Trade Dispute Remedy: What's Riding on the Tire Case
By Patti Mohr©
Sept. 18, 2009
U.S.-China economic relations were put to the test this week in the aftermath of President Obama’s decision to impose import tariffs on $1.79 billion worth of Chinese tires. Beginning September 26, the United States will impose a 35 percent tariff on imports of Chinese vehicle and light truck tires. (The three-year tariff will fall to 30 percent in year two and 25 percent in year three.)
The tire case is unique because it is the first time a U.S. president has imposed a tariff using a specific part of the law meant to protect U.S. products from Chinese imports. The debate over President Obama’s decision to use it has been significant and widespread. Critics say the tariff sends the wrong message to world at a time when the trading community needs to guard against protectionism. Supporters say the move is needed to defend the rules-based trading system against unfair practices.
Underlying the whole discussion is a politically sensitive yet salient question: Can workers in market-based economies compete for jobs against workers in command economies?
That question is especially key because the case could set a precedent for other industries.
The specific safeguard measure, Section 421, was a significant factor in convincing House and Senate Democrats to grant China Permanent Normal Trade Relations—an agreement that helped clear the way for China’s entry into the WTO in 2001. The Clinton Administration upset the Chinese in 1999 when they asked for the safeguard during trade negotiations; and now that the measure has come to life, the Chinese are upset again.
China’s response to the tariff announcement was forceful. Leaders threatened to retaliate against U.S. chicken and auto parts and to bring the tire case before the World Trade Organization’s appellate body. According to Charles Freeman, a former USTR negotiator, Section 421 is “particularly sensitive within China because it only applies to China and therefore is perceived to be inherently discriminatory against China.” |
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A Unique Case :
The tire case stems from a safeguard measure, Section 421, never used before by a U.S. administration to impose tariffs. Six other cases involved Section 421. Two were rejected by the U.S. commission investigating safeguard matters. President Bush rejected four others.
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In a sense, Section 421 does discriminate against the Chinese.
“[Section] 421 is a special safeguard because China is a special case,” said Eric Salonen, a partner with Steward and Steward who brought the case to the U.S. government on behalf of United Steelworkers union. Salonen participated in a panel discussion hosted by the Washington International Trade Association and Covington and Burling, LLP.
The crux of Salonen’s argument is that China’s practices and policies are inconsistent with the WTO rules-based trading system, and U.S. workers suffer the consequences. He suggested that the new tariff will help raise living standards here and around the world. Furthermore, he said, the tariff will restore U.S. tire industry jobs that had been lost due to competition.
That outcome is far from certain, though, due to the highly competitive nature of the global tire industry.
Tire producers “are not going to reverse their long term business plans in response to a three-year tariff,” said David Spooner, an attorney who represented Chinese tire producers in the case. Rather than restore domestic production, tire producers will simply import tires from third-party countries, such as Mexico and Brazil. Meanwhile, a question that remains unanswered is what will tire producers and workers in China do?
Source documents: International Trade Commission
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