The Tire Safeguard: Next Steps TireTech Forum

Shanghai (Pudong) New International Convention Center Wednesday, November 11, 2009

David M. Spooner

Squire, Sanders & Dempsey L.L.P.

Washington DC

President’s China Trade TV Ads

President Obama "Mills" Campaign Ad

President Obama "Sold Us Out" Campaign Ad

“Mills” Ad Text

I’m Barack Obama and I approved this message. Carolina Mills. Forced to shut down 17 plants. 2,600 lose their jobs. Workers once proud to make the thread for American flags have their futures outsourced to Asia. Washington sold them out with the help of politicians like John McCain. He supported trade deals and tax breaks for companies that ship jobs overseas. McCain even said all Buy America provisions were “disgraceful.” North Carolina just can’t afford more of the same.

“Sold Us Out” Ad Text

I’m Barack Obama and I approved this message. Corning shut down its plant in Pennsylvania. Hundreds lose their jobs. Then the workers were rehired to disassemble the plant and ship the equipment to China. Washington sold them out with the help of people like John McCain. He supported tax breaks for companies that ship jobs overseas and voted against cracking down on China for unfair trade practices. We can’t afford more of the same.

The 421 Safeguard

Until the end of 2013, WTO members can impose limits on imports from China when such goods “are being imported … in such increased quantities as to cause or threaten to cause market disruption.”

The Chinese imports must be a “significant cause of material injury.”

Safeguard can only remain in place as long as is necessary to remedy market disruption.

The 421 Safeguard: Process

• Approximately 5 months from petition to final decision.

• Two steps: – 1) ITC determination of market disruption,

– 2) White House determination of national economic interest.

• Process both judicial and political.

The Facts of Our Case

The Steelworkers Union claimed:

Tires imports up 215% in 5 years.

China 1/3 of all imports.

China prices consistently cheaper than US tires.

Numerous US factories have closed or scaled back production.

The Facts of Our Case

China’s tire producers countered:

• China doesn’t compete with US-made tires. Chinese production by US companies supports US jobs.

• No support from US tire companies.

• China tire imports falling for months.

• US profits highest when China’s imports increased most, in 2007.

• Safeguard would shift production to third countries, not back to the US.

• Safeguard would result in a net loss of US jobs.

• Higher tire prices are a tax and bad for highway safety.

Why Did President Impose Tariff?

• Politics:

- Is Obama even pro-trade?

- President promised to “get tough” on China in election campaign. American public/Congress more protectionist.

- President owes a lot to unions.

- ITC not immune to pressure.

The Law: Respondents did well, though hardest issue to prove was like product issue.

Next Steps:

Options to Challenge the Safeguard

WTO Case

• Important for China to assert WTO rights.

• WTO has never upheld a safeguard.

• Nevertheless, WTO process lengthy and only yields prospective relief.

WTO Case: Likely Issues

• Causation:

- ITC failed to analyze role of third-country imports,

- ITC failed to assess role of high gas prices, recession, etc.,

- ITC failed to explain why 2007 was a profitable year for US industry.

Import Volume: Imports were not increasing.

Remedy: No analysis as to why 3 years of tariffs necessary.

A CIT Case

• Remedy could constitute immediate revocation or injunction.

• Nevertheless, high burden of proof. Likely, must show ITC decision was “arbitrary and capricious”, though 421 suit would be issue of first impression.

• Substantive arguments similar to WTO case, with addition of a possible procedural error by the ITC.

Appeal to Executive Branch

• US law permits President, after 6 months, to order the ITC to report on the probable effect of a modification or termination of the safeguard.

• After receiving the ITC’s report, the President has unilateral discretion to modify or terminate the safeguard.

• The ITC must collect data on the effectiveness of the safeguard.

• Initial news reports indicate that the safeguard has led to trade diversion to third countries and no increase in US employment.

Possible Tire Trade Measures

• Future dumping or CVD cases on car and light truck tires?

• Ongoing off road tires litigation and administrative reviews.

• Tire labeling as a non-tariff barrier?

Thank you