World Trade Organization

• Author: International Law Group

On October 8, 2001, the World Trade Organization ("WTO") Appellate Body handed down a decision regarding the United States appeal of a June 2000 Panel ruling concerning U.S. transitional safeguard measures on combed cotton yarn from Pakistan. The U.S. asserted that its transitional safeguard measure was warranted, due to an influx of imports from Pakistan that was resulting in "serious damage" to the American industry. The WTO Panel had found the measure in violation of Articles 6.2 and 6.4 of the Agreement on Textiles and Clothing ("ATC").

The U.S. interprets the second sentence of Article 6.4 in a manner that supports a comparative analysis of the effect of imports from ONE particular member, without conducting a same or similar analysis for other Members from whom there has been a sharp or significant increase in imports. Here, the word "sharp" refers to the rate of the increase, while "significant" connotes the amount of the increase.

Pakistan asserts that the second sentence of Article 6.4 mandates a "comparative analysis" in the event that there is more than one Member from whom there has been a "sharp and substantial" increase in imports. The Appellate Body upholds paragraph 8.1 (b) of the Panel's earlier findings, agreeing with Pakistan's interpretation of this clause. In the absence of an assessment of damages caused by other Members who have exhibited a "sharp and substantial" increase in imports (namely Mexico), the U.S. did not prove that the totality of the serious damage at issue is solely attributable to Pakistan.

The Appellate Body furthermore reiterated paragraph 8.1 (a) of the Panel's previous findings, asserting that the U.S. acted out of step with Article 6.2 by defining the "domestic industry" in a manner which excluded from its scope the production of combed cotton yarn by vertically integrated producers for their own use. Article 6.2 states that the domestic industry is defined as one producing "like and/or directly competitive products." The WTO interpreted this as inclusive of every like product, of every directly competitive product, and of all overlap between the first two. The U.S. had interpreted the language of the Article to support a definition of...