AB ruling on US Byrd amendment

A US legislative provision which distributes the countervailing duties raised from anti-dumping and subsidy investigations to domestic producers is illegal under international trade law, a WTO tribunal has ruled.

by Chakravarthi Raghavan

GENEVA: A three-member bench of the WTO Appellate Body (AB) has upheld the substantive portions of a dispute settlement panel ruling against the US Byrd amendment, holding its provisions for distribution of funds raised by levy of countervailing duties in cases of anti-dumping or subsidy complaints among successful litigants to be a specific action not permitted under the Anti-Dumping (AD) and Subsidies and Countervailing Measures (SCM) Agreements of the WTO.

The AB however set aside the panel’s ruling that the US measure, Continued Dumping and Subsidy Offset Act of 2000 (CDSOA, or also known as the Byrd amendment), provided incentives for domestic producers to join a petition and thus provide the majority support required for all investigations, and thereby violated the relevant provisions of the AD and SCM agreements.

[The AB handed down its decision on 16 January. This ruling was subsequently adopted by the WTO membership in the Dispute Settlement Body (DSB) on 27 January.

[The original dispute over the Byrd amendment had been jointly raised by Australia, Brazil, Chile, the EC, India, Indonesia, Japan, Korea and Thailand. Canada and Mexico, the US’ partners in the North American Free Trade Agreement (NAFTA), also raised a dispute subsequently. The DSB referred all the disputes to a single panel, whose ruling was then appealed by the US. (See TWE #289 for a report on the panel ruling, which was published on 16 September 2002.)]

In upholding the panel ruling that the US measure violated Article 18.1 of the AD and Art. 32.1 of the SCM agreements, the AB turned down the US’ attempts to use the footnotes to these articles as the principal provision and the articles themselves as residual.

This will have some bearing in other pending disputes raised by Brazil against the US and EC.

Earlier, the AB went into procedural objections by Canada and other appellees that the US submission included claims, allegations and requests for ruling that were not included in the notice of appeal and thus breached Rule 20(2)(d) of the AB’s Rules of Working Procedures. They also objected to the US inclusion in its appeal of “new evidence” to impugn the evidence on which the panel had relied to rule against the US.

The US appeal, in its submission, had argued that the panel had not undertaken an objective assessment of the matter before it, and thus violated Art. 11 of the Dispute Settlement Understanding (DSU); and that the panel had also examined the burden that the Byrd amendment would cause on conditions of competition but had not explained why it had done this, thus violating Art. 12.7 of the DSU.

In the oral hearings, the US said it was not seeking a finding on these two questions. In its rulings, the AB in effect upheld the Canadian objections, and said they were justified on a reading of the US submission that it was raising these questions without a proper notice. But since the US did not seek a ruling, the issue was moot.

Two other grounds of the US that were objected to by Canada and others on procedural grounds (since they were not included in the notice of appeal) related to the US contention that the panel had exceeded its terms of reference by examining claims against the CDSOA in combination with other US laws and regulations, and that the panel had also issued an “advisory opinion” on a measure not before it.

On the first, the AB agreed that the US notice of appeal had not provided adequate notice that the US planned to raise the question of the panel exceeding its terms of reference.

Nevertheless, the AB agreed with the US view that the issue of jurisdiction could still be argued before the AB. On the substance, the AB said the panel’s observations about the combined effect of the CDSOA and other US laws were not a finding but merely reflected its reasoning that the CDSOA did not operate in a vacuum but in a context that included other US laws and regulations.

On the second US contention too, the AB said the panel’s observations that its ruling would still have stood even if the CDSOA payments had been made out of the US treasury, were only its response to the US arguments, and the panel had made no findings.

On two letters (of producers) cited by the US in appeal as being on public record and contrary to the observations of the panel, the AB said it was restricted to issues of law and could not go into new facts even if the documents were on public record, since they were not part of the panel’s record.

Non-permissible specific actions

In ruling on the substance of the appeal before it, the AB upheld the panel’s finding that the CDSOA was in breach of Art. 18.1 of the AD Agreement and Art. 32.1 of the SCM Agreement - both rules use the same language except for use of “dumping” in the first and “subsidy” in the second - on the basis that the mandated payments to complainants in the US domestic proceedings, if their cases were successful, were non-permissible specific actions respectively against dumping and subsidy. Art. 18.1 of the AD Agreement (Art. 32.1 of the SCM Agreement) states that: “No specific action against dumping of exports from another Member (a subsidy of another Member) can be taken except in accordance with the provisions of  GATT 1994, as interpreted by this Agreement.”

After examining the panel’s conclusions and reasoning, and the US arguments against it, the AB said that it seemed “unassailable that CDSOA offset payments can be made only following a determination  that  the constituent elements of dumping or subsidization are present”, and hence the CDSOA was a “specific action” related to dumping or subsidy.

The AB also concluded that it has an adverse bearing on the foreign producers/exporters in that the imports into the US of the dumped or subsidized products, being subject to anti-dumping or countervailing duties, result in the financing of competitors in the US (i.e., the domestic producers of like products), through transfer of duties collected on those imports. The CDSOA was thus a specific action against dumping or subsidy. There was no error by the panel in its observation that the stated legislative intent of the CDSOA, appearing in the statute itself, confirmed this conclusion.

The AB also rejected the US arguments based on footnote 24 of the AD Agreement and footnote 56 of the SCM Agreement. These footnotes state that the respective specific provisions of the AD and SCM agreements (i.e., Art. 18.1 and Art. 32.1) are “not intended to preclude action under other relevant provisions of GATT 1994.”

These US arguments, the AB said, were “tantamount to treating footnotes 24 and 56 as the primary provisions, while according Articles 18.1 and 32.1 residual status.”

This not only turned the normal approach to interpretation on its head, but also ran counter to the AB’s findings on the US-1916 Act (which enabled private parties to proceed against dumped or subsidized imports for civil and criminal damages). The permissible responses to dumping were limited under GATT 1994 (Art. VI.2) and the AD Agreement to “definitive anti-dumping duties, provisional measures and price undertakings”. Similarly, any response to subsidization was limited to those spelt out in the agreement, “definitive countervailing duties, provisional measures, price undertakings and multilaterally sanctioned countermeasures under the dispute settlement system.” No other responses were envisaged in the relevant GATT 1994 articles.

The AB’s ruling rejecting the US arguments on the footnotes will have some implications in some pending disputes at various stages of consideration by panels, where the defending parties are trying to justify their actions by referring to footnotes in their schedules of commitments.

The AB concluded that the CDSOA thus violated Art. 18.1 of the AD Agreement and Art. 32.1 of the SCM Agreement.

Finding reversed

The AB however reversed the finding of the panel that by providing an incentive to domestic firms to become parties to anti-dumping and subsidy complaints (through the prospect of CDSOA compensation only to parties), there was also a violation of Art. 5.4 of the AD Agreement and Art. 11.4 of the SCM Agreement, and that the US may be regarded as not having acted in good faith in regard to its obligations under Art. 5.4 and Art. 11.4. Both these provisions seek to ensure that an anti-dumping or subsidy investigation is not started unless a majority of the domestic producers support or initiate it.

The AB said the investigating authorities were required to look into the “degree” of support from domestic producers, i.e., the “quantity” of support and not the “quality.” Hence the panel’s arguments about the encouragements or reasonings (in this case, the CDSOA) that may lead domestic producers to support an investigation were not relevant. The CDSOA may provide an “incentive”, but it did not “coerce” or “require” a domestic producer to support an application; if it did, that would be WTO-inconsistent. There was no evidence before the panel to support its conclusion that as a result of the CDSOA, a majority of petitions would receive the levels of support required under Art. 5.4 of the AD and Art. 11.4 of the SCM agreements. There was also no evidence before the panel to support its conclusion that the US may be regarded as “not having acted in good faith.”

The AB held that the US, having acted inconsistently with Art. 18.4 of the AD Agreement and Art. 32.5 of the SCM Agreement, had failed to comply with these provisions and Art. XVI:c of the WTO Agreement which requires members to bring their laws into compliance with their WTO obligations. As such there was a prima facie nullification or impairment by the US.

[When the DSB met to adopt the AB ruling on 27 January, the US said it would comply with the decision but did not indicate how it would do so. The panel itself had said that in its view, the only way to comply was to change the law by withdrawing the amendment. However, this was given as a suggestion and not a ruling. Though the US had objected to this, the AB gave no views on this.

[At the DSB, several of the complainants who had raised the dispute said the US should comply by repealing the amendment as suggested by the panel.]

On the US complaint that despite its request to the panel to provide a separate report on the Mexican complaint, no such separate report had been produced, the AB noted the panel’s reasoning that the US request had been provided about two months after the issuance of the descriptive of the report, and the US had provided no explanation why it had not made such a request at an early enough stage for the panel to organize its work. The panel had said at the stage it was asked to produce a separate report, this would have considerably delayed its report and rulings, and as a consequence rejected the US request.

The AB said that while Art. 9.2 of the DSU provided a party a broad right to request a separate report and did not make it dependent on any other condition, that article must not be read in isolation from other provisions of the DSU and without taking into account the overall object and purpose of the DSU.  The overall object and purpose of the DSU, the AB noted, was expressed in its Art. 3.3 which provides that the “prompt settlement” of disputes is “essential to the effective functioning of the WTO.”

In the banana disputes, where the EC had sought separate reports and the panel had obliged (a precedent cited by the US), the EC had made the request at the outset, whereas in this case the US had done so about two months after the issuance of the descriptive of the report to the parties. Thus it was not done “promptly” or in a “timely manner, notwithstanding one or more opportunities to do so.” And since the US had not shown that it had suffered any prejudice, the AB decided that there was no reason for it to interfere with the “discretion” of the panel in denying the US request for a separate report relating to the Mexican complaint. (SUNS5266)                       

From Third World Economics No. 298 (1-15 February 2003)