Defying the defence: Increase in import duties by USA

Author: Prafful Dawani

In January this year, the United States of America (USA) raised the import duties leviable on steel and aluminium derivatives, which came in addition to the hike in duties back in March, 2018. India had then raised the issue to the World Trade Organization’s (WTO) Safeguard Committee, to which USA had responded that the taxes imposed were not safeguard measures. As per USA, the increase in duty is pursuant to XXI of GATT, for reasons of national security.

India has, however, again, raised the issue at the WTO since it considers this measure of the US to be a safeguard measure within a provision of General Agreement on Tariffs and Trade 1994, and the Agreement on Safeguards. The primary contention raised by India is that the increase in tariffs by 25% on steel derivatives and by 10% on aluminium derivatives, is violative of the provisions of the Agreement of Safeguards.

The tug of war in the classification of the measure between an increase in import duties for national interest, and a safeguard measure is intriguing. Article II, first paragraph, of the GATT provides that parties shall adhere to the Schedule of Concessions which encompasses the structure of maximum import duties that can be levied on other members on MFN (Most Favoured Nations) basis and non-MFN basis. However, the GATT provides certain exceptions, wherein a member may be allowed to detract from obligations under the GATT. One such exceptions is that a member may take such action as is necessary for the protection of its essential national interests. The Safeguards Agreement, on the other hand, allows Member nations to impose additional tariffs to prevent or remedy serious injury to the domestic industry of the Member, pursuant to a detailed investigation as per the Agreement.

USA has continued to maintain that the increase in import tariffs was prompted by a need to protect the domestic producers of steel and aluminum products, which supply USA’s defense equipment requirements, from foreign competition. Thus, it has claimed that it would be in the long-term interests of USA to secure them. Therefore, the USA maintains that it is entitled to claim exceptions of national security under Article XXI of the GATT, and accordingly, the measures do not fall under the purview of Safeguards Agreement.

The difference between increase in tariff being classified under GATT versus the Agreement of Safeguards is that the security exceptions are only available under the GATT and not the Agreement of Safeguards. The security exception has been interpreted as a self-judging clause, thereby significantly reducing the burden on the measure imposing Member to prove that the measure has in fact been taken regarding national security. Such disputes carry a presumption of good faith. The Panel, in Russia – Transits, stated the measure should objectively relate to any of the situations mentioned in Article XXI, and one such situation mentioned is supplies for military establishment. If the measure is connected to any of these situations objectively, it would be justified in the security exceptions clause.

Therefore, if the measure is considered as pursuant to Article XXI, the USA has to merely show that steel and aluminium are required as implements of war or as supplies for military establishment, directly or indirectly. According to US, steel and aluminium is important for the defense industry. This connection of the products in the measure to the second situation under Article XXI is sufficient for the measure to pass the good faith analysis, and the inconsistency with GATT provisions would, in conclusion, be justified.

However, if the measure is treated as a safeguard measure, then the USA was required to conduct a detailed investigation, to examine whether there is an increase in imports and consequent injury to the domestic industry of USA. Such an investigation would have also allowed interested parties an opportunity to defend their interests by participating in the investigation and making submissions. Moreover, the USA would also be required to allow India and other exporting members of the product, concessions in lieu of the increase in imports. Thus, the classification of the measure as a safeguards measure would require compliance by USA to the various substantive and procedural requirements of the Agreement.

This issue is currently under consultations between India and US. If the consultations fail, the issue regarding the classification of measures under the Safeguards Agreement, would be decided by the WTO Panel. The result of these consultations, and potential eventual adjudication of the dispute by the Panel would open a pandora’s box. If the current circumstances prevail, national security exceptions under the Article XXI would become a road-block in resolution of countless disputes between member states. The world has seen a shift towards countries pushing for protectionism and at such cross-roads, any encroachment by International law agreements in the domain of governments would not be taken with ease.