Document: WT/DS399/R Page A-1 ANNEX A EXECUTIVE SUMMARIES OF THE FIRST WRITTEN SUBMISSIONS OF THE PARTIES Contents Page Annex A-1 Executive Summary of the First Written Submission of China A-2
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 A

EXECUTIVE SUMMARIES OF THE FIRST WRITTEN
SUBMISSIONS OF THE PARTIES

Contents Page
Annex A-1 Executive Summary of the First Written Submission of China A-2
Annex A-2 Executive Summary of the First Written Submission of the
United States
A-11

ANNEX A-1

EXECUTIVE SUMMARY OF THE FIRST
WRITTEN SUBMISSION OF CHINA

I. THE UNITED STATES FAILED TO EVALUATE PROPERLY WHETHER
IMPORTS FROM CHINA WERE "IN SUCH INCREASED QUANTITIES" AND
"INCREASING RAPIDLY," AS REQUIRED BY ARTICLE 16.1 AND ARTICLE 16.4
OF THE PROTOCOL

1. The United States failed to evaluate prope rly whether imports from China were in "such
increased quantities" and "increasing rapidly" as require d by Articles 16.1 and 16.4 of the Protocol of
Accession. Simply finding any increase does not satis fy the requirements of the Protocol. The text
creates the obligations to find both that the in crease is occurring over the more recent period of time
and that the recent increase is "rapid." This standard was not met by the United States in this case.

A. ARTICLES 16.1 AND 16.4 REQUIRE THAT IMPORTS FROM CHINA BE IN "SUCH
INCREASED QUANTITIES" AND "INCREASING RAPIDLY"

2. The text of Article 16 uses specific language to define the narrow circumstances under which
increasing imports from China can be subject to pro duct-specific safeguards. The ordinary meaning
of the language, and its use of the present tense, emphasizes the importance of time – specifically the
most recent period. The use of the term "such" i ndicates that not just any increase will be sufficient.
Accordingly, a Member seeking to restrict impor ts from China must focus on the recent period of
time, and must find that the increasing imports during that recent period of time are of such a
magnitude as to cause or threaten injury. The Member must also find that the recent imports from
China are increasing "rapidly." This key additional re quirement sets a standard even higher than that
for global safeguards.

3. The context of both Article 16 and other WTO agreements supports this interpretation. For
safeguards to be imposed under Article 16, imports from China must be "in such increased quantities"
or under such conditions as to cause market disruption to the domestic industry. Article 16.4 adds an
additional requirement, stating that for market di sruption to exist, imports from China must be
increasing "rapidly" (absolutely or relatively).

4. Because both Article 2.1 of the Agreement on Safeguards and Article 16.1 of the Protocol use
the phrase "in such increased quantities," the Appellate Body decisions interpreting this identical
language provide context in this case. These decision s state that the use of the present tense requires
domestic authorities to focus on the most recent past. The Appellate Body has stated that trends –
especially in the most recent past – must be examin ed and interpreted in context of the entire period.
In addition, the language of "in such increased qua ntities" requires increased imports to have been
recent, sudden, sharp and significant enough to cause or threaten to cause serious injury. Thus, the
context reveals that a finding of increased imports is not a mere mathematical calculation, or simple
end-point-to-end-point analysis.

B. THE USITC DID NOT COMPLY WITH THE "IN SUCH INCREASED QUANTITIES"
AND "INCREASING RAPIDLY" REQUIREMENTS OF ARTICLES 16.1 AND 16.4

5. The United States did not respect the requirements of Articles 16.1 and 16.4 for finding
increasing imports under the Protocol. Instead, the USITC devoted just a single page of its

determination to this issue and failed to address ad equately the most recent period of time and trends
within the period. The USITC also failed to find an increase in imports qualitatively and
quantitatively sufficient as required by Articles 16.1 and 16.4. Thus, the USITC analysis failed to
meet the higher standard for product-specific safeguards against China under Article 16.

6. Although the Appellate Body requires an ad equate explanation of findings, none was
provided by the USITC. The USITC never discussed the implications of the low base-level of
imports from China that existed at the beginning of the period. The USITC also relied too heavily on
an "end-point-to-end-point" analysis, and ignored trends – an approach the Appellate Body has
condemned as insufficient. Had the USITC properl y analyzed the more recent trends, it would have
found a sharp difference between trends over the earlier periods and the more recent 2007 to 2008
period. In 2008, both the increase in quantity and th e percentage of increase in imports fell. The
increases in imports from China were the smallest of the period during 2008. The average increase in
imports from China from 2004 to 2007 in quantity was 9 million tyres, and the average rate of
increase was 42.1 percentage points. Yet in 2008, the increase in quantity was just 4.5 million tyres
and the average rate of increase was only 10.8 percen tage points. A quarterly breakdown of imports
from China demonstrates even more dramatically that imports were not rapidly increasing.

7. Moreover, the USITC ignored its standard prac tice and refused to gather data for the first
quarter of 2009, data which show a sharp decline in imports from China – i.e. over 2 million tyres.
The data show that over the most recent two-year period, from Q2 2007 to Q1 2009, imports from
China fell by 14.2 per cent. Notably the USITC ga thered interim data in every other Section 421
safeguard investigation in which an interim period w as completed, and even collected interim data in
a separate investigation that commenced the same month as this case, only 11 days prior.

8. The USITC findings also did not explain why the import trends over the most recent two
years were sudden enough, sharp enough, or signi ficant enough to qualify as "increasing rapidly" as
required by Article 16. The imports from Chin a were not "sudden enough" because the modest
increase over the period was steady, not sudden. Th e largest jump in imports occurred in Q2 2007 –
two years before the USITC decision, and approxi mately 86 per cent of the increase in volume of
imports occurred between 2005 and 2007, not 2008 . Nor were the imports from China "sharp
enough," as increases in market share were consistently in the 2 to 3 percentage point range during the
period. Imports peaked in Q2 2008, and then dec lined 7.8 per cent relative to Q2 2008 over the next
two quarters. Increasing imports from China were not "significant enough" to meet the high standards
of Article 16. The rate of increase declined in 2008 (53 per cent to 10.8 per cent), with a further,
absolute decline (-14.7 percentage points) in impor t levels in first quarter of 2009 as compared to
Q1 2008.

II. THE U.S. IMPLEMENTING STATUTE'S CAUSATION STANDARD IS
INCONSISTENT AS SUCH WITH ARTICLE 16.1 AND ARTICLE 16.4 OF THE
PROTOCOL

9. The U.S. statute implementing the causation standard of Article 16 into U.S. law is
inconsistent "as such" with Articles 16.1 and 16.4 of the Protocol. Article 16 expressly requires that
imports from China be "a significant cause" of the mate rial injury being alleged. Yet the U.S. statute
defines "a significant cause" to mean merely "a cause that contributes significantly" to the material
injury. This language, "contributes significantly," has no basis in the text of Article 16, and
impermissibly lowers the standard for "significant cause."

10. The text of Article 16 is explicit and una mbiguous as to the conditions under which the
transitional product-specific safeguard mechanism ca n be implemented. Article 16.1 requires that
imports from China "cause or threaten to cause market disruption." And Article 16.4 states that
"market disruption" may exist only if rapidly incr easing imports from China are a "significant cause"
of material injury. Thus, the ordinary meaning of the language requires a strong causal connection to

show that rapidly increasing imports are a "signifi cant cause" of injury. As with increasing imports,
this causation standard is more demanding than th e standard for global safeguards. The context
supports this interpretation as the Working Party Report on the Protocol of Accession confirms that
Article 16 requires a "causal link" between imports and injury. The term "causal link" appears at
Article 4.2(b) of the Agreement on Safeguards , and has been interpreted by the Appellate Body to
require "a genuine and substantia l relationship of cause and eff ect" between the imports and the
alleged injury. Moreover, Article 16.4 further st rengthens and raises this basic requirement, by
modifying the term "cause" with "significant" and thus creating a higher standard.

11. The U.S. statute that implements Article 16.4 departs from the text of the Protocol and defines
"a significant cause" to mean merely "a cause that contributes significantly." In this manner, the U.S.
statute attempts to weaken the standard for causation, even though Article 16 uses the word
"significant" to raise the causation standard for China-specific safeguards under Article 16 as
compared to global safeguards under the Agreement on Safeguards . The ordinary meaning of
"contributes significantly" conveys a meaning that is weaker than both "significant cause" and the
requirement in global safeguards that there be "a genuine and substantial relationship of cause and
effect." Moreover, the U.S. statute provides that a "significant cause" can be less important than any
other cause that may also be affecting the domestic industry. By eliminating any requirement of
causal comparison, it becomes impossible to dete rmine whether imports from China are indeed a
"significant cause" of material injury. The U.S. definition thus contradicts the express language of
Article 16.4, and is inconsistent "as such" with the WTO Agreement. This statutory definition
requires the U.S. to apply a flawed definition of "significant cause" in all Section 421 cases and, as
such, is inconsistent with Article 16 of the Protocol of Accession.

III. THE USITC FAILED TO EVALUATE PROPERLY WHETHER IMPORTS FROM
CHINA WERE A "SIGNIFICANT CAUSE," AS REQUIRED BY ARTICLES 16.1
AND 16.4

12. Article 16 imposes a strict standard under which "rapidly" increasing imports from China
must be a "significant cause" of alleged material injury. The USITC's causation analysis, however,
used the WTO-inconsistent definition of "signifi cant cause" contained in the U.S. statute. The
obligation to apply this standard resulted in the USITC's causation analysis being inconsistent as
applied with Article 16. The USTIC's lack of discretion fundamentally forced its causation analysis to
be flawed.

13. The USITC determination is in consistent with Article 16 of the Protocol as applied. The
USITC failed to evaluate properly whether imports from China were a "significant cause" of material
injury. The USITC did not consider adequately the conditions of competition in the domestic tyre
market and failed to establish any correlation between rapidly increasing imports from China and
material injury to the U.S. tyre industry. Ab sent this correlation, the USITC failed to provide a
"compelling analysis" of why causation still exists. Finally, the USITC failed to assess alternative
causes of alleged injury. Thus, the USITC determ ination was inconsistent with Articles 16.1 and
16.4.

A. THE USITC FAILED TO SHOW THAT THE CONDITIONS OF COMPETITION
SUPPORT A FINDING OF CAUSATION

14. The USITC misinterpreted and distorted the conditions of competition in the domestic tyre
market. This failure undermined its entire causation analysis. In th e context of global safeguards, the
Appellate Body and panels have re peatedly affirmed the importance of a thorough examination of the
conditions of competition in the relevant market, esp ecially in cases, such as this, where the relevant
market encompasses a broad range of products and ma rket segments. Bare reliance on industry-wide
statistics is insufficient for purposes of assessing the conditions of competition, as is excessive
reliance on subjective questionnaire responses.

15. The USITC failed to acknowledge the importance of changing demand patterns in the U.S.
tyre market – especially the role of declining de mand in explaining the drop in industry performance
in 2008. The USITC also failed adequately to c onsider the U.S. producers' long-term strategy which
shifted production in the United States towards th e higher-end segments of the market. Even though
the U.S. producers testified that they were engage d in a global sourcing strategy, entailing a shift in
the U.S. market away from lower-end tyres to premium production, the USITC rejected this testimony
and the relevance of this strategy's impact on the domestic industry.

16. The USITC also failed to appreciate the a ttenuated nature of competition between Chinese
and domestic tyres in the U.S. market. During th e period, U.S. producers had between 17.7 per cent
and 23.3 per cent of their shipments in the OE M market, whereas imports to the OEM market
accounted for only 0.8 per cent to 7.3 per cent of the total imports from China. In turn, imports from
China accounted for just 0.2 per cent to 4.9 per ce nt of all OEM shipments in the U.S. market.
Furthermore, in 2008, there were approximately ni ne times as many non-subject import tyres in the
OEM market than imports from China, and over th e period non-subject imports grew from 30.2 per
cent to 43.5 per cent of the U.S. OEM market. Th e USITC also failed to offer an adequate or
reasoned explanation of why rapi dly increasing imports from China were a "significant cause" of
material injury, given that U.S. production in the replacement market is predominately in the higher-
end segment, whereas imports from China are predomin ately in the lower-end segment. In its faulty
analysis, the USITC asserted that there was "si gnificant competition" between imports from China
and domestic tyres, finding that there was "clo se substitutability" between them. This assertion,
however, rests principally on a faulty questionna ire, in which no differentiation was sought for
product category, characteristics, or market segme nt. The USITC should not have relied upon such
subjective questionnaire.

17. Each of these conditions of competition – dec lining demand, an industry strategy to globalize
production, and attenuated competition between imports from China and domestic tyres – individually
sever the requisite causal link. They also work together to create the overall conditions of competition
in the market place and, when assessed cumulatively, the extent to which they sever the causal link is
even more dramatic. To justify the imposition of a product-specific safeguard under Article 16 in this
case, the United States needed to show that, even in the face of these interrelated conditions of
competition, imports from China were still themselves a "significant cause" of material injury. The
United States has not made, and cannot make, that showing.

B. THE USITC FAILED TO ESTABLISH A CORRELATION BETWEEN RAPIDLY
INCREASING IMPORTS AND MATERIAL INJURY TO THE DOMESTIC INDUSTRY

18. The USITC failed to establish that there is a temporal correlation, or "coincidence," between
rapidly increasing imports from China and injury. In the context of global safeguards, the Appellate
Body has explained that "coincidence" analysis play s a "central" role in determining whether or not a
causal link exists. Coincidence analysis is equally important when evaluating the application of a
product-specific safeguard under Article 16 of the Prot ocol. Under Article 16.4 of the Protocol, the
injury correlation is between "increasing rapidly" imports that are a "significant cause" of material
injury. In other words, the correlation must be between the period of time when imports were
increasing rapidly
 and the adverse trends being identified. Moreover, there must be a "significant"
causal link.

19. In determining whether "market disruption" exists, an investigating authority should gauge
the extent of any correlation between rapidly increasi ng imports and (a) price, and (b) "the effect of
imports on the domestic industry." When import tre nds and the USITC's ten factors relating to the
condition of the domestic industry are properly exam ined, it is clear that there is no correlation
between them.

20. Price: There is no temporal correlation betw een rapidly increasing imports and domestic
prices in this case. Average annual unit price for tyres shipped by U.S. producers increased over the
period while quantities of imports from China also rose. Indeed, average unit value rose from $47.90
in 2004 to $68.59 in 2008. Prices rose by 10.9 percentage points during 2007, when the rate of
increase in imports was at its highest of the period. Conversely, the rate of increase in prices fell in
2008, when the rate of increase in imports from Chin a witnessed a precipitous decline. To get around
this absence of correlation, USITC posited a "cost- price squeeze" hypothesis, but this speculative
theory does not correlate with m ovements in COGS/sales ratio as the ratio dropped by 5.3 percentage
points in 2007 (when imports from China were at their highest) and rose 5.8 percentage points in 2008
(when imports dropped precipitously). Thus, no "cos t-price squeeze" is attributable to imports from
China. Furthermore, non-subject imports "dwarfed" imports from China during the period. U.S.
market share of non-subject imports ranged from 66.9 to 87.1 per cent by quantity during the period,
whereas imports from China amounted to just 12.9 to 33.1 per cent.

21. Production: Data concerning production volume al so does not correlate with rapidly
increasing imports from China as th e decline in production was the smallest of the period (-2.4
percentage points) in 2007, when imports from Chin a were at their highest. In 2008, production fell
by its greatest extent during the period, while imports from China also fell to their lowest level during
the period.

22. Net Sales: Net sales also fail to demonstrate a correlation with imports from China as net
sales (value) increased by 2.7 percentage points ove r the period. In 2007, net sales (quantity) fell by
their lowest margin in the period (-5.5 percentage points) when the rate of increase in imports from
China was at its highest level of the period. In 2008, net sales witnessed their largest year-to-year
decline (-11.7 percentage points) of the period, while imports from China grew at their lowest rate of
the period.

23. Market Share: As to market share, the USITC reli ed heavily on aggregate data to assume
that imports from China "displaced" U.S.-produced ty res, but this displacement theory is unsupported
by the record. First, there is no "close substituta bility" of Chinese and U.S. tyres due to attenuated
competition. Second, the USITC failed to take into account the U.S. industry's long-term business
strategy of shifting towards branded, higher-end ty res which resulted in U.S. producers importing up
to 25 per cent of total imports from China themselves. Indeed, this strategy allowed U.S. producers to
achieve their highest profits in 2007 – the year in which they experienced the second-highest decline
in domestic market share. Furthermore, the U.S. displacement theory does not distinguish between
market share for different types of tyres, and ignor es the fact that total consumption of tyres in the
United States declined over the period. Year-to-y ear declines in U.S. producer market share mirror
annual declines in consumption, and further underm ine the suggestion that imports from China were
causing the declines in market share.

24. Profits: Profits also do not correlate with rapi dly increasing imports from China, as operating
income was positive for U.S. producers in 3 of the 5 years of the period while imports from China
increased. In 2006, before the allegedly rapidl y increasing imports, the industry had its second-worst
performance of the period, with operating losses of -1 .1 per cent. But in 2007, when imports from
China increased at their highest rate, operating income rose to 4.5 per cent – the highest level of the
period and the highest year-to-year increase of the period.

25. Productivity: Trends in productivity also do not correlate with imports from China.
Productivity declined by a mere 0.2 tyres per hour from 2004 to 2007. Only in the year of the
recession, 2008, was there a significant drop (a 5.3 per cent decline) and that drop was not caused by
imports from China. Furthermore, productivity increased at its highest rate of the period
(1.3 percentage points) during 2007 when imports fro m China were increasing at their fastest rate of
the period.

26. Capacity: Changes in the levels of imports from China over the period also do not correlate
with data concerning U.S. producer capacity. Ne ither capacity utilization nor plant closure data
correlate with rapidly increasing imports from Chin a. Domestic capacity utilization increased by 6
percentage points in 2007, when imports from China were increasing at their fastest rate, and then
dropped in 2008, when increased imports from China were the lowest. There is no temporal
coincidence between plant closures and imports fr om China, and there is no record evidence to
suggest that imports from China caused any of th ese closures. Additionally, the USITC failed to
account adequately for capacity increases in th e U.S. market, and improperly relied on data
concerning increases in capacity in China.

27. Employment: The USITC also incorrectly inferred causation from employment data.
Consistent with the U.S. producers' rationaliza tion strategy, hours worked per PRW jumped from
2,049 to 2,109 between 2006 and 2007. Restructuri ng measures, such as reduced hours, were part of
a global restructuring strategy to improve prof itability and shareholder value for the domestic
producers. These restructuring measures bore fruit in the greater profitability witnessed in 2007, and
it was only due to the recession in 2008 that hours worked per PRW declined.

28. Capital Expenditures: The USITC noted that trends in capital expenditures do not support a
finding of causation, much less material injury. The USITC stated that capital expenses "trended
upwards," and "were at their highest level in 2008."

29. R&D Expenditures : Furthermore, the USITC also noted that R&D expenditures do not
support a finding of causation because they, too, trended upwards and increased from 2004 and 2008.
As with capital expenditures, R&D investments ar e consistent with the industry's shift towards
premium, higher-end production in the United States. Moreover, average return on investment rose to
4.8 per cent in 2007 when imports from China were at their highest.

C. ABSENT A CORRELATION BETWEEN RAPIDLY INCREASING IMPORTS AND
ALLEGED MATERIAL INJURY, THE USITC FAILED TO PROVIDE A "COMPELLING
ANALYSIS" OF WHY CAUSATION WAS STILL PRESENT

30. The USITC failed to recognize the absence of a meaningful correlation between industry
performance and imports from China, much less o ffer a "very compelling" account of why causation
is nonetheless present. Instead, the USITC principally focused on end-point-to-end-point
comparisons of performance indicators over the period. This approach was highly misleading,
particularly given the profound recession that occu rred in 2008. The USITC did not engage in a
meaningful year-to-year analysis of the data. The USITC made no attempt to explain the absence of
correlation between imports and various injury factors in this year-to-year data. Instead, the USITC
relied on the bare juxtaposition of frequently aggreg ate, undifferentiated data on imports and injury
factors. It was incumbent on the USITC to provide a "very compelling" explanation of why causation
still exists in the face of this clear lack of corre lation. Such explanation must be express, reasoned
and adequate. WTO jurisprudence confirms that panels should not have to hunt for "implicit"
findings or explanations in an investigating authority's report. The USITC's failure to provide such an
express explanation was inconsistent with Appellate Body jurisprudence and WTO obligations.

D. THE USITC IGNORED OR FAILED TO ASSESS FULLY OTHER CAUSES OF INJURY

31. The absence of correlation between trends in imports from China and the condition of the
domestic industry strongly suggests that other fa ctors are responsible for the domestic industry's
injury. Yet the USITC dismissed the array of a lternative causes noted by respondents, asserting that
under the U.S. statute, it did not need to engage in a "weighing of causes." This approach was not
only intellectually flawed, but also inconsistent with the Article 16's requi rement that a Member
demonstrate a "causal link" between imports and in jury, and that rapidly increasing imports (and not
other factors) are a "significant cause" of material injury. Contrary to the USITC's determination, the

evidence shows that trends in industry conditions reflect, among other factors, fundamental changes in
demand and the industry's strategic shift to higher-end production in the United States.

32. The USITC barely acknowledged alternative causes of injury despite the fact that Article 16
of the Protocol requires there be a "causal link" between increasing imports and injury, defined as a
"genuine and substantial relationship between cause and effect." It is impossible to make such a
determination without considering the role play ed by causes other than subject imports. The
"assumption" that other factors are not causing the alleged injury cannot be made consistently with the
obligation to find a "causal link" – a "genuine and substantial" relationship of cause and effect. An
authority thus cannot conclude that a "causal link" exists without first assessing whether other factors
are actually responsible, or better explain the data. Had the USITC investigated alternative causes, it
would have determined that the domestic producers would have experienced the same conditions and
trends even without imports from China. This is because other factors – such as falling demand and
industry business strategy – provide a much more co mpelling interpretation of the data, and disprove
any notion that imports from China are a "significant cause" of material injury to U.S. producers.

33. The USITC failed to consider important cha nges in demand for tyres in the United States.
First, the U.S. tyre market experienced a prolonged contraction in demand as apparent consumption of
all passenger vehicle and light truck tyres (by volume) fell by 10.3 percentage points during the 2004-
2008 period. The recession of 2008 , and the near-collapse of the U.S. auto industry, greatly
accelerated this contraction in demand. Consumer demand for vehicles fell dramatically in 2008 and
manufacturing of light vehicles declined 4.3 per centage points over the 2005-2007 period – only to
drop an additional 15.2 percentage points in 2008. At the same time, consumer demand shifted in
favour of larger tyres, even for smaller, fuel -efficient vehicles. Finally, from 2007-2008, total
consumption dropped by about 20 million tyres, and to tal U.S. producer shipments dropped by almost
19 million tyres during the same time. This was an almost one-to-one correspondence between the
decline in the overall U.S. market and the decline in U.S. domestic shipments. The USITC barely
acknowledged these changes in demand and did not o ffer a reasoned and adequate explanation of
why, in light of these changes, imports from China were still a "significant cause" of material injury.

34. The USITC also chose to attribute plant clos ings and other indicators of industry performance
to imports from China, when the record in fact de monstrates that domestic producers were engaged in
a long-term strategy that shifted production in the United States towards the higher-end segments of
the market. For the U.S. producers, imports from China (and other lower-cost jurisdictions) were, and
are, a positive factor. Far from being injured by imports from China, the producers were themselves
responsible for manufacturing and importing many of these tyres. Accordingly, 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.
Notably, each alternative cause individually severs the necessary causal link, yet they also operate
collectively and are mutually reinforcing in breaking the causal link.

IV. THE U.S. TARIFF REMEDIES WE RE BEYOND THE "EXTENT NECESSARY"
AND THUS ARE INCONSISTENT WITH ARTICLE 16.3 OF THE PROTOCOL

35. The requirements for applying a transitional product-specific safeguard under Article 16 have
not been met in this case. Because the USITC fa iled to establish that rapidly increasing imports from
China were a "significant cause" of market disrup tion, no remedy is appropriate. Even if the
United States had complied with the other requireme nts of Article 16, and thus had the theoretical
right to apply safeguard measures, the tariff remedi es imposed were nonetheless inconsistent with the
requirements of Article 16.3 of the Protocol b ecause they were beyond the "extent necessary" to
"remedy" the alleged market disruption. The obliga tions of Article 16.3 limit the extent of any such
safeguard measures to "such" market disruption, which is limited to that disruption properly attributed
to "increasing rapidly" imports from China. Neither the USITC nor the President drew this important

distinction, and instead imposed an excessive reme dy that addressed the entire problem facing the
domestic industry, and not only the market disruption significantly caused by rapidly increasing
imports from China. This error led to an excessive , three-year remedy that was beyond the "extent
necessary" and therefore inconsistent with Article 16.3.

V. THE U.S. TARIFF REMEDIES HAVE BEEN IMPOSED FOR A PERIOD OF TIME
LONGER THAN PERMITTED UNDER ARTICLES 16.3 AND 16.6 OF THE
PROTOCOL

36. The requirements for applying a transitional product-specific safeguard under Article 16 have
not been met in this case. Because the USITC fa iled to establish that rapidly increasing imports from
China were a "significant cause" of market disruption, no remedy for any period of time is
appropriate. Even if the United States had complie d with the other requirements of Article 16, and
thus had the theoretical right to apply safegua rd measures, the tariff remedies imposed were
nonetheless inconsistent with the requirements of Articles 16.3 and 16.6 of the Protocol because the
three-year tariff period is beyond "such period of time" that is "necessary." The obligations of
Article 16.3 and Article 16.6 limit the duration of any remedy measure imposed. Article 16.3
obligation limiting the "extent" of remedies applies to their duration, which is further reinforced by
Article 16.6's obligation to limit re medies to only "such pe riod of time" that is "necessary." Yet the
decision by the United States to impose tariffs fo r three years ignores both of these obligations.
Because the requirements for imposing safeguards wa s not been met, no remedy was appropriate.
Subsequently, the U.S. imposition of excessively high ta riffs for three-years is inconsistent with the
durational limitations of Article 16.3 and Article 16.6 of the Protocol.

VI. THE U.S. TARIFF REMEDIES DO NOT ACCORD CHINA THE SAME
TREATMENT AS OTHER COUNTRIES, AND ARE INCONSISTENT WITH
ARTICLE I:1 OF GATT 1994

37. The U.S. tariff remedies do not accord Ch ina the same treatment as other countries.
Accordingly, China considers these higher tariffs, not having been justified as emergency action under
relevant WTO rules, to be inconsistent with Article I:1 of the GATT 1994. The United States does
not accord the same treatment it grants to passenger and light truck tyres originating in other countries
to the like products from China. The U.S. tariff me asures are "customs duties" within the meaning of
Article I:1 and must comply with the disciplines of this provision. Yet the U.S. measures ignore the
requirements of Article I:1. The imposed 35 per cent tariffs apply only to China. Other countries still
enjoy the benefits of much lower applied tariffs of 4.0 per cent for radial tyres in HTS codes
4011.10.10 and 4011.20.20.10, and at 3.4 per cent for other tyres in HTS codes 4011.10.50 and
4011.20.50. The 35 per cent tariffs applied only to China are much higher than the lower rates
applied to other countries, and thus are inconsiste nt with Article I:1 of GATT 1994 because they have
not been justified by the United States. Because th e U.S. measures are inconsistent with Article 16 of
the Protocol, they are also inconsistent with Article I:1 of GATT 1994.

VII. THE U.S. TARIFF REMEDIES EXC EED THE BOUND RATES OF THE U.S.
SCHEDULE OF CONCESSIONS, AND ARE INCONSISTENT WITH
ARTICLE II:1(B) OF GATT 1994

38. The U.S. tariff remedies exceed the bound rates specified in the U.S. Schedule of
Concessions. Accordingly, China considers these higher tariffs, not having been justified as
emergency action under relevant WTO rules, to be inconsistent with Article II:1(b) of GATT 1994.
These higher tariffs consist of unjustified modificat ions of U.S. concessions on passenger and light
truck tyres under the GATT 1994. The U.S. tariff me asures are "customs duties" within the meaning
of Article II:1(b) and must comply with the disciplines of this provision. Yet the U.S. measures
ignore the requirements of Article I:1. The United States has bound its tariffs on such tyres at 4.0 per
cent for radial tyres in HTS codes 4011.10.10 and 4011.20.20.10, and at 3.4 per cent for other tyres in

HTS codes 4011.10.50 and 4011.20.50. The imposed 35 per cent tariffs are dramatically in excess of
these bound rates, and thus are inconsistent with Article II:1(b) of GATT 1994 because they have not
been justified by the United States. Because the U. S. measures are inconsistent with Article 16 of the
Protocol, they are also inconsistent with Article II:1(b) of GATT 1994.

ANNEX A-2

EXECUTIVE SUMMARY OF THE FIRST WRITTEN
SUBMISSION OF THE UNITED STATES

I. INTRODUCTION

1. Over a five-year period from 2004-2008, imports of tyres from China into the United States
more than tripled, growing from 14.6 million tyres to 46 million tyres. As a result of this rapid
growth, there was a decline in nearly all of the economic indicators for the U.S. tyre industry.
Because WTO Members anticipated that this kind of development might arise following China's
accession to the WTO, they negotiated the trans itional product-specific safeguard mechanism ("the
transitional mechanism") contained in paragraph 16 of China's Protocol of Accession.

2. China argues that the standard s of the transitional mechanism must be interpreted so as to be
both "more demanding" than what the text's ordina ry meaning would indicate, and "more demanding"
than the standards applicable under the Safeguard s Agreement. The United States will demonstrate
that the plain text of paragraph 16 does not support China's arguments; that the U.S. law
implementing the transitional mechanism is fully c onsistent with that mechanism; and that the
rigorous and detailed investigation undertaken by the ITC and the remedy imposed are fully in
accordance with the Protocol.

II. NO SPECIAL INTERPRETIVE APPROA CH IS REQUIRED BY THE PROTOCOL

3. China argues that the "object and purpose" of the Protocol necessarily make the terms of the
transitional mechanism stricter than those of the Sa feguards Agreement. The Protocol, as part of the
WTO Agreement, does not have its own "object and purpose." The "purpose" of any provision (in
this case the transitional mechanism) can be de termined only by ascertaining what the provision
means under customary rules of interpretation re flected in Articles 31 and 32 of the Vienna
Convention (and DSU Article 3.2). Any attempt to identify a priori some supposed "purpose" for the
provision and then interpret the text on the basis of that "purpose" is an invitation to import into the
agreement obligations not found there.

III. PARAGRAPH 16 DOES NOT INCORP ORATE GATT 1994 ARTICLE XIX OR THE
SAFEGUARDS AGREEMENT

4. It is evident from the text of paragraph 16, in light of the context provided by the Working
Party Report, that the Protocol does not incorpor ate the disciplines of Article XIX of the GATT 1994
or the disciplines of the Safeguards Agreement. Th ere is no cross-reference in paragraph 16 to
Article XIX or to specific provisions of the Sa feguards Agreement. The only reference to the
Safeguards Agreement is found in Pa ragraph 16.1. That paragraph simply states that "whether the
affected Member should pursue application of a [globa l safeguard]" is one of the options that may be
discussed in negotiations over seeking a mutually agr eed solution. This cannot be interpreted to
incorporate the disciplines of the Safeguards Agreement, explicitly or implicitly. On the contrary, this
indicates that the transitional mechanism exists apart from the global safeguard disciplines of
GATT 1994 Article XIX and the Safeguards Agreement.

5. Textual differences also indicate that the Protocol does not incorporate the standards and
obligations of Safeguards Agreement or GATT 1994 Artic le XIX. The injury standards are the most
significant of these. The Safeguards Agreement pr ovides for a "serious injury" standard, while
paragraph 16.4 provides for a "material injury" sta ndard. This is the standard provided for in
Article VI of the GATT 1994, the SCM Agreem ent, and the Anti-dumping Agreement. The
Appellate Body has explained that "the word 'seri ous' connotes a much higher standard of injury than
the word 'material'." This distinction demonstrates that the negotiators of the Protocol did not intend
to incorporate the Safeguards Agreement or Artic le XIX of the GATT 1994, either directly or by
implication.

6. Finally, the Safeguards Agreement itself dem onstrates the error in China's argument. That
Agreement contains several explicit references to Article XIX of the GATT 1994. If the negotiators
of the Protocol had sought to make portions of Article XIX, or of the Safeguards Agreement,
applicable to the transitional mechanism, they woul d have done so explicitly. The Protocol's silence
indicates that the obligations under the Safeguards Agreement and Article XIX of the GATT 1994 are
not incorporated.

IV. THE ITC REASONABLY CONCLUDED THAT IMPORTS FROM CHINA WERE
"INCREASING RAPIDLY" UNDER PARAGRAPH 16 OF THE PROTOCOL

7. The ITC found that imports from China increased rapidly on an absolute and relative
level. The quantity of subject imports rose by 215.5 per cent between 2004 and 2008, by 53.7
per cent between 2006 and 2007, and by 10.8 per cent between 2007 and 2008. The market
share of the imports increased by 12.0 percent age points between 2004 and 2008, with the two
largest year-to-year increases in market share oc curring in 2007 and 2008. On an absolute and
a relative basis, imports were at their highest levels in 2008, at the end of the period of
investigation. The ITC reasonably concluded that these increases were rapid and were in such
quantities as to cause material injury to the industry.

8. Contrary to China's contentions, th e Protocol does not impose a more demanding
standard for the "rapidly increasing" st andard than the Safeguards Agreement.
Paragraph 16.4 makes clear that there should be a "rapid" increase in imports, either on an
absolute or relative level, and that the level of increase must be such "as to be a significant cause
of material injury or threat of material injury" to the industry. The Protocol's language linking
"rapid increases" of imports to material injury or threat of material injury establishes that the
import increases required by the Protocol are less significant than those required in the context
of the Safeguards Agreement, where increased imports are linked to "serious injury."

9. Although the Protocol does not specify how rapid an increase must be to meet the "increasing
rapidly" standard, the language of the Protocol does sugg est that a competen t authority should
examine whether the rapid increases have continued in the recent past, rather than at some
distant point during the period of investigatio n. The ITC complied with this standard by
focusing on recent increases in imports, specifically those in the last two years of the period of
investigation, 2007 and 2008.

10. China's assertions that the ITC's analysis is inconsistent with the Protocol have no merit.
First, the ITC did not rely exclusively on an "end- point-to-end-point" analysis. The ITC specifically
considered the growth in the absolute and relativ e quantities for the subject imports during each year
of the period of investigation and concluded that the imports increased, both absolutely and relatively,
throughout the period, by significant amounts in each year. Moreover, the Appellate Body has not
stated that a competent authority should never examine or analyse trends in import increases
between the end-points of an investigation.

11. The ITC also reasonably rejected the argumen t that import increases had "abated" in 2008. It
pointed out that the subject imports had increased "by significant amounts" in each year of the
period, that they had been "at their highest levels at the end of the period in 2008," and that, on
both an absolute and relative level, the increase in 2008 "alone" was a "large, rapid, and
continuing" increase over the increase in their levels in 2007. The Protocol does not require
that subject imports be growing at an increasingly rapid rate at the end of the period, or that
imports be increasing at a rate that is higher than the rate of growth of imports earlier in the
period.

12. Furthermore, China's alternativ e quarterly analysis of the import data is flawed. It completely
ignores all data before 2007, thereby concealing th e increases that occurred in 2007 and 2008. China
also ignores that quarterly data has the potential to introduce distortions that do not typically exist in
annual data. Moreover, China's quarterly data onl y shows changes in the absolute levels of the
Chinese imports and ignores data on relative imports.

13. The ITC's decision not to seek data for the fi rst quarter of 2009 was reasonable and consistent
with its established practice. The ITC does not have a practice of collecting data for any fiscal quarter
that is completed before the beginning of its investigation, as China asserts. Instead, the ITC
considers a number of factors, including the ti me elapsed between the end of the most recent
quarter and the issuance of its questionnaires, the likelihood of obtaining full information from
the parties for the interim period, and the number of parties from whom data must be sought.
It is not true that the ITC's decision not to collect interim data in the Tyres case was at odds
with its practice in other cases.

V. ITC'S CAUSATION ANALYSIS WAS IN ACCORDANCE WITH THE
REQUIREMENTS OF THE PROTOCOL

1. Causation standard of U.S. Statute is fully consistent with Protocol

14. The U.S. statute tracks, on an almost verbat im basis, the language c ontained in paragraphs
16.1 and 16.4 of the Protocol. Moreover, in its de terminations, the ITC has explained that the U.S.
statute requires the ITC to find a "direct and significant causal link
" between the rapidly increasing
imports and the material injury or threat of material injury suffered by the industry. This requirement
is fully consistent with the Prot ocol's requirement that the competent authority establish that imports
from China are "a significant cause" of material injury or threat to an industry.

15. There is nothing in the language of the statute that indicates that its definition of "significant
cause" somehow weakens or reduces the causal link requi red under the Protocol. On the contrary, the
U.S. statute's definition of a "significant cause" of material injury as one that "contributes
significantly" to that injury is consistent with Appellate Body analysis and the language of the
Protocol itself. The Protocol specifically provid es that "market disruption shall exist" whenever
rapidly increasing imports from China are "a
 significant cause of material in jury, or threat of material
injury" to a domestic industry. By stating that imports from China can be "a significant cause" of
material injury or threat to an industry, the text of the Protocol establishes that there may be multiple
significant causes of material injury or threat to an industry.

16. In the Safeguards Agreement context, the A ppellate Body has stated that, when assessing
whether there is a "causal link" between imports a nd injury, a competent authority need only establish
that there is a "relationship of cause and effect such that increased imports contribute to
 'bringing
about,' 'producing,' or 'inducing' the requisite leve l of injury." It follows from this reasoning that,
under paragraph 16.4, imports from China can be one of several "significant causes" that contribute to
the overall level of material injury or threat of injury.

17. Finally, neither the Protocol nor the Working Party Report links the causation standards of
paragraph 16 of the Protocol to the causation sta ndards of the Safeguards Agreement. Thus, nothing
in the Protocol or the Working Party Report instruct s or implies that the competent authority needs to
satisfy a more demanding, strict, or stringent showing of the "causal link" between imports from
China and material injury than that specified in the Safeguards Agreement or the Anti-dumping or
Subsidies Agreements, as China claims. In f act, the absence of restrictions, such as the non-
attribution language of Article 4.2(b) of the Safe guards Agreement, suggests that the threshold for
application of a measure under the transitional mechanism is lower.

2. ITC's causation analysis, as applied, was in accordance with the Protocol

18. The ITC's causation analysis, as applied, w as fully in accordance with paragraphs 16.1 and
16.4 of the Protocol. The ITC objectively analysed the record evidence in detail and then established
unambiguously that rapidly increasing imports from China were a significant cause of material injury
to the domestic industry. The arguments made by China simply ignore the pertinent obligations
required of the United States by the plain language of the Protocol.

19. Throughout its submission, China improperl y attempts to create standards and impose
obligations on the United States that are not found in the language of the Protocol. Moreover, China
has opted to ignore the numerous and detailed factual findings by the ITC establishing clearly that
rapidly increasing imports from China were a signifi cant cause of material injury to the domestic
industry. Instead of addressing the ITC's analysis as a whole, China opts to present carefully selected
portions of the ITC's determina tion in isolation and attempts to rebut each one on its own by
suggesting alternative interpretations of the data.

20. The ITC, however, properly rejected such a piecemeal approach to causation. In accordance
with the plain language of the Protocol, and in the context of the conditions of competition in the U.S.
tyre market during the period examined, the ITC focused instead on the en tirety of the evidence
relating to the volume of the imports, the effect of imports on prices for the domestic like product, and
the effect of such imports on the domestic industry.

21. In terms of volume, the ITC found that subject imports increased in each year of the period
and were at their highest levels of the period in 2 008. The record also showed that subject imports
increased by 215.5 per cent over the period, with th e greatest and most rapid increases occurring after
2006. The Commission noted that the large incre ase in the volume of subject imports was also
reflected in the large and growing share of the U.S. market held by subject imports. 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. Th e record showed that more than half of this
increase has occurred since 2006.

22. The ITC also examined the effect of subject imports on prices for the domestic like product.
The ITC conducted a detailed and thorough evaluation of pricing in the tyres market during the
period of investigation, and explained that persistent and significant underselling by subject
imports contributed to the deteriorating condition of the domestic industry.

23. To conduct its pricing analysis, the ITC collect ed quarterly data over the period examined for
six specific products, each of which was defined by specific dimensions, load indexes, and speed
ratings of each to ensure compatibility. These comparisons showed underselling by the subject
imports in 119 out of 120 comparisons, with the aver age margins of underselling at their highest in
2007 and 2008, coinciding with the largest volumes of subject imports. As the ITC found, the
consistent underselling by the large and rapidly in creasing volume of subject tyres displaced domestic
shipments by U.S. producers, and eroded the domestic industry's market share, leading to a substantial
reduction since 2004 in domestic capacity, production, shipments, and employment during the period

examined. The ITC also found that continued unde rselling by the subject imports prevented domestic
producers from raising prices sufficiently to offset higher production costs and thus suppressed prices.

24. The ITC examined the effect of subject imports on the domestic industry during the period of
investigation. As subject imports increased both abso lutely and relatively in every year of the period,
virtually all of the domestic industry's performance indicators declined as well. As the ITC explained,
the underselling by large and rapidly increasing Ch inese tyres eroded the domestic industry's market
share, leading to a substantial reduction since 2004 in domestic capacity, production, shipments, and
employment. Moreover, the evidence showed that all of these indicators were at their lowest levels in
2008 when subject imports were at their highest. Ev en though some factors, such as profitability and
productivity, improved somewhat in 2007 when imports continued to increase, numerous other injury
factors including capacity, shipments, net sales quantities, market share, and employment-related
factors all continued to decline in that year. Finally, even the improvement in profitability and
productivity was temporary given that both factors d eclined in 2008 to levels below the start of the
period, at the same time subject imports rose to th eir highest levels both in terms of absolute volume
and market share.

3. ITC reasonably concluded that other factors did not sever the causal link

25. In its analysis, the ITC also considered a nd addressed other factors allegedly causing material
injury to the industry, and found that these other factors did not break the clear causal link between
increasing imports from China and the material injury to the industry. Chin a alleges that the ITC
failed to comply with its obligations to address these other factors fully. China's arguments are
flawed in two significant respects.

26. First, China's arguments are legally flawed . China is, again, seeking to import into the
Protocol analytical standards developed under the Safeguards Agreement that have no basis in the text
of the Protocol. Unlike the Safeguards Agreement, the Protocol does not
 specifically require a
competent authority to consider the possible effects of other factors causing material injury or threat
of material injury as part of its causation analysis . Instead, the competent authority must assess only
whether increasing imports are a significant cause of materi al injury or threat of material injury to the
industry, and to consider the "volume of imports," their "effect . . . on prices for like or directly
competitive articles, and the effect of such impor ts on the domestic industry" producing such articles
in that analysis. Given the absence of any language in the Protocol requiring the competent authority
to consider and then "separate and distinguish" other factors causing injury as part of its causation
analysis, China has no textual basis for claiming th at the Protocol requires a competent authority to
perform such an analysis.

27. As a result, a competent authority may u se any reasonable methodology to consider such
other factors when assessing whether market disr uption exists. A competent authority's need to
address the effects of other possibly injurious f actors will depend on the facts and circumstances of
the particular case. In some cases, such a factor might arguably be so significant a cause of injury that
a competent authority would need to perform a more detailed explanation of its effects. In other
cases, the factor may be contributing to injury in a considerably less significant fashion. In those
circumstances, the competent authority could reasonably refer to the factor and indicate that the factor
does not explain the injury caused to the pertinent i ndustry. In still other cases, the authority could
simply find that there was no evidence establishing that a particular factor caused injury to the
industry, or it might find that the parties have not presented sufficient evidence to establish that the
factor causes any injury at all. The ITC's analysis was consistent with this analytic structure.

28. Second, China's arguments are mistaken becau se they claim the ITC "apparently refused to
investigate alternative causes," or that "[it] bare ly acknowledged" them in its analysis. The ITC
investigated, considered, and analysed all of th e factors that could reasonably be considered

significant enough to break the causal link between imports and material injury. Indeed, the ITC
directly considered and addressed the industry's a lleged "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, the two main factors ci ted by China as breaking the causal link between
imports and injury. The ITC also specifically c onsidered other alleged causes of injury, such as
increases in the industry's raw material costs, change s in its productivity levels, changes in the levels
of non-subject imports, and the impact of rising gas prices on demand, and found that they too did not
indicate that the subject imports from China were not a significant cause of material injury to the
industry.

29. For example, with respect to the industry' s alleged business strategy of shifting production of
low-end tyres to China, the ITC explained that imports of tyres from China were rapidly increasing
before
 Bridgestone, Continental, and Goodyear announced the closing of plants in 2006 and 2008, and
that fierce competition from low-cost producing countri es was a factor in the decision to close certain
plants. Similarly, with respect to declining de mand, the ITC found that, "even in 2008 when U.S.
apparent consumption was falling," the record showed that the subject "imports continued to increase
rapidly." Because a decline in demand should typi cally have comparable effects on all sources of
supply, domestic and import, the ITC reasonably co ncluded that demand changes were not the source
of the industry's injury.

30. The ITC also considered and discussed the eff ect 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 nonetheless c oncluded that the presence 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 leadi ng to a decline in the industry's operating margins
over the period of investigation. Finally, with resp ect to the impact that higher gasoline prices had on
driving habits, the ITC specifically acknowledged this factor in its analysis, stating that "demand for
replacement tyres fell in 2008 as the number of m iles driven decreased, consumers tried to get more
miles from current tyres, and the economy weakened ." The ITC reasonably found, however, that
demand declines resulting from these factors did not sever the causal link between imports and injury.

VI. THE UNITED STATES APPLIED A REMEDY CONSISTENT WITH THE
PROTOCOL REQUIREMENTS

1. The additional duties are only to th e "extent necessary" per paragraph 16.3

31. China argues that the ITC impermissibly consid ered the effect of the tariffs on the domestic
industry and disregarded testimony from domestic producers that no remedy was necessary. Neither
argument is valid.

32. The United States agrees that any remedy u nder paragraph 16.4 of the Protocol may only
remedy the material injury that results from the rapidly increasing imports from China. The
United States also agrees that the Appellate Body's analysis of the phrase "no more than the extent
necessary to prevent or remedy serious injury" in Article 5.1 of the Safeguards Agreement can
provide useful reasoning in interpreting the simila r phrase in paragraph 16.3 of the Protocol. The
United States does not agree with China's conclusion that the Appellate Body's findings signify that
"the remedy measure provision has an exceedingly narrow reach." Although the authority to impose a
measure is circumscribed by the extent of the in jury caused by the relevant imports, where imports
have a broad injurious effect, the authority would be correspondingly broad. It is also significant that
paragraph 16.3 of the Protocol provides that a Member facing rapidly increasing imports from China
that cause market disruption is "free, in respect of such products, to withdraw concessions or
otherwise to limit imports. . . .". This authority gr ants a Member latitude in crafting an appropriate
remedy.

33. The evaluation of whether a safeguard appro aches or passes the permissible extent cannot be
a matter of scientific precision. As the working gr oup that reviewed the U.S. Article XIX measure on
felt hats and hat bodies under the GATT 1947 noted, "it is impossible to determine in advance with
any degree of precision the level of import duty necessary to enable the United States industry to
compete with overseas suppliers in the current co mpetitive conditions of the United States market."
This observation remains true today. Although economic modeling allows a generalized evaluation of
market conditions, it cannot measure with any precisi on the effect of rapidly increasing imports or the
effect of measures designed to remedy their effect.

34. China's criticism of the "focus" on the benef its to the domestic industry and not on "specific
market disruption" simply makes no sense. Paragraph 16.4 defines market disruption in terms of
"material or threat of material injury" of which rapidly increasing imports from China are a significant
cause. It further requires a Member to examine " objective factors, including the volume of imports,
the effect of imports on prices for like or directly competitive articles, and the effect of such imports
on the domestic industry producing like or directly co mpetitive products." Thus, the effect of imports
on prices and on the domestic industry are crucial elements in the existence of market disruption. The
ITC found that the market disruption to the domestic industry consisted of, inter alia , declining
capacity, capacity utilization, profitability, and employment. It is difficult to imagine how it could
"address[] the specific market disruption found to exis t" without examining the potential benefits of a
remedy to these identified effects of increased import s. Therefore, China's criticism is invalid as a
legal matter.

35. Contrary to China's arguments, the ITC c onducted a detailed analysis, based on the facts on
the record and using economic tools available, to craft a remedy that would only address the injury
caused by Chinese imports. Parts C, D, and E of th e remedy determination and Chairman Aranoff's
separate views on remedy demonstrate a focus on a ddressing the material injury caused by Chinese
imports. One particular manifestation of this, is the ITC's discussion of why it rejects the remedy
proposed by petitioners. The ITC explains that the proposed quota would be equivalent to a 65 ad
valorem tariff, "which we view to be higher than n ecessary to remedy the market disruption we have
found." The ITC is clearly calibrating its remedy to ensure that it addresses the injury caused by the
increasing Chinese imports. China is simply wrong to assert that the ITC did not distinguish
between the injury caused by Chinese imports and other factors.

36. China's argument that the ITC disregarded the testimony from U.S. producers that they were
not materially injured by Chinese imports and would not change their behaviour if there were to be a
remedy is also misguided. China relies on the views of the dissenting Commissioners. However,
their reasoning reveals that there was a differe nce of opinion among the Commissioners as to the
appropriate weight to give to the evidence on this issue, with the two dissenters believing that more
weight should have been given to the views presented by some of the U.S. producers. This is a matter
for the fact-finder – the ITC as a whole. Four Commissioners evaluated the evidence differently. The
ITC's determination before this Panel is that reflected in the majority opinion.

37. It is clear that U.S. producers' views on this issue were hardly unanimous, and therefore
needed to be evaluated, along with the other evidence of record, by the fact finder – the ITC. The fact
that U.S. producers did not provide specific restru cturing plans does not imply a deficiency in the
ITC's analysis as the Protocol does not require the filing or consideration of industry restructuring
plans in the analysis of market disruption or of an appropriate remedy. In any case, it is not true that
the ITC disregarded the evidence before it. Finall y, whether individual producers said they would not
change their business plans is not determinative of whether the proposed remedy was "to the extent
necessary to remedy" the market disruption found w ith respect to the industry as whole. A remedy
must by necessity seek to address the material inju ry caused on the industry. This means that the
remedy must seek to address the various factors that indicate the health of the industry "as a whole",

as it has been affected by the market disruption found. The impact on individual companies will
necessarily vary.

38. Thus, China has failed to meet its burden of proof to demonstrate that the ITC recommended
remedy failed to comply with paragraph 16.3. It is noteworthy that after soliciting further information
from interested parties and providing for a hearin g, President Obama determined that the most
appropriate action to remedy the market disruption found by the ITC was an additional duty set at 35
per cent ad valorem for the first year (instead of a 55 per cent ad valorem duty). In addition, the
President determined that, although not required by the transitional mechan ism or U.S. law, the
additional duty should be reduced by five percen tage points in the second and third years of the
remedy, resulting in each case in additional tariffs lower than those recommended by the ITC. The
only argument China makes against the final remedy imposed by the United States is that "President
Obama's determinations apparently assume the US ITC had provided the necessary analysis, when in
fact the USITC had not done so." We have shown that China has failed to meet its burden with regard
to its challenge to the ITC's remedy analysis. Ther efore, its challenge to the measure actually applied
by President Obama must also fail.

2. The U.S. measure is consistent with paragraph 16.6 of the Protocol

39. Based on the ordinary meaning of paragraph 16.6, any safeguard measure must be limited to
the period of time as is necessary to prevent or remedy the material injury caused by rapidly
increasing Chinese imports. The United States does not agree with China's attempts to heighten the
burden under this requirement ba sed on comparisons to the Safe guards, Anti-dumping, and SCM
Agreements. China also argues that a remedy ma y remain in place "only for the exact amount of
time" to address the market disruption. This level of exactitude is neither required nor possible. The
Protocol requires competent authorities to make decisions regarding safeguard measures based on
evidence and formal proceedings providing for particip ation by interested parties. Those authorities
cannot know at the time of taking a measure the "exact amount of time" it will be necessary. The
Working Party Report recognized that a Member taki ng a safeguard need not identify an exact time
period by explicitly allowing them to extend a meas ure based on a finding that action continues to be
necessary to prevent or remedy market disruption.

40. China fails to give appropriate weight to the remaining elements of paragraph 16.6, which
allow China to suspend concessions substantially equivalent to any safeguard measure two years after
its application if there was a relative increase in imports and three years after application if there was
an absolute increase. These indicate that the ne gotiators of the Protocol envisaged safeguard
measures remaining in place for at least three year s if there was an abso lute increase in Chinese
imports, as was the case with regard to tyres, or even longer in the case of an extension under
paragraph 246(f) of the Working Party Report. The ITC found that Chinese imports had increased
both in absolute terms and in relative terms, a nd the United States applied a safeguard measure for
three years, as envisaged in the third sentence of paragraph 16.6 of the Protocol.

41. China argues, as it did with regard to its paragraph 16.3 claim, that the ITC's rationale
"focuses entirely on the condition of the domestic industry and the time it needs to adjust," a
consideration that in China's view "is irrelevant." The United States has already explained that
this assertion is incorrect as a matter of fact, as the ITC conducted a detailed analysis involving
a number of factors, and law, as the effect of the remedy is not merely relevant, but critical, in
understanding whether it is "necessary to preven t or remedy market disruption." That logic
applies to the duration of a measure as well as its other terms. China also repeats its argument
that the ITC did not give sufficient weight to the views of domestic producers who "had not provided
specific restructuring plans." The United States has already explained that the ITC weighed all of the
evidence before it, and considered that the evidence favouring its remedy outweighed the evidence
cited by China against the remedy.

VII. CONCLUSION

42. China's claims that the additional duties im posed by the United States on subject tyres from
China are inconsistent with U.S. obligations under Articles I:1 and II:1(b) of the GATT 1994 are
dependent on a finding of inconsis tency with U.S. obligations unde r the transitional mechanism.
China has failed to demonstrate that the United St ates has acted inconsistently with its obligations
under the transitional mechanism. Therefore these claims must be rejected.

43. The United States requests that the Panel reject China's claims in their entirety.