EUROPEAN UNION ANTI-DUMPING MEASURES ON BIODIESEL FROM ARGENTINAtrade.ec.europa.eu/.../2015/november/tradoc_153928.docx.pdf · 2019-04-29 · European Union – Anti-Dumping Measures

In the World Trade Organization

EUROPEAN UNION – ANTI-DUMPING MEASURES ON

BIODIESEL FROM ARGENTINA

(DS473)

Second Written Submission by the European Union

Geneva, 23 April 2015

European Union – Anti-Dumping Measures Second Written Submission on Biodiesel from Argentina (DS473) by the European Union ________________________________________________________________________________________

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TABLE OF CONTENTS

1. INTRODUCTION ........................................................................................................ 1

2. TERMS OF REFERENCE ............................................................................................ 2

3. PRELIMINARY ISSUES .............................................................................................. 3

3.1. The Claims under Article 2.1 of the Anti-Dumping Agreement and Article VI:1 of the GATT .......................................................................................... 3

3.2. The Claims under Article 2.4 and Article 9.3 of the Anti-Dumping Agreement ..................................................................................................... 6

3.2.1. Argentina's claims fall outside the scope of these provisions .......... 6

3.2.2. Argentina has failed to make a prima facie case .............................. 8

4. ARGENTINA HAS FAILED TO MAKE A PRIMA FACIE CASE ON ITS "AS SUCH"

CLAIMS .................................................................................................................. 11

4.1. Introduction ................................................................................................ 11

4.2. The Requirement to Establish the "Precise Content" of the Written "Rule or Norm" ......................................................................................................... 11

4.3. The Requirement to Establish that the Challenged Measure Mandates Conduct that is Necessarily Inconsistent with the Covered Agreements ... 18

5. ARGENTINA SUGGESTS AN ERRONEOUS INTERPRETATION OF ARTICLE 2.2.1.1 . 24

5.1. Argentina's Main Thesis ............................................................................. 24

5.2. Argentina suggests an Erroneous Interpretation of Article 2.2.1.1 of the Anti-Dumping Agreement ........................................................................... 26

6. ARGENTINA SUGGESTS AN ERRONEOUS INTERPRETATION OF ARTICLE 2.2 OF

THE ANTI-DUMPING AGREEMENT ........................................................................ 37

7. ARGENTINA HAS FAILED TO MAKE A PRIMA FACIE CASE ON ITS CLAIMS UNDER

ARTICLE 2.2.1.1 AND ARTICLE 2.2 OF THE ANTI-DUMPING AGREEMENT AGAINST

THE ANTI-DUMPING MEASURE ON BIODIESEL ..................................................... 38

8. ARGENTINA HAS FAILED TO MAKE A PRIMA FACIE CASE ON ITS CLAIMS IN

RELATION TO PROFITS .......................................................................................... 39

9. ARTICLE 3 CLAIMS ................................................................................................ 41

10. CONCLUSION .......................................................................................................... 46


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TABLE OF CASES CITED

Short Title Full Case Title and Citation

EC – Fasteners (China) Appellate Body Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011, DSR 2011:VII, p. 3995

EC- Salmon (Norway) Panel Report, European Communities – Anti-Dumping Measure on Farmed Salmon from Norway, WT/DS337/R, adopted 15 January 2008, and Corr.1, DSR 2008:I, p. 3

EC – Tube or Pipe Fittings

Panel Report, European Communities – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/R, adopted 18 August 2003, as modified by Appellate Body Report WT/DS219/AB/R, DSR 2003:VII, p. 2701

Egypt- Steel Rebar Panel Report, Egypt – Definitive Anti-Dumping Measures on Steel Rebar from Turkey, WT/DS211/R, adopted 1 October 2002, DSR 2002:VII, p. 2667

EU – Footwear (China) Panel Report, European Union – Anti-Dumping Measures on Certain Footwear from China, WT/DS405/R, adopted 22 February 2012, DSR 2012:IX, p. 4585

Thailand – H Beams Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland, WT/DS122/AB/R, adopted 5 April 2001, DSR 2001:VII, p. 2701

US- Carbon Steel (India)

Appellate Body Report, United States — Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/AB/R, adopted on 19 December 2014

US-Softwood Lumber V Appellate Body Report, United States – Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/AB/R, adopted 31 August 2004, DSR 2004:V, p. 1875

US-Softwood Lumber V Panel Report, United States – Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/R, adopted 31 August 2004, as modified by Appellate Body Report WT/DS264/AB/R, DSR 2004:V, p. 1937


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LIST OF EXHIBITS

EU-15 SECOND SESSION OF THE PREPARATORY COMMITTEE OF THE UNITED NATIONS CONFERENCE ON TRADE AND EMPLOYMENT; THIRTY SECOND MEETING OF COMMISSION A, GENEVA, 23 JULY 1947; VERBATIM REPORT

EU-16 SELECTED DECISIONS AND SELECTED DOCUMENTS OF THE INTERNATIONAL MONETARY FUND THIRTY-SEVENTH ISSUE. WASHINGTON, DC, DECEMBER 31, 2013


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1. INTRODUCTION

1. The European Union's second written submission focuses on the issues raised by

Argentina in its Opening Statement and in its Replies to the Panel's Questions

during the first substantive meeting with the Panel. The statements made and the

information provided by Argentina with these submissions confirm most of the

factual descriptions presented by the European Union, including on the nature of

the "FOB reference price" and the operation and effects of the export tax imposed

on soya beans in Argentina.

2. The European Union starts by (a) noting that Argentina has abandoned almost all

of the claims that the European Union has challenged as being outside the Panel's

terms or reference; and (b) discussing the claims of Argentina that fall outside the

scope of the provisions of the covered agreement on which Argentina relies.

3. Then, to facilitate the Panel's consideration, the European Union discusses together

the requirements that Argentina should meet in order to succeed in any of its "as

such" claims against the second subparagraph of Article 2(5) of the Basic

Regulation. This is followed by the European Union's discussion of the

shortcomings of Argentina's interpretation of Article 2.2.1.1 and Article 2.2 of the

Anti-Dumping Agreement, as well as the shortcomings of Argentina's claims

against the anti-dumping measure on biodiesel originating in Argentina. The

European Union concludes with a discussion of Argentina's claims under Article 3

of the Anti-Dumping Agreement.

4. The European Union's conclusion is that Argentina has failed to make a prima

facie case on any of its claims.

5. Before entering into the legal analysis, the European Union wishes to address one

of the political concerns raised by Argentina during the First Hearing, according to

which, the European Union's anti-dumping measure on biodiesel opens the door to

a situation where any kind of government regulation of the economy (such as the

setting of wages, or the adoption of environmental standards) might lead to a

finding of dumping.1 The European Union notes that Article 3(5) of the Treaty on

1 Argentina's Opening Statement, para. 15


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the European Union makes the European Union a proponent of free and fair trade.

The Union's anti-dumping practice is mindful of the comparative advantages of

WTO Members and respects the differences arising from the level of development,

natural advantages or general regulation of the economy. However, where, as in

the case at hand, a government distorts competition in order to confer an economic

benefit to certain producers and exporters leading to a significant lowering of

production costs, this certainly does not constitute a comparative advantage.

2. TERMS OF REFERENCE

6. In its first written submission, the European Union noted that Argentina had

abandoned most of the claims that the European Union had challenged as being

outside the Panel's terms of reference.2 During the First Hearing, Argentina

confirmed that it has abandoned these claims and characterised them as "moot"3

and as devoid of any "practical implications for the dispute at issue".4 This

confirms the consequences described in paragraph 13 of the European Union's first

written submission.

7. The European Union also noted that Argentina abandoned the claims against

"implementing measures and related instruments" and "related measures and

implementing measures", which the European Union considered outside the

Panel's terms of reference.5 During the First Hearing, Argentina stated that "it is

questionable whether the Panel would even have to rule on this issue in the

absence of practical implications for the dispute at issue".6 The fact that

Argentina asks the Panel not to rule on whether these claims are within its terms of

reference, because, according to Argentina, this would not have any "practical

2 European Union's First Written Submission, paras. 11 to 14. 3 Argentina's Opening Statement, paras. 31 and 36. The fact that Argentina has abandoned these

claims is further confirmed in footnote 8 of its Opening Statement, where Argentina relies on the Preliminary Ruling of the Panel in US-Countervailing and Antidumping Measures from China, paras. 3.9 and 3.10. Those paragraphs of the Panel's Preliminary Ruling stated that China had confirmed the abandonment of the relevant claims in that case. Moreover, paragraph 3.13 of that Preliminary Ruling confirmed that China could not "resurrect" the claims it had abandoned. The same applies to the claims that Argentina has abandoned in the present case.

4 Argentina's Opening Statement, para. 34. 5 European Union's First Written Submission, paras. 16 to 21. 6 Argentina's Opening Statement, para. 34.


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implications for the dispute at issue", confirms that Argentina has abandoned these

claims. This means that that the consequences described in paragraph 13 of the

European Union's first written submission apply to these claims too.

3. PRELIMINARY ISSUES

8. Certain of Argentina's claims are manifestly unfounded in law and should be

summarily rejected by the Panel for the following reasons.

3.1. THE CLAIMS UNDER ARTICLE 2.1 OF THE ANTI-DUMPING AGREEMENT AND

ARTICLE VI:1 OF THE GATT

9. In its first written submission the European Union argued that Argentina's claims

under Article 2.1 of the Anti-Dumping Agreement and Article VI:1 of the GATT

must be rejected, because these two Articles do not impose independent

obligations on the WTO Members and, as a result, cannot serve as a legal basis for

a distinct claim in WTO dispute settlement proceedings.7 The European Union

also argued that Argentina's claims under Article 2.1 of the Anti-Dumping

Agreement must be rejected for the additional reason that the facts of the present

case fall outside the scope of that provision.8

10. Argentina accepts in essence that these two Articles cannot serve as a legal basis

for any distinct claim and asserts that it does not bring any distinct claim under

these provisions.9 However, Argentina asserts that its claims under these two

provisions are "consequential" and dependant on its claims under Articles 2.2 and

2.2.1.1 of the Anti-Dumping Agreement.10

11. The European Union first notes that both parties agree that Article 2.1 of the Anti-

Dumping Agreement and Article VI:1 of the GATT cannot serve as legal bases for

"distinct" claims. Therefore, there is no dispute between the parties on this issue

that needs to be resolved by the Panel in the present case.

12. Argentina's new assertions fail to rebut the objection raised by the European

Union, for a number of reasons.

7 European Union's First Written Submission, paras. 48, 53 and 54. 8 European Union's First Written Submission, paras. 49 to 52. 9 Argentina's Opening Statement, para. 39. 10 Argentina's Opening Statement, paras. 39, 40 and 42.


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13. First, Argentina's assertions resemble an assertion made by China in EU-Footwear.

In that case China acknowledged that Article 2.1 "does not create independent

obligations", but argued that this provision "may nevertheless form the basis of a

claim if it can be shown that the obligation is also 'located' or 'created' elsewhere in

the AD Agreement".11 The Panel rejected China's interpretation on the basis that

"under China's approach all dumping related claims could be brought under Article

2.1 alone, supported by the assertion that the obligations asserted are 'created'

elsewhere".12 Importantly, the Panel also rejected China's claims under Article

VI:1 of the GATT, stating that its analysis on the claims under Article 2.1 of the

Anti-Dumping Agreement also applied to the claims under Article VI:1 of the

GATT.13 The European Union considers that the reasoning of the Panel in EU-

Footwear supports the rejection of Argentina's corresponding claims in the present

case.

14. Second, Argentina's assertion that these claims are "consequential" and dependant

on other claims under different legal provisions essentially constitutes a request to

the Panel to exercise judicial economy on these claims.14 Indeed, Argentina

accepts that its claims under these two Articles do not aim at protecting some

specific and distinct legal right or interest. This means that the Panel would not

need to rule on these claims in order to secure an effective resolution of this

dispute, irrespective of whether Argentina succeeds on its other claims under

Articles 2.2 and 2.2.1.1 of the Anti-Dumping Agreement. In these circumstances,

the European Union doubts whether raising claims under Article 2.1 of the Anti-

Dumping Agreement and Article VI:1 of the GATT is compatible with the

Members' obligations under Article 3.10 of the DSU.

15. Third, there is nothing in Argentina's Panel Request that would indicate that

Argentina was making some claims as "distinct" and others as "consequential".

Indeed, the references to Article 2.1 of the Anti-Dumping Agreement seem to be

11 Panel Report, EU-Footwear, para. 7.260. 12 Panel Report, EU-Footwear, para. 7.260. 13 Panel Report, EU-Footwear, footnote 562. 14 This is confirmed by the fact that Argentina refers to the Appellate Body's decision not to "issue

findings" (i.e., to exercise judicial economy) on the corresponding claims in US-Zeroing (Japan); Argentina's Opening Statement, para. 40.


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on an equal footing with the references to other Articles in Argentina's Panel

Request.15 The same is true for most references to Article VI:1 of the GATT.16

Therefore, as a matter of fact, Argentina fails to substantiate its assertions.

16. The conclusion is that Argentina's new assertions on the "consequential" nature of

the claims under Article 2.1 of the Anti-Dumping Agreement and Article VI:1 of

the GATT fail to rebut the European Union's objections. These claims of

Argentina must be rejected for lack of proper legal basis.

17. For reasons of completeness, the European Union will also address the other

assertion advanced by Argentina in relation to Article 2.1 of the Anti-Dumping

Agreement. The European Union noted that Article 2.1 refers to situations where

there are domestic sales in the ordinary course of trade, while Article 2.2 refers to

situations where there are no domestic sales in the ordinary course of trade.17 In

the present case both parties agree that there were no sales of biodiesel in

Argentina in the ordinary course of trade. Therefore, the facts of this case fall

outside the scope of Article 2.1.18

18. In its response, Argentina accepts that Article 2.1 "provides that a product is to be

considered as being dumped when it is introduced into the commerce of another

country at less than its normal value".19 Then, Argentina states that "the initial

phrase of Article 2.1 is concerned with defining dumping generally". It is unclear

what conclusion Argentina draws from this statement, because Argentina does not

provide any further explanation or analysis. Moreover, Argentina fails to discuss

the importance of the terms "in the ordinary course of trade" in Article 2.1.

Argentina also fails to discuss the importance of the terms "when there are no sales

of the like product in the ordinary course of trade" in the first line of the chapeau of

Article 2.2. As a result, Argentina's statement as it stands fails to rebut the

European Union's objection.

15 Panel Request, paragraphs 2(B)1, 2(B)2, 2(B)3, 2(B)4, etc. 16 Panel Request, paragraphs 2(A)1, 2(A)2, 2(B)1, 2(B)3, etc. 17 European Union's First Written Submission, para. 49. 18 European Union's First Written Submission, paras. 50 to 52. 19 Argentina's Opening Statement, para. 41.


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19. The conclusion is that Argentina's claims under Article 2.1 of the Anti-Dumping

Agreement and Article VI:1 of the GATT are manifestly unfounded in law and

must be summarily rejected by the Panel.

3.2. THE CLAIMS UNDER ARTICLE 2.4 AND ARTICLE 9.3 OF THE ANTI-DUMPING

AGREEMENT

3.2.1. Argentina's claims fall outside the scope of these provisions

20. The European Union has argued that Argentina's claims under Article 2.4 and

Article 9.3 of the Anti-Dumping Agreement must be rejected because they fall

outside the scope of these two provisions.20

21. The European Union draws support for its interpretation of the scope of these

provisions from the Panel Report in Egypt-Steel rebar. In that case, the Panel

found that Article 2.4 "refers to the comparison of export price and normal value;

i.e., the calculation of the dumping margin" and has to do "not with the basis for

and basic establishment of the export price and normal value (which are addressed

in detail in other provisions), but with the nature of the comparison of export price

and normal value".21 Consequently, Article 2.4 does not apply to the investigating

authority's establishment of normal value.22

22. In the present case, Argentina's main grievance is that the investigating authorities

have calculated a "normal value that incorporates a cost of soybean that has been

calculated on the basis of the reference FOB price for soybeans".23 Argentina

confirmed during the First Hearing that it does not take any issue with the value of

the export price used by the investigating authorities. In contrast, Argentina

considers that the investigating authorities should have calculated the normal value

in a different way.

20 European Union's First Written Submission, paras. 55 to 62. European Union's Response to

Question 57. 21 Panel Report, Egypt-Steel rebar, para. 7.333. The Panel also noted that "earlier provisions in

Article 2, namely Article 2.2 including all of its sub-paragraphs, and Article 2.3, have to do exclusively and in some detail with the establishment of normal value and export price"; Panel Report, Egypt-Steel rebar, footnote 250.

22 Panel Report, Egypt-Steel rebar, para. 7.335. 23 Argentina's Reply to Question 56, para. 136.


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23. Therefore, Argentina's claims are based on the supposed failure of the European

Union's investigating authorities to calculate properly the product's normal value.

Argentina's thesis is that the supposed failure to calculate properly the product's

normal value resulted in a comparison between the normal value and the export

price that was not "fair" (hence the alleged violation of Article 2.4) and a

calculation of the "wrong" dumping margin.24 The calculation of the "wrong"

dumping margin meant, according to Argentina, that the anti-dumping duty

imposed was higher than the "correct" dumping margin (hence the alleged

violation of Article 9.3).25

24. This means that, as a matter of fact, Argentina is challenging the calculation of the

normal value itself (which falls within the scope of Article 2.2) and not the "nature

of the comparison" between normal value and export price, which is the subject

matter of Article 2.4, or the comparison of the anti-dumping duties with the

dumping margin, which is the subject matter of Article 9.3. The consequence is

that Argentina's claims fall outside the scope of Article 2.4 and Article 9.3 of the

Anti-Dumping Agreement.

25. The European Union draws further support for this view from the Panel Report in

EC-Tube or pipe fittings. In that case, Brazil argued that the European Union had

used some "wrong" data when constructing normal value and, consequently, had

calculated the "wrong" normal value in breach of Articles 2.2 and 2.2.2 of the

Anti-Dumping Agreement.26 Brazil also argued that "in using this same data […]

and not making an adjustment for the use of [such] data", the European Union had

also "breached the requirement to make a fair comparison between normal value

and export price", in violation of Article 2.4.27

26. The Panel rejected Brazil's claims and found that:

24 See the references to Argentina's First Written Submission in the European Union's First Written

Submission, para. 55. 25 See the references to Argentina's First Written Submission in the European Union's First Written

Submission, para. 55. 26 Panel Report, EC-Tube or pipe fittings, para. 7.121. 27 Panel Report, EC-Tube or pipe fittings, paras. 7.121 and 7.140.


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"…we are of the view that Article 2.4 does not provide a legal basis for Brazil's allegation. Brazil's arguments with respect to the calculation of the constructed normal value in this case relate to the identification of normal value under Article 2.2 and 2.2.2, rather than to the requirement subsequently to ensure a fair comparison with export price under Article 2.4. For this reason, we decline to consider Brazil's allegation under Article 2.4 in this context."28

27. Argentina's claims in the present case are very similar to Brazil's claims in that

case. Just like Brazil, Argentina claims that the investigating authority allegedly

used the "wrong" data in calculating the normal value and did not make an

"adjustment" for the use of that "wrong" data when it compared the normal value

with the export price.29 The European Union respectfully submits that the Panel

should reject Argentina's claims under Article 2.4 in this case, just like the Panel

rejected Brazil's claims in EC-Tube or pipe fittings.

28. In the specific circumstances of the present case, the rejection of Argentina's

claims under Article 2.4 necessarily leads to the rejection of Argentina's claims

under Article 9.3. First, since Argentina fails to show that the dumping margin

calculated by the investigating authorities is "wrong", Argentina cannot show that

the anti-dumping duties imposed by the authorities exceed that dumping margin,

on the facts of the present case. Second, Argentina has not challenged any other

aspect of the calculation of the anti-dumping duties in the present case; Argentina's

case lies solely on the alleged "incorrect" calculation of the dumping margin.

These are reasons, additional to those discussed in the European Union's first

written submission,30 for which Argentina's claims under Article 9.3 of the Anti-

Dumping Agreement must be rejected.

3.2.2. Argentina has failed to make a prima facie case

29. Argentina asserts that its claims fall within the scope of Article 2.4 and Article 9.3.

However, it fails to substantiate that assertion.

30. First, in its Opening Statement, Argentina compares the dumping margin

calculated by the investigating authority at the provisional stage with the anti-

28 Panel Report, EC-Tube or pipe fittings, para. 7.140. 29 Panel Report, EC-Tube or pipe fittings, para. 7.121. 30 European Union's First Written Submission, paras. 55 to 62.


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dumping duties imposed at the definitive stage of the investigation and asserts that

the difference between the two figures shows that "these duties exceed the margin

of dumping as established under Article 2".31 Argentina's statement is not

convincing: Argentina should have shown that the definitive anti-dumping duties

are higher than the definitive dumping margins. Instead of that, Argentina

compares the definitive anti-dumping duties with the provisional dumping

margins. This does not make any sense and does not support any of Argentina's

claims.

31. Second, in a Reply to a Panel's Question, Argentina reproduces an excerpt from the

Panel Report in EU-Footwear (China).32 It is not clear what conclusion Argentina

seeks to draw from that excerpt, because it does not offer any relevant arguments

or analysis. In any event, that part of the Panel Report in EU-Footwear (China) is

not relevant for the present case, because it addressed a very different situation and

a very different claim.

32. In particular, China had argued that Article 2.4 created an "independent" and

"overarching" obligation of "fair comparison" which "applied to all of Article 2,

including all aspects of the establishment of normal value".33 In other words,

China had argued that Article 2.4 imposed obligations on the investigating

authority when it was constructing normal value. This Chinese argument has

nothing to do with the claims presented by Argentina in the present case:

Argentina asserts that its Article 2.4 claim does not relate to the construction of

normal value.34

33. Moreover, Argentina refers to that excerpt out of context. The immediately

preceding sentences contain the Panel's finding that "Article 2.4 refers to the

'comparison' between the normal value and the export price" and that "to require

consideration of whether a "fair comparison" will result in the process of

determining normal value introduces a circularity into the analysis which is

31 Argentina's Opening Statement, para. 45. 32 Argentina's Reply to Question 56, para. 137. 33 Panel Report, EU-Footwear (China), para. 7.261. 34 Argentina's Reply to Question 56, para. 136, first line. Argentina's Opening Statement, para. 44,

third sentence.


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untenable".35 The sentence immediately following Argentina's excerpt states that

"these allowances can only be made after the normal value and the export price

have been established".36

34. Therefore, in that paragraph of its Report, the Panel was discussing whether

Article 2.4 could apply to the stage of the construction of the normal value. To

answer that question, the Panel was establishing the sequence of events to which

the various provisions of Article 2 apply (i.e., first, construction of normal value

under Article 2.2; then identification of export price under Article 2.2;

subsequently comparison of normal value with export price under Article 2.4). In

contrast, the Panel did not make any finding that could support the assertion that a

supposed breach of Article 2.2 in the calculation of the normal value is an element

that could be relevant for the analysis under Article 2.4 (as Argentina asserts in the

present case). The Panel was actually dealing with the reverse question, i.e.,

whether the "principles" of Article 2.4 were relevant for the construction of normal

value under Article 2.2. Therefore, any assertion that Argentina might try to build

on this paragraph of the Panel Report in EU-Footwear (China) fails.

35. Third, the Panel Report in EU-Footwear (China) actually supports the European

Union's position in the present case. That Panel Report confirms that Article 2.4

allows investigating authorities the discretion to make any "due allowances" that

they consider necessary and to follow any "methodology" that they consider

appropriate.37 The Panel took particular note of the "absence of any guidance" in

Article 2.4 on how "due allowance for differences affecting price comparability is

to be made" and concluded that Article 2.4 does not "establish specific obligations

with regard to the methodologies that investigating authorities may use in order to

ensure a fair comparison".38

36. These Panel findings are in line with the Panel Report in EC-Tube or pipe fittings.

In that case the Panel also confirmed that investigating authorities enjoy discretion

and noted "the absence of any precise textual guidance in the Agreement

35 Panel Report, EU-Footwear (China), para. 7.264. 36 Panel Report, EU-Footwear (China), para. 7.264. 37 Panel Report, EU-Footwear (China), paras. 7.277 and 7.279. 38 Panel Report, EU-Footwear (China), para. 7.281.


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concerning how adjustments are to be calculated", as well as the "absence of any

textual prohibition on the use of any particular methodology adopted by an

investigating authority with a view to ensuring a fair comparison".39

37. In the present case, Argentina has failed to show that the European Union's

investigating authorities have exercised their discretion in an arbitrary manner

when comparing the normal value with the export price and establishing the

dumping margin. This is an additional reason for which Argentina's claims under

Article 2.4 must be rejected.

4. ARGENTINA HAS FAILED TO MAKE A PRIMA FACIE CASE ON ITS "AS SUCH"

CLAIMS

4.1. INTRODUCTION

38. The European Union has argued that, in order to make a prima facie case on its "as

such" claim under Article 2.2.1.1 and Article 2.2 of the Anti-Dumping Agreement,

Argentina had to establish inter alia (a) the "precise content" of the measure that it

challenges;40 and (b) that the challenged "measure" constitutes a binding

requirement that requires the investigating authorities to apply it in all cases in a

manner which is inconsistent with the covered agreements.41 The European Union

has also argued that Argentina has failed on both these counts and, consequently,

that it has failed to make a prima facie case on its "as such" claims.

39. Argentina's response has failed to rebut the European Union's objections.

4.2. THE REQUIREMENT TO ESTABLISH THE "PRECISE CONTENT" OF THE WRITTEN

"RULE OR NORM"

40. In its recent Report in Argentina-Import Measures, the Appellate Body found that

"instruments of a Member containing rules or norms can be challenged 'as such'".42

In particular, "legislation prescribing … rules or norms can be challenged 'as

such'".43 When bringing an "as such" challenge against a "rule or norm", the

39 Panel Report, EC-Tube or pipe fittings, para. 7.178. 40 European Union's Opening Statement, paras. 53 to 60. 41 European Union's First Written Submission, paras. 118, 126 and 184 to 187. 42 Appellate Body Report, Argentina-Import measures, para. 5.102. 43 Appellate Body Report, Argentina-Import measures, para. 5.103.


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complaining party must clearly establish, inter alia, the "precise content of the

challenged measure, to the extent that such content is the object of the claims

raised".44

41. In the present case, Argentina has confirmed that it challenges "as such" a written

piece of legislation, namely the second sub-paragraph of Article 2(5) of the Basic

Regulation.45 Therefore, in order to make a prima facie case, Argentina must first

establish the "precise content" of that written piece of legislation.

42. However, Argentina has failed to meet this burden in relation to its "as such"

claims.

43. First, the European Union showed that Argentina has confused the scope of the

first sub-paragraph of Article 2(5) with the scope of the second sub-paragraph of

Article 2(5) of the Basic Regulation.46 Argentina responded that the European

Union's explanation of the operation of Article 2(5) was an "artificial two-step

approach", which "was created by the European Union as a defence for the

purposes of this case".47 However, Argentina's assertion is wrong and contradicted

by the evidence that Argentina itself has put on the record of the case.

44. For example, the judgment of the General Court in Acron, expressly states that the

"institutions" (i.e., the European Union's investigating authorities) consider that the

"first sentence of the first subparagraph of Article 2(5)" contains "two

requirements".48 Moreover, the same judgment states that it is the "requirement"

of the "first sentence of the first subparagraph of Article 2(5)" that "entitles the

institutions to ascertain whether the records 'reasonably' reflect the costs".49 In

contrast, it is the "second sentence of the first subparagraph of Article 2(5)" that

"entitles the institutions" to make adjustments on the basis of sources of

44 Appellate Body Report, Argentina-Import measures, para. 5.104. 45 Argentina's Opening Statement, para. 47. Argentina's Reply to Question 23, paras. 59 to 61. 46 European Union's First Written Submission, paras. 82 to 84and 107 to 110. 47 Argentina's Reply to Question 37, para. 106. 48 European Union's First Written Submission, para. 108. 49 European Union's First Written Submission, paras. 108 and 109.


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information other than the records.50 Therefore, the judgments of the European

Union's courts clearly show that the second subparagraph of Article 2(5) does not

have the "precise content" asserted by Argentina.

45. Moreover, the European Union's authorities were making the same determinations

on whether the company records "reasonably reflected the costs associated with

the production and sale" of the relevant goods on the basis of the first

subparagraph of Article 2(5), even before the introduction of the second

subparagraph of Article 2(5), i.e., at a time when the second subparagraph of

Article 2(5) did not even exist.51

46. In its response Argentina asserted that the example cited by the European Union

was not relevant, because "in that case the normal value was established pursuant

to Article 18 of the Basic Regulation".52 However, Argentina's attempt to

distinguish that case is not convincing. The text of the Regulation in Aluminium

foil originating in China and Russia expressly states that the investigating

authorities determined that the energy costs in the company records did not

"reasonably reflect the costs associated with the production of electricity" and

were "not reliable".53 This is precisely the legal test found in the first sentence of

Article 2.2.1.1 of the Anti-Dumping Agreement and the first subparagraph of

Article 2(5) of the Basic Regulation. Moreover, the term "reliable" is used by the

Panel in US-Softwood Lumber V to describe the meaning of the terms "reasonably

reflect costs" in Article 2.2.1.1 of the Anti-Dumping Agreement.54 Therefore,

there is no doubt that the investigation in Aluminium foil originating in China

constitutes an example of application of the first subparagraph of Article 2(5) of

the Basic Regulation, which was the only one existing at that time.

50 European Union's First Written Submission, para. 108. As already mentioned in the European

Union's First Written Submission, the General Court referred to the first subparagraph of Article 2(5) as "the first sentence of the first subparagraph" and to the second subparagraph of Article 2(5) as the "second sentence of the first subparagraph".

51 European Union's First Written Submission, paras. 90 to 92. 52 Argentina's Opening Statement, para. 58. 53 European Union's First Written Submission, para. 91. 54 European Union's First Written Submission, para. 167.


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47. In its response, Argentina also asserts that there is a need to "examine further

elements in order to determine the scope, meaning and content of the first part of

Article 2(5), second subparagraph".55 However, this assertion is not convincing.

The text to which Argentina refers simply repeats the words of the first

subparagraph of Article 2(5), preceded by the word "if". This text is a simple

introduction to the main body of the second subparagraph of Article 2(5) and

shows that the investigating authorities can follow one of the options listed in the

second subparagraph, after they have made the determination pursuant to the first

subparagraph of Article 2(5).

48. Argentina also notes that the first subparagraph of Article 2(5) "does not in any

way identify the conditions that must be met in order to determine whether the

company records reasonably reflect" the relevant costs.56 However, Argentina's

statement makes no sense. As already acknowledged by a Third Party in its Third

Party Submission, the first subparagraph of Article 2(5) simply reproduces

verbatim the text of Article 2.2.1.1 of the Anti-Dumping Agreement.57 Argentina's

statement is tantamount to a declaration that the text of Article 2.2.1.1 does not

provide sufficient guidance on the meaning of the terms "reasonably reflects the

costs associated with the production and sale" of the relevant goods.

49. Second, Argentina itself has acknowledged that the "measure" it challenges is not

found in the text of the second subparagraph of Article 2(5) and this is why it has

to be "construed" on the basis of other elements.58 Argentina, in essence,

challenges the European Union's application of Article 2(5) of the Basic

Regulation only in certain specific circumstances, namely where "the prices of the

inputs have been found to be artificially low or abnormally low because of an

alleged distortion".59

50. Even assuming, for the sake of the argument, that Argentina manages to show that

the European Union has indeed developed a certain "practice" in relation to

55 Argentina's Opening Statement, para. 50. 56 Argentina's Opening Statement, para. 53. 57 Indonesia Third Party Submission, para. 18. 58 Argentina's Reply to Question 26, paras. 78 to 82. 59 Argentina's Reply to Question 35, paras. 100 to 103.


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situations where these circumstances are present, Argentina will still have failed to

establish the "precise content" of the second subparagraph of Article 2(5) of the

Basic Regulation. This is because the supposed "practice" would be only one of

the ways that the challenged "written rule or norm" may be applied. However, it

would not be the only way that it may be applied. In fact, the European Union has

provided examples showing that Article 2(5) has actually already been applied in

different ways and in different circumstances.60 Therefore, the examples provided

by Argentina do not conclusively establish the "scope, meaning and content" of the

second subparagraph of Article 2(5) in general.

51. Indeed, Argentina will be facing a situation very similar to that faced by India in

US-Carbon Steel (India). In that case, India presented a number of examples

where the defending party's authorities had applied the challenged legislation in a

certain way. However, the Appellate Body rejected India's claims and found that

"it is not clear why a number of instances of the application of the measure should

in this case conclusively establish the meaning of the measure at issue in general,

which in this case is confined to [the defending party's legislation]".61

52. Just like India in US-Carbon Steel (India), Argentina has failed to establish the

meaning of the second subparagraph of Article 2(5) in general. Consequently,

Argentina has failed to establish the "precise content" of the second subparagraph

of Article 2(5) of the Basic Regulation. This prevents Argentina from making a

prima facie case on any of its "as such" claims, including under both Article

2.2.1.1 and 2.2 of the Anti-Dumping Agreement.

53. Third, Argentina has offered a number of different and inconsistent descriptions of

the "content" of the measure that it is challenging both under Article 2.2.1.1 and

under Article 2.2 of the Anti-Dumping Agreement. The European Union has

already identified the inconsistencies existing in the first written submission of

Argentina.62 Argentina's Opening Statement contains even more inconsistencies

and self-contradictions in the description of the "scope, meaning and content" of

the second subparagraph of Article 2(5) of the Basic Regulation.

60 European Union's First Written Submission, paras. 100 to 105. 61 Appellate Body Report, US-Carbon Steel (India), para. 4.480. 62 European Union's Opening Statement, paras. 56 to 60.


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54. For example, in paragraph 25 of its Opening Statement, Argentina asserts that the

second subparagraph of Article 2(5) "endows" the investigating authority with a

"margin or discretion" that goes too far. Therefore, Argentina asserts that this

provision offers the authorities discretion and does not oblige them to act in any

specific way.

55. In contrast, in paragraphs 54, 68, 70 and 72 of its Opening Statement, Argentina

asserts that "there is no discretion", that the second subparagraph of Article 2(5)

"requires the authorities to conclude" and that the authorities "have to conclude" in

a certain way. Therefore, Argentina contradicts itself and asserts that the provision

is mandatory, allowing no discretion to the investigating authorities. Which of

these two alleged "contents" is the "precise" one for the second subparagraph of

Article 2(5)?

56. Moreover, in paragraph 25 of its Opening Statement, Argentina asserts that the

second subparagraph of Article 2(5) allows authorities to reject the actual costs of

the inputs on the ground that they "reflect prices that are artificially or abnormally

low". In paragraph 54 of its Opening Statement, Argentina amends its description

of the content of the second subparagraph of Article 2(5) and asserts that the

recorded costs are rejected when they are "abnormally or artificially low in

comparison to prices on other markets". In paragraphs 61 and 63 of its Opening

Statement, Argentina amends once more its description and asserts that the

recorded costs are rejected when the recorded "costs of the inputs reflect prices

that are abnormally low or artificially low because of an alleged distortion on the

domestic market". And, in paragraph 73 of its Opening Statement, Argentina

amends again the content of the second subparagraph of Article 2(5) and asserts

that the measure at issue "requires the authorities" to reject the recorded costs

"when they reflect prices that are found to be abnormally or artificially low".

Which of these alleged "contents" is the "precise" one for the second subparagraph

of Article 2(5)?

57. The consequence of Argentina's inconsistencies, self-contradictions and ever-

changing descriptions is that Argentina fails to establish the "precise content" of


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the second subparagraph of Article 2(5).63 In these circumstances, it is impossible

for the Panel to understand precisely what is the "matter" before it. It is also

impossible for the Panel to make precise findings on that "matter", or, potentially,

recommendations.

58. When the Panel prompted Argentina to show the source of these varying

descriptions in the text of the second subparagraph of Article 2(5), Argentina

failed to do so.64

59. Argentina sought again to draw support for its various descriptions from Recital 4

of Regulation 1972/2002.65 However, Argentina's reliance on that Recital is

misplaced. As Argentina has acknowledged,66 the text of Recital 4 expressly

states that it refers, in particular, to situations where there is a "particular market

situation", as this term is used in the chapeau of Article 2.2 of the Anti-Dumping

Agreement. This Recital makes no reference to situations where there are "no

sales in the ordinary course of trade", which is the other term used in the chapeau

of Article 2.2 of the Anti-Dumping Agreement and which is the situation that we

are facing in the present case. Therefore, this Recital cannot be used as a source of

interpretation of all the situations covered by Article 2(5) of the Basic

Regulation.67

60. In addition, the text of Recital 4 actually contradicts Argentina's assertions. The

first sentence of Recital 4 states that the purpose of the introduction of the second

subparagraph of Article 2(5) is to "give some guidance as to what has to be done

if, pursuant to Article 2(5) of the [Basic Regulation] the records do not reasonably

reflect the costs associated with the production and sale…". This text clearly

shows that the determinations of whether the records "reasonably reflect costs"

were already being made under the first subparagraph of Article 2(5), which

already existed at the time of the introduction of Recital 4. It also shows that the

second subparagraph of Article 2(5) (which was introduced together with Recital

63 European Union's Opening Statement, paragraph 59. 64 Argentina's Reply to Question 26. 65 Argentina's Reply to Question 26, para. 80. 66 Argentina's Reply to Question 29, paras. 95 and 96. 67 European Union's First Written Submission, paras. 94 to 97.


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4) aimed at showing what can be done after that determination had already been

made under the first subparagraph of Article 2(5). Therefore, far from supporting

Argentina's assertions, Recital 4 is actually contradicting them.

61. Lastly, the European Union has provided examples of investigations where the

authorities calculated or adjusted the relevant costs on the basis of (a) domestic

market prices in the country of origin;68 or (b) other "reasonable" sources, such as

the accounts of the parent company.69 This shows that the second subparagraph of

Article 2(5) does not oblige the investigating authorities to seek the cost-

information outside the country of origin in all cases. In its response, Argentina

argues that these examples are not relevant, because they do not "concern a

situation in which the prices were found to be abnormally low or artificially low

because of a distortion".70

62. Argentina's response confirms that Argentina does not challenge "as such" the

second subparagraph of Article 2(5), but the purported application of that

provision in certain specific examples. This confirms again that Argentina has

failed to establish the "precise content" of the second subparagraph of Article 2(5),

or (in the words of the Appellate Body) the "meaning" of the second subparagraph

of Article 2(5) "in general".

63. The conclusion is that Argentina has failed to establish the "precise content" of the

second subparagraph of Article 2(5) of the Basic Regulation for purposes of its "as

such" claims under either Article 2.2.1.1, or Article 2.2 of the Anti-Dumping

Agreement.

4.3. THE REQUIREMENT TO ESTABLISH THAT THE CHALLENGED MEASURE

MANDATES CONDUCT THAT IS NECESSARILY INCONSISTENT WITH THE COVERED

AGREEMENTS

64. In US-Carbon Steel (India), India had put forward two alternative claims. First,

that the covered agreement did not allow the defending party's investigating

authorities to take certain actions.71 Second, that although the measure at issue

68 European Union's First Written Submission, para. 180. 69 European Union's First Written Submission, para. 179. 70 Argentina's Reply to Question 28, para. 89. 71 Appellate Body Report, US-Carbon Steel (India), para. 4.458.


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provided that a specific administrative action may be taken (i.e., "an inference may

be drawn"), it more accurately meant, in reality, that in all cases the defending

party's investigating authorities necessarily took that action (i.e., "drew such an

inference").72 In support of its claims, India relied on the practice developed by

the defending party's authorities. However, India did not challenge "as such" that

"practice"; India sought to rely on that "practice" only in order to shed light on the

meaning of the legal instruments challenged as the "measure".73

65. In relation to India's first claim, the Appellate Body found that it meant that "the

very grant of an authorisation in the text of the measure" to take the action (i.e.,

"draw an inference that is adverse to the interest of non-cooperating parties merely

on the basis of their non-cooperation") was inconsistent with the covered

agreements.74 The Appellate Body found that, to resolve that claim, it had to

"assess whether, pursuant to the authorisation contained in the text of the measure,

the investigating authority is required to act inconsistently" with the covered

agreements.75

66. The Appellate Body rejected India's claim, noting that the measure was framed in

"permissive terms" (i.e., it provided that the authorities "may" take the contested

action) and finding that the permissibility of the authorities' taking the contested

action depended on whether such action comported with the legal standard of the

covered agreements, as determined in the light of the particular circumstances of

each case.76

67. In relation to India's second claim, the Appellate Body found that the challenged

measure was "a discretionary measure rather than a binding requirement" to act in

the same way in all cases.77 This was seen both "on the face" of the relevant

domestic legal instrument and in the "Statement of Administrative Action", which

India had submitted in order to support its interpretation of the legal instrument.

72 Appellate Body Report, US-Carbon Steel (India), para. 4.458. 73 Appellate Body Report, US-Carbon Steel (India), para. 4.476. 74 Appellate Body Report, US-Carbon Steel (India), para. 4.463. 75 Appellate Body Report, US-Carbon Steel (India), para. 4.464. 76 Appellate Body Report, US-Carbon Steel (India), para. 4.469. 77 Appellate Body Report, US-Carbon Steel (India), para. 4.474.


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The Appellate Body found that this document "provided authority" to the

authorities, "rather than requiring" the challenged action in all instances.78

68. Moreover, the Appellate Body found that the "practice" identified by India was

actually not required by the measure, but was rather developed pursuant to the

discretion afforded by the measure.79 This meant that the "practice" did not form

an integral part of the measure itself and was not necessarily applied in all

instances.80 Quite to the contrary, the "practice appeared to be distinct and

separate from the measure at issue".81

69. In the present case, Argentina originally claimed that the second subparagraph of

Article 2(5) "establishes a rule which is mandatory".82 Argentina asserted that this

provision "required" the European Union's investigating authorities to

"necessarily" set aside the recorded costs and "necessarily" adjust or establish the

costs on the basis of information from other markets.83

70. However, Argentina appears to have changed its claim. Argentina advances a new

theory, pursuant to which "even if" the second subparagraph of Article 2(5) is

discretionary and not mandatory, "the fact that the measure provides for the

possibility" to act in a certain way "will necessarily be inconsistent with Article

2.2.1.1" of the Anti-Dumping Agreement.84 Argentina had not included such a

theory in its first written submission. Argentina mentions this new theory for the

first time in its Opening Statement. Moreover, it does not develop this theory in its

Opening Statement, where there is only a brief reference in one sentence.

Argentina also does not develop this theory in the Replies to Questions and only

includes a brief statement in its Reply to Question 24.85 Dealing with a similar

situation in another case, the Appellate Body found that belated modifications of

78 Appellate Body Report, US-Carbon Steel (India), para. 4.478. 79 Appellate Body Report, US-Carbon Steel (India), paras. 4.476 and 4.480. 80 Appellate Body Report, US-Carbon Steel (India), para. 4.477. 81 Appellate Body Report, US-Carbon Steel (India), para. 4.480. 82 Argentina's First Written Submission, para. 52. 83 Argentina's First Written Submission, paras. 53, 55, 86, 132 and 140. 84 Argentina's Opening Statement, para. 74. 85 Argentina's Reply to Question 24, para. 69.


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the nature of the complaining party's claims give rise to due process issues.86 In

any event, this belated modification in Argentina's theory confirms that Argentina

has failed to establish the "precise content" of the second subparagraph of Article

2(5) of the Basic Regulation and, in contrast, offers contradictory descriptions of

that "content".

71. Both theories advanced by Argentina are unfounded. The European Union

respectfully submits that the Panel should reject the "as such" claims of Argentina

in the present case, just like the Appellate Body rejected India's "as such" claims in

US-Carbon Steel (India).

72. Argentina's first theory is that "the use of the verb 'shall' in Article 2(5), second

subparagraph is evidence of the mandatory nature of the measure".87 Argentina

asserts that this provision does not offer any discretion to the European Union's

authorities,88 noting that the authorities "regularly use the words "cannot" which

supports even further the absence of discretion".89 This argument of Argentina is

very similar to that of India in US-Carbon Steel (India), where India claimed that

the defending party's authorities "necessarily" applied the measure in a certain

way.90 Moreover, just like India, Argentina relies on the European Union's

purported "practice" in order to support its interpretation of the challenged

"measure", but does not make a claim that the "practice" itself constitutes a WTO-

inconsistent measure.

73. The Panel should apply the legal test applied by the Appellate Body in US-Carbon

Steel (India), namely to assess whether the second subparagraph of Article 2(5) of

the Basic Regulation is "a discretionary measure", or "a binding requirement" to

act in the same way in all cases.

86 Appellate Body Report, EC-Fasteners, para. 574. 87 Argentina's Reply to Question 24, para. 70. 88 Argentina's Reply to Question 28, paras. 85 to 87. 89 Argentina's Reply to Question 24, para. 70. However, Argentina omits to mention that the

Definitive Regulation states that "it is considered appropriate" to take into account the distorting effects of Argentina's export tax in Recital 30. The use of these terms shows that the legal provision applied by the investigating authority is discretionary and not mandatory.

90 Appellate Body Report, US-Carbon Steel (India), para. 4.458.


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74. In this assessment, the Panel should take into consideration the fact that "on its

face" the relevant domestic legal instrument (i.e., the text of the second

subparagraph of Article 2(5)) provides "authority" to the authorities, "rather than

requiring" the challenged action in all instances. The Panel should also take into

consideration the fact that the "practice" identified by Argentina (to the extent that

it exists) is actually not required by the second subparagraph of Article 2(5), but

has rather been developed pursuant to the discretion afforded by that provision.

This means that the "practice" does not form an integral part of the measure itself;

quite to the contrary, the practice is distinct and separate from the measure at issue.

75. Moreover, the Panel should take into consideration the General Court judgments

that Argentina has put on the record of the present case, which confirm the

discretion afforded by the second subparagraph of Article 2(5) to the investigating

authorities, as well as the fact that the exercise of that discretion is subject to the

judicial control of the European Union's courts.91 The General Court judgments

also show that, just like in US-Carbon Steel (India), the exercise of the authorities'

discretion is subject to "rules and disciplines separate from" the second

subparagraph of Article 2(5), namely the general principles of the European Union

administrative law.92

76. The Panel may also take into consideration the fact that Argentina has actually

proffered varying theories on the nature of the second subparagraph of Article 2(5)

and that it has acknowledged its discretionary nature in its Opening Statement.93

On the basis of all this evidence the Panel should reject Argentina's "as such"

claims, both under Article 2.2.1.1 and Article 2.2 of the Anti-Dumping Agreement.

77. Argentina has sought to distinguish the examples of other investigations provided

by the European Union in relation to its "as such" claims both under Article

2.2.1.194 and Article 2.2.95 However, Argentina's arguments are not convincing.

91 Exhibit ARG-23, para. 23. 92 Exhibit ARG-23, para. 24. 93 Argentina's Opening Statement, para. 25. 94 Argentina's Opening Statement, para. 61. 95 Argentina's Reply to Question 28, para. 89.


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78. In relation to the "as such" claim under Article 2.2.1.1, the European Union has

provided examples of investigations where the company records were found not to

"reasonably reflect costs" for reasons other than those asserted by Argentina. This

shows that the "measure" challenged by Argentina (a) does not have the "scope,

meaning and content" that Argentina asserts and (b) that the authorities may apply

the "measure" in a manner which is consistent with the covered agreements.

Argentina's attempt to distinguish these examples simply confirms that Argentina

has failed to establish the "precise content" of the "measure" that it challenges, as

discussed in the preceding section of this submission.

79. In relation to the "as such" claim under Article 2.2, the cases mentioned by the

European Union relate to the application of the second subparagraph of Article

2(5) of the Basic Regulation in situations where the company records do not

"reasonably reflect costs". This is precisely the "scope, meaning and content" of

the second subparagraph of Article 2(5). Argentina's attempt to distinguish these

examples simply confirms that Argentina has failed to establish the meaning of the

second subparagraph of Article 2(5) in general, as discussed in the preceding

section of this submission.

80. The conclusion is that Argentina has failed to show that the second subparagraph

of Article 2(5) "mandates" the investigating authorities to act inconsistently with

Article 2.2.1.1, or Article 2.2 of the Anti-Dumping Agreement. Consequently,

Argentina's "as such" claims must be rejected.

81. Argentina's new second theory is that the "mere fact that Article 2(5), second

subparagraph, provides for the possibility [to find that records do not reasonably

reflect costs because they are artificially low or abnormally low] would necessarily

render the measure inconsistent with Article 2.2.1.1. The same reasoning applies

to Argentina's claim under Article 2.2".96

82. If the Panel decides that it has the authority to assess this new and belated theory

of Argentina, then the Panel should apply the legal test applied by the Appellate

Body in US-Carbon Steel (India), namely to "assess whether, pursuant to the

96 Argentina's Reply to Question 24, para. 69.


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authorisation contained in the text of the measure, the investigating authority is

required to act inconsistently" with the covered agreements.

83. In this assessment, the Panel should take into consideration the fact that the second

subparagraph of Article 2(5) of the Basic Regulation is framed in "permissive

terms", i.e., it provides that the authorities can use various sources for the missing

cost information and, if none of them is available, they can ultimately use "any

other reasonable basis". The Panel should also take into consideration the fact that

there have been examples where the authorities have used domestic sources from

the country of origin (like in the case of Okoume plywood originating in China), or

the accounts of the parent company (like in the case of White phosphorus

originating in Kazakhstan) in order to establish the "reasonable" costs. This

evidence shows that the authorities' use of some "other reasonable basis" depends

on the particular circumstances of each case. This means that the second

subparagraph of Article 2(5) does not require the investigating authority to act

inconsistently with the covered agreements.

84. The conclusion is that all of Argentina's "as such" claims must be rejected.

5. ARGENTINA SUGGESTS AN ERRONEOUS INTERPRETATION OF ARTICLE 2.2.1.1

5.1. ARGENTINA'S MAIN THESIS

85. Argentina's claim is premised on the theory that the terms "reasonably reflect the

costs associated with the production and sale of the product under consideration"

in Article 2.2.1.1 of the Anti-Dumping Agreement mean that the records should

include the expenses actually incurred by the company under investigation.

Argentina's theory is that the costs do not need to be "reasonable" themselves, but

that the records need to reflect "reasonably" the expenses actually incurred.97

86. Argentina confirms that this is indeed the premise of its claims, in its Replies to

the Panel's Questions. In particular, Argentina confirms that its claim is premised

on the thesis that "the structure of the first sentence of Article 2.2.1.1 shows that

the inquiry of whether the records reasonably reflect the cost of production is an

97 European Union's First Written Submission, para. 128, where there are further references to

Argentina's First Written Submission, paras. 91 to 114.


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assessment that concerns the records and not the costs themselves".98 Argentina

also confirms its view that, even if the costs of production are distorted, such

distortion "may arguably affect the costs, but not the records" and that this means

that the existence of the distortion and the source of the distortion (e.g., a

government intervention) "is not relevant when examining whether the records

reasonably reflect the costs of production" of the relevant goods.99

87. Moreover, Argentina confirms that its claim is premised on the theory that the first

sentence of Article 2.2.1.1 relates exclusively to a cost allocation issue.100 In

support of its theory, Argentina provided a list of the types of situations that, in its

view, would allow an investigating authority to disregard the recorded costs.101

All of them relate to the allocation of costs that have actually been incurred: (a)

situations where costs are not correctly allocated to the period under

consideration;102 (b) cost allocation issues in relation to the product under

investigation;103 (c) situations where the exporter forms part of a group of related

companies and where it may be appropriate to establish the costs on a consolidated

basis with the other companies of the group.104

88. It is important to note that Argentina's claim does not entertain the possibility of

disregarding the recorded costs in situations where there have been intra-group

transactions on a non-arms' length basis. This differentiates Argentina's claims

from the views expressed by certain Third Parties who accepted that the notion of

"reasonably reflecting costs" in Article 2.2.1.1 of the Anti-Dumping Agreement

allows investigating authorities to adjust costs relating to such non-arms' length

transactions.105

89. Therefore, Argentina has confirmed that its claim is premised on a specific legal

interpretation of Article 2.2.1.1: (a) that the proviso on "reasonably reflect the

98 Argentina's Reply to Question 4, para. 3. 99 Argentina's Reply to Question 4, para. 3. See also Argentina's Reply to Question 13, para. 25. 100 Argentina's Reply to Question 11, para. 24. 101 Argentina's Reply to Question 7, paras. 17 to 23. 102 Argentina's Reply to Question 7, paras. 19 and 20. 103 Argentina's Reply to Question 7, paras. 21 and 22. 104 Argentina's Reply to Question 7, para. 23. 105 China's Third Party Submission, para. 39.


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costs" relates exclusively to the records and not the costs, i.e., that the costs

themselves do not need to be reasonable; (b) that the records meet the condition of

the proviso where they report the costs that have actually been incurred by the

investigated company; (c) that the proviso of Article 2.2.1.1 relates exclusively to

issues of proper allocation of the costs that have actually been incurred by the

investigated company; and (d) that investigating authorities can never disregard or

adjust the costs that have actually been incurred by the investigated company for

other reasons, even where these costs are distorted.

90. This means that, in order to make a prima facie case on its "as such" claim,

Argentina must establish that this is indeed the proper interpretation of Article

2.2.1.1.106

91. This also means that the Panel is not required to assess whether the second

subparagraph of Article 2(5) of the Basic Regulation is consistent with some other

interpretation of Article 2.2.1.1 of the Anti-Dumping Agreement, different from

the interpretation put forward by Argentina.107 Such an assessment would involve

a different "matter", which is not before the Panel in the present case. Moreover,

replacing Argentina's legal interpretation of Article 2.2.1.1 with a different legal

interpretation that Argentina has not proffered would be tantamount to the Panel's

making the case for the complaining party.108

5.2. ARGENTINA SUGGESTS AN ERRONEOUS INTERPRETATION OF ARTICLE 2.2.1.1 OF

THE ANTI-DUMPING AGREEMENT

92. The European Union has already discussed the fallacies of Argentina's legal

interpretation in its first written submission.109 In this section of its second written

submission, the European Union will discuss the points made by Argentina in its

Opening Statement and in its Replies to the Panel's Questions.

106 It is for the complaining party to make a prima facie case that the challenged measure is

inconsistent with the covered agreements. Conversely, it is not up to the European Union, as the defending party, to make a prima facie case that its measure is consistent with the covered agreements.

107 Appellate Body Report, EC-Fasteners, para. 566. 108 Appellate Body Report, US-Carbon Steel (India), para. 4.505. Appellate Body Report, EC-

Fasteners, para. 566. 109 European Union's First Written Submission, paras. 130 to 170.


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93. First, the European Union notes that the "legislative history" that led to the

adoption of Article 2.2.1.1 actually contradicts Argentina's claims and legal

interpretations.

94. The first version of what is today the first sentence of Article 2.2.1.1 referred

exclusively to "allocation of costs". Moreover, the requirement for

"reasonableness" was linked to the GAAP of the country of origin: "…provided

that these principles reasonably reflect the costs associated…".110

95. However, following the negotiations, that version was modified to a very

significant extent that completely changed its scope and content.

96. Firstly, the "allocation of costs" was deleted from the first sentence and was

replaced with the terms "costs shall normally be calculated".111 Therefore, the

negotiations changed the very scope of the proviso from cost allocation to cost

calculation. This confirms that the proviso in the first sentence of Article 2.2.1.1

is not limited to cost allocation issues, contrary to Argentina's erroneous

assertions.

97. Secondly, the requirement for "reasonableness" was severed from the GAAP and

was attached to the reflection of the costs themselves.112 This confirms that the

drafters opted for a broader scope of the "reasonableness" obligation.

98. The conclusion is that the negotiating history of the first sentence of Article 2.2.1.1

(a) contradicts Argentina's assertion that the proviso relates only to cost allocation

issues; and (b) contradicts Argentina's excessively restrictive interpretation of the

terms "reasonably reflect the costs". Therefore, Argentina fails to substantiate its

interpretation of Article 2.2.1.1.

99. Second, Argentina's discussion of the Panel Report in US-Softwood Lumber V is

not convincing. Just like in its first written submission, Argentina focuses on a

statement of the Panel which it reads out of context.113 However, a more detailed

110 Argentina's Reply to Question 18, para. 43. 111 Argentina's Reply to Question 18, para. 44. 112 Argentina's Reply to Question 18, para. 44. 113 Argentina's Opening Statement, para. 95. Argentina's Reply to Question 19.


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analysis of the Panel's findings shows that they actually contradict Argentina's

claims in the present case.

100. The relevant part of the Panel Report in US-Softwood Lumber V deals with the

investigating authority's treatment of two different companies: Tembec and West

Fraser. The statement to which Argentina refers was made during the Panel's

assessment of the methodology followed by the investigating authority in relation

to Tembec.

101. The investigating authority had concluded that the "values entered into Tembec's

records" were "reasonable".114 Before the Panel, Canada argued that the

investigating authority was not allowed by Article 2.2.1.1 to reach that conclusion,

but, "was required by Article 2.2.1.1 to disregard" the values recorded in Tembec's

books, because they were "set below prevailing market prices".115 In other words,

Canada argued that Article 2.2.1.1 "mandates rejection" of the company records,

when the recorded costs do not reflect market values.116

102. The Panel rejected Canada's argument on two grounds. Firstly, the Panel found

that Article 2.2.1.1 does not impose any positive obligations on the investigating

authorities.117

103. Secondly, the Panel found that, even if it was assumed arguendo that Article

2.2.1.1 imposed some positive obligations on investigating authorities, these

obligations did not include the obligation to reject the values in the company

records when these values do not reflect market values. The exact words of the

Panel were: "we do not consider that [the investigating authority] was precluded

from using the actual cost of the input as it appeared in Tembec's records".118

104. Therefore, the Panel's finding was that Article 2.2.1.1 does not mandate,119 or

require120 investigating authorities to reject the recorded costs. In contrast, the

114 Panel Report, US-Softwood Lumber V, para. 7.314. 115 Panel Report, US-Softwood Lumber V, para. 7.307. 116 Panel Report, US-Softwood Lumber V, para. 7.315. 117 Panel Report, US-Softwood Lumber V, para. 7.316. 118 Panel Report, US-Softwood Lumber V, para. 7.321. 119 Panel Report, US-Softwood Lumber V, para. 7.315. 120 Panel Report, US-Softwood Lumber V, para. 7.305.


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Panel did not find that Article 2.2.1.1 does not allow investigating authorities to

disregard the recorded costs, where they consider that they are not "reasonable"

because they do not reflect market values. Therefore, the statement of the Panel,

to which Argentina refers, has limited scope: the Panel finds that the investigating

authorities are not obliged to treat the recorded costs in a certain way; but the

Panel does not find that the authorities are not allowed to disregard the recorded

costs as "unreasonable", where these costs do not reflect market values.

105. Quite to the contrary, the analysis of the entire reasoning of the Panel confirms that

Article 2.2.1.1 allows authorities to disregard the recorded costs, where they do not

reflect market values. This can be seen in the Panel's treatment of both (a) the

specific "facts before the Panel" on the investigation relating to Tembec;121 and (b)

the investigation relating to West Fraser.

106. In relation to Tembec, the investigating authority had followed its usual "practice",

which was to look first at the "actual cost of the input" as recorded in the company

records and then "test that value for reasonableness".122 To perform the "test of

reasonableness", the investigating authority "used market value as a benchmark for

determining the reasonableness of prices paid by a company to purchase a by-

product from an affiliated company" and "used market value as a benchmark for

determining the reasonableness of values assigned to a by-product in

interdivisional transactions".123 The investigating authority found that the "actual

cost is less than market value, because of the existence of profit in market

value".124 As a result, the investigating authority made various adjustments to the

"actual cost of the input" recorded in the company's books (it added amounts for

profits), in order to confirm whether the final valuation would be as close as

possible to market value. The authority's conclusion was that the "value recorded

in Tembec's books was reasonable", because these adjustments had "led to the

121 Panel Report, US-Softwood Lumber V, para. 7.317. 122 Panel Report, US-Softwood Lumber V, para. 7.318. 123 Panel Report, US-Softwood Lumber V, footnote 445. 124 Panel Report, US-Softwood Lumber V, para. 7.318.


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conclusion that prices for inter-divisional transfers" were not very different from

prices to non-affiliates, i.e., market prices.125

107. In other words, in the case of Tembec, the investigating authority followed a

methodology which used the "market values" as "benchmark" and compared the

values recorded in the books with market values in order to determine whether the

recorded values were "reasonable" for purposes of Article 2.2.1.1. Moreover, the

authority's determination that the recoded values were "reasonable" was based on

the finding that the prices recorded in the company books were actually similar to

market prices less the value of profits.

108. The Panel not only acquiesced to that methodology, but also expressly approved it.

The Panel found that, as the "the actual cost of the input will normally be lower

than the market value", the only way the investigating authority "could have

determined that the valuation […] recorded in Tembec's books was reasonable

[…] when compared to [Tembec's] sales prices to unaffiliated purchasers" was for

the investigating authority to make the relevant adjustments.126 Therefore, the

Panel expressly acknowledged that the recorded costs would be "reasonable" for

purposes of Article 2.2.1.1, only if it could be shown that they corresponded to

market prices.

109. The Panel's treatment of the methodology followed by the investigating authority

in relation to Tembec is important for the present case for a number of reasons.

First, it confirms that the notion of "reasonably" in the first sentence of Article

2.2.1.1 is not limited only to the records, but also covers the recorded costs and

values: the Panel stated that the investigating authority had to determine whether

the recorded "valuation" was "reasonable".127 Second, it confirms that

investigating authorities can use market prices as "benchmarks" in order to

confirm the "reasonableness" of the recorded costs and values.

110. The same conclusions are drawn from the Panel's assessment of the West Fraser

investigation. There, the Panel accepted that, in order to meet the "reasonably"

125 Panel Report, US-Softwood Lumber V, para. 7.322. 126 Panel Report, US-Softwood Lumber V, para. 7.322. 127 The Panel uses the terms "the reasonableness of the valuation in Tembec's books"; Panel Report,

US-Softwood Lumber V, para. 7.323.


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condition of Article 2.2.1.1, the recorded costs must be "reliable". It also accepted

that "an arm's length test" may be carried out in order to determine whether these

costs are "reliable",128 and that the recorded costs may be adjusted accordingly.129

The Panel's approach was confirmed by the Appellate Body on appeal.130

111. It is noted that Argentina in essence acknowledges that the Panel accepted that

investigating authorities are allowed to use market prices as a benchmark for

"reasonableness" under Article 2.2.1.1, when it acknowledges that the

investigating authority in US-Softwood Lumber V "was testing the prices charged

to affiliated parties against the prices charged to unaffiliated parties", which in

essence means market prices.131 It is also noted that even the Third Parties that

have generally supported Argentina in this case appear to agree with the European

Union on this point.132

112. The conclusion is that the Panel Report in US-Softwood Lumber V directly

contradicts the main thesis of Argentina's challenge and leads to the rejection of

Argentina's claims under Article 2.2.1.1 of the Anti-Dumping Agreement.

113. Third, Argentina's discussion of the supposed "definition of dumping" is equally

not convincing.133 Argentina's argumentation is based on the theory that a

dumping determination cannot rest on "external factors unrelated to the exporter or

producer".134 The European Union has already addressed a similar theory in its

Opening Statement.135 In addition to the points made there, the European Union

notes the following.

114. Article VI of the GATT does not limit the notion of dumping only to situations

that arise out of the exporters' "voluntary" pricing behaviour. Quite to the

contrary, the notion of dumping also covers situations that are created by the

128 Panel Report, US-Softwood Lumber V, paras. 7.327 to 7.329. 129 Panel Report, US-Softwood Lumber V, para. 7.347. 130 European Union's First Written Submission, paras. 168 and 169. 131 Argentina's Reply to Question 19, para. 50. 132 China's Third Party Submission, para.39. 133 Argentina's Opening Statement, paras. 78, 79 and 81. 134 Argentina's Opening Statement, para. 79. 135 European Union's Opening Statement, paras 25 to 36.


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action of governments and are, in that sense, "exogenous" or "external" to the

"intention" of the exporters. In addition to the considerations addressed in its

Opening Statement, the European Union draws support for this interpretation from

the Note 2 Ad Article VI, paragraphs 2 and 3, which reads as follows:

Multiple currency practices can in certain circumstances constitute a subsidy to exports […] or can constitute a form of dumping […] which may be met by action under paragraph 2 [of Article VI of the GATT]. By "multiple currency practices" is meant practices by governments or sanctioned by governments.

115. The ordinary meaning of this Note suggests that it is intended as an explanation of

the notion of dumping in Article VI, rather than an exception which is specific to

multiple currency practices. The text contains no reference to it constituting an

exception from, or extension to the notion of dumping. This text may be

contrasted with that of Note 2 Ad Article VI, paragraph 1, which envisages a

departure from the ordinary rules in the case of exports from non-market economy

countries.

116. This conclusion is supported by considering the context in which the Note appears.

It is attached to the two paragraphs of Article VI that elaborate the notions of

dumping and subsidy. Its purpose is filling out the definitions contained in those

provisions.

117. This interpretation of the Note is confirmed by an examination of its negotiating

history, where it was stated that this type of government measures is just one

example of dumping and not a "limitation to the definition of dumping".136

118. This has two important implications. Firstly, the text of the GATT expressly

provides that government action can lead to a situation of dumping. The text of

the GATT also expressly provides that importing countries may impose anti-

dumping duties in order to offset or prevent the dumping resulting from

government measures. The consequence is that Argentina's legal interpretation of

Article 2.2.1.1 fails. Given that this erroneous legal interpretation of Article

2.2.1.1 is the basis for both (a) the "as such" claim against the second

subparagraph of Article 2(5) of the Basic Regulation; and (b) the claim against the

136 Second Session of the Preparatory Committee of the United Nations Conference on Trade and

Employment, Thirty-Second Meeting of Commission A, held on 23 July 1947 in Geneva, Verbatim Report, page 12, Exhibit EU-15.


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specific anti-dumping measure on biodiesel, Argentina cannot make a prima facie

case on either of these claims.

119. Secondly, the fact that the GATT expressly refers to multiple currency practices as

a type of government measure that may lead to a situation of dumping provides

some insights on the nature and market effects that such measures should have in

order to fall within the scope of the dumping provisions in Article VI and the Anti-

Dumping Agreement.

120. The notion of multiple currency practices is developed by the International

Monetary Fund.137 The IMF describes multiple currency practices as "action by a

Member […] that of itself give rise to a spread of more than 2 percent between

buying and selling rates for spot exchange transactions between the Member's

currency and any other Member's currency", as well as "action by a Member […]

which results in mid-point spot exchange rates of other Members' currencies

against its own currency in a relationship which differs by more than 1 percent

from the midpoint spot exchange rates for these currencies in their principal

markets".138

121. Therefore, one of the characteristics of multiple currency practices is that they

constitute a specific government intervention affecting prices, as opposed to

general government regulation enacting general rules or standards. Indeed, in the

present case, the application of the export tax on soya beans was such a specific,

albeit indirect governmental price intervention.

122. Another element of multiple currency practices is that the IMF defines them on the

basis of a margin of difference from the market prices as determined in "their

principal markets". This has two important implications. Firstly, there is no

limitation as to the geographical area from where the market price used as

benchmark comes: the "principal markets" for a currency may well be in a major

international financial centre which is located outside the exporting country.

137 The effect of Article XV of the GATT is to create a link between the GATT and the IMF on issues

such as multiple currency practices. 138 Executive Board Decision 6790-(81/43) of March 20, 1981, as amended by Decision 11728-(98/56)

of May 21, 1998, SM/81/34, Sup.1, in Selected Decisions and Selected Documents of the International Monetary Fund, Thirty-Seventh Issue, Washington, D.C. December 31, 2013, page 634; Exhibit EU-16.


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Secondly, it indicates that "too small" deviations from the market price are

irrelevant for the determination of the margin. In any event "too small" deviations

would always be irrelevant in a dumping investigation, because the recorded cost

would be very close to the market price and, consequently, replacing the one with

the other would not have a material impact on the investigation.

123. Another characteristic of multiple currency practices is that there is no distinction

between direct and indirect practices (for example, the GATT includes "practices

by governments or sanctioned by governments"). This is another element which is

present in the case of the Argentine export tax, which indirectly affects the price of

soya beans.

124. To sum up, multiple currency practices involve a government induced

manipulation of the ordinary operation of the market, which substantially affects

and distorts pricing. These are precisely the characteristics of Argentina's export

tax on soya beans. Argentina has expressly acknowledged that (a) the export tax

on soya beans is a measure of the Government of Argentina and (b) that the effect

of the export tax on soya beans is to reduce the domestic price of soya beans in

Argentina in comparison to the level that this domestic price would have in the

absence of the export tax.139 Consequently, Argentina's export tax falls squarely

within the types of government measures that may lead to dumping and that "may

be met by action" under Article VI:2 of the GATT.

125. Fourth, Argentina makes certain statements in relation to the Panel Report in EC-

Salmon that are inconclusive and unconvincing.140 Firstly, Argentina fails to

address the fact that the Panel used the words "to be paid", as opposed to the

words "that have been paid", or "that have been incurred". The Panel's choice of

words contradicts Argentina's theory that Article 2.2.1.1 restricts the notion of

"reasonably reflect costs" only to those that have actually already been incurred by

the investigated company.

126. Secondly, Argentina asserts that the price used by the European Union's

investigating authorities "is clearly not the price to be paid by the Argentinean

139 Argentina's Reply to Question 43, para. 120. 140 Argentina's Opening Statement, para. 94.


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producers for domestic purchases of soybeans in Argentina".141 However, that

statement is contradicted by Argentina's acknowledging that, in the absence of the

export tax on soya beans, "arbitra[ge] would lead to a referential domestic price

which would be the international price minus/plus some other costs such as

transaction and fobbing costs".142 Moreover, Argentina has acknowledged that

"actual transactions are conducted at prices that may vary, albeit not significantly,

from those referential prices".143 This means that Argentina itself acknowledges

that this price is indeed the "price to be paid" by the Argentinean producers for

domestic purchases of soya beans in Argentina, in the absence of the government

measure that distorts the price of soya beans.

127. It is noted that the information provided by Argentina in its Replies to the Panel's

Questions confirms that the export tax on soya beans indeed constitutes a

mechanism for distorting the price of soya beans. Argentina has confirmed that it

determines a "reference FOB price" on the basis of a number of sources.144

Argentina has also confirmed that, in the absence of the export tax, the domestic

price of soya beans would be that reference price less the transaction and fobbing

costs.145 Argentina has also confirmed that the reason for which it determines this

"reference FOB price" is to "monitor possible pricing divergences in the local

market".146

128. Ii is important to note that Argentina imposes the export tax not on the price

indicated on the relevant export documents or invoices, but on the basis of the

reference FOB price.147 The effect of that mechanism is to ensure that the

resulting domestic price for soya beans is below the domestic price that would

have prevailed in the absence of the export tax. Therefore, the way Argentina

141 Argentina's Opening Statement, para. 94. 142 Argentina's Reply to Question 43, para. 120. 143 Argentina's Reply to Question 43, para. 121. 144 Argentina's Reply to Question 44, para. 125. 145 Argentina's Reply to Question 42, para. 120. 146 Argentina's Reply to Question 44, para. 125. 147 Argentina's Reply to Question 44, paras. 127 and 128.


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implements the export tax on soya beans constitutes, in essence, a mechanism of

intervention on the domestic price of soya beans.148

129. Fifth, Argentina makes some statements in relation to the terms "associated with

the costs" in Article 2.2.1.1 of the Anti-Dumping Agreement, which are not

convincing.149 The European Union has already discussed these points in its

Opening Statement.150 In addition to the views expressed in its Opening

Statement, the European Union notes the following.

130. Argentina qualifies the "reference FOB price" as a "hypothetical benchmark

price"151 and asserts that the FOB reference price is "not a 'real' price in the sense

that it is an average that is used for the calculation of the export tax".152 Argentina

also asserts that, "as far as the exporting producers [of biodiesel] are concerned",

the "FOB reference price is not a price to be paid for the act of producing

biodiesel".153 Argentina's assertions are not convincing.

131. As already mentioned above, Argentina itself has acknowledged that, in the

absence of the export tax, the domestic price of soya beans would have been the

"reference FOB price" less the transaction and fobbing costs.154 In the present

case, the investigating authorities took as a basis the FOB reference price (which

the Government of Argentina itself had determined) and deducted the transaction

and fobbing costs in order to calculate the price that domestic buyers would pay in

Argentina, in the absence of the export tax on soya beans. In other words, the

investigating authorities followed exactly the methodology that Argentina itself

acknowledges would lead to the calculation of the domestic soya bean prices in the

absence of the export tax.155

148 Given that the reference FOB price is mostly based on the prices prevailing in the international

markets, the effect of that governmental price intervention is to ensure that the domestic buyers of soya beans in Argentina will source soya beans at a price that is significantly lower than that of their foreign competitors.

149 Argentina's Opening Statement, paras. 91 to 93, 97 and 100 to 101. 150 European Union's Opening Statement, 70 to 76. 151 Argentina's Opening Statement, para. 93. 152 Argentina's Opening Statement, para. 101. 153 Argentina's Opening Statement, para. 100. 154 Argentina's Reply to Question 43, para. 120. 155 Argentina's Reply to Question 43, paras. 120 and 121.


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132. The conclusion is that Argentina's interpretation of Article 2.2.1.1 of the Anti-

Dumping Agreement is erroneous. Consequently, Argentina fails to make a prima

facie case on the claims that it bases on Article 2.2.1.1.

6. ARGENTINA SUGGESTS AN ERRONEOUS INTERPRETATION OF ARTICLE 2.2 OF

THE ANTI-DUMPING AGREEMENT

133. The European Union will discuss in this section the views expressed by Argentina

in its Opening Statement and Replies to the Questions of the Panel in relation to

Article 2.2 of the Anti-Dumping Agreement. It is noted that Argentina refers to

Article 2.2in support of its claims under both Article 2.2.1.1 and Article 2.2.

134. First, Argentina comments on the distinction between costs and evidence

pertaining to the determination of costs.156 Argentina's main assertion is that the

distinction suggested by the European Union is "artificial" and has no basis in the

text or the context of Article 2.2.

135. However, Argentina is wrong. The Anti-Dumping Agreement itself makes such a

distinction, when it contains a specific Article entitled "Evidence" (i.e., Article 6).

The European Union has already mentioned that Article 6.12 of the Anti-Dumping

Agreement expressly provides that evidence relating to the existence of dumping

may be provided by various groups outside the country of origin.157 Therefore,

Argentina's assertion is unfounded.

136. Second, Argentina advances various arguments on the interpretation of Article

2.2.2(iii) of the Anti-Dumping Agreement.158 Its main argument is that "the use of

data other than that of the country of origin must explicitly be provided for" and

that Article 2.2.2 of the Anti-Dumping Agreement supposedly "does not provide

for a similar exception or authorisation for the determination of the cost of

production".159 Argentina also asserts that "Article 2.2.2 lays down the criteria for

determining the reasonable amounts of SG&A and for profits only and not for the

cost of production". Argentina also asserts that "the fact that Article 2.2.2(iii)

156 Argentina's Opening Statement, para. 85. 157 European Union's Reply to Question 20, para. 28. 158 Argentina's Opening Statement, para. 87. 159 Argentina's Opening Statement, paras 87 and 98.


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refers to any other reasonable method for the determination of SG&A and profits

can certainly not be applied to the determination of the cost of production".160

137. Argentina's arguments are not convincing. The chapeau of Article 2.2.2 provides

that the amounts of the SGA costs shall be based on "data pertaining to production

and sales in the ordinary course of trade". The same terms are used in the first

sentence of Article 2.2.1.1, which refers to costs associated with the "production

and sale". Therefore, the chapeau of Article 2.2.2 and Article 2.2.1.1 refer to the

same production and sales costs. There is no reason for which the "any other

reasonable method" of Article 2.2.2(iii) would relate only to the production and

sales costs of the chapeau of Article 2.2.2, but not the same production and sales

costs mentioned in Article 2.2.1.1.

138. Third, Argentina's theory fails to explain how an investigating authority could

determine costs in a situation where there are no usable data from the country of

origin. The Panel has asked precisely this question to Argentina with Question

16(b). Argentina has simply not provided a meaningful response to the Panel's

Question.161

139. The conclusion is that Argentina has failed to substantiate its interpretation of

Article 2.2. Consequently, Argentina has failed to make a prima facie case on the

claims that it bases on this provision.

7. ARGENTINA HAS FAILED TO MAKE A PRIMA FACIE CASE ON ITS CLAIMS UNDER

ARTICLE 2.2.1.1 AND ARTICLE 2.2 OF THE ANTI-DUMPING AGREEMENT AGAINST

THE ANTI-DUMPING MEASURE ON BIODIESEL

140. There is an additional reason why Argentina's claims under Article 2.2 must be

rejected: Argentina has failed to show that the prices used by the European Union's

investigating authorities were from "outside the country of origin". Argentina has

simply asserted that "the European Union did not use the domestic price of

soybeans" and that "the European Union failed to construct normal value on the

basis of the cost of production in the country of origin".162

160 Argentina's Opening Statement, para. 87. 161 Argentina's Reply to Question 16(b), para. 34. 162 Argentina's Opening Statement, para. 103.


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141. However, the factual basis of that assertion is contradicted by Argentina's Replies

to the Panel's Questions. As already mentioned, Argentina has acknowledged (a)

that, in the absence of the export tax on soya beans, the reference "domestic" price

would be the reference FOB price less the transaction and fobbing costs;163 and (b)

that the actual transaction prices would not vary significantly from these reference

prices.164 Argentina has also acknowledged that it is the Government of Argentina

that determines the reference FOB price.165

142. The European Union considers that, in these circumstances, the prices used by the

investigating authorities were from the country of origin and reflected the cost of

soya beans that Argentine producers of biodiesel would have to incur, in the

absence of the export tax.

143. Consequently Argentina fails to make a prima facie case on its claims against the

anti-dumping measure on biodiesel under Article 2.2 of the Anti-Dumping

Agreement, irrespective of whether that provision allows the use of evidence from

outside the country of origin, or not.

144. Finally, the European Union has shown in its first written submission that

Argentina's claims on an alleged "improper establishment of the facts" are

unfounded.166 Argentina has not commented on that point in either its Opening

Statement, or its Replies to the Panel's Questions. Consequently, the European

Union will not address this point further in the present submission.

8. ARGENTINA HAS FAILED TO MAKE A PRIMA FACIE CASE ON ITS CLAIMS IN

RELATION TO PROFITS

145. Argentina has not discussed this issue in its Opening Statement. In its Replies to

the Panel's Questions, Argentina appears to draw a distinction between the

"reasonable method" of Article 2.2.2(iii) and the figure of profits to be established.

Argentina notes that Article 2.2.2(iii) does not "use the terms 'any reasonable

amount'" and, on that basis, Argentina appears to assert that the profit figure does

163 Argentina's Reply to Question 43, para. 120. 164 Argentina's Reply to Question 43, para. 121. 165 Argentina's Reply to Question 44, para. 125. 166 European Union's First Written Submission, paras. 222 to 232.


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not need to be "reasonable", but that the methodology must be "reasonable".167 If

this is indeed the assertion that Argentina is making, then it is clearly wrong. The

chapeau of Article 2.2 refers to a "reasonable amount for administrative, selling

and general expenses and for profits".

146. In any event, the methodology followed by the investigating authorities in the

present case closely resembles the methodology followed by the United States

authorities and approved by the Panel in US-Softwood Lumber V, albeit in order to

calculate a different cost item.

147. As already mentioned above, in US-Softwood Lumber V, the investigating

authorities first applied their usual practice, which was to use the "actual cost of

the input" recorded in the company records.168 Then, the authorities applied their

"normal test" in order to "determine whether the value recorded" in the company

records "was reasonable".169 In that specific case, the authorities concluded that

the "valuation was reasonable". Just like Argentina in the present case, Canada

asserted in that case that this methodology constituted "post hoc rationalisation".170

The Panel rejected Canada's assertions and found that the methodology followed

by the investigating authority was the only one that would allow it to determine

whether the valuation was "reasonable".171

148. As described in the Definitive and Provisional Regulations and in the European

Union's submissions to the Panel in the present dispute, the European Union

authorities followed steps similar to those outlined in the preceding paragraph.

The authorities first established a profit figure on the basis of their experience with

the relevant industry from other investigations and then tested the reasonableness

of that profit figure on the basis of a number of benchmarks. This is clearly a

"method" for the calculation of the profits that is "reasonable".

167 Argentina's Reply to Question 54, para. 129. 168 Panel Report, US-Softwood Lumber V, para. 7.322. 169 Panel Report, US-Softwood Lumber V, para. 7.322. 170 Panel Report, US-Softwood Lumber V, para. 7.322. 171 Panel Report, US-Softwood Lumber V, para. 7.322.


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149. In these circumstances, the European Union respectfully submits that the Panel

should reject Argentina's claim, just as the Panel rejected Canada's "post hoc

rationalisation" objections in US-Softwood Lumber V.

9. ARTICLE 3 CLAIMS

150. Argentina persists in accusing the EU of having adopted the wrong definition of

capacity.172 In the provisional and definitive Regulations the EU described the

state of the various EU biodiesel producing facilities, and gave a clear explanation

of the criterion it applied in assessing utilisation of capacity. While rejecting the

EU’s explanation Argentina has quietly abandoned its own criterion of capacity

based on the notion of what a plant was "designed to produce". Instead, it proposes

a new criterion of "potential" for production.173 Presumably a half-built factory

would have a "potential" for production and should therefore, on Argentina’s

criterion, be included. Its suggestion that the negotiating history contributes to the

interpretation of the text lacks all conviction, and trails off into platitude.174

151. Argentina's fixation with the numbers seems to have prevented it from having any

ideas regarding the significance of "capacity utilisation" as just one of the

indicators of injury to the domestic industry that is listed in Article 3.4. In fact,

Argentina’s only interest in the data on "capacity utilisation" is to proceed to the

further step of identifying it as an "other factor" cause of injury. It refers, without

attempt at justification, to the "controlling importance of overcapacity as a cause

of injury",175 in which regard it conveniently disregards the dumped imports that

are undercutting EU producers.

152. However, since "capacity utilisation" is an indicator of injury the question must

also be asked: If (as Argentina alleges) capacity utilisation has deteriorated, what

has caused it to deteriorate? During the investigation the exporters suggested that it

had come about through over-expansion.176 However, the evidence obtained by the

EU following the Provisional Regulation, and reflected in the data presented in the

172 Argentina's Opening Statement, para. 110. 173 Argentina’s Reply to Question 60, para. 144. 174 Argentina’s Reply to Question 60, para. 142, Reply to Question 63a, para. 153. 175 Argentina’s Reply to Question 62, para. 149. 176 Provisional Regulation, recital 137.


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Definitive Regulation, shows that this was not the case. Even Argentina

acknowledges that what it calls the "enormous overcapacity" is "continuous" and

"existed in 2009",177 i.e. throughout the period considered.

153. In any event, although Argentina finds it more convenient to base its arguments on

what it calls the "accurate figures used in the Provisional Regulation"178 the EU

has made quite clear that, following further investigation, these were replaced by

those in the Definitive Regulation.

154. As regards the significance of capacity utilisation as an indicator of injury the EU

believes that it provides a measure of the level of efficiency at which an industry is

operating. In this respect, to include industrial plant that has been mothballed in

the same category as plant which is kept in an operational condition would give a

false impression. To mothball a plant that is not needed is surely a more efficient

step than to keep it in a state of immediate readiness.

155. Regarding the supposed multiplicity of data sources, Argentina makes no attempt

to counter the EU’s refutation of its assertions.179 The EU made a decision on the

basis of positive evidence which it secured from the best source – the domestic

industry.

156. Argentina again accuses the EU of failing to make an objective assessment in its

evaluation of production capacity and utilisation of capacity.180 The best answer

that the EU can give is to ask the Panel to examine the careful justification for its

conclusions that was provided by the EU, in particular in the Definitive Regulation

at Recitals 130 to 133, and 161 to 171. These passages speak for themselves.

157. The fact that none of the sampled companies had "idle capacity" is called into

question by Argentina181 on the basis of an assertion by CARBIO that one of these

companies closed a production line in 2011. Argentina misrepresents the issue.

The closure in question had been reported by the sampled company and verified.

177 Letter from Van Bael & Bellis, 17 October 2013, Exhibit ARG-39, p. 24. 178 Argentina’s Reply to Question 68, para. 148. 179 European Union's First Written Submission, para. 309. 180 Argentina’s Opening Statement, para. 116. 181 Argentina’s Opening Statement, para. 120.


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This fact did not give any indication to the investigating authority that the data

originally supplied by EBB, which referred to all European Union producers,

included "idle" capacity. The true situation regarding this capacity was discovered

by the investigating authority only after the adoption of the Provisional

Regulation.

158. The conclusion that "idle capacity" was excluded from the consideration of

capacity utilisation and included in the evaluation of return on investment is,

contrary to Argentina’s arguments,182 entirely logical, since this capacity, although

not in use, was nevertheless an asset of the company.

159. On the issue of causation, Argentina’s argument does not adequately respond to

the analysis made in the investigation or the arguments presented in the EU’s First

Written Submission. It hypothesises the "total elimination of imports originating in

Argentina and Indonesia" as compared to the EU volume of production.183 Of

course, such an hypothesis, if it were to have any significance would have to

consider all the consequences of the removal from the EU market of dumped

imports that were markedly undercutting the prices of EU producers. The EU does

not see what would be learnt from such an exercise.

160. The aim of the causation analysis, in situations where there are said to be "other

factors", is to separate and distinguish the various causes. It should be remembered

that even if overcapacity were to be identified as a cause of injury that does not,

per se, exclude the fact that the dumped imports are also a cause.

161. Argentina refuses to address the EU’s logic on this point, which is summed up at

recital 161 of the Definitive Regulation. In this investigation, the levels of the EU

industry’s capacity utilisation actually improved (even Argentina refers to the

"constant and protracted nature" of the EU’s level of capacity utilisation),184 which

indicates that whatever caused the deterioration in the health of the EU industry it

was not changes in capacity utilisation.

182 Argentina’s Opening Statement, para. 118. 183 Argentina’s Opening Statement, para. 125. 184 Argentina’s Opening Statement, para. 125.


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162. In the final section of its Oral Statement Argentina returns to the issue of the

imports of Argentinian biodiesel made by the EU industry. It argues that these

imports were part of a long-term strategy rather than a way of maintaining its

customers while faced with undercutting by dumped imports from Argentina. The

suggestion is that the imports, and the anti-dumping proceedings, are being

choreographed by multinational companies for ends of their own. These ends,

presumably, include the operation of their European producers at substantial levels

of overcapacity and strongly declining profits.

163. That there are corporate links between producers in Argentina and the EU is

common knowledge.185 Argentina now suggests186 that corporate groups "might

have decided that their interests were better served by activating trade defence

mechanisms in the European Union". Firms producing in the EU are, regardless of

ownership, in principle entitled to the remedies provided by the anti-dumping

legislation if the conditions set out there are satisfied. The idea that a firm might

see an advantage in having its own goods subjected to anti-dumping duties seems

somewhat far-fetched.

164. Indeed the EU (consistent with Article 4.1(i) of the AD Agreement) excluded three

producers from the definition of the EU industry because the high level of their

imports from Argentina. The issue of "self-defence" imports from Argentina was

examined and explained in recitals 132 to 136 of the Provisional Regulation. The

seriousness with which the EU treated this issue is evident in its reaction to

suggestions, made following the Provisional Regulation, that other companies

should be excluded. These reactions are recorded in recitals 107 to 112 of the

Definitive Regulation.

165. The EU maintains that Argentina’s claim that the EU, when examining injury in

accordance with Article 3.4 of the AD Agreement, failed to properly consider the

factor ‘return on investment’ is outside the Panel’s terms of reference because it

was not mentioned in the Panel Request.

185 Argentina’s Opening Statement, para. 130. 186 Argentina's Opening Statement, para. 132.


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166. In China – Raw Materials Exports the Appellate Body concluded that:187

Because the complainants did not, in either the narrative paragraphs or in the final listing of the provisions of the covered agreements alleged to have been violated, provide the basis on which the Panel and China could determine with sufficient clarity what "problem" or "problems" were alleged to have been caused by which measures, they failed to present the legal basis for their complaints with sufficient clarity to comply with Article 6.2 of the DSU.

167. The importance of examining each of the factors listed in Article 3.4 has been

stressed by the Appellate Body.188 There are fifteen of these factors. Clearly it

would not be sufficient for the panel request to merely state that they had not been

properly examined without indicating which factors in particular the failure lay. In

the same way, identification of a particular factor cannot be taken (as in the present

case), merely by use of the phrase "inter alia", to include any of the others that the

complainant Member chooses to add later.

168. Contrary to what Argentina claims in its Response to the Panel’s questions,189 it

has failed to present the problem about return of investment clearly. In fact it has

not presented it at all.

169. Argentina’s replies to the Panel’s questions on causation of injury add nothing to

what it has already said. In response to Question 69 about "continuing" conditions,

Argentina quotes from the Appellate Body’s report in the Wheat Gluten case.190

However, the part of the report quoted by Argentina has no bearing on the point

that the EU has made. Rather it addresses the timing of injury caused by various

factors. The EU makes provision for such issues of timing to be taken into account

by tracking developments in the condition of the domestic industry, and the

potential causes of injury, over a "period considered" of three and a half years,

ending in the dumping "investigation period" of one year. It is just this approach

that enables the EU to respect the obligation to separate and distinguish the various

factors that may be causing injury. In particular, it permits the EU to distinguish

those factors that are changing from those that are constant.

187 Appellate Body Report, China – Raw Materials, para. 231. 188 Appellate Body Report, Thailand – H-Beams, para. 125 189 Argentina’s Reply to Question 63a, para. 153. 190 Argentina’s Reply to Question 69, para. 169.


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10. CONCLUSION

170. Argentina has failed to make a prima facie case on any of its claims. The

European Union respectfully requests the Panel to reject all of Argentina's claims.

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