This idea was carried forward in the 1988 Trade Act. In the Finance Committee version of the bill, industries seeking relief would have been required to file an adjustment plan in order to be eligible for relief. The House version did not contain this requirement, and ultimately it was dropped in conference. As a practical matter, though, the concept of positive adjustment by industries seeking relief permeated the 1988 Act, and virtually all industries seeking relief now present something resembling a plan for adjustment.

In addition, the 1988 Act made it clear that the remedies available to a domestic industry seeking to become import competitive were not limited to import restraints. Congress authorized any other appropriate actions.

During the Uruguay Round of negotiations, the United States was an active participant, if not the leader, in negotiations leading to an updated Safeguards Code. There were several key objectives of the negotiations:

First, discourage the use of so-called "gray measures" -- that is, restrictions on imports that are not authorized by a GATT or WTO provision. The steel VRAs, the automobile OMAs and a variety of other import restraints negotiated outside of the scope of international rules were viewed as troublesome to the trading system.

Second, to eliminate gray measures it would be important to make the Safeguards Code useable. Countries, particularly less developed nations, need to be able to resort to the Safeguards Code if they are being asked to abandon gray measures and reduce or eliminate their tariff and non-tariff barriers. So, the Safeguards Code was supposed to be useable.

Unfortunately, the WTO's dispute settlement process -- the panels and the Appellate Body -- appears to be making the Safeguards Code impossible to use effectively. A number of recent decisions of the WTO's Appellate Body in connection with appeals of safeguard actions graphically illustrate how the overly expansive standard of review applied under the Dispute Settlement Understanding ("DSU") is undermining U.S. support for the DSU process by generating a body of WTO "case law" that is unsupported by the basic GATT and WTO substantive texts as well as the U.S. "escape clause" statute.

Two unfortunate messages clearly emerge from these cases: First, DSB Panels and the Appellate Body appear to interpret the general standard of review under DSU Article 11 ("an objective assessment of the matter") as license to second-guess the "competent authority" (in our case, the ITC) on virtually every question of law and fact. Indeed, in the latest of these decisions, United States -- Safeguard Measures on Imports of Fresh, Chilled, or Frozen Lamb Meat from New Zealand and Australia (AB-2001-1), the Appellate Body went so far as to consider legal and factual arguments that were never put before the ITC in the first place -- so, to be fair, I guess I can't call that "second-guessing" (since the ITC was never even given a "first guess").

And second, Panels and the Appellate Body have not shrunk from "creative" interpretations of the basic substantive agreements -- GATT 1994 and the Safeguards Agreement -- that go well beyond the plain terms of the texts themselves. This approach is, I believe, fundamentally inconsistent with the rules for treaty interpretation contained in the Vienna Convention, and risks creating a body of WTO case law that imposes obligations on Members that go well beyond those to which they thought they were subscribing when the Uruguay Round Agreements were negotiated.

Finally, it is difficult to read these recent decisions without concluding that DSB Panels and the Appellate Body alike have a basic hostility toward the use of safeguard actions, and are doing their utmost to make resort to such remedies as difficult as possible. This is fundamentally misguided, and ironically, risks encouraging WTO Members to resort to extra-legal, protectionist "gray measures."

The Appellate Body's May 1, 2001 decision in Lamb Meat is probably the best example of these problems. In that case, Australia and New Zealand unleashed a multi-faceted attack on the ITC's affirmative determination of a threat of serious injury. Among other things, Australia and New Zealand contended that GATT Article XIX:(1)(a) required the ITC to demonstrate that the surge in lamb meat imports was the result of "unforeseen developments," even though Section 201 contains no such requirement; that the Commission had failed to satisfy Safeguards Agreement Article 4.2(b)'s purported requirement to show that increased imports were both a "necessary" and "sufficient" cause of threatened serious injury, notwithstanding the ITC's determination that Section 201's "substantial cause" standard was met; that the Commission based its affirmative threat determination on questionnaire data that were not sufficiently "representative" of the domestic industry; and finally, that the Commission erred by finding that lamb growers and feeders were properly considered "producers" of the "like product."

Unforeseen Developments

A central theme of the Australian and New Zealander respondents during the Lamb Meat Section 201 proceeding was that the U.S. sheep industry had been in long-term decline, and that imports had been steadily increasing for decades. The domestic industry didn't really deny this, but argued that its case was based upon the devastating impact of the most recent -- and unprecedented -- surge in imports. For its part, the ITC acknowledged the industry's long-term slide, but agreed with the petitioners that the recent import surge had been particularly harmful, and threatened the industry with serious injury.

Before the WTO Panel, Australia and New Zealand resurrected their "long-term decline" argument by contending that Article XIX:(1)(a) of GATT 1994 requires that increased imports be shown to be the result of "unforeseen developments" in order to impose a safeguard measure. The Appellate Body had addressed this issue in its two-prior decisions in Korea -- Dairy and Argentina -- Footwear. As a third party in those cases, the United States had argued -- I believe, correctly -- that a finding of "unforeseen developments" was no longer a precondition for taking safeguard action -- if it ever was. It noted that the Safeguards Agreement itself makes no reference to "unforeseen developments" (and the negotiating history shows that this omission was intentional), and that Article XIX:(1)(a)'s reference to "unforeseen developments" was a vestige of GATT 1947 and had not been applied under Section 201 or other safeguard regimes. Unfortunately, in Korea -- Dairy and Argentina -- Footwear, the Appellate Body rejected the U.S. position.

In Korea -- Dairy and Argentina -- Footwear, the Appellate Body held that the Safeguards Agreement effectively incorporates GATT Article XIX by reference, so that the "unforeseen developments" criterion applies to actions under the Safeguards Agreement. On the other hand, the Appellate Body in Korea -- Dairy and Argentina -- Footwear held that "unforeseen developments" do not constitute an "independent condition" for the application of a safeguard measure, but rather constitute a "circumstance," the existence of which "must be demonstrated as a matter of fact." The Appellate Body's opinions did not elaborate further on the distinction between a "condition" for the imposition of relief and a "circumstance that must be demonstrated as a matter of fact" in order for a safeguard action to be legitimate.

In Lamb Meat, Australia and New Zealand argued before the Panel that the ITC's determination violated the Safeguards Agreement (as interpreted in Korea -- Dairy and Argentina -- Footwear) because its report did not contain a discrete finding of "unforeseen developments." The U.S. countered that nothing in GATT Article XIX, the Safeguards Agreement, or the decisions in Korea -- Dairy and Argentina -- Footwear required the ITC or any other "competent authority" to make such a finding; rather, it is sufficient to demonstrate upon appeal that the record before the authority in fact showed evidence of "unforeseen developments." In this particular case, the U.S. pointed to information on the record suggesting that changes in the product mix of imported lamb -- that is, a shift from frozen to fresh chilled, and from smaller to larger cuts of meat -- were developments contributing to the recent import surge that could not have been anticipated. But the Panel, and later the Appellate Body, disagreed that this after-the-fact demonstration of "unforeseen developments" was sufficient; they held that the U.S. was required to have made a discrete finding on this point in its original determination, and its failure to do so rendered its decision inconsistent with the Safeguards Agreement.

There are several significant problems with this conclusion. First, the distinction between a "condition" for imposing a safeguard measure and a "circumstance that must be demonstrated as a matter of fact" (announced by the Appellate Body in Korea -- Dairy and Argentina -- Footwear) would appear to be meaningless if the "circumstance" must be demonstrated in a discrete finding before a valid safeguard action may be taken. The U.S. position here is unquestionably correct: for the Appellate Body to insist that the competent authority make an express finding of "unforeseen developments" before a safeguard measure is imposed is effectively to raise that finding to the level of a "condition" -- directly contrary to what the Appellate Body earlier said in Korea -- Dairy and Argentina -- Footwear. Second, it is particularly disturbing that the Appellate Body would impose such a procedural requirement after the fact, through an announcement in a dispute settlement decision. Indeed, the Appellate Body in Lamb Meat was constrained to acknowledge that the ITC's failure to make such a finding in its original determination was hardly surprising, given that the final decisions in Korea -- Dairy and Argentina -- Footwear were not issued until after the ITC's determination in Lamb Meat. Recognizing this, the Appellate Body indicated that the ITC is free to remedy this "deficiency" in a remand determination in Lamb Meat, but it has stated in no uncertain terms that it expects all future decisions under Section 201 to include an express determination of "unforeseen developments."

This seems, then, to be a clear case of the WTO Appellate Body creating "judge-made law." The requirement that safeguard determinations include an express finding that the increase in imports is the result of "unforeseen developments" finds absolutely no support in the language of the Safeguards Agreement itself, and its origin in GATT Article XIX:(1)(a) is offset by the fact that only a handful of the many dozens of safeguard decisions issued in the ensuing five decades even make reference to the issue. It would have been bad enough for the Appellate Body to have required only that "unforeseen developments" be able to be demonstrated from the record on any appeal (rather than in every original safeguards determination), as the Appellate Body had earlier held in Korea -- Dairy and Argentina -- Footwear, but it is impossible to read the Appellate Body's decision in Lamb Meat without concluding that a showing of "unforeseen developments" is now, in every way but name only, a legal "condition" for the valid imposition of safeguard measures.

What compelled the Appellate Body to weave such a tortured decision? There are probably many explanations, including an apparent propensity to never say 10 words when 100 will do -- a trait that can, in fairly short order, give any tribunal fits trying to make sense of and follow its own precedents. More than anything, I think the end result here is explained by the Panel's and Appellate Body's basic conviction that safeguard actions are intended to be an "extraordinary remedy." But no one familiar with practice under GATT Article XIX, the Safeguards Agreement or Section 201 would disagree with this characterization. It does not follow from this, however, that the DSB needs to "invent" additional requirements for obtaining safeguard relief, beyond those that are stated in the Safeguards Agreement itself, in order to make them harder to bring. The universally-acknowledged criteria for such relief -- increased imports and serious injury (or threat of serious injury), plus a strong causal connection between the two -- are difficult enough to satisfy without imposing additional prerequisites.

Indeed, I would argue that imposing these additional obstacles to safeguard relief threatens the entire multilateral trading system, as safeguards have long operated as an important "safety valve" for countries to take "protectionist" action in "extreme" cases, in a manner that is regulated and transparent. I think it is clear that that is what WTO Members thought they were getting when they adopted the Safeguards Agreement in 1994, and the Appellate Body's decision in Lamb Meat deprives them of the benefit of their bargain.

Causation

The Panel in Lamb Meat held that the ITC's causation analysis was inconsistent with Article 4.2 of the Safeguards Agreement in that it did not focus on whether increased imports alone were causing injury that could, in isolation, be considered "serious." As the Panel saw it, Article 4.2 requires a competent authority to examine whether increased imports are both a necessary and sufficient cause of serious injury of threat thereof. The Panel saw this formulation as essential to complying with the Agreement's admonition not to attribute to imports injury caused by other factors.

The Lamb Meat Panel's holding expressly relied upon another Panel's analysis of the causation issue in United States -- Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, issued on July 31, 2000. These two Panel decisions are another good example of the tendency of WTO tribunals to go beyond the plain terms of the governing agreements to "legislate" a wholly new set of requirements.

At issue was the reference in Article 4.2(b) of the Safeguards Agreement to the requirement that there be a "causal link" between increased imports and serious injury. Interestingly, there has been a common perception among U.S. trade practitioners and many in Congress that this causation standard is considerably weaker than the "substantial cause" criterion under Section 201. One might have expected the Wheat Gluten and Lamb Meat Panels to have come to the same conclusion (and upheld the ITC's affirmative determinations in the two cases as a result), but the two Panels ultimately concluded just the opposite -- that is, that the Safeguards Agreement's causation standard is actually far more stringent than that under U.S. law.

But happily, this "flight of judicial fancy" was fairly short lived, as shortly after the Lamb Meat Panel's decision, the Appellate Body issued its report in Wheat Gluten, reversing the Panel on the causation question. In Wheat Gluten, the Appellate Body held that the Safeguards Agreement does not require that increased imports be "sufficient" to cause, or threaten to cause, serious injury, and the Agreement does not require that increased imports "alone" be capable of causing, or threatening to cause, such injury. Based on this holding, the Appellate Body, as expected, reversed the Panel's treatment of causation in Lamb Meat.

Unfortunately, however, the Appellate Body chose not to stop at reversing the Panel's "general interpretative analysis" of causation, but went on to consider whether the Panel was nevertheless correct in concluding that the United States acted inconsistently with the Agreement's causation requirements (properly construed) by conducting its own independent review of the ITC's determination. The intensiveness of this review was wholly inconsistent with any accepted notion of judicial deference, as well as with the principles of treaty interpretation set forth in the Vienna Convention.

The Appellate Body began by citing Wheat Gluten for the proposition that Article 4.2(b) of the Safeguards Agreement requires a "three-step analysis" in assessing causation: (1) distinguishing imports' injurious effects from the injurious effects of other factors; (2) attributing to each of these causes the "actual injury" caused by them, thereby ensuring that particular injurious effects are not improperly attributed to imports; and (3) determining whether there is a "genuine and substantial relationship of cause and effect" between increased imports and serious injury. According to the Appellate Body, improper attribution of injury to imports can only be avoided if "the injurious effects caused by all the different causal factors are distinguished and separated." There must be an effort to "disentangle" the injurious effects of factors other than imports from the effects of imports themselves.

While it disavowed that it was reviewing the consistency of Section 201's "substantial cause" standard with its view of the requirements of the Safeguards Agreement, the Appellate Body held that to be consistent with the Safeguards Agreement, a causation analysis cannot end with an assessment of the relative importance of the various causes contributing to the industry's injury (as the "substantial cause" standard requires), but most go further to "assess[], to some extent, the injurious effects of . . . factors [ other than imports. ]" Thus, the ITC must do more than determine whether imports are "no less important" than any other cause of injury; it must also qualitatively assess the particular effects of each of the factors that are causally linked to the industry's injury or threatened injury.

In reversing the Panel decisions in Wheat Gluten and Lamb Meat, the Appellate Body corrected two truly excessive examples of "judicial legislation," but it seems that it could not itself resist the temptation to engage in some "legislating" of its own. The "three-step analysis" announced in Wheat Gluten really finds no support in the language of Article 4.2(b). But worse than the problem that this new test has been invented out of whole cloth is that it is not clear how competent authorities -- such as the ITC -- are supposed to implement it in practice. The Appellate Body seems to assume that it is always possible to distinguish imports' injurious effects from the effects of other factors. As one who has practiced regularly before the ITC for more than 20 years, I can assure you that it is very often the case that imports and other sources of injury have effects on domestic industries that are indistinguishable from one another. Part of this inability to distinguish these effects is due to limits on human analytical powers (even those of Commissioners, who are of course, virtually omniscient) and part of it is probably just the way the world works. But I don't think the Appellate Body is doing WTO Members any good by announcing a new causation standard in safeguards proceedings that "competent authorities" will find themselves "incompetent" to apply in practice.

Data Collection

The Lamb Meat Panel agreed with Australia and New Zealand's contention that the data used to support the ITC's affirmative determination was not "sufficiently representative" of "those producers whose collective output . . . constitutes a major proportion of the total domestic production of those products" within the meaning of Article 4.1(c) of the Safeguards Agreement. Specifically, the Panel pointed to the low data coverage for growers and feeders (approximately six percent), the lack of financial data for interim 1997 and 1998 for growers/feeders, and the uneven data coverage for packers and breakers (especially on the financial side).

On appeal, the U.S. argued that no provision of the Safeguards Agreement sets forth standards for the "representativeness" of the data relied upon by competent authorities. According to the U.S., the relevant question for evaluating such data is not whether it is representative of a "major proportion" of the industry under Article 4.1(c), but whether the information gathered is objective and bears on the state of the industry. This is an appropriately deferential standard that keeps competent authorities honest without trying to second-guess their investigative methods or ignore the "real world" problems that often arise in data gathering. In the Lamb Meat case, in particular, the ITC faced the extraordinary challenge of having to survey the economic condition of approximately 70,000 sheep farmers and ranchers, the great majority of whom held less than 100 lambs and had neither the time nor the resources to fill out a 50-page questionnaire. In my experience, the response rate by growers in the Lamb Meat case was actually high compared to that registered in other agricultural cases. But none of this was taken account of by the Appellate Body.

Administration Practices

Now that the Appellate Body has ruled in Lamb Meat, the current Administration has the opportunity to invoke the procedures in Section 129(a)(1) of the Uruguay Round Agreements Act (19 U.S.C. § 3538(a)(1)) so that the Commission can modify its decision appropriately. Time does not permit an extensive discussion this morning of the issues surrounding Section 129, but the Administration's reluctance to invoke it thus far in the Lamb Meat case is troubling, and has implications for other industries. I'll be glad to elaborate in the question and answer period. Some of the speakers later this morning may address the issue as well.

In the time remaining, I would like to briefly discuss a few other observations about how Section 201 has been administered in recent years, and urge some better practices.

First, Section 201 has strict statutory deadlines. The International Trade Commission has six months in which to investigate injury and make a remedy recommendation. If the Commission makes an affirmative decision, the President has sixty days in which to act on the ITC's remedy recommendation. Until the last Administration, these statutory deadlines had always been adhered to. Unfortunately, the last Administration missed statutory deadlines for its action. In Lamb Meat, President Clinton waited over two months beyond the statutory time limit before he issued his determination. In the case involving carbon steel wire rod, the President missed the deadline by over five months. That is simply bad government. For industries that are suffering serious injury or are threatened with serious injury, delays of that magnitude have the effect of undermining relief. For some, it may make the relief too late to be of much use. I am hopeful that this Administration will pay stricter attention to its statutory deadlines, even through there is no practical ability to appeal a violation of those deadlines.

Second, if the President is going to grant relief, it should be effective relief. We all know that the process of Presidential decision making in a 201 case is intensely political. That is as it should be. By law, parties with a variety of different interests should have their concerns taken into account as the President makes his decision. Foreign governments, importers, domestic producers, consumers, workers – all have something to say and they should do so. But, if the President is going to grant relief, it should be relief that actually has the likelihood of achieving its intended result: allowing an industry to adjust to import competition and become more competitive. The recent carbon steel wire rod case is a great example of what not to do. In that case, the Clinton Administration ultimately and belatedly granted relief, but the relief was so ineffective that halfway through its relief period, the industry is in worse shape than before the relief was granted. Ironically, the wire rod industry cannot participate in the recent Section 201 steel investigation because of statutory and WTO limits on re-filing a case after it has participated in a case. The lesson to be learned is: make the relief effective or don't bother to go through the effort.

Third, the U.S. must make use of the allowable time frames in the Safeguards Code. Prior to the Uruguay Round, if the U.S. or any other country imposed a safeguard measure, foreign countries adversely affected could immediately seek compensation or perhaps retaliate for the U.S. imposition of the safeguard measure. The Uruguay Round changed this by allowing countries that imposed safeguards for three years or less not to have to pay compensation. Compensation would be due other countries if the safeguard measure lasted for more than three years.

This provision, accordingly, should have made the Administrations more willing to grant safeguard relief because no compensation would be required until after three years. As a practical matter, this three years of no compensation has turned into a ceiling on the duration of the relief that the previous Administration (at least) was willing to grant. In effect, the three-year no compensation period has now become a cap on relief. This is not what the negotiators intended, and it is not in the best interests of U.S. industries seeking safeguard relief.

Having criticized the previous Administration on several grounds, I have to say that it does deserve praise for its creative use of the remedy options. As authorized in the 1988 Act, the President has the authority to implement any appropriate remedy. In Lamb Meat, for example, President Clinton ordered a comprehensive industry relief package that included regulatory actions, guaranteed loans, and direct payments as well as import relief. Although not all of the elements of the plan have lived up to their promise, the approach taken was creative and can be used as a model for future relief actions.

CONCLUSION

I will conclude with a few thoughts. The Safeguards Code and Section 201, which implements the Code in U.S. law, are absolutely essential if the world trading system is to function well. There simply must be a mechanism for countries to escape from their normal obligations – for the right reasons and the right amount of time – in order to relieve pressure in the trading system.

Unfortunately, the WTO's dispute settlement process has undermined use of Section 201. And while the Bush Administration has been wise to direct a new Section 201 investigation of the steel industry – an industry in dire need of relief – the Administration needs to make sure that any relief afforded the industry is timely and effective.

Section 201 has a great deal of promise. If used creatively and wisely it can both be of great benefit to companies and workers and serve the interests of the multilateral trading system. But Congress and the Administration need to ensure that the WTO does not continue to undermine this potential avenue of relief.