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Panel rules against US on steel dumping actions against Japan

by Chakravarthi Raghavan

Geneva, 28 Feb 2001 - - A three-member WTO dispute settlement panel has ruled that the United States acted contrary to the terms of the WTO anti-dumping agreement in taking anti-dumping (AD) measures and levying dumping duties on imports of certain hot-rolled steel products from Japan, and that the US be asked by the Dispute Settlement Body to bring its measures into compliance.

The panel, whose rulings can be appealed within 60 days, however declined to set out, as sought by Japan, any suggestions (including for reimbursement of duties illegally levied) as to the precise way the US should comply with its obligations.

The panel was chaired by Mr. Harsha Vardan Singh (former GATT/WTO official, now in Indian government service), and Mr.Yamyong Phuangrach and Ms Elena Lidia di Vico- all three nominated by the Director-General to comprise the panel in view of the disagreement among parties.

The dispute relates to the imposition of AD measures on imports of certain hot-rolled flat-rolled-carbon-quality steel products from Japan. The complaint of dumping against imports from Brazil, Japan and Russia, was initiated on 30 September 1998 by several US manufacturing companies, and by the two US steel-workers' unions, and investigations initiated on the same day by the US International Trade Commission (USITC) to determine whether the US industry had been materially injured or threatened by the imports. And on 16 November 1998, the USITC determined that the US industry was threatened with material injury because of such imports from Brazil, Japan and Russia.

In parallel actions on dumping, on 15 October, the US Department of Commerce (USDOC) initiated AD duty investigations; and, on the basis that it was not practicable to conduct investigations based on information from all known producers/exporters, six Japanese producers, said to account for more than 90% of all known exports, were selected for individual investigations and calculations of dumping margins. The USODC issued a preliminary finding of reasonable basis to suspect dumped exports from Japan and Russia. The USODC, however, determined it would make no such determination against imports from Brazil.

The US Customs Service was directed to suspend liquidation of all entries of Japanese hot-rolled steel for a period of 90 days prior to its preliminary dumping determination.

Under US law and practice, the Customs Service in effect does not levy and collect duties, but asks the importer to execute a bond for the customs duties to be determined and levied after the case is over.

On 19 February 1999, the US issued a preliminary affirmative determination of dumping of such steel from Japan, and margins of dumping were calculated for three producers/exporters, and for all others.

After a public hearing on 21 April, the US issued a final determination of a dumping margin of 67.14% on imports from Kawasaki Steel Corporation (KSC), 19,65% on Nippon Steel Corporation (NSC), 17.86% on NKK Corporation (NKK) and 29.30% on all others. But as NSC and NKK dumping were below the 25% threshold, no final negative determination of critical circumstances were issued against them. On 11 June, the USITC then issued that the US industry was materially injured or threatened by these dumped imports, and an AD duty order was issued for levy of the anti-dumping duties at the margins determined.

The US objected to evidence presented by Japan before the panel, but not allegedly, by the exporters, to the US authorities in the investigation. The US also objected to the panel considering a Japanese claim about ‘general practice’, including US statutory and regulatory provisions, about adverse inferences to be drawn on the ground that this was outside the terms of reference. In the US view, under Art, 17.5.(ii) of the AD agreement, facts or evidence not placed in the domestic procedures of investigation, could not be used to challenge the outcome at the WTO.

The panel agreed it could not and would not look at facts not submitted in the US domestic procedure or undertake a de novo examination and assessment. But to the extent of Japan’s claims about US statutory provisions being violative of the AD agreement and Art. X of the GATT (about publication and administration of regulations without discrimination), the panel could look at the issues.

The panel, however, agreed that the Japanese complaint based on USDOC’s “general practice” concerning adverse facts as violative of the AD agreement, was not specifically identified by Japan in its request for a panel and thus outside of the panel’s terms of reference.

In its complaint and case, Japan has claimed that the US determination and imposition of AD duties, and use of ‘adverse facts’ to make a determination, was inconsistent with Articles 2.3, 2.4, 6.1, 6.6, 6.8, 6.13, 9.3 and Annex II of the AD agreement; and some of the US actions were also violative of Art. X:3 of the GATT 1994. Also, some US laws, regulations and administrative procedures on various aspects of the investigation and determinations were not in conformity with its obligations.

On the issue of price per ton of steel in coils, by actual weight and ‘theoretical weight’ of the coil, and the evidence presented by NSC and NKK on the first, and subsequently on the second, and the purported determination by the US ‘based on facts available’ - - in terms of Art. 6.8 and Annex II - - the panel found that in the case of the NSC, the USODC rejected information actually submitted, and thus acted inconsistently with Art. 6.8 of the AD agreement. And in the case of the NKK, while it submitted ‘theoretical weight’ by providing the conversion factor later than the deadline (set by the USODC), the information, when submitted, was available in sufficient time for the USODC to verify and take a decision.

The panel held that an objective and unbiased investigating authority could not, on the basis of evidence in the dispute, have reached the conclusion that NKK and NSC had failed to provide necessary information within a reasonable period of time, (and thus go on to make a determination on the basis of facts available to the USODC from the complainants).

On the issue of Japanese producers providing information on resale prices of products sold to affiliated purchasers in the US, and where a finding was made against the KSC, by using a so-called ‘constructed export price’ (under Art. 2.3 of the AD agreement), the report brings out that a substantial portion of the KSC sales were to California Steel Industries (CSI), a company that KSC owns 50% in a joint venture with the Brazilian company, CVRD. But though an affiliate of KSC, the CSI was also a petitioner in the AD investigation. And the CSI refused to provide the information to the USODC. The KSC said that it did not control the CSI and thus could not provide the necessary information. But the USODC determined that the KSC had failed to provide information and made a second highest product determination of dumping against KSC.

The Japanese complaint before the panel and the arguments related to the ‘adverse’ nature of the facts used. But the panel said this was not within its terms of reference. However, the panel went on to examine whether the determination, on the basis that the KSC had failed to cooperate with the US investigations.

Reviewing the facts and evidence available to the USODC, the panel found that “an unbiased and objective investigating authority” evaluating the evidence could not reasonably have reached the conclusion that the KSC had failed to cooperate and the relevant information was being withheld.

As such, the panel concluded, the USODC had acted inconsistently with Art. 6.8 and paragraph 7 of the Annex II of the AD agreement.

Japan had also complained that in calculating an ‘all others’ rate including margins of dumping, and the US law enabling this being a violation of Art.9.4 of the AD agreement, the panel concluded that section 735 (5) of the US Tariff Act, the US statute governing the calculation of the ‘all others rate’, was inconsistent with Art.9.4 of the AD agreement in so far as it required consideration of margins based in part on facts available to calculate the ‘all others rate’. Hence, the panel said, the US had acted in establishing the ‘all others rate’ inconsistently with Art. 18.4 of the AD agreement and Art.XIV:4 of the Marrakesh Agreement, requiring members to bring their laws, regulations and administrative procedures in line with WTO rules.

On the question of violation of Art. 2 of the AD agreement, in the US, excluding certain home market sales to affiliates and replacing them with downstream sales in determining the USODC’s normal value - questions involving the ‘arms length’ test; whether affiliated party sales were in ordinary course of trade - the panel held that the US ‘arms length’ test did not rest on a permissible interpretation of the term ‘sales in the ordinary course of trade’ set in the AD agreement. Using the prices of sales by affiliates of the companies being investigated to determine whether dumping was occurring, the panel said that though they may be ‘sales in the ordinary course of trade’ in the broad usage of the term, they were not sales that could be taken into account in determining ‘normal value’ for companies for which dumping margins were being established.

The panel next dealt with the question of alleged violations in the preliminary determinations of critical circumstances, and Japan’s view that these violated Art. 10.1, 10.6 and 10.7 of the Agreement. The panel held that the relevant US statute, S. 733(e)(1) of the Tariff Act requiring a preliminary determination and the evidentiary standards set did not mandatorily require the USODC to take actions contrary to the AD agreement obligations. The statute allowed the US authorities to act consistently with the AD Agreement, though it did not set out the requirements in the same language as in Art.10.6.

As for the argument whether the US investigators had sufficient evidence to act, the panel held that an objective and unbiased investigating authority could, on the basis of evidence, have concluded that there was sufficient evidence to justify a determination of preliminary critical circumstances (enabling retrospective collection of anti-dumping duties after final determinations).

As for the provisions in the US law about ‘captive production’ and downstream ‘merchant market’ for determining prices, the panel held that on the face of it the law did not require the investigators to act in a manner contradictory to the AD provisions.

The USITC’s analysis of the evidence in reaching a determination about injury to the domestic industry as a whole, the panel said, was consistent with its obligations under Art.3.1, 3.4, 3.5, 3.6 and 4.1 of the AD agreement.

On the USITC’s injury and causation analysis, based on data for two of the 3-year investigation period, the panel noted that though data was before it, the USITC had not explicitly discussed the data for production, sales and financial performance of the industry for the first year of the investigation, but only the declining trend from 1997 to 1998, and not for 1996. Though the USITC had explained why it focussed on 1997 and 1998, it had not even mentioned the data for 1996 in its discussion.

Though expressing its regret at this, the panel however held that it was not improper for the USITC to focus on the sudden and dramatic decline in industry performance from 1997 to 1998.

But on the causal analysis - of declining trend in industry and causes other than imports - - the panel held that the USITC had demonstrated the existence of a causal relationship between dumped imports and material injury to the domestic industry.

On the Japanese complaint of violations of Art.X of the GATT, the panel said that the elements raised by Japan related almost exclusively to individual actions and decision in the context of resolving the single AD proceeding in the dispute. Japan had not thus made a prima facie case that these individual actions, not in themselves inconsistent with US obligations under the AD agreement, demonstrated that the US administered its anti- dumping laws in a manner not uniform, impartial and reasonable.

Japan had asked the panel also to recommend the way in which the US should act to bring its measures into line with the WTO obligations as determined by the panel, in particular for revoking the US anti-dumping duty order and reimburse duties collected.

The panel did not agree to provide such a recommendation, saying that Japan’s request for reimbursement raised many systemic issues that had not been fully explored in the dispute. Hence the panel found itself unable to act on this.-SUNS4847

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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