President Obama issued a proclamation on 17 September imposing safeguard duties effective from 26 September on imports of mainland Chinese new pneumatic rubber tyres of a kind used on motor cars (except racing cars) and on-the-highway light lorries, vans and sport utility vehicles, classified under HTSUS subheadings 4011.10.10, 4011.10.50, 4011.20.10 and 4011.20.50. This action followed the filing of a petition in April on behalf of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union under Section 421 of the Trade Act of 1974, which implements the transitional product-specific safeguard provisions contained in China’s WTO accession agreement.

Under Section 421, the U.S. International Trade Commission determines whether a specific product from mainland China is being imported into the United States in such increased quantities, or under such conditions, as to cause or threaten to cause market disruption. The USITC had recommended the imposition of safeguard duties for a three-year period, starting at 55 percent during the first year and falling to 45 percent during the second year and 35 percent during the third year. However, the president chose a somewhat more lenient approach and instead approved safeguard duties of 35 percent during the first year, 30 percent during the second year and 25 percent during the third year. These safeguard duties are in addition to the regular most-favoured-nation duty rate for tyres, currently at 3.4 percent or four percent.

The president’s decision to impose safeguard duties on mainland Chinese tyres is especially significant because it is the first time since Section 421 was incorporated into U.S. law in 2000 that a Section 421 petition has resulted in the imposition of import relief. In four of the six previous cases (involving steel wire garment hangers, pedestal actuators, ductile iron waterworks fittings and circular welded non-alloy steel pipe), the USITC determined that market disruption took place but President Bush decided against granting import relief. In two other cases, involving brake drums and rotors and uncovered innerspring units, the USITC found that there was no market disruption.

The relatively high costs associated with Section 421 proceedings, coupled with the unwillingness of the Bush administration to provide any relief in previous years, discouraged U.S. manufacturers from using this trade remedy mechanism. Section 421 cases are generally less expensive to pursue than antidumping or countervailing duty actions but still carry a considerable price tag and had previously yielded no benefits to any U.S. industry. President Obama’s decision to grant import relief in this safeguard proceeding has effectively opened another viable trade remedy avenue for U.S. manufacturers and its impact could therefore go well beyond tyres. While the ability to invoke the Section 421 safeguard will remain available only through 10 December 2013, a range of U.S. industries are expected to at least consider the possibility of filing similar petitions against selected mainland Chinese products in the near to medium term. These products may include, among others, steel and selected textile and/or apparel products. President Obama told the National Council of Textile Organizations during his presidential campaign that he would decide any Section 421 safeguard cases on their merits rather than on ideological grounds, and NCTO may well test this commitment with a safeguard petition of its own.

On the textile and apparel front, it would appear that the products most likely to be targeted in a potential safeguard or other trade remedy action by the U.S. textile manufacturing industry would be cotton knitted shirts and blouses (category 338/339), cotton trousers (category 347/348), cotton underwear (category 352), man-made fibre underwear (category 652), and women’s and girls’ man-made fibre knitted shirts and blouses (category 639). While textile manufacturers lack standing to file virtually any trade remedy action against apparel, a potential Section 421 case could conceivably be filed by a union (or group of workers) that  is representative of the U.S. apparel industry. The tyre petition, for example, was filed by a union that claimed to represent workers in 13 tyre-producing plants accounting for more than 46 percent of the consumer tyre production capacity in the industry.

Perhaps more importantly, President Obama’s decision on the tyre case could mark the start of a new paradigm in U.S. trade remedy policy that could shape U.S.-China trade relations for the next four and possibly six to seven years. The Obama administration has vowed to pursue a more robust trade enforcement agenda and the case at hand is certainly an example of that tougher line. At the same time, the administration is certainly not interested in starting a trade war with China or placing additional burdens on businesses or consumers as the U.S. economy continues to gain forward momentum. President Obama may well use the tyre case and perhaps a few other trade enforcement actions to strengthen his credentials on the trade remedy front and reassure the U.S. labour movement, a core constituency of the Democratic Party whose support is critical on key domestic issues like health care reform. This strategy could then give the president the necessary flexibility to implement several trade liberalising measures at some point in the future, including the pending U.S. free trade agreements with Panama, Colombia and South Korea.

The U.S. decision to impose safeguard duties on mainland Chinese tyres has been met with strong opposition in Beijing. China has already taken steps to challenge the duties at the World Trade Organisation and has launched antidumping and countervailing duty investigations on imports of poultry and car products from the U.S., arguably in retaliation for the U.S. action. There is a possibility that China could take additional retaliatory measures, especially if the U.S. moves ahead with other safeguard proceedings in the weeks or months to come.

The safeguard decision was welcomed by the United Steelworkers, the AFL-CIO and a number of senior Democratic leaders, who asserted that it will help preserve U.S. jobs and level the playing field with China. On the other hand, the American Apparel and Footwear Association urged the president to follow through on current G-8 commitments by avoiding any additional protectionist impulses. AAFA acknowledged that the imposition of safeguard duties on mainland Chinese tyres “will likely lead to inquiries about other imported goods, including textile and apparel products,” and expressed concern that the decision on tyres raises political expectations for additional protectionist measures, which could ultimately jeopardise the U.S. economic recovery. At the same time, AAFA is confident that any eventual safeguard case on apparel “would not factually substantiate the need for tariffs on clothing.”