the International Trade Law Review...The International Trade Law Review Reproduced with permission from Law Business Research Ltd. This article was first published in The International

International Trade Law ReviewThird Edition

EditorsFolkert Graafsma and Joris Cornelis

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The International Trade Law ReviewReproduced with permission from Law Business Research Ltd.

This article was first published in The International Trade Law Review, - Edition 3

(published in September 2017 – editors Folkert Graafsma and Joris Cornelis)

For further information please [email protected]

the

International trade law Review

International Trade Law ReviewThird Edition

EditorsFolkert Graafsma and Joris Cornelis

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iii

PREFACE ......................................................................................................................................................... viiFolkert Graafsma and Joris Cornelis

Chapter 1 WORLD TRADE ORGANIZATION ...............................................................................1

Philippe De Baere

Chapter 2 ARGENTINA ......................................................................................................................21

Alfredo A Bisero Paratz

Chapter 3 BRAZIL ................................................................................................................................30

Fernando Benjamin Bueno

Chapter 4 CHILE ..................................................................................................................................41

Ignacio García and Andrés Sotomayor

Chapter 5 CHINA.................................................................................................................................48

David Tang, Yong Zhou and Jin Wang

Chapter 6 EURASIAN ECONOMIC UNION .................................................................................56

Elena Kumashova

Chapter 7 EUROPEAN UNION ........................................................................................................68

Folkert Graafsma and Joris Cornelis

Chapter 8 INDIA ..................................................................................................................................95

Shiraz Rajiv Patodia and Ashish Singh

Chapter 9 JAPAN ................................................................................................................................108

Yuko Nihonmatsu and Fumiko Oikawa

Chapter 10 KOREA ..............................................................................................................................120

Dongwon Jung and Sungbum Lee

CONTENTS

iv

Contents

Chapter 11 MALAYSIA ........................................................................................................................132

Lim Koon Huan and Manshan Singh

Chapter 12 MEXICO ...........................................................................................................................143

Adrián Vázquez Benítez and Emilio Arteaga Vázquez

Chapter 13 TURKEY ............................................................................................................................154

Bulent R Hacioglu, Gülden Bozdeniz and Tanil Akbaytogan

Chapter 14 UKRAINE ..........................................................................................................................164

Anzhela Makhinova

Chapter 15 UNITED STATES ............................................................................................................176

Alexander H Schaefer, Charles De Jager and Benjamin Blase Caryl

Appendix 1 ABOUT THE AUTHORS ...............................................................................................189

Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS...........................................201

1

Chapter 1

WORLD TRADE ORGANIZATION

Philippe De Baere1

I OVERVIEW OF TRADE REMEDIES

The World Trade Organization (WTO) provides a comprehensive set of rules relating to the use of trade remedies. Apart from the general provisions contained in the GATT 1994 (Articles VI, XVI and XIX), three specific agreements, namely the Anti-Dumping Agreement,2 the Agreement on Subsidies and Countervailing Measures3 and the Agreement on Safeguards, addressing respectively the issues of dumping, subsidies and safeguards, were adopted during the Uruguay Round. WTO members wishing to apply trade defence instruments must ensure that their domestic legislation is as such consistent with the relevant WTO rules. They must equally make sure that each instance of application of such legislation complies with the applicable WTO provisions.

The rules contained in those agreements have been clarified over the years by WTO panels and the Appellate Body. Indeed, disputes relating to trade remedies constitute nearly half of all disputes initiated since the establishment of the WTO in 1995.4 The following section, Section II, is devoted to the rules applicable to the determination of normal value in anti-dumping investigations against imports from China after the special provisions in Section 15 of China’s WTO Accession Protocol expired on 11 December 2016. Since there is disagreement on the legal consequences of the expiry between major users of the anti-dumping instrument on one hand and China on the other, China has started dispute settlement proceedings against the United States and the EU. Section III will then discuss other key developments that have occurred in WTO case law specifically related to anti-dumping cases. These developments include the recent decisions on the use of cost adjustments for the construction of the normal value and the treatment of targeted dumping and the use of zeroing under the Anti-Dumping Agreement (the AD Agreement). The clarifications on the treatment of exporting producers with a de minimis margin of dumping and the obligations imposed on investigating authorities when resorting to ‘facts available’ in the course of anti-dumping investigations, provided by the Panel in Canada – Welded Pipe, will also be discussed.

1 Philippe De Baere is a partner at Van Bael & Bellis. This chapter was written with the help of Joanna Redelbach, Sidonie Descheemaeker and Carlo Maria Cantore.

2 Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the AD Agreement).

3 Agreement on Subsidies and Countervailing Measures (the SCM Agreement).4 According to data provided on the WTO website, 258 out of 525 disputes initiated to date involved claims

under the AD Agreement, the SCM Agreement or the Agreement on Safeguards.

World Trade Organization

2

II THE TREATMENT OF CHINESE IMPORTS IN ANTI-DUMPING INVESTIGATIONS

i Granting China market economy status after 11 December 2016

Upon its accession to the WTO in 2001, China agreed to be bound by a number of obligations in addition to those applicable to all WTO members. Key among these obligations was the possibility for other WTO members to disregard domestic prices and costs in China for the determination of the normal value in the context of anti-dumping investigations for a transitional period of 15 years from the date of China’s accession.

Section 15(a)(ii) of China’s WTO Accession Protocol provides that ‘[t]he importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product’, and Section 15(d) of the Accession Protocol clarifies that ‘[i]n any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession’.

While many WTO members maintain that China fails to meet the criteria for market economy status, the majority of commentators5 do agree on the automatic expiry of the alternative methodologies contained in Section 15(a)(ii) on 11 December 2016. This necessarily implies that the EU anti-dumping legislation should be modified in order to reflect the changed legal framework resulting from the expiry of part of China’s WTO Accession Protocol. For the EU, the expiry of Section 15(a)(ii) ends the almost automatic reliance on its analogue country methodology vis-à-vis imports from China. Under this methodology, the domestic prices and costs were systematically replaced by the domestic prices or costs in a third-market economy country for the determination of normal value.

The importance of this change in normal value methodology is more than merely symbolic: approximately half of the EU’s anti-dumping investigations concern non-market economies, of which about 85 per cent involve imports from China.6

ii China’s ‘as such’ challenge against the EU’s anti-dumping legislation

On 12 December 2016, the day after the expiry of Section 15(a)(ii) of China’s WTO Accession Protocol, China launched an ‘as such’ challenge against the EU’s Basic Anti-Dumping Regulation.7 China claims that it has to be treated as any other WTO member after the expiry of Section 15 of its Accession Protocol.8

In essence, China is challenging the EU’s failure to modify its domestic legislation so as to reflect the change in China’s market economy status in a timely manner. Following

5 Some commentators have argued that the expiry of Section 15(a)(ii) of China’s WTO Accession Protocol does not affect the other subsections of Section 15 and that other WTO members are, therefore, free to continue to use alternative methodologies for determining normal value in investigations targeting Chinese imports. See, for example, O’Connor, B, ‘The Myth of China and Market Economy Status in 2016’, available at: http://worldtradelaw.typepad.com/files/oconnorresponse.pdf.

6 See European Commission, Trade Defence Statistics, available at: http://trade.ec.europa.eu/doclib/docs/2017/january/tradoc_155243.pdf.

7 Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on protection against dumped imports from countries not members of the European Union (codification).

8 See DS516, EU – Price Comparison Methodologies, document WT/DS516/1. On 12 December 2016, China also filed a request for consultations targeting the US’ anti-dumping legislation. However, China


3

the expiry of Section 15(a)(ii), China argues that the treatment that the EU continues to afford to Chinese imports under Article 2(7) of its Basic Anti-Dumping Regulation (i.e., the continued application of alternative normal value methodologies) ceased to be justifiable as of 12 December 2016 and is inconsistent with the WTO covered agreements.

More precisely, China argues that Articles 2(1) to 2(7) of the Basic Anti-Dumping Regulation9 are inconsistent with the principle of most-favoured nation (MFN) treatment contained in Article I:1 of the GATT 1994,10 as these provisions provide for differential treatment of Chinese imports as compared to imports from other WTO members. In addition, China argues that Article 2(7) of the Basic Anti-Dumping Regulation is – as such – inconsistent with Articles 2.111 and 2.212 of the AD Agreement. Article 2(7) expressly requires the EU investigating authority to reject Chinese market prices and costs when calculating normal value in favour of third-country prices and costs, unless the Chinese exporter can demonstrate that it meets very strict additional conditions.

The fact that the EU is in the process of amending its anti-dumping legislation to address the expiry of the special rules in China’s Accession Protocol was considered insufficient by China.13 In its complaint, China mentions that its challenge ‘also concerns any modification, replacement or amendment to [EU anti-dumping legislation], and any closely connected, subsequent measures’. China explicitly notes that it is aware of the EU’s ongoing legislative processes implicating potential changes to relevant provisions of the Basic Anti-Dumping Regulation and states that its complaint ‘includes any changes made to the Basic Regulation pursuant to the legislative processes initiated by [the proposals of the European Commission]’.

It can be questioned whether the new EU anti-dumping legislation would effectively fall within the terms of reference of the currently established and composed Panel. Despite the fact that China’s panel request expressly refers to ‘closely connected, subsequent measures’,

has – to date – not filed a panel request in the US case. China appears to be prioritising its challenge to the EU’s anti-dumping legislation, potentially because an easier victory against the EU could set a favourable precedent for a tougher case against the US.

9 Articles 2(1) to 2(6) of the Basic Anti-Dumping Regulation put forth the standard rules in EU law for calculating normal value in anti-dumping proceedings. In contrast, Article 2(7) of the Basic Anti-Dumping Regulation sets out a different regime applicable to the calculation of normal value for imports from ‘non-market economy’ countries. Article 2(7)(b), which expressly names China, provides that the rules set forth in Articles 2(1) to 2(6) shall only apply if the concerned producer is able to substantiate that ‘market economy’ conditions prevail in respect of the manufacture and sale by that producer of the like product concerned. To do so, the producer must establish that it meets the criteria set out in Article 2(7)(c).

10 Article I:1 of the GATT 1994, which sets forth the MFN treatment obligation, prohibits discrimination between like products originating in, or destined for, different countries. The principal purpose of Article I:1 is to ensure equality of opportunity to import from, or to export to, all WTO members.

11 Pursuant to Article 2.1 of the AD Agreement, normal value should, in principle, be determined as the price charged for the product in the ordinary course of trade in the domestic market of the exporting country.

12 Article 2.2 of the AD Agreement explains that if normal value cannot be determined as foreseen in Article 2.1, the investigating authority can resort either to the export price of the like product to an appropriate third country or to the constructed normal value, to be determined on the basis of the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits.

13 The European Commission published its long-awaited proposal on the reform of the EU trade defence instruments on 9 November 2016. As the proposal is subject to the EU’s ordinary legislative procedure, the Council and the European Parliament must reach an agreement on a final text of the new EU anti-dumping legislation before it can enter into law. Until that moment, the old EU anti-dumping legislation continues to apply. Trilogue negotiations between the EU institutions started on 12 July 2017.


4

the Panel will have to determine whether the panel request sufficiently identifies the new EU anti-dumping legislation, the contours of which are as yet unclear, as a measure at issue, as required by Article 6.2 of the Dispute Settlement Understanding (DSU). While ruling on the new EU anti-dumping legislation would enable the Panel to fulfil its mandate to resolve the disagreement between the parties in a prompt manner, this jurisdictional issue will largely depend on whether the Panel is of the opinion that the panel request fulfils the due process objective of notifying respondents and potential third parties of the nature of the dispute. Finally, as will be explained hereafter, it remains to be seen whether the new EU legislation would still meet the criteria for a finding that it violates ‘as such’ the EU’s WTO obligations.

iii China’s expected future challenges against the EU

Apart from the already ongoing legal battle on the interpretation of China’s WTO Accession Protocol, the EU should be wary of additional ‘as such’ and ‘as applied’ challenges from Beijing during the coming year.

First, if the currently established and composed Panel were to hold that new EU anti-dumping legislation does not fall within its terms of reference, China is expected to initiate an ‘as such’ challenge against this new EU legislation as soon as it enters into force. The current proposal of the European Commission envisages a country-neutral approach pursuant to which EU investigators must use producers’ data to calculate normal value, unless it is ‘not appropriate to use domestic prices and costs in the exporting country due to the existence of significant distortions’. In such a scenario, investigators can use ‘undistorted prices or benchmarks’ instead (including undistorted international prices and costs). If the new EU rules are based on this proposal, China could argue that the EU rules still permit investigators to use third-country costs and prices in the calculation of normal value, which goes against the EU’s WTO commitments. On the basis of the findings of the Appellate Body in EU – Biodiesel (as discussed in more detail in Section III.i), the practice of resorting to information originating outside of the country of production of the goods under investigation is hard to reconcile with the relevant provisions of the AD Agreement. The possibility of bringing a successful ‘as such’ challenge against the new EU rules appears to depend on the degree of discretion that these rules will grant to the investigating authorities in disregarding domestic prices and costs. Indeed, as demonstrated in the EU – Biodiesel case (where the Panel and the Appellate Body rejected Argentina’s claim of an ‘as such’ violation of Article 2(5) of the Basic Anti-Dumping Regulation with the AD Agreement), a carefully drafted legal provision granting discretion to the investigating authorities may pass WTO scrutiny, provided that its application does not necessarily mandate a WTO-inconsistent outcome.


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Second, China could challenge ‘as applied’ the anti-dumping investigations initiated by the EU after 11 December 2016.14 For the investigations initiated before the entry into force of the new legislation, China could argue that the EU law on which the anti-dumping duties are based (which failed to incorporate China’s change in its market economy status in a timely manner) is illegal. In addition, China could argue that all investigations that calculate the normal value of Chinese imports on the basis of an alternative methodology, namely by using data other than the domestic costs and prices of the Chinese companies, are WTO-inconsistent.

Third, it is expected that Chinese exporters will request the European Commission to carry out interim reviews of existing anti-dumping duties. The exporters are likely to argue that such a review is justified by the change in the market economy status of China, which constitutes a substantial change in circumstances and is of a lasting nature. If the EU were to refuse such requests for review, China could challenge such decision before the WTO.

iv Outlook

With the deadline of 11 December 2016 long past, the EU urgently needs to determine how to amend its anti-dumping legislation in a way that is WTO-consistent, while still maintaining its effectiveness in coping with imports from China.

Among the EU institutions, there is consensus that an agreement on the new anti-dumping rules should be reached before the WTO rules on China’s complaint in the case EU – Price Comparison Methodologies. A new legal battle is likely to commence once the new rules are adopted. Depending on the level of discretion left to the European Commission in adopting special methodologies when carrying out investigations against imports from China, an ‘as such’ challenge of the new legislation itself will be brought or China will bring claims against each individual instance of application of the new methodologies.

III SIGNIFICANT LEGAL DEVELOPMENTS

i EU – Biodiesel (Argentina): Cost adjustments in anti-dumping investigations

Introduction

In 2002, the EU added a second subparagraph to Article 2(5) of its Basic Anti-Dumping Regulation that enables it to adjust the costs of production by replacing the actual costs of the exporters with prices considered to be more representative. The aim of this provision is to address situations in which domestic prices of certain inputs, such as raw materials, are significantly below third-country or world market prices.15 With regard to exporters

14 Regarding the ‘as applied’ challenges, the European Commission initiated, on 23 June 2017, a new anti-dumping investigation on low carbon ferro-chrome originating in China, Russia and Turkey. This was the first EU anti-dumping investigation initiated against China since the expiry of certain provisions of its WTO Accession Protocol on 11 December 2016. On 11 August 2017, the European Commission also initiated a new anti-dumping investigation on imports of new and retreaded tyres for buses or lorries originating in China.

15 Recital 5 of the Regulation reads, in the relevant part: ‘It is expedient to define the circumstances in which domestic sales may be considered to be made at a loss and may be disregarded, and in which recourse may be had to remaining sales, or to constructed normal value, or to sales to a third country.’ See also, Pogoretskyy, V: ‘The System of Energy Dual Pricing in Russia and Ukraine: The Consistency of the Energy Dual Pricing System with the WTO Agreement on Anti-Dumping’, Global Trade and Customs Journal, Vol.


6

using raw materials at prices that are considered to be artificially low as the result of ‘market distortions’, the EU has consistently applied such ‘input cost adjustments’ since 2002.16 These adjustments have mainly been applied in anti-dumping proceedings involving Russia.

The EU’s methodology to disregard the exporters’ data as included in their records has raised serious concerns as to its compatibility with the AD Agreement and Article VI of the GATT 1994. In recent years, this methodology has been challenged by various WTO members. In EU – Biodiesel (Argentina) (DS473), the Panel and the Appellate Body made findings on the issue for the first time. At the time of writing this chapter, there are four other disputes involving cost adjustment methodologies pending before the WTO Dispute Settlement Body (DSB): DS474: EU – Cost Adjustment Methodologies (Russia); DS480: EU – Biodiesel (Indonesia); DS493: Ukraine – Anti-Dumping Measures on Ammonium Nitrate (Russia); and DS494: EU – Cost Adjustment Methodologies (Second complaint, Russia).

While the measures being challenged in these cases are not identical, the complainants in all disputes challenge the same issue, namely the rejection of costs from exporters’ accounting data during the course of the anti-dumping investigation based on the fact that they were considered to be artificially low, and their subsequent replacement by other data. The complainants in these disputes also challenge the use of cost adjustments in specific anti-dumping investigations.

In EU – Biodiesel (Argentina), Argentina brought two different claims before the Panel. First, Argentina challenged the incompatibility ‘as such’ of Article 2(5) of the EU Basic Anti-Dumping Regulation with Articles 2.2 and 2.2.1.1 of the AD Agreement. Second, Argentina challenged the inconsistency with the same provisions of the failure by the European Commission to calculate the cost of production of the product under investigation on the basis of the records kept by the producers specifically in the biodiesel investigation.

The ‘as such’ claims

The Panel examined the claims of an ‘as such’ violation of Articles 2.2 and 2.2.1.1 of the AD Agreement in light of ‘the relevant principles established under WTO jurisprudence on the examination of the scope, content and meaning of provision of the municipal legislation of a member, under ‘as such’ claims’.17 In this respect, the Panel held that since the measure leaves a margin of discretion for the European Commission to evaluate whether to take into

4(1), 313–323 (2009), at p. 313; De Baere, P: ‘Article 2(5) of the Basic Regulation and the adjustment of production costs in the light of the Anti-Dumping Agreement’, ERA Forum Vol. 15(4), 531–546 (2014), at p. 532.

16 See, for example, Council Regulation (EC) No. 1891/2005 of 14 November 2005 amending Regulation (EEC) No. 3068/92 imposing a definitive anti-dumping duty on imports of potassium chloride originating in Belarus, Russia or Ukraine, OJ 2005 L 302, 19 November 2005; Council Regulation (EC) No. 954/2006 of 27 June 2006 imposing a definitive anti-dumping duty on imports of certain seamless pipes and tubes of iron or steel originating in Croatia, Romania, Russia and Ukraine, OJ 2006 L 175, 29 June 2006; Council Regulation (EC) No. 1911/2006 of 19 December 2006 imposing a definitive anti-dumping duty on imports of solutions of urea and ammonium nitrate originating in Algeria, Belarus, Russia and Ukraine following an expiry review pursuant to Article 11(2) of Regulation (EC) No. 384/96, OJ 2006 L 365, 21 December 2006.

17 Panel Report, EU – Biodiesel, paragraph 7.119.


7

account the production costs as recorded in the books of the companies concerned in the anti-dumping investigations, it should not be considered to be ‘as such’ inconsistent with Articles 2.2 and 2.2.1.1 of the AD Agreement.18

The question was brought again before the Appellate Body. The Appellate Body agreed with the Panel that Argentina had not established that ‘it is in applying the second subparagraph of Article 2(5) that the EU authorities are to determine that the records of the party under investigation do not reasonably reflect the costs associated with the production and sale of the product under consideration when those records reflect prices that are considered to be artificially or abnormally low as a result of a distortion’.19 Therefore, the Appellate Body, like the Panel, dismissed Argentina’s claim under Article 2.2.1.1 of the AD Agreement.

Interestingly, the Panel had found that ‘Article 2.2 of the AD Agreement and Article VI:1(b)(ii) of the GATT 1994 do not limit the sources of information that may be used in establishing the costs of production; what they do require, however, is that the authority construct the normal value on the basis of the “cost of production” “in the country of origin” ’, assuming the authority has found that the company’s accounting records do not meet the requirements of Article 2.2.1.1. According to the Panel, while this would require that the costs of production established by the authority reflect conditions prevailing in the country of origin, the two provisions do not prevent an authority from resorting to sources of information other than producers’ costs in the country of origin.20 In essence, the Panel did not rule out the possibility for an investigating authority – once it has established that the costs in the records have not been duly reported – to rely on information originating from other countries as long as it reflects the conditions prevailing in the country of origin of the products concerned.

The Appellate Body also concurred with the Panel that the fact that the second subparagraph of Article 2(5) of the EU Basic Regulation is capable of being applied in a manner that is inconsistent with Article 2.2 does not preclude the possibility that when the EU authorities rely on ‘information from other representative markets’, they could adapt that information to reflect the costs of production ‘in the country of origin’ as required by Article 2.2 of the AD Agreement.21 The Appellate Body, thus, concluded that Argentina did not prove that the second subparagraph of Article 2(5) restricts, in a material way, the discretion of the EU authorities to construct the cost of production in a manner consistent with Article 2.2 and, therefore, did not prove that Article 2(5) of the Basic Regulation is ‘as such’ inconsistent with that provision.

The ‘as applied’ claims

In the context of the anti-dumping investigation on biodiesel from Argentina, the European Commission found that the Argentine market for biodiesel was heavily regulated. In particular, the imposition of the differential export tax (DET) had, in the view of the European Commission, the effect of depressing the domestic prices of soybeans and soybean oil. As a consequence, the European Commission held that since the domestic prices for the main raw materials were lower than international prices, they were not reasonably reflected

18 Panel Report, EU – Biodiesel, paragraph 7.174.19 Appellate Body Report, EU – Biodiesel, paragraph 6.196.20 Panel Report, EU – Biodiesel, paragraph 7.171.21 Appellate Body Report, EU – Biodiesel, paragraphs 6.241–6.243.


8

in the producers’ records. Based on these grounds, the European Commission replaced the production costs as recorded in the companies’ books with the average reference price of Argentine soybeans for export, minus fobbing costs, during the period of investigation.

Argentina contested the substitution of the production costs operated by the European Commission during the investigation and claimed that the EU had violated Article 2.2.1.1 of the AD Agreement.

The first sentence of Article 2.2.1.1 provides that:

For the purpose of paragraph 2, costs shall normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration.

Article 2.2.1.1 thus provides that in situations where records are kept in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration, the investigating authority is normally bound to use them.22 In other words, Article 2.2.1.1 does not permit the investigating authorities to reject the records when they are duly reported in the company’s books.

The disagreement in this case related to the meaning of the expression ‘reasonably reflect the costs associated with the production and sale of the product under consideration’.

The Panel first considered the ordinary meaning of the provision, and found that it relates to the issue of whether the records reflect all the costs actually incurred for the production of the goods under investigation, in a reliable and accurate manner.23 In particular, the Panel stressed that since the adverb ‘reasonably’ clearly refers to the verb ‘reflect’ and not to the noun ‘costs’, the provision does not call for a comparison between the costs actually incurred by the producers and hypothetical costs that they would have incurred under a different set of circumstances and that is deemed to be more reasonable by the investigating authority.24 All the provision requires is that the records duly report the actual costs incurred by the producer. Therefore, the Panel found that the EU had acted inconsistently with Article 2.2.1.1 of the AD Agreement by disregarding the actual costs of production reported in the companies’ books.25

The Appellate Body confirmed this reading of the provision. In particular, the Appellate Body found it clear that the requirement under Article 2.2.1.1 of the AD Agreement that the records kept by the exporter or producer under investigation reasonably reflect the costs associated with the production and sale of the product under consideration relates to whether such records suitably and sufficiently correspond to the costs incurred by the investigated exporter or producer that have a ‘genuine relationship’ with the production and sale of the specific product under consideration.26 This requirement, however, does not allow the authorities to consider which costs would pertain to the production and sale of that product in ‘normal circumstances’, or in other words, in the absence of alleged ‘distortion’.

22 Panel Report, China – Broiler Products, paragraph 7.164.23 Panel Report, EU – Biodiesel, paragraph 7.231.24 Panel Report, EU – Biodiesel, paragraph 7.230.25 Panel Report, EU – Biodiesel, paragraph 7.249.26 Appellate Body Report, EU – Biodiesel, paragraph 6.22.


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The Appellate Body also clearly rejected the EU’s proposition that the costs themselves must be ‘reasonable’. According to the Appellate Body, an abstract standard of ‘reasonableness’, which would govern the meaning of ‘costs’ in Article 2.2.1.1, lacks any textual or contextual support.27 These findings are significant as they confirm that the EU cannot reject the costs included in the exporters’ records and replace them with out-of-country costs simply because it considers the latter to be more ‘reasonable’.

The second issue raised concerns on the legality of utilising international or third-country market prices in determining the costs of production. Article 2.2 of the AD Agreement, in fact, imposes an obligation on a WTO member to construct the normal value on the basis of ‘the cost of production in the country of origin’. The Panel found that the EU relied on costs that could not be considered to be ‘costs in the country of origin’. In particular, the fact that the reference price of Argentine soybeans for export was published in Argentina was not relevant in that regard, as it did not represent costs actually incurred by domestic purchasers of soybeans, including producers of biodiesel.28

The issue was also before the Appellate Body, which confirmed that while in establishing the ‘cost of production in the country of origin’ under Article 2.2 of the AD Agreement an investigating authority may rely on out-of-country evidence or information, such information must be adapted so as to reflect the ‘cost of production in the country of origin’. According to the Appellate Body, ‘whatever the information that it uses, an investigating authority has to ensure that such information is used to arrive at the “cost of production in the country of origin” ’.29 The Appellate Body found that the reference price published by the Argentinian Ministry of Agriculture cannot be considered as the cost of soybeans in Argentina and accordingly upheld the Panel’s findings that the surrogate price for soybeans used by the EU authorities did not represent the cost in the country of origin in violation of Article 2.2.30

Those findings are significant as they confirm that the information used to establish the cost of production pursuant to Article 2.2 of the AD Agreement must reflect the cost of production ‘in the country of origin’. While the Appellate Body recognised the possibility of using information from outside the country of origin, it nevertheless noted that ‘[a]n investigating authority will naturally look for information on the cost of production “in the country of origin” from sources inside the country’,31 thereby confirming that the data originating in the country of origin must be the preferred source of information and that, in any event, out-of-country information should be adjusted so as to reflect the situation of the market in the country of origin of the investigated products.

Implications

The outcome of this dispute is of essential importance to the EU’s future anti-dumping action, and is likely to create a relevant precedent for the pending cases mentioned above. The EU is now prevented from using these types of cost adjustments in future anti-dumping investigations. This is important for all exporters targeted by EU anti-dumping investigations, in particular Russian exporters.

27 Appellate Body Report, EU – Biodiesel, paragraph 6.26.28 Panel Report, EU – Biodiesel, paragraph 7.260.29 Appellate Body Report, EU – Biodiesel, paragraph 6.73.30 Appellate Body Report, EU – Biodiesel, paragraph 6.75.31 Appellate Body Report, EU – Biodiesel, paragraph 6.70.


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The findings in EU – Biodiesel will need to be taken into account by the EU in drafting the rules that will be applicable to Chinese imports in anti-dumping investigations after 11 December 2016. As mentioned in Section II, in order to deal with the expiry of Section 15(a)(ii) of China’s WTO Accession Protocol, the European Commission is in favour of allowing EU investigators to resort to ‘undistorted prices or benchmarks’ (including undistorted international costs and prices) when they find ‘significant distortions’ linked to the targeted product. Based on the reasoning developed in EU – Biodiesel, it is uncertain that future WTO panels or the Appellate Body will find anti-dumping measures adopted following a similar methodology to be consistent with the requirements of Articles 2.2 and 2.2.1.1 of the AD Agreement.

More generally, the confirmation by the Appellate Body of the Panel’s findings considerably limits the range of options available to investigating authorities in order to deviate from the production costs recorded in the companies’ books and to replace them with ‘undistorted’ out-of-country costs.

ii US – Washing Machines: The treatment of targeted dumping and the use of zeroing

Introduction

The issue of targeted dumping (i.e., a practice whereby dumped exports are targeted at certain purchasers, regions or periods) has been the subject of heated discussions for several years. Although the AD Agreement recognises this practice and provides for a special methodology for establishing the dumping margin in such cases, it does not clearly define how such a methodology should operate in practice.

The AD Agreement allows for three different methodologies to calculate the dumping margin. The two ‘normal’ or ‘symmetrical’ methods are provided in the first sentence of Article 2.4.2, whereby the dumping margin is calculated by comparing the weighted average of the normal value to the weighted average of the export price (W-W) or by comparing the normal value and the export price on a transaction-to-transaction basis (T-T).

The second sentence of Article 2.4.2 of the AD Agreement reads as follows:

A normal value established on a weighted average basis may be compared to prices of individual export transactions if the authorities find a pattern of export prices which differ significantly among different purchasers, regions or time periods, and if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average-to-weighted average or transaction-to-transaction comparison.

Pursuant to this provision, if the authorities find a pattern of export prices that differ significantly among different purchasers, regions or periods and if they explain why such differences cannot be accounted for by using the W-W or the T-T methodologies, they can determine the margin of dumping by comparing a weighted average normal value with prices of individual export transactions (the W-T methodology).

The main controversy regarding this last methodology concerns the determination of when targeted dumping is taking place and how the asymmetrical methodology from the second sentence of Article 2.4.2 should be applied. Until recently, the Appellate Body had provided very limited guidance on the circumstances under which an investigating authority can have recourse to the second sentence of Article 2.4.2 of the AD Agreement for the comparison between the normal value and the export price. In EC – Bed Linen, the Appellate


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Body only held that ‘[t]his provision allows Members, in structuring their anti-dumping investigations, to address three kinds of “targeted” dumping, namely dumping that is targeted to certain purchasers, targeted to certain regions, or targeted to certain periods’.32 According to the Appellate Body, there are essentially two conditions to be met if an investigating authority relies on this methodology for the calculation of the dumping margin. First, the investigating authority must find a pattern of export prices which differ significantly among different purchasers, regions or time periods and, second, an explanation is to be provided as to why the two methodologies mentioned in the first sentence of Article 2.4.2 cannot be relied upon to take into account these export prices.33

The recent Appellate Body Report in US – Washing Machines (DS464) examined the United States’ determination to apply the second sentence of Article 2.4.2.

The Appellate Body’s findings on the determination of targeted dumping

The US Department of Commerce (USDOC) has developed a test to determine the existence of a pattern of export prices differing significantly among purchasers, regions or periods. According to that test, the USDOC first had to determine the existence of a ‘pattern’ by examining whether 33 per cent of the volume of sales of the product concerned to an allegedly targeted customer was at a price that is more than one standard deviation below the weighted-average prices to all other customers.34 Second, the ‘significant difference’ was established by investigating whether for 5 per cent of the total sales volume of the product concerned to the allegedly targeted customer the difference between the weighted-average price of sales to the allegedly targeted customer and the next higher weighted average sales price to a non-targeted customer exceeded the average price gap for sales of the same product to non-targeted customers.35

Once the USDOC has determined the existence of targeted dumping based on the aforementioned statistical method, Section 777A(d)(1)(B) permits the use of the average-to-transaction methodology, including for the transactions that did not satisfy the targeted dumping test.36

Korea claimed that the US violated Article 2.4.2 of the AD Agreement by applying the W-T comparison methodology to all export transactions, including those not included in the identified pattern. The Panel made findings in favour of Korea under this claim. In particular, the Panel clarified that the ‘prices of individual export transaction’ in the first part of the second sentence of Article 2.4.2 of the AD Agreement correspond to those comprising the pattern of export prices referred to in the second sentence, following a textual and contextual analysis of the provision.37 On these grounds, the Panel had found that the US, by applying the W-T methodology to transactions falling outside the scope of the identified pattern, acted inconsistently with Article 2.4.2 of the AD Agreement. The US challenged those findings before the Appellate Body, which had the opportunity to clarify

32 Appellate Body Report, EC – Bed Linen, paragraph 62.33 Appellate Body Report, US – Zeroing (Japan), paragraph 131.34 Antidumping Duty Investigation of Large Residential Washers from the Republic of Korea, (Dep’t of

Commerce, 18 December 2012), Issues and Decision Memorandum, pp. 19–20.35 Id., p. 20.36 High Pressure Steel Cylinders from the People’s Republic of China, (Dep’t of Commerce, 20 April 2012),

Issues and Decision Memorandum, p. 25.37 Panel Report, US – Washing Machines, paragraph 7.28.


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the scope of application of the W-T comparison methodology. The Appellate Body clarified that investigating authorities can only resort to the W-T comparison methodology ‘to the extent that it is necessary to remedy the inability of the normally applicable comparison methodologies to take into account appropriately the identified “pattern” ’.38 This reading was further reinforced by a contextual analysis of the provision, which – according to the Appellate Body – clearly indicates that the exceptional W-T methodology can only be used for pattern transactions.39 In light of this reading, the Appellate Body upheld the Panel’s findings in this respect.40

Korea made claims also with regard to the manner in which the USDOC defined the pattern of export prices that differ significantly among purchasers for the purpose of the second sentence of the above-mentioned provision. In particular, Korea contested that the USDOC based its determination on purely quantitative criteria, without taking into account strong seasonal pricing patterns or, in general, the reasons for the relevant price differences.

The Panel, again basing itself on a strict textual interpretation of the provision, held that Article 2.4.2 of the AD Agreement contains no requirement to consider the reasons for the differences in prices, and an examination of the relevant numerical price values would be sufficient.41 In essence, the Panel held that the ‘pattern clause’ of the second sentence of Article 2.4.2 of the AD Agreement only calls for an examination of how the relevant prices differ and not of the reasons for the difference.42 Based on this understanding of the ‘pattern clause’, the Panel dismissed Korea’s claims that the USDOC should not have limited itself to a quantitative analysis in order to establish a pattern of export prices that differ significantly among different purchasers, regions or time periods, but rather it should have looked into the reasons for these differences.43 Korea appealed those findings. The issue before the Appellate Body, thus, was whether a determination that a pattern of exports differs significantly among different purchasers, regions or time periods can be established on the basis of purely quantitative criteria, without looking into the reasons for the price differences. On one hand, the Appellate Body agreed with the Panel that investigating authorities do not need to enquire the cause of (or the reasons for) the differences in prices in the determination of the existence of a pattern.44 On the other hand, the Appellate Body nevertheless found that the requirement to identify prices that differ significantly means that investigating authorities cannot limit themselves to a quantitative analysis, but actually – based on the circumstances – may also have to look at ‘certain objective market factors, such as circumstances regarding the nature of the product under consideration, the industry at issue, the market structure, or the intensity of competition in the markets at issue, depending on the case at hand’.45

Finally, the Panel addressed Korea’s claim that the USDOC had failed to provide an explanation as to why the price differences could not be effectively captured through the use of the normal methodologies (W-W or T-T). In the investigation under scrutiny before the Panel, the USDOC explained that the W-W methodology could not take appropriate account of the price differences, because the averaging in that methodology conceals price

38 Appellate Body Report, US – Washing Machines, paragraph 5.50.39 Appellate Body Report, US – Washing Machines, paragraph 5.51.40 Appellate Body Report, US – Washing Machines, paragraph 5.55.41 Panel Report, US – Washing Machines, paragraph 7.46.42 Panel Report, US – Washing Machines, paragraph 7.48.43 Panel Report, US – Washing Machines, paragraph 7.52.44 Appellate Body Report, US – Washing Machines, paragraph 5.65.45 Appellate Body Report, US – Washing Machines, paragraph 5.66.


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differences and because the resulting dumping margin was lower compared to the margin calculated under the W-T methodology. The USDOC, however, did not explain why it was not possible to rely on the T-T methodology.

The Panel found that the USDOC did not provide an adequate explanation as to why the W-W methodology was not available, since it basically limited itself to a statement that the averaging in that methodology conceals price differences, without addressing in detail the factual circumstances of the case before it.46 Concerning the lack of explanation as to why the authority did not apply the T-T methodology, the Panel found that the text of the provision only requires that the authority provides an explanation with regard to one type of comparison, either W-W or T-T. The Panel explained its findings by affirming that when an authority opts for the W-W comparison methodology because, owing to the number of transactions, the application of the T-T methodology would be overly burdensome, it is not necessary for that authority to also explain why the T-T methodology could not capture instances of targeted dumping. Based on the foregoing, the Panel dismissed Korea’s claims on the lack of explanation concerning the non-application of the T-T methodology.47

Korea appealed those findings as well. The Appellate Body reversed those findings on the basis of a thorough interpretative exercise over the precise meaning of the various words of the provision, and clarified that investigating authorities must explain why both the W-W and the T-T comparison methodologies are not able to capture targeted dumping in the presence of significant differences in export prices amounting to a pattern.48 While there can be circumstances in which the two methodologies would yield substantially equivalent results – and in those cases the explanation may not necessarily be ‘elaborate’ – investigating authorities are nevertheless bound to explain why relevant price differences could not be appropriately taken into account under one of the two standard comparison methodologies.

The use of zeroing in the context of targeted dumping

Zeroing has been condemned on multiple occasions in almost all possible contexts. However, until the report on US – Washing Machines, the Appellate Body had not yet ruled on the question of whether zeroing is permissible under the W-T methodology.

Before the dispute in US – Washing Machines, investigating authorities had argued that zeroing should be allowed under such exceptional circumstances as otherwise the third methodology would yield results identical to those obtained under the W-W method. According to this so-called ‘mathematical equivalence’ argument, if zeroing were prohibited there would simply be no reason for the third methodology to exist, which in turn would violate the rules of effective treaty interpretation by rendering the last sentence of Article 2.4.2 inutile.49

This argument had already been rejected by the Appellate Body in US – Softwood Lumber V (Article 21.5 – Canada). Indeed, in that dispute the Appellate Body found that

46 Panel Report, US – Washing Machines, paragraph 7.75.47 Panel Report, US – Washing Machines, paragraph 7.81.48 Appellate Body Report, US – Washing Machines, paragraph 5.76.49 See, for instance, Council Implementing Regulation (EU) No. 78/2013 of 17 January 2013 ‘imposing a

definitive anti-dumping duty and collecting definitely the provisional duty imposed on imports of certain tube and pipe fittings of iron or steel originating in Russia and Turkey’, Recital No. 31.


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even if the W-T methodology could produce results that are equivalent to those obtained from the application of the W-W methodology, this fact in and of itself would be insufficient to conclude that the second sentence of Article 2.4.2 is thereby rendered ineffective.50

In US – Zeroing (Japan) the consistency of zeroing under the W-T methodology was not at issue. Nevertheless, the Appellate Body offered a possible solution to avoid mathematical equivalence. The Appellate Body’s proposed methodology entails a separation of the sales transactions that differ significantly among different purchasers, regions or periods and all other sales transactions. For the first set of transactions the investigating authority could rely on the methodology under the second sentence of Article 2.4.2, whereas for the second set of transactions one of the two methodologies under the first sentence could be used.51

In US – Washing Machines, zeroing was challenged under two different sets of claims.

‘Systemic disregarding’ of negative dumping margins under the USDOC’s differential pricing methodology

The dispute originated in the adoption by the USDOC of the differential pricing methodology (DPM), whereby under certain circumstances a combined methodology is applied. As a result, the W-W methodology would be applied to non-pattern transactions, and the W-T methodology to pattern transactions. In applying the DPM, the USDOC treated negative dumping margins arising from the W-W methodology as zero so as not to offset any of the positive dumping established in respect of pattern transactions. This so-called ‘systemic disregarding’ was challenged by Korea to be as such inconsistent with the second sentence of Article 2.4.2 of the AD Agreement. Korea claimed that systemic disregarding was essentially a new form of zeroing.52

The Panel started its analysis by reviewing the scope of application of Article 2.4.2 of the AD Agreement, and clarified that the W-T comparison methodology only applies to pattern transactions.53 The Panel explained that there would be no utility in allowing for the use of the W-T methodology to zoom in with regard to exporters’ pricing behaviour in the context of pattern transactions, if the investigating authority would then be required to zoom out and give full effect to the pricing behaviour in respect of all transactions.54 Therefore, the Panel concluded that the exclusion of systemic disregarding would lead to mathematical equivalence with the results of a straightforward application of the W-W comparison methodology to all transactions.55 On these bases, the Panel rejected the claim by Korea that the USDOC’s use of ‘systemic disregarding’ when combining the W-W methodology with the W-T methodology in the context of the DPM is as such inconsistent with the second sentence of Article 2.4.2 of the AD Agreement.56

Korea appealed those findings. The Appellate Body established that a determination of the dumping margin based on the comparison of the weighted average normal value with export prices for pattern transactions, where non-pattern transactions are excluded from the numerator and the resulting amount is divided by all the export sales of an exporting

50 Appellate Body Report, US – Softwood Lumber V (Article 21.5 – Canada), paragraph 99.51 Appellate Body Report, US – Zeroing (Japan), paragraph 135.52 Panel Report, US – Washing Machines, paragraph 7.149.53 Panel Report, US – Washing Machines, paragraph 7.156.54 Panel Report, US – Washing Machines, paragraph 7.162.55 Panel Report, US – Washing Machines, paragraph 7.164.56 Panel Report, US – Washing Machines, paragraph 7.167.


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producer, is consistent with the requirement to make a fair comparison laid down under Article 2.4 of the AD Agreement.57 Nevertheless, the Appellate Body determined that the second sentence of Article 2.4.2 of the AD Agreement does not allow for the combination of different comparison methodologies (for instance, W-T for ‘pattern transactions’ and a standard methodology for ‘non-pattern transactions’) and, therefore, does not admit ‘systemic disregarding’ as it was described by the Panel.58 For those reasons, the Appellate Body declared the Panel’s findings on ‘systemic disregarding’ moot.59

Zeroing in the context of the W-T methodology for pattern transactions

The USDOC considers that zeroing is allowed when using the W-T methodology.60 With specific regard to zeroing in the context of the calculation of the dumping margin for pattern transactions, Korea claimed the incompatibility of ‘the unwritten measure whereby the USDOC uses zeroing whenever the W-T comparison methodology is applied’61 with the second sentence of Article 2.4.2 of the AD Agreement. The US justified the use of zeroing before the Panel as, in their opinion, it is the only methodology that ensures that pattern transactions with an export price that exceeds the normal value do not conceal other transactions within the pattern where instances of dumping occur. The Panel found that the use of zeroing does not guarantee a careful examination as to whether transactions within the pattern are priced at significantly different levels relative to one another.62 Therefore, it found no basis to conclude that one pattern transaction could mask evidence of dumping in respect of another pattern transaction.63 For those reasons, the Panel found the use of zeroing in the application of the W-T methodology was as such inconsistent with the second sentence of Article 2.4.2 of the AD Agreement.64

The US appealed those findings. The Appellate Body began its analysis with a contextual reading of Articles 2.4 and 2.4.2 of the AD Agreement, affirming that the two provisions must be read together ‘harmoniously’.65 Then, it referred to its conclusions in EC – Bed Linen, where it found that a comparison between the normal value and the export price that does not take into account the prices of all comparable export transactions – like zeroing – cannot be deemed to be ‘fair’.66 In the view of the Appellate Body, the practice of setting to zero the intermediate negative comparison results leads to the undue inflation of the dumping margins, makes positive determinations of dumping more likely where export prices above normal values exceed those that are below normal values and, finally, yields the failure by investigating authorities to compare all comparable export transactions.67 A similar situation does not permit comparing all export transactions as required by Article 2.4.2 of

57 Appellate Body Report, US – Washing Machines, paragraphs 5.135 and 5.136.58 Appellate Body Report, US – Washing Machines, paragraph 5.138.59 Appellate Body Report, US – Washing Machines, paragraph 5.138.60 Antidumping Duty Investigation of Large Residential Washers from the Republic of Korea, (Dep’t of

Commerce, 18 December 2012), Issues and Decision Memorandum, pp. 25–26.61 Panel Report, US – Washing Machines, paragraph 7.173.62 Panel Report, US – Washing Machines, paragraph 7.191.63 Panel Report, US – Washing Machines, paragraph 7.191.64 Panel Report, US – Washing Machines, paragraph 7.193.65 Appellate Body Report, US – Washing Machines, paragraph 5.177.66 Appellate Body Report, US – Washing Machines, paragraph 5.179, citing Appellate Body Report, EC – Bed

Linen, paragraph 5.179.67 Appellate Body Report, US – Washing Machines, paragraph 5.180.


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the AD Agreement. In turn, that result is also at odds with the requirement to make a ‘fair comparison’ laid down under Article 2.4. Therefore, the Appellate Body upheld the Panel’s findings that the use of zeroing when applying the W-T methodology is inconsistent with Articles 2.4 and 2.4.2 of the AD Agreement.68

Implications

The implications of the Appellate Body Report in US – Washing Machines are substantial. The decision of the Appellate Body, in fact, follows no feweer than 30 different panel and Appellate Body reports that found the practice of zeroing to be inconsistent with the AD Agreement. The WTO adjudicating bodies had already clarified that zeroing is not permitted in fresh investigations and in reviews, but there was still a certain degree of ambiguity surrounding the determination of targeted dumping and the application of the W-T methodology. That ambiguity had provided investigating authorities, over the years, with an opportunity to revive the practice of zeroing, which had been found in other contexts to ‘distort not only the magnitude of a dumping margin, but also a finding of the very existence of dumping’.69 The Appellate Body Report in US – Washing Machines was relied upon extensively by the Appellate Body in the recently adjudicated dispute US – Anti-Dumping Methodologies (China).

However, the Appellate Body Report in US – Washing Machines might not mark the end-point of the long-standing discussion on zeroing. First, the issue is not over yet for at least one member of the Appellate Body, who gave a dissenting opinion included in the report.70 In his view, which was not shared by the majority on the bench, Article 2.4.2 of the AD Agreement would permit, if not encourage, zeroing for pattern transactions.71 Second, it is still unclear how the US will remedy the violation of their obligations under Articles 2.4 and 2.4.2 of the AD Agreement, and it cannot be ruled out that future disputes will ensue.

Subsequent to the adoption of the Appellate Body Report by the DSB, the US notified its intention to implement the recommendations consistently with its WTO obligations. Korea and the US disagreed on the reasonable period of time for the latter to bring its measures into compliance and, eventually, the matter was referred to arbitration, in accordance with Article 21.3(c) of the DSU. Based on the arbitrator’s reports, the US will need to bring its measures (including aspects of the methodologies employed by the USDOC and specific determinations made in the context of the anti-dumping investigation on large residential washers from Korea) into compliance by no later than 26 December 2017.

iii Canada – Welded Pipe: ‘de minimis’ margin of dumping and the use of ‘facts available’

Introduction

On 25 January 2017, the WTO DSB adopted the Panel Report in Canada – Welded Pipe (DS482), a dispute concerning the anti-dumping measures imposed by Canada on imports of Taiwanese carbon steel welded pipes. The Panel Report, which was not appealed, contains several important findings with implications going beyond this specific dispute. In particular,

68 Appellate Body Report, US – Washing Machines, paragraph 5.182.69 Appellate Body Report, US – Corrosion Resistant Steel Sunset Review, paragraph 135.70 Dissenting opinions are anonymous in the WTO legal order.71 Appellate Body Report, US – Washing Machines, paragraph 5.202.


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the report provides useful clarifications concerning treatment of exporters with a de minimis margin of dumping and the obligations imposed on the investigating authorities when resorting to ‘facts available’ in the course of anti-dumping investigations.

Treatment of exporters with a ‘de minimis’ margin of dumping

Pursuant to the second sentence of Article 5.8 of the AD Agreement, an anti-dumping investigation has to be immediately terminated if the authorities determine that the margin of dumping is de minimis (i.e., less than 2 per cent of the export price). The question before the Panel in Canada – Welded Pipe was whether the margin of dumping that triggers such immediate termination relates to the exporting country as a whole, or to each exporter or producer individually.

A similar question was already addressed in the past by the Panel and Appellate Body in Mexico – Anti-Dumping Measures on Rice, where it was found that the term ‘margin of dumping’ in Article 5.8 refers to the individual margin of dumping of an exporter or producer rather than to a country-wide margin of dumping.72 These findings were endorsed by the Panel in Canada – Welded Pipe.73

At the start of its analysis, the Panel observed that the text of the second sentence of Article 5.8 does not clarify whether the ‘margin of dumping’ that triggers immediate termination should be established for an exporting country or for individual exporters. The Panel sought guidance in other provisions of the AD Agreement and relied on Article 6.10, which provides for a general rule that a margin of dumping is to be determined for each foreign producer or exporter.74 This led the Panel to conclude that a single investigation could be ‘terminated’ in respect of certain individual producers or exporters, even if such investigation remains active for others.75

As a second step of its analysis, the Panel examined Canada’s arguments in favour of departing from the findings in Mexico – Anti-Dumping Measures on Rice. The Panel found that none of the provisions of the AD Agreement invoked by Canada (i.e., Articles 3.3, 9.4 and 9.5) contradicts its interpretation of Article 5.8. In particular, the Panel rejected Canada’s arguments under Article 9.4 dealing with the maximum amount of the duty that may be imposed on non-sampled exporters. The Panel explained that the calculation of a ceiling governed by Article 9.4 would be part of the authority’s investigation of dumping, and should be undertaken after the calculation of the individual margins of dumping of the investigated exporters, but before the imposition of any anti-dumping duty.76 The Panel stressed that the simple fact that an investigation has already been terminated in respect of an exporter with a de minimis margin of dumping does not mean that the margin of dumping determined for that exporter would necessarily be excluded by the investigating authority when determining the ceiling for non-sampled exporters.77 Therefore, a reading of Article 5.8 as requiring the termination of an investigation with respect to an individual exporter with a de minimis margin of dumping is fully reconcilable with Article 9.4.

72 Panel Report, Mexico – Anti-Dumping Measures on Rice, paragraph 7.137; Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, paragraph 217.

73 Panel Report, Canada – Welded Pipe, paragraphs 7.21–7.22.74 Panel Report, Canada – Welded Pipe, paragraph 7.21.75 Panel Report, Canada – Welded Pipe, paragraph 7.21.76 Panel Report, Canada – Welded Pipe, paragraph 7.32.77 Panel Report, Canada – Welded Pipe, paragraph 7.33.


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The Panel in this case concluded that Canada had violated the second sentence of Article 5.8 by failing to immediately terminate the investigation in respect of two Taiwanese exporters with de minimis margins of dumping. The Panel also found that the provision of the Canadian anti-dumping legislation, which based the de minimis test for the final dumping determination on a country-wide margin of dumping, was ‘as such’ inconsistent with the second sentence of Article 5.8 of the AD Agreement.

An important consequence of the Panel’s findings under Article 5.8 is that exporters with de minimis margins of dumping cannot be treated as ‘sources found to be dumped’ for the purpose of duty imposition under Article 9.2 of the AD Agreement. Indeed, since the investigation in respect of those exporters has to be terminated immediately after final determination of the de minimis margins of dumping pursuant to the second sentence of Article 5.8, it follows that no anti-dumping measures can be imposed on those exporters.78

The use of ‘facts available’

Article 6.8 of the AD Agreement contemplates the possibility to make determinations on the basis of ‘facts available’, such as those included in a complaint, in three specific circumstances: when an interested party (1) refuses access to necessary information; (2) does not provide such information within a reasonable period; or (3) significantly impedes the investigation. The specific rules governing the use of ‘facts available’ are provided in Annex II of the AD Agreement.

Both Article 6.8 and Annex II have been subject to a considerable amount of case law. In Canada – Welded Pipe, the Panel further clarified the investigating authorities’ obligations when resorting to ‘facts available’ in the context of the determination of dumping margin for ‘all other exporters’ and the calculation of the duty rate for imports of new product types under Canada’s prospective normal value system for duty assessment. In particular, the Panel stressed the authorities’ duty to undertake a comparative evaluation and assessment of all the available information in order to select ‘best information’ to be used in the particular circumstances. In the context of the welded pipe investigation, the Panel found that the manner in which Canada had established the dumping margin and duty rate for ‘all other exporters’ did not meet the standard set forth by Article 6.8 and paragraph 7 of Annex II of the AD Agreement.79

Another interesting finding of the Panel relates to the use of ‘facts available’ for determining the duty rate for imports of new product types from cooperative exporters. Canada argued that it was required to resort to ‘facts available’ in order to fill a ‘gap’ in the WTO anti-dumping disciplines with regard to the treatment of new product types that were not subject to the initial investigation. The Panel rejected that argument and found that Canada acted inconsistently with Article 6.8 and Annex II of the AD Agreement. The Panel noted that since the exporters fully cooperated in the investigation and the authorities had yet to investigate the new product types, there was no basis to conclude that these exporters failed to provide any necessary information requested by the authorities.80 In that regard, the Panel recalled that the burden to demonstrate that the investigating authority informed the interested parties of the required information and of the possibility that facts available would

78 Panel Report, Canada – Welded Pipe, paragraph 7.76.79 Panel Report, Canada – Welded Pipe, paragraph 7.144.80 Panel Report, Canada – Welded Pipe, paragraph 7.171.


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be used if such information was not provided rests on Canada.81 As to the alleged ‘gap’ in the WTO anti-dumping disciplines, the Panel found that Canada had the possibility of using other methods to impose or collect anti-dumping duties in respect of imports of new product types.82 The Panel stressed that the existence of such a ‘gap’ would, in any event, not allow Canada to ignore the conditions set forth in Article 6.8 and Annex II of the AD Agreement.83

Implications

The Panel’s findings in Canada – Welded Pipe confirm and further clarify the WTO disciplines concerning the treatment of exporters with individual de minimis margins of dumping. These findings, while made with regard to the specific measures imposed by Canada, are likely to have a significant impact on the practice of other WTO members, as they effectively prevent the imposition of definitive anti-dumping duties on imports from exporters with de minimis margins of dumping.

Furthermore, by clarifying the rules applicable to the use of ‘facts available’, the Panel took a step towards restoring the balance between the tasks of the investigating authorities and the interested parties in anti-dumping investigations. The Panel’s findings made it clear that the conditions set forth in Article 6.8 and Annex II of the AD Agreement must be strictly observed and cannot be used as a shortcut for making the necessary determinations.

While the reasonable period of time for Canada to implement the DSB’s recommendations and rulings is set to expire on 25 March 2018, it is hoped that the Panel’s findings will already now serve as a useful guidance to the investigating authorities of other WTO members.

IV CONCLUSIONS

As the developments in the case law confirm, overall the WTO dispute settlement mechanism continues to fulfil its role of enhancing the security and predictability of the multilateral trading system. This is particularly true in the domain of anti-dumping, which represents by far the most litigated subject before panels and the Appellate Body.

The clarifications brought about by the panels and Appellate Body in the disputes discussed in Section III are likely to make anti-dumping proceedings more burdensome for investigating authorities. In particular, the findings concerning targeted dumping and cost adjustments are likely to circumscribe the discretion that investigating authorities currently enjoy when calculating dumping margins or determining normal value. With specific regard to the former, the limited possibility for investigating authorities to resort to information outside the country of origin of the investigated products restricts the options for WTO members, and most notably the EU in anti-dumping proceedings against China. Moreover, recent developments in the case law have made important contributions concerning the application of due process rights, the use of facts available and the treatment of exporting producers with de minimis margins of dumping, thus ensuring legal predictability and the compliance of WTO members with their obligations.

81 Panel Report, Canada – Welded Pipe, paragraph 7.174.82 Panel Report, Canada – Welded Pipe, paragraph 7.175.83 Panel Report, Canada – Welded Pipe, paragraph 7.175.


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Finally, as expected, the WTO adjudicating bodies have been asked to step in and clarify the concrete implications of the expiry of Section 15(a)(ii) of China’s Accession Protocol. The outcome of the dispute between China and the EU will, therefore, shed light on one of the most debated topics in recent years.

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Appendix 1

ABOUT THE AUTHORS

PHILIPPE DE BAERE

Van Bael & BellisPhilippe De Baere has been a partner in Van Bael & Bellis’ Brussels office since 1992. His practice focuses on EU and WTO trade law as well as EU customs law and export controls.

He has been involved in most major EU anti-dumping, anti-circumvention and anti-subsidy proceedings since 1990. In this field, he has represented numerous clients before the European Commission, the European Court of Justice (now the Court of Justice of the European Union), WTO Panels and the WTO Appellate Body.

In the field of international trade law, he has assisted WTO members in numerous WTO dispute settlement proceedings, including Ukraine – Definitive Safeguard Measures on certain Passenger Cars (DS468) and EC – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China (DS397). In this latter dispute, he obtained an unprecedented finding that the EU’s Basic Anti-dumping Regulation was ‘as such’ incompatible with the EU’s WTO obligations.

Philippe De Baere regularly lectures at the Carlos III University of Madrid (UC3M)

VAN BAEL & BELLIS

Chaussée de la Hulpe, 1661170 BrusselsBelgiumTel: +32 2 647 73 50Fax: +32 2 640 64 [email protected]

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the International Trade Law Review...The International Trade Law Review Reproduced with permission from Law Business Research Ltd. This article was first published in The International