WORLD TRADE  
ORGANIZATION  G/SG/Q2/EEC/3 
26 August 2010 
 (10-4460) 
Committee on Safeguards Original:   English 
  
 
NOTIFICATION UNDER ARTICLE 12.1(A) OF THE AGREEMENT 
ON SAFEGUARDS ON INITIATION OF AN INVESTIGATION  
AND THE REASONS FOR IT 
 
Questions posed by CHINA Regarding the 
 
Notification of the EUROPEAN UNION1 
 
(Wireless Wide Area Networking) 
 
 
 The following communication, dated 25 August 2010,  is being circulated at the request of the 
Delegation of China. 
 
_______________ 
 
 
 China is deeply concerned by the Europ ean Union's decision to initiate a safeguard 
investigation on imports from non-EU countries of wireless wide area networking (WWAN) modems 
on the basis of a request, lodged by the Belgia n government, on behalf of  one relatively small 
Belgian-based company.    
 China is further preoccupied by the simulta neous initiation of an anti-dumping investigation 
concerning the same product originating in China.    China has as a substantial interest  in the matter as it is the la rgest exporter to the EU of the 
products concerned.  Other exporters to the EU in clude the Separate Customs Territory of Taiwan, 
Penghu, Kinmen and Matsu, Korea, the United States and Canada. 
 
 Accordingly, China has registered  as an interested party and has requested an oral hearing.  In 
addition, China has provided its initial comments con cerning the initiation of the investigation to the 
European Union.  China also intends to request acce ss to all information submitted by other interested 
parties. 
 
 At this stage, China would like to call the fo llowing facts to the attention of its fellow WTO 
Members, particularly those for whom technology is an important industry, as well as those whose citizens enjoy the benefits of technological advances generally.  
 This investigation involves a request for safe guard measures to be applied principally to a 
recently-invented product which has made its pr edecessor, a product in which the complaining 
company has controlled the market, virtually obsolete.   Safeguard measures, if applied here, could set 
a precedent which would likely have a far-reaching, chilling effect on innovation.    
                                                     
 
1 G/SG/N/6/EEC/5. G/SG/Q2/EEC/3 
Page 2  
 
   The result would likely be that technology comp anies which lose market share due to a lack 
of innovation – even under circumstances of fair co mpetition – will take the result as an invitation to 
request safeguard protection from their home countries to restore their positions.  Such use of the safeguard instrument as a sword rather than a shie ld would not accord with its purpose, and would in 
the long run be detrimental to all Members, including the EU itself.   
 
 The European Commission, it should be noted, has as recently as 25 June 2010 considered "preoccupying" the "ever increasing use of the sa feguard instrument" in spite of "international 
commitments not to introduce protectionist measures in this climate of global economic crisis".  
Perhaps even more preoccupying then is that a Member which considers itself a leader in trade 
liberalisation, and has decried the proliferation of the use of safeguards, would launch an investigation 
which could undoubtedly result in a vast expansion of  the reach of the safeguard instrument, and for 
the benefit of a single company which employs less than 550 people worldwide.     The Chinese firms targeted in this investigation are at the forefront of innovation in the 
wireless technology industry, investing billions of Euros every year in research and development.  
These efforts have resulted in a large number of pa tented inventions and the introduction of new and 
highly-innovative products, such as mass-produced US B-based modems, which due to their low cost 
permit a much wider use of the internet to the bene fit of individuals and te lecom operators in both 
the EU and other WTO Members.  By contrast, th e sole complainant company in this matter has 
invested only a small fraction of what its Chinese co mpetitors have in research  and development, and 
the company has suffered because of it.  
  In fact, the complaining company does even not seem to qualify as a "domestic producer" within the meaning of the WTO Agreement on Safe guards.  It has publicly admitted in its annual 
reports that since 2008 all of its production is outso urced to non-EU countries (principally China!), 
and that no manufacturing operations are performed in Europe.  Importers clearly do not qualify as 
"producers" in the context of trade defence measures.    China would therefore wish to ask the European Union: 
 
1) whether it has verified if the EU produ cer can indeed be considered a "producer" 
rather than an "importer," and on what basi s, if any, the European Union has decided 
that this was the case; 
 2) which specific products and in what qu antities the "producer" is importing outright 
from China; 
 
3) if any, and to what extent, "finishing" operations take place within the EU, and what 
value, if any, this "finishing" process adds to the products it receives from China, and; 
 4) details regarding the timeline of the outs ourcing of different stages of production with 
respect to all of the different products subject to the investigation. 
 
 Taking this opportunity, China would also like to point out that the three products targeted by the investigation – PC cards, USB modems and WW AN/WiFi routers – are distinct products and 
should not constitute one single product.  China fa ils to see how the three products in question could 
possibly be considered to constitute a single produc t, as they cannot be reasonably described as either 
"like" or "directly competitive".  Reasons for this determination follow below:  
 
- They are completely different in physical  appearance  and technical characteristics; 
  G/SG/Q2/EEC/3 
 Page 3 
 
 
  - They have almost no interchangeability: USB modems and WWAN/WiFi routers 
have additional functions that are absen t in PC cards (USB modems provide 
additional usage as storage devices; WWAN/WiFi routers can perform additional functions of firewall protection  etc.; while PC cards are the most basic product for wireless connection) restricting the inte rchangeability between these three products; 
 
- They are distributed and sold through different channels ( i.e. telecom 
companies/operators generally in the case of  USB modems and to a lesser extent in 
case of WWAN/WiFi routers).  The only remaining market for PC cards is IT departments; 
 
- They are different in terms of consumer perceptions emerging from the differences in 
functions, usability ( i.e. PC cards and USB modems can connect to only one 
computer device; WWAN/WiFi routers can be used for multiple devices) and price. 
 
 Furthermore, safeguard measures cannot be imposed unless it can be shown that 1) the 
increase in imports was as a result of unforeseen deve lopments; 2) that there be an affirmatively 
demonstrated causal link between the increase in im ports and any injury, after properly accounting for 
other factors which cannot be attributed to any such  injury, and 3) that th e increase was sufficiently 
"recent, sudden, and sharp" and under such conditions so as to cause or threaten to cause serious 
injury to the EU industry that produces like or dir ectly competitive products.  China considers that 
none of these essential criteria for imposing safeguard measures have been met.    
  With respect to 1), China considers that the complainant company itself recognized in 
publicly-made statements the inevitability of the de velopments which have led to this complaint 
- namely that short product life cycles could quickly shift market conditions in the industry – and thus 
they cannot be considered unforeseen.  With respect to  2), China considers that the true cause of any 
injury suffered by the complainant was the releva nt technological development itself, coupled with 
the complainant's insufficient investment in researc h and development in the relevant time period, as 
well as other factors unrelated to the rise in im ports such as the conditions caused by the recent 
economic downturn.  With respect to 3), Annex 1 to the European Union's notification contains 
indexed figures for the last four years.  However,  the WTO Appellate Body has ruled that imports 
must have been recent, sudden, sharp and significant.   The recent data provided by the EU show that 
imports developed consiste ntly with consumption in the EU, and thus the increase should not be 
considered sufficiently "sudden and shar p" so as to meet that requirement. 
  In respect of those annexed figures, China considers that the EU should have provided 
non-indexed figures on the following factors, as they are by no means company-specific or even 
sensitive information, i.e.:  
  - total EU consumption ('000 units),   - imports,   - import volume ('000 units),  
 - market share of imports (%), and, 
 - unit prices of imports (Euro/unit).   Finally, China believes that the requirement th at a Member "apply safeguard measures only to 
the extent necessary to prevent or remedy serious in jury and to facilitate adjustment" cannot be met in 
this case.  The following facts make this a near certainty:  1) the industry in question is one of 
extremely short product life cycles, such that only constant innovation can ensure "adjustment", 2) the 
complainant company has already completely rest ructured itself away from mass-production of the 
principal product concerned, and 3) all of the complainant company's imported Chinese "production" 
is likely to be subject to the very measures it is requesting. G/SG/Q2/EEC/3 
Page 4  
 
   In conclusion, China firmly believes that there are no grounds for the initiation of this 
safeguard investigation, that it has the potential to cause extreme and unnecessary disruption in trade 
patterns of technology-based goods, and thus that it should be terminated immediately.  China 
reserves its relevant rights under the WTO should th e European Union decide to introduce safeguard 
measures on above mentioned product. 
 
  
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