	Background

In general, safeguards are temporary import restrictions that provide an  opportunity for domestic industries to adjust to increasing imports. 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. Second, Chinese imports are subject to a U.S. global  safeguard that applies to all WTO members. U.S. Law Establishes Three-Step Process for China Safeguard Decisions

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. 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). 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. The success rate  for China safeguard petitions is similar to communist country safeguard  petitions, but differs from that of global safeguard petitions. 2). ITC Found Market Disruption in Three of Five Cases

ITC made negative determinations in two of five completed China  safeguard cases. USTR staff then drafted a  recommendation in a memorandum to the U.S. Trade Representative, who  assessed the various options. President Decided Not to Apply the China Safeguard

The President declined to provide relief in all three 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. The President Has Exercised His Broad Discretion in Deciding Not to Apply Relief

The President’s decisions not to impose relief in the three China safeguard  cases in which ITC found market disruption have been criticized. This  broad discretion was upheld by the U.S. Court of International Trade. If the ITC makes an affirmative  determination on market disruption, there would be a presumption in favor of providing  relief. 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. President Cites Third Country Imports When Denying Relief

The President has considered whether relief would benefit the producers  involved in every case. In contrast,  under the global safeguard, imports from other countries generally cannot  diminish the potential benefits of import relief. 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. Agency Comments and Our Evaluation

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 modified the report in response to  their suggestions. Appendix I: Objectives, Scope, and Methodology

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).
Why GAO Did This Study

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.

What GAO Found

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.