^** [The Introductory Note was prepared for International Legal Materials by Peter D. Ehrenhaft and Karen I. Ward. Mr. Ehrenhaft isa member and Ms. Ward an associate at Hughes Hubbard & Reed, in Washington, D.C., and were counsel for Ford Motor Company in theproceedings before the International Trade Commission which terminated with the decision reproduced below.]

^* This was the first § 201 case in which such expertevidence played so pivotal a role, which may set a precedent for the future. In the past, Commission decisions have beenless precise, reflecting the principle—oft noted by the Commissioners in other cases—that mathematical precision isnot required on the causation issue.

¹ Commissioners Moore and Bedell determinedthat on-the-highway passenger automobiles, provided (or in items 692.10 and 692.11 of the TariffSchedules of the United States, are being imported into the United States in such increased quantitiesII to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producingirticles like or directly competitive with the imported articles.

² S. Rep. 93-1298,93d Cong.. 2d Sess 121-22(1974).

³ Id

⁴ Id.

⁵ Trade Act of 1974. Section 201(b)(1), 19 U.S.G2251(b)(1).

⁶ Mushrooms, Inv. TA-201-43. USITC Pub. 1089,Views of Chairman AJberger, Vice Chairman Calhoun and Commissioner Stem, 6-14 (1980).

⁷ Id.

⁸ Prehearing brief of Toyota Motor Sales, U.S.A.,Inc., Exhibit 1.

⁹ An example would be the Ford Granada, whichis classified as a small car, but which is closer to the Dodge Diplomat—a large car—than it is to thesubcompact Chevette in terms of size and gas mileage.

¹⁰ S. Rep. 93-1298,93d Cong. 2d seat. 122 (1974).

¹¹ Mushrooms, Inv. TA-201-43, US1TC Pub. 1089at 11 (1980).

¹² Hearing Transcript at 505-07.

¹³ 19 U.S.C.20M.

¹⁴ Agreement Concerning Automotive ProductsBetween the Government of the United States and the Government of Canada, 17 U.S.T. 1372, T.l.A.S.No. 6003 (1985).

¹⁵ Hearing Transcript at 112.

¹⁶ Prehearing brief of Ford Motor Co., at 24.

¹⁷ See. e.g.. Nonelectric Cooking Waie. Inv. TA- 201-39. USITC Pub. 1008 (1979).

¹⁸ GATT. Basic Instruments and SelectedDocuments (14th Supp.) 38 (1986).

¹⁹ 19U.S.C.2M1.

²⁰ S. Rep. 782.89th Cong.. 1st Sere.. 7 (1965).

²¹ H. Rep. 93-671.93td Congs 1st Sess.. 46 (1973).

²² Id.

²³ Trade Act of 1975. Section 201(b)(4). 19 U.S.C2251(b)(4).

²⁴ This fact was essentially acknowledged by domestic industry representatives during thehearing.

²⁵ Hearing transcript at 124-125,177-78.

²⁶ See, e.g., Machine Needles. Inv. TA-201-38,USITC Pub. S36 at 22 (1974), Unalloyed Unwrought Zinc, Inv. TA-201-31, USITC Pub. 894 at 17,19(1978). Citizens Band (C3) Radio Transceivers, Inv. TA-201-29, USITC Pub. 852 29 (1978).

²⁷ Prehearing Report to the Commission andParties, issued September 10,1980. at A-134.

²⁸ Infra A-70 through A-71.

²⁹ Prehearing Report to the Commission andParlies, issued September 10,1980, at A-66.

³⁰ 248 N.Y. 339.162 N.E. 99 (1928) (andrews, J.,dissentingMemphasls supplied).

³¹ The prehearing brief of the UAW quotes areport that the domestic industry will increase its production of the smaller, more fuel-efficient carsfrom 1,750.000 vehicles in 1980 to 7.210,000 vehicles in 1983. Prehearing Brief of United Auto Workers at70.

³² Data compiled by USITC staff from publicsources.

³³ Section 201(b)(1). 19 U.S.C. 2251(b)(1).

³⁴ Petition for Relief under Section 201 of theTrade Act of 1974 from Import Competition from Imported Passenger Cars, Light Trucks. Vans, andUtility Vehicles (hereinafter “UAW Petition“), p. 2.

³⁵ 45 FR 4S731. July 7, I960. The Federal Registernotice delineates the broad category of imported articles which are subject to an investigation, butthe notice does not define the domestic industry. The determination of which companies areproducers of articles like or directly competitive with the imported article is made by theCommission at a much later stage in the investigation.

³⁶ Petition for Relief from Increased Imports of Passenger Cars, Light Trucks, Vans, and UtilityVehicles under Section 201 of the Trade Act of 1974 (Ford Petition) p. 10.

³⁷ 45 FR 55873, August 21,1960.

³⁸ When Congress uses the term “articles” it sometimes intends it to have a broad meaning,including almost every separate substance or material, and at other times to have a narrower ormore restricted meaning. Its significance in each case must be determined from the context. MarshallCo.. Inc.. et al. vs. U.S.. 320 F. Supp. 1003.65 Cust. Ct. 629, CD. 4148 (1970).

³⁹ Pres. Proc. 4707,44 FR 72348, December 11.1979. Thus the rate is currently 2.0 percent ad valorem.

⁴⁰ For a discussion of these categorizations seethe treatment of Industry, infra.

⁴¹ Pres. Proc. 3564,28 FR 13247, December 6,1963,shown at item 945.69 of the TSUS.

⁴² Daisy-Heddon, Div. Victor Comptometer Corp. v. U.S., 600 F. 2d 799 (CCPA1979).

⁴³ T.D. 80-137.45 FR 35057, May 23,1980.

⁴⁴ Ford Petition, pp. 16-21.

⁴⁵ Ford received no support for its position. EvenFord did not make a similar argument concerning captive imports from other countries.

⁴⁶ Contrast section 201(b)(3)(A). which seems toassume that capitive imports will be included in the domestic industry.

⁴⁷ 606 U.N.T.S. 31,17 U.S.T. 1372, T.I.A.S No. 6093 (1965).

⁴⁸ Under Article HI of the Autopact “Thecommitments made by the two Governments in this Agreement shall not preclude action by eitherGovernment consistent with its obligation under Part II of the General Agreement on Tariffs andTrade.” Part II of the General Agreement contains the provisions which relate to nontariff barriers tointernational trade, including Article XIX. Concerning Article III of the Autopact, the GATTWorking Party which examined the Autopact was told that the parties:“had wished to reseve their right to take certain action vis-a-vis each other in accordance with thearticles of the GATT referred to and that the formulation in Article III had appeared the simplestway of doing this. This article was not intended to affect the rights and obligations of third countriesunder the General Agreement. (BISD, Thirteenth Supplement, 112,115.)”

⁴⁹ 19US.C. 2011(a).

⁵⁰ Id. at 2015.

⁵¹ Proc. No. 3682.30 F.R. 13683. October 21.1965 and Proc. No. 3743, 31 F.R. 12003, September 6,1966.

⁵² 1965 U.S.C.C.A.N. 3870.

⁵³ Id . at p. 3705.

⁵⁴ Ibid.

⁵⁵ BISD, Fourteenth Supplement, 37.

⁵⁶ “Having been notified that the governments ofthe United States of America and Canada concluded, * * * an agreement providing for dutyfree treatment for trade in automotive products between their two countries; * * Considering thatthe automotive industries of the United States and Canada are characterized by an exceptionally highdegree of integration, and Considering that by reason of the close similarity of market conditions in the two countries and the close relationship which exists and could be further developed in their production facilities of automotive products, there are special factors which offer exceptionalopportunities further both to rationalize the production of automotive products in the twocountries and integrate production facilities and to increase the efficiency of United States/Canadianproduction; Considering, moreover, that the Government of the United States accepts that thefacilities granted in paragraph 1 below (relating to the discriminatory duty-free treatment] should notbe used in a way to prejudice the interests of other contracting parties and that it is not its intention tocause imports into the United States market of automotive products imported from Canada toreplace imports of like products from other sources; ’ ‘ *.” (emphasis added) Substantively, the waivercontains the waiver itself (Article IJ and several consultation/dispute resolution provisions designedto protect the trade interests of third party Contracting Parties, particularly if problems of tradediversion develop. An annex lists, in terms of TSUS item numbers, the automotive products which may receive the duty-free treatment.

⁵⁷ ,TA-26l-37,p.4.

⁵⁸ Id. p. 9.

⁵⁹ Id. p. 4.

⁶⁰ Certain Motor Vehicles and Certain Chassisand Bodies Therefor, Report to the President on Investigation No. TA-201-44, Dec. 21.1980 (the“Report“), p. A-23. (The figures in the table are slightly distorted by the inclusion of Taiwan andHong Kong.) The decline in imports from the Federal Republic of Germany can be accounted for,at least in part, by the opening of the Volkswagen of America, Inc., plant at New Stanton, Pa.

⁶¹ Motor Vehicle Statistics of Japan. 1980. Japan Automobile Manufacturers Association.

⁶² Report, p. A-23.

⁶³ Report, p. A-28.

⁶⁴ Id. pp. A-103 and A-105.

⁶⁵ Id. p. 105.

⁶⁶ With respect to the problem of whether thelanguage “like or directly competitive” implies the existence and characteristics of one industry asopposed to two distinct industries, the legislative history of section 201 and the court's ruling inUnited Shoe Workers v. Bedell 506 F.2d 174 (D.C. Cir. 1974) provide useful guidance. In observing that“like” and “directly” competitive are concepts which are neither synonymous with nor explanatoryof each other, both the House and the Senate strongly imply that these terms could, indeed, referto separate groups of producers. See also the majority views in Mushrooms. Investigation No.TA-201.43, USITC Pub. No. 1089 (1980) at pp. 6-14

⁶⁷ Sec. 201(b)(3)(A) and (B), 19 U.S.C. 2251(b)(3)(A) and (B).

⁶⁸ See General Agreement on Tariffs and Trade.

⁶¹ Stat. (5), (6), 55 U.N.T.S. 194 (1948). Vol. IV, BISD.

⁶⁹ Trade Agreements Extension Act of 1951, sec. 7, 65 Stat. 72 (1951).

⁷⁰ See my opinion in Mushrooms, supra.

⁷¹ Mushrooms, supra, at pp. 6-14.

⁷² Trade Reform Act of 1974c Report of the Committee oa Finance. 8. Kept No. 83-1286 (83rd Cong.. 2d Sess. 1874). (“San. RepL’k pp. 121-122.

⁷³ 596 2d 174 [D.G Cir. 1974) concerning apetition for adiustment assistance under the trade Expansion Act of M62 {76 Stat. 883).

⁷⁴ 506. 2d 174,185-188.

⁷⁵ Id at p. 186.

⁷⁶ UAW Petition, pp. 34-35.

⁷⁷ 19 US.C24B1 (5).

⁷⁸ UAW Petition, pp. 36-37.

⁷⁹ Ford Petition, pp.11-14.

⁸⁰ Id. pp. 12-13.

⁸¹ Id. at pp. 13-14.

⁸² See. e.g.. Prehearing Brief of Toyota MotorSales, U.&A., Inc. (5 industries: small passenger can, large passenger cars, light tracks, generaluUlity vehicles and Tans), pp. 8-18; Brief of the American International Automobile DealersAssociation (domestic industry producing small carsis the only relevant industry), pp. 21-37.

⁸³ See, e.g.. Statement on Behalf of Alfa Romeo,Inc. and Alfa Romeo S.p.A. (Alfa Romero's are a specialty product different In terms of inherent andintrinsic characteristics from any U.S. product and compete with only one U.S. automobile, theChevrolet Corvette), pp 18-18; Statement on Behalf of Mercedes-Benz of North America, inc. (becauseof Us Ugh quality, Mercedes Benz are not Uke any U.S.. produced automobile and because of itssubstantially higher price, they are not directly competitive), pp. 5-8; Prehearing Brief of FiatMotors of North America, Inc. (each imported automobile is distinguishable from any otherimported or domestic automobile by size, weight, appearance, parts, component materials, enginesite, appafcttiaeitfs, and engineering details), pp. 8-10.

⁸⁴ See, Senate Report, supra, at p. 120. See also, Trade Reform Act of 1973: Report of the Committeeon Ways and Means, House Report No. 93-571 (93rd Cong.. 1st Session, 1973), (“House Report“) p. 44.

⁸⁵ As a further matter in this connection, it cannotbe ignored that, at the least, 80 percent of the imports and all of those imports that are increasingare of the smaller, more fuel-efficient type. As well, it is this rough category of domestic automobilesthat is and has been experiencing an increase in sales.

⁸⁶ See Report, at pp. A-7.

⁸⁷ It is worth noting, under section 201(b)(3)(B), particularly in light of the legislative reports (SeeHouse Report, supra, at pp. 45-46. See also Senate Report, supra, at p. 122) that I am not entirely surewhat practical effect such an industry definition would have had on a serious injury analysis orsubstantial cause analysis. In the House Report, if the domestic article in question were produced byan independent operating division, those divisions not producing that article would be excluded fromthe industry finding. However, if the domestic article were produced in a “multiproduct plant” or a“subdivision” where there is production of severaldifferent product lines, the industry would include the operating unit as a whole.

⁸⁸ My reasons for not including domestic trucks as like or directly competitive with importedautomobiles are the same as those discussed in the following treatment of domestic articles like or directly competitive with imported trucks.

⁸⁹ I found, infra, that imported heavy trucks were not properly before us because there are noincreasing imports of these articles.

⁹⁰ See Posthearing Brief Submitted on Behalf ofRobert P. Mallon and Other Interested Domestic Automotive Dealers (auto dealers are “interestedparties“), pp. 3-5; Posthearing Brief Submitted by the Automotive Materials Industry Council of theUnited States (the role of supplier companies is relevant in evaluating the ability of the automobile industry to adjust to new conditions of competition pp. 5-6 and Posthearing Brief Submitted byCoalition of Automotive Component and Supplyworkers (the suppliers are “a proper participant“), PP.2-6.

⁹¹ Ordinarily my treatment of serious injury andthe threat of serious injury would come before a discussion of substantial cause. In this regard, Iassociate myself completely with the views of Chairman Alberger on the matters of serious injuryand the threat thereof to both industries. 1 also associate myself with the views of the Chairmanregarding substantial cauw as it relates to the tighttruck industry.

⁹² See Senate Report, supra. at pp. 120-121. See also House Report, supra. at pp. 48-47.

⁹³ See Senate Report supra, at p. 120. See alsoHouse Report, supra, at p. 44. It ihould be noted, however, that thii relaxation wai not intended to beopen-ended. The Senate Report, at p. 121. observe* that “[ill is not intended that the escape clausecriteria go from one extreme of excessive regidity to mnplete laxity.” Both Committees emphasize thatthe standard has two criteria that must be met in all cases: (a) import* must be an important cause ofserious injury and (b) imports must be no less important man any other single cause. See HouseReport, iupro, at p. 4S and the Senate Report, supra. at p. 120.

⁹⁴ House Report, supra at p. 47.

⁹⁵ See discussion under Industry, infra.

⁹⁶ See Wrapper Tobacco, supra, at pp. A-37 and A-46.

⁹⁷ See Wrapper Tobacco, supra, at pp. A-28-29.

⁹⁸ See views of Chairman Will E. Leonard and Vice Chairman Daniel Minchew at pp. 8-G. See alsoviews of Commissioners Catherine Bedell and Josph O. Parker at pp. 12-14.

⁹⁹ See Report, at pp. A-43.

¹⁰⁰ As I discussed infra, the differentiation between automobiles (hat are larger and less fuelefficientand those that are smaller and more fuelefficient is too imprecise a construction on which tobase an industry analysis. Nevertheless, for purposes of differentiating among product lines, thevarious categorizations currently in use provide reasonable distinctions for the purpose ofdemonstrating that changes are occurring in the type of automobile being purchased. For mydiscussion I shall use the categories employed by Ward's Automotive Reports, Automotive News, theindustry itself, and in the staff report to the Commission. (See Report, pp. A-7 and A-31.) Inmay analysis I have combined the large and intermediate category into one category called largecars. I have combined the compact and sub-compact categories into a small car category. I have used theword imports to include all imports and assued that approximately 20 percent or so of them that are, infact, not small cars are small cars.

¹⁰¹ See Report, at pp. A-63-66.

¹⁰² See Report, at p. A-72.

¹⁰³ See Report, at p. A-34.

¹⁰⁴ In charts 1 and 2 small cars are a combinationof domestic small cars plus all imports.

¹⁰⁵ It should be recalled that imports as used hereinclude all imports, even those 20 percent or so that might not be included in the small car category usedhere. Therefore, the extent of the benefit to domestic small cars is understated to some extent.

¹⁰⁶ There are at least six cases in the six yearhistory of section 201 in which the Commission has found a decline in demand to have been a greatercause of serious injury than had been imports: Birch Plywood Door Skins. Inv. No. TA-201-1, USITCPub. No. 743 (1975); Wrapper Tobacco. Inv. No. TA- 201-3. USITC Pub. No. 746 (1975); Plant Hangers.Inv. No. TA-201-15, USITC Pub. No. 797 (1978); Low-Carbon Ferrochromium, Inv. No. TA-201.20,USITC Pub. No. 825 (1977); Unalloyed. Unwrought Zinc, Inv. No. TA201-31. USITC Pub. No. 894 (1978);and Certain Machine Needles. Inv. No. TA-201-38, USITC Pub. No. 938 (1979).

¹⁰⁷ Federal Reserve Bulletin. July 1980. pp. 536-540.

¹⁰⁸ Ibid.

¹⁰⁹ Ibid.

¹¹⁰ Prehearing statement of John G. Reilly of ICFInc. on behalf of the Automobile Importers of America, Inc.

¹¹¹ In its submission, Ford employed an analysis’which heavily relied upon principles and assumptions which are very similar to the shiftanalysis discussed here.

¹¹² Solution values are values for total new carSHIHS and each of its components: large and small domestic cars and imports.

¹¹³ Mushrooms. Inv. No. TA-201-43, USITC Pub.No. 1089 (1980). See “Views of Chairman Bill Alberger. Vice-chairman Michael Calhoun andCommissioner Paula Stern” at 6-14.

¹¹⁴ U.S. auto producers include General MotorsCorp. (CM). Ford Motor Co. (Ford). Chrysler Corp. (Chrysler), American Motors Corp. (AMC), andVolkswagen of America. Inc. (VW of America).

¹¹⁵ 508 F. 2d 174 (D.C. Cir. 1974).

¹¹⁶ This was done for the following reasons: (1),the Commission lacks complete data on components producers; (2) if such data were available,aggregating much of it with data collected for final producers would be questionable: (3) most crucially,such data are not of critical value to an import relief finding in this case.

¹¹⁷ See the report of the U.S. House ofRepresentatives. Committee on Ways and Means, Trade Reform Act of 1973. H. Rept. No. 03-571.93dCong.. 1st Seas. (1973) at 45 (Ways aad Means Committee Report): and U.S. Senate Committee onFinance, Trade Reform Act of 1974. S. Rept. No. 93- 1296,93d Cong., 2d Sess. (1974) at 122 (FinanceCommittee Report).

¹¹⁸ Agreement Concerning Automotive ProductsBetween the Government of the United States and the Government of Canada. 17 UST1372 (1965) (theAgreement). It was implemented by the APTA.

¹¹⁹ 19U.S.C. 2021.

¹²⁰ Done October 30,1947,81 Stat. Pt. 5, T.I.A.S. No. 1700, 55 U.N.T.S. 187.

¹²¹ GATT Art. XIX, para. 1(a).

¹²² Including as imports Volkswagen light trucksthat are assembled in a free-trade zone in Pennsylvania results in nearly a doubling of theshare of imports accounted for by West Germany in January-June 1980 in comparison to the like periodof 1979. While they are only 30 percent, by value, of foreign origin, the U.S. Customs Service classifiesthem as imports from West Germany.

¹²³ VW of America's imports into U.S. customsterritory from the free-trade zone at New Stanton. Pa., are not included in the Commission's data asimports since 70 percent of the value of the vehicle is added in the United States (However, theCustoms Service treats such vehicles as imports from West Germany.) Inclusion of VW's NewStanton production in the Commission's import data gives West Germany an increasing share of U.S.imports from 1978 through January-June 1980. when West Germany accounted for 17 percent of the total.

¹²⁴ I shall, therefore, not give further considerationto the heavy truck, iadustry in these views.

¹²⁵ A full discussion of the standards andframework for my determinations in the investigation is included in my examination of thepassenger auto industry which follows.

¹²⁶ Data for employment and profits cannot besegregated from those for the automotive industry. These important aggregate indicators will bediscussed in Section VI.

¹²⁷ S. Rept. No. 93-1298,93d Cong., 2d Sen. IT974)at 122. The Senate Finance Comnrittae Report states:

The escape clause 1 not tattended to protectindustries which fail to help themselves become more competitive through reasonable research andinvestment efforts, steps to improve productivity and other measures that competitive industries mustcontinually undertaks.

¹²⁸ See briefs of Honda Motor Co, Ltd. and VW ofAmerica.

¹²⁹ Capacity figures are subject to a number ofreservations See accompanying Report at A-32.

¹³⁰ Most of this growth has been concentrated inthe previously neglected (by relative standards) aubcompact sector.

¹³¹ In general, inventories are held by dealers,grow with brisk sales, and run down when sales shrink or credit costs rise.

¹³² Corporate statistics are not broken out on thelarge number of employees of the auto manufacturers engaged in the production of autoparts, components, and trucks. The data given for this indicator are, therefore, industry aggregates forestablishments producting assembled motorvehicles.

¹³³ Since 1977, the growth of auto wages has beenslower than average growth of all manufacturing worker's wages.

¹³⁴ Average total compensation is the sum ofaverage hourly compensation paid to auto-workers plus average non-salary fringe benefits such asemployer social security contributions, etc., plus average supplement benefit contributions. Each ofthese is quite distinct. Under the supplemental benefit program,manufacturers contribute at specified rates to the supplemental fund until the target level based oncurrent employment is reached. When no benefits are paid out and the fund is full, the employers’contributions drop to zero. Significant and continued unemployment over the last two yearshas steadily tapped the funds and increased the employers' contributions—at a time whencompanies could least afford it.

¹³⁵ The operations of U.S. producers are so highlyintegrated with their Canadian operations that only estimates compiled on the basis of differingarbitrary allocation methods are available.

¹³⁶ The big three (GM, Ford, Chrysler) have neverbefore all reported losses at the same time as they did for the first nine months of 1980.

¹³⁷ 19 U.S.C. 2251(b)(1).

¹³⁸ S. Rept. No. 93-1298, 93d Cong.. 2d Sess. (1974) at 119.

¹³⁹ S. Rept. No. 93-1298, 93d Cong.. 2d Sess. (1974) at 121.

¹⁴⁰ Id. at 121-22.

¹⁴¹ SlideFasteners, Inv. No. TA-201-6, USITC Pub. No. 757 (1975) at 51 and Wrapper Tobacco. Inv. No. TA-201-3, USITC Pub. No. 746 (1975) at B-9.

¹⁴² Low Carbon Ferrochromium, Inv. No. TA-201-20, USITC Pub. No. 746 (1975) at 8-9.

¹⁴³ Certain Fish, Inv. No. TA-201-41 (1980); Live Cattle. Inv. No. TA-201-25, USITC Pub. No. 83(1977) at 6.

¹⁴⁴ FonTPost-Hearing Brief at 27.

¹⁴⁵ Findings on such other questions as the scopeof the industry can also have an impact on the causaj analysis. In Mushrooms, Inv. No. TA-201-42,USITC Pub. No. 1089 (1980). the imported productwas canned while a substantial portion of the domestic industry was devoted to marketing freshmushrooms. Had the two been deemed separate industries, the determination might well have beendifferent.

¹⁴⁶ This consideration accounts in part for thehotly contested issue of how many industries were the subject of this investigation.

¹⁴⁷ S. Rept. No. 93-1298. 93d Cong.. 2d Sess (1974) at 121.

¹⁴⁸ Thus, in Slide Fasteners and Wrapper Tobacco, changes in consumer tastes were found tobe greater causes of injury than increased imports. In both cases, the shift was to a product outside thescope of the industry being investigated. See Inv. No. TA-201-6, USITC Pub. No. 757 (1975) al 51, andInv. No. TA-201-3, USITC Pub. No. 746 (1975) at 8-9, respectively. In Footwear, for example, the inabilityto accept and respond to style changes was cited as a possible cause of injury. See Inv. No. TA-201-18.USITC Pub. No. 799 (1977) at 13. In Mushrooms (1976), diversion of tastes from canned to freshmushrooms was considered to be a lesser cause than increased imports. See Inv. No. TA-201-10.USITC Pub. No. 761 (1976) at 13-14. In both of these investigations, the shift was to a different product.

¹⁴⁹ For example, in Sugar, the shift in demandfrom natural sugars to corn sweeteners might have seemed a more important cause of injury thanincreased imports. However, the Commission considered corn sweeteners as part of the domesticindustry and found affirmatively. See Inv. No. TA- 201-16, USITC Pub. No. 807 (1977) at 181-«2.Similarly, in Iron Blue Pigments the Commission determined in its definition of (he industry thatthere was no commercial substitute to the like or directly competitive domestic product. See Ferricyanide and Ferrocyonide Pigments (Iron Blue Pigments). Inv. No. TA-201-11, USITC Pub. No. 787(1978). In Mushrooms (1976) the shift from canned to fresh mushrooms was not treated as a definitionalproblem, but once serious injury or threat thereof was found, the shift was absorbed as an industrycondition irrelevant to substantial cause. The Implication of this class of cases may be that shift indemand within the industry should not be considered a competing cause of serious injury.Sugar, in particular, seems analogous to the automobile case. However, the views of individualCommissioners tended to conclude that the shift to corn sweeteners, particularly in industrialapplications, was less important than imports as a cause.

¹⁵⁰ Honda Post-Hearing Brief at 14-16.

¹⁵¹ In Live Cottle, it is true that there was an increase in demand for the kind of beef and vealsuitable for making ground beef and that this demand favored imported beef disproportionately.However, Imports had declined relative to the increase in consumption, even though they hadincreased in absolute terms. The determination rested on a finding that imports were of “minorimpact in comparison with the significant increase in supplies resulting from increased production.”Honda's argument with respect to Fishing Tackle rests on analysis of one of the four separateIndustries identified by the Commission. The negative determination cited turned on a findingthai the industry was not seriously injured. See Inv. No. TA-201-25. USITC Pub. No. 834 (1977) and Inv.No. TA-201-34, USITC Pub. No. 917 (1978),respectively.

¹⁵² e.g.. Ford Pre-Hearing Brief at 29.

¹⁵³ This consideration accounts In part for thehotly contested issue of how many industries were the subject of this investigation.

¹⁵⁴ For example, in Birch Plywood Doorshins. Inv. No. TA-201-1, USITC Pub. No. 743 (1975),Commissioner Minchew considered the cyclical downturn in the industry as part of the norm againstwhich injury was to be measured. The rest of the Commission, however, looked at the cyclical drop indemand as part of the injury and then weighed the relative importance of causes. IN Bolts. Nuts, and Screws of Iron and Steel, Inv. No. TA-201-2, USITC Pub. No. 747 (1975) at 11, Chairman Leonard stated “ ‘present’ injury must be found by examining a timespan which discounts brief and transitory episodes in the performance of the domestic industry andestablished a realistic performance for the industry in the present.” Chairman Leonard made a similarstatement in Stainless Steel and Alloy Tool Steel. Inv. No. TA-201-5, USITC Pub. No. 756 (1976) at 72In contrast, also in the Stainless Steel and Alloy Tool Steel investigation, Vice Chairman Minchewnoted at 47. “The two principal causes of injury to the domestic industry are increased imports and thecyclical nature of the industry.” Although he concluded imports to be the most important causeof serious injury, Vice Chairman Minchew clearly analyzed cyclical downturn as part of the seriousinjury. The variety of approaches used by Commissioners is further emphasized by theseparate views of Commissioner Ablondi in the Stainless Steel and Alloy Tool Steel investigationwhen, in selecting an appropriate period within which to measure injury, he states that, “it has beenthe established practice of the Commission under section 301 of the Trade Expansion Act as well asunder section 201 of the 1974 Trade Act to analyze imports over a period of time of sufficient length toestablish trends and thereby put aberrant ortemporary conditions into proper perspective.” USITC Pub. No. 756 at 53 (citing Ceramic Table and Kitchen Articles, Including Dinnerware, TEA-1-22, TC Pub. 408 (1971): Bagatelle. Billiard, and Pool Balls. TEA-1-19, TC Pub. 347 (1971): Nonrubber Footwear, TEA-1-18, TC Pub. 359 (1971) at 10-11(Commissioners Clubb and Moore) and 37 (Commissioner Leonard).

¹⁵⁵ Indeed, the National Bureau of EconomicResearch has been at the task for many decades without any definitive conclusions.

¹⁵⁶ b Congress has recognized that the relativeweighing of alternate causes of injury is unquestionably subjective. See S. Kept. No. 93-1298,93d Cong., 2d Sess. (1974) at 120. Professor I. Jackson in World Trade and the Law of the CA TT(Section 23.3. p. $61,1989) stated that “serious” investigation of the term serious injury “has .occurred only once in practice“—the Hatters’Fur Case (1950). The CATT Working Party appointed toinvestigate the dispute found that even serious injury, no less its causation, “is essentially a matterof economic and social judgment involving a considerable subjective element.” (Report onWithdrawal by the United States of a Tariff Concession under Article XIX of the GATT.Geneva. 1951, at 22.)

¹⁵⁷ S. Rept. No. 93-1298,93rd Cong., 2d Sess. (1974) at 120-21.

¹⁵⁸ The legal doctrine of precedents, stare decisis, does not strictly apply to administrative agencies.An agency is free to change its policy, or even its interpretation of a statute, so long as it explains thereasons. A section 201 decision may be set aside by the courts only if it is shown to be “arbitrary,capricious, an abuse of discretion, or otherwise not in accordance with, law.” See AdministrativeProcedure Act, 5 U.S.C. 708(2)(A).

¹⁵⁹ Over the last three decades, Congress haspassed three different import relief statutes. Although the thresholds of injuryand standards forcausation (major, principal, substantial) have been debated and changed, Congress has neither soughtto delimit narrowly the factors which the Commission should consider nor direct preciselyhow the causes should be broken down.

¹⁶⁰ Depreciation is the appropriate way of movingfrom the purchase price of a consumer durable to a yearly cost.

¹⁶¹ See Runzheimer and Company. “DomesticAutomobile Cost Data” (November 1980). The data prepared for the USITC cover 1975-1980 and arebased on a study commissioned by the American Automobile Association.

¹⁶² There is an index number problem herebecause of the important role of cost of transportation in the consumer price index (C.P.I)which is used as a deflator. When real auto costs full relative to the C.P.I., they are falling even morerapidly with respect to other prices which go into calculating the C.P.I. More important, because in thecrucial 1978-1980 period real auto costs rose faster than the C.P.I.. they have been advancing evenfaster than other prices.

¹⁶³ Automotive News. “Annual Data Issue” (1980). The proportion varies over the business cycle butseems to have been slowly rising during the last decade. The source data reflect only traceablecredit and not personal loans from friends and relatives.

¹⁶⁴ Report at A-57. This figure is a lower boundBince small car share has increased rapidly and the producer price index is for all cars, not oneparticular model. Also see Report at A-60.

¹⁶⁵ If this thesis ii correct, the average age of carson the road in I960 should be measurably higher than the figure for 1979. The figure is not yetavailable.

¹⁶⁶ The AAA cost-of-ownership data broken downby size of autos show that between 1975 and 1977, the difference between the annual costs of “fullsize”cars and subcomparts narrowed, particularly from 1975 to 1978 when domestic dealers hadtrouble clearing their smaller cars. However, by 1980 full size can had opened up a greaterdifferential than they had shown in 1975.

¹⁶⁷ Report at A-71.

¹⁶⁸ See, for instance, statements of Ford executivedirector for business strategy Robert R. Reilty, quoted by Robert). Samuelson. “The VS. AutoIndustry—Under Foreign Siege.” NationalJournal. March IS, 1980 at 427.

¹⁶⁹ The only data available for more than twobusiness cycles are based on the ratio of consolidated worldwide net profits to net sales ofChrysler, Ford, and General Motors. For the purposes af my point here, 1 do not believe theinadequacies of these data are critical.

¹⁷⁰ Report at A-65 and 88.

¹⁷¹ Such data might include the oost by car-makeof privately-offered extended warranties. Analysis of private extended warranty price data shows littleor no difference between costs of such warranties on the basis of whether the car is imported ordomestic. Post-Hearing Brief of the American International Automobile Dealers Association,Appendix UL However, two eompainies have informed the Commission that they are in theprocess of-converting from a price system based on car value to one based on actual repair records.They expect that the results will yield lower premiums for Japanese autos. Such expectations areno more objective than the surveys of consumerperceptions.

¹⁷² Submission of Automobile Importers ofAmerica. November 7,1980, letter in response to request of Commissioner Stern (Hearing Transcriptat 891).

¹⁷³ See Hearing Transcript at 7-8,142-44, and 612.

¹⁷⁴ The simulation calculations allow consumptionand import penetration to change alternately while the other is held constant. Report at A-69,96.

¹⁷⁵ Report. Table 70.

¹⁷⁶ Nissan Pre-Hearim Brief at 21-28.

¹⁷⁷ See John DeLorean. On A Clear Day You Can See General Motors, Grosse Pointe, Mich.: WrightEnterprises, 1979.

¹⁷⁸ UAW President Lenorad Woodcock inProposals for Constructive Reform, February 15, 1974, in Hearing before the Committee on Interstateand Foreign Commerce, April 1974, at 283 states: “But we are also completely opposed to seeing gasconsumption reduced by massive price increases without any compensation for the low- and middleincomepeople who are unjustly overburdened * * ‘. We also need to reduce the claim of theprivate automobile on our energy supplies by raising the fuel efficiency of the typical model onthe road * * *. What we need are mandatory fuel efficiency requirements just as we have mandatorypollution-control requirements.”

¹⁷⁹ Information was not available on Chrysler's position on the decontrol issue.

¹⁸⁰ See W. Tucker. “The Wreck of The Auto Industry,” Harper's, Nov. 1978 at 54-55.

¹⁸¹ Since 1979 the industry has been pushedtoward greater fuel economy by consumer demand rather than CAFE standards. In fact the 1983standards, once termed unrealistic or unachievable, have now been surpassed.Regarding environmental and safety regulations, no evidence was offered that the standardsdemanded of U.S. producers are any more onerous than those already in force in many of the imports’home markets.

¹⁸² Report at A-46.

¹⁸³ H. Kept No. 93-571,93d Cong, 1stSeas, at 47.

¹⁸⁴ S. Kept. No. 83-1296,93d Cong. 2d Seas. (1974) at in .

¹⁸⁵ Commisifonm Alberger, Calhoun and Stemmade reference to a “real and imminent” standard m the moat recant import ranef urns ligation. SeeMushroom, inv. No. TA-201-43, USITC Pub. No. 1089 (1980) at 17.

¹⁸⁶ See Webster's Seventh New Collegiate Dictionary, 1963. p. 417.

¹⁸⁷ S. Rept No. S3-H98. op at. at ISO.Commiaaionera Stern and Alberger noted that the concept of threat appeared aaifonn in meaning inall Commission import relief Jurisdiction in Anhydrous Ammonia from the USS.R, Inv. No.TA-406-5. USITC Pub. No. 1008 (1979) at32.

¹⁸⁸ There bave been nme problems in theIntroduction of Chrysler's new K-cars, but these seem to have been based on a miscalculation ofwhat consumers wanted The first K-cars were loaded wim expensive options that potentialpurchasers suffering reduced real per capita disposable incomes were not willing to buy. Startupproblems are quite common when new models are first introduced. Furthermore, Chrysler mustcontend with an image problem created by the uncertainty among consumers about the company'smtura. Chrysler's problems extend back to 1B7S when the industry as a whole was healthy.

¹⁸⁹ Recent data show leading indicators turningaround yet both the auto and houing industries remain hampered by high and rising interest rates.

¹⁹⁰ Nissan confidential submission, October 20,I960. Also Toyota confidential submission, Nobember 3,1980.

¹⁹¹ Wharton Econometrics, Chase Econometrics,and Data Resources, Inc. have been consulted.

¹⁹² Quoted in the Wall Street Journal, August 25,1980.

¹⁹³ This is another area where continued highinterest rates threaten domestic producers with injury.

¹⁹⁴ A study commissioned by the Science Councilof Canada found some difference in the productivity of the North American (13 cars per man-year) andJapanese (16 per man-year) industries. See: N. B. MacDonald. The Future of the Canadian Automotive Industry in the Context of the North American Industry (November 1980) at 43-51.

¹⁹⁵ The study measures losses from 1978/1979peak employment levels and assumes that no new plant closings occur. Other assumptions tend tounderstate or overstate employment gains, and so may off-set each other, I use the study simply as arough indication of the future.

¹⁹⁶ USITC staff study on remedy considerations.

¹⁹⁷ The Ford confidential submission of November 21,1980, established no persuasive connection between relief and its ability to raise capital during the coming period. The record shows that all investment plans for domestic production areindependent of import relief. Furthermore, Ford's present debt/equity ratios as well as those of otherproducers on whom the Commission obtained information are well within historical ranges.

¹⁹⁸ One of the bottlenecks which prevents any further acceleration of the transformation programis the already overwhelming backlog in the worldwide machine tool industry. American Machinist (Feb. 1980) reported a backlog of 16 months in the United States and shorter but growingbacklogs for many U.S. trading partners. Orders in the U.S. are at record levels. In a recent UnfairImport Practices case under section 337 of the Tariff Act of 1930 (19 U.S.C. 1337), a patent infringementremedy that would have excluded imports of crankpin grinders made by a supplier to Ford wasprecluded for the first time ever because of the public interest in hastening U.S. production of fuelefficientautos. One of the Commission's reasons for allowing the imports was that in May 1979 the ‘complainant and its domestic licensee had backlogs of two years. See “Opinion of Vice ChairmanAlberger and Commissioners Bedell and Stern” in Certain Automatic Crankpin Grinders, Inv. No. 337- TA-60, USrW Pub. No. 1022 (December 1979) at IB.

¹⁹⁹ Ford proposed a quota of this level based on 1978 imports.

²⁰⁰ Our staff study assumes no domestic price increases; any price increases-would trade off potential jobs and production for increased profits.

²⁰¹ Honda Post-Hearing Brief at 19.

²⁰² A proper analysis of the state of the domesticindustry cannot be made without an understanding of the increasingly complex financial relationsbetween U.S. producers and their foreign counterparts.Part of the problem facing U.S. auto and truck workers is that U.S. producers have elected tosource certain of their models from foreign manufacturers rather than to produce all theirmodels domestically. Unfortunately, it has been these types of models which the U.S. public hasincreasingly sought during the last two years. The reasons for production decisions Include efforts torespond to import competition, gaining on other domesUc competitors, efforts to avoid paying higherU.S. wage rates, and efforts to reduce the risks inherent in the introduction and possibly short-livedacceptance of a new model. All five U.S. manufacturers import automobilesand/or small pickup trucks. Some of the firms import vehicles from their wholly-ownedsubsidiaries. Some domestic firms import vehicles from a foreign country in which it has partialownership. and one company imports vehicles from a foreign company in which it holds no financialinterest. General Motors Corp. (GM) currently importsonly a small pickup truck, the LUV, from Isuzu Motor Co. (Isuzu) of Japan. GM also imported asmall automobile, called the Opel, from Isuzu until mid-1979. Prior to importing the Opel from Isuzu,GM imported a small car (also called Opel) from its West German subsidiary during the 1960s and early1970s. GM currently owns 34 percent of Isuzu. Ford imports both an automobile and a smallpickup truck. The Ford Fiesta auto is produced by a wholly-owned Ford subsidiary in West Germany,the Courier truck is manufactured by Toyo Kyogo Company, Ltd. (Toyo Kyogo) of Japan. Ford owns 25percent of Toyo Kyogo. During the last fifteen years, Ford has imported other automobiles from itsEuropean subsidiaries, including the Cortina from the United Kingdom and the Capri from WestGermany. Chrysler is currently importing two pickup trucksand two automobiles from Mitsubishi Corporation (Mitsubishi) of Japan. The two pickup trucks (D-50and Arrow) and the two automobiles (Colt and Arrow/Champ) are distributed by two Chryslerdealership networks (Dodge and Plymouth). Chrysler owns 15 percent of Mitsubishi.AMC imports and distributes two types of automobiles from Regie Nationale des UsinesRenault (Renault) of France. AMC does not own part of Renault; rather, Renault purchased 1.5million shares of AMC stock in 1979, with an option to purchase up to 52 percent of AMC's stock at anytime in the future. As a result of the arrangement with Renault, U.S. producers are now responsiblefor nearly 75 percent of U.S. car imports from France.VW of America is considered a domestic producer in this investigation to the extent itproduces cars in the United States. However, it is a wholly-owned subsidiary of Volkswagen A. G.(VW) of West Germany. VW of America imports Audis, Dashers, Rabbit convertibles, Vans andSciroccos from its West German parent, and it also imports Porsche automobiles from Dr. Ing. h.c. F.Porsche A. G. (Porsche) of West Germany, a firm which VW of West Germany is affilitated with, butdoes not own. Furthermore, GM, Ford. Chrysler and AMC eachoperate wholly-owned subsidiaries in Canada whose status with respect to the domestic industryhas already been discussed in Section III.

²⁰³ If assistance is deemed appropriate, it shouldbe directed directly at improving the financial condition of U.S. producers during the next twocritical years. For instance, this might be accomplished by means of changing amortizationand depreciation rules. Section 201 does not provide for the Commission to recommend such a remedy. I make this observation only because imports are notthe root problem and assistance in the recovery of the domestic industry should therefore be in a formother than import relief.

²⁰⁴ See, for example, our views or views in whic!one or both of us have joined in Bolls, Nuts, and Screws of Iron or Steel: Report to the President on Investigation No. TA-201-2 … , USITC Publication 747, November 1975, p. 28; Footwear Report to the President on Investigation No. TA- 201-7 … . USITC Publication 756, February 197f p. 46; and Certain Fishing Tackle: Report to the President on Investigation No. TA-201-34 … , USITC Publication 817. September 1978. pp. 4-5.1

²⁰⁵ See. for example, our views or views In whichone or both of us joined in Stainless Steel and Alloy Tool Steel: Report to the President on Investigation No. TA-201-8…. USITC Publication 756. January 1876. p. 13; Footwear: Report to the President on Investigation No. TA-iOl-7. . USITC Publication 788, February 1976. p. 56; Television Receivers… Report to the President on Investigation No. TA- 201-19…, USITC Publication 80S. March 1977, pp.18-19; Low Carbon Perrochromium: Report to the President on Investigation No. TA-201-20. . USITC Publication 825. July 1977, p. 10; Cast-iron Stoves: Report to the President on Investigation No. TA-ZOl-24…. USrrC Publication 826, July 1977, p.13: and High Carbon Ferrochromium: Report to the President on Investigation No. TA-201-2B…,USITC Publication 845. December 1977, p. 10. 206The Customs Service published a notice tosuch effect in the Federal Register of May 23,1980 (45 FR 35057).