TWN Info Service on WTO and Trade Issues  (Aug15/07)
17 August 2015
Third World Network 

AD duties imposed by EU on Chinese fasteners held WTO-illegal
Published in SUNS #8080 dated 11 August 2015
 
Geneva, 10 Aug (Kanaga Raja) -- A compliance panel at the World Trade Organisation (WTO) has largely ruled that the measure taken by the European Communities to comply with an earlier WTO ruling in its dispute with China over certain iron or steel fasteners is inconsistent with its WTO obligations.
 
China had sought recourse to Article 21.5 of the Dispute Settlement Understanding (DSU) over the alleged failure of the European Union to implement an earlier ruling over definitive anti-dumping (AD) measures imposed by the EU on certain iron or steel fasteners from China.
 
In its ruling issued on 7 August, the Panel said that its findings of violation of the AD Agreement demonstrate that the measure taken by the European Union to comply with the DSB recommendations and rulings is inconsistent with the AD Agreement.
 
"To the extent they have not been implemented, those recommendations and rulings remain operative," said the Panel.
 
According to the compliance Panel, on 26 January 2009, the European Union imposed, through Council Regulation (EC) No. 91/2009, definitive anti-dumping duties on imports of certain iron or steel fasteners originating in China. China challenged the imposition of such duties and initiated dispute settlement proceedings against the European Union.
 
In the original dispute, China challenged two measures adopted by the European Union, namely, (1) Article 9(5) of Council Regulation (EC) No. 384/96 of 22 December 1995 on Protection against Dumped Imports from Countries not Members of the European Community, as amended (Basic AD Regulation) with respect to the issue of the individual treatment of producers from non-market economies (NME) in anti-dumping investigations conducted by the European Union, and (2) Council Regulation (EC) No. 91/2009 of 26 January 2009 imposing a definitive anti-dumping duty on imports of certain iron or steel fasteners originating in the People's Republic of China.
 
With respect to Article 9(5) of the Basic AD Regulation, the original panel found violations of various provisions of the AD Agreement, the GATT 1994 and the WTO Agreement. With respect to Council Regulation (EC) No. 91/2009 imposing definitive duties on fasteners from China, the original panel found certain violations of the AD Agreement.
 
On appeal, the Appellate Body made mixed findings. The original panel's findings regarding Article 9(5) of the Basic Regulation were mainly upheld. As far as the claims regarding the fasteners investigation were concerned, the Appellate Body upheld some of the panel's findings and reversed others.
 
With a view to implementing the DSB recommendations and rulings concerning Article 9(5) of the Basic Regulation, the European Union adopted Regulation (EU) no. 765/2012. In relation to the implementation of the DSB recommendations and rulings regarding the fasteners investigation, the European Commission initiated an investigation (review investigation), pursuant to its WTO enabling Regulation.
 
The review regulation explains the determinations made by the Commission and comes to the conclusion that "the injurious dumping determined in the original investigation is confirmed." It therefore continues definitive duties on certain fasteners from China, at revised rates.
 
According to the Panel, in these compliance proceedings, China does not question the existence, or consistency with the covered agreements, of the EU's implementation of the DSB recommendations and rulings regarding Article 9(5) of the Basic Regulation.
 
This dispute concerns exclusively China's claims concerning the conduct of the review investigation by the Commission. China takes issue with the measure taken by the European Union to implement the DSB recommendations and rulings in relation to the anti-dumping duties on imports of certain iron or steel fasteners originating in China through the review regulation.
 
On alleged violations of Articles 6.5 and 6.5.1 of the AD Agreement, the Panel recalled that in the original investigation, the Commission resorted to the so-called "analogue country" methodology in determining normal values because it considered China to be an NME. The Commission chose India as the analogue country and sent questionnaires to Indian companies producing the investigated product, i. e. fasteners.
 
Two Indian producers cooperated and submitted questionnaire responses. Only one of these two companies, Pooja Forge, provided a response that contained sufficiently detailed data needed by the Commission in determining the normal value.
 
China argues that the Commission acted inconsistently with Article 6.5 of the AD Agreement by treating as confidential the information submitted by Pooja Forge regarding the list and characteristics of its products. China asserts that this information was neither by nature confidential nor submitted on a confidential basis and that no good cause was shown for its confidential treatment. For both types of information, China contends that such information is routinely provided to potential customers and therefore cannot be by nature confidential.
 
Following its analysis, the Panel found that the Commission failed to act consistently with Article 6.5 of the AD Agreement by treating as confidential the information submitted by Pooja Forge regarding the list and characteristics of its products.
 
"Having found a violation of Article 6.5 with respect to the confidential treatment of this information, we need not, and do not, make a finding with respect to China's claim under Article 6.5.1 of the AD Agreement concerning the non-confidential summary of the same information."
 
The Panel noted that by finding a violation of Article 6.5 of the AD Agreement with respect to the confidential treatment of the information regarding the list and characteristics of Pooja Forge's products, "we do not necessarily say that such information was not of a confidential nature. In fact, the standard of review that we have to follow in these proceedings would not allow us to make such a conclusion since this would have been a de novo review."
 
"Our finding only indicates that, in according confidential treatment to this information, the Commission failed to observe the obligations set forth in Article 6.5. We should also note that, in light of our finding under this claim, where relevant in the following parts of this Report, we will consider the information on the list and characteristics of Pooja Forge's products as not requiring confidential treatment within the meaning of Article 6.5 of the Agreement."
 
On alleged violations of Articles 6.4 and 6.2 of the AD Agreement, China submits that by failing to provide opportunities to the Chinese producers to see the information regarding the list and characteristics of products sold by Pooja Forge, which were used in the determination of the normal value, the European Union violated its obligation under Article 6.4 of the AD Agreement.
 
China argues that by failing to provide the Chinese producers with the information on the list and characteristics of Pooja Forge's products, the European Union also violated Article 6.2 of the Agreement.
 
According to the Panel, the Commission had in its possession certain information on the list and characteristics of Pooja Forge's products. Part of such information, which had not been provided to the Chinese producers in the original investigation, was provided for the first time in the review investigation.
 
"As we noted above, it is this disclosure of new information that triggered further discussions between the Chinese producers and the Commission, which ultimately gave rise to the present claim."
 
If an interested party is not aware of the existence of certain information on the investigation record, it cannot make a request to see that information or make presentations on that basis to defend its interests. Naturally, no claim of violation of Articles 6.4 or 6.2 may be brought in connection with such information, said the Panel.
 
"We are persuaded therefore that the present claim does not challenge an aspect of the original measure which was incorporated into the measure taken to comply."
 
The Panel also noted that, in anti-dumping investigations, the disclosure of certain information may trigger further requests by interested parties to see other information on the record or to challenge certain aspects of the Investigating Authority (IA)'s determinations which they might not have been in a position to challenge in the absence of the disclosed information.
 
This is what happened in this case. Following the Commission's disclosure of information on normal values, which was not disclosed in the original investigation, the Chinese producers made repeated requests to see the information on the list and characteristics of Pooja Forge's products, the rejection of which gave rise to the present claim.
 
Therefore, the Panel disagreed with the EU's contention that this claim could have been but was not raised by China in the original proceedings.
 
On this basis, the Panel rejected the EU's first jurisdictional objection. In light of this finding, "we need not, and do not, determine whether this claim challenges an unchanged aspect of the original measure which has become an integral part of the measure taken to comply."
 
The EU's second jurisdictional objection is that the aspect of China's claim pertaining to the list of Pooja Forge's products falls outside the Panel's terms of reference because it was not identified in China's panel request in these compliance proceedings. The Panel also rejected the EU's second jurisdictional objection.
 
On the assessment of the claim on the merits, the Panel concluded that the Commission violated Article 6.4 of the AD Agreement by failing to provide the Chinese producers with timely opportunities to see the information on the list and characteristics of Pooja Forge's products, which information was not confidential within the meaning of Article 6.5, and which was relevant to the presentation of the Chinese producers' cases and used by the Commission.
 
"We have found that the Commission violated Article 6.4 of the AD Agreement by failing to provide the Chinese producers with timely opportunities to see the information on the list and characteristics of Pooja Forge's products. Accessing this information potentially would have allowed the Chinese producers to request adjustments to their normal values, determined on the basis of Pooja Forge's prices, or to their export prices. Therefore, we do not see how the Chinese producers could be considered to have had full opportunity to defend their interests, within the meaning of Article 6.2, without first seeing this information."
 
Guided by the Appellate Body's finding, the Panel found that by not allowing the Chinese producers to see the information on the file regarding the list and characteristics of Pooja Forge's products, the Commission also violated the obligation laid down in Article 6.2.
 
On alleged violation of Article 6.1.2 of the AD Agreement, China argues that the Commission violated Article 6.1.2 by not making the information on the list and characteristics of Pooja Forge's products available promptly to the Chinese producers. Underlying China's claim are the arguments that: (i) the information at issue was not confidential; and (ii) Pooja Forge was an interested party in the investigation at issue.
 
Following its analysis, the Panel found that Pooja Forge was not an "interested party" in this investigation and therefore the obligation set forth under Article 6.1.2 of the Agreement did not arise with respect to the evidence provided by this company.
 
On the basis of the foregoing, the Panel rejected China's claim under Article 6.1.2 of the AD Agreement on substance.
 
The panel also addressed China's argument that by failing to provide the Chinese producers with the information concerning the characteristics of the products sold by Pooja Forge in the Indian market, the Commission violated Article 2.4 of the AD Agreement.
 
In this regard, China distinguishes between two types of product characteristics, namely, (i) characteristics affecting price comparability identified in the original Product Control Numbers (PCNs) and which have been partially taken into account by the Commission, and (ii) characteristics affecting price comparability not identified in the original PCNs and which have not been taken into account by the Commission.
 
China asserts that the Commission violated Article 2.4 of the AD Agreement by failing to provide to the Chinese producers information on the characteristics of Pooja Forge's products which was used for the calculation of the normal values in the review investigation at issue and therefore failed to implement the DSB recommendations and rulings.
 
The Panel said by failing to provide the Chinese producers with the information regarding the characteristics of Pooja Forge's products which were used in determining the normal value and which were then compared with the products of the Chinese producers, the Commission deprived these producers of the opportunity to make informed decisions on whether to request adjustments under Article 2.4.
 
"This, in our view, is inconsistent with the obligation set forth in the last sentence of Article 2.4. We do not see how the Chinese producers could have made requests for adjustments without having adequate knowledge of the product types with which their own products were being compared by the Commission."
 
With respect to the EU's argument that the information at issue was confidential, the Panel recalled its finding that the Commission's confidential treatment of Pooja Forge's information was inconsistent with Article 6.5 of the AD Agreement. It therefore also rejected the EU's confidentiality argument in connection with the present claim.
 
The Panel concluded that the Commission violated Article 2.4 of the AD Agreement by failing to provide the Chinese producers with information regarding the characteristics of Pooja Forge's products that were used in determining normal values in the investigation at issue.
 
The Panel underlined, however, that its finding of violation under this claim is made in the context of a very particular factual situation. In the investigation at issue, the Commission used the so-called analogue country methodology in determining normal values for the Chinese producers because the European Union considered China to be an NME.
 
The Commission determined the normal values of the Chinese producers on the basis of the prices of Pooja Forge, the analogue country producer selected for this purpose. This aspect makes this investigation very different from a typical anti-dumping investigation, said the Panel.
 
In a normal investigation where the normal value is based on the foreign producer's own prices, the latter can participate meaningfully in the dialogue envisaged under Article 2.4 aiming to ensure a fair comparison between the normal value and the export price. In such an investigation, the foreign producer is well positioned to make informed decisions about the adjustments that it deems necessary for a fair comparison.
 
By contrast, in an investigation, such as the one before the Panel, where the normal value information is obtained from a third source, an issue arises as to the foreign producer's access to that information. Fair comparison is to be carried out between two prices, namely, the normal value and the export price. Where the IA uses the analogue country methodology, the foreign exporter will be left in the dark to the extent it does not have access to the normal value information.
 
The IA's task in such an investigation is to find ways to disclose as much information on normal value as the foreign producer would need in order to meaningfully participate in the fair comparison process.
 
In other words, the IA has to endeavour to put the foreign producer on an equal footing with a producer in a normal investigation in terms of access to the information on the basis of which requests for adjustments may be formulated. Failure to do so would preclude the exchange of information from taking place and would frustrate the purpose of Article 2.4, which is to ensure fair comparison between the normal value and the export price.
 
"We would also like to underline, however, that our findings under this claim should not be interpreted to mean that the last sentence of Article 2.4 requires an IA to suggest to exporters differences in respect of which they may require adjustments. That would have blurred the line between the responsibilities of an IA and the interested parties, in particular foreign producers, in the process of making a fair comparison. We only find that, given the particular factual circumstances presented in this review investigation, the Commission failed to observe the obligation under the last sentence of Article 2.4."
 
The Panel addressed China's submission that the European Union acted inconsistently with Article 2.4 of the AD Agreement by failing to ensure that the export price of standard fasteners sold by Chinese producers to the European Union was compared to the normal value of standard fasteners sold by Pooja Forge, in the calculation of dumping margins for the Chinese producers.
 
China's claim has two aspects. First, China contends that the Commission failed to consider as "special" those fasteners destined for high-end applications and which were not made according to a customer drawing. Second, China maintains that the Commission did not act objectively in assessing the accuracy of the lists of standard and special fasteners provided by Pooja Forge. In this context, the Panel rejected China's claim under Article 2.4 of the AD Agreement.
 
China asked the Panel to exercise its fact-seeking power under Article 13 of the DSU to request the European Union to provide a copy of Pooja Forge's domestic sales listing (DMSAL) file, and other information, used to distinguish between standard and special fasteners and to verify the accuracy of the split made by Pooja Forge.
 
The Panel did not make such a request because it did not find it necessary to consult the mentioned file or other information in its evaluation of China's claim.
 
China also asserts that the European Union acted inconsistently with Article 2.4 of the AD Agreement by failing to make adjustments for certain factors that affected price comparability.
 
Specifically, China takes issue with three differences that allegedly affected price comparability and that were not taken into account by the Commission: (i) differences in taxation, (ii) differences in physical characteristics, and (iii) certain other differences.
 
Following its analysis, the Panel rejected China's argument that the Commission violated Article 2.4 of the AD Agreement by rejecting the Chinese producers' request for an adjustment due to an alleged difference in taxation.
 
The Panel also rejected China's argument that by failing to take into account the differences in the physical characteristics that were included in the original PCNs, the Commission acted inconsistently with the fair comparison obligation laid down in Article 2.4 of the AD Agreement.
 
The Panel further rejected China's allegation that the Commission acted inconsistently with Article 2.4 by failing to make adjustments for alleged differences in physical characteristics that were not included in the original PCNs.
 
The Panel rejected China's argument that the Commission violated the fair comparison obligation set forth in Article 2.4 of the Agreement by rejecting the Chinese producers' requests for adjustments for differences with regard to "easier access to raw materials", "use of self-generated electricity", and "efficiency and productivity" which affected price comparability.
 
In its overall conclusion, the Panel rejected China's claim that the Commission acted inconsistently with Article 2.4 of the AD Agreement by failing to make adjustments for differences that affected price comparability.
 
The Panel addressed China's argument that, in calculating the dumping margins in the review investigation at issue, the Commission left out the export transactions for which there was no match in Pooja Forge's sales, on the basis of which the normal value was determined. This, in China's view, is inconsistent with Article 2.4.2 of the Agreement.
 
China noted the Commission's finding that all models of fasteners exported from China to the European Union were "like" the fasteners produced and sold by Pooja Forge in India. Therefore, they were "comparable" within the meaning of Article 2.4.2. It follows that the Commission should have included all export transactions of the Chinese producers in the calculation of their dumping margins.
 
The Panel concluded that the Commission violated Article 2.4.2 of the AD Agreement by not taking into consideration, in its dumping determinations, Chinese producers' exports of models that did not match any of the models sold by Pooja Forge.
 
"Having found that there is a violation of Article 2.4.2, we need not, and do not, address China's allegation that by doing so, the Commission also violated Article 2.4 of the AD Agreement."
 
On alleged violation of Articles 4.1 and 3.1 of the AD Agreement with respect to the definition of domestic industry, China maintains that the Commission's domestic industry definition in the review investigation was inconsistent with Article 4.1 of the Agreement because it continued to introduce a material risk of distortion by reason of the statement in the notice of initiation of the original investigation that only producers willing to be included in the injury sample would be part of the domestic industry definition.
 
In China's view, this language shows that the notice "mixed the issues of the domestic industry definition and the sampling determination" and may have discouraged more European producers from coming forward because they knew that they would be excluded from the domestic industry definition unless they agreed to be part of the injury sample.
 
China contends that in the original proceedings, the Appellate Body condemned the Commission's approach in defining the domestic industry on the basis of willingness to be included in the injury sample, as opposed to the actual exclusion of such producers from that definition.
 
The Panel found that by defining the domestic industry on the basis of domestic producers that came forward in response to a notice of initiation which stated that only those producers willing to be included in the injury sample would be considered as cooperating, the Commission acted inconsistently with Article 4.1 of the AD Agreement.
 
Further, the Panel considered that a domestic industry definition based on a self-selection which introduced a material risk of distortion to the IA's injury analysis would necessarily render the resulting injury determination inconsistent with the obligation to make an objective injury analysis based on positive evidence laid down in Article 3.1 of the AD Agreement.
 
"We therefore also conclude that the Commission's injury determination, based on the data obtained from a wrongly-defined domestic industry, was inconsistent with Article 3.1 of the AD Agreement." +