TWN Info Service on WTO and Trade Issues (Dec10/10)
15 December 2010
Third World Network

WTO rules against EU in dispute with China over fasteners
Published in SUNS #7056 dated 8 December 2010

Geneva, 7 Dec (Kanaga Raja) -- The World Trade Organization (WTO) ruled late last week that definitive anti-dumping measures imposed by the European Communities on certain iron or steel fasteners from China were inconsistent with the EC's obligations under the WTO.

Subject to any appeal that either party may prefer on grounds of law to the Appellate Body (AB) and the AB's ruling, the panel report and recommendations are to be automatically adopted by the Dispute Settlement Body within 60 days.

In the ruling issued on 3 December, the panel recommended that the Dispute Settlement Body (DSB) request the European Union to bring its measure into conformity with its obligations under the Anti-Dumping Agreement (AD Agreement) and the GATT 1994.

The panel however made no findings with respect to several Chinese claims, saying that these were not within its terms of reference. In several other instances, the panel concluded that China had not established that the European Union had acted inconsistently with the AD Agreement. Furthermore, in respect of several Chinese claims, the panel exercised judicial economy and made no findings on these claims.

On 31 July 2009, China had requested consultations with the European Communities with respect to, but not necessarily limited to, 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, and 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 China.

A panel was established on 23 October 2009 pursuant to the request of China to the DSB, and on 9 December 2009, the WTO Director-General composed the panel.

In its request for the establishment of a panel, China had challenged two measures introduced by the European Union: (1) Article 9(5) of Council Regulation (EC) No. 384/96, as amended on protection against dumped imports from countries not members of the European Community (the Basic AD Regulation); 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 China (the Definitive Regulation).

Council Regulation (EC) No. 384/96 was repealed and replaced by Council Regulation (EC) No. 1225/2009 after the establishment of the panel, and China's submissions addressed Council Regulation No. 1225/2009.

According to the panel report, China's claims with regard to Council Regulation 1225/2009 challenged that measure "as such", while its claims with regard to Council Regulation 91/2009 challenged the specifics of that measure, which include aspects of the Basic AD Regulation "as applied".

One of the main challenges made by China in its dispute with the EU was directed at Article 9(5) of the Basic AD Regulation, the provision that deals with the individual treatment of producers from non-market economy (NME) countries, including China, in the context of dumping determinations in anti-dumping investigations, as well as the application of that provision in the fasteners investigation at issue in this dispute.

Central to China's "as such" claims in this dispute was paragraph 5 of Article 9 of the Basic AD Regulation, which explains the modalities for the imposition of anti-dumping duties. It provides, in relevant part: "An anti-dumping duty shall be imposed in the appropriate amounts in each case, on a non-discriminatory basis on imports of a product from all sources found to be dumped and causing injury, except for imports from those sources from which undertakings ... have been accepted. The Regulation imposing the duty shall specify the duty for each supplier or, if that is impracticable, and in general where Article 2(7)(a) applies, the supplying country concerned."

With respect to Article 9(5) of Council Regulation (EC) No. 384/96 on protection against dumped imports from countries not Members of the EC and its amendments, as codified and replaced by Council Regulation (EC) No. 1225/2009, China requested the panel to find that the EC violated Articles 6.10, 9.2, 9.3, and 9.4 of the AD Agreement, Articles I: 1 and X: 3(a) of the GATT 1994 and Article XVI: 4 of the Agreement Establishing the WTO as well as Article 18.4 of the AD Agreement.

With respect to Council Regulation (EC) No. 91/2009 of 26 January 2009 imposing a definitive anti-dumping duty on imports of certain iron or steel fasteners from China, the panel was requested to find amongst others that: the EC violated Articles 6.10, 9.2, 9.4 of the AD Agreement since it made the benefit of an individual margin of dumping and the imposition of an individual anti-dumping duty dependent on compliance with the conditions listed in Article 9(5) of Council Regulation (EC) No. 384/96 as amended; the EC violated Article 5.4 of the AD Agreement because it failed to properly examine before initiating the investigation whether the standing thresholds were met and because the complainants did not meet the standing thresholds; in its definition of the domestic industry, the EC violated Articles 4.1 and 3.1 of the AD Agreement; and the EC violated throughout the investigation several procedural obligations.

China requested that the panel recommend that the DSB request the EC to bring the contested measures into conformity with its obligations under the AD Agreement and the GATT 1994.

In addition, according to the panel report, China requested that the panel use its discretion under the second sentence of Article 19.1 of the Dispute Settlement Understanding (DSU) by suggesting ways in which the EC could implement the recommendations and rulings of the DSB. China considered that both measures should be withdrawn. As to the first measure, given the "as such" nature of the violation, it should be withdrawn. As to the second measure, China considered that the nature and scope of the violations of the AD Agreement and of the GATT 1994 are such that it is inherently vitiated and devoid of any legal basis.

Thus, China requested the panel to suggest that the EC implement the recommendations and rulings of the DSB by withdrawing the contested measures.

On whether Article 9(5) of the Basic AD Regulation was inconsistent with Articles 6.10, 9.2, 9.3 and 9.4 of the AD Agreement, the panel noted that China argues that the first sentence of Article 6.10 of the AD Agreement requires investigating authorities, as a rule, to calculate an individual margin of dumping for each exporter/foreign producer of the allegedly dumped imports. Exceptionally, under the second sentence, it allows the use of a sample where the number of exporters, producers, importers or types of products involved is high. In China's view, sampling is the only exception to the rule set forth in the first sentence of Article 6.10.

Therefore, according to China, by providing that exporting producers from NMEs are subject to a country-wide dumping margin unless they are able to demonstrate that they meet the five criteria of Article 9(5) violates Article 6.10. According to China, even though the text of Article 9(5) of the Basic AD Regulation refers to "an individual duty" rather than "an individual margin of dumping", the application of an individual duty necessitates the calculation of an individual margin of dumping. China asserts that, as a result, Article 9(5) of the Basic AD Regulation violates Article 6.10 of the AD Agreement.

China further argues that just as Article 6.10 requires the calculation of individual dumping margins, Article 9.2 of the AD Agreement requires the authorities to name individual suppliers in the imposition of anti-dumping duties. Exceptionally, this provision permits the authorities to name the supplying country where naming individual suppliers would be impracticable.

According to the panel report, China notes Article 9.4 of the AD Agreement, which provides for the imposition of anti-dumping duties in cases where sampling is used, and argues that when Article 9.2 is read in conjunction with Article 9.4, it becomes clear that the only instance in which the authorities would be permitted to assign country-wide duties is when sampling is used in the investigation. According to China, therefore, by subjecting the assignment of individual duty rates to the fulfilment of certain conditions, Article 9(5) of the Basic AD Regulation violates Article 9.2 of the AD Agreement.

According to the panel report, China notes that the margins of dumping for Chinese producers that do not qualify for IT (Individual Treatment) under Article 9(5) of the Basic AD Regulation are calculated on the basis of a comparison of the normal value calculated for the analogue country with the average export prices of all cooperating non-IT exporting producers which, in most cases, will be further averaged with best information available such as, e. g., import statistics.

China contends that this calculation is inconsistent with the requirements of Article 2 of the AD Agreement because it is not based on the individual export prices of the relevant producers. As a result, those exporting producers which have company-specific export prices which are higher than the average export price used for non-IT exporting producers will be subject to a duty which exceeds their dumping margin established under Article 2 of the AD Agreement. China claims that, as a result, the duties imposed on the basis of such margins violate the principle set forth in Article 9.3 of the AD Agreement, that the anti-dumping duty imposed shall not exceed the margin as established under Article 2.

China asserts that Article 9(5) of the Basic AD Regulation is inconsistent with Article 9.4 of the AD Agreement for two reasons. First, the dumping margins calculated for non-sampled producers will reflect the weighted average of the margins calculated for the sampled producers which, to the extent sampled producers are not granted IT, will be inconsistent with Article 2 of the AD Agreement because they will be based on the export prices of all cooperating foreign producers, as opposed to those of the individual producers. Second, Article 9(5) of the Basic AD Regulation runs counter to the obligation contained in the last sentence of Article 9.4 of the AD Agreement in that Article 9(5) subjects the right to request individual margins to conditions that are not found in Article 9.4 of the AD Agreement.

The panel noted that the parties disagree as to the scope/operation of Article 9(5) of the Basic AD Regulation. The gist of the disagreement is whether this provision determines whether NME exporters will have individual dumping margins calculated as well as which exporters will have individual duty rates applied, or whether it is limited to determining which exporters will have an individual duty rate and which ones will be subjected to a country-wide duty rate.

China's claims under Articles 6.10, 9.3 and 9.4 of the AD Agreement, said the panel, are premised on the view that Article 9(5) of the Basic AD Regulation determines whether the Commission will calculate individual or country-wide dumping margins, in addition to determining whether individual or country-wide duty rates will be applied.

"We note that the European Union has not provided any evidence of the meaning of Article 9(5) of the Basic AD Regulation, such as, for instance, an interpretation from the EU courts having relevant jurisdiction."

With respect to China's claim under Article 6.10 of the AD Agreement, the panel said that the disagreement between the parties centres on whether sampling is the only exception to the general obligation to calculate individual margins for each known producer or exporter set out in the first sentence. China argues that Article 6.10 requires investigating authorities to calculate an individual dumping margin for each known exporter or producer except where, as stated in the second sentence of this provision, the authorities resort to sampling because of the large number of exporters, producers, importers or product types.

"Although the European Union argues that Article 6.10 does not apply here, we have rejected that view, concluding above that Article 9(5) of the Basic AD Regulation does in fact address the calculation of margins."

The European Union also objects to China's substantive arguments, said the panel. The European Union does not disagree that the principle laid down under Article
6.10 is that an individual margin be calculated for each known producer. It considers that Article 6.10, first sentence, contains the expression of a preference, as a general rule, not a strict obligation which must be complied with in each and every case. However, it argues that sampling is not the only exception to this preference.

"Specifically, the European Union maintains that in non-market economies, the State may be found to be the source of dumping. In such cases, the investigating authorities can, in effect, treat the State as a producer', calculate a single margin of dumping and duty rate for the State, and assign that country-wide duty to producers that cannot demonstrate that they are independent from the State," the panel noted.

The panel found that Article 9(5) of the Basic AD Regulation is inconsistent with Article 6.10 of the AD Agreement in that it conditions the calculation of individual margins for producers from NMEs on the fulfilment of the IT test.

The panel also concluded that Article 9.2 of the AD Agreement requires the investigating authorities to name the individual suppliers, that is, the producers or exporters, on whom anti-dumping duties are imposed, except that where the number of producers or exporters is so large that it would be impracticable to do so, the authorities may name the supplying country.

Reading these provisions in parallel with the requirements of Article 6.10 of the AD Agreement relating to the determination of dumping margins, the panel concluded that "Article 9.2 does not, contrary to the European Union's view, allow the imposition of a single country-wide antidumping duty in an investigation involving a non-market economy."

"We recall that Article 9(5) of the Basic AD Regulation requires that a country-wide duty be imposed with respect to producers or exporters from NMEs unless such producers or exporters show, on the basis of the criteria set out in that provision, that they are independent from their State. We therefore find that Article 9(5) of the Basic AD Regulation violates the obligation laid down in Article 9.2 of the AD Agreement."

Given that China has presented no new or independent arguments in support of its claim of violation of Article 9.4, the panel was of the view that a finding of violation of Article 9.4 would add nothing to the resolution of this dispute, nor would it help in any potential implementation. It therefore considered it appropriate to exercise judicial economy and decline to address this claim.

The panel also said that finding a violation of Article 9.3 would not contribute to the resolution of this dispute or aid in implementation, and therefore considered it appropriate to exercise judicial economy and refrain from making findings with respect to China's claim under Article 9.3 of the AD Agreement.

In its overall conclusions and recommendations, the panel, having considered the EU's preliminary objections, made no findings with respect to the following claims, which it concluded are not within its terms of reference: (a) Claim under Article 2.6 of the AD Agreement with respect to the definition of like product; (b) Claim under Article 6.9 of the AD Agreement with respect to the alleged non-disclosure of aspects of the normal value determination; and ( c) Claim under Article 6.9 of the AD Agreement with respect to the procedural aspects of the domestic industry definition.

In other findings, the panel concluded that the European Union acted inconsistently with: (a) Articles 6.10, 9.2 and 18.4 of the AD Agreement, Article I: 1 of the GATT 1994 and Article XVI: 4 of the WTO Agreement with respect to Article 9(5) of the Basic AD Regulation; (b) Articles 6.10 and 9.2 of the AD Agreement with respect to the individual treatment determinations in the fasteners investigation; ( c) Articles 3.1 and 3.2 of the AD Agreement with respect to the consideration of the volume of dumped imports in the fasteners investigation; (d) Articles 3.1 and 3.5 of the AD Agreement with respect to the causation analysis in the fasteners investigation; (e) Articles 6.4 and 6.2 of the AD Agreement with respect to aspects of the normal value determination; (f) Article 6.5.1 of the AD Agreement with respect to non-confidential versions of questionnaire responses of two European producers and Article 6.5 of the AD Agreement with respect to confidential treatment of information in the questionnaire response of the Indian producer; (g) Article 6.5 of the AD Agreement with respect to the confidential treatment of the Eurostat data on total EU production of fasteners; and (h) Article
6.5 of the AD Agreement by disclosing confidential information.

The panel concluded that China had not established that the European Union acted inconsistently with: (a) Article 5.4 of the AD Agreement with respect to the standing determination in the fasteners investigation; (b) Articles 4.1 and 3.1 of the AD Agreement with respect to the definition of domestic industry in the fasteners investigation; ( c) Articles 2.1 and 2.6 of the AD Agreement with respect to the product under consideration in the fasteners investigation; (d) Article 2.4 of the AD Agreement with respect to the dumping determination in the fasteners investigation; (e) Articles 3.1 and 3.2 of the AD Agreement with respect to the price undercutting determination in the fasteners investigation; (f) Articles 3.1, 3.2, 3.4 and 3.5 of the AD Agreement with respect to the consideration of imports from non-sampled/unexamined producers and exporters as dumped in the fasteners investigation; (g) Articles 3.1 and 3.4 of the AD Agreement with respect to the consideration of the consequent impact of dumped imports on the domestic industry; (h) Articles 6.5, 6.4 and 6.2 of the AD Agreement in connection with the non-disclosure of the identity of the complainants and the supporters of the complaint; (i) Articles 6.2 and 6.4 of the AD Agreement with respect to the confidential treatment of the Eurostat data on total EU production of fasteners; (j) Articles 6.2 and 6.4 of the AD Agreement with respect to the procedural aspects of the domestic industry definition; and (k) Article 6.1.1 of the AD Agreement with respect to the amount of time provided for responses to requests for information.

The panel made no findings, based on judicial economy, with respect to China's claims under: (a) Articles 9.3 and 9.4 of the AD Agreement and Article X: 3(a) of the GATT 1994 with respect to Article 9(5) of the Basic AD Regulation; (b) Article 9.4 of the AD Agreement with respect to the individual treatment determinations in the fasteners investigation; ( c) Articles 3.4 and 3.5 of the AD Agreement with respect to the volume of dumped imports; (d) Article 6.5.1 of the AD Agreement with respect to the questionnaire response of the Indian producer; (e) Articles 6.2 and 6.4 of the AD Agreement with respect to the non-confidential versions of questionnaire responses of two European producers and the confidential treatment of information in the questionnaire response of the Indian producer; and (f) Article 12.2.2 of the AD Agreement with respect to the procedural aspects of the individual treatment determinations.

The panel concluded that to the extent the European Union has acted inconsistently with the provisions of the AD Agreement and GATT 1994, it has nullified or impaired benefits accruing to China under those Agreements.

The panel therefore recommended that the Dispute Settlement Body request the European Union to bring its measure into conformity with its obligations under the AD Agreement and GATT 1994.

The panel noted that China had requested that the panel use its discretion under the second sentence of Article 19.1 of the DSU by suggesting ways in which the European Union could implement the recommendations and rulings of the DSB.

China asserts that, given the "as such" nature of the violation, the first measure should be withdrawn. China further asserts that the nature and scope of the violations of the AD Agreement and of GATT 1994 with respect to the second measure are such that the measure is devoid of any legal basis, and should be withdrawn.

Therefore, China requests that the panel suggest that the European Union implement the recommendations and rulings of the DSB by withdrawing both contested measures. The European Union does not address China's request in this respect, said the panel.

According to the panel, Article 19.1 of the DSU provides: "Where a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement. In addition to its recommendations, the panel or Appellate Body may suggest ways in which the Member concerned could implement the recommendations". (Footnote omitted.)

Thus, a panel must ("shall") recommend that a Member found to have acted inconsistently with a provision of a covered agreement "bring the measure into conformity", but has discretion to ("may") suggest ways in which a Member could implement that recommendation, said the panel, adding: "Clearly, however, a panel is not required to make a suggestion should it not deem it appropriate to do so."

The panel also noted Article 21.3 of the DSU, which requires Members to inform the DSB regarding implementation of panel and Appellate Body recommendations, providing: "At a DSB meeting held within 30 days after the date of adoption of the panel or Appellate Body report, the Member concerned shall inform the DSB of its intentions in respect of implementation of the recommendations and rulings of the DSB". (footnote omitted).

The panel observed that most panels reviewing anti-dumping (and countervailing duty) measures have declined requests for suggestions. Where the panel has explained its reasoning, it has generally noted that, in view of the different violations found, while revocation of the measure is a possible means of implementation, other means might also be available.

Several panels, in declining to make a suggestion, have noted that Article 21.3 of the DSU gives the authority to decide the means of implementation, in the first instance, to the Member found to be in violation. Many other panels have declined requests for suggestions as well, said the panel.

The panel added: In the few cases in which panels have made a suggestion in an anti-dumping dispute, the panels have focussed on the conclusion that one of the violations found concerned initiation, and thus vitiated the entire proceeding, which should never have been initiated, or on the "fundamental and pervasive nature" of the violations, leading the panel to conclude that revocation was the only means of implementation.

"In this case, although we have found the contested measures inconsistent with the AD Agreement, the GATT 1994 and the WTO Agreement in a number of respects, we do not find it appropriate to make a suggestion with respect to implementation, and therefore deny China's request," the panel concluded. +