Document: WT/DS399/R Page C-1 ANNEX C ORAL STATEMENTS OF THE PARTIES AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL OR EXECUTIVE SUMMARIES THEREOF Contents Page
Document codes: WT/DS399/R
Complainant: China
Respondent: U.S.
Third parties: EU, Japan, Taiwan, Turkey, Vietnam
Dispute stage: Appellate Body
Agreements cited: Art. 16.1, 16.3, 16.4, 16.6  Protocol of AccessionArt. I:1, II, XIX  GATT 1994  Safeguards

ANNEX C

ORAL STATEMENTS OF THE PARTIES AT THE FIRST
SUBSTANTIVE MEETING OF THE PANEL OR
EXECUTIVE SUMMARIES THEREOF

Contents Page
Annex C-1 Executive Summary of the Oral Statement of China at the First
Meeting of the Panel
C-2
Annex C-2 Executive Summary of the Oral Statement of the United States at
the First Meeting of the Panel
C-11

ANNEX C-1

EXECUTIVE SUMMARY OF THE ORAL STATEMENT OF
CHINA AT THE FIRST MEETING OF THE PANEL

I. STANDARD OF REVIEW

1. It is common ground among the parties that Article 11 of the DSU provides the basic,
foundational standard for the Panel's review. A pane l must engage in an "objective assessment." The
United States and Japan agree with China that, in carrying out this inquiry in the present case, the
Panel should examine whether the investigating auth ority's decision is "reasoned and adequate" – the
classic formulation applying Article 11 . This standard applies regardless of the nature of the textual
obligations at issue. We agree with the view that the Agreement on Safeguards and jurisprudence
interpreting it provide a good framework for consid ering how the general standard of review should
apply to safeguard measures under Article 16.

II. INTERPRETATION OF ARTICLE 16

2. The United States' attempt to isolate Artic le 16 of the Protocol from the broader global
safeguards regime both ignores the fact that the Prot ocol is an integral part of the WTO Agreement
and is at odds with the substantial overlap in structure and language between Article 16 and the
Agreement on Safeguards. The United States' interpretative position is also internally inconsistent, as
the United States liberally cites to and relies upon global safeguards principles and jurisprudence.
Article 16 is fundamentally a form of trade remedy , and should be read in the context of other WTO
trade remedies, including the global safeguards provisions. These concepts – increasing imports,
causal link – appear in many different trade re medies under the WTO Agreem ent. The consistent
application of the contextual guidance provided by other trade remedies, coupled with Article 16's
similarities and differences with these other remedies, supports China's interpretation.

3. Regarding the differences between the text of Article 16 and the Agreement on Safeguards ,
two important additions are noteworthy. Under Article 16, imports must be "increasing rapidly
" –
instead of merely increasing. And under Article 16, these imports must also be a "significant cause"
of injury – as opposed to just a cause of injury. Th ese key additional words must be given meaning.
The United States, however, largely sidesteps the interpretative significance of these two key words.

4. The fact that the threshold for injury is lo wer in Article 16 than in the global safeguards
context does not change the fact that the Article 16 standards for increasing imports and causal link
are stronger. The fact that the injury threshol d in Article 16 is "material injury," as opposed to
"serious injury," does not imply that the threshold of causation
 is weaker. One simply does not follow
from the other. Either the threshold of "significant" causation has been reached, or it has not.

5. The United States bases its extreme interpreta tion of Article 16 in large part on repeated
reference to the "inclusio unius" canon of interpretation. The argument generally proceeds as follows:
where Article 16 does not provide express direction or requirements on a topic, the investigating
authority enjoys complete discretion to do as it wishes. This argument is fundamentally flawed.
Discretion in how to apply a standard does not mean that there is no standard and that the authorities
are always correct. The United States' argument i nvites action that is contrary to the object and
purpose of the WTO Agreement, generally, and the Protocol, in particular.

III. INCREASING IMPORTS

A. MEANING OF "INCREASING RAPIDLY"

6. The text of Article 16 uses specific langua ge to define the circumstances under which
increasing imports from China may be subject to pr oduct-specific safeguards. The ordinary meaning
of the phrases "are being imported" and "are in creasing rapidly," and their use of the present
continuous tense, emphasizes the importance of ti me – specifically, the most recent period. A
Member seeking to restrict imports from China must also find that the imports from China are not just
"increasing," but that they are "increasing rapidly." Read in the context of other WTO provisions that
address "increasing" imports as a requirement to im pose a trade remedy, this addition of the word
"rapidly" must be given interpretative meaning. It is not enough to find just any increase. Appellate
Body decisions confirm that domestic authorities must focus on the most recent past. Trends –
especially the most recent ones – must be examined and interpreted in context of the entire period.
An increase must have been recent, sudden, sharp and significant enough to cause the requisite injury.

7. The United States tries to sidestep the impor tance of finding "rapidly increasing" imports by
conflating two distinct issues. Increased imports and material injury are two discrete issues, both of
which must be satisfied under Article 16. First, the authority must find that imports are "rapidly
increasing." Second, this increase must be a significant cause of "material injury." The fact that the
injury standard is lower does not mean that the ot her requirement – the "rapidly increasing" imports –
is any lower. Rather the authority must first sa tisfy the "rapidly increasing" imports standard. The
United States improperly conflates these two discrete steps.

8. The United States also misinterprets the need to focus on the most recent period and claims
"there is no meaningful distinction" in the langua ge of Article 16 compared to global safeguards,
focusing only on Article 16.1. Yet as China has no ted, Article 16.4 uses the phrase "are increasing
rapidly" whereas Article 4.2 of the Agreement on Safeguards uses the phrase "increased imports."
The Appellate Body has noted the difference between "increasing
" and "increased " in the global
safeguards context under the Agreement on Safeguards , and stressed their different meanings. The
United States ignores this application to Article 16. China, however, believes this is a meaningful
distinction that requires the analysis under Article 16 to focus on an even more recent period to
determine whether imports are "increasing."

B. USITC APPLICATION OF THE STANDARD

9. The United States did not respect the requirements of the Protocol for finding rapidly
increasing imports. The USITC devoted just a single pa ge of its determination to this issue and failed
to address adequately the most recent period of time or the trends within the period in any meaningful
way. Nor did the USITC find an increase in im ports qualitatively and quan titatively sufficient as
required.

10. The United States confuses what the USITC said and what the USITC did. The USITC
generally articulated the correct standard – the need to focus on the recent period, and the need to find
"rapidly increasing" imports. But the USITC did not apply the correct standard. Mouthing the correct
standard does not save a fundamentally defective app lication of the standard to a particular set of
facts. The USITC neither explained how imports were increasing "rapidly" in this case, nor even
bothered to explain what it interpreted "rapidly" to mean. Because the words of the text control, the
addition of "rapidly" to the safeguards framework for the Protocol must be given meaning. An
adequate explanation must detail how imports are increasing "rapidly" over the most recent period.
The USITC's failure to do so renders its explanati on of increased imports inadequate and inconsistent
with its WTO obligations. Furthermore, the USIT C relied too heavily on an "end-point-to-end-point"
analysis and, in doing so, ignored trends, and particul arly recent trends – despite the fact that such an
approach has been rejected by the Appellate Body.

11. Had the USITC analyzed properly the most recent trends at the end of the period of
investigation, it would have found a sharp differen ce between trends over the earlier periods and the
more recent 2007 to 2008 period. In 2008, both the increase in quantity and the percentage of
increase in imports fell sharply as the increases in im ports from China were at their smallest of the
period. The largest increase was from 2006 to 2007 – hardly the most recent period. By employing a
simple end-point-to-end-point analysis, the USITC masked the fact that imports from China were
dramatically slowing during the end of the period. Such an approach is inconsistent with the
Appellate Body's guidance on these analyses and ignores Article 16's requirement that imports be
"increasing rapidly" if measures are to be imposed. The USITC also failed to explain why the import
trends from 2007 to 2008 were sudden enough, sh arp enough, or significant enough to qualify as
"increasing rapidly." Over this period, the increases were consistent and stable for three out of four
comparison periods. The increase from 2007 to 2008 w as the smallest of the overall period, and was
down sharply from the prior year.

12. Imports from China were not "sudden enough" because the modest increase over the period
was steady, not sudden. Nor were they "sharp enough," as increases in market share were consistently
in the 2 to 3 percentage point range during the peri od. Finally, imports were clearly not "significant
enough" as the rate of increase declined sharply in 2008. The USITC's analysis of increased imports
is insufficient under both global safeguard standa rds and the distinct standard created by the
requirement of "increasing rapidly" under the Protoc ol. Instead of properly focusing its analysis on
the more recent period of time, the USITC obscured the more recent period of time. The USITC
deviated from existing practice and improperly refused to gather data on the first quarter of 2009 that
showed declining imports from China.

13. The USITC masked clear downward trends within 2008 by considering only the full-year
data. Looking at quarterly trends of imports, the trend is down, whether one considers only 2008 data
or both 2008 and the first quarter of 2009. The firs t quarter of 2009 simply confirms and significantly
reinforces a trend that had already begun early in 2008 – imports from China were declining. The
annual data for 2008 as a whole, in contrast, masks this important change in trends.

IV. CAUSATION – AS SUCH

14. Imports from China were neither "in such increased quantities" nor "increasing rapidly" as
required by Article 16. The fact that the USITC nonetheless found such increases to be a significant
cause of material injury rests in large part on th e WTO-inconsistent causation standard in the U.S.
implementing statute. Article 16 expressly requires that imports from China be a "significant cause"
of the material injury being alleged. The U.S. st atute defines "a significant cause" to mean merely "a
cause that contributes significantly" to the material injury, and provides that the significant cause
"need not be greater than or equal to any other cause." This language, however, has no basis in
Article 16 and impermissibly lowers the standard.

15. The addition of "significant" to the Protoc ol's causation standard must be given meaning
when interpreting the obligations for Article 16. "Significant" is commonly understood to mean
"important, notable, consequential." Thus, the or dinary meaning of the language requires a strong
causal connection if rapidly increasing imports are to be deemed a " significant cause" of injury. Just
as was the case with the addition of "rapidly" to the increasing imports standard, this addition of
"significant" results in a more demanding standard th an for global safeguards. This interpretation is
supported by the Working Party Report on the Protocol of Accession, which confirms that Article 16
requires a "causal link" between imports and injury. "Causal link," from Article 4.2(b) of the
Agreement on Safeguards , has been interpreted by the Appella te Body to require "a genuine and
substantial relationship of cause and effect" between the imports and the alleged injury.

16. The United States argues that the "significan t cause" standard is somehow lower than for
global safeguards and unfair trade remedies, poin ting to the absence of specific language on non-
attribution in Article 16. This argument ignores th e interpretative significance of adding the word
"significant." It would be truly bizarre for a fair trade remedy, such as Article 16, to employ a lower
standard than an unfair trade remedy such as antidumping.

17. The U.S. implementing statute departs dramat ically from the text of the Protocol in two
respects. First, the statute defines "a significant cause" to mean merely "a cause that contributes
significantly." This attempt to weaken the st andard for causation is impermissible because the
ordinary meaning of "contributes significantly" conveys a meaning that is weaker than both
"significant cause" as well as the requirement in global safeguards that there be "a genuine and
substantial relationship of cause and effect." The statute also adds the language that a significant
cause "need not be equal to or greater than an y other cause." This language allows the U.S.
investigating authority to determine that even a minimal cause, which can be less than any other
cause, could still be "a significant cause." The co re meaning of "significant" – important, notable,
consequential – makes sense when one cause is consider ed relative to other causes. It is hard to see
how a minor cause could still be considered properly to be "significant." The U.S. legislation reduces
"a significant cause" to nothing more than "a cause."

18. In response, the United States attempts to cut s hort the Panel's inquiry by stating that the U.S.
statute cannot be inconsistent as such unless it "specifically mandates
 that the ITC take action in a
manner that is inconsistent with the Protocol." Yet that is what this U.S. statute does. This statute
requires the USITC to apply a fundamentally flawed definition. The United States has not argued –
and cannot argue – that the USITC was free to disregard this statutory definition at its discretion.

19. Rather than defend the language of the statut e, the United States chooses instead to defend the
language of the USITC determination – language that is different than the statute itself. The USITC's
gloss on the statute, however, does not change the statutory language, which must stand on its own. If
the U.S. statute said "direct and significant causal link," as does the USITC determination, this dispute
would be very different. But the U.S. statute instead says "contribute significantly" and "need not be
equal to or greater than any other cause," both of which have very different meanings than either
"significant cause" in the language of Article 16 or "direct and significant causal link" in the words of
the USITC.

V. CAUSATION – AS APPLIED

A. MEANING OF "SIGNIFICANT CAUSE"

20. Unlike global safeguards and trade remedies th at require imports to be simply a "cause,"
Article 16 adds the key modifier "significant." The ordinary meaning of this modifier strengthens the
nature of the causal link that must be found. Extensive WTO jurisprudence on the meaning of "cause"
in the context of trade remedies provides cont extual guidance for understanding the meaning of
"significant cause."

21. The United States never grapples with the add ition of the word "significant." Instead, the
United States notes the absence of any specific analytic methodologies, the possibility of there being
other causes, and the need for the imports under inv estigation only to play some part in causing the
injury. All of these points, however, are equally tr ue of the causation standard for global safeguards
and other trade remedies. Yet none of these fa ctors have prevented the Appellate Body from
interpreting "cause" and "causal link" to mean a "genuine and substantial relationship of cause and
effect." Furthermore, the United States stresses the discretion for investigating authorities to use
whatever methods they wish. China does not di sagree that authorities have some discretion in how
they make this showing. But as China has demons trated, the USITC has not made that showing in
this case.

B. USITC APPLICATION OF STANDARD

22. Article 16 imposes the specific standard that "rapidly" increasing imports from China must be
a "significant cause" of any alleged material inju ry. The USITC's causation analysis, however, used
the WTO-inconsistent definition of "significant cau se" from the U.S. statute. The context of the
requirement for imports to be a "significant cause" requires much more than some de minimis
connection. The USITC's statutory obligation to a pply a faulty standard resulted in its causation
analysis being inconsistent as applied. The USITC de termination is also incons istent with Article 16
as applied because in the USITC faile d to evaluate properly whether imports from China were in fact
a "significant cause" of material injury.

1. Conditions of competition

23. Panels and the Appellate B ody have repeatedly affirmed the importance of examining the
conditions of competition for any proper causation anal ysis. Contrary to the U.S. suggestion, this
analysis of the conditions of competition is not optional – it is required. The U.S. improperly relies on
the use of the term "or" in Article 16.1 (i.e., "or
 under such conditions" in the English text). China
observes that both the French and Spanish texts use the term "et" and "y" (which translate into English
as "and "), and confirm that this analysis is required. The USITC recognized such an analysis was
necessary by engaging in a conditions of competition analysis, but misinterpreted and distorted the
conditions of competition in the domestic tyre market . Notably, the USITC's failed to recognize and
consider objectively the attenuated nature of comp etition between Chinese and domestic tyres in the
U.S. market.

24. The record confirms that tyres from China were not competing significantly with U.S.-made
tyres. The record shows that Chinese imports are vi rtually absent in approximately 74 per cent of the
U.S. tyre market. With respect to the OEM ma rket, while U.S. producers made many of their
shipments to the OEM market for new vehicles, im ports from China consistently accounted for less
than 5 per cent of all OEM shipments in the U.S. market. Competition in this segment, if any even
existed, was negligible. U.S. production in the replacement market is predominantly in the higher-end
segment, whereas imports from China focused predominat ely in the lower-end segment. It is hard to
believe that imported tyres in a different segment of the market could be a si gnificant cause of injury
to producers of tyres in another segment. The US ITC offered no reasoned explanation as to why this
was, allegedly, the case. China is not arguing that there was no competition at all between subject
imports and domestic tyres – rather, such competition was highly attenuated and thus the likelihood of
subject imports being a "significant cause" of material injury is low.

25. If imports from China were having such a dir ect competitive impact, then why did the largest
increase in imports from China in 2007 have so little impact on the market? In the same year U.S.
producers' operating income rose to the level of 4.5 per cent and their gross profit increased by 58 per
cent compared with 2006. The Unite d States claims that "the record showed that tyres from China
and tyres from the United States compete in all segme nts of the market." This statement does not
withstand scrutiny. The U.S. producers and non-Chinese imports consistently and completely
dominate the OEM segment. Yet the USITC asserts that even the trivial Chinese market share was
somehow meaningful competition in this segment. As regards the replacement market, China also
notes that there was significant attenuation. Instead of addressing this attenuation, the United States
simply relies on the fact that there was some
 competition between U.S.-p roduced tyres and China-
produced tyres. Yet the question for this Panel regarding competition is not whether any competition
exists, but rather what is the extent and impact of that competition. And that impact, due to the high
degree of attenuation, is minimal at best.

26. China would like to emphasi ze that each of these conditions of competition – declining
demand, an industry strategy to globalize produc tion, and attenuated co mpetition between imports

from China and domestic tyres – are capable of individually disproving the requisite causal link.
These conditions, however, do not stand alone. Rath er, they each work together to create the overall
conditions of competition in the market place and, when assessed cumulatively, confirm the absence
of the requisite causal link.

2. No correlation exists between imports and injury

27. The USITC failed to establish any temporal correlation, or "coincidence," between rapidly
increasing imports from China and injury. In the co ntext of global safeguard s, the Appellate Body
has explained that "coincidence" analysis plays a "cen tral" role in determining whether or not a causal
link exists. China notes that coincidence analys is is equally important when evaluating the
application of a product-specific safeguard under the Protocol. Under Article 16.4 of the Protocol, the
correlation must exist during the period of time when imports were increasing rapidly, correlate with
the adverse trends at issue, and constitute a "significant" causal link.

28. The U.S. assertion that a "coincidence" an alysis is not required under Article 16 of the
Protocol is incorrect. It is based on two strained readings – one of the Prot ocol and one of Appellate
Body and Panel decisions. The United States asserts th at no such analysis is required because the text
of Article 16 does not explicitly state that a Member must conduct a "coincidence" analysis. Yet in
the global safeguards context, even though the text of the Agreement on Safeguards nowhere
mentions "coincidence," the Appellate Body still found such analysis to be required.

29. The United States also argues that the "coincid ence" requirement is derived solely from the
words "rate and amount" and "changes" in Article 4.2(a) of the Agreement on Safeguards . Both the
Panel and Appellate Body decisions in Argentina – Footwear revolved around whether increased
imports caused injury. They were interpreting both the language "to cause" in Article 2 and the
language "have caused" in Article 4.2(a). The illustrativ e list of factors to consider in Article 4.2(a)
does not change the meaning of "cause." Accordi ngly, the Panel noted that the "trends" regarding
"rate and amount" and their "changes" "matter as mu ch as their absolute levels." Adopting this
common sense notion, the Appellate Body stated , "in an analysis of causation, ‘it is the relationship
between the movements in imports (volume and market share) and the movements in injury factors
that must be central to a causation analysis and determination.'" Similarly, the term "rapidly" from
Article 16 is a reflection of the "rate and amount" factor.

30. The "coincidence" analysis requirement, theref ore, is not "specifically linked" to specific
words from the Agreement on Safeguards as the United States claims. Rather, it is intrinsically linked
to the causation analysis that investig ating authorities must conduct under the Agreement on
Safeguards – namely whether increased imports are caus ing injury. Likewise, Article 16 of the
Protocol involves the same causal analysis of whet her rapidly increasing imports are causing injury.
A "coincidence" analysis is logically required under the Protocol. In fact, we find the U.S. argument
rather curious, since the USITC (as the United States itself notes) "did, in fact, use a ‘coincidence of
trends' analysis."

31. When properly examined, the ten factors the USITC discussed relating to the condition of the
domestic industry show the lack of any correlati on between imports from China and alleged injury.
The U.S. claim that China is only able to point to "one or two variations in trends" is false. To
highlight this fundamental lack of correlation, th e periods 2006 to 2007 and 2007 to 2008 should be
considered. The year over year changes demonstrate a clear lack of correlation. Domestic shipment
quantities do not correlate with rapidly increasing Ch inese imports. The large change in imports from
China from 2006 to 2007 corresponds with the smalle st decline in domestic shipments. In the
preceding period and the following period, the opposite is true – with modest changes in imports from
China corresponding to much larger decreases in domestic shipments.

32. The same disconnect is true for average unit values. The increases in average unit value were
greatest when the increases in imports from China were greatest. Even as the cumulative level of
imports from China grew over the period, the aver age unit value continued to climb – U.S. producers
were earning more and more for every tyre they so ld. Operating profits – which combines both the
volume effects and price effects into a single measu re show no correlation. The 2006 to 2007 period
shows the opposite of the 2007 to 2008 period. When imports increased the most, operating profits
surged. When imports increased the least, the domestic industry experienced record losses.
Furthermore, China's analysis considers more than just the volume of domestic shipments. China
considers the trends in the value associated with eac h tyre being sold and the net effect of both price
and volume – namely, operating profits. This more complete picture demonstrates dramatically the
lack of overall correlation.

33. In response, the United States tries to dimi nish these examples by claiming that the 2006-
2007 period was an "anomaly." Imports from China we re increasing in 2006-2007 at the highest rate
in the entire period. If correlation between increased imports and injury truly exists, it should be most
obvious during the year when imports increased the most. The fact that correlation is completely
absent during 2007 speaks volumes. Such absence of correlation is repeated across virtually every
correlation factor examined. The same absence of correlation is true for the 2007-2008 period. Given
that there are four year-to-year data points in the period of investigation, that means that two of these
four – 50 per cent - show an absence of correlation. Putting aside any ex post rationalizations that the
United States attempts to offer, the USITC faile d to provide any compelling explanation in this
respect.

34. Even considering actual prices, there still is no temporal correlation between rapidly
increasing imports and domestic prices. In an atte mpt to get around this absence of correlation, the
USITC posited a "cost-price squeeze" hypothesis. This theory, however, does not match up with
reality, nor does it correlate with movements in the COGS/sales ratio, wh ich plunged in 2007 (when
Chinese imports grew at their fastest rate), and rose in 2008 to its highest rate in the period when the
rate of increase in imports was at the lowest leve l of the period. The United States ignores that, for a
"cost-price squeeze," it is not about the cost in isolatio n, or the price in isolation; it is the relationship
between the two over time. Thus, no "cost-price squeeze" can be attributed to imports from China
based on the evidence before the USITC. And for other factors, such as capital expenditures and
R&D expenditures, the USITC acknowledged that bot h "trended upwards" – which therefore cannot
support a finding of causation.

35. Finally, China is puzzled by the U.S. claim that our analysis of each factor in "isolation" is
"not the appropriate analysis." Any proper correlati on analysis must first examine individual factors
and then assess them cumulatively to determine their overall impact. China has done just this.

3. The USITC offered no "compelling analysis" of causation

36. Despite this absence of any meaningful corre lation between industry performance and imports
from China, the USITC failed to offer a "very compelling" account of why causation is nonetheless
present. The USITC principally focused on end- point-to-end-point compar isons of performance
indicators over the period and made no attempt to explain the absence of correlation between imports
and various injury factors in this year-to-year data . The U.S. claim that it did not need to offer a
"compelling analysis" impermissibly disregards the guidance and analysis of the Appellate Body.
Such guidance should not be cast aside. The failure to provide a compelling explanation was
inconsistent with the United States' WTO obligations.

4. The USITC failed to assess fully other causes of injury

37. The absence of correlation between trends in imports from China and the condition of the
domestic industry strongly suggests that other factor s are in fact responsible for the condition of the

domestic industry. Yet the USITC dismissed the array of alternative causes noted by respondents and
simply claimed that, under the U.S. statute, it did not need to engage in a "weighing of causes." This
approach is inconsistent with Article 16's require ment that a Member demonstrate a "causal link"
between imports and injury, and that rapidly increasi ng imports – not other factors – are a "significant
cause" of material injury. It is impossible to dete rmine adequately whether imports are a "significant"
cause of injury without considering the role play ed by other causes. An "assumption" that other
factors are not causing the alleged injury cannot be made consistent with the obligation to find a
"causal link."

38. The USITC's decision to forgo any analysis of other causal factors meant that it largely
ignored the U.S. tyre markets' prolonged contraction in demand. This contraction resulted in apparent
consumption of all passenger vehicle and light truck tyres by volume falling by 10.3 percentage points
during the 2004-2008 period. From 2007-2008, th ere was an almost one-to-one correspondence
between the decline in the overall U.S. market and the decline in U.S. domestic shipments. Without
even acknowledging these changes in demand, the US ITC could not offer a reasoned and adequate
explanation of why, in light of these changes, im ports from China were still a "significant cause" of
material injury.

39. Unlike the changes in imports from China, the changes in dema nd correlate very closely with
the changes in key domestic indicators. The improvement in 2007 and the decline in 2008 both
correspond closely with the improvement in demand in 2007, and the sharp drop in demand in 2008.
The improving and worsening trends correspond directly with the changes in demand. The
United States nonetheless claims that the USITC "concluded that declining demand did not sever the
causal link." Nowhere in the USITC Determination, however, is a meaningful analysis of declining
demand to be found.

40. The United States tries to equate overall dec lining demand with the fallout of the recession,
and claims that the USITC's conclusory statemen ts regarding the effects of the recession should be
deemed as sufficient analysis for both. The USIT C's acknowledgement in passing of the existence of
the recession does not adequately address this im portant phenomenon, which is fundamental to
understanding data for 2008. The USITC failed ad equately to address and explain the broader,
structural shift – i.e., the contraction in demand (b oth worldwide and in the U.S.) that was apparent
across the entire period of investigation. These omissions fatally undermine the USITC's conclusions.

41. The USITC also attributed plant closings to imports from China but the record does not
support such a conclusion. The record demonstrat es that domestic producers were engaged in a long-
term strategy that shifted production in the Unite d States towards the higher-end segments of the
market. For the U.S. producers, imports from China were, and are, a positive factor. U.S. producers
were responsible for manufacturing and importing in China many of these tyres. The producers stated
that they would not reverse this strategy and increase lower-end manufacturing in the United States,
even if the President imposed tariffs or took other action against imports from China. Remarkably,
the USITC rejected the testimony of the U.S. producers concerning their own business strategy.

VI. OVERBROAD U.S. TARIFF REMEDIES

42. The requirements for applying a transitional product-specific safeguard under Article 16 have
not been met in this case, thus no remedy is appropri ate. Even if the United States had complied with
the requirements of Article 16 and thus had the ri ght to apply safeguard measures, the remedies
imposed were inconsistent with the requirements of Article 16.3 and 16.6. The remedies imposed are
beyond the "extent necessary" to "remedy" the alleged market disruption and the three-year period for
which they were imposed is beyond "such period of time" that is "necessary."

43. The U.S. refusal to make any comparison of different causes, or assess the effect of different
causes on the condition of the domestic industry, necess arily renders the imposed tariffs overbroad.

Without determining the amount of injury that imports from China were allegedly responsible for, any
imposed remedy cannot be tailored – as required – to address only the market disruption at issue.
Although the U.S. states that "the authority to impo se a measure is circumscribed by the extent of the
injury caused by the relevant imports," the U.S. atte mpts to go further, and st ates that "where imports
have a broad, injurious effect, the authority would be correspondingly broad."
 Even if this were the
correct approach, it is inapplicable to the case at hand. The United States never established what
effect imports from China were having – much less that they were having a "broad, injurious effect."
The U.S. states that an evaluation of a safeguard's permissibility "cannot be a matter of scientific
precision." This does not excuse the USITC's comp lete failure to establish anything remotely
approximating the extent of the injury allegedly cau sed by imports from China, resulting in a remedy
(35 per cent tariffs) that is both arbitrary and overbroad.

ANNEX C-2

EXECUTIVE SUMMARY OF THE ORAL STATEMENT
OF THE UNITED STATES AT THE FIRST
MEETING OF THE PANEL

I. INTRODUCTION

1. The Tires investigation presents the very situation that was intended to be covered by the
transitional mechanism contained in China's Prot ocol of Accession. Between 2004 and 2008, the
Chinese tyre industry grew at an extremely rapid rate, more than doubling in size. Chinese tyre
exports increased as a percentage of their total ty re production, growing to 59.5 per cent of total
shipments in 2008. Exports to the United States, China's single largest export market throughout the
period, increased significantly as a result.

2. Between 2004 and 2008, imports from China mo re than tripled, growing from a level of
14.6 million tyres in 2004 to 46 million tyres in 2008. Due to this tremendous growth in their import
volumes, Chinese imports were able to increase thei r share of the U.S. market by 12.0 percentage
points between 2004 and 2008, and had a 16.7 per cent share of the market in 2008. They achieved
this increase in market share by consistently and significantly underselling U.S. tyres during the
period of investigation.

3. Because of this extraordinary growth in the volume and market share of the low-priced
Chinese imports, there was a decline in nearly all of the economic indicators for the U.S. tyre industry
between 2004 and 2008. The U.S. industry lost 13.7
 percentage points of market share, almost all of
which was taken by the Chinese imports over the period. As a result, the industry's production
quantities fell by 26.6 per cent, its capacity utilization rates fell by 10.3 percentage points, its U.S.
shipments fell by 29.7 per cent, and its net sales quantities dropped by 28.3 per cent. The industry
experienced a decline of 11.5 per cent in its productivity levels and was forced to reduce its work
force by 14.2 per cent.

4. Finally, the industry's profitability fell cons iderably between 2004 and 2008. Its gross profits
declined by 33.6 per cent, and its operating income margins fell by 4.8 percentage points during this
period. The record of the ITC's investigation established that imports of tyres from China were
increasing rapidly so as to be a significant cause of ma terial injury to the U.S. tyre industry. The
ITC's findings on this issue were reasoned and supported by the record evidence.

5. The question for this Panel is whether, as Chin a claims, the U.S. measure is inconsistent with
U.S. obligations under Section 16 of the Protocol. The Protocol requires a Member to determine that
imports of an article from China are "increasing rapidly, either absolutely or relatively, so as to be a
significant cause of material injury, or threat of mate rial injury to the domestic industry." In addition,
it requires a Member to "consider objective factors, including the volume of imports, the effect of
imports on prices for like or directly competitive ar ticles, and the effect of such imports on the
domestic industry . . . ". Contrary to China's argum ents, the ITC performed an analysis that was fully
consistent with the Protocol requirements.

6. China's arguments that the U.S. measure does not comply with the Protocol rest on a
fundamentally flawed reading of Section 16. China not only seeks to import the standards of GATT

Article XIX and the Safeguards Agreement into the te xt of the transitional mechanism, China also
claims that the standards for applying a m easure under the transitional mechanism are more
demanding than the ones for applying a global safegua rd measure. Nothing in China's Protocol of
Accession, or the Safeguards Agreement, for that matter, supports these notions.

7. It is evident that the Protocol contains no cr oss-reference to the disciplines of Article XIX or
the Safeguards Agreement. This stands in sharp co ntrast with the Safeguards Agreement itself, which
contains explicit references to Article XIX of the GATT 1994. This context shows that if the
negotiators of the transitional mechanism had sought to import the requirements of Article XIX or the
Safeguards Agreement, they would have done so through explicit references.

II. IMPORTS FROM CHINA DID, INDEED, INCREASE RAPIDLY OVER THE
PERIOD OF INVESTIGATION

8. Imports from China increased rapidly on an absolute and
 a relative basis. These increases
were sustained and consistent, as they increased in every year of the ITC's five-year period of
investigation, with the largest increases occurring over the last two years of the period.

9. For example, the record showed that:

 - The quantity of the subject imports increased by 215 per cent between 2004 and
2008, and their market share more than tripled between 2004 and 2008.

 - 60 per cent of the growth in the volume of imports during the period of investigation
occurred in 2007 and 2008, the final two years of the period.

 - 62 per cent of the growth in the market share of the imports occurred in 2007 and
2008, again the final two years of the period.

 - Imports from China were at their highest levels, in absolute and relative terms, in
2008, and China was the single largest import source for tyres in that year.

Quite clearly, these trends establish a rapid and recent increase.

A. ITC'S FINDING THAT IMPORTS WERE INCREASING RAPIDLY IS FULLY
CONSISTENT WITH THE STANDARD SET FORTH IN THE PROTOCOL

10. China's theory that the Protocol of Accessi on imposes a more stringent standard for finding
increasing imports than the Safeguards Agreement is unpersuasive.

11. China ignores the critical fact that paragraph 16.4 of the Protocol makes clear that the
increase in imports must be rapid enough "to be a significant cause of material injury, or threat of
material injury" to the industry. The Appellate Bo dy has made clear that the standard of "material
injury" is lower than that of "serious injury" used in the Safeguards Agreement. Thus, the Protocol's
language linking "rapid increases" of imports to ma terial injury suggests that the import increases
required by the Protocol are linked to a different and lower standard of injury than the increases
required by the Safeguards Agreement. In claimi ng the Protocol has a higher standard for increasing
imports than the Safeguards Agreement, China completely ignores this crucial distinction between the
Agreement and the Protocol.

B. THE ITC REASONABLY FOUND THAT IMPORT INCREASES HAD NOT ABATED
IN 2008

12. China also argues that the ITC supposedly failed to recognize that import increases had
"abated" in 2008. The ITC addressed this argument a nd correctly rejected it. It pointed out that the
subject imports increased "by significant amounts" in each year of the period, and that the subject
imports were at their highest levels in 2008. On an absolute and a relative basis, the increase in 2008
alone was a "large, rapid, and continuing" incr ease over the increase seen in 2007. The subject
imports did not "abate" in 2008; instead, the subjec t imports were larger and were continuing to
increase over the levels seen in 2007.

13. The Protocol does not require that imports be growing at an accelerating rate at the end of the
period. Rather, it requires that the volumes of the subject imports be "increasing rapidly", which is
exactly what happened in this case. Moreover, Chin a's argument that imports had "abated" in 2008
ignores the fact that imports in that year were 10 pe r cent higher than the level seen in 2007, which is
when imports rose by a stunning 53 per cent on an absolute basis.

C. CHINA'S ALTERNATIVE QUARTERLY ANALYSIS IS FLAWED

14. China also asks the Panel to disregard the IT C's analysis and focus instead on only the last
two years of data, examining it on a quarterly basi s. China's proposed alternative methodology is
flawed for a number of reasons.

15. China's approach ignores all import data befo re 2007, thus making it impossible to place the
increases that occurred in 2007 and 2008 in contex t. The Appellate Body has explained that
competent authorities should not consider data from the most recent past in isolation from the data
pertaining to the entire period of investigation b ecause doing so limits the ability of the authority to
place that data within an adequate context for analys is. Yet that is exactly what China is advocating
here.

16. China's comparison of succeeding quarters h as the potential to introduce distortions.
Variations in production schedules, weather cond itions and seasonal demand can affect how much
producers sell during any particular quarter. It is for this reason that the ITC typically compares
quarterly data at comparable times of year, rather than for succeeding quarterly periods. As we have
pointed out, there were significan t increases in the quarterly volumes of the subject imports between
comparable periods in three of four quarters in 2008.

D. THE DECISION NOT TO SEEK DATA FOR THE FIRST QUARTER OF 2009 WAS
REASONABLE

17. China maintains that the ITC should have obt ained or analyzed import data for the first
quarter of 2009. Contrary to China's assertions, the ITC was not required to collect and obtain data
for that period. The Protocol does not require that the ITC obtain and analyze data for any specific
period. As WTO panels have indicated in the trad e remedies context, the ITC need only use a period
of investigation that "allows it to focus on the recen t imports" and that is "sufficiently long to allow
conclusions to be drawn regarding the existence of increased imports." The ITC's use of a five year
period of investigation, which ended less than four months before the institution of the investigation,
certainly satisfies this standard.

18. The ITC's decision not to collect data for th e first quarter of 2009 was consistent with its
handling of other investigations. When the ITC co llects interim quarterly data in its trade remedy
investigations, the time that elapses between the end of the interim quarter an d the institution of the

investigation is typically longer than the 20 days between the end of the interim quarter and the
beginning of the investigation in this case.

19. There is also no merit to China's argument th at the ITC should just have used the available
official import statistics for the first quarter of 2009, even though it had not collected any other data
for that quarter. Information on absolute imports would have been quite useless without data on
relative import levels, given that the ITC needed to ascertain whether imports were increasingly
rapidly, either absolutely or relatively
. As the ITC correctly said in its decision, analyzing the
absolute volume data for the first quarter of 2009 woul d not have had "probative value" because the
ITC would not have been able to assess whether "the subject imports [were] increasing in relative
terms in the absence of a data series that includ es first quarter 2009 data on U.S. production and U.S.
apparent consumption."

III. ITC'S CAUSATION ANALYSIS WAS CONSISTENT WITH THE REQUIREMENTS
OF THE PROTOCOL

A. U.S. STATUTE'S CAUSATION STANDARD IS CONSISTENT WITH THE PROTOCOL

20. We are puzzled by China's claim that th e causation provisions of the U.S. statute are
inconsistent with the requirements of the Protocol. Why? Because the U.S. statute incorporates all of
the specific requirements of the Protocol, and does so on an almost verbatim basis.

21. China focuses on the fact that the U.S. statut e defines a factor as being a "significant cause" of
material injury or threat if it "contributes significantly" to material injury or the threat of material
injury. China claims that this definition of "significant cause" somehow weakens or reduces the
causal link requirement of the Protocol.

22. This definition clearly does not
 weaken the causal link requirement of the Protocol. The text
of the Protocol makes clear that this is the case. It provides that "market disruption" exists whenever
imports from China are "a significant cause of material injury, or threat of material injury" to the
domestic industry. By stating that imports from China can be "a significant cause" of material injury
to the industry, the text of the Protocol establish es that there may be more than one significant cause
of material injury. The Protocol does not require a ra nking of causes. It is clear, therefore, that when
imports from China are contributing significantly to material injury they can be "a significant cause"
of such injury.

23. The U.S. statute's definition of "significant cause" is also consistent with the way in which the
Appellate Body has defined the terms "cause" and "causal link" under the Safeguards Agreement.
The Appellate Body has stated that an authority may find increased imports to be a "cause" of serious
injury if there is "a relationship of cause and effect such that increased imports contribute to 'bringing
about,' 'producing,' or 'inducing ' the serious injury." Given this line of reasoning, it is entirely clear
that the Protocol's requirement of a significant " causal link" between imports and material injury
would be satisfied by a finding that imports from China are "contributing significantly" to the
industry's injury, which is what the U.S. statute requires.

24. Finally, China has no textual or analytic basis for claiming the Protocol contains a more
rigorous or demanding causation standard than the Sa feguards Agreement. Nothing in the text of the
Protocol indicates this. Unlike the Safeguards Agreement, the Protocol does not
 contain specific
language stating that the transitiona l mechanism is to be used as an "extraordinary remedy," or that
increases in imports must result from "unforeseen developments."

25. Similarly, the Protocol does not require that the increasing imports be the cause of "serious
injury," as does the Safeguards Agreement. Instead, the Protocol simply requires only that imports be

a significant cause of "material injury ," a standard the Appellate Body has stated is lower than the
"serious injury" standard set forth in the Safe guards Agreement. Indeed, the absence of these
requirements from the Protocol indicates that the tran sitional mechanism was actually intended to be
subject to less rigorous standards than those of the Safeguards Agreement.

B. ITC'S CAUSATION ANALYSIS, AS APPLIED, WAS IN ACCORDANCE WITH THE
PROTOCOL

1. ITC Reasonably Analyzed The Conditions of Competition

26. China claims that the ITC misinterpreted a nd distorted the conditions of competition in the
U.S. market. The ITC did nothing of the sort. Instead, the ITC provided a detailed and reasoned
explanation of the pertinent conditions of competition affecting the U.S. tyre market.

27. China's challenges to the IT C's findings do not withstand scrutiny. For example, China
claims that the ITC did not recognize that the indus try was impacted by declining demand for tyres,
particularly in 2008. China is mistaken in this re gard. In its analysis, the ITC specifically explained
that demand for replacement tyres and for OEM tyres was falling throughout the period, and fell in
2008 when the economy weakened.

28. But, even in the face of declining demand, th e subject imports increased rapidly in every year
of the period. Moreover, the subject imports c ontinued to grow even in 2008, when the global
economic recession occurred. The fact that the vol umes of low-priced subject imports continued to
increase throughout the period, even during the decline in demand in 2008, shows the industry's injury
was not simply caused by demand declines, as China now contends.

29. China is also mistaken when it claims the ITC failed to consider the industry's purported
"business strategy" of shifting U.S. production from low-end to high-end tyres. The ITC addressed
this issue and rejected China's contentions. The IT C pointed out that imports were already increasing
before the announced plant closings, and that U.S. producers confirmed at the time of these closings
that low-priced imports played an important part in the closings. In short, the ITC reasonably
concluded that domestic producers did not voluntarily abandon the low-end part of the U.S. tyre
market, as China alleges.

30. Finally, the ITC also considered and reject ed the argument that competition between Chinese
and U.S. tyres was attenuated. As the ITC pointed out, most market participants found that the
subject and U.S. tyres were at least frequently inte rchangeable. The Chinese and U.S. tyres were sold
in all market sectors, and there was significant co mpetition between the Chinese and U.S. tyres in the
low-end sector of the market, the sector that was allegedly a focus for the subject imports. As the ITC
correctly found, the record showed that comp etition between the subject and U.S. tyres was
significant, not attenuated, during the period.

2. ITC Reasonably Considered Volume, Price Effects, and Effect on the Industry and
Reasonably Concluded There Was A Causal Link

31. After considering conditions of competition in the market, the ITC th en analyzed the volume
of imports, the effect of imports on prices, and the ef fect of such imports on the domestic industry. It
provided a reasoned explanation why increasing imports of the subject tyres were a significant cause
of material injury to the industry.

32. The ITC's analysis was entirely consistent with the Protocol. The record showed that:

 - The volumes and market share of the subj ect imports increased in each year of the
period and were at their highest levels of the period in 2008.

 - Subject imports increased by 215.5 per cent over the period, with the largest part of
this increase occurring in 2007 and 2008.

 - The subject imports increased their share of the U.S. market more than three-fold
over the period of investigation, growing from 4.7 per cent in 2004 to 16.7 per cent in
2008. More than half of this increase occurred in 2007 and 2008.

33. The ITC reasonably found that these increasing volumes of subject imports affected domestic
producers' market share, shipment levels, and pri ces. The consistent underselling by the large and
rapidly increasing volume of subject tyres displaced domestic shipments by U.S. producers and
eroded the domestic industry's market share, lead ing to a substantial reduction in domestic capacity,
production, shipments, and employment during the period examined.

34. At the same time that subject import volumes increased rapidly in every year of the period,
the record showed that:

 - The domestic industry's market share fell in every year of the period, declining by
13.7 percentage points over the period of investigation;

 - The domestic industry's production declined in every year of the period, resulting in
an overall decline of 26.6 per cent;

 - The domestic industry's capacity declined in every year of the period, for an overall
decline of 17.8 per cent;

 - The domestic industry's U.S. shipments dec lined in every year of the period, for an
overall decline of 29.7 per cent;

 - The domestic industry's net sales quantities d eclined in every year of the period, for
an overall decline of 28.3 per cent; and

 - The domestic industry's employment-related factors fell significantly over the period
of investigation, with the number of pr oduction-related workers falling by 14.2 per
cent, the number of hours worked falling by 17.0 per cent, and wages paid falling by
12.5 per cent over the period.

All of these factors were at their lowest levels in 2008, while Chinese tyre imports were at their
highest in 2008.

35. The ITC also reasonably found that the subject imports affected prices for the domestic like
product. After a thorough evaluation of pricing in th e tyres market during the period of investigation,
the ITC found that subject imports undersold the domestic product throughout the period.
Specifically, the subject imports undersold U.S. ty res in 119 out of 120 comparisons. Moreover, the
average margins of underselling were at their high est in 2007 and 2008, which was also when the
volumes of subject imports were at their highest.

36. The ITC also reasonably concluded that this continued underselling by the subject imports
prevented domestic producers from raising prices suffi ciently to offset higher production costs.
Domestic producers' ratio of cost of goods sold to net sales increased from 84.7 per cent in 2004 to
90.1 per cent in 2008, an increase of 5.4 percentage points over the period. The sharp increase in this

ratio in 2008 – which occurred when the volume of subject imports was highest and the margins of
underselling were high – indicated that U.S. prod ucers were experiencing a cost-price squeeze and
were unable to pass increasing raw material costs on to their customers. In other words, this case
presented a classic case of price suppression for the industry.

37. Finally, the ITC also reasonably found that the subject imports significantly affected other
aspects of the domestic industry's condition during th e period of investigation. The industry suffered
significant declines in its operating income, operati ng margins, capacity utilization, and productivity
in three out of four years of the period. Moreover, all of these factors, except for capacity utilization,
were at their lowest levels for the period in 2008, which is precisely when the volumes and market
share of the subject imports were at their greatest.

3. China's Arguments to Rebut the Causation Finding Are Unavailing

38. China's argument that changes in demand cau sed the declines in the industry's condition
ignores the fact that the declines in the industr y's production, capacity, shipments and net sales
quantities far exceeded, on a percentage basis, the declines in apparent consumption in every year of
the period. China's argument overlooks the fact that the volumes of the subject imports from China
increased more than three-fold during the period, despite the overall decline in demand during the
period of investigation. This c onsistent and rapid increase stands in stark contrast to the volume-
related declines exhibited by the domestic industry and by non-subject imports over the period. In
fact, even in 2008, when apparent consumption d eclined by almost 7 per cent, subject imports
increased by more than 10 per cent over the levels seen in 2007.

39. China has no basis for its claim that there was a lack of coincidence between import volume
trends and injury factors in 2007. There is no support in the text of the Protocol for China's apparent
belief that there must be a perfect coincidence between import volume movements and every single
injury factor during each year of the period of inv estigation. Even in the context of the stricter
causation requirements under the Safeguards Agreement, panels have recognized that an authority is
not required to establish a coincidence in trends for every factor and for all years of the period
examined. Rather, in cases such as US – Wheat Gluten and US – Steel Safeguards , panels have
recognized that an overall coincidence in trends is sufficient to satisfy causation.

40. The record did show that there was an overall coincidence in import volume and industry
condition trends, which we describe in our first writte n submission. Even though a few factors, such
as profitability and productivity, improved somewhat in one year – 2007 – numerous other injury
factors (including the industry's capacity, ship ments, net sales quantities, market share, and
employment-related factors) declined in that year. And the improvements in profitability and
productivity that were seen in 2007 were short-lived. Both of these factors declined to their lowest
levels in 2008, which was when the volume and mark et share of the subject imports were at their
highest levels.

4. ITC Reasonably Considered Other Factors

41. Finally, China claims that the ITC failed to cons ider the injurious impact of other factors in its
causation analysis. China argues that the text of th e Protocol specifically requires the ITC to address
the injurious effect of these other factors in detail.

42. First, China's argument is legally flawed. Unlike the Safeguards Agreement, the Protocol
does not
 specifically require a competent authority to perform a detailed "non-attribution" analysis of
the possible effects of other factors causing materi al injury in its causati on analysis. Instead, the
Protocol directs a competent authority to assess only whether increasing imports are a significant
cause of material injury to the industry by taking in to account the "volume of imports," their "effect . .

. on prices for like or directly competitive articles, and the effect of such imports on the domestic
industry . . . ". Given that the Protocol does not require the competent authority to address the effects
of other factors in its analysis, China has no textual basis for claiming that the ITC should perform the
same type of non-attribution analysis that may be expected under the Safeguards Agreement.

43. Second, China's argument is factually flawed. The ITC did not "refuse to investigate
alternative causes" or " barely acknowledge" them in its analysis. Even though the Protocol does not
so require, the ITC investigated, considered, and anal yzed all of the factors that could reasonably be
considered significant enough to potentially break the causal link between imports and material
injury.

44. For example, as we discussed earlier, the ITC specifically considered and addressed the claim
that the industry had adopted a "business strategy " of shifting their U.S. production away from low-
end tyres to high-end products and the declines in demand in the U.S. tyres market over the period.
Similarly, the ITC also consider ed the impact of demand declines on the industry's condition over the
period. It concluded, based on the evidence, that the decision to shut down certain facilities was
related to the subject imports. The ITC also found that demand declines did not explain the
deteriorating condition of the industry, because the subject imports continued to grow throughout the
period of investigation despite the demand declines.

45. The ITC also specifically considered the othe r alleged causes of injury cited by China in its
submission. It considered such factors as the indus try's raw material costs, changes in its productivity
levels, changes in the levels of non-subject imports , and the impact of rising gas prices on demand.
For example, the ITC specifically discussed the effe ct that increases in raw materials pricing had on
the industry, finding that the industry's ratio of cost of goods sold to net sales increased considerably
over the period. The ITC concluded that the presen ce of the growing levels of lower-priced subject
imports prevented the U.S. producers from passing these "increasing raw materials costs on to their
customers," thus leading to a decline in the industry's operating margins over the period of
investigation.

46. Similarly, the ITC also considered the im pact that higher gasoline prices had on driving
habits. In its analysis, the ITC expressly noted th at "demand for replacement tyres fell in 2008 as the
number of miles driven decreased, consumers tried to get more miles from current tyres, and the
economy weakened." As the ITC concluded, the de mand declines resulting from these factors did not
sever the causal link between imports and injury , given that the subject imports were actually
increasing during periods of declining demand, including 2008.

47. The U.S. first written submission details the ITC's consideration of other factors cited by
China, but we do not need to repeat the ITC's analys is here. The point remains a simple one: the ITC
considered the significant factors allegedly causing inju ry to the industry, addr essed any impact in an
appropriate manner, and reasonabl y explained, why these factors failed to sever the causal link
between the subject imports and material injury. In sum, the ITC's analysis was fully consistent with
the text of the Protocol and reflects a reasoned approach to the consideration of these issues.

IV. THE UNITED STATES APPLIED A REMEDY CONSISTENT WITH
PARAGRAPHS 16.3 AND 16.6

A. U.S. ADDITIONAL DUTIES WERE ONLY TO THE EXTENT NECESSARY

48. The United States agrees that any measure a pplied under the transitional mechanism may only
remedy the material injury that results from the ra pidly increasing imports from China. This is what
the United States has done. The ITC rejected the remedy recommended by the petitioner because it
would have been "higher than necessary to remedy th e market disruption [. . .] found." In addition,

the ITC used economic modeling to assess the likel y impact of various options and proposed an
additional tariff of 55 per cent in the first year, wh ich was estimated to reduce shipments of Chinese
tyres by 38.2 to 58.4 per cent. This was clearly a remedy aimed at the disruptive increase, and not at
Chinese imports as a whole. The ITC explained why the limitation on Chinese imports would reduce
shipments and therefore have an effect on domestic and non-subject imports, on their prices, and on
the domestic industry's revenue. In other wo rds, how the limitation on Chinese imports would
remedy the market disruption.

49. China is wrong as a matter of fact when it asserts that the ITC improperly focused on the
benefits to the domestic industry instead of the "spe cific market disruption found to exist." As a legal
matter, China's argument simply makes no sense. Th e Protocol defines market disruption in terms of
material injury to the domestic industry of which rapidly increasing imports from China are a
significant cause. It requires Members to examine objective factors, including the volume of imports,
the effect of imports on prices for like products, and th e effect of imports on the domestic industry. It
is hard to imagine how any Member could proper ly address the specific market disruption found to
exist without examining the benefits to the industr y of the limitation on Chinese imports. Indeed, the
Protocol seems to require such an examination.

50. China has failed to meet its burden of pr oof to demonstrate that the ITC's recommended
remedy is inconsistent with paragraph 16.3. Of course, the remedy ultimately imposed by the
United States is 20 percentage points less in the firs t year than the remedy recommended by the ITC.
In addition, although not required by the Protocol, the remedy impo sed reduced the additional duties
by five percentage points for the second and third years. This demonstrates that the focus was on
remedying the market disruption caused by increased Chinese imports.

B. ADDITIONAL DUTIES ARE ONLY FOR SUCH PERIOD OF TIME AS MAY BE
NECESSARY

51. With respect to the obligation under paragra ph 16.6, we agree that a measure taken under the
transitional mechanism must be limited to the period of time necessary to remedy the market
disruption. However, we disagree with China's efforts to seek an impossible level of exactitude and
with China's attempt to read out of the text the remaining elements of paragraph 16.6, which provide
key context for interpreting the first sentence.

52. China argues that a remedy measure may rema in in place "only for the exact amount of time"
or "for that period of time specifically found" to address the market disruption. That level of precision
is neither possible nor required.

53. The first sentence of paragraph 16.6 must be read in context with the second and third
sentences of that paragraph, which indicate the negotiators' expectation about how long a measure
may last depending on whether the increase in import s was absolute or relative. China attempts to
dismiss these two sentences as defining only rights that China has, and not the flexibility available to
the Members using the transitional mechanism. However, the context of these two sentences of
paragraph 16.6 does provide guidance as to the perm issible length of a measure under the transitional
mechanism.

54. In the Tires investigation, the ITC found that imports from China had increased in both
absolute and relative terms. The United States applied a three-year measure.

V. CHINA'S CLAIMS UNDER ARTICLES I:1 AND II:1(B) OF THE GATT 1994 MUST
ALSO FAIL

55. Finally, as China has failed to demonstrate that the United States has acted inconsistently with
its obligations under the transitiona l mechanism, China's claims under Articles I:1 and II:1(b) of the
GATT 1994 must also fail.