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EC anti-dumping investigation methods held WTO illegal

by Chakravarthi Raghavan

Geneva, 1 Mar 2001 -- The Appellate Body of the World Trade Organization has faulted the methods adopted by the European Union in anti-dumping investigations and calculations of dumping and found them to be violative of the WTO’s Anti-Dumping (AD) agreement, and ruled in favour of India, in the EC’s actions against imports of cotton-type bed linen from India.

In its ruling, the Appellate Body found fault with the EU Commission’s AD investigations and measures such as:

·        the practice of ‘zeroing’; i.e. investigating the existence of margins of dumping - taking account of the averaging of positive dumping margins in investigated products, but ignoring the cases where there are negative margins and giving a zero value to them instead;

·        calculating the administrative, selling and general (SG&A) costs and profits by using a method where data applicable to one other exporter or producer is used to apply to all others, and

·        calculating the amount of profits by excluding sales by other exporters or producers not made in the ordinary course of trade; and

·        using all types of bed-linen products -  bed sheets, duvet covers and pillow cases, packaged for sale either separately or in sets, and made of cotton-type fibres, pure or mixed with man-made fibres or flax, and bleached, dyed or printed -  as a single product competing with ‘like’ products of the domestic industry, for certain purposes of investigation, but using the various components of the imported product for calculating export price and normal value and averaging them, to establish dumping.

The anti-dumping agreement has written into it, two provisions tying the hands of  dispute panels and the WTO, sitting in judgement over the investigations and conclusions of the importing countries.

The first relates to the evidence or facts adduced before the investigators in the importing country and the conclusion they draw from it. Even if the dispute panel, on the same evidence, could have drawn a different conclusion, panels are precluded from interfering so long as the establishment of the facts by the domestic investigating authority was proper and its evaluation was unbiased and objective.

A second inhibition on the panels is that where a panel finds a provision of the AD agreement admits of more than one permissible interpretation, the panel shall find the importing-country-authorities measure to be in conformity with the agreement, if it rests upon one of those permissible interpretations.

That - despite the considerable leeway provided to the importing countries to invoke the AD agreement’s instruments to protect their domestic industry - the WTO dispute settlement panels are issuing the rulings shows the extent of the abuse of the powers and trade harassment by the major industrialized countries, and the long time-period before any relief can be obtained by the exporters in such cases.

The ruling by the Appellate Body handed down on Thursday relates to an investigation about dumping of ‘cotton-type bed linen’ imported from India (as also from Egypt and Pakistan) started by the European Communities in July 1996, with provisional duties imposed in June 1997, and final duties imposed in November 1997.

India sought consultations, preliminary to raising a dispute, in August 1998; the dispute was referred to a panel in October 1999 and a panel was named in January 2000. The AB’s final ruling came on 1 March. Even after the automatic adoption by the DSB of the recommendations, anywhere from 6 to 15 months can elapse before relief can be provided - and in any event, the exporter concerned cannot be compensated for the lost trade or the market.

The complaint of dumping was filed by Eurocotton (The Committee of Cotton and Allied Textile Industries of the European Communities) in July 1996 for imposition of anti-dumping duties on ‘cotton-type bed linen’ from India, Egypt and Pakistan, and ultimately duties were imposed.

Egypt and Pakistan did not raise any dispute over this, though they did register their complaints; perhaps because the EC had provided them other benefits - in bilateral agreements for increased quotas or other benefits.

The action against India, however, finally wended its way into the dispute process.

This dispute does not refer to the complaint of India and others of the EC starting an anti-dumping investigation, closing it and starting another within a few days - an abuse that developing countries have sought to correct under ‘implementation’ issues with a decision that at least 365 days must elapse between the end of one investigation and start of another.

In the case of dumping against imports from India, the EC established 1 July 1995 to 30 June 1996 as the period for investigation of dumping, and the period from 1992 to the end of the investigation period for the purposes of determining ‘injury’ to domestic industry.

Since there were a large number of individual exporters from India, the EC based its analysis on a sample. For purposes of establishing ‘normal value’, it selected one Indian exporter (Bombay Dyeing) as representative of domestic sales of such linen. There were five types of exports comparable to those exported to the EC sold on the domestic market, but which the EC ‘found’ to be not sold in the ordinary course of trade and thus declined to decide whether there was damping. It calculated constructed value for all types of bed linen sold by Bombay Dyeing, and for others, the SG&A and profit used in the ‘constructed normal value’  of Bombay Dyeing was applied. The export price was established by reference to the prices actually paid or payable on the EC market. The weighted average normal constructed value by type was compared with weighted average export price by type for the investigated Indian producers, and a dumping margin was calculated for each producer.

As for the domestic EU industry, the EC excluded some of the European companies and took 35 remaining ones as representative, and 17 of these (accounting for 20.7% of total EC production and 61.6% of the EC industry production) were selected as representative to determine the direct causal link between increased volume of imports and injury.

The panel had turned down several of the Indian claims (which involved the interpretations of evidence and/or whether facts were adduced before the EC investigators etc). The panel also held against India and for the EC on the EC’s use of data from one exporter/producer to determine the weighted average values to be applied against others, and excluding sales ‘outside the ordinary course of trade’ for calculating the SG&A.

But the panel held against the EC in that it acted inconsistently with the AD agreement in:

·        determining the existence of margins of dumping on the basis of a methodology incorporating the practice of ‘zeroing’;

·        in failing to consider all injury factors mentioned in Art 3.4 for determining the state of domestic industry;

·        in considering information from producers, not part of the domestic industry as defined by the EC for analysing the state of the EC industry.

On the zeroing issue, the AB noted that for purposes of its investigation, the EC had defined the ‘product’ under investigation as one covering ‘bed linen of cotton-type fibres, pure or mixed with man-made fibres or flax, bleached, dyed or printed, and bed linen as including bed sheets, duvet covers and pillow cases, packaged for sale either separately or in sets.’ The EC had also said that notwithstanding the different possible product types due to different weaving construction, finish of the fabric, presentation and size, packing etc, all of them constituted a single product.

Having, of its own accord, clearly identified cotton-type bed linen as the product, the EC was bound to treat it as a product consistently, for establishing the ‘existence of the margins of dumping’. As a consequence, the EC had also to establish the existence of the margin of dumping on the basis of a comparison of the weighted average normal value with a weighted average of the prices of all comparable export transactions.

However, for determining the margin, the EC took the position that the difference between various models or types of bed linen were so substantial that they could not be eliminated by making suitable adjustments.

The EC authorities took into account on some types, the existence of a margin of dumping; but in cases of other types where the price of sale was above the normal value, and thus there was a ‘negative margin’ of dumping, they ignored the ‘negative’ for averaging and used a ‘zero’ figure - - the ‘zeroing in’ method.

The panel had found that the EC had acted inconsistently with Art 2.4.2 of the AD agreement in establishing the existence of margins of dumping by a methodology which included zeroing negative price differences calculated for some models.

The AB did not accept the EC contention that there was a choice of ‘permissible’ interpretations of Art. 2.4.2. and that the panel had not deferred to the EC’s interpretation. The interpretation relied upon by the EC was “an impermissible” one, the AB said, and upheld the panel ruling that the EC's use of the ‘zeroing’ for establishing the existence of margins of dumping had violated the AD agreement requirements.

As for the EC’s use of data from one exporter to calculate the weighted average for others, the AB noted that Art. 2.2.2 of the AD agreement, setting forth the methods for calculating SG&A and profits, set two options: one option was to calculate the actual amounts incurred and realized by the exporter or producer in question on production and sales in the domestic market of the country of origin of the same general category of products; the second was to use the weighted average of the actual amounts incurred and realized by other exporters or producers subject to the investigation in respect of production and sales of the like product in the domestic market of the country of origin.

On this issue, the panel had held against India.

Reversing that finding, the AB said if the second method was chosen by the investigating authority, the weighted average is to be calculated on the actual “amounts” incurred and realized by other “exporters and producers”. The use of the phrase ‘weighted average’ and the ‘plural’ (exporters and producers) made it impossible to use the data from only one exporter and producer and make it a weighted average for all.

The AB also said that a reading of Art. 2.2.2.(ii) did not permit the investigating authorities to exclude any of the data relating to production and sale on the domestic market on the basis that it was not “in the ordinary course of trade.” The provision required that the weighted average should be “of actual amounts incurred and realized”; this meant SG&A actually incurred and the profits or losses actually incurred, and the weighted average had to be of all them, regardless whether or not they were made in the ordinary course of trade.

In a separate action, Thursday, the dispute settlement body set up a compliance panel to rule on whether the measures put in place by Canada on the importation of milk and exhortation of dairy products did comply with a WTO ruling on whether Canada was providing subsidies beyond its permissible levels under the Agriculture Agreement.

The original ruling had been on separate complaints brought by the United States and New Zealand. Both of them have now complained that the Canadian measures put in place was not in compliance.

The US and New Zealand complained that new programmes put in place, in different provinces of Canada, allowed exporters to purchase milk at prices below the prevailing market levels in Canada for use in dairy products sold on the Canadian domestic market. But the exporters could use this low-priced milk for exports of dairy products.

Separately, both the US and New Zealand sought authority to retaliate against Canada for non-compliance: each for an equivalent amount of trade damage suffered by them on account of illegal Canadian subsidies in the amount of an annual basis of $35 million.

Canada was seeking arbitration on the amount of trade damage claimed.

Under bilateral procedural agreements between Canada and the US and Canada and New Zealand, there will first have to be a  compliance panel (and any appeal to the Appellate Body) ruling, and then arbitration on the amount, before the authorization for sanctions could come up before the DSB.-SUNS4848

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

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