TWN Info Service on WTO and Trade Issues (May17/16)
22 May 2017
Third World Network
  
AB rejects most of China's claims in appeal in AD dispute
Published in SUNS #8462 dated 15 May 2017

Geneva, 12 May (Kanaga Raja) - The Appellate Body of the World Trade Organisation (WTO) on Thursday rejected most of China's claims in appeal in a dispute over certain methodologies applied by the United States in anti-dumping (AD) proceedings on imports of goods from China.

Earlier, on 19 October 2016, a dispute panel had largely upheld a majority of Chinese claims that certain methodologies applied by the United States in AD proceedings on imports of goods from China are inconsistent with its WTO obligations. (See SUNS #8338 dated 21 October 2016.)

In a somewhat limited appeal by China, the Appellate Body (AB) rejected all of the claims put forth by China over the application of the "targeted dumping" methodology (under the "Nails test") by the US Department of Commerce in the three investigations at issue.

On the issue of AFA (Adverse Facts Available) Norm, the AB reversed the Panel's findings that China has not demonstrated that the AFA Norm constitutes a norm of general and prospective application. The AB found that the AFA Norm has "general application", as well as "prospective application".

The AB however declined China's request to complete the analysis and find that the AFA Norm is inconsistent with Article 6.8 and paragraph 7 of Annex II to the Anti-Dumping Agreement.

The AB recommended that the Dispute Settlement Body (DSB) request the United States to bring its measures found in its Report, and in the Panel Report as modified by the AB Report, to be inconsistent with the Anti- Dumping Agreement and the GATT 1994, into conformity with those Agreements.

China appealed certain issues of law and legal interpretations developed in the Panel Report, United States - Certain Methodologies and Their Application to Anti-Dumping Proceedings Involving China (DS471).

The US did not appeal the Panel's findings.

BACKGROUND

According to the AB report, before the Panel, China had raised three sets of claims in relation to certain methodologies used by the United States Department of Commerce (USDOC) in anti-dumping proceedings against China.

These claims concerned: (i) the USDOC's use of the weighted average-to-transaction (W-T) methodology in three anti-dumping investigations and one administrative review; (ii) the USDOC's treatment of multiple economic operators from a non-market economy (NME) as a single NME-wide entity; and (iii) the manner in which the USDOC determines anti-dumping duty rates for NME-wide entities, as well as the level of such duty rates.

On USDOC's use of the W-T methodology, China challenged: (i) several aspects of the USDOC's application of the "Nails test" in three anti-dumping investigations involving exports of oil country tubular goods (OCTG), certain coated paper suitable for high-quality print graphics using sheet-fed presses (Coated Paper), and high pressure steel cylinders from China (the three challenged investigations) on an "as applied" basis; and (ii) the USDOC's use of "zeroing" in the third administrative review of exports of polyethylene terephthalate film (PET Film) from China on an "as applied" basis.

PANEL'S FINDINGS AND CONCLUSIONS

In the Panel Report, circulated on 19 October 2016, the Panel had found that:

a. with respect to the USDOC's use of the W-T methodology in the three challenged investigations:

i. the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the OCTG and Coated Paper investigations because of the fourth quantitative flaw with the Nails test, which led the USDOC to disregard non-target prices below the "alleged target price" under the price gap test, and because of the first SAS programming error that occurred in the application of the price gap test;

ii. the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the three challenged investigations because of the USDOC's explanations under the second sentence of this provision, which were premised on the use of the W-T methodology with zeroing, and because of the USDOC's failure to provide an explanation as to why the transaction-to-transaction (T-T) methodology could not take into account appropriately the significant differences in the relevant export prices;

iii. the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the three challenged investigations by applying the W-T methodology to all export transactions;

iv. the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the three challenged investigations because the USDOC used zeroing in the dumping margin calculations when applying the W-T methodology;

v. China had not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the Steel Cylinders investigation because of the fourth quantitative flaw with the Nails test, which allegedly led the USDOC to disregard non-target prices below the alleged target price under the price gap test;

vi. China had not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the three challenged investigations by reason of the first, second, and third alleged quantitative flaws with the Nails test;

vii. China had not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement because of the second alleged SAS programming error that occurred in the application of the price gap test in the OCTG and Coated Paper investigations;

viii. China had not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the three challenged investigations because of the alleged qualitative issues with the Nails test; and

ix. China had not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the three challenged investigations by finding the relevant "pattern" on the basis of purchaser or time period weighted-average export prices as opposed to individual export transaction prices.

With respect to the USDOC's use of zeroing in the third administrative review in PET Film, the Panel found that the United States acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994 because of the USDOC's use of zeroing in the dumping margin calculations when applying the W-T methodology.

With respect to the Single Rate Presumption, the Panel found that:

i. the six administrative review determinations introduced by China at the Panel's first substantive meeting with the parties fell within the Panel's terms of reference;

ii. the Single Rate Presumption constitutes a measure of general and prospective application, which is "as such" inconsistent with Articles 6.10 and 9.2 of the Anti-Dumping Agreement;

iii. the United States acted inconsistently with Articles 6.10 and 9.2 of the Anti-Dumping Agreement as a result of the USDOC's application of the Single Rate Presumption in the 38 determinations challenged by China under these provisions;

iv. in light of the above findings with respect to the Single Rate Presumption, the Panel exercised judicial economy and made no findings with respect to China's "as such" and "as applied" claims under the second sentence of Article 9.4 of the Anti-Dumping Agreement concerning the Single Rate Presumption.

With respect to the AFA (Adverse Facts Available) Norm, the Panel found that:

i. the relevant four administrative review determinations introduced by China at the Panel's first substantive meeting with the parties fell within the Panel's terms of reference;

ii. China had not demonstrated that the AFA Norm constitutes a norm of general and prospective application and, consequently, there was no need to examine whether the AFA Norm fell within the Panel's terms of reference, or to address China's "as such" claims under Article 6.8 of the Anti-Dumping Agreement and paragraph 7 of Annex II thereto; and

iii. in light of the above findings of inconsistency under Articles 6.10 and 9.2 of the Anti-Dumping Agreement in relation to the Single Rate Presumption, the Panel exercised judicial economy and made no findings with respect to China's "as applied" claims under Articles 6.1, 6.8, 9.4, and paragraphs 1 and 7 of Annex II to the Anti-Dumping Agreement concerning the 30 determinations challenged by China under these provisions.

ISSUES RAISED IN APPEAL

According to the AB report, on the USDOC's application of the Nails test in the OCTG, Coated Paper, and Steel Cylinders investigations, the following issues are raised in this appeal:

a. in relation to the first and third alleged quantitative flaws with the Nails test:

i. whether the Panel erred in its interpretation and application of Article 2.4.2 of the Anti-Dumping Agreement in finding that China has not established that the United States acted inconsistently with this provision in the three challenged investigations by reason of the first alleged quantitative flaw with the Nails test;

ii. whether the Panel erred in its interpretation and application of Article 2.4.2 of the Anti-Dumping Agreement in finding that China has not established that the United States acted inconsistently with this provision in the three challenged investigations by reason of the third alleged quantitative flaw with the Nails test; and

iii. whether the Panel acted inconsistently with Article 17.6(i) of the Anti-Dumping Agreement in dismissing China's claim in respect of the first and third alleged quantitative flaws with the Nails test;

b. whether the Panel erred in its interpretation and application of Article 2.4.2 of the Anti-Dumping Agreement in finding that China has not established that the United States acted inconsistently with this provision in the three challenged investigations by not considering the reasons for the differences in export prices when determining whether those differences were qualitatively significant;

c. in relation to the USDOC's use of weighted-average export prices under the Nails test: (i) whether the Panel erred in its interpretation and application of Article 2.4.2 of the Anti-Dumping Agreement in finding that China has not established that the United States acted inconsistently with this provision in the three challenged investigations by determining the relevant "pattern" on the basis of weighted-average export prices, as opposed to individual export transaction prices; and (ii) whether the Panel acted inconsistently with Article 17.6(i) of the Anti-Dumping Agreement by failing to find that the USDOC's use of weighted-average export prices was inherently biased; and

d. whether the Panel erred in its interpretation of Article 2.4.2 of the Anti-Dumping Agreement by suggesting that comparison methodologies may be combined to establish dumping margins.

With regard to the AFA Norm, the following issues are raised in this appeal: (a) whether the Panel erred in finding that China has not demonstrated that the AFA Norm is a rule or norm of general and prospective application; (b) if the Appellate Body finds that the Panel erred, whether it can complete the analysis and find that the AFA Norm is a rule or norm of general and prospective application that can be the subject of an "as such" challenge in WTO dispute settlement; and (c) if the Appellate Body finds that the AFA Norm can be the subject of an "as such" challenge in WTO dispute settlement, whether it can complete the analysis and find that this measure is inconsistent "as such" with Article 6.8 and paragraph 7 of Annex II to the Anti-Dumping Agreement.

AB'S FINDINGS AND CONCLUSIONS

On the USDOC's application of the Nails test and its use of the W-T methodology in the three challenged investigations, the AB said that in relation to the first alleged quantitative flaw with the Nails test, it considers that the fact that a large number of export prices may fall below the one standard deviation threshold where the distribution of the export price data is not normal, or single-peaked and symmetrical does not necessarily preclude an investigating authority from finding that the export prices to the "target" differ significantly from the other export prices and form a pattern within the meaning of the second sentence of Article 2.4.2 of the Anti-Dumping Agreement.

"Accordingly, we consider that China has not established that the standard deviation test as applied by the USDOC in the three challenged investigations is only capable of identifying prices that differ from other export prices and form a pattern within the meaning of the second sentence of Article 2.4.2 where the distribution of the export price data is normal, or single-peaked and symmetrical."

On this basis, the AB found that China has not established that the Panel erred in its interpretation or application of the second sentence of Article 2.4.2 of the Anti-Dumping Agreement in rejecting China's claim in respect of the first alleged quantitative flaw with the Nails test as applied in the three challenged investigations.

On the third alleged quantitative flaw with the Nails test, the Panel considered that "the third alleged quantitative flaw rests on the assumption that in the three challenged investigations, the alleged target price gap was based on prices located at the tail of the distribution of the export price data and the weighted-average non-target price gap was based on prices located nearer to the peak of that distribution."

According to the AB, the Panel was correct in rejecting China's claim on the basis of its finding that China had not shown that this assumption is "factually correct insofar as the three challenged investigations are concerned".

"Therefore, we find that China has not established that the Panel erred in its interpretation or application of the second sentence of Article 2.4.2 of the Anti-Dumping Agreement in rejecting China's claim in respect of the third alleged quantitative flaw with the Nails test as applied in the three challenged investigations."

The AB also found that China has not established that the Panel failed to comply with Article 17.6(i) of the Anti-Dumping Agreement in relation to both the first and third alleged quantitative flaws with the Nails test.

Consequently, the AB upheld the Panel's finding that "China has not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the OCTG, Coated Paper and Steel Cylinders investigations" insofar as this finding relates to the first and third alleged quantitative flaws with the Nails test.

In relation to the qualitative issues with the Nails test, the AB considered that the Panel did not err in its interpretation of the second sentence of Article 2.4.2 of the Anti-Dumping Agreement in finding that investigating authorities are not required to examine the reasons for the relevant differences in export prices, or whether those differences are unconnected to "targeted dumping", in order to assess whether export prices differ "significantly".

The AB also considered that, while it did not explicitly refer to "objective market factors", the Panel correctly concluded that an investigating authority should undertake a qualitative analysis of the significance of export price differences.

The AB thus disagreed with China's contention that the Panel erred in interpreting and applying the second sentence of Article 2.4.2 because it found that "investigating authorities [are not required] to consider objective market factors in determining whether relevant pricing differences are significant".

Consequently, the AB upheld the Panel's findings that "the USDOC was not required to consider the reasons for the differences in export prices forming the relevant pattern in order to determine whether those differences were qualitatively significant within the meaning of the pattern clause of Article 2.4.2" and that, accordingly, "China has not established that the United States acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in the OCTG, Coated Paper and Steel Cylinders investigations because of the alleged qualitative issues with the Nails test".

In relation to the USDOC's use of averages to establish the existence of a pattern in the three challenged investigations, the AB considered that the existence of a pattern within the meaning of the second sentence of Article 2.4.2 of the Anti-Dumping Agreement depends on the price relationship between the "targeted" transactions, on the one hand, and the "non-targeted" transactions, on the other hand. The distinguishing factor that allows for the determination of a pattern is that the prices within the pattern differ significantly from the prices outside it.

The AB also noted that the relevant difference is one "among" different purchasers, regions, or time periods. For these reasons, the AB considered that an investigating authority may rely on individual export transaction prices or average prices in order to find a pattern, provided that this pattern meets the requirements stipulated in the pattern clause.

"In this case, like the Panel, we consider that China has not demonstrated that the United States acted inconsistently with Article 2.4.2 in the three challenged investigations by determining the relevant pattern on the basis of average prices. In addition, by not advancing any argument that is separate and different from its arguments concerning the alleged error in the Panel's interpretation of Article 2.4.2, China has not demonstrated that the Panel failed to comply with Article 17.6(i) of the Anti-Dumping Agreement."

The AB therefore found that the Panel did not err in its interpretation and application of the second sentence of Article 2.4.2 of the Anti-Dumping Agreement to the three challenged investigations when examining the USDOC's use of purchaser or time period averages under the Nails test. Furthermore, it found that China has not established that the Panel failed to comply with Article 17.6(i) of the Anti-Dumping Agreement.

Consequently, the AB upheld the Panel's finding that China has not established that the United States acted inconsistently with the second sentence of Article 2.4.2 in the three challenged investigations by determining the existence of a "pattern" on the basis of average prices, instead of individual export transaction prices.

In relation to the Panel's statements in footnote 385 of the Panel Report, the AB considered that, as in US - Washing Machines, the second sentence of Article 2.4.2 of the Anti-Dumping Agreement allows an investigating authority to establish margins of dumping by applying the W-T methodology only to "pattern transactions" and that Article 2.4.2 does not permit the combining of comparison methodologies.

In circumstances where the requirements of the second sentence of Article 2.4.2 are fulfilled, an investigating authority may establish margins of dumping by comparing a weighted average normal value with export prices of "pattern transactions", while excluding "non-pattern transactions" from the numerator, and dividing the resulting amount by all the export sales of a given exporter or foreign producer.

"Consequently, we declare moot the Panel's statements, in footnote 385 of its Report, to the extent that these statements are premised on the erroneous understanding that Article 2.4.2 of the Anti-Dumping Agreement permits the combining of comparison methodologies to establish dumping margins."

On the AFA Norm, the AB considered that a rule or norm has "general application" to the extent that it affects an unidentified number of economic operators. In addition, a rule or norm has "prospective application" to the extent that it applies in the future. In this respect, in order to demonstrate prospective application, a complainant is not required to show with "certainty" that a given measure will apply in the future.

Rather, where prospective application is not sufficiently clear from the constitutive elements of the rule or norm, it may be demonstrated through a number of other factors: the existence of an underlying policy that is implemented by the rule or norm; the systematic application of the challenged rule or norm; the design, architecture, and structure of the rule or norm; the extent to which the rule or norm provides administrative guidance for future conduct; and the expectations it creates among economic operators that the rule or norm will be applied in the future.

The AB found that the Panel erred by requiring "certainty" of future application when examining whether the AFA Norm has "prospective application".

Consequently, the AB reversed the Panel's findings that China has not demonstrated that the AFA Norm constitutes a norm of general and prospective application.

In relation to China's request for the AB to complete the analysis and find that the AFA Norm is a rule or norm of general and prospective application, the AB considered that the un-appealed Panel finding concerning the precise content of the AFA Norm suggests that this norm is a measure of general application because it affects an unidentified number of economic operators.

The AFA Norm does not impose any express limitations on economic operators from NME (non-market economy) countries that may be included within NME-wide entities subject to the AFA Norm. The connection between the AFA Norm and the Single Rate Presumption also supports the conclusion that the AFA Norm has "general application".

This is because the Panel found that the Single Rate Presumption is a measure of general application, and the AFA Norm applies to the same group of economic operators subject to the Single Rate Presumption whenever the economic operators fail to demonstrate an absence of governmental control over their export activities and fail to cooperate in the anti-dumping investigation to the best of their ability.

Moreover, the fact that the 73 anti-dumping determinations put on the record by China covered a wide range of products and companies is a further indicator that the AFA Norm has "general application".

For these reasons, based on the findings in the Panel Report and undisputed facts on the Panel record, the AB found that the AFA Norm has "general application". It also found that the AFA Norm has "prospective application".

"In light of the un-appealed Panel findings that the AFA Norm is attributable to the United States, and that its content corresponds to the description thereof made by China, as well as our conclusions above that the AFA Norm has general and prospective application, we find that the AFA Norm is a rule or norm of general and prospective application that may be challenged "as such" in WTO dispute settlement."

In relation to China's request for the AB to complete the analysis and find that the AFA Norm is inconsistent with Article 6.8 and paragraph 7 of Annex II to the Anti-Dumping Agreement, the AB noted that the Panel made no findings on whether the AFA Norm is inconsistent with Article 6.8 and paragraph 7 of Annex II to the Anti-Dumping Agreement. In particular, the Panel did not explore the process of reasoning and evaluation undertaken by the USDOC prior to selecting "facts available" to replace missing "necessary information".

According to the AB, for an evaluation of the conformity of the AFA Norm with Article 6.8 and Annex II, it would need to examine the process of reasoning and evaluation undertaken by the USDOC for its selection of which "facts available" reasonably replace the missing "necessary information".

"In deciding whether we are able to complete the analysis, we have taken into consideration the absence of Panel findings and sufficient undisputed facts on the Panel record, as well as the arguments made by the participants on appeal," said the AB.

"Under these circumstances, we are unable to evaluate the process undertaken by the USDOC for its selection of which "facts available" reasonably replace the missing "necessary information" with a view to arriving at an accurate determination. Consequently, we do not accede to China's request for completion of the analysis," it added.