingadjustment are additive bases for a safeguard measure.  Therefore, the discussion of Article 5.1 has
                                                     
3414 United States' additional comment on Panel question No. 56 at the second substantive meeting.
3415 United States' additional comment on Panel question No. 56 at the second substantive meeting.
3416 European Communities' second written submission, para. 509 ("The only indication we had in the
Presidential Proclamation of the purpose sought to be achieved by the US safeguard measures is that they weredesigned to facilitate efforts by the domestic industry to make a positive adjustment to import competition andprovide greater economic and social benefits than costs").  The European Communities expands on this
allegation in paragraphs 510 through 512 of that submission.
3417 Korea's written reply to Panel question No. 56 at the second substantive meeting, footnote 86.
3418 United States' second oral statement, para. 118.
3419 Proclamation 7529 of 5 March 2002, 67 Federal Register 10553, 10555, recital 14 (7 March 2002).WT/DS248/R, WT/DS249/R,
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focused on confirming that the steel safeguard measures were applied no more than the extent
necessary to prevent or remedy serious injury.  This was also the focus of the Appellate Body'sanalysis in US – Line Pipe .
3420  It is the United States' view that remedies applied within this
limitation, like each of the steel safeguard measures, will be equally necessary to facilitate adjustment.
Thus, there was no need for a further inquiry in this dispute into whether facilitating adjustment would
justify applying one of the measures at a higher leve l.  This in no way suggests that the steel safeguard
measures, which were applied at or below the level necessary to prevent or remedy serious injury,
would not facilitate adjustment.3421
7.1480  The United States concludes that in many cases, a safeguard measure that prevented or
remedied serious injury would also provide all or most of the resources that the industry needed to
facilitate adjustment to increased imports under such conditions as to cause serious injury.  In some
situations, the industry may need to make particular investments or reach a particular level of
investment to adjust to the injurious effects of increased imports.  If a measure that fully prevents or
remedies the injurious effects of increased imports does not cover those needs, the level of thesafeguard measure could be increased to do so.  According to the United States, it did not increase the
levels of the steel safeguard measures in this fashion.
3422
7.1481  The complainants3423 argue that since "facilitate adjustment" is an additional requirement
which is cumulative to the limitation of the remedy to the extent necessary to address the injury
caused by increased imports, the safeguard measures may not exceed the lesser of what is necessary toprevent injury from increased imports and what is necessary to facilitate adjustment.  A domestic
industry will often be in a position to adjust to increased imports on its own without the need for
safeguard measures.  In such cases, Article 5.1 makes clear that no safeguard measures are permitted.
Indeed, the word "facilitate" means: make easy or easier; promote, help forward (an action, result,
etc.)
3424  It therefore implies a contribution to a result – not the assurance of a result.  Also, the
Preamble of the Agreement on Safeguards recalls the need to balance "the importance of structural
adjustment" with "the need to enhance rather than limit competition in international markets".
Consistent with these objectives, a measure which prevents or remedies serious injury but is not
necessary to facilitate adjustment is excessive.  Therefore, a justification of the level of a safeguard
measure requires both a demonstration that it is necessary to remedy injury and that it is necessary to
– and will – facilitate adjustment.  The latter requirement presupposes an analysis of what adjustment
is needed and possible.
7.1482  The European Communities argues that by assuming that any measure needed to remedy
serious injury will also be equally necessary for facilitating adjustment, the United States reveals that
it takes no account of the industry's own capacity to adjust but imposes on imports the whole extent of
what it considers necessary to remove the effect of increased imports (that is, in its view, the effect of
imports that happen to have increased to some extent).   Moreover, by presuming that "an industry[benefiting from] a safeguard measure would use any improvement in its financial position to advance
preparations for the imminent removal of temporary import relief" and, therefore, that the protection
                                                     
3420 Appellate Body Report, US – Line Pipe , paras. 237-262.  Indeed, Norway recognizes that the
Appellate Body did not need to address the role of facilitating adjustment in the Article 5.1 analysis; Norway'swritten reply to Panel question No. 56 at the second substantive meeting; Norway's second oral statement onbehalf of the complainants, paras. 15-17.
3421 United States' additional comment on Panel question No. 56 at the second substantive meeting.
3422 United States' additional comment on Panel question No. 56 at the second substantive meeting.
3423 Complainants' written replies to Panel question No. 56 at the second substantive meeting; Norway's
second oral statement on behalf of the complainants, paras. 16-17.
3424 New Shorter Oxford English Dictionary, (electronic version) January 1997.WT/DS248/R, WT/DS249/R,
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provided will in fact be used to facilitate adjustment, the United States disregards the issue of whether
the extent of the protection may go beyond what is necessary to facilitate adjustment.3425
7.1483  The European Communities and Korea further note  that the United States repeatedly claims
that:  "The level of the application of the measures was not increased to facilitate adjustment.3426
However, justification for the level of the safeguard measures given by the President states that theywere designed to "facilitate efforts by the domestic industry to make a positive adjustment to import
competition and provide greater economic and social benefits than costs".
3427 3428
7.1484  For New Zealand, Article 5.1 provides that measure can only be taken to the extent necessary
to remedy or prevent serious injury and facilitate adjustment.  Accordingly a measure is not permittedthat may be necessary to remedy or prevent serious injury, but which would not facilitate adjustment
to the increase in imports resulting from the granting of the relevant tariff concession.  Such an
interpretation is clear from the finding of the Appe llate Body that Article 5.1 imposes an obligation on
a Member to ensure that the measure applied is "commensurate with the goals of preventing or
remedying serious injury and of facilitating adjustment".
3429  As noted above, this was recognized by
the USITC in relation to its recommendation of a tariff of 20% for certain flat steel products when it
concluded that some of the proposals for higher tariffs did not "clearly anticipate the reduction in
capacity and closures, that, as discussed above, are necessary for the industry's improvement".3430  By
implication therefore the application of a higher tariff by the President of 30% is in fact not necessary
for facilitating adjustment, and would in fact have the opposite effect that the USITC warned of.
7.1485  The United States argues that the view that "a measure is not permitted that may be necessary
to remedy or prevent serious injury, but which would not facilitate adjustment to the increase in
imports resulting from the relevant tariff concession"3431 would mean that a measure could be applied
no more than the extent necessary to prevent or remedy serious or facilitate adjustment, whichever
was lower.  As a practical point, it is difficult to see how a measure necessary to remedy serious injurywould not be equally necessary as an aspect of facilitating adjustment.  If an industry continues to
experience serious injury from imports, presumably it has not adjusted to import competition.
Furthermore, the United States would expect that an industry subject to a safeguard measure would
use any improvement in its financial position to advance preparations for the imminent removal of
temporary import relief.  However, according to the United States, New Zealand suggests that the
objectives of remedying serious injury and facilitating adjustment were in conflict for flat-rolled steel.
It alleges that the USITC "recognized" that "proposals for higher tariffs [than recommended by theUSITC] did not 'clearly anticipate the reduction in capacity and closures, that, as discussed above, are
necessary for the industry's improvement.'"
3432  For the United States, New Zealand misunderstands
the USITC's statement.  First, the USITC recommendation and explanation have no legal significance.
Second, the agency raised this point with regard only to "some of the domestic industries' proposals"
and placed it in a footnote to a section applicable to all of the products, rather than CCFRS.3433  In any
event, for each of the ten steel products, the President adopted a measure at a level lower than the
                                                     
3425 European Communities' additional comment on Panel question No. 56 at the second substantive
meeting.
3426 United States written reply to Panel question No. 56 at the second substantive meeting.
3427 Para. 14 of the Presidential Proclamation No. 7529 of 5 March 2002 (Exhibit CC-13).
3428 European Communities' and Korea's additional comments on Panel question No. 56 at the second
substantive meeting.
3429 Appellate Body Report, Korea – Dairy , para. 96.
3430 USITC Report, Vol. 1, p 358 and footnote 22.
3431 New Zealand's second written submission, para. 3.180.
3432 New Zealand's second written submission, para. 3.180.
3433 USITC Report, p. 358.WT/DS248/R, WT/DS249/R,
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measure proposed by the domestic industry.  Therefore, the USITC's observation about some of
proposals by domestic industries does not apply to the safeguard measures established by thePresident, including the measure on CCFRS.  The United States also argues that, as a matter of
interpretation, New Zealand misreads the text of Article 5.1.  Article 5.1 uses "and" to connect
"facilitate adjustment" with "prevent or remedy serious  injury", indicating that the two are additive.  It
does not suggest that they restrict each other.  If that provision established two independent tests, and
required a Member to choose the one that resulted in application of the measure at the lower level, it
would state something like "a Member shall apply safeguard measures only to the extent necessary to
prevent or remedy serious injury, but no more than necessary to facilitate adjustment".  As it does not,the United States contends that New Zealand's understanding of Article 5.1 is plainly contrary to the
established principle of interpretation that "words must not be read into the Agreement that are not
there".
3434 3435
(d) Time reference point for analysis
7.1486  The United States argues that Article 5.1 requires only that a measure be applied no more than
the extent necessary to prevent or remedy serious injury and to facilitate adjustment, which has been
read by the Appellate Body as re ferring only to injury caused by increased imports.  Thus, the injury
is caused by increased imports, and not by the imports themselves, and the need to adjust to imports is
the proper reference point for analysis of a safeguard measure.  It may be that the negative effects of
imports began at the same time as the increased imports.  In these cases, a Member might find itappropriate to refer to the period during which imports increased to identify the injury caused by
imports and devise a measure to prevent or remedy that injury and facilitate adjustment.
3436  However,
the United States adds, two other scenarios are possible.  It may be that at the time imports began
increasing, the conditions of competition were such  that the imports did not initially have negative
effects on the domestic industry, or that the negative effects began so slowly as to not yet constituteserious injury.  In that case, the reference period for devising an appropriate measure to prevent or
remedy serious injury and to facilitate adjustment may begin after imports began increasing.
3437  It is
also possible that imports had negative effects on the domestic industry before they began increasing,
and that the negative effects of imports and other factors matured into serious injury only after the
increase.  In that case, the reference period for devising an appropriate measure to prevent or remedy
serious injury and to facilitate adjustment may begin before imports began increasing.  While this was
not the case for any of the ten steel safeguard measures, the Panel should recognize the theoreticalpossibility of this occurrence in its analysis of Articl e 5.1.  In short, in requiring that the injury to the
domestic industry and its need for adjustment are the benchmark for the safeguard measure,
Article 5.1 requires a consideration of the facts of each case.  It does not permit an automatic recourse
to the period during which imports increased.
3438
7.1487  The European Communities submits that Article  5.1 imposes an obligation to tailor the
remedy so as to address exclusively the portion of the entire injury suffered by the domestic industry
which can be attributed to increased imports.  This  injury has to be measured in the period during
which imports have increased.  Accordingly, the period during which imports have increased is
relevant for the determination of the level of the remedy under Article 5.1.  Brazil adds that the first
sentence of Article 5.1 addressing non-excessive remedies, should be read in the context of the secondsentence of Article 5.1 which, by limiting quantitative restrictions to historically representative levels,
                                                     
3434 Appellate Body Report, US – Line Pipe , para. 250.
3435 United States' written reply to Panel question No. 56 at the second substantive meeting.
3436 United States' written reply to Panel question No. 152 at the first substantive meeting.
3437 United States' first written submission, para. 1121.
3438 United States' written reply to Panel question No. 152 at the first substantive meeting.WT/DS248/R, WT/DS249/R,
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implies that the remedy is intended to restore the status quo ante , not compensate for past injury.  For
Brazil, as a general matter, since the objective of safeguard measures is to restore the status quo ante
by eliminating the injurious effects of increased imports, one would expect that a parallel between the
period during which increased imports are identified and the period to which reference is made for the
purposes of Article 5.1 could and should be drawn.  The problem in the instant case is that the
increase in imports is remote and unrelated to the situation in the market in any recent period.  When
the period of increased imports is remote, it is difficult to see how it becomes relevant to addressing a
current import problem.3439
7.1488  Japan argues that a parallel between the period during which increased imports are identified
and the period to which reference is to be made in assessing the level of the safeguard measure might
be an appropriate benchmark depending on how recently imports increased relative to the time of the
investigation.  The question touches upon the practical reason why, under Article 2.1 as clarified by
the Appellate Body in Argentina – Footwear (EC) , increased imports must be recent.3440  Where
imports have been decreasing over a period of years, the issue of necessity becomes moot; drawing aparallel between the level of a measure and the now dated effect of increased imports would be
inappropriate.  This is consistent with the correlation requirement under Article 4.2(b), first sentence,
including the understanding that increased imports normally shall coincide with declining industry
performance.
3441  Brazil argues that the wider the disconnect  between the two, the more difficult it is
to establish a causal link.  At some point, when in creased imports are no longer a manifestation of the
recent past, the inquiry must become moot.  For Korea, it is important to recall that the increase in
imports must be recent.  If it is not, then the threshold for a measure has not been met.  If the
authorities determine that all the conditions for a measure have been met and that a measure should be
imposed, then the "benchmark" for the measure must be found in the analysis by the authorities of
increased imports, serious injury, and causation so in that way they must be related.  Furthermore, themeasure could be designed to return the industry to its state prior to the increase in imports as long as
any other factors that also contributed to injury are properly isolated and evaluated so that the measure
is carefully tailored to address only those effects caused by increased imports.
3442
(e) Justification of the measure
(i) Timing of justification
7.1489  The complainants argue that the Appellate Body has made clear the obligation of explaining
and justifying the extent of the measure.  They refer, inter alia,  to the statements by the Appellate
Body in US – Line Pipe3443 it is stated that the parties are under an obligation to "clearly explain [] and
justify the extent of the application of the measure" .  Thus a Member must ensure that: (i) the chosen
measure is proportional to the "serious injury" caused by the increase in imports alone, and not
remedy the fact that there are imports at all; a proper non-attribution of the injury caused by other
factors must also be made; (ii) no additional relief over and above what is necessary to remedy  the"serious injury"  attributed to increased imports, to assist in further adjustments of the domestic
                                                     
3439 Complainants' written replies to Panel questions Nos. 153 and 156 at the first substantive meeting.
3440 Appellate Body Report, Argentina—Footwear (EC) , para. 130.
3441 Appellate Body Report, Argentina—Footwear (EC) , paras. 144-145.
3442 European Communities', New Zealand's, Norway's, Korea's, Japan's and Brazil's written replies to
Panel questions Nos. 152 and 153 at the first substantive meeting.
3443 Appellate Body Report, US – Line Pipe , para. 236.WT/DS248/R, WT/DS249/R,
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industry is imposed; and (iii) it clearly explains and justifies the measure prior to or at the time it
imposes the measure.3444
7.1490  For the European Communities, Japan, China and Switzerland, the Appellate Body in US –
Line Pipe  has made it clear that whether the conditions required to impose a safeguard measure have
been met and whether a safeguard measure has been applied only to the extent necessary are two
separate issues.3445  Therefore, if the conditions pertaining to increased imports, injury and causation
required to establish the right to apply a safeguard measure have not been satisfied, it is not necessary
to investigate whether the extent of such safeguard measure is consistent with Article 5.1.  Also, since
the conditions required to impose a safeguard measure have not been met, any safeguard measure,whatever its extent might be, would fall short of the obligation set forth in Article 5.1.
3446
7.1491  Similarly, for Norway3447, the violation of injury determination and the violation of causal
link are particularly relevant in order to conclude ipso facto that the United States measures go
beyond the extent necessary.  According to Norway, th e violations of the provisions of the Agreement
on Safeguards or GATT 1994 are sufficient to conc lude that the United States measures, for all or
some products (depending on the Panel's finding on th e previous violations), also violate Article 5.1
of the Agreement on Safeguards, whatever the justification given by the United States in the USITC
Report.3448
7.1492  Norway and Switzerland add that the justificat ion under Article 5.1 is not only intended to
help the Panel in determining if the relevant conditions are fulfilled but should also help theMember making the right decision.  Attempts at a post facto  justification will not suffice in this
respect.  As the justification must be determined by the Member prior to imposing the safeguard in
question, there seems to be no legitimate reason why it should be kept secret and not be given to the
Members concerned.
3449  Korea submits that the United States provides an ex post  explanation of its
measures and even creates an ex post  record from which to construct that explanation.3450
7.1493  The United States first recalls that the a ssessment of consistency with the Agreement on
Safeguards involves two "separate and distinct" inquiries:  "first, is there a right to apply a safeguard
measure?  And, second, if so, has that right been exercised, through the application of such a measure,
within the limits set out in the treaty?"  According to the United States, only the content of the first
investigation is to be reported before the measure is actually imposed.  Article 5.1 explicitly states that
the role of applying a safeguard measure is "to prevent or remedy serious injury and to facilitate
adjustment".  It also states that a Member may apply a safeguard measure "only to the extentnecessary" for these purposes.  Thus, the serious injury experienced by the domestic industry and the
need to facilitate adjustment define the limit for applying a safeguard measure.  A Member may apply
a safeguard measure in any form and at any level that falls within the parameters of Article 5.1 and
Article 5.1 does not restrict a Member's discretion to act within this limitation.  The Member may
choose any form for the measure – for example, a tari ff, tariff-rate quota, or quantitative restriction.
                                                     
3444 Norway's second oral statement on behalf of the complainants, paras. 8-9.
3445 Appellate Body Report, US – Line Pipe , para. 242.
3446 European Communities' written reply to Panel question No. 105 at the first substantive meeting;
Japan's first written submission, paras. 319-321.
3447 Norway's first written submission, para. 352.
3448 Norway's first written submission, para. 351.
3449 Switzerland's second written submission, para. 114; Norway's second written submission,
para. 173.
3450 Korea's second written submission, para. 241.WT/DS248/R, WT/DS249/R,
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Within this limitation, the Member may also choose the level of the measure – an ad valorem duty
rate, a specific duty amount, the volume subject to a quota, etc.3451
7.1494  Some complainants read the passage of the Appellate Body in US – Line Pipe  referring to the
incidental effects of a proper investigation on the chosen level of remedy as placing an affirmative
procedural duty on Members to explain in a published report the "sufficient motivation" or
"justification" for the measures selected.3452  For the United States, this interpretation is devoid of
merit.  The reasoning in the US – Line Pipe  report makes clear that the competent authority's
"compliance with Articles 3.1, 4.2(b) and 4.2(c)" in its investigation ( i.e., by "separating and
distinguishing the injurious effects of factors other than increased imports from those caused byincreased imports" in a detailed report)  " should  have the incidental  effect of providing sufficient
'justification'" for the safeguard measure applied.
3453 This passage indicates the Appellate Body's
understanding that the competent authorities will not explain how a safeguard measure complies with
Article 5.1 – if they did, the justification would be intentional, and not an "incidental effect."  In other
words, although Members need not explicitly  state the reasons for selecting safeguard measures, the
need for the measures should be implicit  from the findings of the competent authorities.3454  The
Appellate Body will use the competent authority's report as the "benchmark" to determine, on a
substantive basis, whether the measures selected did, in fact, comply with Article 5.1.  However, the
report itself need not address this issue.  Thus, a Member remains free to explain its compliance with
Article 5.1 during the dispute settlement process.3455
7.1495  The United States notes that the Appellate Body found in Korea – Dairy  and reaffirmed in US
– Line Pipe  that Article 5.1 does not oblige a Member to demonstrate, at the time of taking a
safeguard measure, how the measure complies with Article 5.1.  Nothing in Article 3.1 affects this
conclusion.  In US – Line Pipe , the Appellate Body reiterated that "[i]t is clear, therefore, that apart
from one exception, Article 5.1, including the first sentence, does not oblige a Member to justify, atthe time of application, that the safeguard measure at issue is applied 'only to the extent
necessary.'"
3456  The texts also make clear that Articles 3.1 and 4.2(c) are obligations of the
"competent authorities".  The only functions assigned to the competent authorities under the
Agreement on Safeguards are to investigate and make determinations of serious injury.  The
competent authorities are mentioned only in Articles 3, 4, and 7.2, and always in those contexts.  In
contrast, Articles 5 and 7.1, which address the extent and duration of a safeguard measure, make no
mention of the competent authorities or their investigation.  These obligations are addressed to theMember itself, which is not required to provide a report under Article 3.1.
3457  The United States
recalls that, with respect to the investigation, Articl e 3.1 states that "[t]he competent authorities shall
publish a report setting forth their findings and reasoned conclusions".  With respect to the
determination of serious injury, Article 4.2(c) states that "[t]he competent authorities shall publish
promptly, in accordance with the provisions of Article 3, a detailed analysis of the case underinvestigation as well as a demonstration of the relevance of the factors examined".  As the competent
authority, the USITC must comply with these requirements.  However, there is no analogous
provision applicable to step two, i.e., application of the safeguard measure, except with respect to
certain types of quantitative restrictions that were not used in the steel case.  According to the United
States, neither Article 5 nor any other provisi on of the Agreement on Safeguards contains an
                                                     
3451 United States' first written submission, paras. 1018-1023.
3452 Korea's first written submission, paras. 203-207; Norway's first written submission, paras. 348-350.
3453 Appellate Body Report, US – Line Pipe , para. 236 (emphasis added).
3454 United States' first written submission, para. 1051.
3455 United States' first written submission, para. 1031.
3456 Appellate Body Report, US – Line Pipe , para. 233.
3457 United States' first written submission, paras. 1018-1023.WT/DS248/R, WT/DS249/R,
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obligation to explain at the time of taking a safeguard measure how the measure remedies or prevents
serious injury and facilitates adjustment.  Thus, the President, who administers this second step, wasunder no obligation to provide such an explanation.  The absence of an explanation of how a measure
is applied no more than the extent necessary to prevent or remedy serious injury and to facilitate
adjustment signifies only that the explanation has not been published.  It does not indicate anything
about whether the explanation would establish consistency with Article 5.1.
3458
7.1496  The United States submits that the complainants are now essentially contending that
Articles 3.1 and 4.2(c) create just the obligation to explain, that the Appellate Body has twice found
does not arise from Article 5.1.3459  According to the United States, the complainants argue that a
safeguard measure's consistency with Article 5.1 is clearly a "pertinent issue of fact or law" and,
therefore, the report of the competent authorities under Article 3.1 must contain findings or reasoned
conclusions on that issue.3460  For the United States, the text of Article 3.1 is completely at odds with
this interpretation.  Rather, it is clear  that Article 3.1, third sentence, and Article 4.2(c) are related to
the investigation of the competent authorities.  Arti cle 4.2(c) references the investigation explicitly,
while the title of Article 3 is "Investigation".  Article 4.2(a) specifies the purpose of this investigation
– "to determine whether increased imports have caused or are threatening to cause serious injury to a
domestic industry".  In other words, an investigation is conducted to determine whether conditions (as
set forth at Article 2.1) are such that safeguard measures may legally be applied.  By the terms of
Article 3.1, Members may not apply safeguard measures until the "investigation" is complete.3461
Once the competent authorities determine that safeguard measures may be applied, the Agreement
makes clear that it is the "Member", not the "competent authorities" of that Member, who decides
what, if any, safeguard measures shall be applied.3462  Although Article 3.1 provides that the
"competent authorities shall publish a report setting forth their findings and reasoned conclusions",
there is no similar requirement that Members publish their findings regarding how the measuresshould be applied.  In particular, other than the requirement to justify certain quantitative restrictions,
which is not applicable to this dispute, there is no provision requiring Members to publish findings
regarding why the particular safeguard measures selected conform with Article 5.1.  The "pertinent
issues of fact and law" that must appear in the re port are, therefore, those issues that relate to the
"investigation" by the "competent authorities" regarding whether the conditions for applying
safeguard measures have been satisfied.
3463  They do not include issues related to the Members'
selection and application of a measure consistent with Article 5.1.3464  For the United States, it is
noteworthy that the Appellate Body only described Arti cle 3 as applicable to the inquiry regarding the
                                                     
3458 United States' written reply to Panel question No. 128 at the first substantive meeting.
3459 European Communities' first written submission, para. 632; Japan's first written submission,
paras. 325-328; Korea's first written submission, paras. 203-213;  Norway's first written submission, para. 357;New Zealand's first written submission, paras. 4.203-4.204; Brazil's first written submission, para. 246.
3460 Korea's first written submission, para. 167.
3461 Article 3.1 states that "[a] Member may apply a safeguard measure only following an investigation
by the competent authorities of that Member". (Emphasiz added.)
3462 Article 3.1 states that "[a] Member  may apply a safeguard measure only following an investigation
by the competent authorities of that Member;" (emphasis added) and Article 5.1 states that "[a] Member  shall
apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to facilitateadjustment".
3463 Appellate Body Report, US – Wheat Gluten , para. 52 ("The scope of the obligation to evaluate 'all
relevant factors' is, therefore, related to the scope of the obligation of competent authorities to conduct aninvestigation").
3464 United States' first submission, paras. 1042-1046.WT/DS248/R, WT/DS249/R,
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determination of serious injury under Articles 2 and 4, and not in conjunction with the consideration
whether the measure is consistent with Article 5.1, first sentence .3465
7.1497  The complainants challenge the United States view that the United States was under no
obligation to justify the safeguard measures at the time of application and that a Member remains free
to explain its compliance with Article 5.1 first during the dispute settlement process.3466  In the view
of the complainants, the arguments put forward by the United States have no merit.  They are of the
firm view that Article 3.1 of the Agreement on Safeguards  includes an obligation to provide sufficient
justification for a safeguard measure.3467
7.1498  China argues that the United States is trying to make an artificial distinction between the
investigation and the application of the measure.  In particular, the United States wrongly asserts that
Articles 3.1 and 4.2(c) are obligations of the "competent authorities" and that the only functions
assigned to the competent authorities are to inves tigate and make determinations of serious injury.
The distinction made by the United States is not relevant, since WTO obligations are always imposed
on a WTO Member.  From there on, any authority of a WTO Member is necessarily subject to theWTO obligations undertaken by this Member.  On the other hand, it is always a WTO Member that is
considered to be responsible for a violation of its WTO obligations committed by any of its
authorities.  All WTO obligations are, by nature, supported solely and finally by the WTO Members.
It is, therefore, not relevant to try to make a distinction between obligations addressed to the Member
itself and obligations addressed to one of its authorities.  The fact that the United States decided tosplit its decision process in the context of safeguards investigations is not without any impact on the
current proceeding.  Following the reasoning of the United States, separating and distinguishing the
injurious effect of factors other than increased imports from those caused by increased imports should
be related to the investigation and therefore be the task of the "competent authority".  However, China
notes that the Appellate Body in US – Line Pipe
3468, refers to this task as being undertaken by "a
Member proposing to apply a safeguard measure".  This should bring enough evidence that there is no
such division of obligations as suggested by the United States under the Agreement on Safeguards and
that the related distinction between a "Member" and a "competent authority" is of no relevance.3469
7.1499  Korea argues3470 that the United States must demonstrate that the reasoning of its authorities
regarding increased imports, serious injury and causation, justifies the measure imposed.  However, in
fact, the detailed analysis and reasoned conclusions of the USITC demonstrate that the United States
measure actually imposed exceeded what was "necessary".  Thus, Korea argues the United Statesproposes instead to justify its measure through ex post reasoning by creating a new record with a new
analysis and conclusions, which is actually is in conflict with the USITC's reasoning on serious injury
in numerous respects.
3471  However, in the case of welded pipe, the USITC specifically found that
only future, additional injury needed to be prevented.3472  Moreover, Korea argues that the United
States is wrong that the USITC remedy recommendati on is not relevant.  In fact, it provides further
clarification or justification of how the remedy should be adapted to the serious injury/threat of
                                                     
3465 United States' first submission, paras. 1047-1048.
3466 United States' first written submission, paras. 1051-1052.
3467 Switzerland's second written submission, para. 112; Japan's first written submission,
paras. 325-328;  Norway's second oral statement on behalf of the complainants, para. 23.
3468 Appellate Body Report, US – Line Pipe , para. 236.
3469 China's executive summary of the second written submission, pp. 9-10.
3470 Korea's second written submission, para. 244.
3471 Korea's second written submission, paras. 244-245.
3472 USITC Report, Vol. I, pp. 164 and 383 (Exhibit CC-6).WT/DS248/R, WT/DS249/R,
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serious injury benchmark by the authors of those underlying factual and legal conclusions.3473  While
such findings are not binding or determinative for the US President under United States law, thosefindings and recommendations are grounded in the serious injury/threat finding which the Appellate
Body has said are relevant and, therefore, those recommendations complement the serious injury
findings and offer additional compelling evidence of the benchmark against which to assess the
permissible extent of the measure.  The United States cannot just "wish away" parts of its own
published report.
3474
7.1500  The European Communities and China state that, in principle, the Appellate Body has
indicated that there is no obligation to justify, prior to the application of a safeguard measure, that itdoes not go beyond the extent necessary to prevent or remedy the injury and to facilitate
adjustment.
3475  Therefore, an omission of a discussion as to how the safeguard measure is limited to
the extent necessary to prevent or remedy the injury and to facilitate adjustment does not in itself
mean that the measure at issue surpasses that extent.3476  However, the non-attribution exercise
required under Articles 3.1, 4.2(b) and 4.2(c) must result in findings and reasoned conclusions in thereport of the competent authority which have to provide evidence that the safeguard measure applied
on the basis of these findings and reasoned conclusions clearly does not go beyond the extent
necessary to prevent or remedy the injury caused by increased imports.
3477  Therefore, in the view of
the European Communities, the question is not so mu ch whether "Article 3.1 applies to Article 5.1" as
whether the safeguard measures actually imposed pursuant to Article 5.1 can be considered to bebased on a determination under Article 3.1.  The European Communities considers that this is not the
case in respect of many of the safeguard measures imposed by the United States in this case,
especially those applied on products in the CCFRS product bundle and on tin mill.
3478
7.1501  The United States submits that the complainants rest their arguments almost entirely on their
claim that the USITC determinations of serious injury were inconsistent with the Agreement onSafeguards, and that this alleged shortcoming invalidates the safeguard measures.  The USITC
determinations were fully consistent with the Agreement on Safeguards and GATT 1994.  Therefore,
the primary argument against the steel safeguard measures themselves is unfounded.  However,
should the Panel find some flaw with the USITC determinations, the United States submits that two
simple numerical tests exist to demonstrate that th e United States complied with Article 5.1.  These
are explained in further detail by the United States below. These tests cannot be interpreted as a
quantification of injury or of the effect of a safeguard measure, which the United States shows isneither consistent with the framework established under the Agreement on Safeguards nor possible.
At best, they can provide an approximation that can indicate that a measure is set at an appropriate
order of magnitude.  The United States written s ubmission contains two such numerical tests, which
                                                     
3473 Presumably, Korea argues, this was the United States' rationale for requiring such a
recommendation by the USITC in the first place.
3474 Korea's second written submission, paras. 244-245.
3475 Appellate Body Report, Korea – Dairy , paras. 99-100; Appellate Body Report,  US – Line Pipe ,
para. 233.
3476 The European Communities' and China's written replies to Panel question No. 111 at the first
substantive meeting.
3477 The European Communities' written reply to Panel question No. 113 at the first substantive
meeting.
3478 The European Communities' and China's written replies to Panel questions No. 110 at the first
substantive meeting.WT/DS248/R, WT/DS249/R,
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show that the magnitude of the steel safeguard measures is consistent with the injury attributable to
increased non-FTA imports.3479
7.1502  The complainants respond that they have, however, demonstrated that the measures were
unjustified based on the facts before the USITC and President.  Since the complainants demonstrate
that the United States failed, in many respects, to comply with the requirements of Articles 4.2(b)
and 4.2(c) of the Agreement on Safeguards, they have established a prima facie case that the United
States measures are applied beyond the "extent necessary" and, therefore, violates Article 5.1 of the
Agreement on Safeguards .3480
(ii) Presidential measure differs from measure recommended by the competent authority
7.1503  The complainants note, in this regard, that the Presidential Proclamation imposed an
i n c r e a s e d  t a r i f f  o f :   Y e a r  1 :   3 0 % ;   Y e a r  2 :   2 4 % ;   Y e a r  3 :   1 8 %3481 but there is no particular
explanation for this choice.  Because the President's measure diverged from the USITC's
recommendation, he was required to abide by the "investigation" requirements of Article 3.1,
including the requirement to provide a report setting forth "findings and reasoned conclusions reachedon all pertinent issues of fact and law".
3482  In particular, the President made no attempt to
demonstrate that his safeguard measures were no more restrictive than necessary under Article 5.1.
The President, therefore, did not "clearly explain[] and 'justify[]' the extent of the application of the
measure".3483  Norway adds that the absence of any report containing such findings and reasoned
conclusion is especially surprising given that the USTR conducted its own independent investigationon behalf of the President.
3484
7.1504  New Zealand3485 recalls that notwithstanding the USITC's recommendation for 20% tariff on
CCFRS with the exception of slab, the President imposed a 30% tariff on these products.3486  N o
analysis accompanied these contrary decisions, and no attempt was made to explain how the 30%
tariff, applied to a narrower group of countries than that recommended by the USITC, was no morerestrictive than necessary.  In addition, it is clear that the 30% tariff applied by the President directly
conflicts with the express statements made in the USITC Report regarding the measures that would
need to be taken by the United States domestic industry to adjust to import competition.  For example,
in the context of making  its recommendation of a 20% tariff remedy the USITC observed that "some
                                                     
3479 United States' first written submission, para. 1056; United States' executive summary of the first
written submission, paras. 115-116.
3480 European Communities' written reply to Panel question No. 110 at the first substantive meeting;
China's second written submission, paras. 303-304; Japan's second written submission, paras. 162-165;
Norway's second oral statement on behalf of the complainants, para. 20.
3481 Annex to the Presidential Proclamation at headings 9903.73.37 thro ugh 99.03.73.39
(Exhibit CC-13); Notification by the United States pursuant to Article 12.1(c) and Article 9, footnote 2, of theAgreement on Safeguards on taking a decision to apply a safeguard measure, G/SG/N/10/USA/6 &G/SG/N11/USA/5, in point 4(i).  (Exhibit CC-14)
3482 The complainants argues that US law construct that the President rather than the competent
authority, i.e., the USITC, makes the final decision in safeguards cases does not absolve the USG of the
obligation to abide by Article 3.1.  If the President deviates from the USITC recommendations (which should be
supported by its report, even if such was not in the case here), the President is required to provide an explanationfor his decision.  (Political expediency – the appare nt reason for the decision – is not sufficient.)
3483 Appellate Body Report, US  – Line Pipe , para. 236.
3484 See for instance Norway's second oral statement on behalf of all complainants, para. 26.
3485 New Zealand's first written submission, paras. 4.200-4.204.
3486 Proclamation 7529 of 5 March 2002; To Facilitate Positive Adjustment to Competition From
Imports of Certain Steel Products, 67 Fed.  Reg.  10553, 10587 (7 March 2002) (reducing the measure to 24% inthe second year and 18% in the third year) (Exhibit CC-13).WT/DS248/R, WT/DS249/R,
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of the domestic industries' proposals do not clearly anticipate the reduction in capacity and closures,
that, as discussed above, are necessary for the industry's improvement".3487  I n  t h e  v i e w  o f  N e w
Zealand, the USITC was saying that protection from imports above the 20% rate it was
recommending would have an adverse impact on the ability of the industry to reduce its capacity and
consolidate and thereby adjust to import competition.  The USITC expressly stated that "they did not
agree with the domestic industry" that "an additional 35, 40 or 50% ad valorem  tariff is  necessary to
achieve the desired result, or is otherwise appropriate".3488   In light of these statements from the
USITC, the President's decision to apply a higher tariff than that recommended demanded explanation
and justification.  New Zealand argues that since the President's measure diverged from the USITC'srecommendation, there was an obligation under Article 3.1 to set forth findings and conclusions as to
why his alternative measure was justified.  However, the President made no attempt to explain how
his safeguard measures are no more restrictive than necessary under Article 5.1.  The President,
therefore, did not "clearly explain[] and 'justify[]' the extent of the application of the measure".
3489 In
the opinion of New Zealand, the United  States had an obligation under Article 5.1 to ensure that thesafeguard measure it adopted was limited to the extent necessary to prevent or remedy serious injury
and to facilitate adjustment.  The Agreement does not assume that an authority has crafted the
measure as narrowly as possible.  Basic procedural fairness, as articulated in Article 5.1, demands an
explanation setting forth the authority's "findings and reasoned conclusions".
3490
7.1505  In the view of the European Communities and China, if a competent authority presents a
recommendation, further finds that its recommendation would be adequate to address the injury found
to be caused by increased import and furthermore explicitly states that any more restrictive remedy
would be inappropriate, then it would be difficult to consider that a deviation from such
recommendation could be justified on the basis of the determination made by the competent authority
that increased imports have caused injury to the domestic industry producing like products.  In thesecircumstances, explanation for departure from the recommendation is necessary.  Moreover, if such a
competent authority presents a recommendation and reaches findings and reasoned conclusions that
its recommendation would be adequate to address the injury caused by increased import and,
furthermore, explicitly states that any more restri ctive remedy would be inappropriate, then deviation
from the recommendation resulting in a more tr ade restrictive remedy than that has been
recommended would suggest that the remedy effectively implemented goes beyond the extent
necessary in violation of Article 5.1.
3491
7.1506  The European Communities and China argue that the reason why a political authority (the US
President) does not need to give reasons for the remedy he imposes, is because the justification should
be apparent from the determination of the competen t authority.  To the extent that the political
authority does not rely on a determination by the competent authority, but implicitly changes it, or
picks and chooses amongst various elements of the findings of the competent authority to create hisown determination, he is acting as a competent authority and is bound by the requirements of
Article 3.1 of the Agreement on Safeguards.  The European Communities explains
3492 that the
determinations of the USITC are based on imports of a different range of products than are covered by
the measures.3493  In addition, the Proclamation excluded from the measures 35 pages of detailed
                                                     
3487 USITC Report, Vol. 1, p. 358 and footnote 22.
3488 Ibid., p 363.
3489 Appellate Body Report, US – Line Pipe , para. 236.
3490 New Zealand's first written submission, para. 4.202.
3491 European Communities' and China's written  replies to Panel question No. 110 at the first
substantive meeting.
3492 European Communities' second written submission, paras. 8 to 26.
3493 As shown in Exhibit CC-107.WT/DS248/R, WT/DS249/R,
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product descriptions and the determinations are based on imports from all sources but the measures do
not apply at all to Canada, Mexico, Israel and Jo rdan.  Thus, either the safeguard measures imposed
are not justified by the determination or the US President made certain determinations for which he
did not provide any explanation.3494
7.1507  New Zealand argues that 3495 because what the President did in this case goes substantially
beyond the "benchmark" set by the USITC's determinations and its own recommendations as to
remedy, there is a prima facie breach of Article 5.1.  This is especially so where, as in this case also,
the USITC reasoning in justifying less restrictive measures explained why a more restrictive tariff was
not necessary within the meaning of Article 5.1, and where (as here) no explanation is provided forthe more restrictive remedy in fact imposed.
3496  In Japan's view, the requirement that the President
abide by Article 3.1 in order to ensure compliance with Article 5.1 does not apply in all cases, but
certainly does when the President's measure is not supported by the USITC's analysis.  Japan adds a
further distinction whereby if the President's measure exceeds the USITC's recommended measure,
then there is no way that it can be said that the measure does not go beyond the extent necessary.3497
Norway argues that Article 3.1 applies in all cases, as the proposed remedies by the USITC will have
to be evaluated and assessed for their effectiveness in relation to the criteria of Article 5.1.  This
assessment of proportionality of the proposed measures is a "pertinent issue of fact and law" under
Article 3.1.  When the President decides to apply measures that have not been evaluated and assessed
by the USITC, he will have to ensure the fulfilment of the requirements of Article 3.1.3498
7.1508  In New Zealand's view, the imposition of a safeguard measure more restrictive than that
recommended by a competent authority – as occurred in this case – is likely to be very strong and
compelling evidence of a violation of Article 5.1.  The determination with respect to increased
imports, serious injury and causation provide a "benchmark against which the permissible extent of
the measure should be determined".3499   Because what the President did in this case goes substantially
beyond the "benchmark" set by the USITC's determinations and its own recommendations as to
remedy, New Zealand submits there is a prima facie breach of Article 5.1.3500
7.1509  Japan, Korea, China, Norway and Brazil refer to the Appellate Body in US – Line Pipe , which
said that "Compliance with Articles 3.1, 4.2(b) and 4.2(c) of the Agreement on Safeguards  should
have the incidental effect of providing sufficient 'justification' for a measure and, should also provide
a benchmark against which the permissible extent of the measure should be determined".3501 3502   In
the instant case, the United States has neither complie d with these Articles by the USITC to justify its
recommendations nor any explanation by the Presiden t why he deviated from these recommendations.
This alone renders the measures invalid.  Brazil and Korea add that the panel has before it two issues
arising out of the relationship of Article 3.1 to Article 5.1.  First, is there a reasoned explanation of the
USITC's recommendation?  Second, to the extent that the President did not follow the USITC
recommendation, is there a reasoned explanation of the remedies ultimately imposed?   If thePresident had followed the USITC's recommendation, then the second issue would not arise.  In
neither case was it demonstrated that the remedy (the USITC recommendation or the actual remedy
                                                     
3494 European Communities' written reply to Panel question No. 45 at the second substantive meeting.
3495 New Zealand's written reply to Panel question No. 45 at the second substantive meeting.
3496 New Zealand's written reply to Panel question No. 108 at the first substantive meeting.
3497 Japan's written reply to Panel question No. 45 at the second substantive meeting.
3498 Norway's written reply to Panel question No. 45 at the second substantive meeting.
3499 Appellate Body Report, US – Line Pipe , para. 236.
3500 New Zealand's written reply to Panel question No. 45 at the second substantive meeting.
3501 Appellate Body Report, US – Line Pipe , para. 236.
3502 Japan's, Korea's, and Brazil's written replies to Panel question No. 45 at the second substantive
meeting; China's second written submission, para. 303; Norway's first written submission, para. 348.WT/DS248/R, WT/DS249/R,
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imposed by the President) remedy was consistent with the underlying USITC injury and causation
determinations.3503 Brazil adds that it is not arguing that the USITC needed to undertake and publish
an independent analysis of the extent of the measure.  The USITC's failing under Article 5.1 is not
that it did not perform an assessment of the measure distinct from the non-attribution analysis required
by 4.2(b).  Rather, the failing is reflected in the fact that the USITC failed to perform an analysis of
any kind.  Specifically, by failing to "separate" and "distinguish" the serious injury caused by
increased imports in violation of Article 4.2(b), and without any other independent analysis, it failed
to meet the requirement of Articles 5.1 and 3.1.3504
7.1510  The United States argues that since there is no legal requirement for any authority to present a
remedy recommendation, there would be no requirement either to explain the departure from a
recommendation made by a competent authority in addition to a determination performed under
Articles 2 and 4.  The Appellate Body in the US – Line Pipe  case has clarified that "by separating and
distinguishing the injurious effects of factors other than increased imports from those caused by
imports, as required by Article 4.2(b), and by including this detailed analysis in the report setting forththe findings and reasoned conclusions, as required by Article 3.1 and 4.2(c), a Member proposing to
apply a safeguard measure should provide sufficient motivation for that measure".
3505 The fact that the
safeguard measures adopted by the President differ from the USITC's recommendations does not
establish a prima facie case of inconsistency with Article 5.1.  The panel in US – Line Pipe  found that
the President's safeguard measure may differ from the USITC's recommendation without runningafoul of Article 5.1.
3506
7.1511  The United States notes that the European Communities appears to agree that if a Member
adopted a remedy recommendation of the competent authorities, the Member could rely upon any
explanation made by the competent authorities to establish the remedy's consistency with Article 5.1.
The United States agrees that in the case of a recommended measure adopted by a Member, anyexplanation by the competent authorities, if re lied upon by the Member, would be relevant in a
subsequent WTO dispute and properly subject to consideration by a panel.  In addition, if the Member
applied a measure to a lesser extent than recommended by the competent authorities, their explanation
would establish consistency with Article 5.1.  This was unquestionably the case with regard to tin mill
steel, FFTJ, stainless steel rod, and stainless steel wire.  For each of those products, the President
established a measure at the same level or lower than the recommendation of the USITC, with a
shorter duration.  If the Member applied a measure to a greater extent than recommended by thecompetent authorities, the burden would remain upon complainants to establish that such a measure
was inconsistent with Article 5.1.  Consistent with the Appellate Body's reasoning in US – Line Pipe ,
the Member would have the opportunity to rebut su ch arguments in any WTO dispute.  The United
States points out that the Appellate Body has found that the Agreement on Safeguards only requires a
contemporaneous explanation of compliance with Article 5.1 in certain limited circumstances that arenot applicable to the steel safeguard measures.
3507  Thus, any analysis adopted by a Member to rebut a
claimed inconsistency with Article 5.1 would be rele vant in a dispute.  It would not matter whether
                                                     
3503 Korea's and Brazil's written replies to Panel question No. 45 at the second substantive meeting.
3504 Brazil's second written submission, para. 111.
3505 Appellate Body Report, US – Line Pipe , para. 236.
3506 United States' written replies to Panel questions Nos. 110 and 128 at the first substantive meeting,
citing US – Line Pipe , Panel Report, para. 7.94 (footnotes omitted).  According to the United States, when the
Panel refers to the term "necessary", in this quote, it is referring to the maximum extent "necessary to remedy
the serious injury".
3507 Appellate Body Report,  US – Line Pipe , para. 233.WT/DS248/R, WT/DS249/R,
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the competent authorities or another instrumentality of the Member prepared the analysis, or whether
the analysis was prepared before or after application of the measure, or during dispute settlement.3508
7.1512  Norway recalls also that on 26 October 2001, the USTR issued a notice to the public,
requesting input on the measure to be imposed.3509  Specifically, the USTR asked for comments on:
(a) what form the measure should take ( i.e., tariff, quota, tariff-rate quota, etc.); (b) the duration of any
action; and (c) any other actions that would facilitate the domestic industry's adjustment to import
competition.3510  Numerous interested parties submitted comments, but the President never issued a
report.  Nor did he explain how the 30% tariff – applied to a different group of countries – was
tailored to mitigate the harm sustained as a result of imports from those countries.3511
7.1513  According to the United States, Korea, Japan and Norway err in characterizing this process as
an investigation. The USTR merely recognized that  in the event of an affirmative determination by
the USITC, the United States executive would need to decide whether and to what extent to apply a
safeguard measure, and that interested persons w ould want to present the executive departments with
information regarding that decision. It formally requested public commentary to provide a framework
for interested persons to provide such information, both in writing an in person.3512
7.1514  The United States responds3513 that it, like any WTO Member, is clearly permitted under the
Agreement on Safeguards to bifurcate the administration of its safeguards law between the USITC
and the President.  As the excerpt from the Appellate Body's decision in US – Line Pipe indicates, a
WTO Member has the discretion to assign responsibility for making determinations under itssafeguards law to as many or as few decision-makers as it sees fit, provided that the "singular act",
i.e., the injury determination by the competent au thorities, complies with the requirements of the
Agreement on Safeguards.  Thus, the United States was free to create a process in which the executive
decides the nature and extent of the safeguard measure, but does not participate in the injury
determination.  Furthermore, in the opinion of the United States, all parties agree that the Agreementon Safeguards obligates competent authorities, in this case the USITC, to provide certain findings and
explanations related to the investigation and injury  determination.  The parties disagree, however, on
whether the Agreement on Safeguards requires the President to explain how a safeguard measure
prevents or remedies injury and facilitates adjustment.  According to the United States, it has never
asserted that the "bifurcation" of the process allows the President to escape responsibility under the
Agreement on Safeguards.  The key point is that the Agreement on Safeguards itself divides the
process into two stages: (1) the investigation (Article 3) and the determination of serious injury orthreat thereof (Article 4); and (2) application of the safeguard measure (Article 5).  This is recognized
by the Appellate Body which stated that "These two inquiries are separate and distinct.  They must not
be confused by the treaty interpreter".
3514  Thus, the United States contends that it is fully consistent
with the Agreement on Safeguards to treat the dete rmination of the competent authorities as separate
from the selection of a safeguard measure consistent with Article 5.1, and to employ differentprocedures at each stage.
                                                     
3508 United States' written replies to Panel questions Nos. 110 and 128 at the first substantive meeting.
3509 Trade Policy Staff Committee; Public Comments on Potential Action Under Section 203 of the
Trade Act of 1974 With Regard to Imports of Certain Steel, 66 Fed.  Reg.  54321 (26 Oct.  2001)(Exhibit CC-59).
3510 Trade Policy Staff Committee; Public Comments on Potential Action Under Section 203 of the
Trade Act of 1974 With Regard to Imports of Certain Steel, 66 Fed.  Reg.  54321, 54323 (26 October 2001)(Exhibit CC-59).
3511 Norway's first written submission, para. 356.
3512 United States' first written submission at footnote 1368.
3513 United States' written reply to Panel question No. 128 at the first substantive meeting.
3514 Appellate Body Report, US – Line Pipe , para. 84.WT/DS248/R, WT/DS249/R,
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7.1515  For the United States, the bifurcation of the proceedings between the USITC and the
President is not pertinent.  Even if the USITC admi nistered both stages of the process, the Agreement
on Safeguards still would not require an explanation, at the time a safeguard measure was imposed, of
how that measure was only to the extent necessary to remedy or prevent injury and to facilitate
adjustment.  As stated by the Appellate Body in US – Line Pipe , "[i]t is clear, therefore, that apart
from one exception [certain types of quantitative restrictions that were not used in this case]
Article 5.1, including the first sentence, does not oblige a Member to justify, at the time of
application, that the safeguard measure at issue is applied 'only to the extent necessary.'"3515 3516
(iii) Relationship with the non-attribution requirement and determinations under Article 4.2(b)
7.1516  The complainants argue that the level of the injury which can be remedied or prevented under
Article 5.1 should not correspond to the entirety of the injury suffered by the domestic industry as
assessed under Article 4.2(a).  Instead, the injurious effect of factors other than increased imports
determined in the context of the non-attribution requirement under Article 4.2(b) should be deducted.
Therefore, if a remedy is tailored to a finding of serious injury which has not undergone a proper"non-attribution" process, it will be excessive.  Hence, in practical terms the non-attribution
requirement under Article 4.2(b) serves to determine the portion of the entire injury suffered by the
domestic industry which can be remedied in line with  Article 5.1.  According to the complainants,
Article 4.2(b) serves the purposes of Article 5.1 for two reasons.  First, it prevents authorities from
inferring a causal link between increased imports and serious injury when several factors cause injuryat the same time.  Second, and more importantly, it is a "benchmark for ensuring that only an
appropriate share of the overall injury is attributed  to increased imports" and, therefore, it "informs the
permissible extent to which the safeguard measure may be applied pursuant to Article 5.1".
3517 Failing
to meet the requirements of Article 4.2(b) necessarily creates a presumption that the measure is more
restrictive than needed and is therefore in violation of Article 5.1.  Without an appropriate"benchmark", the USITC could not possibly determin e how any measure could be tailored to the harm
caused by imports alone.  In such a case, without a compelling explanation of why the measure was
still no more restrictive than necessary, it must be considered to violate Article 5.1.
3518  Moreover,
they add, compliance with the causation or non-attribution requirements of Article 4.2(b) does not
conclusively establish that the remedy is not excessive.3519
7.1517  Brazil, Japan and Switzerland  argue that a violation of Article 4.2(b) necessarily means a
violation of Article 5.1.  The European Communities, Korea, China, New Zealand and Norway arguethat the Appellate Body in US – Line Pipe  ruled that a prima facie case is made under Article 5.1 as
soon as a violation of the non-attribution requirement under Article 4.2(b) has been established
3520, as
is the case in the present dispute where errors in the serious injury and causation analysis have been
identified.  As indicated by the Appellate Body, the burden of proof then turns to the Member
applying the safeguard measure to rebut this prima facie case.3521  More specifically, the Member
applying the safeguard measure then bears the burden of proving that its measure does address a
portion of the injury suffered by its domestic industry equal or less than that caused by increased
                                                     
3515Appellate Body Report, US – Line Pipe , para. 233.
3516 United States' written reply to Panel question No. 128 at the first substantive meeting.
3517 Appellate Body Report, US – Line Pipe , para. 252.
3518 Norway's first and second oral statements.
3519 Brazil's and Japan's written replies to Panel question No. 99 at the first substantive meeting.
3520 Appellate Body Report, US – Line Pipe , para. 261.
3521 Appellate Body Report, US – Line Pipe , para. 262.WT/DS248/R, WT/DS249/R,
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imports.  In this context, the Member applying th e safeguard measure has the burden of assessing the
injury attributed to increased imports.3522
7.1518  Korea agrees and states that Article 4.2(b) is designed to ensure that the injury caused by
other factors not be improperly attributed to imports (Article 4.2(b)), while Article 5.1, first sentence,
is aimed at ensuring that the measure be limited to remedying the impact on the domestic industry
from imports alone.  Article 5.1 does not permit the application of a safeguard measure beyond what
is necessary to prevent or remedy the serious injury caused by imports alone.3523 Article 5.1 does not
permit the application of safeguard measures to remedy injury caused by other factors.3524  For New
Zealand, Article 4.2(b) is absolutely integral to compliance with Article 5.1 and, in particular, tomeeting the requirement "that the part of the total serious damage attributed to an exporting Member
must be proportionate to the damage caused by the imports from that Member".
3525  The Appellate
Body emphasized that "safeguard measures should be applied so as to address only the consequences
of imports ".3526 3527
7.1519  The complainants point to the Appellate Body report in US – Line Pipe which emphasized
that "[B]y separating and distinguishing the injurious effects of factors other than increased imports
from those caused by increased imports, as required by Article 4.2(b), and by including this detailed
analysis in the report that sets forth the findings and reasoned conclusions, as required by Articles 3.1
and 4.2(c), a Member proposing to apply a safeguard measure should provide sufficient motivation
for that measure.  Compliance with Articles 3.1, 4.2(b) and 4.2(c) of the Agreement on Safeguards should have the incidental effect of providing sufficient "justification" for a measure and should also
provide a benchmark against which the permissible extent of the measure should be determined".
3528
For the complainants, the Appellate Body, therefore, has clarified that an authority not only mustavoid attributing causation to factors other than increased imports (Article 4.2(b)), but must also
ensure that the measure that is applied is limited to the extent necessary to address that particular
injury caused by such separated and distinguished imports (Article 5.1), and must justify the measure
clearly (Article 3.1).
3529
7.1520  In the United States' view, the Appellate Body ha s found that the injury attributed to increased
imports forms the benchmark for application of a safeguard measure.  This injury is identified through
the causal link and non-attribution analyses under  Article 4.2(b), and informs the selection of a
safeguard measure.  While one analysis leads to the other, the Appellate Body has emphasized that the
injury assessment under Articles 3 and 4 is "separate and distinct" from the evaluation of thepermissible extent for applying a safeguard measure, and that these two inquiries "must not be
confused by the treaty interpreter".
3530  Thus, there is no requirement to consider the Article 4.2(a)
factors a second time in the application of Article 5.1.3531  The United States argues that
                                                     
3522 European Communities', Switzerland's, Japan's, Norway's, New Zealand's written replies to Panel
question No. 114 at the first substantive meeting.
3523 Appellate Body Report, US  – Line Pipe,  para. 258.
3524 Korea's written reply to Panel question No. 99 at the first substantive meeting.
3525 Appellate Body Report, US – Line Pipe , para. 253, citing with approval the Appellate Body Report,
US – Cotton Yarn .
3526 Appellate Body Report, US – Line Pipe , para. 258 (emphasis in original);  New Zealand's written
reply to Panel question No. 99 at the first substantive meeting.
3527 New Zealand's written reply to Panel question No. 114 at the first substantive meeting.
3528 Norway's first written submission, para. 348.
3529 Complainants' written replies to Panel question Nos. 113-114 at the first substantive meeting;
Norway's first written submission, para. 350.
3530 Appellate Body Report, US – Line Pipe , para. 84.
3531 United States' written reply to Panel question No. 102 at the first substantive meeting.WT/DS248/R, WT/DS249/R,
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non-attribution relates to the identification of the cau sal link between imports and serious injury to the
domestic industry by distinguishing the injurious effects of imports from the injurious effects of otherfactors.  It is not a requirement of Article 5.1 and, therefore, is not a requirement for deciding the
proper safeguard measure to apply.  The United States submits that the Appellate Body's analysis of
Article 5.1 in US – Line Pipe  compels the conclusion that Article 4.2(b) is to provide "a benchmark"
for ensuring that only an appropriate share of the overall injury is attributed to increased imports.
Thus, the competent authorities must complete the non-attribution analysis under Article 4.2(b) before
the Member's decision as to the permissible extent of a safeguard measure.  Non-attribution is part of
the process of identifying the injury attributable  to increased imports, which in turn sets the
"benchmark" for application of the measure.  Therefore, under the Appellate Body's reasoning, there
is a relationship between the non-attribution analys is under Article 4.2(b) and the selection of the
level of a safeguard measure under Article 5.1.  The former informs the latter.  Since the injury
attributed to imports, which incorporates the non-attribution analysis, is the benchmark for the extent
of application of a safeguard measure, a second non-attribution analysis is redundant.  If the measurefalls below that benchmark, there need be no concern that it is being applied to remedy injury caused
by factors other than increased imports.  For the United States, this is confirmed by the fact that under
the Agreement on Safeguards there should be two anal yses.  A first analysis is used to determine
whether increased imposed were causing serious injury to the domestic producers and a second one to
determine the appropriate remedy.  Non-attribution is part of the first basic inquiry, which theAppellate Body described as being the determination by the competent authorities pursuant to Articles
3 and 4 as to whether increased imports are causing or threaten to cause serious injury.
3532
7.1521  The United States concludes that the complainants misstate the standard for evaluating the
United States'  counter-arguments.  The Appellate Body recognized that a Member may "rebut" the
presumption created by an inconsistency with Article 4.2(b).  In so doing, it did not suggest that theMember bore a burden any greater than a defending party normally bears under the DSU – to counter
or rebut a prima facie case established by the complaining party.
3533  When a complaining party relies
on an inconsistency with Article 4.2(b) to create a prima facie case on inconsistency with Article 5.1,
it will have done nothing more than demonstrate uncertainty as to the appropriate level of the
safeguard measure.  Thus, the rebuttal would need to show only that the measure was commensurate
with the injurious effects attributable to increased imports.  The United States submits that it has fully
rebutted any allegation of inconsistency with Article 4.2(b).3534
(f) Quantification
7.1522  The European Communities, Switzerland and Norway argue that Article 5.1 indisputably
requires that safeguard measures not exceed the extent necessary to prevent or remedy serious injury
and to facilitate adjustment.  Assessing the "extent necessary" inevitably requires some form of
quantification.3535 They note that no one is asking the United States for absolute precision – just to
make an honest estimate.3536  Norway is of the opinion that even if the text of the Agreement does not
explicitly use the word "quantify", the Appellate Body has in Korea – Dairy  explicitly stated that it is
an obligation under the Agreement to ensure that the safeguard measure applied is "commensurate"
with the goals of preventing or remedying serious inju ry.  It is hard, if not impossible, to understand
how one could craft a measure that is tailored only to such injury caused by imports without in any
                                                     
3532 United States' written reply to Panel question No. 99 at the first substantive meeting.
3533 Appellate Body Report,  EC – Hormones , para. 98.
3534 United States' executive summary of the second written submission, para. 71.
3535 European Communities' second written submission, para. 506.
3536 European Communities' second written submission,  para. 508.WT/DS248/R, WT/DS249/R,
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way making attempts to quantify the relevant injury.3537  Furthermore, quantification allows other
Members to control that the chosen level is in compliance with the requirements of the Agreement on
Safeguards.  Where there are no indications of what injury the measure is intended to redress, it is
impossible to assess if the measure goes beyond the proportionality requirement or not.  This is also
eminently clear from the requirement of non-attrib ution, as set forth by the Appellate Body in US –
Line Pipe.3538  If one cannot quantify the effects of the different factors that have been attributed to the
alleged injury, one cannot ensure that non-attribution actually takes place.  The allegations by the
United States claiming that there is no requireme nt to quantify anything is not only wrong, but is
simply an excuse to include extraneous factor s in their remedy and, thus, overcompensate for
whatever injury imports may have caused.3539
7.1523  The United States takes issue with the complainants' allegation that injury, non-attribution
and other determinations under the Agreement on Safeguards including that of the appropriate level
and extent of the remedy, should be "quantified".  The United States submits that the Agreement on
Safeguards does not require either the Member applying a safeguard measure or its competentauthorities to "quantify" the injury attributable to increased imports.  In fact, Article 4.2(a) frames the
analysis in a way that makes quantification impossible.  That provision requires the competent
authorities to evaluate a number of specific factors that are measured in different units.  No other
provision of the Agreement on Safeguards suggests that quantification of "injury" is necessary, or
even possible.  Indeed, under GATT 1947, it was reco gnized that "it is impossible to determine in
advance with any degree of precision the level of import duty necessary" for a safeguard measure to
achieve the goals of Article XIX.
3540  For the United States, Articles 5 and 7, which address the extent
and duration of a safeguard measure, do not require the valuation of either serious injury or the extent
of application of a safeguard measure.  Nor do they eliminate the practical impossibility of such an
exercise.3541
7.1524  The United States adds that the text provides no support for the notion that "injury", as such,
must be quantified.  Article 4.1 defines serious injury as "a significant overall impairment in the
position of a domestic industry".  Article 4.2(a) specifies that, in determining whether injury exists,
the competent authorities must evaluate "all relevant factors of an objective and quantifiable nature
having a bearing on the situation of that industry".  Thus, the text itself treats the two concepts
differently.  The factors considered by the competent authorities are characterized as "quantifiable",
but "serious injury" itself is not.  This omission is significant because, where the covered agreementsrequire quantification or valuation of something, they generally state so clearly, and often provide
detailed guidelines.
3542  The United States argues that the analytical framework contained in
Article 4.2(a) provides further support for this conclusion: it is not possible to "quantify" injury for
many reasons.  The most obvious is that the different factors in Article 4.2(a) are measured in
different units – market share and capacity utilization in percentages, level of sales and production in
                                                     
3537 Norway does not exclude there may be a possibility to combine quantification with qualitative
assessments, but this requires that the qualitative assessments are precise enough to allow a meaningfullcomparison and to establish explicitly that the requir ement of proportionality is me t; Norway's second written
submission, para. 159.
3538 Appellate Body Report, US – Line Pipe , paras. 252-260.
3539 Norway's second written submission, paras. 159-163; Switzerland's second written submission,
paras. 109-118.
3540 US –  Fur Felt Hats , para. 35;  the Appellate Body cited this report as part of the GATT 1947
acquis .  Appellate Body Report,  US – Line Pipe , para. 174.
3541 United States' first written submission, para. 1032.
3542 For example, AD Agreement, Article 2; SCM Agreement, Article 14.  These detailed requirements
for calculation of the dumping margin and amount of the subsidy, respectively, contrast with thetreatment of injury in both agreements, which do not require calculation of the amount of the injury.WT/DS248/R, WT/DS249/R,
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units, profits and losses in currency (or percentages), and employment in number of workers or hours
worked.3543  The Appellate Body has emphasized that "it is only when the overall position  of the
domestic industry is evaluated, in light of all the relevant factors having a bearing on a situation of
that industry, that it can be determined whether there is 'a significant overall impairment' in the
position of that industry".3544 3545
7.1525  The United States submits that another problem with quantification of "serious injury" is that
the factors most illustrative of the condition of an industry may differ depending on the industry.  For
example, in an industry that requires highly trained workers to produce a product, reductions in
employment may be particularly indicative of injury.  Once such workers are dismissed, the industrycould have difficulty training replacement workers to permit it to restore production to previous
levels.  By contrast, in an industry that produces a product incorporating technology that changes
frequently, reductions in research and development expenditures may be particularly indicative of
injury.  Without such expenditures, the industry will be unable to make further developments in its
product needed to remain competitive in the marketplace.  Any formulaic mathematical"quantification" would not allow for these informed judgments about the relative importance of the
factors required to be considered.
3546
7.1526  Norway notes3547 ∗ that although the United States tries to argue that the quantification
proposed by the complainants is impossible3548, the United States does provide for some ex post facto
quantification in the economic modelling referred to by the United States in "ModellingWorksheet I"
3549 and "Remedy Worksheet I"3550, proving that it is indeed possible to quantify, even
for the United States.  This modelling, however, was not included in the USITC Report.  The United
States, therefore, cannot rely on them to justify the measures.  Furthermore, the United States does not
dispute that a rebuttal against a prima facie  case of violation of Article 5.1 arising from deficient non-
attribution analysis would encompass some sort of "quantification" of the effect of the remedy inconnection with the injury caused by increased imports.
3551
7.1527  According to Brazil, national authorities have the obligation of demonstrating that the
elements necessary to impose safeguard measures, whether qualitative or quantitative, are present.
For example, Article 4.2(b) states:  "The determination referred to in subparagraph (a) shall not be
made unless this investigation demonstrates, on the basis of objective evidence, the existence of thecausal link between increased imports…and serious injury".  Similarly, Article 4.2(c) talks about a
"demonstration of the relevance of the factors examined".  Article 3.1, of course, requires competent
authorities to set forth "their findings and reasoned conclusions".  Thus, there is no question that the
burden is on national authorities.  Whether or not a quantitative analysis is provided or necessary will
vary depending on the circumstances and the availability of data to conduct such an analysis.  Thereare two factors present in the instant case which would seem to require a quantitative analysis to
justify the findings and conclusions of the USITC.  First, with regard to CCFRS, there were numerous
factors other than subject imports that intuitively would seem to have had a more substantial effect
individually and cumulatively than subject imports.  For example, intuitively one would think that an
                                                     
3543 United States' first written submission, para. 1036.
3544 Appellate Body Report,  Argentina – Footwear (EC) , para. 139.
3545 United States' first written submission, para. 1035.
3546 United States' first written submission, para. 1038.
3547 Norway's second written submission, para. 163.
3548 United States' first written submission, para. 1036.
3549 Exhibit US-57.
3550 Not exhibited.
3551 United States' first written submission, para. 1062.WT/DS248/R, WT/DS249/R,
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increase in domestic excess capacity of 16 million tons in excess of demand between 1996 and
20003552 would have a substantially greater effect in terms of injuring the domestic industry than a
2.5 million ton increase in imports.  One would also assume that an increase of 3 million tons in low-
cost minimill shipments between 1998 and 20013553 would also have a substantially greater effect on
the health of the domestic industry than a smaller increase in imports.  Thus, Brazil argues that it
appears that there must be some demonstration that there is a genuine and substantial link between
increased imports, as distinguished and separated from these other factors, and serious injury.  Where,
intuitively, the facts seem to indicate one conclusion and the authorities reach another conclusion,
there must be some demonstration that the conclusion reached was correct.  In this case, Brazil is ofthe opinion that a quantification of the effects of imports and other causes would seem to have been
required; otherwise, there is not support for the USITC's conclusion.  Second, there is an abundance
of data on which to base a quantification of the causes of injury to the domestic industry.  In
particular, the main problem according to both the industry and the USITC was the low price levels in
the latter part of the period of investigation.  There was an abundance of information to model theeffect of various factors on prices.  Indeed, such a model had already been accepted and endorsed by
the USITC economic staff in the cold rolled anti-dumping investigation.  Such a model could have
been constructed by the USITC.  In the alternative, models were provided by various interested parties
which could have been adapted to the USITC's requirements.  In the face of a counterintuitive result,
the USITC made no effort to demonstrate a basis for its findings and conclusions.
3554
7.1528  Brazil asserts that the failure to undertake a proper non-attribution analysis as required by
Article 4.2(b) in and of itself establishes a prima facie case.  In addition, Brazil believes that a
counterintuitive result without a concrete demonstration of how that result was reached also
establishes a prima facie  case.  Finally, as regards whether the remedy is in excess of what is
necessary to remedy the injury from increased imports, the imposition of a remedy in excess of thatrecommended (and supposedly supported by findings and reasoned conclusions) without any
explanation of the reason or need for the change in the remedy, would also seem to establish a prima
facie  case.  Whether or not a prima facie  case has been established will vary according to the facts and
circumstances of each case.
3555
7.1529  Similarly, in the opinion of Japan, Korea and New Zealand, since the authorities are the ones
deciding to impose safeguard measures, they bear the burden of collecting and assessing sufficient
factual information to meet all of the requirements for imposing safeguard measures.  In situationswhere extensive data is available, and particularly in those cases where the data is both available and
presented to the authorities, the authorities have an obligation to consider that data.  In this case, the
complainants submit that there existed extensive publicly available data and the parties presented
various economic studies utilizing that data.  The USITC, therefore, had information and studies at its
disposal to quantify the injurious effects, but chose not to do so.
3556
7.1530  The United States notes that Japan and Brazil posit only one way to "quantify" injury –
through the use of economic modelling.3557  In effect, they would replace the complex and nuanced
analysis anticipated by Article 5.1 with a rigid and formulaic mathematical test.  Modelling is widely
used in theoretical economics, and may play a role in the evaluation of a safeguard measure.
                                                     
3552 Brazil's first written submission, Figure 3.
3553 Brazil's first written submission, Figure 24.
3554 Brazil's written reply to Panel question No. 114 at the first substantive meeting.
3555 Brazil's written to Panel question No. 114 at the first substantive meeting.
3556 Japan's, Korea's and New Zealand's written replies to Panel question No. 114 at the first substantive
meeting.
3557 Japan's first written submission, para. 324, Brazil's first written submission, paras. 212-214.WT/DS248/R, WT/DS249/R,
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However, modelling has important limitations that prevent it from quantifying "injury" within the
meaning of the Agreement on Safeguards, or from measuring with any precision the effect ofincreased imports or of a safeguard measure on the individual factors demonstrating injury.
3558
7.1531  The United States suggests that the most important difference between the Japanese/Brazilian
and United States' approaches lies in how models are used.  Japan and Brazil argued to the USITC,
and now argue to the Panel, that particular models can calculate the effect of imports and other factors
on the domestic industry and that the calculated results should inform the competent authorities
analysis of causal link and non-attribution.  As a general matter, this view ignores the limitations in
computer models.  A model designed to estimate the impact of one market participant's sales on theprices and quantities of other market participants will probably reflect the effect of other factors with
less accuracy.  Although one could theoretically design models for all potential causes of injury, they
would require different underlying assumptions and qualitative and quantitative inputs, which would
make any comparison of the outputs highly suspect.  In short, the best computer models available
provide a type of "quantification" that would not satisfy the obligation under the Agreement onSafeguards to demonstrate a causal link or to ensu re non-attribution.  Specifically with regard to the
models referenced by Japan and Brazil – which were developed for purposes of the Steel  proceedings
– the USITC staff concluded that they did not provide "statistical evidence that the effect from import
competition on domestic price was significantly greater than the effect of the other factors included in
their analysis".
3559  Moreover, the models did not assess the magnitude of the effects of imports as
opposed to the effects of other factors "in a statistical manner".  The models measured the effect of
domestic competition either "weakly" or "not ... at all".3560  Nor did the models purport to consider
and weigh all of the factors required to be considered in assessing injury and causation.  Accordingly,
the USITC gave the models little weight because of their "serious limitations".3561 3562
7.1532  In contrast, the United States argues that it did not use a new computer model to compare
different factors as part of the causation analysis.  Instead, it used an established computer model for a
discrete inquiry related to one factor – imports – in  analysing the permissible extent of application of
the safeguard measure in terms of the volume, price, and revenue for the product sold by the domestic
industry.  Specifically, the United States took two scenarios – (1) imports in 2000 remaining at pre-
surge levels and (2) application in 2000 of the safeguard measures established by the President –  and
modelled how prices and volumes of products sold in the United States might have been different.  By
looking at the volume and price effects of imports in both scenarios and holding all other putativecauses of injury constant, the United States claims it had avoided the danger that the model would not
accurately compare the volume and price effects of two different causes of injury.  Moreover, since it
is "impossible to determine in advance with any de gree of precision the level of import duty necessary
to enable the United States industry to compete with overseas suppliers in the current competitive
conditions"
3563, the United States argues that the uncertainty inherent in computer modelling is no
different from any other available analysis.  In contrast, when it comes to analysing causation, there is
an alternative – the type of qualitative analysis employed by the USITC.3564
7.1533  The United States argues that it cannot discern exactly what the proponents of quantification
would have the USITC do differently.  Only a few of the complainants have raised this issue and, to
                                                     
3558 United States' first written submission, para. 1039.
3559 USITC Memorandum EC-Y-042, p. 42.
3560 USITC Memorandum EC-Y-042, p. 1.
3561 USITC Report, p. 59, footnote 260.
3562 United States' written reply to Panel question No. 116 at the first substantive meeting.
3563 US – Fur Felt Hats , para. 35.
3564 United States' written reply to Panel question No. 116 at the first substantive meeting.WT/DS248/R, WT/DS249/R,
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date, they have not indicated exactly how the USITC should have quantified injury.  According to the
United States, Norway states repeatedly that quantification is required, but does not indicate howquantification is possible.  Brazil also faulted the economic model that the USITC used in its remedy
recommendation, but suggests that the USITC should actually have relied upon economic modelling,
particularly upon a computer model submitted on behalf of foreign producers, which the USITC
rejected.
3565  Japan also faults the USITC for not relying on the foreign producers' computer model.3566
According to the United States, proponents of quanti fication have not explained what they mean by
this term, or how a competent authority would quantif y injury or the effects of imports on all of the
indicators of injury that the Agreement on Safeguards requires to be considered.  Therefore, theUnited States claims that it cannot tell how its numeric exercise differed from any suggestions the
complainants might have.
3567
7.1534  The United States notes that the complainants take varying positions on whether
quantification is necessary.  Most avoid the question by stating that the competent authorities must
quantify injury "if necessary", and bear the burden of doing so.3568  The United States contends that on
the contrary, it is a well-established principle in disputes under the DSU that the party asserting the
affirmative of a proposition bears the burden of proving it.3569  The United States claims to have
presented extensive evidence that it is not possible to quantify precisely the injury caused by increased
imports or the injurious effects of increased imports for use in an analysis separating the injurious
effects of imports and other factors.  Therefore, it argues that the proponents of quantification bear theburden of establishing both that (i) the Agreement on Safeguards requires quantification and (ii) an
accurate quantification of injury or injurious effects caused by increased imports is possible.
According to the United States, the complainants have not met either aspect of this burden.  The only
evidence that the complainants present to demonstrate that quantification is possible consists of
computer models submitted to the USITC, which the USITC rejected.  Although Japan and Brazilcriticize the USITC for "dismissing" economic modelling results "in a single footnote"
3570, they never
address the USITC's reasons for placing little weight on the models.  The only legal basis the
complainants cite for the proposition that quantification is mandatory is the Article 5.1 "no more than
the extent necessary" standard.  Some complainants believe that a Member can meet this standard
only if it quantifies the effects of both increased imports and the safeguard measure.3571  However, in
the opinion of the United States, a qualitative analysis could also suffice to establish that a safeguard
measure was commensurate with the injury attributable to increased imports.3572
7.1535  For the United States, to the extent that the complainants have suggested that some further
analysis is required to precisely and scientifically quantify the exact measure of injury and effect of
the measures taken, such a standard would clearly be unworkable and inconsistent with the
                                                     
3565 Brazil's first oral statement, para. 35.
3566 Japan's first written submission, paras. 276-281.
3567 United States' written reply to Panel question No. 116 at the first substantive meeting.
3568 European Communities' written reply to Panel question No. 114 at the first substantive meeting;
Japan, Norway and Brazil take a similar position in their written replies to Panel question No. 114 at the firstsubstantive meeting.  Korea and New Zealand argue that the quantification is always necessary, while China andSwitzerland take no position; Korea's, New Zealand's an d Switzerland's written replies to Panel question No.
114 at the first substantive meeting.
3569 Appellate Body Report, US – Wool Shirts and Blouses , p. 17.
3570 Brazil's first written submission, para. 213;  Japan's first written submission, paras. 276-278;  the
European Communities makes a similar point, European Communities' first written submission, para. 278.
3571 New Zealand's written reply to Panel question No. 114 at the first substantive meeting.
3572 United States' second written submission, paras. 192-196.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 505
Agreement.  It would create a standard that no party could meet in taking a safeguard measure and
would thus effectively nullify the Agreement.3573
7.1536  In the United States' view, no quantification analysis can meet the requirements of
Articles 5.1 or 4.2(b).  The limited numerical exercises provided in the United States' first written
submission had the limited purpose of providing the Panel with additional evidence that the steel
safeguard measures were consistent with Article 5.1.  They certainly do not support the notion that
either the type of quantification envisaged by some complainants or a numerical exercise like the
one(s) used by the United States in this dispute is/are required.3574
(g) Exclusion of products
7.1537  The European Communities and Norway argue that to determine whether products
investigated can be excluded from the application of a safeguard measure, Article 5 must be
interpreted in the light of the principle of parallelism inherent in that provision and in Articles 2 and 4
of the Agreement on Safeguards.  Seen in this context, the clause "extent necessary to prevent or
remedy serious injury" in Article 5.1 means "extent necessary to prevent or remedy serious injurycaused by the imports which have formed the basis of the 'increased imports' and the 'serious injury'
and causation determinations", and which must correspond to the imports subject to the measure.  If
the serious injury and causation have been assessed with reference to a certain range of products, it is
that range of products which has been recognized to cause serious injury.  The level and type of
remedy appropriate to counter that serious injury cannot be re-distributed among a narrower range ofproducts.  Otherwise, these claimants suggest, cert ain imports would be attributed the consequences
of injury they have not been determined to cause.  On the other hand, if all imports investigated and
found to have caused serious injury are covered by a measure, then such measure could be uniformly
reduced to some less than is necessary if the importing country so chose.
3575
7.1538  In the view of Brazil, product exclusions alter the remedy by making it less restrictive.  As
such, they affect the level of protection afforded by the remedy and should be viewed as such.3576
Japan considers that product exclusions are specifically aimed at ensuring that the measures are not inexcess of what is necessary to provide relief.  If a product is not produced in the United States, then it
would be excessive to impose relief for that product.
3577  According to Korea, by excluding those
products from the remedy, the United States is choosing not to impose relief.  Such action is not only
permitted but contemplated by the terms of Article 5.1, first sentence.3578
7.1539  According to the European Communities, the exclusion of a product (or sub-product) covered
by a safeguard measure, because it is requested by the United States industry or for whatever other
reason, removes the restriction on that sub-product but does nothing to render more proportionate the
application of the safeguard measures to the remaining sub-products.  Indeed, the fact that product
exclusions have even been requested and obtained by the United States domestic steel industry itself
(for example for slabs) would tend to indicate that the original level of the measures wasdisproportionate.
3579
                                                     
3573 United States' first written submission, para. 1064.
3574 United States' written reply to Panel question No. 116 at the first substantive meeting.
3575 European Communities' and Norway's written re plies to Panel question No. 100 at the first
substantive meeting.
3576 Brazil's written reply to Panel question No. 100 at the first substantive meeting.
3577 Japan's written reply to Panel question No. 100 at the first substantive meeting.
3578 Korea's written reply to Panel question No. 100 at the first substantive meeting.
3579 European Communities' second written submission, para. 520.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 506
7.1540  The United States responds that the exclusion of particular types of each product from the
measures does not establish a prima facie case of inconsistency with Article 5.1.  That Article clearlyallows a Member to apply a safeguard measure less than the extent necessary to remedy or prevent
serious injury and to facilitate adjustment, as long as it complies with the MFN obligation under
Article 2.2.  This discretion includes the lessened application – or even non-application – of a measure
to particular types of a product.  The use of "no more than the extent necessary" indicates that
Article 5.1 establishes a maximum for the application of a safeguard measure.  "No more than" means
that the measure may be applied up to, but not beyond, that level.  Since Article 5.1 places no
constraint on a Member's ability to apply a measure less than necessary, a Member has discretion todo so.  Accordingly, a Member remains free to exclude a type of the product or apply the measure at
lower levels to that type of the product as long as it complies with the other requirements of the
Agreement on Safeguards, including the Article 2.2 requirement to apply the measure regardless of
source.
3580
7.1541  The United States notes that Japan, Korea and Brazil agree that product exclusion is not
necessarily inconsistent with Article 5.1.  Only New Zealand argues that exclusions are forbidden, on
the grounds that parallelism requires the application of any safeguard measure to each and every one
of the items included in the product subject to a finding of serious injury.3581  (The United States refers
to this concept as "scope parallelism".)  New Zealand recognizes that parallelism, as described in US –
Wheat Gluten  and US – Line Pipe , "was, on the facts, restricted to imports by source".3582  ( T h e
United States refers to this as "source parallelism".)  However, according to the United States, New
Zealand argues that those reports also stand for the "broad principle" of scope parallelism.  For the
United States, no such principle exists.3583  The United States argues that New Zealand has not
rebutted their analysis and, therefore, has not established a prima facie case that the Agreement on
Safeguards requires scope parallelism.3584
7.1542  For the United States, the exclusions (or reductions in application) are a factor that the Panel
should consider in evaluating whether the steel sa feguard measures are consistent with Article 5.1.
These adjustments to the steel safeguard measures lessen their effect on the domestic industries, and
thus lessen the extent to which they prevent or remedy serious injury.3585
(h) Different remedies for slabs and CCFRS
7.1543  The European Communities and China note that the two separate safeguard measures on slabs
and CCFRS respectively, as explained by the USITC itself, have different goals and extents.3586  I n
particular, the tariff rate quota on slabs aims at taking into account the specific end-use and marketing
channel of slabs, namely the fact that "domestic producers typically internally consume nearly all the
slabs they produce" and that "commercial sales of slabs have been extremely limited".  Accordingly,
                                                     
3580 United States' written reply to Panel question No. 100 at the first substantive meeting.
3581 New Zealand's written reply to Panel question No. 92 at the first substantive meeting.
3582 New Zealand's written reply to Panel question No. 92 at the first substantive meeting.
3583 United States' first written submission, paras. 763-766.
3584 The United States also notes that, as a systemic matter, New Zealand's understanding of the US –
Wheat Gluten  and US – Line Pipe  reports is troubling.  In New Zealand's view, general comments by the
Appellate Body in those reports are dispositive as to an issue – scope parallelism – that the parties did not raiseand that the Appellate Body did not address.  Thus, the Appellate Body did not have the chance to fully considerthe implications of scope parallelism and the consistency of that concept with the Agreement on Safeguards.  Its
statements regarding source parallelism should accord ingly be understood as being inapplicable to scope
parallelism.
3585 United States' second written submission, para. 210.
3586 USITC Report, Vol.  I, pp. 362-366.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 507
the tariff rate quota on slabs is "intended to avoid causing harm to domestic steel producers that have
legitimate needs to continue to import slabs".  In the light of their respective goals and extents, itappears difficult to argue that the safeguard measures for slabs and for the rest of certain carbon and
alloy flat can be justified on the basis of the same determination that increased imports of all certain
carbon and alloy flat have caused injury to the domestic industry producing all carbon and alloy
flat.
3587
7.1544  For the European Communities, if a competent authority does present a recommendation,
further finds that its recommendation would be adequa te to address the injury found to be caused by
increased import and furthermore explicitly states that any more restrictive remedy would beinappropriate, then it would be difficult to cons ider that a deviation from such recommendation could
be justified on the basis of the determination made by the competent authority that increased imports
have caused injury to the domestic industry producing like products.  In these circumstances,
explanation for departure from the recommendation is necessary.
3588  Moreover, if such competent
authority does present a recommendation and reaches findings and reasoned conclusions that itsrecommendation would be adequate to address the injury caused by increased import and furthermore
explicitly states that any more restrictive remedy would be inappropriate, then deviation from the
recommendation resulting in a more trade restrictiv e remedy than that has been recommended would
suggest that the remedy effectively implemented goes beyond the extent necessary in violation of
Article 5.1.
3589  For Korea, the critical question is whether the measure adopted can be reconciled and
is consistent with the underlying determinations of serious injury and causation.  In the case of welded
pipe, for example, the critical issue is that th e USITC recommendation actually provided a detailed
explanation of how the threat of injury fi nding provided a "benchmark" for the remedy
recommended.3590
7.1545  Japan adds that if these products are the same and compete with each other, why should they
be subjected to different remedies with different effects?  The burden is on the United States to
explain why the remedy applied to slab, which is less restrictive than the tariffs applied to finished flat
products, should not be expanded and applied to finished flat products so as to meet the obligations of
Article 5.1.  In other words, absent some explanation, Japan believes there is a presumption that
different remedies within a "like product" violate Article 5.1.  Japan submits that different remedies
for products within a single like product category, as defined by the competent authority, proves that
the products were inappropriately grouped together within that category.3591
7.1546  Similarly, Korea and New Zealand argue that by applying a remedy to slab that was less
restrictive than that applied to other CCFRS produc ts, the United States was acknowledging that the
injury caused by CCFRS products (slab) could be addressed through less restrictive means than the
remedy applied to most CCFRS products.3592
7.1547  Brazil argues that the fact that the United States granted a separate additional quota for ultra
low carbon slab is recognition that there are sub-products within the slab grouping.3593  Both the
                                                     
3587 Complainants' written replies to Panel question No. 104 at the first substantive meeting.
3588 European Communities' written reply to Panel question No. 110 at the first substantive meeting.
3589 European Communities' written reply to Panel question No. 109 at the first substantive meeting.
3590 Korea's written reply to Panel question No. 109 at the first substantive meeting.
3591 Japan's written reply to Panel question No. 103 at the first substantive meeting.
3592 Korea's and New Zealand's written replies to Panel question No. 103 at the first substantive
meeting.
3593 Exclusion of Particular Products from Actions under Section 203 of the Trade Act of 1974 With
Regard to Certain Steel Products; Conforming Change s and Technical Corrections to the harmonized Tariff
Schedule of the United States, 67 FR 56182 (30 August 2002).WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 508
exclusions and the additional slab quota are recognition that certain products within a broader like
product category may not be produced in the importing market or might not be produced in sufficientquantities.  It points out that the United States has traditionally carved out exclusions from like
product definitions in anti-dumping and countervailing duty cases.
3594  The fact that there are different
remedies for products within the same USITC product grouping, however, raises a very different
question.  Specifically, if all of the products within the like product category compete with each other,
why is it necessary to have a different remedy for a sub-category of these products?  Presumably, if
slab is competing directly with plate, hot-rolled, cold-rolled and corrosion resistant flat products, the
remedy necessary to eliminate the injury from imports of slab is no different than that necessary toeliminate the injury from imports of these downstream products.  If slab is the same like product
subject to the same competitive dynamics as the other flat-rolled carbon products, why is it necessary
to impose a different remedy on slab?  According to  Brazil, the need for a different remedy for slab
demonstrates that the products within the grouping are not like one another, do not directly compete
with one another and should not be grouped together.  If products are like one another, then thecompetitive dynamics between them should, by definition, be the same.  Hence, there is no reason
why the remedy should not be the same.  The fact that the President felt compelled to impose a TRQ
for slab and a high tariff for the other products within the flat-rolled grouping demonstrates that there
are different competitive dynamics at play between slab and the finished flat products, meaning that
they cannot be part of the same like product.
3595
7.1548  The United States argues that the Agreement on Safeguards also allows a Member to reduce
the extent of application of a measure to certain items within the imported product.  For a tariff-based
safeguard measure, such a reduction could take the form of a lower rate of duty for a particular item,
or a zero-rate for a limited quantity of imports of that item.  Just as with a complete exclusion, either
of these measures would lessen the overall application of the measure.  The exclusions endorsed byJapan, Korea, and Brazil contain several examples of quantitative exclusions for particular items.
3596
7.1549  The complainants misunderstand the basis for the application of a TRQ to slab.  The USITC
found that slab was part of the certain carbon flat-r olled like product and affected the sale of that
product in the United States.  Specifically, the USITC noted that "slab prices are solely a function of
downstream prices for hot-rolled steel and cold-rolle d steel, which would suggest a strong cross-price
effect between these types of steel".3597 The President did not revise or modify these conclusions, or
the overall finding that slab imports were injurious.  Instead, he found that a TRQ for slab wasappropriate based on the various statutory factors that he was required to consider, even if the remedy
was less than the maximum remedy permitted under the Agreement on Safeguards.
3598
7.1550  The treatment of slab does not call into question the USITC's like product definition for
certain carbon flat-rolled steel.  The President did not find that slab was not "like" other steel
products.  Rather, the President included slab in the safeguard measure precisely because slab importsare like domestic certain carbon flat-rolled steel, and have an effect on the domestic industry
producing that product.  He then applied the measure to slab in the form of a TRQ because the long-
                                                     
3594 For example, Carbon and Certain Alloy Steel Wire Rod From Brazil et. al. , Inv.  Nos. 701-TA-417-
421, and 731-TA-953-954, 956-959, 961-962, USITC Pub.  3546 (Oct.  2002) at fn.  2 (excluding, among otherproducts, grade 1080 tire cord and tire bead quality wire rod).
3595 Brazil's written replies to Panel questions Nos. 22 and 103 at the first substantive meeting.
3596 United States' second written submission, para. 211.
3597 USITC Report, p. 43.
3598 United States' second written submission, para. 213.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 509
term remedial effect of applying the safeguard tariff to all slab was outweighed by the short-term
disruption such action would cause to the broader United States economy.3599
2. Demonstration/justification by the United States of the measures imposed in this case
(a) General
7.1551  The United States argues that an analysis of the ten safeguard measures applied by the United
States demonstrates that they are consistent with the standard set out in Article 5.1, as interpreted by
the Appellate Body.  The USITC Report established that the United States has the right to apply a
safeguard measure with regard to each of the ten steel products at issue.  The United States claims that
it has demonstrated that as a result of unforeseen developments, imports of each product increased insuch quantities and under such conditions as to cause or threaten to cause serious injury.  The report
further demonstrated that, in reaching this determination, the USITC separated and distinguished the
injury caused by increased imports from the injury caused by other factors.  According to the United
States, no complainant has established a prima facie case of inconsistency with these obligations.  To
the extent that any complainant could be considered  to have made a prima facie case on any of these
issues, the discussion in the preceding sections has fully rebutted that case.
3600  The United States
submits it is evident, through both a qualitative and a quantitative assessment of the effects of imports
on the relevant domestic industries and of the measure taken, that the relief provided was only to the
extent necessary to prevent or remedy serious injury and to facilitate adjustment.  The injury suffered
by the domestic industries at issue in this case was extraordinary by any measure.  The nature andextent of this injury was documented throughout the findings of the USITC.  This injury involved
significant financial losses, numerous bankruptcies, tens of thousands of job losses, as well as lost
sales, decreased production, reduced capacity utilization, lost investment opportunities and many
other indicators of serious injury.  The USITC's findings also document the extraordinary steps
required for domestic producers to facilitate adjustment to import competition.  In the opinion of theUnited States, the enormity of the injury documented here plainly necessitated the type and extent of
the measures taken by the United States if the industries at issue were to be given any chance to
recover from serious injury and adjust going forward.
3601
7.1552  According to the United States, one potential numerical approach begins with the ordinary
meanings of the terms of Article 5.1.  A safeguard measure to "remedy" injury caused by increased
imports would, in the ordinary meaning of the term, need to "put right, reform, (a state of things);
rectify, make good".  To "prevent" serious injury would be "to forestall or thwart by previous or
precautionary measures".  To "facilitate" adjustme nt would be to promote the adaptation to changed
circumstances, namely, competition from increased imports.  Each aspect of Article 5.1 – the "injury"
being prevented or remedied and the "adjustment" being facilitated – depends on the facts of the case,
most particularly the condition of the industry and the injurious effects of imports.  Most of the steel
determinations noted that the low prices of increased imports were forcing domestic producers tolower their own prices, thus reducing profitability.  In these cases, the United States considers that a
remedy in the sense of Article 5.1 would both stop the ongoing negative effects of imports and allow
the domestic industry to recoup the losses caused by increased imports during the investigation
period.  Such a remedy would also advance the goal of facilitating adjustment, since producers could
                                                     
3599 United States' second written submission, para. 214.
3600 United States' first written submission, para. 1055.
3601 United States' first written submission, paras. 1066-1067.WT/DS248/R, WT/DS249/R,
WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R,
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Page 510
devote increased profits to projects that would make them more competitive with imports when the
safeguard measures are removed.3602
7.1553  The United States explains that, in some of the steel determinations, the analysis of the
USITC noted that the domestic industry's loss of market share played a prominent role.  In these
cases, the United States considers that a remedy in the sense of Article 5.1 would allow the domestic
producers to recover market share.  The associated improvements in revenue and profits would also,
to some extent, allow them to undertake projects that would make them more competitive with
imports when the safeguard measures are removed.  In both sets of cases, simply counteracting the
current negative effects of imports or promoting a temporary return to the industry's historicalcondition before imports began to increase would not be sufficient.  First, the industries' condition
before increased imports manifestly did not permit them to adjust to increased imports.  That is why
they reached a state of serious injury.  Second, the very concept of "remedy" suggests an alleviation of
the injury identified during the investigation period, as well as cessation of future injury.  An industry
cannot adjust successfully if past losses left it in a financially perilous position that a measure couldremedy only in the future.  Thus, the United States considers that the extent of application of a
safeguard measure includes both counteracting current negative effects of imports and alleviating past
negative effects to permit the industry's adjustment.
3603
(b) Numerical analysis
7.1554  The United States explains that the simple numerical analysis described below focuses on
conditions during a year in the investigation period to estimate the change in revenue or import
volume necessary to remove the current negative effects of imports and to recoup past negative
effects.  As a surrogate for the "uninjured" condition of the industry, the United States uses a year
either before the increase in imports or before the co ndition of the industry began to decline.  This is a
conservative approach because the USITC did not identify any time during the investigation period asone in which there was no injury.  Indeed, in several cases, the USITC specifically found that imports
had negative effects throughout the period.  Thus, any part of the period would potentially reflect a
level of operating income or revenue already reduced by the effects of increased imports.
3604
7.1555  The United States recalls that the selection of a comparison year, estimated operating margin,
or estimated import volume are not intended to suggest that imports did not have negative effects on
the domestic industry and its operating income levels at that time.  It does not imply either that there
was serious injury in that year, or that there was not serious injury, as the USITC did not make adetermination in that regard.  The comparison year merely provides a starting point to evaluate the
negative effects that imports in subsequent years may have had on the industry's performance.  This
numerical analysis then estimates the extent to which non-NAFTA import prices would have to
increase, or volumes decrease, to attain the desired condition.  Accordingly, to perform this numerical
analysis for the industries in which the price effects of imports played a prominent role, the UnitedStates performs a four-step analysis to estimate the extent to which domestic producers' prices and
revenues would have to rise to eliminate the negative effects of increased imports on the industry's
operating income.  The United States then estimates the degree that import prices would have to
                                                     
3602 United States' first written submission, para. 1066.
3603 United States' first written submission, para. 1068.
3604 United States' first written submission para. 1069.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 511
increase for the domestic industry to achieve this level of profitability, and the additional tariff that
would achieve that price increase.3605 3606
7.1556  The United States explains that the first step of this approach estimates the amount of revenue
domestic producers would have needed in each year to raise operating income to its level at a point
(the "base year") in the investigation period before the industry's performance began to decline.  The
approach estimates the degree to which the industry's operating income declined in each year after the
base period.  In cases in which the USITC found that factors other than imports were also injuring the
industry, the approach uses a comparison year in which the USITC observed that one or more non-
import factors were affecting the industry.  For example, if the USITC found that increased capacityhad injurious effects, the United States would attempt to choose a year in which capacity had already
risen to its level during the period of serious injury.  The approach then estimates the amount that
revenue would have had to increase to produce that estimated operating margin in each year in which
the USITC identified the industry's performance as deteriorating due to increased imports.  In
situations in which there is no comparison year that reflected the injurious effect of non-importfactors, this analysis either omits the years in which other factors had an effect, or subtracts the
amount of profit shortfall the United States estimates would be attributable to that factor.
3607
7.1557  In the second step, the United States' analysis estimates the degree to which domestic
producers' prices would have to increase during the pendency of a safeguard measure.  Any price
increase would have to return domestic prices at least to a level that would provide operating incomeequal to a level that does not reflect the price effect of increased imports and then increase prices by a
further amount to counteract the negative effects of imports from 1998 to 2000 and to facilitate
adjustment.  This estimate calculates the further amount of increase by dividing the revenue shortfall
estimate in the first step by total revenue during the period of the shortfall, and adding that percentage
to the operating income margin for the comparison year.
3608
7.1558  As a third step, this approach estimates the degree to which import producers' prices would
have to increase for domestic producers to achieve the operating income margin described above.
The average unit values or USITC pricing comparisons, as appropriate, involved domestic prices from
years when the industry did not achieve this level of profitability.  To estimate a price that would
achieve the target operating income level calculated  in the second step, this approach decreases
domestic producers' annual unit value or price3609 by the unit operating income3610 and then increases
the resulting figure to a point where it would prod uce an operating income margin equal to the target
operating income margin.  This approach compares this price in each year to the annual unit value or
                                                     
3605 For the most part, the United States bases 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 Reportindicated that the difference in unit values between im ports and domestic products reflected different product
mixes, as well as the injurious effects of price underselling by non-FTA imports.  In those cases, the United
States based our calculations on the item-specific pricing comparisons conducted by the USITC.
3606 United States' first written submission, para. 1070.
3607 United States' first written submission, para. 1073.
3608 United States' first written submission, para. 1074.
3609 Since the USITC performed pricing comparisons on a quarterly basis, the United States weight
averages pricing data to produce an annual figure that we could then compare to profitability, which was
expressed on an annual basis.
3610 The United States does this by multiplying the unit value annualized price by the one minus the
reported profit margin.WT/DS248/R, WT/DS249/R,
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Page 512
price of imports to calculate how much import prices would have to increase for the domestic industry
to achieve the target operating income.3611
7.1559  As a fourth step, this approach estimates the additional duty that would achieve the price
increase calculated in the third step.  As part of its investigation, the USITC performed economic
modelling on the United States  industries.  These models indicated that there would not be full "pass-
through" of any increases in tariff rates.  That is, an increase of tariffs of X% would result in a less-
than-X increase in the prices importers charged in the United States market.  Based on these models,
the United States estimates a range of tariff increases that would produce the target increase in import
prices for the product in question.  These estimates of pass-through were in line with those predictedby industry participants.
3612
7.1560  The United States explains that this approach uses a somewhat different process for the
finding of threat of serious injury with regard to welded pipe.  For that industry, the concepts of
"preventing" and "remedying" serious injury overla p to a significant degree.  To "prevent" injury
attributable to imports, which the USITC found would imminently result from the negative effects ofincreased imports during the investigation period, a safeguard measure would have to counteract those
current negative effects.  Since the determination reflected negative performance that developed late
in the period, the revenue shortfall calculation in the first step reflected a shorter period than for the
industries subject to determinations of serious injury.  Finally for industries in which the market share
effects of imports were prominent, this approach analyses compliance with Article 5.1 in terms ofimport volumes.  This approach was used with tin mill and stainless steel wire.
3613
7.1561  The United States reiterates that while this  numerical analysis may be instructive, as
recognized by the Working Group in US – Fur Felt Hats , it is not a science.  These estimates are
intended to show that the steel safeguard measures were applied no more than the extent necessary to
prevent or remedy serious injury.  For the United St ates, they are conservative estimates, in that the
USITC identified a number of negative effects that imports had on the domestic industry – reduced
volume, prices, revenue, production, capacity ut ilization, employment, capital formation and
investment – but these estimates have not attempted to address the negative effects of imports on
other indicators of injury, such as employment, production, and capacity utilization.  These estimates
also do not attempt to add to the estimated tariff levels to attain operating income levels that would
fully facilitate the adjustment of the industry to increased imports.3614
7.1562  The United States indicates that the safeguard measures worksheets for each product show the
results of these calculations, but it reiterates that the decision on the nature and level of a safeguard
measure, or the defense against a claimed inconsistency with Article 5.1, is a not strictly numerical
exercise.  Just as "serious injury" as described in the Agreement on Safeguards is not quantifiable, the
overall effect of a safeguard measure in preventing or remedying serious injury and facilitating
adjustment is not quantifiable, either.  The United States reiterates that there are important limitationsin the analytical tools that are available to estimate the effect of a remedy.  Thus, any numerical
analysis is, at best, an approximation that might assist a panel in evaluating whether a measure is
commensurate with the injury caused by increas ed imports and the need for adjustment.  The
numerical analysis will not delineate with any precision the extent of the injury, or the extent of
application of the measure that would remedy only that injury.  In short, these estimates are not in any
                                                     
3611 United States' first written submission, para. 1075.
3612 United States' first written submission, para. 1076.
3613 United States' first written submission, para. 1077.
3614 United States' first written submission, para. 1079.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 513
manner a quantification of injury, excluding as they do a consideration of most of the factors required
to determine serious injury under Article 4.2(a).3615
(c) Economic model
7.1563  The United States explains that economic modelling of the price, volume, and revenue effects
of increased imports and of the safeguard measures established by the US President on 5 March 2002
also suggests that these measures were in accord with Article 5.1.  During its remedy phase, the
USITC prepared an economic model, similar to ones it has used over a long period and in a variety of
proceedings, to model the theoretical effect of various measures on the relevant U.S. industries.  It is a
comparative statics model, which estimates how price, quantity, and total revenue associated withsales by domestic producers and various imports sources during a particular period would have been
different if there were a change in market conditions.  It is important to recognize that the model does
not predict future performance and, does not measure injury as such.  What it does do is estimate how
certain indicators of past performance might have changed if market parameters had changed.
3616
7.1564  The United States stated that it used this model, inputting variables to model how the
quantity, price, and revenue of sales by the domestic industry and various import sources would have
changed in 2000 if the safeguard measure established by the US President on 5 March 2002, had been
in effect during that period.  The results appear in column 2 of the Modeling Results Worksheet for
each product.3617
7.1565  The United States explained that it then modelled how the quantity, price, and revenue of
sales by the domestic industry would have changed if imports in 2000 had been at the same quantity
in a year prior to the increase in imports.  The resu lts appear in column 1 of each Modelling Results
Worksheet.  This exercise only models the effect of the change in imports on the price, quantity, and
revenue associated with sales of the domestic like product.  It does not capture the injury that imports
may have been causing at lower levels, before any increase.  Subject to all of the limitations inherentwith modeling, this model provides a rough estimate of certain effects of the increase in imports, i.e.,
on the quantity, price, and revenue of sales by the domestic industry.  A comparison between the
figures in columns 1 and 2 of each worksheet expl ains how the remedy applied was no more than the
effect of the increase in imports on indicators of injury covered by the model – the price, volume, and
revenue associated with sales by the domestic industry.
3618
(d) USITC recommendations compared with justification by the United States in this case
7.1566  The United States notes that it is important to recognize the differences in the use of the
model by the USITC in its remedy discussion and in the modelling exercise in the United States' first
written submission.3619  Although the volume, price, revenue, and elasticity inputs to reflect market
conditions in 2000 were the same, the USITC modelled a series of remedy options different from
remedies subsequently chosen by the President.  In contrast, the modelling exercise in the United
States' first written submission is based on the estimated price, volume, and revenue effects of theremedies actually applied by the President.  It compares these with the estimated price, volume, and
revenue effects of the increase in imports.  The USITC did not model the price, volume, and revenue
                                                     
3615 United States' first written submission, para. 1080.
3616 United States' first written submission, para. 1081.
3617 United States' first written submission, para. 1082.
3618 United States' first written submission, paras. 1083-1084.
3619 The United States notes that the USITC used the modelling results as one element in its evaluation
of the remedy options, and not in its analysis of injury and causation.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 514
effect of the increase in imports.  It is also im portant to recognize that the USITC reached its remedy
recommendation by considering a number of factors, of which the results of the model were only one.The USITC also considered information and arguments submitted by the parties, testimony at its
remedy hearings, data on the administrative record, and non-modelling economic analysis.  Based on
this information, the USITC evaluated the remedy in terms of all of the injurious effects of the
increased imports – changes in the  production, productivity, capacity utilization, profits and losses,
and employment, as well as the price, volume, a nd revenue of each domestic industry, and any other
relevant factor.  The Memorandum accompanying Proclamation 7529 specifies that the President
determined that the steel safeguard measures were appropriate, "after considering all relevant aspectsof the investigation, including the factors set forth in section 203(a)(2) of the Trade Act and the
supplemental report".
3620  These include the recommendation and report of the USITC, the extent to
which workers and firms in the domestic industry are benefiting from adjustment assistance and
engaged in worker retraining efforts, the domestic industries' efforts to make a positive adjustment to
import competition, the short- and long-term economic and social costs and benefits of any safeguardmeasure, and national economic interests, among other considerations.  The modelling exercise uses a
comparison of the price, volume, and revenue effects of the actual measures as compared to the price,
volume, and revenue effects of increased imports to confirm that the safeguard measures were not
applied beyond the extent necessary.  The United States provides this analysis in rebuttal to the
complainants' arguments that the USITC findings were inconsistent with Article 4.2(b), and that afinding in their favour on this point would, by its elf, create a presumption that the measures are
inconsistent with Article 5.1.
3621 3622
(e) Justifications for each of the safeguard measures
7.1567  The United States explains how and why it considers that the level of remedy chosen by the
President for each safeguard measure is no more restrictive than what was necessary to remedyserious injury and allow for adjustments
(i) Tariff on CCFRS and tariff-rate quota on slabs
7.1568  The United States
3623 submits that the USITC demonstrated that increased imports from non-
NAFTA sources caused serious injury to the domestic CCFRS industry and this was the starting
assumption of its justification.
7.1569  The USITC identified six factors other than in creased imports that potentially caused injury:
declining demand, increased capacity, legacy costs, intra-industry competition, managementdecisions, and purchaser consolidation.  It found that legacy costs, management decisions, and
purchaser consolidation did not cause injury to the domestic industry during the investigation period.
The USITC did not identify declining demand prior to the first half of 2001 as a cause of injury.
Demand increased from 1996 through the third quarter of 2000, and demand for all CCFRS products
in full year 2000 was higher than in 1996 or 1999.  However, the USITC found that declining demandcontributed to serious injury at the end of the investigation period.
3624  The USITC noted that capacity
increases outstripped growth in apparent domestic  consumption, and that production increased at a
lower rate, causing capacity utilization rates to fall, which would affect producers' pricing behavior.
                                                     
3620 Memorandum of 5 March 2002, 67 Fed. Reg. 10593, 10594 (Exhibit CC-13).
3621 The Appellate Body has found that any presumption created by an inconsistency with Article 4.2(b)
would be rebuttable. Appellate Body Report, US – Line Pipe , para. 262.
3622 United States' written reply to Panel question No. 72 at the second substantive meeting.
3623 United States' first written submission, paras. 1085-1101.
3624 USITC Report, p. 63.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 515
However, it did not attribute this effect to imports.  It noted that imports consistently undersold the
domestic industry – including those producers that added capacity – and continued to lead pricesdown in 1999 and 2000.  From this, the USITC concluded that imports, not increased capacity, were
the primary cause of decreasing prices.
3625  The USITC found that competition from minimills had
some effect on domestic pricing.  The Commissioners concluded that although minimills had lower
costs than integrated producers, it was imports that were price leaders and led prices down,
underselling the minimills throughout the investigation period.  Accordingly, the USITC found that
minimills were not primarily responsible for declines in domestic prices.3626  In this regard, the United
States notes that the volume of imports far exceed ed the volume of minimill sales in the commercial
market, by an order of two-to-one.3627  The USITC found that the only factors other than increased
imports that caused injury to the domestic industry were increased capacity, competition from
minimills, and a decline in demand after 2000.  This is not to suggest that imports in 1996 and 1997
had no negative effects.  However, since the analysis of the USITC focused on changes in industry
performance after 1997, and as a conservative estimate of the injury attributable to imports, thenumerical analysis for CCFRS was based on the changes from 1998 through the first half of 2001
only, as compared with 1997.  The injury attributable to imports from 1998 to 2000 continued into the
first half of 2001.  Non-FTA unit values fell in the first half of 2001, as compared with the same
period in 2000.  Beginning in the fourth quarter of 2000, domestic prices collapsed.  Import prices fell
to a lesser extent, resulting in a reduction, or elimination of the margins of underselling.
7.1570  The United States notes that the numerical analysis follows the general approach outlined
previously to evaluate the safeguard measure on CCFRS products, with appropriate modifications to
reflect the greater variation among the categories of steel covered by the like product.  The estimate in
the analysis is based on the unit values, which appear to be broadly reflective of the products available
from domestic producers and the import sources.  This is a conservative approach since, for most ofthe period, differences between domestic and non-FTA import unit values were greater [sic] than the
margin of underselling.  The analysis also considers the effect of anti-dumping and countervailing
duty orders on the domestic industry.  Most of the orders predate the USITC investigation period.
The exceptions are the 1997 and 2000 orders on plate, and the 1999 and 2001 anti-dumping orders on
hot-rolled steel.  The USITC found that import surges in many of the products occurred after anti-
dumping and countervailing duty orders were in place, an observation that applies equally to pre-
investigation-period orders and the 1997 plate orders.  In addition, the USITC data for the surge andpost-surge periods reflect any effect on the industry that these orders may have had.  Since the United
States bases its estimate of the measure on that data, it considers that it does not need to perform any
additional analysis to account for these orders.  The 1999 and 2001 anti-dumping duty orders and
suspension agreements on hot-rolled steel applied to several countries.  However, in light of the fact
that the 1999 orders did not prevent the continuation of imports at high and injurious levels, andwould not have prevented injury by fairly traded imports, the analysis did not adjust the estimate to
account for these orders.  With regard to the 2000 anti-dumping orders on plate, it is significant that
the offset of dumping under the 1997 dumping orders and suspension agreements affected the volume
of imports, but did not prevent a reduction in unit values and continued underselling.
3628  Accordingly,
the analysis does not adjust the estimate to reflect the offset of dumping and subsidization under the2000 orders.
                                                     
3625 USITC Report, pp. 63-64.
3626 USITC Report, p. 65.
3627 From 1996 to 2000, imports ranged from 18.3 to 25.3 million tons annually, while minimill
shipments never exceeded 8.49 million annually.
3628 USITC Report, pp. FLAT-64 & FLAT-C-3