TWN Info Service on WTO and Trade Issues (Feb18/03)
2 February 2018
Third World Network
  
EU's AD duties on biodiesel from Indonesia held WTO-illegal
Published in SUNS #8609 dated 29 January 2018

Geneva, 26 Jan (Kanaga Raja) - A dispute panel at the World Trade Organisation (WTO) has largely ruled that anti-dumping (AD) measures imposed by the European Union on imports of biodiesel from Indonesia were inconsistent with the EU's obligations under the WTO.

In the ruling (WT/DS480/R) issued on 25 January, the panel concluded that, to the extent that the EU measures at issue are inconsistent with the Anti-Dumping Agreement and the GATT 1994, they have nullified or impaired benefits accruing to Indonesia under these agreements.

Pursuant to Article 19.1 of the Dispute Settlement Understanding (DSU), the panel recommended that the European Union bring its measures into conformity with its obligations under the Anti-Dumping Agreement and the GATT 1994.

It noted that Indonesia has requested that the panel use its discretion under the second sentence of the same article to suggest ways in which the European Union should bring its measures into conformity with the Anti- Dumping Agreement and the GATT 1994.

Indonesia considers that the measures at issue in this dispute should be withdrawn.

The panel however declined to exercise its discretion under the second sentence of Article 19.1 of the DSU in the manner requested by Indonesia.

According to the panel report, the dispute concerns the anti-dumping measures imposed by the European Union on imports of biodiesel from Indonesia.

The AD measures were adopted following the conclusion of an investigation on imports of biodiesel from Argentina and Indonesia.

This investigation was previously the subject of the dispute EU - Biodiesel concerning a complaint by Argentina, in respect of imports of biodiesel from Argentina.

The investigation was initiated by the European Commission on 29 August 2012 following a complaint submitted by the European Biodiesel Board (EBB).

The EU authorities imposed provisional anti-dumping duties on 29 May 2013 and definitive anti-dumping duties on 27 November 2013.

Provisional anti-dumping duties were applied ranging from zero to 9.6% and were subsequently definitively collected on 27 November 2013.

Definitive dumping margins were calculated ranging from 8.8% to 23.3% and definitive anti-dumping duties were applied corresponding to the calculated injury margins, which ranged from 8.8% to 20.5%.

The duties were applied in the form of specific duties expressed as a fixed amount in euro/tonne.

On 20 December 2016, the European Commission initiated a review of the anti-dumping measures imposed on imports of biodiesel originating in Argentina to bring them into conformity with the recommendations and rulings adopted by the DSB, following the adoption of the panel report, as modified by the Appellate Body report in the EU - Biodiesel (Argentina) dispute.

In its notice of initiation, the European Commission indicated that it also considered it appropriate to examine the anti-dumping measures imposed on imports of biodiesel from Indonesia, considering that: (a) the anti-dumping measures imposed on imports of biodiesel from Indonesia are subject to a WTO dispute and involve essentially the same claims as raised by Argentina in the EU - Biodiesel (Argentina) dispute; and (b) the legal interpretations contained in the adopted panel and Appellate Body reports in EU - Biodiesel (Argentina) appear also to be relevant for the investigation concerning Indonesia.

Indonesia requested that the Panel find that the anti-dumping measures imposed by the European Union on imports of biodiesel from Indonesia are inconsistent with:

a. Articles 2.2 and 2.2.1.1 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 because in constructing the normal value for the Indonesian producers under investigation, the European Union did not calculate the cost of production of biodiesel on the basis of the records kept by those producers even though the records were in accordance with the generally accepted accounting principles and accurately and reasonably reflected the actual cost of production of biodiesel, and because the European Union therefore failed to properly calculate the cost of production and properly construct the normal value for those producers.

b. Article 2.2 of the Anti-Dumping Agreement because the European Union failed to construct the normal value for the Indonesian producers under investigation on the basis of the cost of production of biodiesel in the country of origin, i.e. Indonesia.

c. Articles 2.2 and 2.2.2(iii) of the Anti-Dumping Agreement because when constructing the normal value for the Indonesian producers under investigation, the European Union did not establish a cap for the profits as required by Article 2.2.2(iii) and the amount for profits established was not determined by the European Union on the basis of a reasonable method. The European Union therefore failed to properly construct the normal value for those producers.

d. Articles 2.3 and 2.4 of the Anti-Dumping Agreement because the European Union did not construct the export price for one Indonesian producer under investigation on the basis of the price at which the imported biodiesel was first resold to independent buyers in the European Union.

e. Article 9.3 (chapeau) of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994 because on account of the inconsistencies with Article 2 specified above in the context of the calculation of the dumping margin for the Indonesian producers, the European Union calculated a margin of dumping and imposed and collected anti-dumping duties in excess of the actual dumping margin, if any, by the Indonesian producers. This resulted in the levy of anti-dumping duties on the Indonesian producers that exceeded their margin of dumping which, under Article 9.3 of the Anti-Dumping Agreement, operates as the ceiling for the amount of anti-dumping duty that can be levied in respect of the sales made by a producer/exporter.

f. Articles 3.1 and 3.2 of the Anti-Dumping Agreement because the European Union's determination of injury to the Union industry was not based on an objective examination of the effect of those imports on prices in the domestic market for biodiesel and the consequent impact of those allegedly dumped imports on domestic producers of biodiesel.

The European Union's findings regarding the price effects of the allegedly dumped imports including price undercutting were not based on an objective examination of the evidence on the record as, among others, the European Union did not ensure price comparability in terms of physical characteristics and model-matching and based its determination of price undercutting on partial and unexplained sales of the sampled European Union producers.

g. Articles 7.1, 7.2, 9.2, and 9.3 (chapeau) of the Anti-Dumping Agreement because the European Union incorrectly imposed and definitively collected provisional anti-dumping duties with respect to the imports from one Indonesian producer under investigation, in excess of the actual provisional margin of dumping of this producer, as it based itself on a provisional dumping margin tainted by calculation errors.

Indonesia requested the Panel to make use of its discretion under the second sentence of Article 19.1 of the DSU by suggesting ways in which the European Union should implement the recommendations and rulings of the DSB to bring its measures into conformity with the Anti-Dumping Agreement and the GATT 1994.

According to the panel, Indonesia claims that the anti-dumping measures applied by the European Union on biodiesel imports from Indonesia are inconsistent with Articles 2.2 and 2.2.1.1 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994, as follows:

a. First, the European Union acted inconsistently with the first sentence of Article 2.2.1.1 and, as a consequence Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994, by failing to calculate the cost of production on the basis of the records kept by the producers. Indonesia submits that the costs of crude palm oil (CPO) reflected in the records of the exporting producers were substituted with the reference export price for CPO published by the Indonesian authorities.

b. Second, the European Union acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by failing to construct the normal value for the Indonesian producers under investigation on the basis of the cost of production of biodiesel in the country of origin, Indonesia.

Indonesia submits that the substance of its claims are indistinguishable from claims raised by Argentina under these provisions in the dispute EU - Biodiesel (Argentina) in respect of anti-dumping measures imposed on imports of biodiesel from Argentina.

Indonesia submits that given the identical fact pattern and decisions made by the European Union, these claims warrant the same finding of inconsistency with the above provisions of the Anti-Dumping Agreement and GATT 1994.

According to the panel report, the European Union has not disputed the relevance of the findings contained in the panel and Appellate Body reports in EU - Biodiesel (Argentina) to the resolution of the dispute.

With respect to the EU authorities' determination of the cost of production for the construction of normal value for Indonesian biodiesel producers, the panel noted that on 29 May 2013, the European Commission imposed provisional anti-dumping duties on biodiesel originating in Argentina and Indonesia, imposing provisional anti-dumping duties on Indonesian producers at margins of between zero and 9.6%.

The EU authorities concluded that since both the Argentine and Indonesian domestic markets for biodiesel were heavily regulated, domestic sales were not in the ordinary course of trade, and the normal value would have to be constructed. To construct normal value, the EU authorities calculated the normal value by adding to the producers' own production costs during the investigation period, the selling, general, and administrative (SG&A) expenses incurred and a reasonable profit margin.

At that time, the petitioner, the EBB, claimed that the "Differential Export Tax" (DET) system in Argentina and Indonesia depresses the price of soybeans and soybean oil (the main raw material inputs used in the production of biodiesel in Argentina) and CPO (the main raw material input used in the production of biodiesel in Indonesia) and therefore distorts the costs of biodiesel producers.

The EU authorities indicated that they did not have enough information at that stage to make a decision as to the most appropriate way to address that claim. The EU authorities indicated that the question as to whether the costs reasonably reflect the costs associated with the production of biodiesel would be further examined at the definitive stage.

In the Definitive Disclosure, the EU authorities confirmed that their further investigation had established that the DET system in place in Indonesia and Argentina depressed the domestic prices of the main raw material input in Indonesia and Argentina to artificially low levels, and as a consequence, this affected the cost of biodiesel producers in both countries.

The EU authorities explained that, due to the distortions caused by the DET system in the respective countries, the costs of the main raw material were not reasonably reflected in the records kept by the producers. In the case of Indonesia, the EU authorities noted that during the investigation period, biodiesel exports were taxed between 2% and 5%, while CPO exports were taxed between 15% and 20%. The export for palm fruit was set at a rate of 40%.

The EU authorities concluded that since the DET system limits the possibility to export CPO, larger quantities of CPO are available on the domestic market, which lowers domestic CPO prices. The EU authorities noted that the domestic price of CPO was significantly lower than the international reference price, with the difference "being very close to the export tax applied to CPO".

In light of its finding that the markets were distorted, the EU authorities therefore decided to disregard the actual costs of raw materials as recorded by the Argentine and Indonesian investigated companies in their accounts and replace those costs with the price at which those companies would have purchased the raw materials in the absence of a distortion, in constructing the respective normal values of Argentine and Indonesian producers.

To replace the costs in the records of Indonesian producers, the EU authorities used the reference price (HPE) for CPO published by the Indonesian authorities.

The EU authorities explained that the published HPE price is a reference export price that is set monthly by Indonesian authorities and averages the published international prices from three different sources: cost, insurance, and freight (CIF) Rotterdam, CIF Malaysia, and the Indonesian commodity exchange market. The HPE price is set on the basis of the same sources, on a free on board (FOB) basis.

The Government of Indonesia and several Indonesian producers raised objections concerning the decision by the EU authorities to replace the recorded costs of CPO in the constructed normal value.

In the Definitive Regulation, the EU authorities confirmed their conclusion that domestic prices of CPO were artificially lower than international prices due to the distortion caused by the Indonesian DET. The EU authorities additionally confirmed their decision to use reference HPE prices published by the Indonesian authorities and rejected comments made by Indonesian producers and the Government of Indonesia.

In its analysis, the panel recalled the findings of the panel, as upheld by the Appellate Body in EU - Biodiesel (Argentina) regarding the obligations contained in Article 2.2.1.1 of the Anti-Dumping Agreement, and Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994.

"We consider the panel's findings that the European Union acted inconsistently with these provisions in that dispute are directly relevant to the assessment of Indonesia's claims in this proceeding."

The panel therefore upheld Indonesia's claim that the European Union acted inconsistently with Article 2.2.1.1 of the Anti-Dumping Agreement by failing to calculate the cost of production of the producers under investigation on the basis of the records kept by the producers.

In addition, the panel upheld Indonesia's claim that the European Union acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by using a cost for CPO that was not the cost prevailing "in the country of origin" in the construction of normal value.

The panel also noted that Indonesia claims that the method applied by the European Union to establish an amount for profits for Indonesian producers is inconsistent with Articles 2.2 and 2.2.2(iii) of the Anti-Dumping Agreement.

Indonesia alleges that the European Union's approach suffers from two main flaws. First, Indonesia claims that the European Union acted inconsistently with the requirement in Article 2.2.2(iii) to calculate a cap for profits, i.e. "the profit normally realized by other exporters or producers on sales of products of the same general category in the domestic market of the country of origin".

Second, Indonesia claims that the European Union did not determine an amount for profits on the basis of a "reasonable" method, as required under Articles 2.2 and 2.2.2(iii).

Following its analysis, the panel concluded that Indonesia has demonstrated that the European Union acted inconsistently with Article 2.2.2(iii) of the Anti-Dumping Agreement in the original investigation in determining the amount for profits for Indonesian producers by failing to determine the profit cap, i.e. "the profit normally realized by other exporters or producers on sales of products of the same general category in the domestic market of the country of origin".

As a result of this violation, Indonesia further requested that the panel find the European Union also acted inconsistently with Article 2.2 of the Anti-Dumping Agreement.

The panel noted that the chapeau of Article 2.2.2 indicates that amounts for administrative, selling, and general costs and for profits shall be determined "[f]or the purpose of paragraph 2" of Article 2 of the Anti-Dumping Agreement.

Accordingly, the panel considered that Indonesia's claim under Article 2.2 is purely consequential, and it therefore additionally found that the European Union acted inconsistently with Article 2.2 of the Anti-Dumping Agreement.

The panel rejected Indonesia's request that it find that the European Union additionally acted inconsistently with Article 2.2.2(iii) because the European Union failed to determine the amount for profit based on a "reasonable method" within the meaning of Article 2.2.2(iii) of the Anti-Dumping Agreement.

The panel concluded that there is a mandatory requirement in Article 2.2.2(iii) to calculate a profit cap, i.e. "the profit normally realized by other exporters or producers on sales of products of the same general category in the domestic market of the country of origin".

As the EU authorities did not establish, or even attempt to establish such a cap in the investigation of Indonesian producers, the panel found that Indonesia has demonstrated that the European Union acted inconsistently with Article 2.2.2(iii) of the Anti-Dumping Agreement in failing to determine the profit cap and ensure that the profit amount established by the EU authorities does not exceed such a cap.

"We concluded that the European Union also acted inconsistently with Article 2.2 of the Anti-Dumping Agreement as a result of failing to determine the profit cap. We reject, however, Indonesia's request that we find that the European Union additionally acted inconsistently with Article 2.2.2(iii) because the European Union failed to determine the amount for profit based on a "reasonable method" within the meaning of Article 2.2.2(iii) of the Anti-Dumping Agreement," said the panel.

The panel further examined Indonesia's claims that the European Union acted inconsistently with Article 2.3 and the fourth and fifth sentences of Article 2.4 of the Anti-Dumping Agreement by failing to construct the export price of one Indonesian exporting producer, P. T. Musim Mas, on the basis of the price at which the imported biodiesel produced by P. T. Musim Mas was first resold to independent buyers in the European Union.

In its analysis, the panel considered that the price charged to the first independent buyer is the starting-point for the construction of an export price under Article 2.3 of the Anti-Dumping Agreement. In constructing the export price, the panel considered that a Member must begin by determining the sum in money for which the imported product was bought by or sold to an independent buyer.

There is no further guidance to the term price in Article 2.3 relating to the price of products first resold to an independent buyer. On this basis, the panel considered that the premium that the customer pays to P. T. Musim Mas' related importer is properly considered as part of the price that is charged to first independent buyers.

Therefore, the panel found that Indonesia has established that the European Union acted inconsistently with Article 2.3 of the Anti-Dumping Agreement by failing to include the double counting premium as part of the price at which imported biodiesel produced by P. T. Musim Mas was first resold to an independent buyer within the meaning of that provision.

On whether the European Union's consideration of price effects was consistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, the panel noted that Indonesia claims that the EU authorities' consideration of the price effects of dumped imports is inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement.

Indonesia raises two main claims: (a) the EU authorities failed to ensure price comparability between imported and domestic biodiesel, by relying on low volume sales of cold filter plugging point (CFPP) 13 degrees centigrade biodiesel produced by the EU industry in calculating an adjustment to the price of Indonesian imports; and

(b) the EU authorities failed to establish the existence of significant price undercutting by failing: (i) to take into account noticeable differences between imported and domestic biodiesel; and (ii) to examine the significance of price undercutting with regard to the majority of the EU industry's sales.

Following its analysis, the panel found that Indonesia failed to establish that the European Union acted inconsistently with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, by relying on prices of CFPP 13 biodiesel produced by the EU industry in calculating an adjustment to the price of Indonesian imports.

It further found that Indonesia made a prima facie case that the EU authorities acted inconsistently with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, by failing to establish the existence of significant price undercutting with regard to Indonesian imports.

"Since that prima facie case has not been rebutted, we uphold Indonesia's claim accordingly."

On whether the European Union acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994 by imposing and levying anti-dumping duties in excess of the margins of dumping, the panel considered that "margin of dumping" referred to in Article 9.3 of the Anti-Dumping Agreement relates to a margin of dumping that is established in a manner subject to the disciplines of Article 2 of the Anti-Dumping Agreement and which is therefore consistent with those disciplines.

The panel found that Indonesia has made a prima facie case that the European Union acted inconsistently with Article 9.3 of the Anti-Dumping Agreement by imposing anti-dumping duties in excess of the margin of dumping that should have been established under Article 2 of the Anti-Dumping Agreement.

In addition, the panel found that the same considerations that informed its assessment of Indonesia's claim under Article 9.3 apply mutatis mutandis to its assessment of its Article VI:2 claim. The panel therefore also concluded that the European Union acted inconsistently with Article VI:2 of the GATT 1994.

The panel noted that Indonesia submits that the European Union committed several errors in calculating a provisional margin of dumping of 2.8% for the sampled Indonesian producer, P. T. Musim Mas, which led to an inflated provisional dumping margin that otherwise would have been negative.

Indonesia claims that the European Union acted inconsistently with a number of provisions of the Anti-Dumping Agreement because it applied and definitively collected provisional anti-dumping duties on imports from P. T. Musim Mas.

The panel said it has addressed claims raised by Indonesia under Articles 7.1(ii), 7.2, 9.2, and the chapeau of Article 9.3 of the Anti-Dumping Agreement, in relation to the European Union's determination of a provisional margin of dumping for P. T. Musim Mas that led to the subsequent application of provisional duties to P. T. Musim Mas and the definitive collection of those duties.

The panel found that Indonesia has failed to establish a basis for its claims under Articles 7.2 and 7.1(ii) of the Anti-Dumping Agreement as concerns the definitive collection of provisional anti-dumping duties on imports from P. T. Musim Mas, in the view that Indonesia does not challenge findings related to the imposition of provisional measures contained in the Provisional Regulation.

In addition, the panel rejected Indonesia's claims that the European Union acted inconsistently with Article 9.2 or the chapeau of 9.3 of the Anti-Dumping Agreement.

OVERALL CONCLUSIONS AND RECOMMENDATIONS

The panel concluded as follows:

a. the European Union acted inconsistently with Article 2.2.1.1 of the Anti-Dumping Agreement by failing to calculate the cost of production of the product under investigation on the basis of the records kept by the producers; the panel did not reach findings as to whether, as a consequence, the European Union acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994;

b. the European Union acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b) (ii) of the GATT 1994 by using a "cost" for the main input that was not the cost prevailing "in the country of origin", Indonesia;

c. the European Union acted inconsistently with Articles 2.2.2(iii) and 2.2 of the Anti-Dumping Agreement by failing to determine "the profit normally realized by other exporters or producers on sales of products of the same general category in the domestic market of the country of origin"; the panel rejected Indonesia's request that it find that the European Union additionally acted inconsistently with Article 2.2.2(iii) because the European Union failed to determine the amount for profit based on a "reasonable method" within the meaning of Article 2.2.2(iii) of the Anti-Dumping Agreement;

d. the European Union acted inconsistently with Article 2.3 of the Anti-Dumping Agreement by failing to construct the export price of one Indonesian exporting producer, P. T. Musim Mas, on the basis of the price at which the imported biodiesel produced by P. T. Musim Mas was first resold to independent buyers in the European Union;

e. Indonesia has not established that the European Union acted inconsistently with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, by relying on prices of CFPP 13 biodiesel produced by the EU industry in calculating an adjustment to the price of Indonesian imports;

f. the European Union acted inconsistently with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, by failing to establish the existence of significant price undercutting with regard to Indonesian imports;

g. the European Union acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994 by imposing anti-dumping duties in excess of the margins of dumping that should have been established under Article 2 of the Anti-Dumping Agreement and Article VI:1 of the GATT 1994, respectively;

h. Indonesia has not established that the European Union acted inconsistently with Article 7.1(ii) of the Anti- Dumping Agreement because it applied provisional measures to P. T. Musim Mas based on a WTO inconsistent preliminary determination of the existence of dumping for P. T. Musim Mas;

i. Indonesia has not established that the European Union acted inconsistently with Article 7.2 of the Anti- Dumping Agreement because it applied to P. T. Musim Mas a provisional anti-dumping duty in excess of the provisionally estimated margin of dumping for P. T. Musim Mas;

j. Indonesia has not established that the European Union acted inconsistently with Article 9.2 of the Anti- Dumping Agreement because the provisional anti-dumping duty that was applied to P. T. Musim Mas and definitively collected was not in an "appropriate amount", within the meaning of Article 9.2; and

k. Indonesia has not established that the European Union acted inconsistently with Article 9.3 of the Anti- Dumping Agreement by applying to P. T. Musim Mas and definitively collecting a provisional anti-dumping duty in excess of the provisionally estimated margin of dumping for this exporting producer.