U.S.-China Trade: The United States Has Not Restricted Imports under the China Safeguard
Published: 2005-09-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In joining the World Trade Organization (WTO) in December 2001, China agreed to a number of mechanisms to allow other WTO members to address disruptive import surges from that country. Among these was a transitional product-specific safeguard. In general, safeguards are temporary import restrictions of limited duration that provide an opportunity for domestic industries to adjust to increasing imports. U.S. law includes a number of other safeguards including a communist country safeguard, known as "section 406," and a global safeguard, known as "section 201," which have both applied to China. In light of increased concern about Chinese trade practices and the U.S. government response to them, the conference report on fiscal year 2004 appropriations requested that GAO review the efforts of U.S. government agencies responsible for ensuring free and fair trade with that country. In this report, which is one of a series, GAO (1) describes the China safeguard, (2) describes how it has been used thus far, and (3) examines issues related to the President's discretion to apply the safeguard. Other safeguards provide context to understand this mechanism. We provided ITC and USTR a draft of this report for their review and comment. Both agencies chose to provide technical comments from their staff. We incorporated their suggestions as appropriate.
section_title: What GAO Found
paragraphs: The China safeguard permits WTO members, including the United States, to address disruptive import surges from China. In the United States, the China safeguard is implemented under section 421 of the Trade Act of 1974, which allows U.S. firms to petition for relief and establishes a three-step process. This process involves the International Trade Commission (ITC), Office of the U.S. Trade Representative (USTR), and the President and determines whether Chinese imports are causing market disruption to domestic producers and whether a remedy is in the national economic interest. The entire process takes about 150 days. Under the terms of China's WTO accession agreement, WTO members may use the China safeguard until 2013. To date, the United States has not applied the China safeguard in five cases brought by domestic producers. In a sixth case, ITC has not yet reached a decision. In two cases, ITC found no market disruption. In three cases, ITC found market disruption and USTR evaluated the pros and cons of various options and made a recommendation to the President. In all three cases, the President declined to provide relief to the domestic industry after he found it would not be in the national economic interest because the costs would outweigh the benefits. The success rate for China safeguard petitions is similar to communist country safeguard petitions, but differs from that of global safeguard petitions. The President's decisions not to provide import relief after ITC found market disruption generated controversy, including a lawsuit claiming that he exceeded his authority. The relevant House committee intended that the law create a presumption in favor of relief upon an ITC injury finding. Nonetheless, the U.S. Court of International Trade found the President has broad discretion not to apply a China safeguard. Moreover, the President considers the question of whether to provide relief from a broader perspective than ITC. The President weighs the benefits of relief against the costs and considers factors such as the effect on consumers and downstream users, which ITC does not. The President cited third-country imports in all his decisions denying relief under both the Chinese and communist country safeguards. Under the global safeguard, third-country imports generally cannot diminish the potential benefits of import relief to the domestic industry and the President has often provided relief, especially since 1988 when U.S. trade laws were revised.

section_title: Letter
paragraphs: Imports from China have grown rapidly over the last decade, from a total  value of about $42 billion in 1995 to over $196 billion in 2004. While  lowering U.S. prices, and therefore benefiting consumers, this growth has  presented a major challenge for U.S. producers that compete with Chinese  products in the U.S. market.
In joining the World Trade Organization (WTO) in December 2001, China  agreed to a number of unique import relief mechanisms. Among them was  a transitional product-specific safeguard (China safeguard) that allows  other members to impose import restraints (such as quotas or tariffs) on  China in the event of disruptive import surges.
In light of increased concern about Chinese trade practices and the U.S.  government response to them, the conference report on fiscal year 2004  appropriations legislation requested that GAO monitor the efforts of U.S.  government agencies responsible for ensuring free and fair trade with that  country. In subsequent discussions with staff from the House  Appropriations Committee’s Subcommittee on Science, State, Justice and  Commerce, and Related Agencies, we agreed to provide a number of  reports on relief mechanisms available to U.S. producers who are  adversely affected by unfair or surging imports and the manner in which  these mechanisms have been applied to China. In this report we (1)  describe the China safeguard, (2) describe how the safeguard has been  used thus far, and (3) examine issues related to the President’s discretion  to apply the safeguard.
To describe the safeguard, we reviewed U.S. laws and procedures as well  as relevant WTO agreements. We interviewed staff members from the  Office of the U.S. Trade Representative (USTR), the U.S. International  Trade Commission (ITC), WTO officials, and other experts on trade law. In  describing how the safeguard has been used thus far, we reviewed the  official case records for each of the five completed safeguard  investigations conducted by ITC and USTR. To clarify the views of those  favoring and opposing safeguard measures, we spoke with attorneys  representing both petitioners and respondents. We also interviewed  Chinese government officials to obtain their perspective on the China  safeguard. To examine the application of presidential discretion, we  reviewed and analyzed the presidential determinations, and documents  related to the legal challenge of one of these decisions. We compared the  China safeguard with other safeguards throughout the report in order to  provide context for understanding the outcomes so far. We performed our  work from January 2004 to September 2005 in accordance with generally  accepted government auditing standards. Appendix I contains a more  detailed description of our scope and methodology.
subsections: section_title: Background
paragraphs: In general, safeguards are temporary import restrictions that provide an  opportunity for domestic industries to adjust to increasing imports. Both  the WTO Agreement on Safeguards and article XIX of the General  Agreement on Tariffs and Trade establish general rules for the application  of safeguard measures. Safeguard actions taken under the WTO usually  apply to all imports of a product irrespective of source. Other multilateral  and bilateral trade agreements also contain safeguard provisions. China’s  WTO accession agreement is an example of such an agreement. Its  provisions contain a transitional product-specific safeguard that permits  WTO members, including the United States, to take measures to address  disruptive import surges from China alone. Under the terms of China’s  WTO accession agreement, members may use the China safeguard until  2013.
In addition to the China safeguard, three other safeguards have been  applied to imports from that country in the United States. First, a  communist country safeguard applied to China prior to its WTO accession  and still applies to import surges from other communist countries that are  not WTO members. Second, Chinese imports are subject to a U.S. global  safeguard that applies to all WTO members. Third, a textile safeguard  provided for in China’s WTO accession agreement covers textile and  apparel imports from China.
section_title: U.S. Law Establishes Three-Step Process for China Safeguard Decisions
paragraphs: In the United States, the China safeguard is implemented under section  421 of the Trade Act of 1974, as amended, which Congress enacted as part  of the legislation authorizing the President to grant China permanent  normal trade relations status. Under section 421, U.S. firms may petition  the government to apply a China safeguard. The section establishes a  three-step process to consider China safeguard petitions. This three-step  process involves ITC, USTR, and the President, and it results in  determinations about whether import surges from China have caused  market disruption and whether a remedy is in the national economic  interest or, in extraordinary circumstances, would cause serious harm to  national security. The entire process takes approximately 150 days (see  fig. 1). The China safeguard was modeled on the communist country  safeguard, which applied to China before it became a WTO member.
ITC determination: ITC informs both the President and USTR of its determination.
If affirmative, USTR requests consultations with the Chinese within 5 days.
subsections: section_title: U.S. Producers May File Petitions Claiming Market Disruption Due to Chinese Imports
paragraphs: U.S. producers and certain other entities may file petitions to initiate  China safeguard investigations with ITC. These include trade associations,  firms, certified or recognized unions, or groups of workers that represent  an industry. The President, USTR, the Senate Committee on Finance, and  the House of Representatives’ Committee on Ways and Means can also  request investigations.
The petition must include certain information supporting a claim that  imports from China are causing market disruption to an industry. Petitions  must include, among other things, the following: product description,  import data, domestic production data, and data showing injury. Petitions  must also include information on all known producers in China and the  type of import relief sought.
section_title: The Role of ITC Is to Determine Market Disruption and Recommend a Remedy
paragraphs: ITC determines whether imports from China are causing market  disruption to U.S. producers and, if so, recommends a remedy to address  it. Upon receiving a petition, ITC initiates an investigation by publishing a  notice in the Federal Register and holding public hearings to afford  interested parties the opportunity to present information. ITC receives  information on both market disruption and potential remedies from  parties through written submission and oral testimony. ITC has 60 days to  determine whether the imports from China are causing–or threatening to  cause–market disruption to domestic producers.
More specifically, ITC must determine whether imports from China are  entering the United States in “such increased quantities or under such  conditions as to cause or threaten to cause market disruption” to domestic  producers. According to section 421, to determine that market disruption  exists ITC must make the following three findings:  Imports of the subject product from China are increasing rapidly, either  absolutely or relatively.
The domestic industry is materially injured or threatened with material  injury.
Such rapidly increasing imports are a significant cause of the material  injury or threat of material injury.
If a majority of ITC commissioners determine that market disruption does  not exist, the case ends. After an affirmative determination, ITC must  propose a remedy. This could include the imposition of a duty, or an  additional duty, or another import restriction (such as a quota) necessary  to prevent or remedy the market disruption.
Within 20 days after making a determination of market disruption, ITC  must transmit a report to the President and USTR. The ITC report must  include the determination, the reasons for it, recommendations of  proposed remedies, and any dissenting or separate views of  commissioners. The report must also describe the short- and long-term  effects that recommended remedies are likely to have on the petitioning  domestic industry, other domestic industries, and consumers. In addition,  the report must describe the short- and long-term effects of not taking the  recommended action on the petitioning domestic industry, its workers, the  communities where production facilities of the industry are located, and  on other domestic industries.
section_title: The Role of USTR Is to Make a Recommendation to the President
paragraphs: If ITC renders an affirmative determination, USTR undertakes two parallel  efforts. First, USTR consults with China about ITC’s finding and seeks to  reach an agreement that would prevent or remedy the market disruption.  If the U.S. and Chinese governments do not reach agreement after 60 days  (or if the President determines that an agreement reached is not  addressing the market disruption), the United States may then apply a  safeguard.
Concurrently, USTR obtains and evaluates information from interested  parties on the appropriateness of ITC’s or any other proposed remedy and  makes a recommendation to the President. Within 20 days after receiving  the ITC report, USTR issues a Federal Register notice to solicit comments  from the public (e.g., importers and consumers). USTR must hold a public  hearing if requested to do so. USTR evaluates the information it receives  and consults with the other agencies of the Trade Policy Staff Committee  (TPSC). Within 55 days after receiving the ITC report, USTR must make a  recommendation to the President about what action, if any, to take to  prevent or remedy market disruption.
section_title: The Role of the President Is to Decide Whether Relief Is in the National Interest
paragraphs: Under section 421 the President makes the final decision on the provision  of import relief. Within 15 days after receiving a USTR recommendation,  the President must decide whether and to what extent to provide relief.  Section 421 states: “the President shall provide import relief… unless the  President determines that provision of such relief is not in the national  economic interest of the United States or, in extraordinary cases, that the  taking of action… would cause serious harm to the national security of the  United States.” Although the law does not define “national economic  interest,” it further states that the President may determine “that providing  import relief is not in the national economic interest of the United States  only if  finds that the taking of such action would have an adverse  impact on the United States economy clearly greater than the benefits of  such action.” Finally, section 421 requires the President to publish his  decision and the reasons for it in the Federal Register.
section_title: China Safeguard Modeled on Communist Country Safeguard
paragraphs: The China safeguard was modeled on the communist country safeguard. In  fact, according to its legislative history, it was intended to replace the  communist country safeguard for China since it would no longer apply  once China became a member of the WTO. As shown in table 1 below, the  safeguards share several important characteristics. Both safeguards are  limited in scope to imports from particular countries; while the former is  limited to imports from China, the latter is limited to imports from one or  more communist countries. They also share similar criteria with regard to  ITC market disruption determinations and identify the President as final  decision maker on whether to provide relief. In addition, both safeguards  have a 150-day determination period.
In contrast, the China safeguard is significantly different from the global  safeguard. The China safeguard is narrower in scope than the global  safeguard; it can only be applied to imports from that one country,  whereas the global safeguard generally must be applied to all foreign  sources of a particular product. Also, the China safeguard’s market  disruption standard is regarded to be easier to meet than the criteria for  determining injury due to imports under the global safeguard.   Furthermore, the standard for presidential action is also different under  the global safeguard as it places more emphasis on assisting the domestic  industries’ efforts to adjust to international competition (including worker  adjustments), and sets forth a broader range of factors for the President to  consider in determining whether to provide relief. Finally, the time frame  for the China safeguard process is shorter than the global safeguard.
section_title: The United States Has Never Applied the China Safeguard
paragraphs: Between August 2002 and September 2005, the United States considered  five petitions from domestic producers to apply the China safeguard but it  has not provided relief. ITC made negative determinations on two  petitions and, in three other cases, found market disruption and  recommended restricting imports to remedy the situation, ITC is expected  to make a determination in a sixth case in early October 2005. In each of  the three cases where ITC found market disruption, USTR formulated a  presidential recommendation after evaluating various options. The  President then decided not to provide any import relief. The success rate  for China safeguard petitions is similar to communist country safeguard  petitions, but differs from that of global safeguard petitions.
subsections: section_title: U.S. Firms Filed Six Petitions
paragraphs: U.S. firms have filed six petitions for China safeguard relief since section  421 was enacted (see fig. 2). The petitioners representing the domestic  industry ranged from one firm in two cases to seven firms and a union in  the most recent petition. The products involved are the following:    pedestal actuators (for raising and lowering seats in mobility scooters),    certain steel wire garment hangers,    brake drums and rotors,    ductile iron waterworks fittings (for municipal water systems),    uncovered innersprings used in mattresses, and    circular welded nonalloy steel pipes.
section_title: ITC Found Market Disruption in Three of Five Cases
paragraphs: ITC made negative determinations in two of five completed China  safeguard cases. In cases brought by manufacturers of brake drums and  rotors and mattress innersprings, ITC determined that Chinese imports  had not disrupted the domestic market. More specifically, in the brake  drums and rotors case, ITC found that although imports from China were  increasing rapidly, the domestic industry was neither materially injured  nor threatened with material injury. In the mattress innerspring case, ITC  was divided on the reasons for making a negative determination. Three of  the commissioners determined that imports from China were not  increasing rapidly. The other three commissioners determined that the  domestic industry was not materially injured or threatened with material  injury. In both cases, ITC cited the industries’ healthy profit margins and  stable or rising prices as evidence that neither industry was materially  injured or threatened with material injury.
In the remaining three cases (pedestal actuators, wire hangers, and  waterworks fittings), ITC found market disruption and recommended  measures to remedy it. In all three cases, ITC cited factors such as falling  production and employment in its determinations that the industry was  materially injured. Furthermore, ITC noted declines in the industries’  health that coincided with a surge in Chinese imports when they  determined that rapidly increasing imports from China were a significant  cause of material injury. In other words, Chinese imports caused market  disruption to the domestic industry. In deciding which import restriction  to recommend, ITC considered the conditions of competition in the  domestic industry (e.g., demand conditions, and import and domestic  supply conditions), as well as comments received from parties in the  cases.
ITC recommended different import restrictions to remedy the market  disruption it found in each case. For example, as noted in table 2 below,  ITC found that a 3-year, declining tariff on wire hangers from China was  the most appropriate remedy in that case. In contrast, ITC recommended a  3-year quota in the pedestal actuator case because there was only one  supplier and one primary purchaser of pedestal actuators, and the  domestic-imported price differential was large. In addition, the ITC also  proposed that the President direct the Departments of Commerce and  Labor to provide expedited consideration of trade adjustment assistance  applications for workers in the wire hangers and waterworks fittings  industries.
section_title: USTR Consulted with Chinese, Sought Comments, and Considered Multiple Options
paragraphs: USTR consulted with the Chinese government, solicited and obtained  comments from a variety of sources, and analyzed the advantages and  disadvantages of the ITC remedies and other options in formulating its  recommendations to the President.
After receiving each of the three affirmative market disruption  determinations from ITC, USTR requested consultations with the Chinese  government. USTR notified the WTO Committee on Safeguards of the  consultation requests. Representatives of the two governments met but did  not reach any agreements to address the market disruption found by ITC,  according to USTR officials. During the 60-day consultation period, USTR  continued to gather information from interested parties about any  potential remedies.
USTR, in conjunction with other agencies on the TPSC, held a 1-day public  hearing for each of the cases and obtained views on what, if any, type of  import restriction was in the public interest. The parties also had the  opportunity to provide written comments. In addition to the ITC- recommended remedies, USTR sought comment on alternate remedies  and on not providing relief. The hearings included both the domestic  petitioners and Chinese respondents, as well as other interested parties  such as importers and downstream users. For example, the wire hanger  hearing included testimony from a hanger distributor. In the pedestal  actuator and wire hanger cases, a representative from the Chinese  government testified that applying the safeguard would damage U.S.-China  bilateral economic relations, in addition to raising procedural and  substantive concerns. USTR officials said that certain information  relevant to the effectiveness of potential remedies surfaced at these  hearings, that did not surface in the ITC proceedings.
After the hearings, the USTR staff weighed the pros and cons of the  various courses of action. USTR considered ITC’s analysis, as well as the  testimony and written submissions provided by interested parties, and  sought comments from other TPSC members. According to detailed  briefings from USTR officials, in each case USTR considered the ITC- recommended remedy among other remedies presented, as well as the  option of having no remedy. USTR staff worked with the U.S. Trade  Representative throughout the proceedings. USTR staff then drafted a  recommendation in a memorandum to the U.S. Trade Representative, who  assessed the various options. The Trade Representative then made a  recommendation in a memorandum to the President.
section_title: President Decided Not to Apply the China Safeguard
paragraphs: The President declined to provide relief in all three cases. He found that  imposing remedies such as duties and quotas would not be in the national  economic interest. The President’s reasons for not providing relief were  printed in the Federal Register and are summarized in table 3. The  President’s decisions did not cite national security concerns as a reason in  any of the three cases.
section_title: China and Communist Country Safeguard Outcomes Differ from Global Safeguard
paragraphs: The final outcomes of China safeguard cases are similar to those of  communist country safeguard cases but different than global safeguard  cases. As shown in table 4, domestic industries have sought relief under  the China and communist country safeguards far less frequently than they  have sought relief under the global safeguard. Overall, petitioners have  been denied relief in almost all China and communist country safeguard  cases but have been granted import relief in about one quarter of global  safeguard cases. Of those cases where ITC found the industry was injured  by imports, the President denied relief in all but one of the China and  communist country safeguard cases. Conversely, the President granted  relief in about half of the global safeguard cases where the ITC found  injury. Moreover, since Congress amended the global safeguard’s standard  for presidential action in the 1988 Trade Act, the President has always  provided relief when ITC found injury.
section_title: The President Has Exercised His Broad Discretion in Deciding Not to Apply Relief
paragraphs: The President’s decisions not to impose relief in the three China safeguard  cases in which ITC found market disruption have been criticized.  Nevertheless, the President has broad discretionary authority under  section 421 to consider U.S. national economic and security interests  when weighing the facts and circumstances particular to each case. This  broad discretion was upheld by the U.S. Court of International Trade. This,  together with the fact that the President considers factors that ITC does  not, including consumer cost and the potential for imports from other  countries, allows him to reject relief even when it has been recommended  by ITC.
subsections: section_title: Presidential Decisions Not to Apply Safeguards Have Generated Controversy
paragraphs: Several different groups have criticized the President’s decisions not to  apply China safeguard relief. For example, company officials and trade  lawyers who were unsuccessful in obtaining relief criticized the  President’s decisions in several congressional hearings. As we discuss  later, one company subsequently filed a lawsuit against the President  claiming he exceeded his authority in rejecting ITC’s recommended  remedy.
The bill establishes clear standards for the application of Presidential discretion in  providing relief to injured industries and workers. If the ITC makes an affirmative  determination on market disruption, there would be a presumption in favor of providing  relief. That presumption can be overcome only if the President finds that providing relief  would have an adverse impact on the United States economy clearly greater than the  benefits of such action, or, in extraordinary cases, that such action would cause serious  harm to the national security of the United States.
This legislative history, together with the China safeguard’s shorter time  frames and lesser injury standard, and other procedural characteristics,  may have created an expectation that the likelihood for relief under the  China safeguard was going to be greater compared with the global  safeguard.
Similarly, the U.S.-China Economic and Security Review Commission, a  body established by Congress to monitor and investigate the security and  economic implications of the bilateral economic relationship between the  United States and China, held hearings and criticized the administration  for failing to apply the safeguard after an affirmative ITC injury  determination. In March 2005, this commission recommended that  Congress consider amending the China safeguard to either eliminate the  President’s discretion or limit it to the consideration of noneconomic  national security factors after an affirmative ITC finding.
In addition, the lack of any positive decisions by the President in these  cases may have discouraged other U.S. producers from seeking relief  under the China safeguard. Several trade lawyers representing domestic  U.S. producers with whom we spoke told us about their reluctance to  bring additional China safeguard cases in the future because they thought  that the President would reject them based on political considerations.  The U.S.-China Economic Security Review Commission expressed similar  concern that repeated presidential refusal to apply the safeguard had  undermined the instrument’s efficacy. Indeed, until August 2005, when  producers filed a petition on steel pipe, no China safeguard petition had  been filed since March 2004, when the President rejected an ITC  recommendation to provide relief from imports of Chinese ductile iron  waterworks fittings.
section_title: Court Has Found that the President Has Broad Statutory Discretion
paragraphs: Despite criticisms, the President’s discretion under the China safeguard is  quite broad. The President must provide relief unless he finds that it is not  in the national economic or security interest. With regard to the former,  the President is authorized to deny relief when he finds that the relief  would have an adverse impact on the United States economy clearly  greater than the benefits.
In June 2004, the U.S. Court of International Trade affirmed the President’s  broad discretionary authority in a case brought by the petitioner in the  first China product safeguard case. In that case, Motion Systems Corp.  contended that the President had exceeded his authority under section 421  by not providing relief. In particular, Motion Systems argued that the  President was required to quantify the adverse impact of providing relief  and demonstrate that the adverse impact was clearly greater than the  benefits that the relief would provide to the domestic industry. In this  regard, Motion Systems maintained that section 421 created a presumption  of relief once ITC made an affirmative determination of market  disruption.
In affirming the President’s decision, the Court held that the President  had not exceeded his authority and said the law granted him “considerable  discretion.” The Court found that section 421 made no reference to  evidence or a burden of proof that the President must satisfy to support  his conclusion that the imposition of a safeguard would have an adverse  impact on the U.S. economy clearly greater than its benefits. The Court  also noted that the President was not prohibited from considering political  factors in making a finding about the adverse impact on the U.S. economy,  including trade relations between the United States and China. Finally,  the Court did not specifically comment on the presumption of relief issue.
section_title: President Considers a Broader Range of Factors than ITC
paragraphs: While ITC makes remedy recommendations that would alleviate market  disruption, the President considers a broader range of factors than ITC in  determining whether to apply China safeguard relief. Specifically, under  section 421, ITC focuses on the domestic industry involved in the  proceeding, both in the context of making injury determinations and  recommendations for relief. For example, among the factors ITC  considered in determining material injury were the idling of U.S.  production facilities and the ability of firms within the industry to produce  at reasonable profit, wage, and employment levels. Thus, ITC did not  weigh the interests of other groups such as consumers and downstream  industries against potential benefits to the domestic industry when  developing its recommendations for the President to consider.   Nevertheless, ITC reports on the potential economic effect of its  recommended remedies, as described earlier. However, section 421, does  not require ITC to consider these broad economic effects when developing  its recommendations.
In contrast, as discussed above, section 421 authorizes the President to  consider overall U.S. economic and security interests in deciding whether  to impose China safeguard relief. In each of the three cases where ITC  found injury and recommended a remedy, the President found, among  other things, that relief would have an adverse impact on other  participants in the economy. The President determined that relief would  carry substantial costs for consumers or downstream users of the  products involved. Specifically, the President cited the increased costs to  aged and disabled consumers of mobility scooters as a reason for not  providing relief in the pedestal actuator case. In the wire hangers case, the  President stated that relief would have an uneven impact on wire hanger  distributors and impose increased costs on dry cleaning companies.  Finally, in the waterworks fittings case, the President found that the costs  to consumers would substantially outweigh producer income benefits.
The President’s decisions also took into account the unique facts and  circumstances in each case. For example, in the pedestal actuator case  there was only one petitioner seeking relief and one dominant purchaser.  In the wire hanger case, domestic producers had different business models  that affected whether a remedy would benefit or disadvantage them. In  addition, the U.S. Trade Representative noted in a March 2004  congressional hearing that, while not necessary to the President’s  decision, in the waterworks fittings case the petitioner faced serious  problems besides competing Chinese imports. Although the President did  not provide import relief in these cases, he stated that he remains  committed to applying the China safeguard when circumstances warrant.
section_title: President Cites Third Country Imports When Denying Relief
paragraphs: The President has considered whether relief would benefit the producers  involved in every case. In his decisions denying relief the President stated  that imposing a safeguard would have limited benefits. One factor that the  President has cited in all three cases is that applying a safeguard would  lead to production being shifted from China to other countries rather than  to U.S. producers. In the waterworks fittings case, the President  specifically identified other current suppliers to the U.S. market such as  India, Brazil, Korea, and Mexico.
Similarly, in all but one communist country safeguard determinations, the  President found, among other things, that providing relief would have  resulted in imports shifting from the communist country involved to other  offshore sources. With only one exception, the President has never  approved a remedy under the communist country safeguard. In contrast,  under the global safeguard, imports from other countries generally cannot  diminish the potential benefits of import relief. Since the global safeguard  statute was enacted in 1974, the President applied relief in approximately  half of the cases in which ITC has made a positive injury determination.  Moreover, since it was substantially amended in 1988, the President has  provided relief in every such global safeguard case. It is not possible to  identify all the factors that contribute to such opposite results among the  different safeguards. However, one consistent factor has been that the  China and communist country safeguards, respectively, are limited in  scope to products from one or a few countries; this allows other foreign  sources to gain market share of the product and reduce the potential  benefit of the safeguard to the domestic producers.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided ITC and USTR a draft of this report for their review and  comment. Both agencies chose to provide technical comments from their  staff. USTR staff cautioned against drawing overall conclusions about the  use of the China safeguard given the small number of cases considered  thus far. Additionally, both USTR and ITC staff suggested we clarify our  characterizations of section 421’s legislative history and of the Motion  Systems Corp. v. Bush lawsuit. We modified the report in response to  their suggestions. USTR and ITC also provided other suggestions to make  the report more accurate and clear, which we incorporated as appropriate.
We are sending copies of this report to ITC and USTR, appropriate  congressional committees, and other interested parties. We will also make  copies available to others upon request. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or any of your staff have any questions about this report, please  contact me at (202) 512-4347 or yagerl@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in appendix II.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To address our objectives, we reviewed U.S. laws and procedures as well  as relevant World Trade Organization (WTO) agreements and China’s  accession agreement. To ensure our understanding of relevant laws,  procedures, and agreements, we spoke with officials from the Office of the  United States Trade Representative (USTR) and the International Trade  Commission (ITC). In addition, we interviewed officials from the WTO and  officials from the government of China. Finally, we spoke with law firms  that had direct experience in China safeguard cases, as well as law firms  with broad experience in trade actions against China.
To describe how the safeguard has been applied thus far, we examined  each phase of the process. For the ITC phase, we reviewed and analyzed  each of the determinations the ITC commissioners issued during the five  China safeguard injury investigations completed as of July 31, 2005, to  understand the rationale behind them. We further obtained private sector  views of the ITC process by speaking with law firms that had represented  petitioners and/or respondents in each of the five China safeguard injury  investigations. For the USTR phase of the process, we spoke with law  firms that had represented petitioners and/or respondents that  participated in each of the three China safeguard remedy investigations  and reviewed the transcripts of all three USTR hearings. USTR neither  made the documents related to their analyses nor their recommendations  available to us. Instead, we relied on detailed briefings from USTR officials  on the nature and substance of their deliberations culminating in a  recommendation to the President. For the presidential phase of the  process, we reviewed each of the President’s three determinations made  under the China safeguard. To compare the use of the China safeguard  with the communist country and global safeguards, we reviewed ITC  import injury investigation statistics and presidential determinations in the  China, communist country, and global safeguard cases. We found the ITC  injury statistics to be sufficiently reliable for presenting and contrasting  ITC’s final disposition of cases brought under these statutes.
To examine the issues related to the application of presidential discretion,  we analyzed the reasons the President gave in his decisions not to provide  import relief. Additionally, we reviewed the legislative history of the China  safeguard and written and oral testimony before Congress and the U.S.- China Economic and Security Review Commission. We reviewed the Court  of International Trade’s decision in the Motion Systems case against the  government and the submissions of parties to the case. Finally, we  analyzed the presidential determinations made under the communist  country and global safeguards.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Adam R. Cowles, R. Gifford  Howland, Michael McAtee, and Richard Seldin made significant  contributions to this report.