US Solar Safeguard: How much discretion is too much?

Yesterday Canada requested consultations under USMCA regarding the “imposition and ongoing application” to Canada of the US safeguard measure on solar measures. Canada argues that the application of the safeguard to Canada violates the US obligation to exclude USMCA Parties from the scope of the safeguard unless imports from that Party account for a “substantial share of total imports” and “contribute importantly” to the serious injury (USMCA Art. 10.2). It further argues that the US breached its obligations to entrust serious injury determinations to a “competent investigation authority” and to not modify negative injury determinations, except by judicial/administrative review (Art. 10.3).

This case is interesting on many levels. I am a dabbler, and have no involvement in this matter, so I may have missed many relevant considerations and misunderstood what is happening. But my quick thoughts, for what they are worth.

First, this safeguard was imposed back in January 2018, in the NAFTA era. Canada requested consultations at that time, but apparently received no response. Presumably they are now taking advantage of the new and improved DS provisions of the USMCA. This does however potentially raise issues of temporal application, since the USMCA did not exist when the measure was imposed. Hence the reference to “continuing application? While the WTO Agreement contained transitional provisions governing the application of its disciplines to existing measures, I am not aware of any comparable provisions in the USMCA. But the experts may know more.

Substantively, exclusion is an interesting issue. Essentially, USMCA, like NAFTA, requires the exclusion of FTA partners from a safeguard unless the volume of imports is substantial and the contribution to injury is important. This type of exclusion is unique to a handful of US FTAs (note, for example, that there is no such provision in the new EU/UK TCA). Of course, safeguard measures are in principle applied on an MFN basis, and whether such an exclusion is permitted by the WTO is unresolved. While the US-Line Pipe Panel found such an exclusion permissible, the AB resolved the issue on narrower grounds and declared the Panel’s ruling “moot” and without legal effect. WT/DS2020/AB/R, para 199. So Canada is alleging that the US is breaching a USMCA obligation the WTO-consistency of which has never been definitively established.

NAFTA/USMCA require exclusion where the relevant conditions are not met (USMCA Article 10.2), and set out indicative criteria (is the Party among the top-five suppliers, is the rate of growth of imports from the Party lower than the growth rate of total imports?). Unfortunately for Canada, although the USITC found that Canadian imports did not meet the criteria and should be excluded, US implementing legislation provides that the President makes the final “determination”. Here, the President’s Proclamation simply reversed the USITC’s findings, without explanation, and the CAFC has found that course of action to be within the President’s discretion under US law.

Fortunately for Canada, USMCA itself addresses this issue. Or does it? Article 10.3 says that each Party “shall entrust determinations of serious injury” to a competent investigating authority, subject only to judicial review, and that “negative injury determinations” shall not be subject to modification”, except by such review. Thus, the USITC decides, and a negative finding cannot be reversed by the President. But does the determination regarding “serious injury” encompass also the findings regarding import volumes/contribution for exclusion? I am no expert, but that looks far from clear to me. Assuming that the USMCA DS process actually works, time will tell.

Whether or not US actions here are found to violate USMCA, the Trump Administration’s approach is bad governance in action. The extent of Presidential discretion to arbitrarily disregard the reasoned findings of an investigative body, without fear of judicial review, is troubling at the least. I doubt American exporters would be happy if Revenue Canada found that a US exporter was not dumping, and the Prime Minister without reasoning simply reversed the finding. Discretion is based on trust. And the lawless arbitrariness of the current Administration has shown that such trust is not always warranted.

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