CHAPTER ONE

1.1 Introduction Antidumping is one of the most controversial issues in the field of international trade. It divides the main exporting countries from the main importing countries. Companies and industries that find them slipping in the international market often abuse antidumping measures for protectionist purposes. The increase in the number of antidumping cases all over the world has been a matter of great concern for all World Trade Organization (WTO) members as it tends to impair the WTOs core objective of achieving market access liberalization between the contracting parties. The working of the regime under the Anti-dumping Agreement (ADA) for more than a decade and the analysis of the Panel/Appellate Body Reports reveals a number of substantive and procedural flaws. These flaws in interpretation of the Anti-dumping Agreement are the major cause leading to invalidation of the Anti-dumping measures at the Panel/Appellate Body level. Evidencing the existence of flaws, the European Union recently on 19th February, 2010 triggered an arbitration process at the World Trade Organization asking United States to drop a controversial method of tackling unfairly priced imports. WTO courts have repeatedly ruled against Washington's use of zeroing-a method of calculating anti-dumping duties rejected by all other WTO members. The European Union said it was seeking retaliation because the United States had failed to comply with these rulings, missing a deadline of April 2007 and December 2009 deadline to comply in a second case over zeroing. Results of the study also shows that there is an agreement among the participating firms that the current anti-dumping laws of different countries are often confusing and there is no uniform definition of what may be called as dumping. Article VI was included in the General Agreement on Tariffs and Trade (GATT), 1994 with an objective of regulating unfair trade, but later came to be a shield to protect domestic industries. The historical and empirical evidence, combined with recent Appellate Body (AB) jurisprudence, supports the conclusion that the use of anti-dumping is not aimed primarily at stemming dumping. It is rather used to address specific industry issues, disrupting imports through political protectionism, favoring domestic industries. Most of 1

the supporters of anti-dumping agree that it has nothing to do with keeping trade fair. There is a general perception among the participating firms that more and more governments are using this as another non-tariff barrier in favour of their domestic industries. The implication of this is that, to make international trade a leveller playing field WTO should try to standardize the definition and application of anti-dumping laws among its member countries. The study of the anti-dumping measures at the Panel and Appellate level indicates that there are substantive and procedural flaws in the working of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement). The analysis revealed the following issues of concern which circumscribes the effective working of the Anti-dumping Agreement which will be discussed in detail later: Confusing definition of dumping and its determination. Various methodologies used for proving dumping are not standardized and extremely tentative in nature and the most popular methodologies are not consonant with the ADA itself and the most controversial been the use of zeroing methodology and arms length test by U.S. and other members to determine margin of dumping. Appellate Body in its decision held such methodologies as contrary to ADA provisions. However, it never banned the use of this particular methodology for calculating normal value. In addition, ADA has also not addressed the situation where a foreign exporter sells overseas at prices higher than those offered to domestic consumers. Lack of specific guidelines in Article 2.1 of ADA allows members to adopt different protectionist methodologies to find dumping.

Article 2.2 of the ADA is one of the most frequently disputed provisions before the AB. The concept of ordinary course of trade is not defined in ADA nor does it prescribe what transactions would come within the meaning of ordinary course of trade.

 Selection of a surrogate country in the case of Non-Market Economies (NMEs) is not consistent with the economic realities existing in dumping and dumped upon countries.

No causal link between injury and dumping as Article 3 of ADA does not define injury except as a footnote to Article 3, though Article 3.1 states that the determination of injury shall be based on positive evidence and it involves an objective examination of many economic factors. It is sometimes very difficult to distinguish and prove the causal link between the injury and dumping. Material injury not clearly defined as a result of which defending countries find it difficult to submit evidence as to the material injury even when there is actual injury to the domestic industry.

Definition of domestic industry in Article 4 of ADA is vague. Article not clear with respect to what proportion of the domestic producers could be considered as constituting the domestic industry. It would be useful to provide more specific parameters as to what minimum percentage of the domestic production can be considered to be major proportion within the meaning of Article 4.

Problem of non-disclosure of confidential information. WTO provisions concerned deprive interested parties from a meaningful way to defend their interests because under the leeway provided by the ADA, too much information is in practice treated as confidential. This includes both reports prepared by the administering authorities as well as non-confidential summaries of confidential information submitted by interested parties. The accuracy and adequacy of 3

evidence for initiation of an investigation has also been raised in many disputes before the Dispute Settlement Body (DSB). Article 5.3 of ADA stipulates that the authorities should examine the accuracy and adequacy of evidence provided in the application to determine whether there is sufficient evidence to justify the initiation of an investigation. For the purpose of preventing abuse of antidumping investigations, the evidence should not only be sufficient but objective as well.

Article 17.6 of ADA requires that Panels must make an objective assessment of the matter. However, this requirement does not specify the precise nature or intensity of the review that panels must undertake. In the EU-Indian Bed Linen dispute, the AB deliberately left unanswered the question as to whether the action of the EC was consistent with the standard of review provision in the ADA. The Appellate Body through its interpretations various decisions made no distinction between the special standard under Article 17.6 of ADA and the uniform standard under Article11 of the DSU. In the Japan Hot-rolled Steel case, the AB found, without applying the standard in Article 17.6(ii), that the interpretations of the importing authorities were inconsistent.

Article 6.8 and Annex II of the ADA authorizes the use of facts available when a party refuses access to or does not provide, the necessary information within a reasonable period of time, or when a party significantly impeded the process of investigation. Many countries especially U.S.A are using this provision either as a coercive measure or for reaching a finding of dumping by rejecting the submitted data.

The interpretation of Special and Differential Treatment provisions in ADA by the Appellate Body in many cases has rendered the very purpose of introducing 4

the said provision a failure. Article 15 of ADA does not mention any development policy criteria on the basis of which either anti-dumping measures are to be withdrawn or certain constructive remedies have to be taken. This is mainly due to the shortcomings in the language of the provision, which make it a soft law rather a hard law obligation.

The quantitative and qualitative analysis of the anti-dumping cases proves the hypothesis that it is more responsive towards the concerns of the developed countries than towards the interests of the developing countries. The existence of Article 17.6(ii) has had no visible impact on the WTO review of national antidumping decisions. The Appellate Body in its various decisions barely mentioned the standard of review, and has not followed it in numerous instances where the importing country appears to have offered a plausible interpretation of the provisions to support its action.

The consideration of producer interests dominates the rationale for antidumping laws and there is nothing to indicate that there is an interface between importcompeting interests and the interests of wider society. The need to introduce public interest clause in anti-dumping actions should be reconsidered and negotiated. Another issue being the potential for governments to invoke antidumping laws abusively has created controversy over the level of evidence required to initiate an investigation. Opinions on this issue vary drastically among nations, based in large part upon whether the country is a main exporting or importing country. Many exporting 5

companies argue that the level of evidence required should be high to guard against the use of investigations as a weapon to restrict exports. In contrast, many of the importing countries argue that investigations prevent unfair competition and advocate a more flexible evidentiary requirement. The WTO structure builds upon that of the General Agreement on Tariffs and Trade ("GATT") and includes guidelines for the initiation and execution of antidumping investigations, as well as the imposition of sanctions upon positive findings. One complication that has arisen is the interplay between these antidumping guidelines and those in place in the individual member nations. This Comment contrasts these procedures, particularly those relating to the initiation of an antidumping investigation under the rules of the WTO and those of the United States. The research work also analyzes the impact that the initiation threshold has on antidumping investigations. Determining the appropriate evidentiary threshold is a significant issue. A threshold that is too low will encourage unwarranted complaints and investigations, which will in turn result in protectionism and deter international trade and investment. A threshold that is too high will lead to increased and unchecked dumping and other unfair trade practices. The need to find a balance between these two extremes is the crux of the problem and one of the foci of this research work. The threshold issue is important for many reasons. First, it has been a source of contention since the first GATT Antidumping Code. Both the major trading countries and the developing countries employ antidumping investigations more frequently today. As a result, the issue of whether a petitioner has provided sufficient evidence to initiate an investigation is likely to arise more frequently. This issue has already arisen at the GATT/WTO level on two occasions discussed in more detail later in this dissertation. Second, governments are under increasing pressure to make their domestic regulations conforms with the WTO regulations. This pressure is in large part due to the more serious sanctions available to WTO dispute resolution panels than existed under the GATT. As a result, countries have sought to reduce the risk of being found in violation of the WTO regime. Third, the debate over the appropriate threshold for initiating an investigation and its resolution will have an impact on the WTO itself. The threshold issue may very well be one of the most divisive and politically-charged issues yet faced by the new

organization. Consequently, many supporters and critics are eager to see how the WTO will withstand this challenge.

1.2

Objectives of the Study The Object of research work on the topic, A Critical Analysis of the Anti-

dumping Litigations since 1995 is to critically study how the WTO Anti-dumping Agreement is been implemented and interpreted by the Member nations in their domestic legislations in resolving the disputes relating to dumping of product causing injury to their domestic market. The said analysis would be done by analysis of the anti-dumping cases went before the Panel/Appellate Body challenging the validity of the imposition of the anti-dumping measures. It is been observed that in almost all the cases that went to Panels and/or Appellate Bodies, the anti-dumping measures were found to be inconsistent with Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement). The said result could be due to a variety of reasons, like due to a desire to protect domestic industry anyway, due to weaknesses in the national laws that are not fully consistent with ADA, due to lack of training of the national staff etc. The percentage of such number of cases would be approximately 90% and above. It is only in approximately 10% of cases that the anti-dumping measures have been held to be valid. Summarily, the study would focus on the analysis of the arguments put forth by the Complainant and Respondents members in selected Anti-dumping litigations brought before the Panel/Appellate Body justifying the imposition or nonimposition of the anti-dumping measures and the decisions of the Panel/Appellate Body on the issues raised before it. The research paper through the critical analysis of the antidumping litigations would address the issue on the problem of dumping in WTO. The paper would address the substantive and procedural flaws in working of Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (AntiDumping Agreement), revealed from the analysis of the Panel/Appellate Body decisions, which has led the member countries to interpret the anti-dumping provisions in their favour for imposition of the anti-dumping measures on the exporting country. The study would also focus on what the Panel/Appellate Body has decided in the cases of dual interpretation of the anti-dumping provisions and whether there is consistency in 7

interpretations made by the Panel/Appellate Body on those legal issues that came before it while deciding as to the validity of the imposition or non-imposition of the antidumping measures. Finally, the study would be concluded with suggestions for bringing clarity in the interpretation of Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement). 1.3 The Scope of the Study The scope of the research work is confined to analysis of selected Panel/Appellate Body Reports related to anti-dumping measures. The said analysis would be made with an objective to locate the reasons and interpretation given by the Panel/Appellate Body for validating or invalidating the imposition of the anti-dumping measures initiated by the importing member country. Statistical data reveals that out of total 74 number of antidumping measures reported on website of the World Trade Organization, 39 cases (i.e., more than half the total number of cases) are still at the consultation stages and 35 cases (including three mutually agreed solutions) went before the Panel and Appellate Body on different legal issues arising out of the Anti-dumping Agreement, which are the subjectmatter of the research in the present study. The scope of the study would focus on cases where Panel and Appellate Body both has validated the imposition of the anti-dumping measures by the Designated Authority of the importing country and cases where Panel has validated the imposition of the anti-dumping measures by the Designated Authority, but the Appellate Body has overruled the decision of the Panel as being contrary to the Anti-dumping Agreement. 1.4 The Scheme of Study The dissertation topic on A Critical Analysis of Anti-dumping litigations since 1995 is taken with a view to study the problem of dumping in WTO. The critical analysis of the anti-dumping cases initiated before the Panel/Appellate Body clearly reveals the flaws in the working of the anti-dumping agreement. Considering all the above aspects as mentioned above in research questions and to facilitate the discussion and perfect solutions for above problems and for thematic development of the subject the 8

research work is divided into seven chapters. Brief overview of the chapters is as follows:ChapterI Chapter-II Introduction The Concept and History of Anti-dumping

Chapter-III Overview of the Agreement on Implementation of Article VI of the GATT, 1994 ChapterIV Dumping and its Interpretation under the WTO Framework Chapter-V Chapter-VI Issues in Determination of Injury and Causation Procedural Issues in Anti-dumping Cases

Chapter-VII Issue of Zeroing Methodology in calculation of Dumping ChapterVII Analysis of the WTO Dispute Findings on the U.S. Anti-dumping Sunset Review Regime Chapter VIII Conclusion and Suggestions 1.5 The Methodology of the Study Researcher in this work has been done having relied mainly on Doctrinal Method of research. The research has been carried out primarily with the help of a comprehensive literature survey of available Commentaries, analysis of the selected Panel and Appellate Body Decisions of Dispute Settlement Body, Legal Text of WTO, Articles, Journals and Websites. The methodology adopted for the present research paper is doctrinal, analytical and descriptive. Opinions of research scholars, professors, experts in respective fields who have dealt with this subject are used as real contribution to this work. Internet has provided with a major contribution of most relevant and latest information on the web which has helped the researcher to explore the subject through various dimensions. Dr. 9

Ram Manohar Lohiya National Law University, Lucknow and its e-resources have played a crucial role in bringing out special material for the dissertation. Indian Law Institute and its library had also contributed in collection of relevant materials for the research work.

Chapter 2 The Concept and History of Anti-dumping

2.1 2.1.1 Dumping: The Concept Definition of Dumping There is immense confusion about the meaning of dumping. Dumping can be explained in three contexts: (1) (2) In a laymans view, dumping is selling a product at low prices in the international market. In legal terms, under Article VI of the GATT and in the ADA, dumping is defined as the sale of a product at a price less than its normal value. The normal value is the domestic price of the goods in the country of export. (3) In the pre-World War II period, dumping was defined as a form of either monopolistic price discrimination or predatory behaviour on the part of oligopolists to preserve cartels and drive competitors out of business. Anti-dumping was considered a derivative of antitrust.

10

According to Hoekman and others, dumping occurs when similar products are sold by a firm in an export market for less than what is charged in the home market. Alternatively, it may occur if the export price of the product is less than the total average costs or marginal costs. Viner defined it as price discrimination between national markets. The first internationally accepted definition of dumping is provided in Article VI of the GATT.1 The concept of dumping is relatively simple, but it is defined more restrictively in the WTO context. Unfortunately, there is a serious mismatch between what antidumping rules actually do and what their supporters say they are supposed to do so. Neither Article VI of GATT 1994 nor the Anti-dumping Agreement disapproves of dumping per se. Dumping is condemned only if it causes or threatens to cause material injury to a domestic industry in the importing country or materially retards the establishment of a domestic industry. The degree of dumping is reflected by the margin of dumping judged by the quantum element of dumping, that is whether it is voluminous so as to cause injury to the domestic industry or is de minimis. The effect of dumping has reference to the impact of dumping on the domestic industry in the context of injury caused by the volume of dumping of the product under investigation. But determining, whether or not to impose anti-dumping measures, is never so simple and more often than not involves a series of complex analytical steps. Further, it is to be noted that the said definition is restricted to the concept of price discrimination between national markets in relation to goods. It does not cover all forms of international price discriminations. Some of the practices that have been excluded from its domain are: Service dumping, Freight dumping, Exchange dumping, Bounty dumping and Social dumping.

Article VI of the GATT 1947 provides that:A product is considered as introduced into the commerce of an importing country at less than its normal value if the price of the product exported from one country to another: (a) is less than the comparable price, in the ordinary course of trade for the like product when destined for consumption in the exporting country; or (b) in the absence of such domestic price, is less than either: (i) the highest comparable price for the like product for exports to any third country in the ordinary course of trade; or (ii) the cost of production of the product in the country of origin, plus a reasonable addition for selling cost and profit. Due allowances shall be made in such cases for differences in conditions and terms of sales, differences in taxation, and any other differences affecting price comparability.

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The anti-dumping provisions enable the governments to take defensive actions against unfair trade practices in an exporting country. But the authorities need to be cautious because if the defensive measure exceeds its purpose and intent, then it would become a protectionist device in its own right. The dividing line between what is fair and unfair and to distinguish as to what is defensive or protectionist retaliation in the importing countries is not easy and therefore the relevant issues require to be properly addressed.

2.1.2

Rationale for Dumping The general objectives of dumping is the maximization of profits of a company,

the driving out of competitors from the market, or the sale of surplus stock leading to a price rise in a monopolistic market. Other economic factors, such as subsidies provided to the goods in the domestic market, can also be a reason for the price difference in the domestic and international markets. The difference in variable costs of goods and competitive edge of a particular industry in reducing production costs can cause variations in the prices of products. Exchange rate fluctuations, too, can be a reason for the price difference and subsequent finding of dumping. In short, the reasons for dumping can vary from case to case. Dumping per se is not against GATT obligations. The practice is condemned only when it causes injury to the domestic industry. However, the so-called advantage claimed by the dumpers is not true for two reasons:(a) (b) no economically legitimate justification, and the benefits flowing from the advantage possessed by the dumper are temporary and unreliable. 2.1.3 Rationale for anti-dumping measures The fundamental objective of anti-dumping is to remove the injurious effects of dumping. Recognizing that dumping, if causing injury to the domestic industry is to be 12

condemned, the WTO Members framed, formalized and codified the rules for imposing anti-dumping measures to redress the injury to the domestic industry, which are found in the Anti-dumping Agreement. Member countries have framed their own Rules in their domestic legislation and have been imposing anti-dumping measures on such dumped imports in conformity with the WTO Anti-dumping Agreement. The question that arises is: Whether dumping is unfair and whether its condemnation is justified? While it certainly corresponds to a felt need and to the conception of fairness but had it serve its stated objective or in the process does it act as an undue protection to the local industry? Reasons, why dumping is considered as constituting unfair competition: Firstly, it results from a contrived rather than a true comparative advantage, as the low price may not result from cost-efficiency. Thus, Dumping may displace more efficient domestic producers. Secondly, it causes uncertainty, especially when production is of large scale and requires the commitment of highly specific factors of production and therefore, requires a considerable degree of planning and research, including an assessment of the possibility of the product being supplied more efficiently by the competitors. This could be true in situations where local businessman correctly assesses the market, but subsequently faces injurious competition, which may be temporary and not based on true comparative cost advantages. Thirdly, it stems from market isolation due to factors such as high tariffs and other non-tariff barriers in the exporting country, which prevents the producers in the importing country from competing with the foreign supplier on his own ground while allowing him to invade their domestic market.

13

The nature of Anti-dumping duty has been commented upon by the Rajasthan High Court in the matter of J.K. Industries v. Union of India.2 The Honble Court observed: Anti Dumping Duty is primarily levied not so much with object of raising revenue, but to protect the domestic industry from injury that is caused or likely to be caused due to imports at lower than normal price from exporting economy. In the present age of globalization and free trade, the developed nations and economists favouring barrier free trade, seek advice of Adam Smith in his celebrated work The Wealth of Nations that never attempt to make at home what it will cost more to make than to buy. This advice has been refined to contend that if foreign country can supply us with commodity cheaper than we ourselves can make it, better buy it from them which some part of the produce of our own industry, employed in a way in which we have some advantage. This argument is marketed as theory of comparative advantage. Even the most ardent votaries of free trade founded on market economic principles do not favour unfair trade. Subsidizing home product and dumping imports in buyer territory are recognized by most as unfair trade which hurt competitive market which is considered essential bedrock of free trade. Given that injurious dumping is unfair, the anti-dumping legislation provides one of the most reasonable means of dealing with it. It assures the domestic producers of the possibility that the effect of injurious dumping will be neutralized. As already stated Anti-dumping Agreement under the WTO does not treat dumping as an unfair trade practice per se and as such the Agreement does not discipline dumping but rather disciplines imposition of anti-dumping measures, i.e., WTO Members reactions to dumping.3 This is in contrast with the U.S. legislation, which refers to dumping as an unfair trade practice in their Regulations imposing provisional Anti-dumping duties and definitive Anti-dumping duties.

2 3

D.B. Civil Writ Petition No.548 of 2005, decided on 21-04-2005, 2005 (186) ELT 3 (Raj), para 91 Article 1 of the Anti-dumping Agreement provides that An anti-dumping measure shall be applied only under the circumstances provided for in Article VI of GATT, 1994 and pursuant to investigations initiated and conducted in accordance with the provisions of this Agreement.

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Here it is important to understand the neutrality of the Anti-dumping Agreement with respect to dumping practices per se, and the fact that the Agreement is an instrument to regulate the use of Anti-dumping measures. This needs to be appreciated because Antidumping measures cause WTO Members to deflect from the general principles of tariff binding/predictability and non-discrimination (MFN, GATT Article 1), and therefore, need to be restrained. Therefore, Article VI of GATT 1994 and the Anti-dumping Agreement should be interpreted in a restrictive way, that is, if more than one possible interpretation exist, the interpretation most restrictive of the use of the Anti-dumping should prevail.4 Thus, these restrictive rules should be designed to further competition (at least not to restrict fair competition) between domestic and imported goods and between imported goods inter se. Ensuring fair competition amongst domestic products and imported products and amongst imported products inter-se is one of the cardinal principles of the WTO. Since dumping practices are not treated as anti-competitive per se, the Anti-dumping measures are not supposed to counter dumping practices, which do not affect fair competition 2.2 Various Schools of thought on Anti-dumping Duties By and large, there are three theories pertaining to imposing anti-dumping duties. These theories consider anti-dumping as: a response to unfair trade; special protection; and a strategic weapon

The first school of thought believes anti-dumping to be a protection against unfair trade. According to this school of thought, anti-dumping duties are imposed in response to unfair practices by exporters. The oldest theory describes dumping as price discrimination between markets. Various authors argue that the increased use of antidumping was largely due to the liberalization of markets, and is not an indication of out
4

Article 17.6 of the Anti-dumping Agreement, which, inter-alia, states: In examining the matter referred to in paragraph 5(i): in its assessment of the facts of the matter, the panel shall determine whether the authorities establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned;

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of control dumping. In all anti-dumping legislations, actions are taken after occurrence of dumping. The ADA provides for the imposition of anti-dumping duties in cases in which the dumped imports are found to have caused material injury to the domestic industry and there is a causal link with the injury and dumping. The ADA does not consider dumping as a response to unfair trade. Supporters of the second school argue that anti-dumping measures facilitate trade liberalization, by allowing countries to raise tariffs to protect domestic industries injured by imports. According to this theory, anti-dumping initiations act as a safeguard mechanism, and without this special protection the countries could never have agreed to reduce the tariffs achieved during the Tokyo and Uruguay Rounds of GATT negotiations. This school views special protection as a short-term remedy for protecting domestic industries from international competition. The third school believes that anti-dumping is essentially a strategic or protectionist policy. It argues that there is sufficient evidence to show that anti-dumping protection was granted to politically significant industries. There are other reasons as well for suggesting that anti-dumping measures are used as a strategic weapon. For example, authors on international trade argue that countries that use anti-dumping protection form a club and tend to apply anti-dumping against one another rather against non club members. Similarly, it is argued that countries target anti-dumping actions against those countries that have previously investigated them, suggesting a kind of tit-for-tat behaviour. Both the arguments suggest that countries are using anti-dumping action as a strategic weapon to punish trade rivals. Summarily, the first two theories view anti-dumping as welfare enhancing measure, whereas the third perceives dumping as a loophole in the GATT/WTO regime and the growth of anti-dumping initiations as a threat and impediment to free trade. In my opinion the second theory is the most appropriate one and without any shortcomings as compared to other two theories. The first theory reasons the imposition of anti-dumping measures from the view point that exporting country exploits the importing countrys 16

market conditions by method of price discrimination which may be wrong as dumping per se is not illegal. The third theory on the other hand addresses the possibility of misuse of anti-dumping measures which states that the importing country on the ground of claiming fair market conditions rather retard the WTO objective of market liberalization. Hence, the interpretation of anti-dumping measures must be made in the light of the reasons put forward in the second theory which states that dumping per se is not against WTO objectives and the only dumping which causes or threatens to cause material injury to the domestic market of the importing country is liable for imposition of anti-dumping measures. Any other interpretation would lead to misuse of the antidumping measures. 2.3 Different Kinds of Dumping Economists have traditionally identified three kinds of dumping: sporadic, short run or intermittent and persistent or continuous dumping. Mostly this classification is based on the duration of the dumping and the motive of the dumper. 2.3.1 Sporadic Dumping As the term implies, this is an occasional, unforeseen trade phenomenon. This kind of dumping is usually used to dispose of surplus stocks at low prices in an unknown market. Usually this will be for a short period; at the end of every season, the producers and dealers will try to get rid of their surplus unsold stocks at a lower price. Sometimes, manufacturers are compelled to sell at a lower price when the demand reduces in a highly capitalized industry, simply in order to maintain output at full capacity. 2.3.2 Intermittent Dumping This is more of a regular, planned and frequent practice, with the motive of entering into a new market or retaining the existing market share or driving away other competitors from the market. It can also be as a response to market fluctuations or for creating customer goodwill and generating a dominant position in a new foreign market.5
5

Ehrenhaft, author on international trade suggested three reasons for intermittent dumping: to achieve a foothold in the export market, to prevent the loss of global market share, and to monopolize the export market.

17

It resembles strategic dumping because price discrimination in this case is produced by strategic behaviour aimed at enhancing a firms competitive behaviour. Mostly, the importing country is concerned about elimination of competitors from markets. Sometimes intermittent dumping can also be used as retaliation against dumping by foreign competitors.

2.3.3

Persistent or Continuous Dumping This is a practice motivated by the intent to reach new markets or to maintain

existing ones. It may be the result of an enlarged scale of production, with consequent reductions in the average unit cost of production for the entire output. Governments may encourage persistent dumping through granting export bounties for earning foreign exchange. Most of the economists are of the view that an importing country benefits from continuous dumping. 2.3.4 Other categories of Dumping Other kinds of dumping include predatory dumping,6 cyclical dumping,7 market expansion dumping,8 state trading dumping,9 strategic dumping10 and social dumping.11 However, none of the distinctions are made in the ADA. It conceptually distinguishes only between two forms of dumping: 1. Price dumping, that is, selling at a lower price in a foreign market than in the home market; and 2.
6 7

Cost dumping that is, selling below cost of production in an

Dumping in order to drive competitors out of business and establish a monopoly. Selling at low prices, because of over-capacity due to a downturn in demand in the domestic market 8 Selling at a lower price in order to gain market share 9 Selling at a lower prices in order to earn foreign exchange 10 Dumping upon reliance on an overall strategy including both low export pricing and maintaining a closed home market in order to reap monopoly or oligopoly profits. 11 Situation in which difference in wage standards, social security measures, etc. are responsible for an unfair competitive advantage which the foreign exporter ahs over the domestic producer.

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export market. During the GATT negotiations, the US submitted a proposal containing an explanation of four types of dumping: price, service, exchange and social 12. Service dumping refers to freight dumping. This means providing subsidies or incentives that enable the exporter to sell the products in the foreign market for a cheaper price. Exchange dumping is the manipulation of exchange rates in favour of the exporter to get advantage in the export market. Ultimately, only price dumping was included in Article VI of the GATT. All these definitions and explanations reveal the economic complexity of the problem in the determination of dumping. 2.4 2.4.1 Historical Development of Anti-dumping Laws Origin and Justifications of Anti-Dumping For almost 100 years, international trade policy rules have generally recognized dumping as a practice to be condemned, and have allowed an importing country to take certain countermeasures when the dumped goods cause "material injury" to competing industries in the importing country. Where did the right of imposing anti-dumping duties originate? It seems to start with the medieval notion that sale to different people at different prices is unfair. In modern times, this is reflected in governmental concerns with predatory anti-competitive behaviors of big corporations. These companies, using their market leverage, drive small competitors out of business, and eventually raise prices and reap monopoly profits. However, rhetoric aside, neither legal nor economic analysis finds a definitive link between anti-dumping investigations and the detection of anticompetitive practices. The critics argue that the fear that some foreign industries, particular those of developing countries, may be attempting to destroy the domestic market through dumping, rarely, if ever, exists. One recent OECD study, for example, has found that imports posed no threat to the existence of competition in more than 90 percent of the cases in which the U.S. and EU imposed anti-dumping duties in the 1980s. Defenders of dumping, including some economists, argue that the interests of consumers should be paramount. Since dumping serves the consumer's interests in
12

Ibid

19

obtaining cheaper goods, it should be allowed. Some even argue that an importing country should welcome the cheaper goods as they enhance overall welfare and release resources for more productive uses in the global economy. However, it is questionable whether the anti-dumping laws are simply consumer welfare statutes, or whether national welfare should also be considered. Another argument is that the anti-dumping laws should be dispensed because of the practical problems associated with anti-dumping investigations and the lack of accuracy of the results. But at least, respected economists have raised concerns that proliferating and undisciplined anti-dumping measures pose a serious problem for world trade.13 If not properly disciplined, the application of anti-dumping measures will lead to a dangerous level of protectionism around the world. Anti-dumping measures have become far more effective at shielding domestic markets in the United States from foreign competition than were the gray area measures employed in the 1980's and 1990's or the tariff and nontariff barriers that were eliminated in multiple rounds of multilateral trade negotiations over a five-decade period. Consequently, many developing countries believe that the antidumping measures in Article VI of the GATT, carried over to the Uruguay Round agreements, are in reality sophisticated trade protection measures employed by developed countries against the exports of the developing countries.14 Many WTO members, such as Japan, Korea, and Brazil, have campaigned to re-open the talk and to revise the AD
13

US Federal Reserve Chairman Alan Greenspan recently criticized the use of anti-dumping measures to erect trade barriers: "There are reasons to be concerned that the benefits of increasingly open trade may not be allowed to be as readily forthcoming in the future as they have been in the past half century. Administrative protection in the form of antidumping suits and countervailing duties is a case in point. While these forms of protection have often been imposed under the label of promoting "fair trade," often times they are just simple guises for inhibiting competition. Typically, antidumping duties are levied when foreign average prices are below average cost of production. But that also describes a practice that often emerges as a wholly appropriate response to a softening in demand. It is the rare case that prices fall below marginal cost, which would be a more relevant standard. Antidumping initiatives should be reserved, in the view of many economists, for those cases where anticompetitive behaviour is involved. Contrary to popular notions about antidumping suits, under US and WTO law, it is not required to show evidence of predatory behaviour, or intention to monopolize, or of any other intentional efforts to drive competitors out of business." Alan Greenspan, Trade and technology: Remarks Before the Alliance for the Commonwealth, CONFERENCE ON INTERNATIONAL BUSINESS, Boston, Massachusetts (2 June 1999) [cited in United States - Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/R, (28 February 2001) [hereinafter US-Japan Steel], Annex 1, FN49].

20

Agreement. And we shall see how the current round of negotiation initiated at the Doha meeting develops.

2.4.2

Origin of Anti-dumping Regulations Jacob Viner discovered that in 1791, there were reports of "bounty" practices by

Adam Smith and Alexander Hamilton, warning of foreign practices of underselling competitors.15 Instances of allegations of "dumping" by British manufacturers into the new American market were also reported, with public discussion and legislative attempts to deal with it during most of the nineteenth century. Indeed, one of the first U.S. laws relating to international trade, the Tariff Act of 1816, was concerned with practices we might identify as dumping today. In 1902, the anger of ten European countries over the dumping of sugar led them to sign an antidumping agreement that would remain in place for eighteen years. Countries unilaterally began to legislate against dumping at this time. When the GATT negotiations began in 1947, the United States offered its national antidumping law as a model, and the negotiating parties drafted Article VI of the GATT the following year. Article VI defined dumping and also established that, upon a finding of dumping and injury, a country could impose a duty on the company or industry in violation in an amount not greater than the dumping margin. The lack of specificity in the agreement quickly became apparent, however, and led eighteen GATT contracting parties to supplement the GATT in 1967 with the Agreement on the Implementation of Article VI. Participating countries eventually incorporated this agreement into the GATT through the Tokyo Round Code. The Tokyo Round Code provided further detail on how governments
14

Ernesto M. Hizon, Virtual Reality and Reality: The East Asian NICs And The Global Trading System, 5 Ann. Surv. Intl & Comp. L. 81, 96-97 (1999).
15

Jacob Viner, Dumping: A Problem in International Trade, 37 (1966).

21

could establish dumping and injury; set out questions that assisted in dumping and injury determinations; codified the procedure for initiating and conducting an investigation, including when and how an investigation should be terminated; and determined the level and duration of the application of duties.

Antidumping was one of the most contentious issues during the Uruguay Round. Agreement on antidumping was reached only at the very end of the round. The United States, the European Union, Canada and Australia were concerned about attempts to circumvent antidumping duties; consequently, they sought the inclusion of certain anticircumvention procedural devices in the agreement. The countries also wanted to expand the discretion of nations investigating dumping claims. Conversely, many of the countries most commonly targeted with antidumping claims wanted to enact substantive changes that would impede the use of antidumping laws for protectionist purposes. These targeted countries wanted to reduce the discretion of governments in interpreting the Code by maximizing the transparency of the GATT rules. Given these two extremes, and the much politicized nature of the issue, there was little room or inclination to compromise. It is no surprise that the gap remained as the round progressed. The resulting Draft Final Act was, of necessity, as much a product of decree by the Secretariat as a product of negotiation among the parties. It raised the threshold for dumping and injury findings on the one hand, and included provisions that would allow action against circumvention on the other. The United States, in particular, was not satisfied with the text and continued to propose new changes. Many participants feared that a holdout on the part of the United States would threaten the success of the entire round. In the end, the participants made several concessions to the United States. The result was the WTO Antidumping Code. Agreement on anti-dumping has put into motion the resolution of the remaining open issues and successfully encouraged over 100 countries to sign the Uruguay Round Final Act in Marrakesh, Morocco in April, 1994.

22

2.4.3

GATT to WTO: Changes in Anti-Dumping Laws Article VI of the GATT 1947 provided its contracting parties a right to apply anti-

dumping measures, i.e. measures against imports of a product at an export price below its "normal value" (usually the price of the product in the domestic market of the exporting country), if such dumped imports cause material injury to a domestic industry in the territory of the importing contracting parties. Since then, considerable efforts have been made to harmonize the rules relating to trade policy instruments. Particularly during the last GATT round (the Uruguay Round), which led to the creation of the WTO and to the detailed AD Agreement, these efforts focused on the procedural rules as well as the material conditions to be fulfilled before protective measures can be taken. In particular, the revised WTO AD Agreement provides for greater clarity and more detailed rules in relation to the procedures to be followed in initiating and conducting anti-dumping investigations, the method of determining that a product is dumped, the criteria to be taken into account in a determination that dumped imports caused injury to a domestic industry, and the implementation and duration of antidumping measures. In addition, the new Agreement clarifies the role of dispute settlement panels in disputes relating to anti-dumping actions taken by domestic authorities. These major changes are summarized in the following. 2.4.3.1 Procedural Changes On the procedural side, the AD Agreement considerably strengthens the requirements to establish a good prima facie case. First, clear-cut procedures have been established on how anti-dumping cases are to be initiated, and how such investigations are to be conducted. Conditions for ensuring that all interested parties are given an opportunity to present evidence are set out. Complainants are required to represent at least 25% of domestic producers of "like products" and have the tacit support of 50% of them. The procedures are also speeded up somewhat and the conciliation steps removed to arrive more rapidly at multilateral resolutions. However, resort to the WTO procedures cannot take place until provisional duties are in place.

23

Second, price undertakings (that is, raising export prices) are now given somewhat more encouragement, though it is still at governments' discretion as to whether to accept them. In the U.S., for example, there has always been reluctance to accept undertakings because of their possible anti-competitive effects.

Third, provisional duties may only be levied after a preliminary determination of dumping and injury, and not at the start of an investigation as had been the practice of some countries. Imposition of the provisional duties must not exceed six or, in exceptional cases, nine months. Fourth, one significant addition is the so-called "sunset" provision which requires WTO members to revoke anti-dumping measures after five years unless "the national authorities determine, in a review initiated before that date on their own initiative or upon a duly substantiated request made by or on behalf of the domestic industry within a reason-able period of time prior to that date, that the expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury." Anti-dumping measures will be revoked unless the sunset review concludes that the measures are necessary to ensure the non-occurrence of dumping. Fifth, the AD Agreement requires the immediate termination of the anti-dumping investigation in cases where the authorities determine that the margin of dumping is de minimis (which is defined as less than 2 per cent, expressed as a percentage of the export price of the product) or that the volume of dumped imports is negligible (generally when the volume of dumped imports from an individual country accounts for less than 3 per cent of the imports of the product in question into the importing country). Sixth, the AD Agreement requires prompt and detailed notification of all preliminary or final anti-dumping actions to the Committee on Anti-dumping Practices. The agreement will afford parties the opportunity of consulting on any matter relating to

24

the operation of the agreement or the furtherance of its objectives, and to request the establishment of panels to examine disputes. Finally, the role of panels is substantially restricted in that a new standard of review was established, which, along with relevant issues, is discussed below.

2.4.3.2 Substantive Changes On the substantive side, specific provisions were added to the AD Agreement. On the issue of "constructed" normal value, a fair comparison is required to be made between the export price and the normal value of a product so as not to arbitrarily create or inflate margins of dumping. Constructed value should now be based on actual data, not on artificial calculations. Certain discretion is allowed, however, when actual data is not available. The AD Agreement recognizes that sales below cost that occur during start-up operations do not always represent an exporter's true costs. It allows 20% sales below cost to be taken into account. Here, two of the most contentious issues are circumvention and country hopping. For example, one Chinese textile company sets up a wholly-owned subsidiary in Jamaica. Consequently, a related issue is the use of rules of origin. In the calculation of dumping margins, there is now a provision in the AD Agreement that requires an averaging of the domestic and export prices. Some allowance is made for currency fluctuations, but after 60 days the exporter is deemed to have adjusted its prices. The AD Agreement strengthens the requirement for the importing country to establish a clear causal relationship between dumped imports and injury to the domestic industry. The examination of the dumped imports on the industry concerned must include an evaluation of all relevant economic factors bearing on the state of the industry concerned. The agreement confirms the existing interpretation of the term "domestic industry," which, subject to a few exceptions, refers to the domestic producers as a whole

25

of the like products or to those of them whose collective output of the products constitutes a major proportion of the total domestic production of those products. The injury test is a fairly strict one that considers all the circumstances of the case, including such matters as loss of market share, price undercutting, loss of profitability and so on. Above all it has to be demonstrated that it was the dumping that had actually caused the injury and not some other factors, such as economic recession. However, many substantive legal issues still remain.

3.

OVERVIEW OF THE AGREEMENT ON IMPLEMENTATION OF ARTICLE VI OF THE GATT, 1994

3.1

Introduction to anti-dumping in WTO If a company exports a product at a price lower than the price it normally charges

on its own home market, it is said to be dumping the product. Is this unfair competition? Opinions differ, but many governments take action against dumping in order to defend their domestic industries. The WTO agreement does not pass judgment. Its focus is on how governments can or cannot react to dumping it disciplines antidumping actions, and it is often called the Anti-Dumping Agreement. (This focus only on the reaction to dumping contrasts with the approach of the Subsidies and Countervailing Measures Agreement.) The legal definitions are more precise, but broadly speaking the WTO agreement allows governments to act against dumping where there is genuine (material) injury to the competing domestic industry. In order to do that the government has to be able to show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporters home market price), and show that the dumping is causing injury or threatening to do so. GATT (Article 6) allows countries to take action against dumping. The AntiDumping Agreement clarifies and expands Article 6, and the two operate together. They allow countries to act in a way that would normally break the GATT principles of 26

binding a tariff and not discriminating between trading partners typically anti-dumping action means charging extra import duty on the particular product from the particular exporting country in order to bring its price closer to the normal value or to remove the injury to domestic industry in the importing country.

There are many different ways of calculating whether a particular product is being dumped heavily or only lightly. The agreement narrows down the range of possible options. It provides three methods to calculate a products normal value. The main one is based on the price in the exporters domestic market. When this cannot be used, two alternatives are available the price charged by the exporter in another country, or a calculation based on the combination of the exporters production costs, other expenses and normal profit margins. And the agreement also specifies how a fair comparison can be made between the export price and what would be a normal price. Calculating the extent of dumping on a product is not enough. Anti-dumping measures can only be applied if the dumping is hurting the industry in the importing country. Therefore, a detailed investigation has to be conducted according to specified rules first. The investigation must evaluate all relevant economic factors that have a bearing on the state of the industry in question. If the investigation shows dumping is taking place and domestic industry is being hurt, the exporting company can undertake to raise its price to an agreed level in order to avoid anti-dumping import duty. Detailed procedures are set out on how anti-dumping cases are to be initiated, how the investigations are to be conducted, and the conditions for ensuring that all interested parties are given an opportunity to present evidence. Anti-dumping measures must expire five years after the date of imposition, unless an investigation shows that ending the measure would lead to injury. Anti-dumping investigations are to end immediately in cases where the authorities 27

determine that the margin of dumping is insignificantly small (defined as less than 2% of the export price of the product). Other conditions are also set. For example, the investigations also have to end if the volume of dumped imports is negligible (i.e. if the volume from one country is less than 3% of total imports of that product although investigations can proceed if several countries, each supplying less than 3% of the imports, together account for 7% or more of total imports).

The agreement says member countries must inform the Committee on AntiDumping Practices about all preliminary and final anti-dumping actions, promptly and in detail. They must also report on all investigations twice a year. When differences arise, members are encouraged to consult each other. They can also use the WTOs dispute settlement procedure. 3.2 Basic Rules of WTO Anti-Dumping Laws As established in Article VI of the GATT 1994 and the WTO AD Agreement, before an anti-dumping duty to be applied, three elements need to be satisfied: (1) there is dumping; (2) there is "material injury" (or threat) to the domestic industry of the importing country (or retarding the establishment of such an industry) and the causation between the dumping and the material injury must be shown; and (3) the importing country is obligated to keep its procedures and provisional remedies consistent with WTO rules. 3.2.1 Dumping Dumping occurs when the imported goods are sold at a price below the comparable price by which they are sold in the home market (price discrimination), or below the cost of production (normal value). However, dumping is a concept that is easy to define but difficult to apply. First of all, calculating home market sales prices and export sales prices involves formidable tasks, including a complex series of adjustments, including packaging, advertising costs, warranty services, etc.

28

The calculation becomes even more complicated when the producer is not selling in the home market. To find some equivalent measure to the home market price or "normal value," investigators sometimes find it necessary to know the price of products being sold in some third markets. But if this is not happening, the value of the home market price has to be "constructed" on the basis of production costs.

An additional complication is raised by non-market economies (NMEs) including the economies in transition, where reliable and meaningful prices or costs often are not available to construct a home market price. In such cases, a "surrogate country" is often selected and the home market price is calculated based on prices in the surrogate market where like products are manufactured, preferably by the same process, and sold, preferably under the same competitive conditions. This is the so-called "analogue price," one of the most controversial practices in anti-dumping. It is noted that the AD Agreement sets a de minimus threshold of 2 per cent, expressed as a percentage of the export price, in calculating the dumping margin. In addition, with certain exception, the volume of dumped imports is regarded as negligible if the volume of dumped imports from a particular country is found to account for less than 3 per cent of imports of the like product in the importing Member. Some scholars have recommended increase to the de minimus threshold for the dumping margin and the import share for developing countries. 3.2.2 Material Injury and Causation After a dumping has been found, determinations must be made regarding whether there is "material injury" to the domestic industries and whether the material injury has caused the dumping. The AD Agreement stipulates that in examining the impact of the dumped imports, "all relevant economic factors and indices having a bearing on the state of the industry" shall be evaluated. The list includes "actual and potential decline in sales, profits, output, market share, productivity, return on investments, or utilization of 29

capacity; factors affecting domestic prices; the magnitude of the margin of dumping; actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments." This list is not exhaustive, nor can one or several of these factors necessarily give decisive guidance. The AD Agreement also requires the national authorities to demonstrate that dumped imports are causing injury within the meaning of the Agreement. Article 3.5 stipulates how this demonstration shall be made: "The demonstration of shall be based on an examination of all relevant evidence before the authorities. The authorities shall also examine any known factors other than the dumped imports which at the same time are injuring the domestic industry, and the injuries caused by these other factors must not be attributed to the dumped imports. Factors which may be relevant in this respect include, inter alia, the volume and prices of imports not sold at dumping prices, contraction in demand or changes in the patterns of consumption, trade restrictive practices of and competition between the foreign and domestic producers, developments in technology and the export performance and productivity of the domestic industry." 3.2.3 Anti-Dumping Measures If dumping, material injury and causation are all established, then duties may be applied at the border up to the amount of the margin of dumping. But, WTO rules impose several limitations on the measures that can be taken. The most important limitation, under Article VI:2 of the GATT 1994, provides that the function of anti-dumping measures is to "offset" dumping or "prevent" dumping in the case of threat of material injury, and that an anti-dumping duty may "not be greater in amount than the margin of dumping in respect of such product." The provision cannot be clearer. It sets precise maximum quantitative limits to the permissible level of the anti-dumping duty. This view is further emphasized in Article 9.1 of the AD Agreement, where it is suggested to limit the duty to the amount necessary to offset the injury suffered by the domestic industry, which may be less than the full dumping margin.

30

As the WTO Panel in the Act of 1916 case correctly pointed out, these limitations would be meaningless if "WTO Members were free to choose any other type of measure and then with no maximum limits as to amount and impact." Upon appeal, the Appellate Body endorsed the view of the Panel. It declared that, when Article VI:2 of DSU is read in the context of Article VI:1, it is clear that the word "may" simply means that the imposition of duties is optional, and that the amount of any such duty may not be greater than the margin of dumping. 3.2.4 Existing Problems of WTO AD Agreement Although the AD Agreement clarified many issues unresolved in the pre-WTO period, it is still widely believed that the Agreement should be further revised. Particularly, many WTO members and scholars have expressed concerns that the antidumping investigation is such a powerful and damaging device that the AD Agreement should provide more protection to exporters. The initiation of an anti-dumping investigation, or even rumors of possible initiation, often causes grave damages to the exporting industries. It is a signal calling the importers to switch to other sources of supply. The costs of replying to the investigation are often prohibitive, particularly for small and medium sized exporters from developing countries. 3.3 Brief Summary of Agreement on Implementation of Article VI (Anti-

dumping) Article VI of the GATT provides for the right of contracting parties to apply antidumping measures, i.e. measures against imports of a product at an export price below its normal value (usually the price of the product in the domestic market of the exporting country) if such dumped imports cause injury to a domestic industry in the territory of the importing contracting party. More detailed rules governing the application of such measures are currently provided in an Anti-dumping Agreement concluded at the end of the Tokyo Round. Negotiations in the Uruguay Round have resulted in a revision of this

31

Agreement which addresses many areas in which the current Agreement lacks precision and detail. In particular, the revised Agreement provides for greater clarity and more detailed rules in relation to the method of determining that a product is dumped, the criteria to be taken into account in a determination that dumped imports cause injury to a domestic industry, the procedures to be followed in initiating and conducting anti-dumping investigations, and the implementation and duration of anti-dumping measures. In addition, the new agreement clarifies the role of dispute settlement panels in disputes relating to anti-dumping actions taken by domestic authorities. On the methodology for determining that a product is exported at a dumped price, the new Agreement adds relatively specific provisions on such issues as criteria for allocating costs when the export price is compared with a constructed normal value and rules to ensure that a fair comparison is made between the export price and the normal value of a product so as not to arbitrarily create or inflate margins of dumping. The agreement strengthens the requirement for the importing country to establish a clear causal relationship between dumped imports and injury to the domestic industry. The examination of the dumped imports on the industry concerned must include an evaluation of all relevant economic factors bearing on the state of the industry concerned. The agreement confirms the existing interpretation of the term domestic industry. Subject to a few exceptions, domestic industry refers to the domestic producers as a whole of the like products or to those of them whose collective output of the products constitutes a major proportion of the total domestic production of those products. Clear cut procedures have been established on how anti-dumping cases are to be initiated and how such investigations are to be conducted. Conditions for ensuring that all interested parties are given an opportunity to present evidence are set out. Provisions on the application of provisional measures, the use of price undertakings in anti-dumping cases, and on the duration of anti-dumping measures have been strengthened. Thus, a significant improvement over the existing Agreement consists of the addition of a new 32

provision under which anti-dumping measures shall expire five years after the date of imposition, unless a determination is made that, in the event of termination of the measures, dumping and injury would be likely to continue or recur. A new provision requires the immediate termination of an anti-dumping investigation in cases where the authorities determine that the margin of dumping is de minimis (which is defined as less than 2 per cent, expressed as a percentage of the export price of the product) or that the volume of dumped imports is negligible (generally when the volume of dumped imports from an individual country accounts for less than 3 per cent of the imports of the product in question into the importing country). The agreement calls for prompt and detailed notification of all preliminary or final anti-dumping actions to a Committee on Anti-dumping Practices. The agreement will afford parties the opportunity of consulting on any matter relating to the operation of the agreement or the furtherance of its objectives, and to request the establishment of panels to examine disputes. 3.4 Explanation of the Anti-dumping Agreement The Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the AD Agreement) governs the application of anti-dumping measures by Members of the WTO. Anti-dumping measures are unilateral remedies which may be applied by a Member after an investigation and determination by that Member, in accordance with the provisions of the AD Agreement, that an imported product is dumped and that the dumped imports are causing material injury to a domestic industry producing the like product. The AD Agreement sets forth certain substantive requirements that must be fulfilled in order to impose an anti-dumping measure, as well as detailed procedural requirements regarding the conduct of anti-dumping investigations and the imposition and maintenance in place of anti-dumping measures. A failure to respect either the substantive or procedural requirements can be taken to dispute settlement and may be the basis for invalidation of the measure. Unlike the Agreement on Subsidies and 33

Countervailing Measures, the AD Agreement does not establish any disciplines on dumping itself, primarily because dumping is a pricing practice engaged in by business enterprises, and thus not within the direct reach of multilateral disciplines.

3.4.1

Substantive rules Article 1 of the AD Agreement establishes the basic principle that a Member may

not impose an anti-dumping measure unless it determines, pursuant to an investigation conducted in conformity with the provisions of the AD Agreement, that there are dumped imports, material injury to a domestic industry, and a causal link between the dumped imports and the injury. 3.4.2 Determination of dumping Article 2 contains substantive rules for the determination of dumping. Dumping is calculated on the basis of a fair comparison between normal value (the price of the imported product in the ordinary course of trade in the country of origin or export) and export price (the price of the product in the country of import). Article 2 contains detailed provisions governing the calculation of normal value and export price, and elements of the fair comparison that must be made. 3.4.3 Determination of injury Article 3 of the AD Agreement contains rules regarding the determination of material injury caused by dumped imports. Material injury is defined as material injury itself, threat of material injury, or material retardation of the establishment of a domestic industry. The basic requirement for determinations of injury is that there must be an objective examination, based on positive evidence of the volume and price effects of dumped imports and the consequent impact of dumped imports on the domestic industry. Article 3 contains specific rules regarding factors to be considered in making 34

determinations of material injury, while specifying that no one or several of the factors which must be considered is determinative. Article 3.5 requires, in establishing the causal link between dumped imports and material injury, known factors other than dumped imports which may be causing injury must be examined, and that injury caused by these factors must not be attributed to dumped imports.

A significant new provision, Article 3.3, establishes the conditions in which a cumulative evaluation of the effects of dumped imports from more than one country may be undertaken. Under the rules, authorities must determine that the margin of dumping from each country is not de minimis, that the volume of imports from each country is not negligible, and that a cumulative assessment is appropriate in light of the conditions of competition among the imports and between the imports and the domestic like product. 3.4.4 Definition of industry Article 4 of the AD Agreement sets forth a definition of the domestic industry to be considered for purposes of assessing injury and causation. The domestic industry is defined as producers of a like product, which term is defined in Article 2.6 as a product that is identical to, or in the absence of such a product, one that has characteristics closely resembling those of, the imported dumped product under consideration. Article 4 contains special rules for defining a regional domestic industry in exceptional circumstances where production and consumption in the importing country are geographically isolated, and for the evaluation of injury and assessment of duties in such cases. Article 4 also establishes that domestic producers may be excluded from consideration as part of the domestic industry if they are related (defined as a situation of legal or effective control) to exporters or importers of the dumped product. 3.4.5 Procedural requirements A principal objective of the procedural requirements of the AD Agreement is to 35

3.4.5.1 Overview

ensure transparency of proceedings, a full opportunity for parties to defend their interests, and adequate explanations by investigating authorities of their determinations. The extensive and detailed procedural requirements relating to investigations focus on the sufficiency of petitions (through minimum information and standing requirements) to ensure that meritless investigations are not initiated, on the establishment of time periods for the completion of investigations, and on the provision of access to information to all interested parties, along with reasonable opportunities to present their views and arguments. Additional procedural requirements relate to the offering, acceptance, and administration of price undertakings by exporters in lieu of the imposition of antidumping measures. The AD Agreement requires investigating authorities to give public notice of and explain their determinations at various stages of the investigative process in substantial detail. It also establishes rules for the timing of the imposition of antidumping duties, the duration of such duties, and obliges Members to periodically review the continuing need for anti-dumping duties and price undertakings. There are detailed provisions guiding the imposition and collection of duties under various duty assessment systems, intended to ensure that anti-dumping duties in excess of the margin of dumping are not collected, and that individual exporters are not subjected to anti-dumping duties in excess of their individual margin of dumping. Article 13 of the AD Agreement requires Members to provide for judicial review of final determinations in anti-dumping investigations and reviews. Other provisions establish that Members may, at their discretion, take anti-dumping actions on behalf of and at the request of a third country, and recognize that special regard must be given by developed country Members to the situation of developing country Members when considering the application of antidumping duties. 3.4.5.2 Specific Provisions Initiation and conduct of investigations Article 5 establishes the requirements for the initiation of investigations. The AD Agreement specifies that investigations should generally be initiated based on a written request submitted by or on behalf of a domestic industry. This standing requirement is supported by numeric limits for determining whether there is sufficient support by 36

domestic producers to conclude that the request is made by or on behalf of the domestic industry, and thereby warrants initiation. The AD Agreement establishes requirements for evidence of dumping, injury, and causality, as well as other information regarding the product, industry, importers, exporters, and other matters, in written applications for antidumping relief, and specifies that, in special circumstances when authorities initiate without a written application from a domestic industry, they shall proceed only if they have sufficient evidence of dumping, injury, and causality. In order to ensure that meritless investigations are not continued, potentially disrupting legitimate trade, Article 5.8 provides for immediate termination of investigations in the event the volume of imports is negligible or the margin of dumping is de minimis, and establishes numeric thresholds for these determinations. In order to minimize the trade disruptive effect of investigations, Article 5.10 specifies that investigations shall be completed within one year and in no case more than 18 months, after initiation. Article 6 sets forth detailed rules on the process of investigation, including the collection of evidence and the use of sampling techniques. It requires authorities to guarantee the confidentiality of sensitive information and verify the information on which determinations are based. In addition, to ensure the transparency of proceedings, authorities are required to disclose the information on which determinations are to be based to interested parties and provide them with adequate opportunity to comment, and establishes the rights of parties to participate in the investigation, including the right to meet with parties with adverse interests, for instance in a public hearing. Imposition of provisional measures Article 7 relates to the imposition of provisional measures. Article 7 includes the requirement that authorities make a preliminary affirmative determination of dumping, injury, and causality before applying provisional measures, and the requirement that no provisional measures may be applied sooner than 60 days after initiation of an investigation. Price undertakings 37

Article 8 establishes the principle that undertakings to revise prices or cease exports at dumped prices may be entered into to settle an investigation, but only after a preliminary affirmative determination of dumping, injury, and causality has been made. It also establishes that undertakings are voluntary on the part of both exporters and investigating authorities. In addition, an exporter may request that the investigation be continued after an undertaking has been accepted, and if a final determination of no dumping, no injury, or no causality results, the undertaking shall automatically lapse. Imposition and collection of duties Article 9 establishes the general principle that imposition of anti-dumping duties is optional, even if all the requirements for imposition have been met, and establishes the desirability of application a lesser duty rule. Under a lesser duty rule, authorities impose duties at a level lower than the margin of dumping but adequate to remove injury. Article 9.3 establishes that anti-dumping duties may not exceed the dumping margin calculated during the investigation. In order to ensure that anti-dumping duties in excess of the margin of dumping are not collected, Article 9.3 requires procedures for determination of the actual amount of duty owed, or refund of excess duties paid, depending on the duty assessment system of a Member, normally within 12 months of a request, and in no case more than 18 months. Article 9.4 establishes rules for calculating the amount of duties to be imposed on exporters not individually examined during the investigation. Article 9.5 provides for expedited reviews to calculate individual margins of dumping for exporters or producers newly entering the market of the importing Member. Article 10 establishes the general principle that both provisional and final antidumping duties may be applied only as of the date on which the determinations of dumping, injury, and causality have been made. However, recognizing that injury may have occurred during the period of investigation, or that exporters may have taken actions to avoid the imposition of an anti-dumping duty, Article 10 contains rules for the retroactive imposition of dumping duties in specified circumstances. If the imposition of anti-dumping duties is based on a finding of material injury, as opposed to threat of 38

material injury or material retardation of the establishment of a domestic industry, antidumping duties may be collected as of the date provisional measures were imposed. If provisional duties were collected in an amount greater than the amount of the final duty, or if the imposition of duties is based on a finding of threat of material injury or material retardation, a refund of provisional duties is required. Article 10.6 provides for retroactive application of final duties to a date not more than 90 days prior to the application of provisional measures in certain exceptional circumstances involving a history of dumping, massive dumped imports, and potential undermining of the remedial effects of the final duty. Duration, termination, and review of anti-dumping measures Article 11 establishes rules for the duration of anti-dumping duties, and requirements for periodic review of the continuing need, if any, for the imposition of antidumping duties or price undertakings. These requirements respond to the concern raised by the practice of some countries of leaving anti-dumping duties in place indefinitely. The sunset requirement establishes that dumping duties shall normally terminate no later than five years after first being applied, unless a review investigation prior to that date establishes that expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury. This five year sunset provision also applies to price undertakings. The AD Agreement requires authorities to review the need for the continued imposition of a duty upon request of an interested party. Public notice Article 12 sets forth detailed requirements for public notice by investigating authorities of the initiation of investigations, preliminary and final determinations, and undertakings. The public notice must disclose non-confidential information concerning the parties, the product, the margins of dumping, the facts revealed during the investigation, and the reasons for the determinations made by the authorities, including the reasons for accepting and rejecting relevant arguments or claims made by exporters or importers. These public notice requirements are intended to increase the transparency of determinations, with the hope that this will increase the extent to which determinations 39

are based on fact and solid reasoning. The committee and dispute settlement Article 16 establishes the Committee on Anti-dumping Practices, and sets forth requirements for Members to notify without delay all preliminary and final actions taken in anti-dumping investigations, and notify semi-annually all actions taken during the relevant reporting period. Article 17 establishes that the Dispute Settlement Understanding is applicable to disputes under the AD Agreement. However, Article 17.6 establishes a special standard of review to be applied by panels in examining disputes in anti-dumping cases with regard both to matters of fact and questions of interpretation of the Agreement. This standard gives a degree of deference to the factual decisions and legal interpretations of national authorities, and is intended to prevent dispute settlement panels from making decisions based purely on their own views. A Ministerial Decision, which is not part of the AD Agreement, regarding this provision establishes that its operation will be reviewed after three years with a view to consideration whether it is capable of general application. Final provisions Article 18.3 establishes the effective date of the AD Agreement, providing that it is applicable to investigations and reviews of existing measures initiated pursuant to applications made on or after the entry into force of the AD Agreement. Article 18.4 requires Members to bring their laws into conformity with the AD Agreement by the date of entry into force of the AD Agreement. Under Article 18.5, Members are required to notify their anti-dumping laws and regulations to the Committee. Annex I to the AD Agreement establishes procedures for on-the-spot investigations, which are generally undertaken in the territory of an exporting Member to verify information provided by foreign producers or exporters. Annex II to the AD Agreement sets forth provisions on the use of best information available in 40

investigations, specifying the conditions under which investigating authorities may rely on information from a source other than the person concerned. The Ministerial Decision on Anti-Circumvention, which is not part of the AD Agreement, noted that the negotiators had been unable to agree on a specific text dealing with the problem of anti-circumvention, recognized the desirability of applying uniform rules in this area as soon as possible, and referred the matter to the Committee for resolution. The Committee has established an Informal Group on Anti-Circumvention, which is open to participation by all Members, to carry out the task assigned by the Ministers. 3.5 Legal Standards in GATT/WTO Anti-Dumping Cases Until August 31, 2001, ten panel reports and five appellate body reports had been circulated. These reports have greatly enhanced our understanding of rights and responsibilities under the AD Agreement. They have provided certainty much needed to participants of the international trade. In the following three legal standards that have been involved in all anti-dumping disputes would be discussed. The evolution of these standards under the WTO is of great importance for understanding WTO anti-dumping disputes and litigations. 3.5.1 Burden of Proof Burden of proof is a crucial issue in reaching conclusions of law and fact. When the panel sits down to determine whether one country acted in accordance with the AD Agreement, the first issue confronted is who bears the burden: Whether the importing country (the country imposing the anti-dumping duty) is required to demonstrate its antidumping practices complying with the AD Agreement, or whether the exporting country shall demonstrate a lack of compliance on the side of the importing country. GATT Standard Outside of the anti-dumping and countervailing duties context, GATT practice was to put the bur-den on the complaining party to demonstrate either violation or infringement. However, dumping was not unfair trade practice per se. It was 41

the anti-dumping, rather than the dumping, that was the target of disciplinary action under the GATT (as well as the WTO). This is because the imposition of anti-dumping duty is contrary to the fundamental principles of "tariff bindings" (by raising import duties above the bound rates) and Most Favorite Nation (MFN) (by applying different tariff rates to different GATT Members). Most scholars considered and still consider GATT Articles VI (antidumping) as permitted exceptions to the basic GATT principles and concepts. When an accused party claimed reliance on one of the exceptions to the basic GATT principles (e.g., Article XX), therefore, it should be required to bear the burden of demonstrating that its actions are consistent with that exception. The GATT Panel in the Canada Pork case endorsed this position. It found that GATT Article VI:3 was an exception to basic principles of the General Agreement, so that the importation must not be subject to charges other than ordinary customs duties (Article II:1(b)), and that charges of any kind imposed in connection with importation must meet the MFN standard (Article I:1). The Panel continued to rule that Article VI:3, as an exception to basic principles of the General Agreement, had to be interpreted narrowly and that it was up to the United States, as the party invoking the exception, to demonstrate that it had met the requirements of Article VI:3. However, in both Salmon16 and Audio cassettes17 cases, the Panels not only refused to rule on whether Article VI is an exception, but they placed burdens of proof on the complaining parties (Norway and Japan, respectively), albeit only the defending parties had access to relevant facts. In the Salmon case, Norway (the exporting country) argued that since it had demonstrated that there was a likelihood that the U.S. methodology would result in overstating the dumping margins, the burden should be on
16

United States -- Imposition of Anti-dumping Duties on Imports of Fresh and Chilled Atlantic Salmon From Norway, ADP/87, (27 April 1994) [hereinafter "Salmon"].
17

EC -- Anti-Dumping Duties on Audio Tapes and Cassettes Originating in Japan, Panel Report, ADP/136, (28 April 1995) (unadopted) [hereinafter "Audio Cassettes"].

42

the U.S. (the importing country) to demonstrate that it had not, in fact, overstated the margins. Moreover, the U.S. had the necessary confidential information to demonstrate the soundness of its methodology, while Norway did not have access to such information. Nevertheless, the panel rejected Norway's argument. It reasoned that although Norway had presented a hypothetical case of overstating margin with the U.S. methodology, no evidence was proffered to show that the U.S. methodology had in fact overstated the margins. In the Audio cassettes case, Japan argued that the EC overstated the dumping margins by comparing an average normal value to individual transactions when combined with the practice of zeroing out above normal value sales. Similar to the Salmon case, this Panel rejected Japan's argument on the grounds that Japan had not shown that there would have been no dumping but for the average normal value to individual transaction and zeroing. However, the burden of proof should have been on the EC to demonstrate its calculation was correct, since Japan had absolutely no access to any of the relevant factual information. WTO Standard the U.S. has routinely argued in those cases in which it is the defending party that Article VI of the GATT is not an exception. On the contrary, it argues that Article VI and the AD Agreement confer a right to impose anti-dumping duties. To diminish this right, by characterizing Article VI and the AD Agreement as "derogations," would constitute an impermissible failure to respect this balance.18 For example, in the Korean DRAMS case, the U.S. argued that the Panel in the Canada Pork case was "conclusory in nature" and that aspect of the Panel's decision was only "dicta." Similarly, in the US-Japan Steel case, the U.S. argued that anti-dumping measures do not constitute exceptions from the rest of the WTO framework that these measures are subject to the same rules of interpretation as any other provision of the other WTO
18

WTO Panel Report, United States-- Anti-Dumping on Dynamic Random Access Memory Semiconductors (DRAMS) of One Megabit or Above from Korea, WT/DS99/R, (Jan. 29, 1999) [hereinafter "Korea DRAMS"], paras. 4.77-4.80.

43

Agreements, except that they enjoy a more deferential standard of review. On the other hand, some other WTO members have endorsed, either explicitly or implicitly, the position that, although anti-dumping measures are authorized under international trade rules, WTO members have tried to constrain the use and abuse of antidumping measures to protect the trade liberalizing principles that underlie other WTO obligations. As a result, the WTO permits only anti-dumping measures that comply with a specific and detailed set of legal disciplines. In the US-Japan Steel case, Japan forcefully argued that the threshold of the U.S. for application of anti-dumping measures is becoming lower and lower, while the anti-dumping measures themselves are erecting higher and higher barriers to trade. Therefore the Panel should reject the result-oriented and economically dubious determinations of dumping, injury, and causation by the U.S. in that case. The WTO cases seem to have adopted a relatively middle ground. The Panels have generally required the complaining party (the exporting country) to present a "prima facie case" of violation of the AD Agreement. The WTO Appellate Body has defined a prima facie case as "one which, in the absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule in favor of the complaining party presenting the prima facie case." Where the complaining party presents a prima facie case in respect of a claim, it is for the defending party to provide an "effective refutation" by submitting its own evidence and arguments in support of the assertion that the challenged activities are consistent with its obligations under the AD Agreement. However, in the Act of 1916 case, the EC challenged that the U.S. Act of 1916 violated various provisions of the GATT 1994 and the WTO AD Agreement. The EC, as the complainant, should normally adduce sufficient evidence to raise a prima facie case that each of its claims has merit. However, the Panel ruled: "This rule however is only applicable to determine whether and when a party bears the burden of proof. Once both parties have submitted evidence meeting those requirements, it is up to the Panel to weigh the evidence as a whole." 44

A more important case on the burden of proof is the Poland Steel case19. There, Poland argued that, under the AD Agreement, anti-dumping duties are an "exception" to the otherwise applicable freedom to trade between WTO members. It reasoned that antidumping measures may be levied only "in order to offset or prevent dumping," since WTO Members have agreed that anti-dumping measures may be applied only (1) "under the circumstances pro-vided for in Article VI, and pursuant to investigations initiated and conducted in accordance with AD Agreement"; (2) "where all requirements for the imposition have been fulfilled," including a proper determination of both dumping and injury;20 and (3) "shall remain in force only as long as and to the extent necessary to counteract dumping which is causing injury."21 The Panel seemed to agree with Poland. It stated: "We believe that just as the extensive discretionary authority of a panel to request information from any source (including a Member that is a party to the dispute) is not conditional upon a party having established, on a prima facie basis, a claim or defence, so also a panel's extensive authority to put questions to the parties in order to inform itself of the relevant facts of the dispute and the legal considerations applicable to such facts is not conditional in any way upon a party having established, on a prima facie basis, a claim or defence. We view this authority as essential in order to carry out our mandate and responsibility under the DSU and the AD Agreement." The Panel claimed that it "must examine whether and how the Thai investigating authorities evaluated all the relevant factors having a bearing on the state of the industry under Article 3.4." The Panel further stated: "the complaining party bears the burden of establishing a violation of a provision of a covered agreement does not 'freeze' a panel into inaction."
19

Thailand -- Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and HBeams from Poland, WT/DS122/R, (28 September 2000) [hereinafter "Poland Steel"], Poland argument para. 48.
20

Arts. 2, 3, 9.1 and Article VI:1, VI:6 GATT 1994. Art. 11.1. of ADA

21

45

Thailand appealed to the WTO Appellate Body and challenged the Panel decision under the "burden of proof."22 Specifically, it alleged that the Panel did not make specific and explicit findings whether Poland, as a claimant, had established a prima facie case of violation, and that the panel improperly made Poland's case for it. The Appellate Body upheld the Panel decision. It cited its ruling in the Korea Dairy case: "We find no provision in the DSU that requires a panel to make an explicit ruling on whether the complainant has established a prima facie case of violation before a panel may proceed to examine the respondent's defence and evidence."23 The Appellate Body also stated, citing its ruling in India Textile case that "We do not consider that a panel is required to state expressly which party bears the burden of proof in respect of every claim made."24 The Appellate Body also cited approvingly its ruling in Canada Aircraft case,25 where it dismissed the view that a panel has no authority to ask a question relating to claims for which the complaining party had not first established a prima facie case, and stated that such an argument was "bereft of any textual or logical basis." The Appellate Body concluded that a WTO panel is not required to make a separate and specific finding, in each and every instance, that a party has met its burden of proof in respect of a particular claim, or that a party has rebutted a prima facie case. In conclusion, it seems that some WTO panels are sympathetic to the "exception" argument, while some others tend to be stricter in demanding a showing of "prima facie" case by the complaining party.

22

Thailand -- Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and HBeams from Poland, Appellate Body Report, WT/DS122/AB/R, (12 March 2001) [hereinafter "Poland Steel AB Report"].
23

Korea -- Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, (14 December 1999), para. 145.
24

India -- Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, WT/DS90/AB/R, (23 August 1999), para. 137.
25

Canada -- Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, (20 August 1999).

46

3.5.2

Standard of Review When evidence and arguments are presented on both sides, the panel will proceed

to weigh and assess those evidence and arguments, so that to determine whether the importing country indeed acted inconsistently with its obligations under the AD Agreement. Thus, the question of standard of review arises: What is the standard that a WTO panel should adopt in reviewing the decisions of the national authorities? Whether the authorities should be given any deference? GATT Standard in the late 1980s, GATT panels began to issue decisions adverse to the U.S., particularly in anti-dumping and countervailing duty cases.26 In those antidumping duty cases that the U.S. lost under the GATT, the panels accorded the U.S. national authorities much less deference that they would like to see, and considered information that was not part of the administrative record. 27 This less deferential standard certainly did not satisfy the U.S., the most frequent user of anti-dumping duties. WTO Standard during the Uruguay Round, the U.S. negotiators tried to ensure that the WTO standard of review would give substantial deference to decisions of the DOC and ITC.28 But at the same time, the standard of review problem was also a matter of great interest in intellectual property. If the U.S. wanted to secure WTO protection of intellectual property rights, panels reviewing matters arising under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) could not defer to national governments, many of which lacked rigorous administrative processes. The compromise resulted from this dilemma was the establishment of two standards of review: one particular to the AD and Subsidies Agreements, and the other, less deferential standard in
26

Paul C. Rosenthal & Robert T.C. Vermylen, Part II: Review of Key Substantive Agreements: Panel II E: Antidumping Agreement (AD) and Agreement on Subsidies and Countervailing Measures (SCM): The WTO Antidumping and Subsidies Agreements: Did the United States Achieve Its Objectives During the Uruguay Round? 31 Law & Policy Int'l Bus., 875-76 (2000)
27

GATT Dispute Panel Report on United States -- Anti-Dumping of Imports of Stainless Steel Plate from Sweden, ADP/117, 1994 GATTPD Lexis 6 (Feb. 24, 1994) (unadopted).
28

Steven P. Crowley & John H. Jackson, WTO Dispute Procedures, Standard of Review, and Deference to National Governments, 90 Am. J. Int'l L. 193-95 (1996).

47

Article 11 of the DSU, to all disputes arising under non-AD Agreement violations. Article 17.6 of the Anti-dumping Agreement provided for special standard of review for both factual issues and legal (interpretation) issues. With regard to factual issues, Article 17.6(i) provides:

"in its assessment of the facts of the matter, the panel shall determine whether the authorities' establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned." If a panel concludes that the establishment of the facts with regard to a particular claim is proper, it may proceed to consider legal issues. With regard to legal issues, Article 17.6(ii) provides: "the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations." It is noted that the terms of the legal prong are nearly identical to those of a leading United States Supreme Court decision, Chevron.29 The Chevron Court held that "if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the
29

Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 US 837 (1984).

48

statute." The U.S. argues that the language reflects an evident recognition that the task of panels would be similar to that of domestic courts reviewing the actions of administrative agencies.

The WTO decisions to date have raised questions whether the U.S. negotiators really got what they wanted by this special standard of review. These decisions seem to suggest that the WTO panels are conscious of the tremendous power held by the national authorities in anti-dumping actions, and are willing to limit the degree of the deference to the decisions of the national authorities. On the factual prong of the standard, Guatemala argued, in the Mexico cement case, that its administrative authority had considered all the facts that was "reasonably available" to it and made the factual determinations according to Article 17.6(i). However, the Panel rejected Guatemala's argument and hold that in addition to the factors in Article 17.6(i), Guatemala needed to look at Article 5.3, which requires the investigating authority to examine the "accuracy and adequacy" of the evidence when determining whether there is "sufficient evidence to justify the initiation of an investigation."30 The Panel made it clear that the standard for factual determination is the "objective sufficiency" of the evidence, not any subjective standard adopted by the investigating authority. More importantly, in the Poland Steel case, the Panel agreed with Thailand (the importing country) that factual evaluation by the national authority could be limited to non-confidential facts. On appeal, the Appellate Body reversed and held that, in order for a panel to properly determine whether the investigating authorities' establishment of the
30

Guatemala -- Definitive Anti-dumping Measures on Grey Portland Cement from Mexico, WT/DS156/R, (24 October 2000), Para. 7.49.

49

facts was proper, it must "evaluate all of the facts made available to it by the defending party; these may include confidential facts that were part of the administrative record." On the legal prong of the standard, there seems to be some tension between the two sentences of Article 17.6(ii).31 The first sentence requires a panel to interpret the AD Agreement in accordance with customary rules of treaty interpretation. The panel considers the interpretation of the WTO Agreements, including the AD Agreement, in accordance with the principles set out in the Vienna Convention on the Law of Treaties. The rules of treaty interpretation set forth in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (the "Vienna Convention") have achieved the status of a rule of customary international law and are customarily used by the panels. The panel may also consider the legislative (negotiation) history to divine the original intent of the provision.32 The second sentence leads the panel to uphold "permissible interpretation" by the national authorities. If the panel determines that the provisions allow more than one interpretation, it shall proceed to consider whether the national interpretation is within the set of permissible interpretations. If so the Panel must defer to the interpretation given to the provision by the national government. In the Korea DRAMS case, the Panel made it clear that it had the power under Article 17.6(ii) to determine the set of "permissible" interpretations of a provision of the WTO Agreements. With that power, WTO panels are capable of overturning an authority's decision by declaring that the member's interpretation of the WTO provision is not within the set of "permissible" interpretations. The Panel rejected the U.S. argument of "permissible interpretation" on the basis that they were not consistent with the AD
31

United States -- Anti-Dumping Measures on Stainless Steel Plate in Coils and Stainless Steel Sheet and Strip from Korea, WT/DS179/R, (22 December 2000) [hereinafter "US-Korea Steel"], Annex 1-1.
32

EC -- Anti-dumping Measures on Imports of Cotton-type Bed-linen from India, WT/DS141/R, (30 October 2000) [hereinafter "India Linen"], para. 6.46.

50

Agreement and, in reaching such a view it applied the customary rules of interpretation of public international law. The Panel there concluded that the DOC's "not likely" criterion was not a "permissible" interpretation of Article 11.2 of the AD Agreement. Similar results are found in other Panel reports. The India Linen case is a typical one. There, the Panel did not accept the interpretation given by the EC of Article 2.4.2 of the AD Agreement as a "permissible interpretation" within the meaning of Article 17.6(ii). On appeal, the Appellate Body affirmed and stated: "the Panel was not faced with a choice among multiple 'permissible' interpretations which would have required it, under Article 17.6(ii), to give deference to the interpretation relied upon by the European Communities. Rather, the Panel was faced with a situation in which the interpretation relied upon by the European Communities was, to borrow a word from the European Communities, 'impermissible'. We do not share the view of the European Communities that the Panel failed to apply the standard of review set out in Article 17.6(ii) of the AntiDumping Agreement." In conclusion, the WTO cases to date seem to suggest that the WTO Panels and the Appellate Body are suspicious of the high level of deference to the national authorities as favored by the U.S. The Panels and the Appellate Body have used more rigorous standards, and have been willing to scrutinize the decisions of national authorities. Consequently, it might become more difficult for the national authorities to defend their decisions in the future,33 which certainly a good news for many challengers of the U.S. anti-dumping practice. 3.5.3 Causation of Material Injury Under the AD Agreement, besides analyzing the materiality of injury, the national authority has to assess whether the material injury established is caused by the dumped
33

Paul C. Rosenthal, Richard Cunningham, Victor Luiz do Prado, & Angela Ellard, Part II: Review of Key Substantive Agreements: Panel II E: Antidumping Agreement (AD) and Agreement on Subsidies and Countervailing Measures (SCM): Presentation Summary and Comments, 31 LAW & POL'Y INT'L BUS. 907, 908-10 (2000).

51

imports. Determination of causation is still another contentious issue in anti-dumping disputes. GATT Standard Most scholars and many GATT parties have interpreted relevant provisions in the Tokyo Round AD Code to require that national authorities separate the injury caused by the dumped imports from the injury caused by other factors, and then determine whether the effect of those imports is such as to constitute injury within the meaning of the Code. The U.S., when acting as defendant, does not support this interpretation. The GATT panels gave different interpretations from panel to panel. Indeed, as in the Salmon case, several different interpretations were enunciated in the same report. WTO Standard Under Article 3.5 of the WTO AD Agreement, before making an affirmative determination of injury, the importing country (through its national authority) must demonstrate that dumped imports are, through the effects of dumping, as set forth in Article 3.2 and 3.4, causing injury within the meaning of the Agreement. The following sentences of this provision clarify how this causal link is to be established. First, Article 3.5 requires that the demonstration of a causal relationship be based on an examination of all relevant evidence. Second, Article 3.5 provides that the authorities shall examine any known factors other than the dumped imports which are at the same time injuring the domestic industry. Third, the authorities are to make sure that injuries caused by these other factors are not attributed to the dumped imports. Article 3.5 clarifies the previous GATT Code language and supports the interpretations espoused by the scholars and many GATT parties. However, national authorities such as the ITC of the U.S. read this provision to require that dumped imports must merely be "a" cause of injury among other factors, not the only cause. Certain commissioners at the ITC do not separately analyze the causation question. Instead, they consider material injury and causation together as part of a "unity" econometric analysis. In the U.S.-Japan Steel case, the WTO Panel considered the question whether the 52

ITC established a causal relation-ship between the dumped Japanese steel imports and the injury to the domestic industry consistently with Article 3.5 of the AD Agreement. Japan alleged that the ITC (1) inadequately analyzed other factors affecting the industry, and (2) failed to ensure that injury caused by these other factors was not attributed to the dumped imports. In response, the U.S. pointed to the various paragraphs in the ITC report in which other factors affecting the industry are discussed. It argued that: (1) the ITC was not required under the AD Agreement to establish that dumped imports are the "sole cause of injury" and (2) its analysis did ensure that any injuries that were caused by other factors were not attributed to dumped imports. The Panel observed that the operative language at issue, the injunction that "the injuries caused by other factors must not be attributed to the dumped imports," is unchanged in Article 3.5 of the WTO AD Agreement from Article 3:4 of the Tokyo Round AD Code. Thus, the Panel found the decision of the Panel in Salmon, a GATT decision under the Tokyo Round AD Code, to be useful and persuasive on this issue. There, the Panel held that the ITC was not required by the AD Code to identify the extent of injury caused by other factors in order to determine the injury caused by the imports from Norway. Based on the Salmon and another WTO case where Article 4.2(b) of the Safeguards Agreement (similar language as Article 3.5 of the AD Agreement) was considered,34 the Panel held that the ITC was not obligated under the AD Agreement to demonstrate that "dumped imports alone have caused material injury by deducting the injury caused by other factors from the overall injury found to exist, in order to determine whether the remaining injury rises to the level of material injury." Japan appealed. The Appellate Body reversed. It completely rejected the Salmon reasoning, holding it "at odds" with the interpretive approach for Article 3.5 of the AD
34

United States -- Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/DS166/AB/R, (19 January 2001).

53

Agreement. The Appellate Body clearly recognized that "it may not be easy, as a practical matter, to separate and distinguish the injurious effects of different causal factors," but stated: "Although this process may not be easy, this is precisely what is envisaged by the non-attribution language. If the injurious effects of the dumped imports and the other known factors remain lumped together and indistinguishable, there is simply no means of knowing whether injury ascribed to dumped imports was, in reality, caused by other factors. Article 3.5, therefore, requires investigating authorities to undertake the process of assessing appropriately, and separating and distinguishing, the injurious effects of dumped imports from those of other known causal factors." There has been no WTO case has directly hold on the issue whether all factors listed in Article 3.5 of the AD Agreement must be evaluated by the investigating authorities before the causal relationship can be established. However, the Panel in the India Linen case rejected the EC's assertion that not all factors listed in Article 3.4 need to be evaluated in examining the impact of the dumped imports on the domestic industry. The Panel concluded that "each of the fifteen factors listed in Article 3.4 of the AD Agreement must be evaluated by the investigating authorities in each case in examining the impact of the dumped imports on the domestic industry concerned." The same logic of the India Linen decision should apply to Article 3.5. It seems reasonable to expect an affirmative answer if the above issue is confronted by a future WTO panel. Indeed, some scholars have recommended the exact same answer.

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4.

DUMPING AND ITS INTERPRETATION UNDER THE WTO FRAMEWORK

4.1

Overview of Article 2 The Panel in the US-Stainless Steel dispute made it clear that the purpose of

Article 2 as a whole is to provide a methodology for determining whether a product is being dumped, that is, whether the export price is less than the normal value.35 Article 2 of the ADA contains multiple obligations relating to the various components that enter into complex process of determining the existence of dumping and the calculation of the dumping margin.36 But in some instances the ADA does not provide clear guidance. At the same time, it provides different options and leaves the decision of the methodology and various requirements under Article 2 to the investigating authorities. Article 2 is one of the most important Articles of the ADA. It deals with the very essence of the subject: the determination of dumping.37 The definition of dumping in the
35

United States-Anti-dumping Measures on Stainless Steel Plate in Coils and Stainless Steel Sheet and Strip from Korea. WT/DS179/R, 22 Dec.2000, para.6.119
36

Panel Report, Thailand-Anti-dumping Duties on Angles, Shapes and sections of Iron or Non-Alloy Steel and H-Beams from Poland (Thailand-H-Beams), WT/DS122/R, para.7.35
37

The following general formula can be formulated for the calculation of dumping margin: Dumping margin= Normal Value- Export Price. Normal Value= Domestic Price, i.e., the price the exporter charges in its home market. Export Price= Foreign Price, i.e., the price the exporter charges in the importing country where dumping is alleged. If the dumping margin is positive, then dumping has occurred; if it is zero or negative, then no dumping has occurred. Sometimes dumping margins are expressed in percentage terms,

55

ADA is an inclusive one. Article 2.1 of the ADA states that a product is considered as dumped, if the export price is less than the comparable price, in the ordinary course of trade, for the like product in the exporters domestic market. There are two prevailing methods of calculating normal value. It may be calculated on the basis of the price charged in the home market, or of the cost of production. Fixing the export price below the home-market price signifies price discrimination, while the export price below cost signifies loss-making sales. A comparison must be made between the export price of the product and the normal value38 of the like product in the exporting country. If the export price is lesser than the normal value, the product is considered as dumped. The difference between the two is dumping margin. For calculating the dumping margin, the WTO members are using different methodologies like the arms length test and zeroing which are contained in the members; domestic anti-dumping laws. These methodologies are questioned before the DSU several times. The issues while calculation of dumping margin revolves around four important terminologies: export price, normal value, ordinary course of trade, comparable price and the like product. Article 2.239 sets out an alternative method of calculating normal value in the case where there are no sales of a like product in the ordinary course of trade in the domestic market of the exporting country. Article 2.3 covers the construction of export price, and Article 2.4 contains detailed rules for making a fair comparison between export price and normal value. The key phrase in Article 2.1 is in the ordinary course of trade, which has always been controversial. All export sales are averaged to obtain export price based on average-to-average and transaction-to-transaction comparisons. But only those sales in the ordinary course of trade will be averaged to obtain normal value. However, there is
namely, as a percentage of the export price. Then the formula becomes:
38

Dumping Margin= Normal Value-Export Price/Export Price x 100 Usually the normal value is the domestic market price.

39

Article 2.2 of the ADA provides: if there is no sales of the like product in domestic market in the ordinary course of trade or due to particular market situations or low volume of sales in the domestic market of the exporting country, such sales do not permit a proper comparison, the margin of dumping is to be determined by comparison with the export price to a third country or with the cost of production in the country of origin plus a reasonable amount of administrative, selling, general costs and profits (constructed value)

56

an exception in determining the normal value of imports from non-market economies. There are different methods adopted by national legislations in pursuance of this exception, such as comparing the export price with: a constructed value which covers all costs plus profit margin in a related third country; a comparable export price of a like product originating from a surrogate third country; the domestic market price of a like product in a surrogate country; or If the above three methods do not provide a reasonable basis, the authorities may use the domestic market price of a like product in the importing country/investigating Member subject to suitable adjustment. When there are no home market sales or third country sales available to do a comparison and domestic sales do not permit a proper comparison because (a) volume of domestic sales is insufficient in relation to the volume of export sales to the country of import of a like product; or (b) where a particular market situation prevents a proper comparison with export sales, which may be due to association between the parties or due existence of compensatory arrangement or (c) domestic market sales of the like product are made to related parties. In such cases, there are two alternative methods of determination of Normal Value:(1) a comparable price of the like product when exported to an appropriate third country, provided that this price is representative or (2) the constructed value, that is, the cost of production in the country of origin plus a reasonable amount for selling, general and administrative expenses plus profits. 57

Now as to the export price it may be the actual export price or it may be a constructed export price. As to the actual export price initially in the GATT doubts were expressed as to whether the normal value be compared with the price of the product when it left the exporting country or with the price after the product entered the importing country. The issue arose because, in the 1920s, some countries legislation stipulated that the price should be that at which the product was offered for sale in the importing country. For resolving the doubts about which price should be compared, a reference was made to the 1958/1959 GATT Group of Experts. The Group held that normal value be compared with the price of the product when it left the exporting country and not the price at which it was imported. The Anti-dumping Code and Anti-dumping Agreement confirm this view by stressing that the export price should be the price of the product exported from one country to another. Article VI of the GATT40 recognizes that when exports are made between associated companies, the importer may sell the product at a lower price than that invoiced by the associated exported. The practice is referred to as hidden dumping, the presumption being that the loss incurred by the importer would, in fact, be borne by the exporter. In such cases, the Anti-dumping Agreement specifies that in cases where there is no export price or where it appears to the authorities concerned that the export price is unreliable because of association or a compensatory arrangement between the exporter and the importer or a third party, the export price may be constructed on the basis of the price at which the imported products are first resold to an independent buyer, or if the products are not resold to an independent buyer, or not resold in the condition as imported, on such reasonable basis as the authorities may determine. While constructing the export price, allowance has to be made for all costs incurred between the point of importation and resale, which include: (i) (ii) the cost of handling, loading, transport, insurance and ancillary costs; customs duties, anti-dumping duties and other taxes payable in the importing country on the importation or sale of goods;

40

First footnote to Article VI of the GATT

58

(iii)

a reasonable margin for overheads and profits and/or any commission usually paid or payable.

There may be case, when there is no export price or the export price is unreliable because the goods are not resold in the importing country, or not resold in the same market condition as imported. In such cases, the Anti-dumping Agreement provides for construction of the export price on any reasonable basis. The ADA provides that a fair comparison shall be made between the export price and the normal value. A comparison of these prices is made at the same level of trade, normally at the ex-factory level, and in respect of sales it is made as much as possible at the same time. Allowances are made for differences, which affect price comparability; such differences include those regarding; conditions and terms of sale; taxation; levels of trade; quantities; and physical characteristics of the products. Article 2.4 requires that a fair comparison shall be made at the same level of trade. It also provides that if the price comparability has been affected; normal value shall be established at the level of trade equivalent to the level of trade of the constructed export price. The provision stipulates that a fair comparison shall not impose an unreasonable burden of proof on the parties. The standard of fairness is not defined anywhere in the ADA. It can be concluded that the dumping margin is the difference between the exporters ex-factory price for sales in its home market (the normal value) and the exporters ex-factory price for sales in the importing country (export price), expressed as a percentage of the export price. This margin determines the amount of anti-dumping duties that will be imposed in the event of affirmative dumping and injury determinations. The constructed value methodology under Article 2.2.2 is liberally used at the slightest pretext. Many WTO members, especially the developing countries, are dissatisfied with this. The usage of different methods for calculating the dumping margin in anti-dumping investigations is another cause of concern due to absence of specific 59

methodology under the ADA.

4.2 Issues relating to determination of dumping 4.2.1 Definition of reasonable period of time while determining Sales in the Ordinary Course of Trade As stated earlier sales of the like product in the domestic market of the exporting country or sales to a third country at prices below per unit (fixed and variable) costs of production plus administrative, selling and general costs may be treated by the authorities as not being in the ordinary course of trade by reason of price. These may be disregarded in determining normal value only if the authorities determine that such sales are at prices which do not provide for the recovery of all costs (prices which are below per unit costs at the time of sale are below weighted average per unit cost) within a reasonable period of time.41 The Agreement does not define reasonable period of time. 4.2.2 Determination of Normal Value The practice of authorities varies while addressing whether the home-market sales to affiliates could be included in, or excluded from, the determination of normal value. The text is silent regarding transactions involving affiliated suppliers and odes not define affiliation. It is a moot point whether the definition of affiliation as provided in Footnote 11 of the Agreement in the context of determining the domestic industry could serve the purpose in the context of normal value because it does not specify how and when transaction prices between affiliates could be accepted or rejected. The lack of clarity compels the exporters to needlessly submit extensive sales and cost data of affiliates and other market data to the authorities. It also leads to application of improper adjustments on normal value, based on alleged affiliation by the authorities,
41

Article 2.2.1 of the Anti-dumping Agreement

60

even though the affiliation may not have distorted the transaction prices. Thus, there is not only the need to define the affiliates in the context of determining normal value but also the circumstances which may be considered as distorting the determination of Normal Value in the ordinary course of trade. 4.2.3 Determination of Normal Value- Criteria of Appropriate Third Country As already mentioned that in case the domestic sales in the country of exports are not accepted for determination of Normal Value, then the margin of dumping, inter alia, may be determined by comparison with a comparable price of the like product when exported to an appropriate third country. But the criteria for choosing appropriate third country for the determination of Normal Value in this regard has not been specified in the Agreement, which needs to be laid down so that investigative process becomes more predictable. An appropriate country in this context could be a country that has a similar market development of the subject goods as compared to the country of exports. 4.2.4 Constructed Value The authorities use immense discretion while calculating constructed value, leading to anomalous results. There is a need for clearer, comprehensive and representative criteria to be adopted by the authorities while making these calculations.42 The ambiguity in the texts permits the authorities to reconstruct a producers costs in their own manner, contending that the particular cost accounting method does not reasonably reflect the costs. It is submitted that such a practice keeps an exporter/producer on tenterhooks as regards his dumping margin, even though he has kept the accounting records in accordance with GAAP and accounting method. Therefore, the circumstances, which would require the authorities to accept the cost data as recorded in the producers accounts books or reject it, need to be elaborated in the text.

42

Article 2.2.1.1 of the Anti-dumping Agreement states that costs shall normally be calculated on the basis of producers own accounting records, provided that these records are in accordance with the generally accepted accounting principles (GAAP) of the exporting country and reasonably reflect production and sales costs of the product under consideration

61

4.2.5

Determination of Administrative, Selling and General Costs and Profits. As per Article 2.2.1 while constructing the normal value, authorities have to base

the amounts for administrative, selling and general costs and profits on actual data on production and sales in the ordinary course of trade for the like product by the exporter under question. In EC-Bed Linen Case,43 the Appellate Body ruled that while calculating an amount for profits under Article 2.2.2 (ii) an investigating authority may not exclude sales by other producers or exporters that are not made in the ordinary course of trade. This ruling may be applicable for profits under Article 2.2.2 (i) as well. It would be better if a consensus may be developed to codify this ruling in the Anti-dumping Agreement. Further, although Panels have ruled that the order in which the three options are set out in Article 2.2.2 (i) to (iii) is without any hierarchical significance and that Members have complete discretion as to which of the three methodologies they use in their investigations. It is submitted that a careful reading of the text suggests that the options are set out in a hierarchal order and should be explicitly stated so in the text as also suggested in Indias paper.44 Also there is possibility of manipulation in calculating dumping margin by investigating authorities since the calculation of Administrative, Selling General Costs and Profits (SG&A) always depends on more than one economic variable. 4.2.6 Constructed Export Price: Methodology for Construction The authorities are permitted to construct the Export price from the price of the importer to unaffiliated buyers. Though Article 2.4 stipulates that a fair comparison shall be made between the export price and the normal value but these guidelines are far from clear. Different WTO Members have adopted different practices resulting in
43

Panel Report on EC-Bed Linen, WT/DS141/9, http://www.docsonline.wto.org WTO Document No: India, TN/RL/W/26, dated 17th October, 2002.

44

62

asymmetrical deduction of costs and profits from constructed export price and normal value resulting into an unfair comparison between the two prices. Therefore, Article 2.4 should state clearly that such an asymmetry is ruled while comparing the export price and normal value. 4.2.7 Seasonality or Cyclicality of Products At times, while determining the dumping margin, the authorities do not consider the market realities. Although Article 2.4 of the Anti-dumping Agreement stipulates that any comparison between Normal value and Export price must be fair, yet some times authorities apply the rules mechanically, at the expense of fairness. This problem is accentuated in sectors such as perishable goods, or those influenced by the seasonality or the cyclicality of the market. Therefore, the text of the Agreement should expressly obligate the authorities while conducting a fair comparison to consider seasonality, cyclicality of products etc. as well while determining dumping margins. 4.2.8 Application of All others Rate when Sampling done The authorities are obligated to determine an individual margin of dumping for each known exporter or producer of the product under investigation. However, where the number of exporters, producers, importers or types of products involved is large, the Agreement permits the authorities to limit their examination either to a reasonable number of interested or products by using statistically valid samples on the basis of information available to the authorities at the time of the selection, or as per the largest percentage of the volume of the exports from the country in question which can reasonably be investigated. Presently, the authorities are obliged to calculate the all others rate based only on actual sales and cost information, which were supplied by exporters/producers and used to calculate their individual margins. The Agreement also requires the authorities to disregard such actual information if the resulted margins are zero or de minimis.

63

The rationale of ignoring the zero or se minimis margins is not clear as zero and de minimis margins also represent actual performance of exporters/producers from the exporting country. It is submitted that besides taking into consideration the zero or de minimis margins, these rates could also be determined, in case the dumping margins for all the sampled exporters are based partly on facts available. For doing so, necessary changes in the text of the Agreement should be incorporated. 4.2.9 Fair Comparison: Adjustments for Duty Drawback As per Article 2.4 the authorities are required to make a fair comparison between the normal value and export price. In many developing countries, on account of high import duties, adjustments for duty drawback claims become extremely significant. The Anti-dumping Agreement does not contain any guideline for legitimate duty drawback scheme. Detailed guidelines for legitimate duty drawback scheme, including effective monitoring systems and procedures are laid down in Annexes II and III of the Agreement on Subsidies & Countervailing Measures (ASCM). These guidelines have been applied by authorities on analogous basis to adjudge duty drawback claims in the context of Anti-dumping proceedings as well. But the problems arise as monitoring system and procedures in developing countries are not strictly as per these requirements and thus the schemes have been treated as countervailable by certain investigating authorities. Further, these authorities have insisted upon the exporters/producers to positively establish that domestically purchased raw materials have at no time been used in exported finished products. This onus is an insurmountable burden in cases where inputs are both imported and purchased domestically. The issue particularly arises in cases where the bulk products are involved because in practice, no distinction is made in the warehouse for raw materials on the basis of imported raw materials and those procured indigenously. It is therefore, submitted that appropriate guidelines must be incorporated in the Anti-dumping Agreement text, so that 64

authorities do not disregard genuine duty drawback claims.

4.3 Analysis of the United States - Anti-dumping Measures on Certain Hot rolled Steel Products from Japan45 In United States - Anti-dumping Measures on Certain Hot rolled Steel Products from Japan (the Panel Report) the United States (US) and Japan appealed to the AB on certain issues of law and legal interpretations contained in the Panel Report. In this case the Panel held that the US acted inconsistently with Article 2.1 of the ADA in excluding certain home-market sales to affiliated parties, from the calculation of normal value on the basis of the arms length test, and replacement of those sales with sales to unaffiliated downstream purchasers. The AB considered those issues among others, whether the so-called methods of 99.5 percent or the arms length test used by the US, about the exclusion and replacement of certain home market sales to parties affiliated with an investigated exporter from the calculation of normal value, were consistent with Article 2.1 of ADA. This dispute was concerning the US imposition of anti-dumping duties on imports of certain hot-rolled flat-rolled-carbon-quality steel products (hotrolled steel) from Japan. Japan argued before the Panel that the United States Department of Commerces (USDOC) exclusion of certain home market sales to affiliates from the determination of normal value, based on the application of the 99.5 per cent or arms length test, and the replacement of such sales with re-sales by the affiliates to unaffiliated customers, was inconsistent with Articles 2.1, 2.2 and 2.4 of the Anti-dumping Agreement 99.5 Percent or arms length test. Comparing the average price of sales to each affiliated customer to the average price of sales of the same product by the same producer to all unaffiliated customers is known as the USDOCs arms length test. This test excluded low-priced home market sale and skewed the normal value upward, thereby making a finding of dumping, or in most of the cases a higher margin of dumping.
45

WT/DS184/R, 28 February 2001

65

The Panel in its finding held that the USDOCs arms length or 99.5 percent test, which was used to determine whether home market sales to affiliated customers were made in the ordinary course of trade, was not a permissible interpretation of Article 2.1 of the ADA. According to the AB, the ADA does not compel investigating authorities to use the same test to determine whether different categories of sales, such as those above and those below arms length prices, are outside the ordinary course of trade.46 Japan asserted that there was nothing in the ADA that supported the premises of the arms length test - that sales made to affiliates at average prices more than 0.5 per cent below the average prices for the same product sold to unaffiliated customers are outside the ordinary course of trade. According to Japan, a 0.5 percentage point average price differential is too small a difference upon which to base a finding that sales to affiliates are not made in the ordinary course of trade. Japan also submitted that Article 2.2 of the ADA made it clear that the exclusion of sales as outside the ordinary course of trade is a rigorous undertaking, and that the arms length test is too mechanical and not consistent with the rigorous tests applicable to determining whether sales below cost may be considered outside the ordinary course of trade. According to the US calculation method, comparison was made of an export price at ex-factory level, with the normal value based on downstream sales, without making any adjustments to address difference in price comparability due to the resellers costs and profits. This might always lead to found dumping. Finally, Japan argued that the USDOC practice of excluding sales, which fail the arms lengths test violates the requirement of Article 2.4 of the ADA to make a fair comparison between normal value and export price. Japan also asserted that a fair comparison did not permit statistically arbitrary rules that reject low-priced sales from the calculation of normal
46

AB Report on United States Anti-dumping Measures on Certain Hot-rolled steel Products from Japan, WT/DS184/AB/R, para. 14.

66

value thereby artificially inflating the dumping margin. The US contended that Article 2.1 of the ADA did not specify how to determine whether sales were made in the ordinary course of trade, and the arms length test was one permissible way of making this determination, on the basis of consideration whether sales to affiliates were made at prices that were comparable to those of sales to unaffiliated customers. According to the US, in the absence of guidance in the ADA on how to assess whether sales are outside the ordinary course of trade, the authorities are free to consider whether a difference of 0.5 per cent is significant or not. Within the third parties those who had appeared before the AB, Brazil, Chile, and Korea supported Japans argument. The EU agreed with the US position and argued that the investigating authorities acted consistently with Article 2.1 of ADA, when they used downstream domestic sales made by affiliated companies in the determination of an exporters normal value. 4.3.1 Findings of the AB Article 2.1 of the ADA stipulates that determination of dumping must be based on transactions made in the ordinary course of trade. The US arms length test or 99.5 percent test treats the home market sales made at an arms length by an exporter to an affiliated customer when the prices to that affiliated customer is, on an average, at least 99.5 per cent of the prices charged to unaffiliated customers. The USDOC applied the arms length test, the weighted average selling price for the product in the case of an exporter to an affiliated party. In the case of non-affiliated parties, it is calculated by taking the weighted average price, if it is a group as a whole. If the weighted average sales price to an individual affiliated party is 99.5 percent or more of the weighted average price of sales to all non-affiliated parties, all the sales to that affiliated party is treated as being made "in the ordinary course of trade". If the weighted average sales price for sales to an individual affiliated party falls below the 99.5 percent threshold, all of the sales to that affiliated party is treated as being made outside "the ordinary course of trade" and are disregarded in calculating normal value.

67

With regard to Japans claim, the Panel observed that the ADA does not define the concept of "ordinary course of trade," either in Article 2.1 or elsewhere, and establishes no general tests for determining whether sales are made in the ordinary course of trade, or not. But the disputed fact in this case was whether the test used by the US to determine the unaffiliated customers was consistent with the ADA.47 According to the Panel, there is no reason to suppose, and the US has not proposed that affiliation only results in sales that are outside the ordinary course of trade because they are low priced on average than sales to unaffiliated customers. In conclusion the Panel found that the application of the "arms length" test excluded low-priced home market sale and skews the normal value upward, thereby making a finding of dumping, or a higher margin of dumping.. Hence the application of the 99.5 percent test does not rest on a permissible interpretation of the term sales in the ordinary course of trade. The AB observed on this point, that Article 2.1 of the ADA provided that normal value to be calculated the price of the like product in the home market of the exporter or Producer must be established on the basis of sales made "in the ordinary course of trade". Thus, sales, which are not made in the ordinary course of trade should be excluded by the investigating authorities from the calculation of normal value. According to the AB, whether a sale price is higher or lower than the ordinary course is not simply a question of comparing prices. It is merely one of the terms and conditions of a transaction. It also observed that .the duties of investigating authorities, under Article 2.1 of the ADA are to look into whether the sales price is higher or lower than the ordinary course price, and irrespective of the reason why the transaction is not in the ordinary course of trade.
47

The parties are generally in agreement that the home market sales to all affiliated parties are not always in the ordinary course of trade and the investigating authorities need to verify whether such sales are made in the ordinary course or not.

68

The AB held that it is for WTO members to determine how to ensure that the normal value is not distorted through the inclusion of sales that are not "in the ordinary course of trade". But this discretion was not without limits; in particular discretion must be exercised in an even-handed way that is fair to all parties affected by an anti-dumping investigation. If a Member elects to adopt general rules to prevent distortion of normal value through sales between affiliates, those rules must reflect, even-handedly, the fact that both high and low-priced sales between affiliates might not be "in the ordinary course of trade".48 The AB observed that, under the 99.5 percent test, a great range of low-priced sales to affiliates could be excluded from the calculation of normal value because they are deemed not to be "in the ordinary course of trade". It also pointed out that under Article 2.1 of the ADA, the burden is on the investigating authorities to ensure that the calculation of normal value was based on sales made in the ordinary course of trade, and not on the exporters. Thus, the AB came to the conclusion that the 99.5 percent test applied by the US in this case was not even-handed. But it clarified that the methods for verifying whether high and low- priced sales to affiliates were in the ordinary course of trade need not be identical. In conclusion the AB upheld the Panels finding that the application of the 99.5 percent test does not rest on a permissible interpretation of the term sales in the ordinary course of trade. The absence of clear guidelines in Article 2.1 of the ADA with regard to assessing whether the sales are in the ordinary course of trade, gives too much discretionary power to the national authorities and legislations. This may lead to the usage of tests like arms length test by countries like the US countries for their own benefits and finding dumping in all cases. This practice work against the developing countries and the provision should be amended to include clear guidelines in this regard.
48

In the present case, the US applied a general bright line test to identify low priced sales between affiliates that excluded such sales from the calculation of normal value, unless the weighted average sales price of sales to an affiliate lay within or above a very narrow, downward range of the weighted average sale price to all non-affiliates, which was a 0.5 percent range.

69

This decision shows an urgent need to define what constitutes ordinary course of trade under Article 2.1 of the ADA and also the need for specific guidelines for the calculation of dumping margin, failing which domestic investigating authorities will once again misuse these terms for finding inflated dumping margins and the same method can be used against the developing countries. Dobrin R. Kolev rightly suggested that the GATT/WTO parties would raise welfare by additional restrictions on cost-based allegations.49

49

Dobrin R. Kolev and Thomas J. Prusa, Dumping and double crossing in the (in) effectiveness of costbased trade policy under incomplete information, NBER Working Paper No.6986, 1999, at p. 32. This paper is available at http://www.nber.org/papers/w6986.

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5.
5.1

ISSUES IN DETERMINATION OF INJURY AND CAUSATION

Overview of Article 3 A critical determination in any anti-dumping proceeding is the amount of anti-

dumping duties to be levied. A successful anti-dumping investigation requires two steps, first, establishing that the product has been dumped, and second, the existence of injury50 caused to the domestic industry producing a like product in the importing country. Mere existence of dumping is not sufficient to impose an anti-dumping duty.51 In determining whether dumped imports are injuring the domestic industry, the investigating authorities are required to make objective examination of the volume of dumped imports, the effect of dumped imports on prices in the domestic market and the consequent impact on domestic producers.52 In examining the effects of such imports on prices, the authorities must consider whether there has been significant undercutting of price due to dumped imports as compared with price of the like product of the importing member or whether the effect of such imports is otherwise to depress prices to a significant degree or prevent price increases. On the other hand while determining the volume of the dumped imports, the investigating authorities shall consider whether there has been a significant increase in dumped imports either in absolute terms or relative to production or consumption in the importing Member.53 The determination of injury also requires interpretation and the combined evaluation of a number of economic factors in each market.54 The economic factors to be considered by the authorities includes: actual and potential decline in sales, profits,
50

Foot Note No.9 to Article 3 states that the term injury shall, unless otherwise specified, be taken to mean material injury to a domestic industry, threat of material injury to a domestic industry or material retardation of the establishment of such an industry and shall be interpreted in accordance with the provisions of Article 3. 51 For imposing such a duty, dumping must cause material injury, threat of material injury or material retardation of an industry producing a like product, and there must be a causal link between the injury to the domestic industry and dumping. 52 Article 3.1 of ADA 53 Article 3.2 of ADA 54 A. Pangratis & E. Vermulst, Injury in Anti-dumping Proceedings: The Need to Look Beyond the Uruguay Round Results, Journal of World Trade 28, no.5 (1994):62

71

output, market share, productivity, return on investment and utilization capacity; factors affecting domestic prices; the magnitude of margin of dumping; and actual and potential negative effects on cash flow, inventories, employment, wages, growth and the ability to raise capital or investments.55 But this list is not exhaustive, and none of these factors necessarily give decisive guidance. In the said context it is submitted that in determination of injury, what constitutes material remains a moot question. National authorities usually do not construe injury analysis at the very beginning of imports. Rather, the authority investigates whether the critical situation of the domestic industry can be improved by introducing an anti-dumping duty. Such a possibility of misuse must not arise in my opinion. The injury to a single firm is not sufficient, but impact of injury to the industry as a whole. The investigating authorities must also examine any known factors other than the dumped imports that are injuring the domestic industry at the same time. Other relevant factors include the volume and price of imports not sold at dumped prices, fluctuation in demand or changes in patterns of consumption, developments in technology and the export performance and productivity of the domestic industry.56 Article 3.5 also prohibits the national authorities from attributing the injury caused by these factors to the dumped goods. The objective behind this provision is that, in the case of dumped goods, the importing country is not authorized to respond with anti-dumping duties unless it can be established that the imported goods have caused material injury to the competing industry of the like product in the importing country. The developing countries have noted that the lack of adequate published documents on injury determinations in certain countries and products makes it difficult to understand how the causal requirement is treated. Article 3.6 deals with assessment of the domestic production of the like product and product line exception and Article 3.7 and 3.8 of ADA deal with the determination of threat of material injury.

55 56

Article 3.4 of ADA Article 3.5 of ADA

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5.2 Link 5.2.1

Issues in determination of Injury, Threat of Material Injury Test and Causal Determination of Injury in the United States Captive Production and In most manufacturing industries, the products are consumed by their own units

Positive Evidence Provision for the production of another product. Thus, the production of a product by consumption of a significant portion of a similar product produced by a domestic company is known as captive production.57 US law58 provides that the International Trade Commission (ITC) should not consider the portion of production consumed by the company, or the subsidiary itself, for the calculation of the dumping margin. It is submitted that the exclusion of captive production from total domestic production of the product in question reduces the total production and consequently increases the percentage of imports quantities. The quantity of imports is a vital factor in injury determination, and the exclusion clause always leads to findings of injury to the domestic industry. The said issue was raised in the dispute between the US and Japan in, United States- AntiDumping Measures on Certain Hot-Rolled Steel Products from Japan.59 Japan alleged that the captive production provision of the US law, section 771 (7) (c) (iv) of the Tariff Act of 1930, exaggerates the market share of imports relative to all domestic production; thus was inconsistent with Article 3.2 of the ADA.60 The Panel held that the US Tariff Act was not inconsistent with Articles 3.1, 3.2, 3.4, 3.5, 3.6 and 4.1 of the ADA. The Panel reasoned their findings on the basis of the fact that the US captive production provision provides that USITC shall focus primarily on a particular segment of the domestic industry when determining market share and the factors affecting financial performance as a part of the injury determination. In examining the captive production provision, the Panel observed that the requirement to make a determination of injury to the domestic industry read in the light of the definition of the domestic industry of Article 4.1 of the ADA, implies that the injury must be analyzed with regard to domestic
57

For example, 30,000 tonnes of a total production of 100,000 tonnes of hot-rolled steel from one unit of a certain company is consumed by another unit of the same company in the production of hot-rolled pipes. 58 Section 771(7) (c) (iv) Tariff Act, 1930 as amended by 19 U.S.C. 59 WT/DS 184/R, 28th Feb. 2001. 60 Japan also argued that the captive production provision forces the USITC to ignore the economic reality of the importance of the captive market and volume of domestic shipments shrinks due to the authoritys focus on merchant instead of examining the industry as a whole.

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producer as a whole of the like product or to those whose collective output constitutes a major proportion of the total domestic production of those products. The Panel on the basis of the above reasoning held that the US statute does not require an exclusive focus on the merchant market when considering market share and industry performance and further held that the said provision does not require a determination of injury based solely on consideration of the merchant market. Japan appealed from the findings of the Panel before the AB and argued that the captive production provision prevents a balanced assessment of the situation of the domestic industry as a whole, and ignores the fact that a significant part of the domestic industry was protected from the effects of allegedly dumped imports. In conclusion, the Appellate Body upheld the Panels finding that the captive production provision in the US statute was not inconsistent as such with Article 3, as it allowed the ITC to examine both the merchant market and the captive market, along with the market as a whole, and it thus helped to evaluate relevant factors in an objective manner under Article 3. The AB actually opined that the ITC must apply the captive production provision without ignoring the captive segment of the domestic industry. But the Appellate Body reversed the Panels findings that the US had acted consistently with Articles 3.1 and 3.4 of the ADA. However, the direct implication of the decision may be that it legalized the practice of the captive production provision. The US is using this provision as an analytical tool for comparative analysis of domestic and captive markets for finding of injury. Therefore, there is a need for removal of the provision in the US statute supporting the exclusion of captive production in injury determination. The conflicting interpretations of the Panel and the AB emphasize the need for a clear and objective provision prohibiting the selective examination of one part of the domestic industry in injury determinations. 5.2.2 Effect of Volume of Dumped Imports in Determination of Injury Another issue that concerns the injury determination is the effect of dumped imports on the domestic market in determination of injury. Many times members exclude some parts of downstream industries, captive production or consumption and include non-dumped imports to the injury calculation for finding dumping. India was of view that 74

Articles 3.1 and 3.2 do not permit determination of injury to be based on imports from producers for which there is no evidence of dumping. Resolving the said issue in Argentina-Definitive Anti-dumping Duties on Poultry from Brazil where Brazil alleged that CNCE violated Articles 3.1, 3.2, 3.2 and 3.5 by including the effects of non-dumped imports in its injury analysis. The Panel was of the view that if a particular producer/exporter has been found not dumping, then there is no basis for including that producer/exporters imports in the category of dumped imports. 5.2.3 Positive Evidence and Objective Examination in Injury Determination Article 3.1 of ADA requires that the determination of material injury must be based upon positive evidence, and must involve an objective examination of the volume of dumped imports, their effect on the domestic prices in the importing member market and their consequent impact on the domestic industry. The Panel in Thailand- H-Beams61 dispute was of view that the term positive evidence means formally or explicitly stated; definite, unquestionable (positive proof) and the term objective is defined as concerned with outward things or events; presenting facts uncolored by feelings, opinions, or personal bias; disinterested.62 The Appellate Body in the same case held that the anti-dumping authorities while determining injury need not base its determination solely upon the evidence disclosed to interested parties during investigation. The AB found that the scope of the evidence that can be examined under Article 3.1 depends on the nature of the evidence, irrespective of the fact that such evidence is confidential or not. The question of positive evidence was raised in the US-Cement from Mexico dispute before the GATT Panel. The Panel in this case explored the technical details in the decision-making process, data, calculation methodology and other such matters. This was done as a means to understanding the determination of dumping, injury, the causation between the two, and also the lack of positive evidence. However, it is pertinent to note that the GATT report in the US-Cement from Mexico dispute was not
61 62

WT/DS122/R, 28th September, 2000 The textual reference to positive evidence and the requirement of an objective examination in Article 3.1 requires that the reasoning supporting the determination be formally or explicitly stated in documents in the record of the AD investigation to which interested parties have access, at least from the time of the final determination.

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adopted, due to the objections from US. The said GATT report needs to be taken into consideration for the effective working of the ADA provisions. 5.2.4 Cumulation under Article 3.3 The principle of Cumulation in Article 3.3 of the ADA provides that where imports from several countries are simultaneously subject to anti-dumping investigations, their effects may be assessed cumulatively for injury purposes as long as they do not qualify for de minimis or negligibility thresholds. Unlike the dumping margin determination, which is done individually for each defendant firm, injury determination is common to all defendant firms. In European Communities- Anti-dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil,63 the Panel concluded that a country-by-country analysis of volume and prices under Article 3.2 of the ADA are not a precondition to cumulative assessment under Article 3.3. It was of view that Article 3.3 contains a condition requiring attention to the volume of imports.64 But it clarified that the text of this provision contains no additional requirement for the authorities to consider, before making a cumulative assessment, whether there has been a significant increase in country-by-country imports. The Panel concluded that there were no mandatory obligations relating to the assessment of import volumes in Article 3.3. Brazil appealed from the findings of the Panel, and was of the view that Article 3.2 requires investigating authorities to consider imports, on a country-by-country basis, as a pre-condition to cumulative assessment under Article 3.3. AB refusing the said contention of Brazil held that though Article 3.3 expressly requires an investigating authority to examine country-specific volumes, but not in the manner suggested by Brazil, but for purposes of determining whether the volume of imports from each country is negligible. But the said view is disadvantageous from the point of view of developing countries as empirical analysis also shows that Cumulation across many small exporters leads to an increased probabilities of affirmative determinations in injury determinations. Cumulation has also been unfair to small exporters whose exports would
63 64

EU-Brazil Cast Iron Dispute, WT/DS219/AB/R, 22nd July, 2003. The obligatory condition contained in Article 3.3 with respect to the volume of imports from individual countries is that the volume of such imports must not be negligible.

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not have caused injury but for having been cumulated with exports of other exporters. 5.2.5 Mandatory or Illustrative Nature of the List of Economic Factors under Article 3.4 In determining whether a material injury exists, Article 3.4 requires national antidumping authorities to consider a number of economic factors. In the EC-India Bed Linen dispute, the Panel considered whether the list of factors in Article 3.4 is illustrative or mandatory. The Panel was of the view that the use of phrase shall include in Article 3.4 strongly suggests that the evaluation of listed factors in the provision was properly interpreted as mandatory in all cases. The ordinary meaning of the provision is that the examination of the impact of dumped imports must include an evaluation of all the 15 listed factors in Article 3.4. The Panel in EC-Bed Linen found that the EC acted inconsistently with Article 3.4 by failing to consider all injury factors listed in Article 3.4. But the despite the Panel decision, members have been reluctant to consider it precedent which leads to finding of inflated injury and dumping margins. This occurs frequently, due to the absence of a provision in the ADA or in the DSU binding the decision on all questions of law decided by the Panel and the AB. The national antidumping authorities during investigation must make specific findings with respect to all factors listed in Article 3.4. 5.2.6 Article 3.5 of the ADA: Causal Link In order to impose an anti-dumping duty, at least three criteria should be satisfied. These are: (1) Proof of dumping; (2) Material injury or threat of material injury to the domestic industry; and (3) A causal link between the dumped imports and injury. The causation provision is provided for in Article 3.5 of the ADA.65 The
65

Article 3.5 states: It must be demonstrated that the dumped imports are, through the effects of dumping, as set forth in paragraphs 2 and 4, causing injury within the meaning of this Agreement. The demonstration of a causal relationship between the dumped imports and the injury to the domestic industry shall be based

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demonstration of the causal link must be based on an examination presented to the authorities of all relevant evidence including any known factors other than dumped imports which also may be injuring the industry. Article 3.5 prohibits authorities from attributing the injury caused by other factors to dumped imports. The issue of causation and non-attribution was raised in the United States-Anti-dumping Measures on Certain Hot-Rolled Steel Products from Japan66 dispute. Japan alleged that the USITCs injury causation analysis was inconsistent with Articles 3.1, 3.4 and 3.5 of the ADA. Japan submitted that the USITC had failed to ensure that injury caused by other factors was not attributed to dumped imports. Japan cited the Appellate Body decision in the United States- Wheat Gluten67 decision where the Appellate Body made it clear that an antidumping investigating authority must ensure that when injury caused by alternative factors is subtracted, the remaining injury will still rise to the level of material injury. The Panel refusing the contention made by Japan held that the authorities under Article 3.3 of ADA is only directed to examine and ensure that these factors do not break the causal link that appears to exist between the dumped imports and material injury. Accordingly, the Panel concluded that the USITCs analysis of the effects of the dumped imports on the domestic industry is consistent with the requirement of Article 3.5 of the ADA to demonstrate a causal relationship between dumped imports and material injury, without attributing injuries caused by other factors to the dumped imports.

Japan challenged the Panel finding before the Appellate Body on the ground of failure by US to fulfill the causation and non-attribution requirement as laid down in Article 3.5. Japan contended before the Appellate Body that USITC had failed to separate
on an examination of all relevant evidence before the authorities. The authorities shall also examine any known factors other than the dumped imports, which at the same time are injuring the domestic industry, and the injuries caused by these factors other factors must not be attributed to the dumped imports. Factors which may be relevant in this respect include, inter alia, the volume and prices of imports not sold at dumping prices, contraction in demand or changes in the pattern of consumption, trade restrictive practices of and competition between the foreign and domestic producers, developments in technology and the export performance and productivity of the domestic industry.
66

Panel Report, WT/DS184/R, adopted on 28th February, 2001

67

AB Report, WT/DS166/AB/R, adopted on 19th January, 2001

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and distinguish other factors, or to assess properly their influence or effect on the domestic industry. The AB observed that the assessment under Article 3.5 involves separating and distinguishing the injurious effect of other factors from the reason for injury. The authorities must be able to conclude that the injury they ascribed to dumped imports is actually caused by those imports, rather than by other factors. The AB further observed that if the injurious effect are not appropriately separated and distinguished from the injurious effects of other factors, then the authorities will be unable to do so. Thus, in the absence of such separation and distinction of the different injurious effects, the investigating authorities will have no rational basis to conclude that the dumped imports are indeed causing injury. In conclusion, the AB held that the Panel erred in its interpretation of nonattribution language in Article 3.5 of ADA by a finding that this language does not require the investigating authorities to separate and distinguish injurious effects of other known causal factors from injurious effects of dumped imports. Regardless of which test is applied, establishing a causal connection between dumping and injury to the industry is extremely difficult. This is mainly on account of infinite factors and indicators that can be taken into consideration for the injury determination. The complexity of making a causal link and the structure of the present rules currently applicable is advantageous to the complainants. The Panel and Appellate Body decisions has found US anti-dumping laws to be inconsistent with Article 3.5 of ADA which is matter of concern and hence needs to addressed for effective and fair use of anti-dumping provision.

5.2.7

Interpretation of Article 3.7 of the ADA: Threat of Material Injury Threat of injury may occur when a domestic industry alleges that it is not yet

suffering material injury, but is threatened with material injury that will develop into 79

material injury unless anti-dumping measures are taken. Threat of material injury investigations are always based on speculation and Article 3.7 of ADA provides strict rules for its determination. Determination of threat must be based on facts, not merely on allegation, conjuncture or remote possibility. In evaluating the existence of a threat of injury, investigating authorities should consider, among other factors whether: dumped imports have substantially increased; foreign exporters excess capacity or substantially increasing capacity indicates the likelihood of increased exports to the importing countrys market; imports are entering at prices that would have a significant depressing or suppressing effect on domestic prices and would most likely increase demand for further imports; or the existence and magnitude of inventories of the product are being investigated. The list of the factors to be considered is not exhaustive; consequently national laws may include other factors not mentioned in the ADA. It is stated that the list of factors must be defined for determination of threat of material injury. Further, the terms threat of material injury and material retardation are also not defined in ADA. The goal of the ADA is to serve as an effective instrument in controlling unfair competition in the international market. The above analysis of the injury provision reveals that, in their present state, the existing provisions are used for domestic industry protectionism. The ADA should be amended to facilitate the playing its intended role, the protecting of competitive markets all over the world. The AB considered the material injury test in Mexico- Anti-dumping Investigation of High fructose Corn Syrup (HFCS) from the United States.68 In this case Mexico found
68

Mexico - Anti-dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States (WT/DS132/R).

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that HFCS import from the US threatened material injury to Mexicos sugar industry. The original Panel held that Mexicos finding was inconsistent with the ADA, and this was not appealed by Mexico. However, the US alleged that the Panels recommendations were not implemented and the Mexicos actions were not consistent with the earlier recommendations of the AB. The Panel in this case held that Mexicos supposition of material injury was not supported by evidence. Such a conclusion is debatable and it would be difficult to predict future consequences in such circumstances. The AB found the increased amount of imports into Mexico, but Mexico failed to prove that such imports are clearly foreseen and imminent. The object of the anti-dumping law itself is to protect the domestic industry from injurious dumping. This decision makes it clear that countries are in a difficult position to prove the complex requirements of the ADA; even where they find that increased imports threaten their domestic industry. The AB also failed to give specific guidelines for imposing antidumping duties in the case of a threat of material injury to the domestic industry. So it is necessary to define what constitutes threat of material injury in the ADA itself. 5.2.8 Definition of Domestic Industry One of the crucial phases in the whole anti-dumping investigation is identification and determination of injury to the domestic industry. Article 4.1 of the ADA defines domestic industry as the domestic producers as a whole of the like products, or the whole collective output of the products that constitutes a major proportion of the total domestic production. The ADA has not defined the term major proportion. The decision whether to define industry broadly or narrowly often has a significant effect on the outcome of the investigation. Under the ADA, exceptions to this principle are provided in footnote 11 to Clause (1) of Article 4(1) of the ADA. When domestic producers are related to exporters or importers, or are themselves importing the dumped products, they may be excluded from the definition of the domestic industry. Exclusions are discretionary decisions of the anti81

dumping authorities of the importing country, and the ADA does not provide any further guidelines. In practice, national legislations have been loosely interpreted to include even individual petitioners within the meaning of the term domestic industry.

6. PROCEDURAL ISSUES IN ANTI-DUMPING CASES

6.1 Overview of the Procedural Issues This is chapter deals with procedural issues starting from initiation of anti-dumping 82

investigations to the imposition and collection of anti-dumping duties raised by WTO Members which are: Article 5 which deals with initiation and subsequent investigation along with discussion on the adequacy of evidence required to initiate the investigation, the problem of back-to-back investigation; Article 6 which sets forth the procedural and evidentiary requirements for an anti-dumping initiation with special emphasis on use of facts available provision; Article 9 which deals with Imposition and Collection of Duties; Article 11 which deals with Sunset Review of Anti-dumping duties and Price Undertakings; Article 15 deals with Special and Differential Treatment for developing country Members when considering the application of anti-dumping measures; Article 17 deals with Standard of Review under Anti-dumping Agreement.

6.2 Initiation and Subsequent Investigation of Anti-dumping Cases Except as provided for in Article 5.6, Article 5.1 of ADA requires that an application be filed by or on behalf of the domestic industry and the said application must include relevant evidence of dumping, injury or threat of injury, and a causal link between dumping and injury. Article 5.1 further stipulates that anti-dumping investigations are not to be initiated unless the authorities determine the degree of support for or opposition to the application, as expressed by domestic producers of the like product or on behalf of the domestic industry. However, ADA does not specify the details of the procedures to be adopted, and as a result, different national governments have adopted different national procedures. Article 5.3 imposes an obligation on the importing country to examine the adequacy of evidence before the commencement of the investigation. The silence as to what kind of evidence is needed to lodge a complaint or to justify the initiation of an investigation is potentially critical omission in the ADA. Due to these ambiguities in Article 5.3 of the ADA, many developing countries are subjected to repeated anti-dumping investigations on the same product. In United StatesMeasures Affecting Softwood Lumber from Canada69 the Panel observed that the purpose of Article 5.3 is to establish a balance between the competing interests of domestic industry in the importing country and the interest of the exporting country in avoiding investigations. It also held that the quantum and quality of evidence required at the time
69

BISD 40S/358, adopted 27th Oct.1993

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of initiation is less than that required for a preliminary, or final, determination of dumping, injury and causation made after investigation. According to the final interpretation, Article 5.3 requires investigating authorities to determine whether there is sufficient evidence to justify initiation. The Appellate Body however in its subsequent decisions avoided answering the issue of adequacy of evidence. The Panel or the AB neither define what constitutes sufficient evidence or the quantum of evidence for initiating an investigation nor gave any decisive guidelines to fix the problem. As to the de minimis provision contained in Article 5.8 of ADA it submitted that the said provision contains certain loopholes as well. Article 5.8 provides that an application shall be rejected and an investigation terminated promptly, if the authorities find that there is insufficient evidence of either dumping or injury to justify the proceedings. The circumstances under which the investigation shall be terminated is when the dumping margin is de minimis, that is, the margin of dumping is less than 2% and the injury or the volume of dumped imports, actual or potential is negligible. The volume of dumped imports shall normally be regarded as negligible if the volume of imports from a particular country account for less than 3% of the imports of like products in the importing Member. But Article 5.8 of ADA does not provide a time limit within which the determination has to be made as to whether the volume of dumped imports is negligible or within the prescribed threshold. However the difference in the provision between the words prompt and immediate in Article 5.8 possibly reflects a recognition by the drafters that findings of the de minimis dumping and negligible injury can often only be made when the investigation is well advanced.

As to the negligible injury requirement in the context of the liberalization of most of the economies of the world, and with more and more developing countries entering into the untapped market, the de minimis level of 3% and cumulative 7% is too small. It should be increased to 7% and 15%, respectively, in the cases of dumped imports from single country and collectively from different countries. On the other hand as to the de minimis dumping margin it is submitted that the said standard is concerned with preventing 84

frivolous cases when the economic impact is negligible. This is important when considering that initiation of an anti-dumping investigation is disastrous and harassing to an exporter who would never venture again to export the product to the same market. The 2% de minimis level must be raised to 5% to reduce the harassment of anti-dumping actions. Finally from the developing countrys perspective it is been observed that the impact of anti-dumping investigations and resulting duties adversely affect the developing country exports. Hence, an investigation against developing-country exporters should be initiated only if it has the support of 50% of the domestic industry of the importing developed country. In addition to the above no investigation should be initiated for a period of 365 days from the finalization of a previous investigation for the same product resulting in non-imposition of duties. 6.3 Standard of Review under the Anti-dumping Agreement The standard of review provision is an important principle in the Anti-dumping Agreement (ADA) that is crucial to developing countries. The standard of review provision is provided for in Article 17.6 of the ADA. Article 17.6 is the only exception to Article 11 of DSU which requires the Panels to consider an objective assessment of the facts and law related to overall consideration of the case. Standard of review refers to the degree to which a Panel has power to substitute its judgment for that of the national authorities imposing the trade remedy measure. The crucial question is how much difference the Panels can show to the findings of the national authorities when reviewing their determinations. Article 17.6 is a unique provision, providing a differential standard of review for anti-dumping cases. No equivalent Article exists in any of the other multilateral or plurilateral agreements covered by the WTO Agreements. 6.3.1 Article 17.6 of the ADA: Permissible Interpretations The issue of standard of review arises where a Panel is examining the domestic law of a Member as interpreted by domestic authorities and tribunals to determine whether the law or the actions of those and the tribunals, or both are in compliance with 85

provisions of the covered agreements. Article 17.6 of the ADA stipulates that if the establishment of the facts was proper and the evaluation was unbiased and objective, even though the Panel might have reached a different conclusion, the evaluation shall not be overturned.70 The first sentence of Article 17.6 reiterates that the Panels should rely upon the customary rules of interpretation. The second part of Article 17.6(ii) of the ADA is a constraint on the powers of the Panel. It states: Where the Panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the Panel shall find the authorities measure to be in conformity with the Agreement and WTO consistent if it rests upon one of those permissible interpretations.71 Critics have noted that the second sentence of Article 17.6(ii) of the ADA is inconsistent with the first sentence. This is mainly because the first part refers to Articles 31 and 32 of the Vienna Convention and these two Articles do not seem to foresee the possibility of co-existing permissible interpretations. Articles 31 and 32 if the Vienna Convention stipulate that when the treaty text is ambiguous or obscure, the ordinary meaning of the treaty should be given effect. Rather, the objective of the Vienna Convention is to give a single meaning to the treaty text, not the multiple permissible interpretations available in the second part of Article 17.6(ii). It is not clear in the light of the Vienna Convention whether or how a WTO Panel could over reach the conclusion that provisions of an agreement admit more than one interpretation. From the above analysis it can be said that there are no specific guidelines as to which provision admits of multiple permissible interpretations; nor is there any guidance on how to read the first and second sentences of Article 17.6(ii) so as to harmonize both obligations. The existing disparity between the first and the second sentences of Article 17.6(ii) needs to be clarified in future negotiations.
70

It means that this provision allows the Panel to show deference towards the determination of the national authoritys decisions, i.e., it may be towards the nationalization of international obligations. 71 In essence, the Panel must give considerable weightage to the domestic investigating agencys determinations.

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6.3.2

Article 11 of DSU and Article 17.6 of the ADA Article 11 of the DSU sets a uniform standard of review for Panels regarding all

covered agreements under the umbrella of WTO. Article 11 imposes upon Panels a comprehensive obligation to make an objective assessment of the matter; this obligation embraces all aspects of a Panels examination of the matter, both factual and legal. The Appellate Body answering to the question as to whether the general obligation under Article 11 of the DSU or the special obligations under Article 17.6 will prevail over the other, the AB observed that Article 11 requires the Panel to make an objective assessment of the matter as a whole. The AB in this case has taken a middle path and slightly deviated from the well known maxim lex specialis generalia specialibus non derogant72. According to this maxim, a special law will prevail over the general law. But the AB took the path of beneficial interpretation and held that the special dispute settlement rules in the ADA and the DSU provisions together create a comprehensive, integrated dispute settlement system. It further held that it is not that the former replaces the more general rules in the DSU unless there is a conflict between Article 11 of the DSU and Article 17.6 of the ADA. It is clear from the recent jurisprudence that the AB has not dared to deliver any interpretation in favour of the developed world with regard to this provision. The study of various Appellate Body decisions it is very difficult to advance any definitive opinion on what should be the right standard of review in ADA cases. It is the duty of the AB to interpret the ADA in accordance with the needs of Members, and to fill in the gaps through evolving jurisprudence.

6.3.3

Thailand Anti-dumping Duties on Angles, Shapers and Sections of Iron or Non- Alloy Steel and H-Beams from Poland (Panel Report). The interpretation of Article 3.1 and 17.6 of the ADA were considered by the AB

in Thailands Anti-dumping Duties on Angles, Shapers and Sections of Iron or NonAlloy Steel and H-Beams from Poland (Panel Report).73 The Panel concluded that
72

In the International Law of Treaties there is a great deal of support for the principle that more specific treaties or provisions are generally take precedence over more general provisions dealing with the subject matter. This is the principle of lex specialis. 73 Panel Report, WT/DS 122/R, 28 September 2000

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Thailands imposition of anti-dumping duties on H-beams originating from Poland was inconsistent with Article 3.1 of the ADA. The Panel observed that the factual basis relied upon by the authorities should be discernible from other documents that were available to the interested parties and their counsel in the course of investigation and at the time of the final determination. The AB was of the view that the obligations under Articles 3.1 apply to all injury determinations undertaken by all members. Article 17.5 and 17.6 apply only when an injury determination was to be examined by a WTO Panel. In conclusion the AB observed that Article 17.5 and 17.6 do not prevent a Panel from examining facts that were not disclosed to, or discernible by, the interested parties at the time of the final determination. The AB was of the view that based on the ordinary meaning, the word proper meant accurate or correct which appeared to have no logical link to whether those facts are disclosed to, or discernible by the parties to an anti-dumping investigation prior to the final determination. The AB opined that the ordinary meaning of the words unbiased and objective also appears to have no logical link to whether those facts are disclosed to or are discernible by, the parties to an anti-dumping investigation at the time of the final determination. It concluded that the Panel was correct in its interpretation that Article 3.4 requires a mandatory evaluation of all the factors listed in that provision, and that, therefore, the Panel did not err in its application of the standard of review under Article 17.6(ii) of the Anti-dumping Agreement. From the perspective of the developing countries this conclusion is important because, for the first time the AB held that the evaluation of all factors mentioned in Article 3.4 of the ADA is mandatory before imposing anti-dumping duties. These features include: actual and potential decline in sales, profits, output, market share, productivity, return of investments, or utilization of capacity; factors affecting domestic prices; the magnitude of the margin of dumping; actual and potential negative effects on cash flow, investment, wages, growth and the ability to raise capital or investments. 88

Where in the past the investigating agencies undermined these factors while examining the impact of the dumped imports on the domestic industry, now it is made mandatory for the countries to consider these economic factors for the determination of injury. The AB also discussed the standard of review provision in European Communities- Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India case.
74

In this dispute the EC selected a single company, Bombay Dyeing, as a sample

representing the whole domestic industry, and calculated the normal value. Other additional producers were ignored by the EC. India argued that the failure to take into account the available information of an exporting producer included in the reserve sample for the calculation of normal value was not an unbiased and objective investigation, India also challenged the Panels finding that the EC was not obligated to look at available information outside the sample, as this was not consistent with the standard of review set out in Article 17.6(i) of the ADA. The AB pointed out that, there was no need to examine whether the Panel in making the finding acted inconsistently with Article 17.6(i). In almost all the disputes we can see this escapism on the part of the AB to deal with the issue of standard of review in the ADA. In this case also it deliberately left unanswered the question of whether the action of the EC was consistent with the standard of review provision in the ADA. It is a well-recognized principle that every dispute settlement body has to answer all the issues raised by the parties. This ostrich policy of the AB will not resolve the problems or settle an issue in question; rather it is bound to increase confusion among the Members. Therefore a mandatory provision should be included for the functioning of the Panel and the AB to answer all the issues raised by the parties. 6.4 Use of Facts Available Provision in Anti-dumping Cases Article 6.8 of the ADA authorizes the use of the facts available provision if an interested party refuses access to necessary information within a reasonable period, otherwise does not provide necessary information within a reasonable period, or
74

WT/DS 141/AB/R

89

significantly impedes the investigation. In such a case, the investigating authority may make determinations on the basis of the facts available. The objective of the facts available provision is to balance the requirement to complete the appropriate calculation of the margin of dumping with the requirement to complete an anti-dumping proceeding within the time period prescribed. However, in many disputes, affirmative determinations are made on the basis of facts available in spite of the fact that respondents have acted to the best of their ability and been co-operative in the anti-dumping investigations. Further the rules under Article 6.8 and Annex II of the ADA are not clear enough as to the circumstances under which the facts available may be applied and also with regard to the standard. Abuse of the provision needs to be prevented in addition to a strict limitation upon the application of adverse facts available. There has also been a controversy on how to apply the best information available in cases where there are multiple defendants, whether in the same country or in different countries, covered in the same investigation. The same calculations cannot be used against the respondent co-operating in the investigation and the Member not cooperating with the investigation. The following questions were raised by US to the Rules Negotiating Group of WTO: On the subject of facts available, should more stringent rules be developed for determining when the facts available provision should be used in an investigation? Is the submission referring to the general use of facts available, or is this only when adverse inferences are used? How might an administrative authority create incentive for cooperation by responding parties if adverse facts available is not an option? What source of information should be used by Members when exporters do not co-operate?

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These questions remain un-answered even after a decade of the world trading system being in place. 6.4.1 United States - Anti-Dumping measures on Certain Hot-rolled Steel Products from Japan75 The issue of interpretation of the facts available provision was raised in the case of United States-Anti-Dumping measures on Certain Hot-rolled Steel Products from Japan. The Panel held that the United States Department of Commerce (USDOC) had acted inconsistently with Article 6.8 and Annex II paragraph 7 of the ADA. Mostly, this provision is used as a coercive mechanism to extract information from the respondents. Article 6.1.1 of the ADA provides minimum time periods for submitting the required information requested by the investigating authorities. The US argued that Article 6.1.1 provided the deadline for the submission of questionnaire responses. The US gave 87 days to Nippon Steel Corporation (NSC) and NKK, the two Japanese steel giant to reply to a long questionnaire regarding the weighted conversion factors. In the initial stage these companies expressed their inability to calculate weight conversion factors. But later on when they submitted the information to USDOC, these where rejected for being submitted after the stipulated deadline.76 The US law77 stipulates in the absence of verified information supplied by the exporter, USDOC will use the best information available in its place. Usually this calculation is based on the information supplied by the complainant, who is grounded in hyperbolic fantasy, yield high dumping margins. 78 Annex II, second part of the first paragraph stipulated that the authorities should also ensure that the party is aware that if information is not supplied within a reasonable time, the authorities will be free to make determinations on the basis of the facts available,
75

WT/DS184/R.

76

Article 6.8 of the ADA provides that: In the cases in which any interested party refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation, preliminary and final determinations, affirmative or negative, may be made on the basis of the facts available. The provisions of Annex II shall be observed in the application of this paragraph. 77 19 U.S.C.A. sec. 1677e(c). 78 David Palmeter N., The anti-dumping law: A legal and administrative non-tariff barrier, Down in the Dumps, Edts. Richard Boltuck and Robert E. Litan, (The Brooking Institution, Wahington, D.C), p. 70

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including those contained in the application for the initiation of the investigation by the domestic industry. After examining the requirement under the provision, the Panel observed that an unbiased and objective investigating authority evaluating that evidence could not have reached the conclusion that NSC and NKK had failed to provide necessary information within a reasonable period. The main argument of the US was that the NSC and NKK submitted the questionnaire responses after the deadlines. According to the US, Annex II of the ADA made it clear that the parties must comply with at least three requirements: the information must be submitted within applicable deadlines; it must be variable; and it must be usable by the authorities without undue difficulty. The U.S also pointed out that Article 6.1.179 of the ADA specifically provides for the use of pre-established deadlines for questionnaire responses, which the Panel ignored deliberately.

The AB on this point observed that, Article 6.1.1 of the ADA does not explicitly use the word deadline anywhere in the provision. The second sentence of Article 6.1.1 indicated that the time limits imposed by the investigating authorities for responses to questionnaires were not necessarily absolute and immutable. So the AB was of the view that Article 6.1.1 stipulated only the minimum time limits, and in appropriate cases these time limits can be extended. The AB rightly held that neither Article 6.8 nor paragraph 1 of Annex II expressly addresses the question of the circumstances under which the authorities can reject the information submitted by the respondents. The AB rejected the U.S interpretation of the words timely fashion in paragraph 3 of Annex II as deadline. The AB clarified it as a reasonable period or a reasonable time. The ABs findings may be a relief to other countries that are facing investigations. Developing countries in particular, are finding it difficult to submit long response sheets within a short span of time as stipulated by investigating authorities like the USDOC.
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Article 6.1.1 of the ADA provides: Exporters or foreign producers receiving questionnaires used in an anti-dumping investigation shall be given at least 30 days for reply. Due consideration should be given to any request for an extension of the 30-day period and, upon cause shown, such an extension should be granted whenever practicable,

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The ABs interpretation of timely provision as reasonable time will now depend upon the facts and circumstances of each case. The AB meticulously enumerated such circumstances as: (i) the nature and quantity of the information submitted; (ii) the difficulties encountered by an investigated exporter in obtaining the information; (iii) the verifiability of the information and the ease with which it can be used by the investigating authorities in making their determination; (iv) whether other interested parties are likely to be prejudiced if the information is used; (v) whether acceptance of the information would compromise the ability of the investigating authorities to conduct the investigation expeditiously; and (vi) the number of days by which the investigated exporter missed the applicable time-limit. It may be expected that these guidelines act as a benchmark in issuing questionnaires and fixing time frames for the submission of responses from the respondents. Many writers criticize the provision as a methodology worked as worst information available.80

6.5 Special & Differential Treatment in Anti-dumping Agreement One of the most contentious issues faced in the multilateral trading system is the debate over differentiated rights and obligations between the developed and developing countries. The WTO agreements contain at least 155 special and differential treatment provisions. In the ADA, such provisions are contained in Article 15. The first part of the agreement is in the form of advice to the developed country Members when imposing the anti-dumping duties. The second part stipulates that constructive remedies should be explored before imposing anti-dumping duties. The DSB jurisprudence interpreting Article 15 is not found on a realistic premise. Ever since the Panels ruling in the Brazilian Cotton Yarn, Members of the WTO generally consider Article 15 as a dead letter in the form of political declaration. The EU-India Bed Linen proves that Article 15 does not have a more serious meaning. Article 15 is too general to implement, and therefore this provision must be amended in the next round of negotiations.
80

Raj Krishna, Anti-dumping in law and practice, World Bank Working Papers (1995), at p. 30.

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6.6 Levy and Collection of Anti-dumping measures Under the ADA, it is not mandatory to impose duties, even where all conditions for imposition of anti-dumping duties are met and total discretion is given to national authorities. All anti-dumping duties are collected on a non-discriminatory basis on imports from all sources that are found to be dumped and causing injury, except the sources from which price undertakings have been accepted. The AB in one of its decisions held that Article 9.4 contains lacuna, it prohibits the use of certain margins in calculation of the ceiling for the all others rate. But it does not expressly address the issue if how to calculate the ceiling in a circumstance in which all margins are to be excluded from the calculation under the prohibitions. As to retrospective and prospective collection of duty, Article 9.3 establishes that the dumping may be assessed retrospectively or prospectively, and requires prompt refund of excess payments. The retrospective system is mainly used by the US. In this method, an investigation ends with an estimate of future liability; however, the actual amounts of anti-dumping duties are to be paid in the course of annual reviews, covering the preceding one-year period. If the actual duty is higher than the cash deposit rate, the importer obtains a refund. The EU and other countries follow the prospective system. Here, the findings during the original investigation are made on the basis of the future collection of anti-dumping duties, normally for five years following the publication of final determination. The importer can request a review to reduce or eliminate the duty. The retrospective system is more precise than the prospective system, though more expensive and time-consuming for all parties, including for the importing country authorities.

6.7

Issues relating to Duration and Review of Anti-dumping Duties Article 11 establishes rules for duration of anti-dumping duties, and the requirements

for periodic review and continuance of anti-dumping duties. Under Article 11.1, any duty shall remain in force as long as, and to the extent necessary to counteract the dumping which is causing injury. The continuation of duty may be reviewed by the authorities on their own initiative or after a lapse of a reasonable period of time or on the request of any 94

interested party. Article 11.3 stipulates that duties shall be terminated on a date not later than five years from its imposition. This five years sunset provision applies to price undertakings as well. If the authorities decide that duty is no longer warranted after the review, it shall be terminated forthwith. The burden lies on the administering authorities, and not with the exporters, to determine whether it is necessary for the duty to remain in place beyond five years in order to prevent the continuation or recurrence of dumping and injury. An anti-dumping investigation may be suspended, and duties not imposed, if am exporter agrees to enter into a price undertaking and revision of prices or to cease exports at dumped prices, thus eliminating the injurious effect of dumping. Investigating authorities may not seek or accept undertakings unless they have first made affirmative preliminary determination of dumping and injury.

6.8

The Debate over a Higher Threshold for Initiation of Investigations: The

Issues of Standing and an Evidentiary Burden The threshold for initiating an antidumping investigation has a considerable effect on the number of investigations that a nation conducts, as well as the number of complaints that parties file. Clearly, if there were no minimum filing requirements, the number of investigations would surge because domestic producers would be able to use investigations as a tool to stifle foreign competition. Conversely, if the threshold is extremely high, few complaints would result in an investigation and dumping would effectively go unchecked. A high threshold requirement for the petitioner that would effectively require conclusive proof of dumping and injury - the purpose of the investigation itself - makes little sense. There is a fine line between these two extremes, one that the main exporting and importing countries believe should be drawn in very different places. 95

As mentioned above, the issues of standing and an evidentiary burden comprise the threshold requirement of initiation. To date, the standing issue has been the more contentious of the two. The breakdown of positions among the WTO Members with respect to the appropriate threshold tends to depend on whether the Member is primarily an exporting or importing country. During the Uruguay Round, the countries that are most often investigated cited an excessive number of frivolous cases and argued that the standing requirement should be clarified and made a mandatory prerequisite to any investigation. The countries most often initiating investigations pushed for more discretion, looser standards, and a presumption of industry support in the standing determination. Although the Tokyo Round Antidumping Code of 1979 included two provisions to clarify the standing issue, the provisions lacked definition. Coupled with the Members' polarized views, this ambiguity made standing a controversial, and therefore critical, issue in the Uruguay Round. During the Uruguay Round deliberations on antidumping, many aspects of the standing issue were contentious. Such issues included whether countries should have an affirmative obligation to confirm the standing information asserted by a petitioner before commencing an investigation, what percentage of an industry must be represented when the entire industry is not the petitioner, whether workers or their representatives should have the ability to bring a petition, how producers who are related to foreign producers under investigation or who are themselves importers should be treated, how fragmented industries should be treated, and how silence on the part of particular industry members should be interpreted. The Draft Final Act settled many of the previously unresolved threshold issues, and the draft provisions were then carried over into the Final Act (i.e., the WTO Agreement). With regard to the evidentiary burden, a request for an investigation must include sufficient evidence of dumping, a cognizable injury under Article VI, and a 96

causal link between the dumping and injury. The Code also delineated specific standing requirements including the following: (1) prior to an investigation, the authorities must determine that the petition has been filed by or on behalf of the industry; (2) the petition must be supported by domestic producers who account for at least twenty-five percent of the domestic production; (3) authorities may use sampling to determine industry positions in the case of fragmented industries; (4) producers who are related to foreign producers subject to investigation, and producers who are themselves importers, may be excluded from the standing determination; (5) workers are interested parties; and (6) silence on the part of particular industry members does not expressly count for or against initiation. As a result of the Uruguay Round, then, the issue of standing was largely settled, while the issue of an evidentiary burden remained vague and untested.

6.8.1

GATT/WTO Case law considering sufficiency of Evidence Requirements in Antidumping Cases Cases before GATT or WTO dispute resolution panels on the issue of an

evidentiary threshold are rare. There are two cases in particular, however, in which this issue was determinative: United States - Measures Affecting Softwood Lumber from Canada ("Softwood Lumber"), and Guatemala - Antidumping Investigation Regarding Portland Cement from Mexico ("Portland Cement"). These cases are indicative of the confusion that exists over the threshold evidentiary requirement in antidumping law and also of how the threshold that nations apply can influence the outcome of a case. Although there is no stare decisis principle in effect in GATT/WTO law, precedents can still be influential. The Portland Cement panel's reliance upon the Softwood Lumber case is illustrative of this tendency.

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Softwood Lumber In Softwood Lumber, a GATT dispute resolution panel examined the threshold evidentiary requirements of the GATT countervailing duty agreement. The relevant provisions are substantially similar in GATT antidumping and countervailing duty laws. The dispositive provisions in both require that the petition be "on behalf of the industry affected" and include "sufficient evidence" regarding the existence of either a subsidy or dumping, injury, and causation. The panel noted that, as with the GATT Antidumping Code, the countervailing duty agreement contained no interpretative guidance as to the meaning of "sufficient evidence." The panel read the provision as reflecting a balance between the interest of the domestic industry in securing the initiation of an investigation and the interest of the exporting country in avoiding the potentially burdensome consequences of an investigation initiated on an unmeritorious basis.

The panel attempted to pinpoint the amount of evidence that would be sufficient for the purposes of initiating an investigation. It placed the appropriate level somewhere between the amount and type of evidence that "would be required of that authority at the time of making a final determination" and "mere allegation or conjecture." The threshold that the panel finally settled on was "evidence that provides a reason to believe that a subsidy exists and that the domestic industry is injured as a result of subsidized imports." Portland Cement Portland Cement is the first antidumping dispute to be considered by either a WTO dispute settlement panel or the WTO Appellate Body. Despite the ruling of the Appellate Body that the matter was not properly before it, the outcome should provide considerable insight into the way future panels may apply the standing requirements of the WTO Antidumping Code.

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On October 15, 1996, Mexico requested consultations with Guatemala regarding the initiation and conduct of Guatemala's antidumping investigation of grey portland cement from Cruz Azul, a Mexican Producer.81 In January, 1997, based on a petition from the sole Guatemalan cement producer, Guatemala's Ministry of Economy levied an antidumping duty of 89.54% on imports of grey portland cement from Cruz Azul. Mexico then requested the establishment of a panel on February 4, 1997. The Dispute Settlement Body established a panel on March 20, 1997. The panel, finding for Mexico, released its final report to the parties on May 18, 1998 and to the public on June 19, 1998. Guatemala appealed the decision on August 4, 1998. On November 2, 1998, the Appellate Body concluded that the dispute had not properly been before the Panel. As a result, it was unable to review the substantive findings of the Panel regarding Guatemala's initiation of the antidumping investigation. The Appellate Body did, however, leave open the possibility of Mexico "seeking consultations with Guatemala regarding the latter's imposition of definitive anti-dumping duties on imports of portland cement from Mexico and pursuing another dispute settlement complaint under the provisions of Article 17 of the Anti-dumping Agreement and of the DSU." As a result, the Panel Report does not carry the weight of other Panel Reports; it has, in effect, been overturned on procedural grounds. Nevertheless, it is dispositive of how future panels may evaluate the substantive issues relating to standing. Mexico cited a number of reasons indicating that Guatemala's evaluation of the facts was not objective. First, according to Guatemalan law, the Ministry must accept the validity of any evidence submitted to it by an applicant; the burden is on other interested parties to rebut this presumption. Second, the Ministry endeavored to bolster the application by requesting additional information from the applicant. Third, the application was insufficient. Finally, the investigating authority "assumed the role of applicant" and requested information from the customs agency to supplement the application, and then it initiated its investigation before receiving the information it
81

Anti-Dumping Investigation Regarding Portland Cement from Mexico: Request for Consultations by Mexico, WT/DS60/1 (Oct. 24, 1996). Consultation is required by Article 4 of the DSU as well as Article 17 of the WTO Antidumping Code.

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sought. According to Mexico, the national authority was not justified in launching an investigation merely because the application contained all the information reasonably available to the applicant. Rather, it had an obligation to evaluate the accuracy and adequacy of the evidence submitted in the petition. With regard to Mexico's third claim, Mexico argued that the petitioner did not substantiate its claims of dumping with relevant evidence; that it did not submit any evidence regarding threat of injury to the Guatemalan industry, but instead made allegations and conjectures; and that it was able to supply only allegations as to the causal relationship between the alleged dumping and threat of injury. Guatemala made a number of arguments in response. It asserted that the quantity and quality of evidence necessary to justify the initiation of an investigation was significantly lower than that necessary to make an affirmative preliminary or final finding. It also argued that a national authority is justified in initiating an investigation based on an application that includes all of the information reasonably available to the applicant regarding each of the categories of information described in Article 5.2(i)-(iv). Guatemala thus suggested that Article 5.3's requirement that the authorities examine the accuracy and adequacy of the evidence to make a determination of its sufficiency is satisfied when the petition includes all the information reasonably available to the petitioner. The United States filed a third-party submission in the matter. Concerning the issue of sufficiency of evidence, the United States generally discussed the threshold level that a petitioner must meet to invoke an investigation properly. The United States cited Article 5.2 of the Antidumping Code, requiring that a petition contain more than "simple assertions, unsubstantiated by relevant evidence." The United States also affirmed the rule, set out in Article 5.2, requiring that the domestic industry's petition contain information "reasonably available" to it. The United States argued that the national authorities have a responsibility to examine the petition for accuracy and adequacy of evidence. Moreover, it advocated that the antidumping arena adopt the balancing test 100

used for countervailing duties in Softwood Lumber. The United States focused its analysis on "the adequacy of the information provided in the application and on which the initiation was based," which was dependent upon the meaning of the term "reasonably available to the applicant." The United States suggested that the standard was "intended to prevent the imposition of unreasonable information requirements that go beyond not only the normal capacity of a private entity to develop, but also beyond those of a particular applicant in a given case." As a result, confidential information such as pricing, cost of production, and profitability information would not be required, nor would information whose obtainment would be practically or legally prohibitive. Although the Antidumping Code contains no such requirement, the United States suggested that a petitioner claiming that critical data is unavailable should provide some explanation for its unavailability. If the authorities would expect the domestic industry to have access to such data, an explanation for its absence would be particularly essential, in the view of the United States. In the case at hand, the United States advised the panel to pursue the issue of the reasonable availability of data pertaining to the dumping and import volume, as Guatemalan authorities provided no justification for the meager amount of evidence submitted with the petition. The determination of the panel in fact hinged on this issue namely its interpretation of Article 5.3 of the Anti-dumping Code. The panel ultimately concluded that, considering the information available to the Guatemalan authorities at the time that they made the determination to initiate an investigation, there was not sufficient information regarding dumping, injury and causation to warrant the initiation of an investigation. The panel first looked at whether Article 5.3 imposes an additional obligation upon the national authority above the requirements set out in Article 5.2. The panel determined that compliance with the requirements of Article 5.2 is not determinative of 101

whether there is sufficient evidence to justify initiation. On the contrary, it found that it is the obligation inherent in Article 5.3 that is determinative of the sufficiency of an application. The panel interpreted the requirements in Articles 5.2 and 5.3 as imposing separate obligations on the applicant and the national authority, respectively. According to the panel, the investigating authority's obligation is invoked after it has determined that the application contains evidence on dumping, injury, and the causal link between the two, as well as what-ever information is reasonably available to the applicant regarding the factors in Article 5.2(i)-(iv). The panel described the further requisite examination of the evidence and information in the application as follows: "If the investigating authority were to determine that the evidence and information in the application was not accurate, or that it was not adequate to support a conclusion that there was sufficient evidence to justify initiation of an investigation, the investigating authority would be precluded from initiating an investigation."

For further guidance in interpreting Article 5.3, the panel looked to the purpose of the initiation requirements in general, which it determined is to establish a balance "between the competing interests of "the import competing domestic industry in the importing country in securing the initiation of an investigation and the interest of the exporting country in avoiding the potentially burdensome consequences of an investigation initiated on an unmeritorious basis.'" The Portland Cement panel thus adopted the balancing test set out in the Softwood Lumber panel report. Considering the requirements in this context, the panel found that the interpretation of Article 5.3 advocated by Guatemala "would undermine the balancing of competing interests in initiation and non-initiation established in Article 5." The panel also considered relevant Article 5.8, which states, "An application under paragraph 1 shall be rejected and an investigation terminated promptly as soon as the authorities concerned are satisfied that there is not sufficient evidence of either 102

dumping or of injury to justify proceeding with the case." Guatemala argued that the provision did not apply to the initial determination of whether to initiate an investigation but, rather, applied only after the investigation had begun. The panel focusing particularly on the "as soon as" language of Article 5.8; decided that the provision implied that an investigation may be initiated only if the application contains sufficient evidence of dumping and injury. While the panel agreed with Mexico's arguments regarding Article 5.3, it did not accept Mexico's argument that the Guatemalan authorities had acted inappropriately by independently seeking information to supplement the application. The panel made it clear that the Antidumping Code does not contain a prohibition against the initiation of an investigation in situations in which sufficient evidence is not reasonably available to the applicant. It said, "There is nothing in this Agreement to prevent an investigating authority from seeking evidence and information on its own, that would allow any gaps in the evidence set forth in the application to be filled."

The panel also agreed with Guatemala with regard to the amount of evidence and information required for a determination to investigate allegations raised in an application. According to the panel, the quantum and quality of the evidence required for the Guatemalan initiation determination was less than that required for a preliminary or final determination of dumping, injury or the causal link. Nonetheless, contrary to Guatemala's arguments, the panel made clear that the substantive provisions of Articles 2 and 3 of the Antidumping Code were relevant to the initiation determination insofar as they set out the elements of a calculation of dumping and injury respectively. For example, with respect to evidence of dumping, the panel was clear that "an investigating authority may not ignore the provisions of Article 2 of the Antidumping Code." According to the panel: Article 5.2 of the Agreement requires an application to include evidence of 103

"dumping" and Article 5.3 requires a determination that there is "sufficient" evidence to justify initiation. Article 2 of the Antidumping Code sets forth the technical elements of a calculation of dumping. In our view, the reference in Article 5.2 to "dumping" must be read as a reference to dumping as it is defined in Article 2. With regard to the elements of dumping and injury, the panel made the observation that, while there were higher standards for assessing the evidence in a preliminary or final determination than the determination to initiate an investigation, the subject matter or type of evidence was the same. The panel stated that, because Mexico was claiming threat of injury, its application should have included evidence of threat of material injury as set out in Article 3.7. To find otherwise would be inconsistent with the text, as well as with the object and purpose of Article 5.2. According to the panel:

We cannot see how, in the absence of information pertaining to the factors set forth in Article 3.7, an unbiased and objective investigating authority could properly determine that there is sufficient evidence of threat of material injury to justify initiation in a case in which threat of material injury is alleged. As mentioned above, the panel ultimately concluded that there was insufficient evidence in the application regarding dumping, injury and causation to substantiate the initiation of an investigation. Specifically, the Ministry did not meet the obligation inherent in Article 2.4 to make a fair comparison in presenting evidence of dumping. The application compared transactions involving significantly different volumes and occurring at different levels of trade, and it did so without even acknowledging the necessity of making adjustments. There was also insufficient evidence of material injury. The panel found that Guatemala had offered unsubstantiated statements, rather than evidence, of the threat of material injury that did not allow for the objective evaluation of 104

accuracy and adequacy required by Article 5.3. This was particularly disturbing to the panel because much of the relevant evidence was in the possession of the applicant and no one else. In response to the suggestion that some of the information was withheld because of its sensitivity, the panel pointed out that both the Antidumping Code and Guatemalan law provide for the confidential treatment of such information. Finally, the Ministry could not possibly have correctly determined that there was sufficient evidence of causation when there was not sufficient evidence of dumping or injury. 6.8.2 Analysis and Recommendations

The Current State of Antidumping Measures and Evaluation of a Threshold Evidentiary Requirement Currently, many countries use antidumping measures as protectionist weapons. When country x's domestic market is unable to keep up with foreign competition, companies from that market may petition their government, which is then under considerable political pressure to launch an antidumping investigation. These investigations are invasive (often as invasive as the investigating country can possibly make them), and their scope and length force the company under investigation to divert its attention from competing in the market, perhaps causing it to lose its competitive edge. Antidumping investigations also cause other competing companies to expect such an experience if investigated, thus diverting their attention from production and marketing Country x will usually find the presence of dumping, injury and causation, at which time it will levy a duty that further cripples the targeted company. Once country x has brought a sufficient number of investigations, the targeted companies, as well as other foreign companies that have not yet been investigated, may begin to reconsider doing business in country x. Business becomes an economic gamble because of the price an investigation exacts. The alternative for companies is to redirect their export trade to a country whose government is less willing than country x to resort to antidumping investigations as a means to protect its domestic market from healthy and fair competition. This is, not coincidentally, the result that the petitioners most often intend to 105

produce by initiating investigations. Antidumping measures stifle competition and deter trade and investment. They harm imports that are both fairly and unfairly priced. They are inconsistent with antitrust laws. Perhaps most importantly, they are bad for the domestic consumer. In the United States, the fact that the ITA launches investigations on nearly all of the petitions that U.S. companies file suggests the low level of scrutiny currently attached to the amount of evidence required to initiate a petition. The frequency of both antidumping investigations and findings of dumping in the United States has caused the antidumping system to be widely criticized "as a club that domestic companies use to batter the competition." Some critics go further and accuse the United States of engaging in behavior that is incompatible with the GATT/WTO.

The Threshold for Initiation of an Antidumping Investigation Should Be Higher The sufficiency of evidence threshold has a direct and powerful effect on the number of investigations that are filed and initiated. A higher threshold would serve as a sieve, allowing through authentic cases of predatory pricing and truly unfair trade while blocking cases in which antidumping is being used for protectionist purposes. As such, any attempt to weed out frivolous, pre-textual petitions should focus on the threshold for initiation. Individual members of the WTO currently have substantial flexibility in setting their own standards for initiation requirements. The GATT traditionally avoided the issue of a threshold requirement, evaluating it in very few instances in relation to the considerable controversy surrounding it. The Portland Cement panel report raises the possibility that the WTO will change this policy.

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The Effect of the Portland Cement Panel Report on the Threshold for Initiation of an Investigation In the Portland Cement panel report, the WTO undeniably took the strongest stance that it or the GATT has taken to date with regard to insisting that applications meet a minimum threshold before a national authority can initiate an antidumping investigation. Whereas the antidumping law generally appears to be tipped in favor of the investigating country and applicant company or industry, the panel evened the field to some degree by applying the balancing test proposed for countervailing duty cases in the Softwood Lumber panel report; this test balances the interests of the exporting, allegedly dumping country and those of the importing, investigating country. The panel concluded that the Guatemalan authorities wrongly initiated an investigation because the application in question did not provide sufficient evidence of dumping, injury, and causation. As mentioned above, this report is a strong statement for the WTO in this area of trade. In the process of providing interpretations of the elements that a national authority must consider in making its initiation determination, the panel raised the threshold that an application must meet. The report will have perhaps its most significant impact as a result of its interpretation of Article 5.3 of the Antidumping Code; the panel's determination that Article 5.3 contains requirements distinct from those in Article 5.2 clearly increases the burden on both the applicant and the national authority contemplating investigation. The fact that the panel granted the national authority the right to act independently to supplement the application does not affect the threshold that an application must meet. The panel also noticeably raised the requirements by ruling that Articles 2 and 3, which set out the elements of dumping and injury, are relevant to the initial investigation determination as well as the preliminary and final determinations. Finally, the panel's application of the rules to the case at hand was demonstrative; the panel stood fast in requiring that the national authorities present evidence of dumping in terms that can be compared and in not allowing mere statements to take the place of evidence when assessing a case for the existence of injury. As a result of the Appellate Body report, the impact of the panel report has yet to 107

be determined. Mexico may begin the DSU process again. The panel in that case - or any other case - will have the opportunity to rely on the analysis and conclusions of the Portland Cement panel report. This is, in effect, no different from the panel report being approved by the Appellate Body. The Portland Cement panel report was the WTO's first move toward clarifying the threshold for the initiation of antidumping investigations. Through its analysis, the panel sent a message that the threshold requirements are more than a formality. It appeared to establish a framework through which applications, and decisions to initiate investigations, should be examined. For the reasons discussed above, it remains to be seen whether future panels will use that framework.

The WTO Should Codify a Threshold Requirement for the Initiation of Antidumping Investigations in Precise Language that Leaves Little Room for Interpretation by Individual Countries The WTO should decide on a higher initiation requirement and codify it in the Antidumping Code. The evaluation of sufficient evidence should be a required part of the preliminary determination. If investigators conclude that the petitioner does not present sufficient evidence to support a petition, the investigation should terminate prior to the preliminary determination of dumping, injury and causation. The WTO should codify the results of the Portland Cement panel report. Until it does so, WTO members will not be able to take full advantage of the clarifications that the panel made to the threshold requirements. In particular, the WTO should codify the balancing test discussed in the countervailing duty context in Softwood Lumber and 108

adopted by the panel in Portland Cement. The test would require the WTO to weigh the interest of the domestic industry in securing the initiation of an investigation based on a deserving claim against the interest of the exporting country in avoiding the burden of an investigation initiated on a petition that is without merit. The WTO should also require the national authorities to evaluate each petition for accuracy and adequacy of evidence, and it should require the petitioner to base its allegations of dumping and injury on the criteria of Articles 2 and 3 of the Antidumping Code. The WTO should implement several other changes to the initiation procedures as well. First, the WTO should raise the standard by defining what "reasonably available to the petitioner" means with respect to information. Second, the WTO should require that the petitioner provide an explanation for the absence of any missing information. Third, the WTO should implement a public/national interest analysis, either at the initial stage of investigation or following the final determinations as to injury and dumping.

Not only would WTO obligations compel Member states to implement such changes in their national laws, but the WTO's dispute resolution regime would also incite Member states to apply the standard. This system is far stronger than the one that existed under GATT. The prospect of facing retaliatory measures will encourage Member countries to comply with their obligations under the WTO. Furthermore, countries will continue to see that the effectiveness of the WTO system is contingent upon compliance. Countries that frequently resort to the WTO's dispute settlement mechanism, such as the United States, will have an even greater incentive to strengthen the WTO system, and thus should be more willing to comply. The reality of the situation, however, is that Members are not likely to agree to a higher initiation threshold. Based on the controversy that has historically surrounded this issue, the great divergence in views, and political factors influencing countries' positions, it is arguable whether the Members are capable of even negotiating a more precise 109

definition of the current standard. Great diplomacy on the part of powerful members such as the United States and the European Union certainly would be necessary. The stance that the United States took in the Portland Cement case, in which it argued for a more defined standard that would bar unmeritorious petitions, suggests a possible auspicious shift in U.S. policy on the matter. In sum, decisions of the WTO dispute settlement panels and the Appellate Body may be the most practical method of effecting change in the threshold for initiation. In the Portland Cement dispute, the panel took advantage of the "clean slate" that it faced on the initiation issue, as well as the new and improved dispute settlement mechanism, and squarely took on the issue of an evidentiary burden. The panel ruled strongly in favor of having a meaningful threshold for investigations. Hopefully, future panels will see the wisdom in following this tradition, and the WTO dispute resolution system will act as a vehicle for reform.

Concluding, the WTO has obligations to the international community. While it must be flexible out of political necessity, it also must set standards for international trade. It needs to establish a clear requirement of an evidentiary threshold in antidumping investigations. The standard must be one by which all countries can, and will, abide. The organization must realize its limitations and accept that if it pushes its members too far, they will not comply and the organization will lose all credibility. Conversely, it must not shrink from its responsibility to promote fair and free trade, or the WTO will risk becoming meaningless. Antidumping measures may have met this balance in the past, but they no longer do; the initiation threshold must now be set clearly, and at a sufficiently high level, in order to accomplish the same goals.

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7.

ISSSUE OF ZEROING METHODOLOGY IN CALCULATION OF THE DUMPING MARGIN

Over the past several years, one of the most contentious issues in World Trade

Organization dispute settlement has been the use of "zeroing" in the context of calculating anti-dumping duties in domestic trade remedy proceedings. The practice varies somewhat, but in general terms it refers to a dumping calculation that ignores import sales for which the export price exceeds the "normal value" (usually the value in the home market), instead taking into account only those sales where the export price is less than the normal value. In essence, the difference between the zeroing and nonzeroing approaches is the following: zeroing calculates dumping based only on the export sales that could themselves be classified, individually or as a subgroup, as "dumped," whereas non-zeroing calculates dumping based on all export sales. Critics of the practice argue that zeroing inflates the dumping margin unfairly; proponents contend that it offers 111

an accurate calculation of the total amount of dumping. Almost all WTO members who have expressed a view on the issue oppose the practice in most situations. By contrast, the United States remains a staunch defender of "zeroing," and all of the recent complaints related to the practice have been brought against that country. 7.1 Analyzing the DSBs findings in United States-Final Anti-dumping Measures on Stainless Steel from Mexico In the U.S.--Stainless Steel (Mexico)82 case, the Appellate Body found that the U.S. zeroing measures at issue violate WTO rules. Its findings in this regard offer some important new interpretations relating to zeroing, as well as some clarifications of the role of precedent in the WTO dispute settlement system. Mexico's complaint referred to several aspects of zeroing. At issue in the appeal was the use by the U.S. Department of Commerce of a practice called "simple zeroing," in the context of "periodic reviews" of past antidumping determinations. According to Mexico, "simple zeroing in periodic reviews" refers to a method whereby the authorities compare individual export transactions against monthly weighted average normal values and do not fully take into account the results of comparisons where the export price exceeds the monthly weighted average normal value when such results are aggregated in order to calculate the margin of dumping for the product under consideration as a whole in a periodic review. Mexico alleged that the U.S. rules and procedures relating to "simple zeroing in periodic reviews," as well as their application in specific cases, violated the WTO's antidumping rules--in particular, Article VI of the General Agreement on Tariffs and

82

Appellate Body Report, United States--Final Anti-dumping Measures on Stainless Steel from Mexico, WT/DS344/AB/R (adopted May 20, 2008), modifying Panel Report, United States--Final Anti-Dumping Measures on Stainless Steel from Mexico, WT/DS344/R (adopted May 20, 2008) [hereinafter U.S.-Stainless Steel (Mexico)]. Decisions of the panels and Appellate Body are available at <http://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm>.

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Trade (GATT)83 and Articles 2.1 and 9.3 of the Anti-dumping Agreement (AD Agreement).84 The panel had concluded that "simple zeroing in periodic reviews" is not inconsistent with those provisions. Mexico appealed the panel's conclusions, arguing that "once the investigating authorities define the product under consideration, the scope of that definition determines the scope of the authorities' dumping determination," such that "dumping cannot exist in relation to a specific type, model, or category of the product under consideration, or in relation to individual import transactions." Mexico thus asserted, under Article 9.3, that "the margin of dumping must be calculated in respect of the individual exporters or foreign producers subject to such proceeding and for the product under consideration taken as a whole,' without disregarding any export transaction". The United States countered that the panel's findings should be upheld, arguing that under GATT Article VI and AD Agreement Article 2.1, margins of dumping need not necessarily be established on an aggregate basis for the "product as a whole" and that "'dumping' can be found to exist each time that a weighted average normal value exceeds the export price in a particular export transaction, and 'margins of dumping' can be calculated for individual import transactions". At the outset of its analysis, the Appellate Body noted three questions that, in its view, arise based on the panel's reasoning and the arguments advanced in the appeal: (1) "Are the terms 'dumping' and 'margin of dumping' exporter- or importer-related concepts for the purpose of Article 9.3 of the Anti-Dumping Agreement?" (2) "Can 'dumping' and 'margin of dumping' be found to exist at the transaction and importer-specific level for the purpose of Article 9.3 of the Anti-Dumping Agreement?" (3) "In duty assessment proceedings under Article 9.3 of the Anti-Dumping Agreement, is it
83

Apr. 14, 1994, Marrakesh Agreement Establishing the World Trade Organization [hereinafter WTO Agreement], Annex 1A, in WORLD TRADE ORGANIZATION, THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS: THE LEGAL TEXTS 486 (1995) [hereinafter THE LEGAL TEXTS].
84

Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, WTO Agreement, supra note 3, Annex 1A, in THE LEGAL TEXTS, supra note 3, at 168.

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permissible to disregard the amount by which the export price exceeds the normal value in any export transaction?" Recognizing that these questions are "interconnected," the Appellate Body examined each of them in turn. Starting with the question of whether "dumping" and "margin of dumping" are exporter or importer-related concepts, the Appellate Body began by examining those concepts under GATT Article VI, as "carried over" into AD Agreement Article 2.1. Based on the definitions and uses of these terms in those provisions, the Appellate Body concluded that the elements of the definition of "dumping" namely, that "dumping" occurs when a product is "introduced into the commerce of another country" at an "export price" that is less than the "comparable price for the like product in the exporting country"--suggest to us that Article VI:1 of the GATT 1994 and Article 2.1 of the AntiDumping Agreement address the pricing practice of an exporter. The Appellate Body found support for this conclusion in various contextual provisions. Next, the Appellate Body addressed the second question, "whether 'dumping' and 'margin of dumping' can be found to exist at the transaction- and importer-specific level for the purpose of Article 9.3 of the Anti-Dumping Agreement". On this point, it recalled its earlier consideration that "dumping arises from the pricing behaviour of an exporter." It then stated that a "proper determination as to whether an exporter is dumping or not can only be made on the basis of an examination of the exporter's pricing behaviour as reflected in all of its transactions over a period of time." Moreover, it added: Contrary to what the Panel indicates, the notion that "a product is introduced into the commerce of another country at less than its normal value" in Article VI:1 of the GATT 1994 suggests to us that the determination of dumping with respect to an exporter is properly made not at the level of individual export transactions, but on the basis of the totality of an exporter's transactions of the subject merchandise over the period of investigation.

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As to the third question, the Appellate Body considered whether under AD Agreement Article 9.3, it is "permissible" in duty assessment proceedings to "disregard the amount by which the export price exceeds the normal value in any transaction"--that is, whether it is permissible to use "simple zeroing". Recalling its discussion above concerning the term "margin of dumping," the Appellate Body explained that under Article 9.3 and GATT Article VI:2, "the margin of dumping established for an exporter in accordance with Article 2 operates as a ceiling for the total amount of anti-dumping duties that can be levied on the entries of the subject merchandise from that exporter." The Appellate Body then stated, "We see no basis in Article VI:2 of the GATT 1994 or in Articles 2 and 9.3 of the Anti-Dumping Agreement for disregarding the results of comparisons where the export price exceeds the normal value when calculating the margin of dumping for an exporter." In this regard, it recalled past Appellate Body precedents finding the practice of zeroing to be inconsistent with AD Agreement Articles 2.4.2 and 9.3, noting that a product definition applies throughout a dumping investigation and that "dumping" can "be found to exist only for the product under investigation as a whole". In addition, the Appellate Body stated:

We fail to see a textual or contextual basis in the GATT 1994 or the AntiDumping Agreement for treating transactions that occur above normal value as "dumped" for purposes of determining the existence and magnitude of dumping in the original investigation and as "non-dumped" for purposes of assessing the final liability for payment of anti-dumping duties in a periodic review. Moving beyond the initial three questions that it had set out, the Appellate Body addressed "concerns," as expressed by the United States and the panel, regarding "the implications for importer-specific duty assessment in periodic reviews" that flow from the Appellate Body's previous interpretations of Article 9.3. In this context the Appellate Body stated, "It appears to us that the United States and the Panel have not correctly 115

understood the Appellate Body's interpretation of Article 9.3 in previous disputes." In particular, the Appellate Body explained that a "margin of dumping is properly calculated under the Anti-Dumping Agreement only if all transactions are taken into account, including those where the export prices exceed the normal value". The Appellate Body then turned to the panel's analysis relating to "prospective normal value" systems. The panel had found it "quite illogical" that the drafters of the AD Agreement would have intended to allow the existence of prospective normal value systems, but then envisaged a duty assessment system under Article 9.3 in which authorities would be required to calculate a dumping margin on the basis of aggregated data pertaining to exporters. In response, the Appellate Body noted that the amount of duties collected on a prospective basis is subject to review and that while duties are "collected" in individual export transactions only "where the prices are less than the prospective normal value, a review can be requested if the prospective normal value has been improperly determined so as to result in collection of anti-dumping duties in excess of the ceiling prescribed in Article 9.3." In this regard, the Appellate Body emphasized that the AD Agreement is neutral as to the different systems for the levy and collection of antidumping duties. Next, the Appellate Body examined the question of whether the context of the AD Agreement Article 2.4.2, second sentence, justified the panel's decision not to follow the Appellate Body's established approach. The panel had found that an interpretation that prohibits zeroing in all contexts would be contrary to the principle of effective treaty interpretation, because it would mean that the application of the second sentence of Article 2.4.2 would always yield the same mathematical result as that obtained by applying the [weighted average-to-weighted average (W-W)] comparison methodology of the first sentence, thereby rendering the second sentence of Article 2.4.2 inutile. Mexico asserted that the panel's interpretation and the issue of "mathematical equivalence" would be valid only under the assumption that the weighted average-normal value used in the weighted average-to-transaction (W-T) comparison methodology is 116

identical to that used in the W-W comparison methodology. However, Mexico pointed out that the U.S. system does not follow that approach: it uses contemporaneous monthly normal values in W-T situations but mandates period-long normal-value averages (typically, one year) for W-W comparison. In response to Mexico's arguments, the Appellate Body noted that the United States did not contest Mexico's assertion, and also referred to U.S. statements suggesting that there is uncertainty as to how the W-T comparison methodology would be applied in practice. Finally, the Appellate Body addressed the "historical background" of the AD Agreement. Given that its analysis under Article 31 of the Vienna Convention on the Law of Treaties had neither left the meaning of the relevant provisions of the Agreement "ambiguous or obscure" nor led to a "manifestly absurd or unreasonable" result, the Appellate Body did not find it "strictly necessary" to have recourse to the supplementary means of interpretation identified in Article 32. Nevertheless, the Appellate Body said that it would examine the U.S. arguments concerning Article 32. For the following reasons, however, the Appellate Body stated that it was "not persuaded" that the historical materials provide guidance as to whether simple zeroing is permissible under Article 9.3: the parties had various different viewpoints as to the meaning of the negotiating proposals submitted during the Uruguay Round; the same historical materials were examined by the Appellate Body in previous cases and had been rejected; the 1960 Group of Experts Report was of "little relevance" and did not shed light on the determination of the margin of dumping under Article 9.3; and the Tokyo Round Anti-dumping Code was "legally separate from the GATT 1947," had been terminated, and, in any event, had different wording than the current AD Agreement. On that basis, the Appellate Body concluded that simple zeroing "results in the levy of an amount of anti-dumping duty that exceeds an exporter's margin of dumping, which operates as the ceiling for the amount of anti-dumping duty that can be levied in respect of the sales made by an exporter," such that simple zeroing in periodic reviews is inconsistent with GATT Article VI:2 and AD Agreement Article 9.3. As a final note, the Appellate Body stated that in its interpretation it had "been mindful of the standard of 117

review provided in [AD Agreement] Article 17.6(ii)" but that, when interpreted in accordance with the customary rules of interpretation of public international law, GATT Article VI:2 and AD Agreement Article 9.3 "do not admit of another interpretation as far as the issue of zeroing raised in this appeal is concerned". For the same reasons, the Appellate Body reversed the panel's finding that simple zeroing, as applied by the U.S. Department of Commerce in the five periodic reviews at issue in this dispute, is not inconsistent with GATT Articles VI:1 and VI:2 and AD Agreement Articles 2.1 and 9.3. In addition to the substantive law issues, the Appellate Body also addressed the role of precedent in relation to the issue of zeroing. The panel had decided not to follow the legal interpretation of the Appellate Body in U.S.--Zeroing (EC)85 and U.S.--Zeroing (Japan),86 in which the Appellate Body had found that simple zeroing in periodic reviews is inconsistent with GATT Article VI:2 and AD Agreement Article 9.3. Instead, the panel found this kind of zeroing to be consistent with the GATT and the AD Agreement. On appeal, Mexico argued that the panel's approach was inconsistent with the first sentence of Article 11 of the WTO's Dispute Settlement Understanding (DSU), "which stipulates that the function of panels is to assist the [Dispute Settlement Body (DSB)] in discharging its responsibilities under the DSU." As further support, Mexico referred to DSU Articles 3.2 and 3.3. In examining this issue, the Appellate Body observed that it is "well settled that Appellate Body reports are not binding, except with respect to resolving the particular dispute between the parties." It noted, however, that it would be incorrect to infer that "subsequent panels are free to disregard the legal interpretations and the ratio decidendi contained in previous Appellate Body reports that have been adopted by the DSB". The Appellate Body further explained that dispute settlement practice demonstrates that WTO Members attach significance to reasoning provided in previous panel and
85

Appellate Body Report, United States--Laws, Regulations and Methodology for Calculating Dumping Margins (Zeroing), WT/DS294/AB/R (adopted May 9, 2006). 86 Appellate Body Report, United States--Measures Relating to Zeroing and Sunset Reviews, WT/DS322/AB/R (adopted Jan. 23, 2007).

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Appellate Body reports," which (if adopted) are "often cited by parties in support of legal arguments in dispute settlement proceedings, and are relied upon by panels and the Appellate Body in subsequent disputes." Thus, it said, "the legal interpretation embodied in adopted panel and Appellate Body reports becomes part and parcel of the acquis of the WTO dispute settlement system." The Appellate Body further stated that "ensuring 'security and predictability' in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case". The Appellate Body then noted that "in the hierarchical structure contemplated in the DSU, panels and the Appellate Body have distinct roles to play" referring to DSU Articles 17.6 and 17.13. It pointed out that the "creation of the Appellate Body by WTO Members to review legal interpretations developed by panels shows that Members recognized the importance of consistency and stability in the interpretation of their rights and obligations under the covered agreements," which "is essential to promote 'security and predictability' in the dispute settlement system, and to ensure the 'prompt settlement' of disputes." Here, the Appellate Body explained, "The Panel's failure to follow previously adopted Appellate Body reports addressing the same issues undermines the development of a coherent and predictable body of jurisprudence clarifying Members' rights and obligations under the covered agreements as contemplated under the DSU." According to the Appellate Body, "Clarification, as envisaged in Article 3.2 of the DSU, elucidates the scope and meaning of the provisions of the covered agreements in accordance with customary rules of interpretation of public international law," and the "relevance of clarification contained in adopted Appellate Body reports is not limited to the application of a particular provision in a specific case". With all this in mind, the Appellate Body said that it was "deeply concerned about the Panel's decision to depart from well-established Appellate Body jurisprudence clarifying the interpretation of the same legal issues" as those involved in this dispute, and that the panel's approach had "serious implications for the proper functioning of the WTO dispute settlement system." Nevertheless, the Appellate Body considered that "the 119

Panel's failure flowed, in essence, from its misguided understanding of the legal provisions at issue," and because the panel's findings have been reversed, there was no need for "an additional finding that the Panel also failed to discharge its duties under Article 11 of the DSU". The Appellate Body has made clear in a series of decisions that it does not look favorably on the practice of "zeroing," regardless of the type of zeroing or the type of antidumping proceeding in which it is used. To date, the Appellate Body has found all types of zeroing brought before it to violate WTO rules. Its decision in this case continues that trend, with yet another condemnation of zeroing. To some degree, the Appellate Body's clear stance on zeroing makes it seem that the issue has been definitively addressed, as the Appellate Body is the highest judicial body in the WTO dispute settlement system. However, there are several countervailing forces at work. First, several panels have differed with the Appellate Body regarding the permissibility of certain types of zeroing. In the dispute at hand--for the second time recently--a WTO panel declined to follow a prior ruling by the Appellate Body on the permissibility of a particular type of zeroing (the U.S.Zeroing (Japan) panel, mentioned above, was the first). Second, the issue of zeroing has been actively discussed as part of the ongoing negotiations on trade remedies in the Doha Round; despite the strong opposition to zeroing from most WTO members, the current draft text prohibits zeroing only in one specific situation, while allowing it in others. Thus, despite its minority position, the United States has been somewhat successful in pushing its views, though many other members have been quite critical of the most recent draft. Finally, the Appellate Body's reasoning on the issue of zeroing has met with some strong criticism in the legal literature. In particular, given that the text of the agreements does not address the issue explicitly, and in view of the special standard of review for legal issues under

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the AD Agreement,87some have argued that the Appellate Body's findings constitute "overreaching.88 In addition to these substantive legal issues relating to zeroing, the instant dispute also raised a systemic issue concerning panels that ignore the Appellate Body's prior legal interpretations related to zeroing. In addressing this issue, the Appellate Body stated, inter alia: "'Ensuring 'security and predictability' in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case". The implications of the Appellate Body's statements on this issue leave a bit of uncertainty. For instance, will the standard apply differently to the Appellate Body itself, as opposed to panels? Note that the Appellate Body refers to "an adjudicatory body"--in the singular--perhaps implying that only the Appellate Body may depart from prior rulings on the basis of "cogent reasons." Alternatively, the "adjudicatory body" it mentions may be the Dispute Settlement Body, which would thus include panels. Since there are several ongoing zeroing disputes, the panels in question may have the opportunity to test the boundaries of the Appellate Body's new standard. 7.2 APPELLATE BODY FINDINGS ON EUROPEAN COMMUNITIES ANTI-DUMPING DUTIES ON IMPORTS OF COTTON-TYPE BED LINEN FROM INDIA89 On 13th September 1996, the European Communities initiated an anti-dumping investigation into certain imports of cotton-type bed linen from, inter alia, India. The European Communities made its preliminary affirmative determination of dumping, injury and causal link on 12th June 1997, and imposed provisional anti-dumping duties with effect from 14 June 1997.90 The European Communities made its final affirmative
87

In this regard, AD Agreement Article 17.6(ii) states: "Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations."
88

Roger P. Alford, Reflections on US- Zeroing: A Study in Judicial Overreaching by the WTO Appellate Body, 44 COLU .J. TRANSNATL L 196 (2006) 89 WT/DS141/AB/R 90 Commission Regulation (EC) No 1069/97 of 12 June 1997 imposing a provisional anti-dumping duty on imports of cotton-type bed linen originating in Egypt, India and Pakistan, Official Journal, No L 156,

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determination of dumping, injury and causal link on 28 November 1997, and imposed definitive anti-dumping duties with effect from 5 December 1997.91 The European Communities and India appeal certain issues of law and legal interpretations in the Panel Report, European Communities Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India (the "Panel Report").92 The Panel was established to consider a complaint by India with respect to definitive anti-dumping duties imposed by the European Communities on imports of cotton-type bed linen. 7.2.1 Issues raised in the Appeal:

The appeal raised the following issues: (a) Whether the Panel erred in finding that the practice of "zeroing" when establishing "the existence of margins of dumping", as applied by the European Communities in the anti-dumping investigation at issue in this dispute, is inconsistent with Article 2.4.2 of the Anti-Dumping Agreement; and (b) Whether the Panel erred in finding that: (1) the method for calculating amounts for administrative,

selling and general costs and profits provided for in Article 2.2.2(ii) of the Anti-Dumping Agreement may be applied where there is data on administrative, selling and general costs and profits for only one other exporter or producer; and (2) in calculating the amount for profits under Article 2.2.2(ii)

of the Anti-Dumping Agreement, a Member may exclude sales by other exporters or producers that are not made in the ordinary course of trade.
13 June 1997, p. 11.
91

Council Regulation (EC) No 2398/97 of 28 November 1997 imposing a definitive anti-dumping duty on imports of cotton-type bed linen originating in Egypt, India and Pakistan, Official Journal, No L 332, 4 December 1997, p. 1.
92

WT/DS141/R, 30 October 2000.

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7.2.2

Article 2.4.2 of the Anti-Dumping Agreement The first issue raised in this appeal is whether the practice of "zeroing" when

establishing "the existence of margins of dumping", as applied by the European Communities in the anti-dumping investigation at issue in this dispute, is consistent with Article 2.4.2 of the Anti-Dumping Agreement. According to the European Communities, Article 2.4.2 requires a comparison with a "weighted average of prices of all comparable export transactions", which, in the view of the European Communities, as we understand it, is not the same as requiring a comparison with a weighted average of all export transactions. Emphasizing the presence in Article 2.4.2 of the word "comparable", the European Communities maintains that, where the product under investigation consists of various "non-comparable" types or models, the investigating authorities should first calculate "margins of dumping" for each of the "non-comparable" types or models, and, then, at a subsequent stage, combine those "margins" in order to calculate an overall margin of dumping for the product under investigation. Thus, the European Communities identified two stages in calculating margins of dumping in such an anti-dumping investigation, and contends that Article 2.4.2 provides no guidance as to how the "margins of dumping" for each of the types or models should be combined in the second stage in order to calculate an overall margin of dumping for the product under investigation. On this reasoning, the European Communities asserts that, as "zeroing" takes place during this second stage of the domestic anti-dumping process, "zeroing" cannot be inconsistent with Article 2.4.2. 7.2.2.1 Analysis of the Panel and AB findings: The Panel held that Article 2.4.2 of the Anti-Dumping Agreement explains how domestic investigating authorities must proceed in establishing "the existence of margins of dumping", that is, it explains how they must proceed in establishing that there is dumping. The Panel analyzed the wordings of Article 2.193 It held that from the wording of this provision, it is clear to us that the Anti-Dumping Agreement concerns the dumping of a product, and that, therefore, the margins of dumping to which Article 2.4.2
93

Infra

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refers are the margins of dumping for a product. The Panel clarified that whatever the method used to calculate the margins of dumping the margins must be and can only be, established for the product under investigation as a whole. It disagreed with the European Communities that Article 2.4.2 provides no guidance as to how to calculate an overall margin of dumping for the product under investigation. Furthermore, it was also of the view that a comparison between export price and normal value that does not take fully into account the prices of all comparable export transactions such as the practice of "zeroing" is not a "fair comparison" between export price and normal value, as required by Article 2.4 and by Article 2.4.2. Article 2.4 sets forth a general obligation to make a "fair comparison" between export price and normal value. This is a general obligation that informs all of Article 2, but applies, in particular, to Article 2.4.2 which is specifically made "subject to the provisions governing fair comparison in Article 2.4.94 The interpretation of the word "comparable" in Article 2.4.2 is reinforced by the context of Article 2.4.2. While the word "comparable" in Article 2.4.2 relates to the comparability of export transactions, Article 2.4 deals more broadly with a "fair comparison" between export price and normal value and "price comparability". In support of its appeal of the Panel's interpretation of Article 2.4.2, the European Communities argued that export transactions involving different types or models of cotton-type bed linen are not "comparable" because different types or models of cottontype bed linen have very different physical characteristics. Specifically, the European Communities suggests that the differences between the various models or types of bed linen involved in the relevant export transactions are "so substantial that they cannot be eliminated by making adjustments for differences in physical characteristics". The Panel disagreeing with the said argument stated that all types or models falling within the scope of a "like" product must necessarily be "comparable", and export transactions involving those types or models must therefore be considered "comparable export transactions" within the meaning of Article 2.4.2. In addition to the above argument the European
94

A fair comparison shall be made between the export price and the normal value. This comparison shall be made at the same level of trade, normally at the ex factory level, and in respect of sales made at as nearly as possible the same time. Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are also demonstrated to affect price comparability.

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Union further in appeal argued that the interpretation given by the Panel as to comparable export transactions would not allow Members to counter dumping "targeted" to certain types of the product under investigation. With respect to the notion of "targeted" dumping, the Appellate Body pointed towards second sentence of Article 2.4.2.95 The Appellate Body asserted that the said provision allows Members, in structuring their antidumping investigations, to address three kinds of "targeted" dumping, namely dumping that is targeted to certain purchasers, targeted to certain regions, or targeted to certain time periods. However, neither Article 2.4.2, second sentence, nor any other provision of the Anti-Dumping Agreement refers to dumping "targeted" to certain "models" or "types" of the same product under investigation. The AB further emphasized that had the drafters of the Anti-Dumping Agreement intended to authorize Members to respond to such kind of "targeted" dumping, they would have done so explicitly in Article 2.4.2, second sentence. The AB concluded that European Communities has not demonstrated that any provision of the Agreement implies that targeted dumping may be examined in relation to specific types or models of the product under investigation and hence the practice of "zeroing" when establishing "the existence of margins of dumping", as applied by the European Communities in the anti-dumping investigation is inconsistent with Article 2.4.2 of the Anti-Dumping Agreement. 7.2.3 Article 2.2.2(ii) of the Anti-Dumping Agreement The two other issues raised in this appeal both concerns the Panel's interpretation of Article 2.2.2(ii) of the Anti-Dumping Agreement. Pursuant to Article 2.2, the margin of dumping for the product under investigation may, in certain circumstances, be determined by comparison of the export price of the product with a constructed normal value consisting of the cost of production of the product in the country of origin plus a reasonable amount for administrative, selling and general costs ("SG&A") as well as for profits. Article 2.2.296 sets forth how the amounts for SG&A and profits are to be
95

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. 96 For the purpose of paragraph 2, the amounts for administrative, selling and general costs and for profits shall be based on actual data pertaining to production and sales in the ordinary course of trade of the

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calculated in such circumstances. The first issue raised is whether the method of calculating amounts for SG&A and profits set out in Article 2.2.2(ii) may be applied where there is data on SG&A and profits for only one other exporter or producer. The second issue is whether, in calculating the amount for profits under Article 2.2.2(ii), a Member may exclude sales by other exporters or producers that are not made in the ordinary course of trade. With respect to the first issue, the Panel found: It concluded that Article 2.2.2(ii) may be applied in a case where there is data concerning profit and SG&A for only one other producer or exporter, and hence the European Communities was not precluded from applying the methodology set out in that provision in this case, and therefore did not act inconsistently with Article 2.2.2(ii) in this regard. With respect to the second issue, the Panel found: The interpretation of Article 2.2.2(ii) under which sales not in the ordinary course of trade is excluded from the determination of the profit amount to be used in the calculation of a constructed normal value is permissible. It concluded that the European Communities did not err in its application of paragraph (ii) by using data only on transactions in the ordinary course of trade. 7.2.3.1 Analyzing the Appellate Bodys Findings:

like product by the exporter or producer under investigation. When such amounts cannot be determined on this basis, the amounts may be determined on the basis of: (i) the actual amounts incurred and realized by the exporter or producer in question in respect of production and sales in the domestic market of the country of origin of the same general category of products; the weighted average of the actual amounts incurred and realized by other exporters or producers subject to investigation in respect of production and sales of the like product in the domestic market of the country of origin; any other reasonable method, provided that the amount for profit so established shall not exceed the profit normally realized by other exporters or producers on sales of products of the same general category in the domestic market of the country of origin.

(ii)

(iii)

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India appeals both these findings. With respect to the first of these two findings of the Panel, relating to the applicability of Article 2.2.2(ii) where there is data for only one other exporter or producer, India argues that the text of Article 2.2.2(ii), and, in particular, the use of the terms "amounts" and "exporters or producers" in the plural, in combination with the reference to a "weighted average" of the "amounts", clearly indicate that Article 2.2.2(ii) cannot be applied where there is data for only one other exporter or producer. With respect to the second of these two findings of the Panel, relating to the exclusion of sales by other exporters or producers that are not made in the ordinary course of trade, India argues that the text of Article 2.2.2(ii) states that the amount for profits must be based on "amounts incurred and realized", and that nothing in these terms suggests that they relate only to profitable sales. According to India, this reading of Article 2.2.2(ii) is confirmed by the chapeau of Article 2.2.2, which, in contrast with Article 2.2.2(ii), explicitly excludes sales made outside the ordinary course of trade. On the first of these two issues on appeal, the Appellate Body recalled that Article 2.2.2(ii) states that, when this method is chosen by the investigating authorities, the amounts for SG&A and profits must be calculated on the basis of the weighted average of the actual amounts incurred and realized by other exporters or producers subject to investigation in respect of production and sales of the like product in the domestic market of the country of origin. The Appellate Body disagreed with the Panel opinion that reference to other producers or exporters in the plural necessarily must be understood to include resort to option (ii) in the case where there is only one other producer or exporter of the like product. AB held that the phrase "weighted average" in Article 2.2.2(ii) precludes, in this particular provision, understanding the phrase "other exporters or producers" in the plural as including the singular case. The use of the phrase "weighted average" in Article 2.2.2(ii) makes it impossible to read "other exporters or producers" as "one exporter or producer". AB stated first of all, and obviously, an "average" of amounts for SG&A and profits cannot be calculated on the basis of data on SG&A and profits relating to only one exporter or producer.97 Moreover, the textual directive to "weight" the average further supports this view because the "average" which results from combining the
97

"Average" is defined in The Concise Oxford Dictionary of Current English, supra as follows: "an amount obtained by dividing the total of given amounts by the number of amounts in the set".

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data from different exporters or producers must reflect the relative importance of these different exporters or producers in the overall mean.98 The use of the phrase "weighted average", combined with the use of the words "amounts" and "exporters or producers" in the plural in the text of Article 2.2.2(ii), clearly anticipates the use of data from more than one exporter or producer. AB concluded that the method for calculating amounts for SG&A and profits set out in this provision can only be used if data relating to more than one other exporter or producer is available. On the second issue relating to the Panel's interpretation of Article 2.2.2(ii) the Appellate Body recalled that the amounts for SG&A and profits for an exporter or a producer under investigation are, under Article 2.2.2(ii), calculated on the basis of the weighted average of the actual amounts incurred and realized by other exporters or producers subject to investigation in respect of production and sales of the like product in the domestic market of the country of origin. The AB asserted that Article 2.2.2(ii) refers to "the weighted average of the actual amounts incurred and realized by other exporters or producers". The AB stated that in the calculation of the "weighted average", all of "the actual amounts incurred and realized" by other exporters or producers must be included, regardless of whether those amounts are incurred and realized on production and sales made in the ordinary course of trade or not. A member is not allowed to exclude those sales that are not made in the ordinary course of trade from the calculation of the "weighted average" under Article 2.2.2(ii). The textual interpretation of Article 2.2.2(ii) in the context of this provision can be located in the first sentence of the chapeau of Article 2.2.2, which sets out the principal method for calculating amounts for SG&A and profits. The method set out in Article 2.2.2(ii) is one of three alternative methods which may be applied only in circumstances where the amounts for SG&A and profits cannot be determined by the principal method set out in the chapeau of Article 2.2.2. In contrast to Article 2.2.2(ii), the first sentence of the chapeau of Article 2.2.2 refers to "actual data pertaining to production and sales in the ordinary course of trade". Thus, the drafters of the Anti-Dumping Agreement have made clear that sales not in the ordinary course of trade are
98

"To weight" is defined as "multiply the components of (an average) by factors to take account of their importance". "Weighted average" is defined as "resulting from the multiplication of each component by a factor reflecting its importance". The New Shorter Oxford English Dictionary (Clarendon Press, 1993), Vol. II, p. 3651.

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to be excluded when calculating amounts for SG&A and profits using the method set out in the chapeau of Article 2.2.2. The exclusion in the chapeau leads us to believe that, where there is no such explicit exclusion elsewhere in the same Article of the Anti-Dumping Agreement, no exclusion should be implied. And there is no such explicit exclusion in Article 2.2.2(ii). Article 2.2.2(ii) provides for an alternative calculation method that can be employed precisely when the method contemplated by the chapeau cannot be used. Article 2.2.2(ii) contains its own specific requirements. On their face, these requirements do not call for the exclusion of sales not made in the ordinary course of trade. Reading into the text of Article 2.2.2(ii) a requirement provided for in the chapeau of Article 2.2.2 is not justified either by the text or by the context of Article 2.2.2(ii). The Appellate Body concluded that in calculating the amount for profits under Article 2.2.2(ii) of the AntiDumping Agreement, a Member may exclude sales by other exporters or producers that are not made in the ordinary course of trade.

8.

ANALYSIS OF THE WTO DISPUTE SETTLEMENT BODY FINDINGS ON THE U.S. ANTIDUMPING SUNSET REVIEW REGIME

8.1

Overview of this Chapter The antidumping mechanism by which a country protects its domestic industry from

an alleged dumping99 by foreign producers has always been a trade remedy-of-choice utilized by U.S. trade authorities. This aspect is aptly demonstrated by the number of U.S. antidumping duty orders imposed upon foreign producers which stands at 229 according

99

A product is considered to be dumped if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country. Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade, 1994, Article 2.1 (hereinafter AD)

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to available statistics.100. With such a large number of antidumping duties being imposed, it is natural for those countries subject to the orders to explore ways to curtail them. Such position has materialized in various WTO fora, in particular, through numerous cases that were brought to the WTO Dispute Settlement Body ("DSB") challenging the consistency of the U.S. antidumping duty impositions since 1995 when the DSB adjudication procedure was stipulated into the WTO system. Complex as is the antidumping regime, the DSB cases address almost every technical issue that is involved in the decision making process of the antidumping duty determination. However, one area that had been noticeably absent from the issues analyzed by the DSB pertained to the sunset review regime. This is due to the temporal aspect of sunset reviews which requires a mandatory review of the antidumping duty after five years from its original imposition. Therefore, it was only after 1998 that the first U.S. sunset review was initiated in accordance with the U.S. rules and regulations implementing WTO law and that the cases were subsequently brought to the DSB disputing their WTO consistency.

This chapter surveys the WTO DSB's decisions regarding the U.S. antidumping sunset review process. The first part of the chapter summarizes the WTO provisions on antidumping sunset reviews and the relevant U.S. law. The second part surveys various sunset review issues that were raised by the cases brought to the DSB. Three DSB cases, namely US - OCTG (Mexico), US - OCTG (Argentina), and US - Carbon Steel, addressed sunset review issues. From these findings by the DSB, fourteen main issues are surveyed in this chapter. The issues are divided into two types: "as such" issues and "as applied" issues. The former refers to the issues addressing the WTO consistency of the U.S. sunset review rules and regulations and the latter refers to the issues addressing the WTO consistency of the actual implementation of the rules and regulations, "as applied." However, this research would be confined to as applied issues. The third part of the
100

As on of June, 2005, World Trade Organization Anti-Dumping Gateway, Antidumping Measures: By Exporting Country, at http://www.wto.org/english/tratop e/adp e/adp e.htm (last visited on 01/01/2010).

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chapter examines the U.S. implementation of the DSB findings which pertains to the findings in US - OCTG (Argentina). Finally, some comments and policy considerations are suggested with regard to the case law examined in the previous sections.

8.2 8.2.1

ANTIDUMPING SUNSET REVIEW LAW Overview of Antidumping Sunset Reviews Antidumping sunset reviews establish mandatory reviews of antidumping duties

after five years from the initial imposition. The rationale behind the review is that "antidumping duties should remain in force only so long as they are generally necessary to counteract dumping which is causing or threatening material injury to a domestic industry."101 Article 11.3 of the AD which stipulates the threshold duration of five years signifies this presumption that five years is enough to counteract the dumping. Sunset reviews will determine whether the antidumping duty should be continued. Unless the antidumping authorities determine that "the expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury," the antidumping measure will be terminated.102 The sunset review provision was incorporated into the WTO antidumping regime after the Uruguay Round, when member states signed the GATT Final Act Embodying the Results of the Uruguay Round of Multilateral trade Negotiations on April 15, 1994. 8.2.2 WTO Law Article 11.3 of the AD addresses antidumping sunset reviews. It is stated as follows: Notwithstanding the provisions of paragraphs 1 and 2 (of Article 11), any definitive anti-dumping duty shall be terminated on a date not later than five years from its imposition (or from the date of the most recent review under paragraph 2 if that review has covered both dumping and injury, or under this paragraph), unless the authorities determine, in a review initiated before that date on their own
101 102

Joseph E. Pattison, WTO Antidumping and Subsidy Agreements 6 (2005); see also, AD art. 11.1. AD, supra note 1, at art. 11.3.

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initiative or upon a duly substantiated request made by or on behalf of the domestic industry within a reasonable period of time prior to that date, that the expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury. The duty may remain in force pending the outcome of such a review. There are few AD provisions that describe in detail the actual procedure and substantive analysis that the investigating authority must observe. Article 11.4 states that provisions of Article 6 regarding evidence and procedure shall be applied to sunset reviews. Article 18.3.2 provides transitory measures for the antidumping duty orders imposed before the date of entry into force of the WTO Agreement. In this respect, sunset reviews differ from original investigations that are governed by extensive legal and procedural framework provided in Articles 3 and 5 of the AD.

8.2.3

U.S. Law

(a) Statutory Provisions Consistent with the WTO provisions, the Uruguay Round Agreements Act ("URAA")103 provides the statutory foundation that governs the antidumping sunset review process. The relevant provision is as follows: 5 years after the date of publication of an antidumping duty order, the administering authority and the International Trade Commission shall conduct a review to determine, in accordance with Section 1675a of this title, whether
103

Uruguay Round Agreements Act, Pub. L. No. 103-465, 108 Stat. 4809 (Dec. 8, 1994) (codified in scattered sections of 7, 17, 18, 19, 29 U.S.C.).

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revocation of the antidumping duty order would be likely to lead to continuation or recurrence of dumping and of material injury. More detailed rules and regulations on sunset reviews are provided in 19 U.S.C. 1675a and 19 C.F.R. 351.218. Additionally, there is "The Uruguay Round Agreement Act Statement of Administrative Action" ("SAA") interpretation and application of the law." (b) Administrative Guidelines There is also an administrative guideline called the Sunset Policy Bulletin ("SPB") which is "intended to complement the applicable statutory and regulatory provisions by providing guidance on methodological or analytical issues not explicitly addressed by the statute and regulations." It delineates a detailed guideline as to how sunset reviews should be administered. For example, section II of the Bulletin covers the determination of likelihood of continuation or recurrence of dumping and the magnitude of the margin of dumping that is likely to prevail. Factors such as the weighted-average dumping margins determined in the investigations and the volume of imports must be considered by the Department of Commerce ("DOC") in implementing sunset reviews.
n17

which provides

an "authoritative expression by the United States of its views concerning the

8.3 DSB FINDINGS ON U.S. ANTIDUMPING SUNSET REVIEW PROVISIONS "AS APPLIED" 8.3.1 The DOC's Determination of the Likelihood of Continuation or Recurrence

of Dumping The Panel in US -- OCTG (Mexico) held that the DOC's determination of the likelihood of continuation or recurrence of dumping ("LCRD") in the sunset review was inconsistent with Article 11.3 of the AD. The Panel there held that the investigating authority administering sunset reviews "must act with an appropriate degree of diligence and arrive at a reasoned conclusion on the basis of information gathered as part of a process of reconsideration and examination." In accordance with the standard, the Panel then examined the DOC's determination and found that the DOC had ignored the data 133

submitted by Mexican exporters and relied "exclusively on the basis of a decline in import volumes." The Panel concluded that the DOC was required "to at least consider the information and take it into account before making its determination." The Panel noted that where the DOC failed to incorporate any information submitted by the exporters, it had failed to support its decision by a reasoned and adequate conclusion as mandated by Article 11.3. The Panel's finding was not appealed.

The Panel in US -- OCTG (Argentina) also held that the DOC's determination of the LCRD in the sunset review was inconsistent with Article 11.3 of the AD. The Panel first noted that the investigating authority has an obligation to make a "reasoned finding on the positive evidence" in determining the likelihood of dumping. It then found that the DOC used two factual findings that the dumping continued over the life of the measure and that the import volumes declined following the antidumping duty imposition. For the former finding, the DOC was found to have only relied on the original dumping margin to determine the continued dumping over the life of the measure. The Panel held that "the original determination of dumping by itself cannot represent a sufficient factual basis to conclude that dumping is likely to continue or recur after the expiry of the order." The Panel's finding was not appealed. In contrast, the AB in US -- Carbon Steel held that the DOC's determination of LCRD in the sunset review was not inconsistent with Article 11.3. Japan argued that "the DOC failed to make a proper, prospective likelihood determination and based its determination exclusively on historical data relating to dumping and the volume of dumped imports." The AB, however, found that the DOC had in fact considered the information submitted by the Japanese exporter and that the DOC was entitled to reject the information submitted in an untimely fashion. Ultimately, the AB held that there were sufficient justifications for the DOC's reliance on dumping margins and import levels, thus the determination was not inconsistent with Article 11.3.

8.3.2 Injury

The ITC's Determination of the Likelihood of Continuation or Recurrence of

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The Panel in US -- OCTG (Mexico) held that the International Trade Commission's ("ITC") determination of the likelihood of continuation or recurrence of injury ("LCRI") in the sunset review was not inconsistent with Articles 3.1, 3.2, and 11.3 of the AD. Mexico first argued that the ITC must undergo a detailed injury determination process that is provided in Article 3. The Panel, however, disagreed and denied the applicability of Article 3 process in sunset reviews because the determination was made "regarding the likelihood of injury rather than injury." The Panel then noted that the ITC had based its determination on a proper establishment of facts and an unbiased and objective evaluation of the facts, by presenting five reasons why the likely volume of import after the revocation of the dumping duty would be significant to cause injury. The Panel deemed such explanation of the ITC to satisfy the requirement of Article 11.3. This issue was not appealed but it was indirectly affirmed through the AB's finding on the causation issue. Similarly, the AB in US -- OCTG (Argentina) held that the ITC's determination of the LCRI in the sunset review was not inconsistent with Article 11.3 of the AD. Argentina argued that the panel erred in its determination of the following three issues: (1) the likely volume of dumped imports; (2) the likely price effects of dumped imports; and (3) the likely impact of dumped imports on the U.S. industry. On all three accounts, the AB held that the ITC presented a sufficient factual basis for determining the LCRI. With regard to the likely volume of dumped imports, the following five factors were held sufficient to support the ITC's conclusion: (1) the importance of the U.S. market; (2) the profitability of the products concerned; (3) the price level of the products concerned; (4) the existence of import restrictions faced by the interested party; and (5) the level of export dependency. The AB noted that "positive evidence" does not mean incontrovertible evidence, and that the standard may be satisfied even when "the inferences drawn from the evidence on record are projections into the future."

8.3.3

The ITC's Determination of the Likelihood of Continuation or Recurrence of

Injury within a Reasonably Foreseeable Time

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The AB in US--OCTG (Argentina) held that the ITC's basis for the determination of the likelihood of continuation or recurrence of injury in the sunset was not inconsistent with Article 11.3 of the AD. Argentina argued that the failure to "specify the relevant timeframe for the injury determination is not a 'properly reasoned and supported determination' and does not have a 'firm evidentiary foundation.'" The AB disagreed and held that Article 11.3 textually does not provide any requirement for the specification of timeframe and that the lack of timeframe can still provide the properly reasoned and sufficient factual basis required for the likelihood of continuation or recurrence of injury.

8.3.4

Zeroing used in Sunset Reviews

The AB in US -- Carbon Steel noted that the investigating authority's determination of the likelihood of continuation or recurrence of injury, relying on dumping margins that resorted to "zeroing" methodology, was inconsistent with Article 11.3 of the AD. As for its application to the actual case, however, the AB declined to rule on the consistency of the DOC's determination because the factual basis was insufficient to determine whether the DOC had actually resorted to the zeroing as defined in EC - Bed Linen. The AB added that "Article 11.3 does not expressly prescribe any specific methodology for investigating authorities to use in making a likelihood determination in a sunset review." Therefore, Article 2, which specifies the methodology of calculating dumping margin, needs not be applied to sunset reviews. Nevertheless, the AB held that "should investigating authorities choose to rely upon dumping margins in making their likelihood determination, the calculation of these margins must conform to the disciplines of Article 2.4." The AB reasoned that "if these margins that resorted to 'zeroing' were legally flawed because they were calculated in a manner inconsistent with Article 2.4, this could give rise to an inconsistency not only with Article 2.4, but also with Article 11.3 of the AD."

8.3.5

THE U.S. IMPLEMENTATION OF THE DSB FINDINGS IN US - OCTG For those issues that were held to be inconsistent with WTO law by the Panel and

(ARGENTINA) the AB in US -- OCTG (Argentina), the U.S. has so far made limited progress in 136

implementing the findings. Argentina and the U.S. underwent an arbitration process under Article 21.3(c) of the DSU, and the reasonable period of time for the U.S. to implement the findings was determined to be twelve months from December 17, 2004, the date on which the DSB adopted the Panel and AB Reports. The expiration date, therefore, was December 17, 2005. With the deadline already passed, the U.S. has yet to fulfill its obligation in bringing its measures into conformity with the DSB findings.104 With regard to the inconsistency of the waiver provision, the DOC proposed the amendment of the relevant regulations on August 15, 2005 and invited public comments. Two amendments were subsequently made to the relevant regulations. First, 19 C.F.R. 351.218(d)(2)(iii) was deleted. Second, the requirements for a statement of waiver were revised by adding a statement where the waiving respondent party in effect pronounces that it is likely to dump in case the antidumping order is revoked.105 These amendments were made effective on October 31, 2005 thus complying with the above deadline. The DOC denied the need to amend 19 U.S.C. 1675(c)(4)(B), by stating that "by modifying the waiver provisions, the DOC has eliminated the possibility that its order-wide likelihood determinations would be based on assumptions about likelihood of continuation or recurrence of dumping due to interested parties' waiver of participation in sunset reviews." This is a foregone conclusion since the waiving parties would already have pronounced that they are likely to dump if the antidumping order were revoked. The DOC has not yet initiated a new sunset review that will determine the revised likelihood of continuation or recurrence of dumping that would be consistent with Article 11.3.106
104

The U.S. measure found to be inconsistent with WTO law cannot be challenged within the U.S. without an act of implementation domestically. Section 102(a)(1) of the Uruguay Round Agreements Act, (19 U.S.C. 3512(a)(1) (2000), provides that U.S. law will prevail in conflict and that "no provision of any of the Uruguay Round Agreements, nor the application of any such provision to any person or circumstance, that is inconsistent with any law of the United States shall have effect."
105

19 C.F.R. 351.218(d)(2)(1) (2006). The relevant provision reads: "Every statement of waiver must include a statement indicating that the respondent interested party waives participation in the sunset review before the [DOC]; a statement that the respondent interested party is likely to dump ... if the order is revoked or the investigation is terminated." Id.
106

Although no sunset review has been initiated, it is interesting to note that the DOC did initiate the (annual) administrative review on antidumping duty imposed on Oil Country Tubular Goods from Argentina. The notification does not indicate that the review is initiated as a new sunset review. Initiation of Antidumping and Countervailing Duty Reviews and Request for Revocation in Part, 70 Fed. Reg. 56,631

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8.3.6

OBSERVATION

The three cases that the DSB addressed with regard to the sunset reviews follow roughly two prongs of legal reasoning. The first prong focuses on the difference between original investigations and sunset reviews. As held by the DSB numerous times, sunset reviews as governed by Article 11.3 of the AD are procedurally different from original investigations. Examples of this reasoning can be found in most of the "as such" issues like the timeframe, cumulation, automatic self-initiation, and de minimis topics previously mentioned. The second prong relates to the requirement of a sufficient factual basis for the determination of the continuation of the duty order. Examples of this reasoning are found in the waiver and "as applied" issues discussed above. The combination of the two prongs results in an interesting synthesis. The first prong leads to a simple corollary that the antidumping authority enjoys discretion in determining the LCRDI. Although Article 11.3 does not offer any cross-reference clause that links it with other articles of the AD, such as Articles 3 and 5 which govern original investigations and any mention of rules or standards for the determination, this is an acceptable formulation. Under such a formulation, the role of the second prong is to provide the outer contour of that discretion, which is aptly framed as the requirement of a sufficient factual basis. The DSB at this point has an opportunity to set the evidentiary standard of what constitutes a sufficient factual basis. The standard spans the range from the highest level where the burden of the authority is to prove beyond doubt that there is the LCRDI, to the lowest level where the burden of the authority is to provide minimal evidence which would be enough to establish the LCRDI.

The first prong establishes that original investigations and sunset reviews are two distinct processes and the antidumping authority administering the sunset review enjoys wide discretion. The important point is that although the second prong does provide a limitation to this discretion, it does not apply to the discretion in selecting the methodologies used to determine the LCRDI. It is only at the application stage of the
(Sept. 28, 2005).

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methodology chosen that the second prong kicks in. This is why the cases hold that the U.S. antidumping authority enjoys a free hand in selecting any procedures (such as the cumulation rule in Article 3.3) that will support the continuation of the antidumping duty and dispense with procedures (such as the de minimis rule in Article 5.8) that will support the termination. With Article 11.3 providing the textual basis for such discretion, the DSB is obliged to give deference to antidumping authorities in their choice of the LCRDI determination methodologies.

A balancing issue arises at this junction. It is true that the text of Article 11.3 does not provide any detailed guideline as to how the LCRDI determination should proceed. But the textual structure of Article 11.3 does present two conflicting interests. One is the revocation of the antidumping duty after five years. The language of Article 11.3 implies that the termination should be the default position.107 The other is the determination of LCRDI that warrants the continuation of the duty order. The negotiation history of Article 11.3 during the Uruguay Round also provides the relevant background of this tension and of a balance reached in the negotiation process. The draft of Article 11.3 proceeded from the New Zealand and Dunkel versions. Both contained the language "necessary to offset" or "necessary to prevent" requiring the antidumping authority to verify the necessity of the antidumping duty in order to continue the measure. 108 The word "likely" was also absent from the text. The combination of the two meant that the objective of sunset reviews, which was to terminate the antidumping duty order after five years, would be procedurally and substantively protected from abuse by those seeking to continue the measure. This is because the antidumping authority would have to prove the continuation or recurrence, not its mere likelihood, and would have to provide a rationale
107

Michael Moore, Department of Commerce Administration of Antidumping Sunset Reviews: A First Assessment, 36 J. World Trade 675, 677 (2002).
108

The relevant passage of Article 11.3 from the New Zealand Draft reads, "...that the continued imposition of the duty is necessary to offset dumping and prevent the continuation or recurrence of the injury." The relevant passage from the Dunkel Draft reads, " that the continued imposition of the duty is necessary to prevent the continuation or recurrence of injury by dumped imports." Terrence P. Stewart & Amy S. Dwyer, WTO Antidumping and Subsidy Agreements: A Practitioner's Guide to "Sunset" Reviews in Australia, Canada, the European Union, and the United States Appendix I (Kluwer Law International, The Hague, 1998).

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for the necessity of the duty order. The U.S. objected to the Dunkel Draft language and proposed the deletion of the word "necessary" and the insertion of the more flexible term, "good cause," which would be deemed sufficient to justify the continuation of the duty order. It appears that a compromise was reached when the word "necessary" was deleted and the word "likely" was inserted. The negotiating parties paid attention to the "exception" clause of Article 11.3, which demonstrates that the termination and the continuation interests were of equal significance.

With the two conflicting interests apparent in both the text and the history of Article 11.3, the DSB must ensure that some balance is reached. The first prong clearly supports whatever objective that antidumping authorities seek, which is usually to continue the antidumping duty in order to protect domestic producers. The authority has large discretion, as warranted by Article 11.3 and is free to choose whatever methodology it sees fit. The DSB must respect that discretion, as held by numerous cases examined above. Thus, the DSB has little role to play with regard to the first prong. Then the DSB's role is to rely on the second prong in order to balance the two interests. This is achieved through an adjustment of the evidentiary standard in determining the LCRDI. An examination of the DSB findings does not indicate that the DSB has considered the balancing rationale as is proposed here. The DSB simply confers the antidumping authority deference where as long as the authority has relied on some reasonable evidence - without simply relying on conjecture lacking any evidence - the determination would be deemed acceptable. The inconsistency finding for the LCRD determinations in US -- OCTG (Mexico), US -- OCTG (Argentina), and the waiver issue demonstrate the level of evidence that does not satisfy the sufficient factual basis. These cases hold that the antidumping authority cannot base its likelihood determination on a mere conjecture with no evidentiary basis. The consistency finding for the LCRDI determination in US -OCTG (Argentina) demonstrates that as long as the antidumping authority considers some relevant factors, the determination is deemed to satisfy the sufficient factual basis.

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The above position of the DSB is reasonable if the finding for each issue is considered separately. But, when the balancing requirement is brought into the picture, it is clear that the findings favor the possibility of continuation of the antidumping duty measure over the possibility of termination. Every sunset review case that is brought to the DSB will inevitably contain issues that pertain to either the first prong or the second prong. The DSB must ensure that the termination and the continuation interest be balanced. The DSB must also recognize the need for a stronger evidentiary standard that will balance wide discretion that the antidumping authority enjoys in selecting the method to determine the LCRDI. The standard that the DSB has set in the three cases, although per se reasonable, is weaker than is warranted. Antidumping authorities should administer a more rigorous review - although not necessarily amounting to the complete procedure of original investigations - that satisfies the evidentiary standard of beyond doubt of the likelihood of continuation or recurrence of dumping and injury. For example, more weight should be conferred to evidence denying the LCRDI than is the case under the current evidentiary standard.

A somewhat related issue with the above evidentiary standard has to do with the burden of proof. The widely accepted WTO rule is that a party which makes an affirmative claim, whether it is the complaining party or the defending party, bears the burden of proof.109 This means that by lowering the burden of proof that must be overcome by a party to successfully establish a prima facie case - for example, in the context of sunset review cases, a complaining party claiming inconsistency of the antidumping authorities LCRDI determination - the jurisprudential tilt which currently favors the continuation of antidumping duty orders can be alleviated. Nevertheless, the DSB appears to be reluctant to take this route as demonstrated by the SPB issue. The AB in US -- OCTG (Mexico) did not address the burden of proof issue while discussing the
109

Mitsuo Matsushita, Thomas J. Schoenbaum & Petros C. Mavroidis, The World Trade Organization: Law, Practice, and Policy 38 (Oxford University Press 2003) (citing Appellate Body Report,United States Measure Affecting Imports of Woven Wool Shirts and Blouses from India, P 14, WT/DS33/AB/R (April 25, 1997)). Also cited in Panel Report, US -- OCTG (Mexico).

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SPB. Nevertheless, by denying that the Panel's qualitative analysis was based on fact, the AB has effectively ruled that Mexico did not establish a prima facie case, despite the extensive evidence provided to the Panel, thus significantly raising the burden of proof of the complaining party.

Sunset reviews currently face heavy criticisms for being abused by antidumping authorities where far too many antidumping duty orders are continued after sunset reviews through the exception clause of Article 11.3 of the AD.110 Rough statistics show that for those antidumping duty orders imposed by developed countries between 1995 and 1999, an average of 40% of them is not terminated. 111 WTO member states have brought numerous proposals to the WTO Negotiating Group on Rules to improve the sunset review system. For example, Korea suggests an "automatic sunset," the outright termination of the antidumping duty order after five years. Canada proposes the explicit enumeration of factors within the AD that antidumping authorities must consider in making the LCRDI decision. These proposals emphasize the goal of sunset reviews, which is to terminate antidumping duty measures after five years. But it is also true that the attempt on the outright amendment of Article 11.3 will face a stiff opposition from the U.S., which is against any changes made to the WTO antidumping regime. In this respect, a "judicial" construction of the antidumping sunset review regime that balances the interest of the termination and the continuation of sunset reviews by the DSB will provide another venue to address the concerns of the WTO Member States.

110

WTO Negotiating Group on Rules, Paper from Brazil; Chile; Colombia; Costa Rica; Hong Kong, China; Israel; Japan; Korea; Norway; the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; Singapore; Switzerland; Thailand and Turkey, Proposal on Sunset, TN/RL/W/76 (Mar. 19, 2003).
111

WTO Negotiating Group on Rules, Communication from Chile; Hong Kong; China; Japan; Korea, Rep. Of; Norway; Switzerland; Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; and Thailand, Further Submission of Proposals on Sunset, TN/RL/GEN/74, Annex I (Oct. 17, 2005). Another report states that 54% of antidumping duty orders imposed by the U.S. between July 1998 and March 2003 still remain in place after sunset reviews. WTO Negotiating Group on Rules, Korea's View on the Improvement of the Sunset System, Submission of the Republic of Korea, TN/RL/W/111 (May 27, 2003).

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9.
9.1 Conclusion

CONCLUSIONS AND SUGESTIONS

Article VI of GATT allows countries to take action against dumping. The ADA clarifies and expands Article VI, adding detailed procedural and substantive requirements. The purpose of Article VI truly was to limit the possibility of taking measures to counteract dumping, but the purpose has gone largely unfulfilled. 112 But nowadays national laws generally treat foreign respondents in a systematically unfair fashion and discourage competition.113
112

David Palmeter, A Commentary on the WTO anti-dumping Code, Journal of World Trade, Vol.30, August 30 (1996), at p. 43.
113

Michael O. Moore, Anti-dumping reform in the United States, Journal of World trade, Vol.33 (4), (1999), at p. 3.

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Under the ADA, dumping per se is not actionable. National governments cannot prevent foreign companies from dumping. The object of the ADA is to provide a remedial mechanism to counter injurious dumping based on a uniform set of rules applicable to all countries. However, countries have started using anti-dumping measures in a manner so as to protect their domestic industries. During the early years (1994-99) of the implementation of the ADA it was the developed countries that were largely using these measures. The four developed countries, viz., the US, the EC, Canada and Australia accounted for 90 percent of the total anti-dumping investigations during this period. More recently, its use by developing countries has burgeoned. Interestingly, most of those investigations are not against the developed world but against other developing countries themselves.

The dispute settlement provisions under the ADA are unique and are not applicable to other WTO agreements. The interpretations of the ADA in various disputes have important repercussions on the developing countries. In the coming days countries like the US, EU and others will use methodologies like zeroing in their domestic antidumping legislations stamped by the AB in various cases as ADA consistent, against the developing countries as a non-tariff barriers and consequently the developing countries will loose the export opportunities in those countries. The ADA allows governments to act against dumped imports where there is material injury to the competing domestic industry. In order to impose anti-dumping duties the importing government has to determine, after investigations, that dumping has taken place, the extent of dumping and the extent of injury to the domestic industry. Although the Uruguay Round considerably improved the GATT rules governing anti-

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dumping, the number of anti-dumping cases has risen sharply. Since tariffs have largely been reduced, anti-dumping has become a popular means to protect domestic industry. Moreover, the increased use of anti-dumping procedures undermines the credibility of the rules-based world trading system. The last Ministerial Conference held at Doha114 considered these developments and included the concerns of Members in the Doha Declaration which states: In the light of experience and of the increasing application of these instruments by Members, we agree to negotiations at clarifying and improving disciplines under the Agreements on Implementation of Article VI of the GATT 1994, while preserving the basic concepts, principles and effectiveness of these Agreements and their instruments and objectives, and taking into account the needs of developing and least developed participants. The last ministerial conference therefore decided to renegotiate the issue in question. It is the time of the WTO members to think along the lines of a revision of the ADA as an important subject of discussion and place it on the agenda for the next round of multilateral trade negotiations proposed to be held in September 2003 at Cancun in Mexico. Members, in particular the developing countries must make concerted efforts to amend a number of problematic provisions in the ADA through negotiations. Any reform of the ADA should result in a restriction of the use of anti-dumping measures. Article 2.2 of the ADA is one of the most frequently disputed provisions before the AB. Nowhere in the ADA the concept of ordinary course of trade is defined, nor does it prescribes what are the transactions coming under the above section. The Panel held that the US arms length test or 99.5 percent test did not rest on a permissible interpretation of the term sales in the ordinary course of trade. There is an urgent need to define the term and to specify guidelines for the calculation of dumping margins. According to Jarl Hagel Stam, the definition of dumping is very mechanical, without any reference to anti-competitive behaviour or intent.115
114 115

WTO Ministerial Conference, Fourth Session at Doha, 9-14 November 2001. Jarl Hagelstan, Some short Comings of International Dispute provision, Journal of World Trade, Vol. 25 (1991), at p. 99.

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The developed countries are using this agreement for back-to-back investigations as in the case of EU-India bed linen case. In this dispute also the AB held that the EU Zeroing practice is against the letter and spirit of the ADA. However the dispute remains unresolved. A new provision should be added in the ADA to prohibit new investigations within one year after the finding of non-dumping in a previous investigation. In the Doha Ministerial declaration the Members were agreed on a Framework Agreement on Special and Differential Treatment provision. But benefit of this provision was frequently denied to the developing countries by the developed world. Presently material injury is not clearly defined, and domestic laws allow for a number of injury factors. The defending countries find it difficult to submit evidence as to the material injury even when there is actual injury to the domestic industry. The facts available provision contained in Article 6.8 and Annex II of the ADA cannot be misused for extracting trade secrets from the competing industries of respondents.

Another criticism against the anti-dumping provision is that it is over protectionist. Phedon Nicolaides and Remco Van Wijngaarden116 opined that as the Common objective of both anti-dumping rules and domestic competition rules is to prevent distortions to competition, the most natural reform would be for trade authorities to use the competition policy criteria in their investigations of dumping." The above authors adds that short term, dumping harms local firms but benefits consumers. He observed that problem with anti-dumping lies in the fact that the duration of those benefits may be short-lived and that the short term gains to consumers may not out weigh possible long term costs to producers and consumers. Nowhere has the ADA dealt with the aspirations of consumers and of a common sense provision to resolve situations where domestic supply is non-existent or insufficient to satisfy the demand for merchandise subject to anti-dumping duties.
116

Nicolaides and Renco Van wingaa Rden, Reform of Anti-dumping Regulations the case of E.C., Journal of World Trade, Vol-27, (1993), at pp. 31, 36.

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Existing anti-dumping regulations do not ask why and how a firm dumps and what the effect of continued dumping is likely to be. Instead, they are concerned with the size of the dumping margin and the effects that it already has. The anti-dumping duties cannot reduce market fluctuations nor can they raise the degree of integration of national economies, instead they are more likely to contribute towards further market segmentation and shield domestic oligopolies from foreign competition.117 Therefore the enormous power vested in the domestic anti-dumping authorities, for determining the normal value, is likely to be misused by the domestic industry by manipulating the criteria of determination of normal value as a protectionist measure. Anti-dumping is an industry or company specific action. It is independent of government policy and its determination involves market-based variables such as prices and costs. All market variables can be used in many different ways and involve a wide range of interpretations. A weak anti-dumping case can cause as much damage as a reasonable one. This is because as soon as an investigation is initiated, the importer tends to drop imports of that product from the targeted country and supplier. The definition of like product in the ADA may be clarified so as to ensure that the term is used in a narrower sense. This might be accomplished by specifying the clear cut aspects in which product must closely resemble one another by explicitly stating that inputs and finished products shall not be considered in similar manner. Also, later developed and minor altered products should be determined separately. The comparison must be of like with like and avoiding arbitrary comparisons between apples and oranges in anti-dumping proceedings.118 It is the duty of the applicant to submit prima facie evidence of dumping, injury and casual link. This is a barrier to the domestic industry, which is not equipped to investigate and collect evidence that is sufficient to prove a prima facie injury. This is an extra burden on domestic industries associated with anti-dumping.
117

Phedon Nicolades, The Competition Effect of dumping, Journal of World Trade Vol.24, (1990), at p. 1274. 118 Macro bronckers and Natalie Mc Nelis, Rethinking the like product definition in WTO anti-dumping law, Journal of World Trade 33(3), (1999), at p. 91.

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The de minimis dumping margin is unrealistically low (at present 2%) and should be increased. The negligible level contained in Article 5.8 of the WTO AD Agreement, 3% and collectively account of 7% is necessarily to be increased up to 7% and 15% respectively. More over the lesser duty, principle should be made mandatory. Tracy Murray argued for raising the de minimis standard level.119 The real object of including this rule in the ADA is to weed out nuisance cases and to provide special and differential treatment for developing countries. But none of these have been put into practice. It is also to be noted that the de minimis rule in the ADA does not distinguish between developed and developing countries.

The WTO-DSB has a limited role in settling anti-dumping disputes. Their role is limited to examining whether the facts have been determined properly and whether the evaluation of the facts has been done in an unbiased and objective manner. Article 17.6 invests discretionary powers to the national authorities, which may be misused by the developed countries against the developing countries. Therefore the WTO Panel should be given complete authority to take decision on all issues, as in the case of other agreements. Hoekman find the motive behind the practice of antidumping. According to him, A final potential strategic rationale for anti-dumping is as an instrument to counteract foreign industrial policies such as investment restrictions, subsidies and state involvement in industry.120 He suggests antitrust measures instead of anti-dumping for the benefit of the home market sales. Many developing countries feel that the way anti-dumping rules
119

Tom Emrich, comment to the article The administration of the anti-dumping duty law by the department of commerce by Tracy Murray, Down in the Dumps, edts. Richard Boltck and Robert E. Litan, (Washington, D.C.,1991), at p. 61. 120 Bernard Hoekman, Free trade and deep integration: anti-dumping and antitrust in regional agreements, World Bank Working Paper (April 13, 1998), at p. 12.

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have been used in practice is in contradiction with the spirit of WTO rules governing trade liberalization.121 In order to counter these actions of the developed countries, it would be necessary to hold consultations with, and to avail the expertise of high calibre professionals and legal experts in the mechanism are decisive. More over these countries administrative systems should be free form corruption in investigation and the determination of dumping. In addition, the domestic industry needs to be educated about the Anti dumping provisions. Failing which, as in the words of Finger, Anti-dumping is the fox put in charge of the hen house: trade restrictions certified by GATT. The fox is clever enough not only to eat the hens, but also to convince the farmer that is the way things ought to be.122 9.2 Suggestions In this research work, the analysis of the Panel and Appellate Body decisions has revealed a number of deficiencies in the framework of the present ADA. The arguments and issues raised above may not have covered all the questions. The aim has been rather to draw broad attention to the emerging legal jurisprudence in this area. The following recommendations suggest structural reform of the ADA. 9.2.1 Reviewing the definition of Dumping Margin in Article 2 The enormous leeway in construing the dumping margin should be reduced. The definition of dumping in Article 2.2 is very vague and mechanical. It lacks the necessary focus on which to rely for developing arguments during negotiations. The definition in Article 2 is fraught with a number of ambiguities that can lead to problems at the operational level. Many developing country members however, feel that the present definition is advantageous to the developed world. Specifically, it has been argued that:
121

Mehdi Shafaeddin, free trade or fair trade, an enquiry into the causes of failure in recent trade negotiations? UNCTAD Discussion Paper No.153, (December, 2000), at p. 26.
122

Michael J. Finger,The Origin and Evolution of Anti-Dumping Regulation, World Bank Working Papers, WPS 783 (23 October, 1991).

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definitions of price dumping and cost dumping under the ADA need to revised to target only systematic dumping, while incidental dumping should be excluded;

the focus of determination of dumping based on differences between foreign and domestic prices should be shifted to the selling of products at below cost prices; and

dumping with predatory intent or monopolistic intent should be made actionable under the ADA.

9.2.2

Specifying Rules to Calculate Constructed Normal Value The disputes that come before the DSB suggest manipulation of the exporters

financial information, leading to an increase in dumping margins. The exclusion of sales below cost from the calculation of normal value will inflate the normal value and consequently the finding of dumping, as well. A direct comparison between the domestic price and export price is often not possible. This could be because of no sales of the like product in the ordinary course of trade in the domestic market of the exporting country, or because of the particular market situation or the low volume of sales in the domestic market of the exporting country. These are some of the operational level problems. The procedures provide considerable discretionary power to the administrators who carry out the dumping determinations. There should be a common mathematical formula applicable to all Members. Article 2 should be revised to provide two alternatives bases for calculating normal value. The first choice may be price-to-price comparisons of export and home market sales. The second choice should be a specific provision stipulating a requirement for the domestic industry to choose either price-dumping or cost dumping allegations. If a price dumping case is initiated, normal value calculation should be based on home market prices, if a below cost dumping case is initiated, normal value should be based on cost of production.

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Further it is submitted that the inclusion of profit in constructed value serves to inflate dumping margins incongruously. The calculation of profits of a company depends on many factors, and the present procedures allow considerable scope for inflating the normal value estimates in the home market. Article 2.2 of the ADA should be revised to exclude profit from the calculation of cost of production. 9.3.3 Restraining the Use of Exceptional Price Comparison Method in Article 2.4.2 Under the ADA, the existence of a dumping margin is established by comparison of a weighted average normal value with a weighted average of prices of all comparable export transaction; or by comparison of normal values and export prices on a transactionto-transaction basis. On an exceptional basis, Members may employ a comparison of weighted average normal values with prices of individual export transactions. This exceptional price comparison method can be used only when the pattern of export prices differs significantly among different purchasers, regions and time periods, and when accompanied by an explanation as to why such differences cannot otherwise be taken into account appropriately. The exceptional price comparison method is subject to misuse and criteria for its use must be streamlined. The exceptions contained in Article 2.4.2 (purchasers, regions and time periods) must be tightened, practices like zeroing should not be applied in the calculation of dumping margin, and a uniform procedure should ideally be laid down for the calculation of normal value. Furthermore, investigating authorities must be subjected to higher standards of accountability and burden of proof when employing the exceptional price comparison method. 9.3.4 Prohibiting Zeroing The Panel and the AB in the EU-Indian Bed Linen dispute categorically held that the practice of zeroing is inconsistent with the ADA. In a later case as well, that of USIndia Steel, the Panel affirmed the earlier decision. But the Members have not been willing to discard this protectionist measure. Zeroing eliminates negative dumping margins from dumping calculation. It was reported that the developed countries 151

frequently use this practice for finding dumping. Article 2 should be amended to prohibit zeroing, to treat negative dumping margins as such and to give their actual weight in the calculation of the overall dumping margin calculation. 9.3.5 Limiting the Use of Cumulative Assessment of Injury In most of the cases, the exporters were aggrieved by the arbitrary calculations of dumping and injury margins. Cumulation of imports from different exporting countries is a common practice used by investigation authorities to penalize small exporters. Article 3.3 of the ADA provides that where imports from two or more countries are simultaneously subject to anti-dumping investigations, a cumulative assessment of the effect of these imports may be made. However, many members have made this provision mandatory while determining injury. The Panel in the case of Corrosionresistant Steel Products from Japan upheld the US argument that the investigating authority is not required to carry out a cumulative analysis in a sunset review. There are cases where injury was not found in individual cases, and it is not fair to impose duties only on the ground that cumulative assessment was made along with other exporters. The terminology used in the cumulation provision of the ADA is vague and allows conflicting interpretations. The cumulation of imports from different countries always inflates the dumping margin; hence, this provision should be amended to exclude imports from different countries. 9.3.6 Prohibiting the factor of Captive Production and Selective Examination of Domestic Market. In determining injury to the domestic industry, the factors mentioned under Article 3.4 of the ADA should be applied to the industry as a whole, and not only to a part of the industry. The captive production provision of the US Tariff Act, 1930 allows the domestic authorities to examine a certain part of the industry for the purpose injury determination. Domestic industry mentioned here is the industry as a whole, and not a section of the industry. The exclusion of captive production from total domestic production of the like product reduces the quantity of total production, and consequently 152

increases the percentage of imports over that production. Thus, the words as a whole should be added after domestic industry mentioned in the first line of Article 3.4. Article 3 should be amended to prohibit selective examination of one part of a domestic industry. The AB in the Thailand-Anti-dumping Duties on Angles, Shapers and Sections of Iron or Non-Alloy Steel and H-Beams from Poland dispute held that it is mandatory to consider the list of economic factors mentioned in Article 3.4 of the ADA when examining the impact of dumped imports on the domestic industry. This provision should be made operational by including clear guidelines in Article 3.4 of the ADA. 9.3.7 Curtail Discriminatory power in Injury Test Injury is only one of the conditions required for anti-dumping measures, even though most investigations are injury-driven. The injury to the domestic industry could be due to many other reasons, such as the nature of market structure, lack of competitiveness, mismanagement, competition from new domestic companies, changes in consumer preferences, rising cost of inputs and so on. It is not easy to unravel the various causes of injury, and therefore there is a tendency to ascribe it all to dumping. In most of the investigations, the investigating authorities are not able to ascertain how the condition of that industry would differ from its current state. Moreover, the thresholds for excluding negligible imports from injury determinations should be based on market share rather than on the share of total imports. The level of negligible imports should be increased to a level higher than the current 3%, on the basis of empirical research demonstrating a positive trade impact. Hence, there is an urgent need to curtail the discretionary powers of the authorities in evaluating injury factors contained in Article 3.4. 9.3.8 Defining the threat of material injury and causal link According to the threat of material injury standard in Article 3.7 of the ADA, injury to the domestic industry must be clearly foreseen and imminent. However, in many cases, the threat perception was based on allegations and conjecture, which are prohibited under Article 3.7. The determination of threat of material injury to a 153

domestic industry should be in accordance with the basic concepts, principles and objectives of the ADA. If the imports are not materially affecting the domestic industry, then it is presumed that there is no threat to the domestic industry. As to the determination of causal link in many cases it was found that the causal link between dumped imports and injury to a domestic industry are missing. The absence of any requirement to weigh all relevant factors causing material injury will result in a finding of dumping even if such actions occur simultaneously with a downturn in the industrys performance, regardless of the actual causal relationship between the trade distorting action and injury. There should be high analytical standards in finding a causal link between injuries to the domestic industry and dumping. 9.3.9 Prohibiting Back to Back Complaints The repeated recourse to anti-dumping actions against the same product has been identified as one of the problems in the implementation of the ADA. New investigations are often initiated immediately after the termination of one investigation for the same product. This causes much hardship to the exporters in defending cases in foreign countries. Moreover, their export interests will suffer during the pendency of the proceedings. Chain complaints constitute a serious abuse and misuse of the ADA, as these undermine the original purpose of the anti-dumping remedies. In order to eliminate the abuse, a new provision should be included, stipulating that if an investigation is terminated without the imposition of anti-dumping measures or if the application has been rejected or withdrawn, a new application concerning the same product and country may be admissible only after the lapse of one year. 9.3.10 Fix De Minimis and Negligible Import upwardly in Article 5.8 Article 5.8 of the ADA does not provide a time-limit within which the determination has to be made as to whether the volume of dumped imports, are negligible or within the prescribed threshold. This gives rise to arbitrary and unilateral decisions of determining an appropriate time frame. The present de minimis dumping margin level is 2%. Considering the fact that computation of the margins is often arbitrary and unsound, 154

there is a case for increasing this limit to a more realistic level. Presently, Article 5.8 of the ADA provides that the volume of dumped imports shall normally be regarded as negligible if the dumped imports are found to account for less than 3% of imports of like product and the collective imports from more than one country account for 7%. In view of the liberalization of trade, and of the fact that an increasing number of developing countries are entering into previously untapped markets, it is necessary to increase these percentage levels. The minimum threshold for the volume of allegedly dumped imports and the margin of dumping should be raised. The imports concerned should account for a market share of at least 25%, with the market share of each supplier country amounting to atleast 5%. The margin of dumping should be at least 10% of the export price. If it cannot be proven that these minimum values are exceeded, the investigation should be terminated immediately, or they should not be initiated in the first place. A high de minimis threshold would act as a kind of final check on the abuse of dumping as a trade remedy.

9.3.11 Introducing a Consumer Interest; clause in the ADA in Article 6.12 The common objective of both anti-dumping rules and domestic competition rules is to prevent distortions in the market. The most neutral reform would be for trade authorities to use competition policy criteria in their investigations of dumping. Shortterm dumping harms the local firms but benefits consumers. The ADA should include an evaluation of interests, taking into due account of evaluating objectively the interests of all parties concerned, that is, of importers, as well as of users and consumers. Antidumping duties negatively affect the consumers interests, as prices are increased in the market. Moreover, the consumer loses the pleasure of having a choice of products in the market. The competitive situation in the domestic market and the origin of trade distortions in the exporting country markets need to be given proper consideration. In short, a public interest test should be introduced in the ADA. The ADA should be amended to include a public interest clause, enabling the participation of consumer 155

representative in the basic anti-dumping proceedings. Some countries are approaching anti-dumping not only as a mere dispute but as a conflict of interest between the domestic industry and a foreign rival. A public interest clause should take care of a narrow domestic industry interest and a countrys larger interest. 9.3.12 Making the Lesser Duty Rule mandatory in Article 9.1 The ADA recommends but does not mandate the imposition of a lesser rate of duty. There is ample justification to have a special provision to make the application of the lesser duty rule mandatory, especially when a developed country is investigating the alleged dumped imports from developing countries. If a particular rate of duty is sufficient to eliminate injury to the domestic industry, there is no justification for imposing a higher margin of duty. If the lesser duty rule were applied, there would be significant reductions in the anti-dumping duty rates. Article 9.1 of the ADA should be revised to stipulate that if lesser duty is sufficient to remove the injury to the domestic industry, then it should be adopted. In addition to this, norms and criteria should be established to implement the lesser duty rule in terms of adequacy to remove injury. 9.3.13 Strictly following Sunset Review provisions in Article 11.3 The first decade of the working of the ADA has proven that the sunset provision is used as a sunrise provision in most of the investigations, specifically in many industries like textiles and steel. The period of imposition of definitive anti-dumping duties as specified in the Article should be reduced from the current five years to three years. In most of the cases, countries are unwilling to phase out the anti-dumping duties. The discretion is absolutely with the domestic authorities and the review is mostly on speculations. Further the WTO members should establish specific burden of proof standards for sunset reviews, in order to avoid attempts to circumvent the intent of the ADAs review provision. Article 11.3 should be amended to provide for automatic termination of anti-dumping duty decision after five years. The ADA does not establish rules, procedures or specific criteria for the proceedings leaving all discretion of review to the investigating authorities. 156

9.3.14 Including Provision for Refund of Duties Presently there is no provision in the ADA to refund the collected duties even after the Panel or the AB found no dumping in disputes. A provision should be incorporated in the ADA for the refund of duties collected when a Panel or AB holds that the levy is not justified. The lack of such provision encourages national authorities to use ADA provisions as a protectionist measure and also to retain proceeds of such a levy even when the same does not stand up to WTO scrutiny. 9.3.15 Enforcing Special & Differential Treatment Mandatory in Article 15 The most negative impact of an anti-dumping action is its influence on exports. The process of opening an investigation has negative effects on trade flow regardless of whether a duty will be finally imposed or not. The mere threat of starting an investigation induces a drop in exports. This may often have a devastating effect on the economies and societies of developing countries, since it cuts off trade in crucial export markets.

Article 15 of ADA recognizes the special situation of developing countries. It says that constructive remedies should be explored before imposing anti-dumping duties on developing countries. In the Bed-Linen case, where price undertakings were offered on behalf of the Indian exporters, the anti-dumping authorities did not respond to the same. These well-intended provisions lack clarity and have become practically inoperative due to their nature as soft law. The developed countries have rarely explored the possibility of constructive remedies before taking anti-dumping action against exports from developing countries. There is a need to make the best-endeavour provision of Article 15 of the AD operational. This could be accomplished, inter alia, by increasing the de minimis threshold for dumping and injury at all levels. This would provide meaningful trade advantages for developing countries, and help in eliminating cumulation of their exports. 157

Finally, the mandatory conciliation procedure which had been provided for in Article 15.3 of the Tokyo Round Anti-dumping Code was not retained in the Uruguay Round. A restoration of this provision would help the developing countries and give a chance to amicably settle the disputes. 9.3.16 Amending the Best Information Available Provision Usage of the facts available provision in anti-dumping cases is very high. The investigating authorities in many cases have abused this methodology. The ADA lacks a basic framework on how this discretion should be used. The use of best available information is used against developing countries due to their comparatively lower levels of computer technologies and available data. The anti-dumping authorities are seen to make use of the best available information at the slightest pretext, with out giving sufficient time to the developing country exporters. It is necessary to make the provision more efficient, with specific factors and situations supplied where the methodology can be applied, and also to explicitly forbid its application where its applicability would be clearly unfair. There is an urgent need to control the use of the facts available provision and to lay down broad and general standards for tightening up the process. If the information submitted is verifiable and in paper form, it must be accepted. 9.3.17 Strengthening the Standard of Review Provision in Article 17.6 The function of a WTO Dispute Settlement Panel on the anti-dumping issue is confined to assessing the objectivity or appropriateness of fact verification by investigative authorities of the Member countries. It is recommended that the WTO members give the Panels much broader authority. Under the present provision, then Panels do not have full authority to review the action of the anti-dumping authorities. When a Panel determines that anti-dumping measures have been unduly imposed, the ADA should contain provisions for terminating anti-dumping measures, refunding the collected duties, and providing appropriate compensation within a reasonable period of time. Article 17 should be suitably amended so as to apply the general standard of review 158

laid down in the Agreement on DSU. 9.3.18 Introduce Anti-Circumvention Regulations Anti-dumping investigations are country-specific and industry-specific. The members have found circumvention as an antidote for the sake of evading anti-dumping duties. Re-routing goods to another country, and then importing from that intermediate country is a pre-WTO practice. However, the WTO members did not reach a consensus on anti-circumvention regulations during the Uruguay Round Negotiations, and deferred the issue to future considerations. The US and the EU have nevertheless unilaterally implemented their own anti-circumvention regulations. It is recommended that WTO members establish unified anti-circumvention rules and procedures.

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