15 June 2012
(12-3102)
Original: English
Report of the Panel
WT/DS414/R
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THE UNITED STATES 2
CHINA 4
INTRODUCTION 4
PARTIES' REQUESTS FOR CHANGES TO THE INTERIM REPORT 4
GENERAL PRINCIPLES REGARDING TREATY INTERPRETATION, THE APPLICABLE
STANDARD OF REVIEW AND BURDEN OF PROOF 8
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLES 11.2 AND 11.3 OF THE SCM AGREEMENT IN INITIATING AN INVESTIGATION WITH RESPECT TO CERTAIN PROGRAMMES 9
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLES 12.4.1 OF THE SCM AGREEMENT AND 6.5.1 OF THE ANTI-DUMPING AGREEMENT BECAUSE MOFCOM
FAILED TO REQUIRE ADEQUATE NON-CONFIDENTIAL SUMMARIES 41
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WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLE 12.7 OF THE SCM AGREEMENT IN ITS USE OF FACTS AVAILABLE IN CALCULATING THE SUBSIDY RATES
(FOR THE TWO KNOWN RESPONDENTS) UNDER CERTAIN PROCUREMENT PROGRAMMES 56
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLE 12.2.2 OF THE ANTI- DUMPING AGREEMENT BECAUSE IT DID NOT DISCLOSE THE DATA AND CALCULATIONS
USED TO ESTABLISH THE DUMPING MARGINS 76
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLE 22.3 OF THE SCM AGREEMENT BECAUSE IT FAILED TO PROVIDE SUFFICIENT INFORMATION ON THE FINDINGS AND CONCLUSIONS OF LAW IT CONSIDERED MATERIAL WITH RESPECT TO
THE BENEFIT DETERMINATION UNDER THE GOVERNMENT PROCUREMENT STATUTES 82
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLES 6.8, 6.9, 12.2, 12.2.2 AND ANNEX II OF THE ANTI-DUMPING AGREEMENT IN RELATION TO THE "ALL OTHERS"
RATE FOR UNKNOWN EXPORTERS IN THE ANTI-DUMPING DUTY INVESTIGATION 90
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLE VI:2 OF THE GATT 1994 102
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WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLES 12.7, 12.8, 22.3 AND 22.5
OF THE SCM AGREEMENT IN RELATION TO THE "ALL OTHERS" RATE FOR UNKNOWN EXPORTERS IN THE COUNTERVAILING DUTY INVESTIGATION 104
PRICE EFFECTS ANALYSIS 112
CAUSATION ANALYSIS 140
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLE 1 OF THE ANTI-DUMPING AGREEMENT AND ARTICLE 10 OF THE SCM AGREEMENT 159
CONCLUSIONS 161
RECOMMENDATION 162
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EXECUTIVE SUMMARIES OF THE FIRST WRITTEN SUBMISSIONS OF THE PARTIES
Contents | Page |
Annex-A-1 Executive Summary of the First Written Submission of the United States | A-2 |
Annex A-2 Executive Summary of the First Written Submission of China | A-11 |
WRITTEN SUBMISSIONS, OR EXECUTIVE SUMMARIES THEREOF, OF THE THIRD PARTIES
Contents | Page | |
Annex B-1 | Executive Summary of the Third Party Written Submission of Argentina | B-2 |
Annex B-2 | Executive Summary of the Third Party Written Submission of the European Union | B-4 |
Annex B-3 | Third Party Written Submission of Honduras | B-8 |
Annex B-4 | Executive Summary of the Third Party Written Submission of Japan | B-11 |
Annex B-5 | Executive Summary of the Third Party Written Submission of the Kingdom of Saudi Arabia | B-17 |
Annex B-6 | Executive Summary of the Third Party Written Submission of Korea | B-21 |
ORAL STATEMENTS OR EXECUTIVE SUMMARIES THEREOF, OF THE PARTIES AT THE FIRST SUBSTANTIVE MEETING
Contents | Page | |
Annex C-1 | Executive Summary of the Opening Statement of the United States at the First Meeting of the Panel | C-2 |
Annex C-2 | Executive Summary of the Opening Statement of China at the First Meeting of the Panel | C-10 |
Annex C-3 | Closing Statement of the United States at the First Meeting of the Panel | C-15 |
Annex C-4 | Closing Statement of China at the First Meeting of the Panel | C-17 |
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ORAL STATEMENTS OR EXECUTIVE SUMMARIES THEREOF OF THE THIRD PARTIES AT THE FIRST SUBSTANTIVE MEETING
Contents | Page | |||||||||
Annex D-1 | Third Party Oral Statement of Argentina | D-2 | ||||||||
Annex D-2 | Executive Summary European Union | of | the | Third | Party | Oral | Statement | of | the | D-4 |
Annex D-3 | Third Party Oral Statement of Honduras | D-7 | ||||||||
Annex D-4 | Executive Summary of the Third Party Oral Statement of India | D-9 | ||||||||
Annex D-5 | Third Party Oral Statement of Japan | D-14 | ||||||||
Annex D-6 | Third Party Oral Statement of the Kingdom of Saudi Arabia | D-18 | ||||||||
Annex D-7 | Third Party Oral Statement of Korea | D-20 |
EXECUTIVE SUMMARIES OF THE SECOND WRITTEN SUBMISSIONS OF THE PARTIES
Contents | Page |
Annex-E-1 Executive Summary of the Second Written Submission of the United States | E-2 |
Annex E-2 Executive Summary of the Second Written Submission of China | E-11 |
ORAL STATEMENTS OR EXECUTIVE SUMMARIES THEREOF, OF THE PARTIES AT THE SECOND SUBSTANTIVE MEETING
Contents | Page | |
Annex F-1 | Executive Summary of the Opening Statement of China at the Second Meeting of the Panel | F-2 |
Annex F-2 | Executive Summary of the Opening Statement of the United States at the Second Meeting of the Panel | F-7 |
Annex F-3 | Closing Statement of China at the Second Meeting of the Panel | F-15 |
Annex F-4 | Closing Statement of the United States at the Second Meeting of the Panel | F-17 |
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REQUEST FOR THE ESTABLISHMENT OF A PANEL
Contents | Page |
Annex G-1 Request for the Establishment of a Panel by the United States | G-2 |
RELATIONSHIP BETWEEN DOMESTIC PRODUCTION AND SUBJECT IMPORTS
Contents | Page |
Annex H-1 Relationship between domestic production and subject imports (BCI redacted) | H-2 |
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Short Title | Full Case Title and Citation |
Argentina – Ceramic Tiles | Panel Report, Argentina – Definitive Anti-Dumping Measures on Imports of Ceramic Floor Tiles from Italy, WT/DS189/R, adopted 5 November 2001, DSR 2001:XII, 6241 |
Argentina – Poultry Anti-Dumping Duties | Panel Report, Argentina – Definitive Anti-Dumping Duties on Poultry from Brazil, WT/DS241/R, adopted 19 May 2003, DSR 2003:V, 1727 |
Australia – Salmon | Appellate Body Report, Australia – Measures Affecting Importation of Salmon, WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, 3327 |
Brazil – Retreaded Tyres | Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007, DSR 2007:IV, 1527 |
Canada - Aircraft | Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/R, adopted 20 August 1999, upheld by Appellate Body Report WT/DS70/AB/R, DSR 1999:IV, 1443 |
Canada – Wheat Exports and Grain Imports | Appellate Body Report, Canada – Measures Relating to Exports of Wheat and Treatment of Imported Grain, WT/DS276/AB/R, adopted 27 September 2004, DSR 2004:VI, 2739 |
EC – Bed Linen | Panel Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/R, adopted 12 March 2001, as modified by Appellate Body Report WT/DS141/AB/R, DSR 2001:VI, 2077 |
EC – Countervailing Measures on DRAM Chips | Panel Report, European Communities – Countervailing Measures on Dynamic Random Access Memory Chips from Korea, WT/DS299/R, adopted 3 August 2005, DSR 2005:XVIII, 8671 |
EC – Fasteners (China) | Appellate Body Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011 |
EC – Fasteners (China) | Panel Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/R and Corr.1, adopted 28 July 2011, as modified by Appellate Body Report WT/DS397/AB/R |
EC – Hormones | Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135 |
EC – Salmon (Norway) | Panel Report, European Communities – Anti-Dumping Measure on Farmed Salmon from Norway, WT/DS337/R, adopted 15 January 2008, and Corr.1, DSR 2008:I, 3 |
EC – Tube or Pipe Fittings | Panel Report, European Communities – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/R, adopted 18 August 2003, as modified by Appellate Body Report WT/DS219/AB/R, DSR 2003:VII, 2701 |
Guatemala – Cement I | Panel Report, Guatemala – Anti-Dumping Investigation Regarding Portland Cement from Mexico, WT/DS60/R, adopted 25 November 1998, as reversed by Appellate Body Report WT/DS60/AB/R, DSR 1998:IX, 3797 |
Guatemala – Cement II | Panel Report, Guatemala – Definitive Anti-Dumping Measures on Grey Portland Cement from Mexico, WT/DS156/R, adopted 17 November 2000, DSR 2000:XI, 5295 |
India - Autos | Panel Report, India – Measures Affecting the Automotive Sector, WT/DS146/R, WT/DS175/R and Corr.1, adopted 5 April 2002, DSR 2002:V, 1827 |
Japan – DRAMs (Korea) | Appellate Body Report, Japan – Countervailing Duties on Dynamic Random Access Memories from Korea, WT/DS336/AB/R and Corr.1, adopted 17 December 2007, DSR 2007:VII, 2703 |
Japan – DRAMs (Korea) | Panel Report, Japan – Countervailing Duties on Dynamic Random Access Memories from Korea, WT/DS336/R, adopted 17 December 2007, as modified by Appellate Body Report WT/DS336/AB/R, DSR 2007:VII, 2805 |
Korea – Certain Paper | Panel Report, Korea – Anti-Dumping Duties on Imports of Certain Paper from Indonesia, WT/DS312/R, adopted 28 November 2005, DSR 2005:XXII, 10637 |
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Short Title | Full Case Title and Citation |
Mexico – Anti-Dumping Measures on Rice | Appellate Body Report, Mexico – Definitive Anti-Dumping Measures on Beef and Rice, Complaint with Respect to Rice, WT/DS295/AB/R, adopted 20 December 2005, DSR 2005:XXII, 10853 |
Mexico – Anti-Dumping Measures on Rice | Panel Report, Mexico – Definitive Anti-Dumping Measures on Beef and Rice, Complaint with Respect to Rice, WT/DS295/R, adopted 20 December 2005, as modified by Appellate Body Report WT/DS295/AB/R, DSR 2005:XXIII, 11007 |
Mexico – Olive Oil | Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil from the European Communities, WT/DS341/R, adopted 21 October 2008, DSR 2008:IX, 3179 |
Mexico – Steel Pipes and Tubes | Panel Report, Mexico – Anti-Dumping Duties on Steel Pipes and Tubes from Guatemala, WT/DS331/R, adopted 24 July 2007, DSR 2007:IV, 1207 |
US – Anti-Dumping and Countervailing Duties (China) | Appellate Body Report, United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R, adopted 25 March 2011 |
US – Anti-Dumping and Countervailing Duties (China) | Panel Report, United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/R, adopted 25 March 2011, as modified by Appellate Body Report WT/DS379/AB/R |
US – Countervailing Duty Investigation on DRAMS | Appellate Body Report, United States – Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/AB/R, adopted 20 July 2005, DSR 2005:XVI, 8131 |
US – Countervailing Duty Investigation on DRAMS | Panel Report, United States – Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/R, adopted 20 July 2005, as modified by Appellate Body Report WT/DS296/AB/R, DSR 2005:XVII, 8243 |
US – Export Restraints | Panel Report, United States – Measures Treating Exports Restraints as Subsidies, WT/DS194/R and Corr.2, adopted 23 August 2001, DSR 2001:XI, 5767 |
US – Hot-Rolled Steel | Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August 2001, DSR 2001:X, 4697 |
US – Offset Act (Byrd Amendment) | Panel Report, United States – Continued Dumping and Subsidy Offset Act of 2000, WT/DS217/R, WT/DS234/R, adopted 27 January 2003, as modified by Appellate Body Report WT/DS217/AB/R, WT/DS234/AB/R, DSR 2003:II, 489 |
US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina) | Panel Report, United States – Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina – Recourse to Article 21.5 of the DSU by Argentina, WT/DS268/RW, adopted 11 May 2007, as modified by Appellate Body Report WT/DS268/AB/RW, DSR 2007:IX-X, 3609 |
US – Softwood Lumber II | GATT Panel Report, Panel on United States – Measures Affecting Imports of Softwood Lumber from Canada, SCM/162, adopted 27 October 1993, BISD 40S/358 |
US – Softwood Lumber IV | Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004, DSR 2004:II, 571 |
US – Softwood Lumber IV | Panel Report, United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/R and Corr.1, adopted 17 February 2004, as modified by Appellate Body Report WT/DS257/AB/R, DSR 2004:II, 641 |
US – Softwood Lumber V | Panel Report, United States – Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/R, adopted 31 August 2004, as modified by Appellate Body Report WT/DS264/AB/R, DSR 2004:V, 1937 |
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Short Title | Full Case Title and Citation |
US – Softwood Lumber VI (Article 21.5 – Canada) | Appellate Body Report, United States – Investigation of the International Trade Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of the DSU by Canada, WT/DS277/AB/RW, adopted 9 May 2006, and Corr.1, DSR 2006:XI, 4865 |
US – Tyres (China) | Appellate Body Report, United States – Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China, WT/DS399/AB/R, adopted 5 October 2011 |
US – Wool Shirts and Blouses | Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, and Corr.1, DSR 1997:I, 323 |
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Abbreviation | Full Reference |
Additional Application | New Subsidy Allegations Application (20 July 2009) (Exhibits CHN-5 and US-16) |
AK Steel | AK Steel Corporation |
Anti-Dumping Agreement | Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 |
Application | Petition for the Anti-Dumping and Anti-Subsidy Investigation (29 April 2009) (Exhibits CHN-2 and US-2) |
ATI | ATI Allegheny Ludlum Corporation |
AUV | Average unit value |
Baosteel | Baosteel Group Corporation |
DSU | Understanding on Rules and Procedures Governing Settlement of Disputes |
Final Determination | MOFCOM, Final Determination [2010] No. 21 (10 April 2010) (Exhibits CHN-16 and US-28) |
Final Disclosure | MOFCOM, Memorandum Regarding the Factual Disclosure on the Dumping Margin and Ad Valorem Subsidy Rate for Grain Oriented Flat-Rolled Electrical Steel Antidumping and Countervailing Cases (15 March 2010) (Exhibit US-26) |
Final Injury Disclosure | MOFCOM, Essential Facts under Consideration which Form the Basis of the Determination on Industry Injury, 5 March 2010 (Exhibits CHN-29 and US-27) |
GATT 1994 | General Agreement on Tariffs and Trade 1994 |
GOES | Grain oriented flat-rolled electrical steel |
MOFCOM | Ministry of Commerce of the People's Republic of China |
POI | Period of investigation |
Preliminary Determination | MOFCOM, Preliminary Determination [2009] No. 99 (10 December 2009) (Exhibits CHN-17 and US-5) |
SCM Agreement | Agreement on Subsidies and Countervailing Measures |
USD | US dollars |
VRA | Voluntary restraint agreement |
WISCO | Wuhan Iron and Steel Corporation |
WTO Agreement | Marrakesh Agreement Establishing the World Trade Organization |
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On 15 September 2010, the United States requested consultations with China under Articles 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the DSU), Article XXII:1 of the General Agreement on Tariffs and Trade of 1994 (the GATT 1994), Article 30 of the Agreement on Subsidies and Countervailing Measures (the SCM Agreement) (to the extent that Article 30 incorporates Article XXIII of the GATT 1994), and Article 17.3 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the Anti- Dumping Agreement) with respect to China's measures imposing countervailing duties and anti- dumping duties on grain oriented flat-rolled electrical steel (GOES) from the United States, as set forth in the Ministry of Commerce of the People's Republic of China (MOFCOM) Notice No. 21 [2010], including its annexes.1 The consultations were held on 1 November 2010. The consultations failed to resolve the dispute.
On 11 February 2011, the United States requested, pursuant to Article 6 of the DSU, Article 17.4 of the Anti-Dumping Agreement, and Article 30 of the SCM Agreement, that the Dispute Settlement Body (the DSB) establish a Panel to examine this matter.2
At its meeting on 25 March 2011, the DSB established a panel pursuant to the request of the United States in document WT/DS414/2, in accordance with Article 6 of the DSU.
The Panel's terms of reference are the following:
To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by the United States in document WT/DS414/2 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.
Following the agreement of the parties, the Panel was composed on 10 May 2011 as follows: Chairman: Mr John Adank
Members: Mr Anthony Abad
Mr Jan Heukelman
Argentina; the European Union; Honduras; India; Japan; Korea; Saudi Arabia and Viet Nam reserved their rights to participate in the Panel proceedings as third parties.
The Panel met with the parties on 15-16 September and 6-7 December 2011. It met with the third parties on 16 September 2011. The Panel issued its interim report to the parties on 24 February 2012. The Panel issued its final report to the parties on 1 May 2012.
The United States challenges various aspects of the measures imposing countervailing duties and anti-dumping duties on GOES from the United States. The measures are set forth in MOFCOM's Notice No. 21 [2010], including its annexes.3 The United States claims that the measures are
1 WT/DS414/1.
2 WT/DS414/2.
3 Final Determination [2010] No. 21 (10 April 2010) ("Final Determination"), Exhibit CHN-16 and Exhibit US-28.
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inconsistent with China's commitments and obligations under the GATT 1994, the Anti-Dumping Agreement and the SCM Agreement.
An application for initiation of an anti-dumping and countervailing duty investigation was filed on 29 April 2009 by two Chinese steel producers, namely Wuhan Iron and Steel (Group) Corporation (WISCO) and Baosteel Group Corporation (Baosteel). The applicants alleged that 27 federal and state laws provided countervailable subsidies to the United States producers of GOES. The application also estimated a dumping margin for GOES imports from the United States of 25%. Finally, the application alleged that the imports of GOES from the United States and Russia caused and threatened injury to the Chinese domestic industry. On 1 June 2009, MOFCOM initiated anti- dumping, countervailing duty and injury investigations. In the countervailing duty initiation notice, MOFCOM initiated on 22 of the 27 federal and state laws that the applicants had alleged provided countervailable subsidies. On 20 July 2009, the applicants filed new subsidy allegations regarding a further 10 federal and state laws. On 19 August 2009, MOFCOM initiated an investigation covering six of these programmes.
On 10 December 2009, MOFCOM published its preliminary determination. MOFCOM calculated ad valorem subsidy rates of 11.7% for AK Steel Corporation (AK Steel) and 12% for ATI Allegheny Ludlum Corporation (ATI). The "all others" subsidy rate reported in the preliminary determination was 12%. MOFCOM calculated preliminary dumping margins of 10.7% for AK Steel, 19.9% for ATI and 25% for "all others".
Prior to issuing its final determination, MOFCOM released a final disclosure document, in which it revealed that the "all others" subsidy and dumping rates had increased to 44.6% and 64.8% respectively.
On 10 April 2010, MOFCOM issued its final determination for the anti-dumping and countervailing duty investigations. MOFCOM calculated ad valorem subsidy rates of 11.7% for AK Steel, 12% for ATI and 44.6% for "all others". MOFCOM applied a dumping margin of 7.8% to AK Steel, 19.9% to ATI and 64.8% to "all others". MOFCOM found that China's domestic GOES industry sustained material injury and that there was a causal link between the injury and the dumped imports of GOES from Russia and the dumped and subsidized imports of GOES from the United States.
THE UNITED STATES
In its written submissions, the United States requested the Panel to find:
China acted inconsistently with Articles 11.2 and 11.3 of the SCM Agreement when it initiated a countervailing duty investigation with respect to 11 of the programmes included in the application;
China acted inconsistently with Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement because it failed to require adequate non-confidential summaries of confidential information included in the application;
China acted inconsistently with Article 12.7 of the SCM Agreement because its use of facts available for known exporters was improper;
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China acted inconsistently with Article 12.2.2 of the Anti-Dumping Agreement because it failed to make available to the respondent companies the calculations used to determine these companies' final dumping margins;
China acted inconsistently with Article 22.3 of the SCM Agreement because it failed adequately to explain the findings and conclusions supporting its determination that the competitive bidding process under the United States Government procurement statutes at issue did not result in prices that reflected market conditions;
China acted inconsistently with Articles 6.8 and 6.9 of the Anti-Dumping Agreement because it applied anti-dumping duties based on facts available to "unknown" United States exporters and did not disclose the essential facts that led to that result;
China acted inconsistently with Articles 12.2 and 12.2.2 of the Antidumping Agreement because MOFCOM failed to provide in sufficient detail the findings and conclusions leading to application of facts available to "unknown" United States producers/exporters. MOFCOM also failed to provide "all relevant information" on the facts underlying its determination that recourse to facts available was warranted in the calculation of the "all others" antidumping rate;
China acted inconsistently with Article VI:2 of the GATT 1994 because the "all others" anti-dumping duty levied by China was greater in amount than the appropriate margin of dumping;
China acted inconsistently with Articles 12.7, 12.8, 22.3 and 22.5 of the SCM Agreement because it applied countervailing duties based on facts available to "unknown" United States exporters and provided no detail in its final determination or final disclosure documents regarding the findings that led to the application of facts available;
China acted inconsistently with Articles 3.1, 3.2, 6.9 and 12.2.2 of the Anti-Dumping Agreement and Articles 15.1, 15.2, 12.8 and 22.5 of the SCM Agreement because its price effects analysis was not based on positive evidence and it did not engage in an objective examination of the evidence. Further, China did not disclose the essential facts supporting its price effects analysis and did not offer an adequate explanation for its price effects findings;
China acted inconsistently with Articles 3.1, 3.5, 6.9 and 12.2.2 of the Anti-Dumping Agreement and Articles 12.8, 15.1, 15.5 and 22.5 of the SCM Agreement because its causation analysis was not supported by positive evidence or based on an objective examination of the evidence. Further, China failed to disclose the essential facts supporting its analysis and did not provide an adequate explanation for its causation findings; and
Consequently, China also acted inconsistently with Article 1 of the Anti-Dumping Agreement and Article 10 of the SCM Agreement.
Pursuant to Article 19.1 of the DSU, the United States requests the Panel to recommend that China bring its measures into conformity with the Anti-Dumping Agreement, the SCM Agreement and the GATT 1994.
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CHINA
China requests the Panel to reject the United States' claims in their entirety, finding instead that, with respect to each of them, China acted consistently with all of its obligations under the WTO Agreements.
4.1 The arguments of the parties are set out in their written submissions, oral statements to the Panel and their answers to questions. Executive summaries of the parties' written submissions, and their oral statements or executive summaries thereof, are attached as addenda to this Report in Annexes A, C, E and F (see List of Annexes, pages iv-vi).
5.1 India and Viet Nam did not submit third party written submissions, while Viet Nam did not submit a third party oral statement. The arguments of Argentina; the European Union; Japan and Korea are set out in their written submissions, oral statements and answers to questions. The arguments of Honduras and Saudi Arabia are set out in their written submissions and oral statements. The arguments of India are set out in its oral statement. The third parties' written submissions and oral statements, or executive summaries thereof, are attached as addenda to this Report in Annexes B and D (see List of Annexes, pages iv-vi).
INTRODUCTION
On 24 February 2012, the Panel submitted its Interim Report to the parties. On 16 March 2012, both parties submitted written requests for review of precise aspects of the Interim Report. On 30 March, the United States submitted comments on China's requests for review. Neither party requested that the Panel hold an interim review meeting.
The Panel explains below its response to issues of a substantive nature raised by the parties in their comments on the Interim Report. The Panel has also corrected a number of typographical errors identified by the parties.
Due to changes as a result of our review, the numbering of the footnotes in the Final Report has changed from the Interim Report. The text below refers to the footnote numbers in the Interim Report, with the footnote number in the Final Report in parentheses for ease of reference.
PARTIES' REQUESTS FOR CHANGES TO THE INTERIM REPORT
China submits that the Panel's description of its argument regarding whether the United States made a prima case under Article 11 is incomplete. China requests that the Panel supplement the description to reflect the argument that the United States failed to engage in a serious evaluation of the evidence that accompanied the application at issue.
The United States does not agree that the Interim Report incorrectly characterizes China's argument. However, if the Panel agrees to amend the description of China's argument, the United States requests that the Panel note the sections of the United States' first and second written submissions where it addressed the contents of the application and each allegation.
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The Panel has expanded upon its description of China's argument in paragraph 7.28, so that it is in the level of detail requested by China. The Panel has also accepted the United States' request, by referencing the sections of its submissions that the United States relies upon as addressing the contents of the application (see footnote 19).
The United States requests some minor changes to the wording in the penultimate sentence of paragraph 7.91, in order to add greater clarity to the sentence.
China does not comment on this request.
The Panel has decided to accommodate the United States' request and has made the adjustments sought.
The United States submits that the Panel should change references to the "Economic Stimulus Package" to the "Economic Stimulus Plan" in its own descriptions of the alleged subsidy and when describing the arguments made by the United States, as this is the correct terminology.
China does not comment on this request.
The Panel notes that Exhibits CHN-8 and US-29 refer to the programme at issue as the "Economic Stimulus Plan" rather than the "Economic Stimulus Package". Therefore, the Panel has accommodated the United States' request.
The United States suggests a minor change to the wording of the final sentence of paragraph 7.206.
China does not comment on this request.
In the Panel's view, the United States' suggested change does not alter the meaning of the sentence, but perhaps makes the Panel's statement in the sentence more definitive. The Panel has decided to accommodate the United States' request in order to add greater clarity and force to the sentence at issue.
China submits that the first sentence of paragraph 7.365 should be struck from the Report. The sentence in question states: "[a]rguably, if the United States' claim were one of substance, regarding for example the benefit determination under Articles 1.1(b) or 14(d) of the SCM Agreement, we may find certain problems with the reasoning used by MOFCOM".
The United States does not comment upon China's request.
The Panel has removed the sentence from the Report, on the basis that it is not strictly necessary to its reasoning. The Panel has also added a new footnote to paragraph 7.365 (footnote 357) to emphasise that the United States' claim was not one of substance and Article 22.3 of the SCM Agreement does not discipline the substantive adequacy of an investigating authority's reasoning.
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China argues that the Panel's use of the terms "regrettably", "failed to", "failure" and "impaired", as used variously in paragraphs 7.527, 7.629, 7.635 and footnote 601 (footnote 604 in the Final Report), is inappropriate. According to China, these terms convey value judgments that are not appropriate in a panel's description of what happened during the course of panel proceedings. Further, China argues that the term "impaired" may inadvertently reflect some judgment by the Panel of intent by China to frustrate the Panel's analysis. According to China, where there is no breach of the relevant general and/or special panel working procedures, it is inappropriate for a panel to use language that suggests a motive or intent outside the confines of these rules and obligations.
The United States disagrees with China's objections and argues that other panels have used the term "regret" to refer to the conduct of a party during a proceeding. 4 Further, the term "impaired" was used by the Panel as part of a factual statement about the impact on the Panel's work.
The Panel has reflected on the terminology used in the paragraphs at issue and, where it considers appropriate, has made some of the changes requested by China.
China considers the Panel's statement in the fifth sentence of paragraph 7.530, namely that "such prices should be adjusted to ensure that they are properly comparable", suggests that the Panel is articulating a mandatory methodology the authority must follow. China believes it would be more appropriate to state that the authority should either adjust the prices to ensure comparability, or otherwise explain why specific adjustments are not necessary in a particular situation. China suggests that there may be cases in which adjustments would be immaterial. For example, China posits a scenario in which there are two grades of a product, one priced at $10/unit and one priced at $12/unit. China suggests that, if there were a finding of price undercutting of $5/unit, any adjustment would be immaterial, since the $2/unit difference between the two products could never change the overall existence of undercutting.
The United States disagrees that the Panel's statement is articulating a mandatory methodology that authorities must follow. The United States understands the point in the final clause of the sentence to be that when making a finding of price undercutting, the prices being compared need to be comparable. The United States asserts that China's proposed revision of the second clause would appear to provide an authority with the ability to use non-comparable prices. The United States also asserts that China's hypothetical is confusing since it appears to be referring to two different domestic prices, while the Panel is discussing the comparison between imported and domestic prices. Should the Panel decide to rephrase the last clause of the sentence, the United States suggests that the clause could be rephrased as: "and the authority should ensure that the prices it is using for its comparison are properly comparable."
The Panel has decided to adjust the fifth sentence of the paragraph to clarify that, for the purpose of price comparisons, prices should always be comparable.
China suggests deleting the last sentence of footnote 525 (footnote 528 in the Final Report) at paragraph 7.549. According to China, there is no basis before the Panel to express any opinion on
4 The United States refers in this regard to the Panel Report, Canada – Aircraft, para. 9.178, and Panel Report, India – Autos, para. 6.54.
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whether new capacity has higher costs than expanding existing capacity. China contends that the Panel might properly note this as an issue the authority should address, but the Panel should not use any language that prejudges what the authority might find on this issue.
The United States contends that the last sentence of footnote 525 (footnote 528 in the Final Report) accurately describes the record before the Panel and should not be deleted. The Panel correctly observed that the United States explained that improvements in existing facilities were unlikely to engender the same degree of start-up costs as opening an entirely new facility. The United States contends that if this statement were not true, China (unlike the United States) had access to the information from the confidential MOFCOM record with which to rebut it. China did not do so.
The Panel has decided not to accommodate China's request. The United States' argument that creating new capacity is likely to incur greater costs than merely improving existing capacity is relevant to the Panel's findings. In making its findings, the Panel is entitled to rely on relevant United States arguments that were not contested by China.
China disagrees with the first sentence of paragraph 7.630, and the last two sentences of footnote 602 (footnote 605 in the Final Report). China submits that the first sentence of paragraph 7.630 and the entire footnote 602 (footnote 605 in the Final Report) are unnecessary to the Panel's analysis and should be deleted. China asserts that the relevant issue is completely addressed by paragraph 7.632. China submits that, although it may not have been able to provide the precise number for the capacity utilization in 2008 because of confidentiality concerns, China did provide a confidential range that provided upper and lower limits that more narrowly prescribed the actual number. China contends that when a party provides a range and states the actual number is within that range, it is no longer reasonable for the other party to make assumptions that generate a number outside the range.
The United States disagrees with China's request that the Panel delete the first sentence of paragraph 7.630 and footnote 602 (footnote 605 in the Final Report). According to the United States, the first sentence of paragraph 7.630 is a factually accurate description of the United States' argument and China has no basis to object to the inclusion of a United States argument in the Report. The United States further asserts that the statement and accompanying footnote are directly related to the remainder of paragraph 7.630 so they are not "unnecessary" and should be retained. Finally, with respect to China's use of a range of numbers, the United States considers that the Panel properly noted in the final sentence of footnote 602 (footnote 605 in the Final Report) that China's mere assertion of error, without providing the actual underlying data, is insufficient to reject the basic point being made by the United States.
The Panel has decided not to accommodate China's request. The first sentence of paragraph 7.630 describes an argument made by the United States that is highly relevant to the Panel's subsequent analysis. Furthermore, footnote 602 (footnote 605 in the Final Report) clarifies the reasons the Panel was not able to reject the United States' argument on the basis of China's simple assertion of error.
China believes the statement "it is clear" in the second sentence of paragraph 7.637 is inappropriate. Given the Panel's earlier discussion of the limitations on its analysis, China contends that it is hard to see how the conclusion could be "clear". In this situation, China believes the phrase "it appears" more appropriately describes the situation.
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The United States asserts that the fact that the information available to the Panel was limited does not mean that there can be no clear conclusions drawn from it. Moreover, the Panel's statement is qualified by stating the increase was "at least" partially responsible for the accumulation of inventory. According to the United States, therefore, the Panel's use of the phrase "it is clear" is entirely appropriate.
The Panel has reconsidered the wording it used in the second sentence of paragraph 7.637 and has decided to adjust it to accommodate China's request.
GENERAL PRINCIPLES REGARDING TREATY INTERPRETATION, THE APPLICABLE STANDARD OF REVIEW AND BURDEN OF PROOF
Article 3.2 of the DSU provides that the dispute settlement system serves to clarify the existing provisions of the covered agreements "in accordance with customary rules of interpretation of public international law". It is generally accepted that the principles codified in Articles 31 and 32 of the Vienna Convention on the Law of Treaties are such customary rules.5
Panels generally are bound by the standard of review set forth in Article 11 of the DSU, which provides, in relevant part, that:
[A] panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements. 6 (emphasis added)
According to the Appellate Body, the "objective assessment" to be made by a panel reviewing an investigating authority's determination is to be informed by an examination of whether the agency provided a reasoned and adequate explanation as to: (i) how the evidence on the record supported its factual findings; and (ii) how those factual findings supported the overall determination.7
The Appellate Body has also commented that a panel reviewing an investigating authority's determination may not conduct a de novo review of the evidence or substitute its judgment for that of the investigating authority. A panel must limit its examination to the evidence that was before the agency during the course of the investigation and must take into account all such evidence submitted by the parties to the dispute.8 At the same time, a panel must not simply defer to the conclusions of the investigating authority. A panel's examination of those conclusions must be "in-depth" and "critical and searching".9
5 Done at Vienna, 23 May 1969, 1155 United Nations Treaty Series 331 (1980); 8 International Legal
Materials 679 (1969).
6 Further to Article 11 of the DSU, Article 17.6 of the Anti-Dumping Agreement sets forth a specific standard of review applicable to anti-dumping disputes.
7 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 186. 8 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 187. 9 Appellate Body Report, US – Softwood Lumber VI (Article 21.5 - Canada), para. 93.
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The general principles applicable to the allocation of the burden of proof in WTO dispute settlement require that a party claiming a violation of a provision of a WTO Agreement must assert and prove its claim.10 Therefore, as the complaining party, the United States bears the burden of demonstrating that certain aspects of the anti-dumping and countervailing duty measures at issue are inconsistent with the Anti-Dumping Agreement, the SCM Agreement and the GATT 1994. The Appellate Body has stated that a complaining party will satisfy its burden when it establishes a prima facie case, namely a case which, in the absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule in favour of the complaining party.11 Finally, it is generally for each party asserting a fact to provide proof thereof.12
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLES 11.2 AND 11.3 OF THE SCM AGREEMENT IN INITIATING AN INVESTIGATION WITH RESPECT TO CERTAIN PROGRAMMES
The United States' claim relates to Articles 11.2 and 11.3 of the SCM Agreement. These provide, relevantly:
An application under paragraph 1 shall include sufficient evidence of the existence of (a) a subsidy and, if possible, its amount, (b) injury within the meaning of Article VI of GATT 1994 as interpreted by this Agreement, and (c) a causal link between the subsidized imports and the alleged injury. Simple assertion, unsubstantiated by relevant evidence, cannot be considered sufficient to meet the requirements of this paragraph. The application shall contain such information as is reasonably available to the applicant on the following:
...
(iii) evidence with regard to the existence, amount and nature of the subsidy in question.
The authorities shall review the accuracy and adequacy of the evidence provided in the application to determine whether the evidence is sufficient to justify the initiation of an investigation.
On 27 April 2009, two Chinese steel producers, WISCO and Baosteel, filed an application with MOFCOM, requesting relief under China's anti-dumping and countervailing duty laws on behalf of China's domestic GOES industry. The applicants alleged that United States producers of GOES, in particular, AK Steel and ATI, had engaged in injurious dumping and had benefited from various countervailable subsidies.
In relation to the subsidies, the applicants alleged that 27 federal and state laws, including several federal procurement statutes, provided countervailable subsidies to the United States companies. On 1 June 2009, MOFCOM initiated a countervailing duty investigation in relation to 22 of the 27 programmes included in the application.
10 Appellate Body Report, US – Wool Shirts and Blouses, p. 14.
11 Appellate Body Report, EC – Hormones, para. 104.
12 Appellate Body Report, US – Wool Shirts and Blouses, p. 14.
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On 20 July 2009, the applicants filed new subsidy allegations regarding 10 federal and state laws. MOFCOM initiated a countervailing duty investigation in relation to six of the programmes included in the additional application.
In its claim under Articles 11.2 and 11.3 of the SCM Agreement, the United States challenges the initiation of an investigation in relation to six of the programmes included in the original application and five of the programmes included in the additional application. Therefore, the United States' challenge regarding the initiation of the investigation relates to 11 programmes, namely the Medicare Prescription Drug, Improvement and Modernization Act of 2003; the Economic Recovery Tax Act of 1981, the Tax Reform Act of 1986; the Steel Import Stabilization Act of 1984; the State of Indiana Steel Industry Advisory Service; grace periods for meeting the Clean Air Act emissions standards; the "supply of electricity to the steel industry at a low price"; the "supply of natural gas to the steel industry at a low price"; a "subsidy to coal for the steel industry"; the 2003 Economic Stimulus Plan of Pennsylvania; and Pennsylvania's Alternative Energy Funding Program.
According to the United States, the initiation by MOFCOM of the countervailing duty investigation in relation to 11 United States federal and state programmes was inconsistent with Articles 11.2 and 11.3 of the SCM Agreement.
Article 11.2 of the SCM Agreement
The United States notes that Article 11.2 requires that "an application…shall include sufficient evidence of the existence of…a subsidy". Read in the context of Article 1 of the SCM Agreement, Article 11.2 requires that an application to initiate a countervailing duty investigation include sufficient evidence of the existence of a financial contribution, a benefit (requirements for the existence of a subsidy) and specificity (since Part III of the SCM Agreement applies only if a subsidy is specific).13 According to the United States, Article 11.2(iii), which refers to evidence "with regard to the existence, amount and nature of the subsidy in question", supports its position.14
With respect to what evidence is "sufficient" in a petition, the United States refers to the second sentence of Article 11.2, which provides that "simple assertion, unsubstantiated by relevant evidence, cannot be considered sufficient".15 To meet the standard for "sufficient evidence", an application must contain a degree of actual evidence.16 The panel in US - Offset Act (Byrd Amendment) noted that Article 11.2 ensures that "investigations are not initiated on the basis of frivolous or unfounded suits".17 The United States also argues that while it is not necessary for an applicant definitively to establish the existence of each element of a specific subsidy at the time of lodging a petition, there must be at least some evidence of financial contribution, benefit and specificity. The United States rejects China's attempt to rely on "the broader context provided by the application" in place of evidence for one or more of the necessary elements.18
In relation to the GOES investigation, the United States argues that for 11 of the programmes investigated by MOFCOM, the initial and additional applications included no evidence of basic
13 United States' first written submission, para. 74 and United States' response to Panel question 37.
14 United States' first written submission, para. 74.
15 United States' first written submission, para. 74.
16 United States' second written submission, para 4, citing Panel Reports, Mexico – Steel Pipes and
Tubes, para. 7.24 and Guatemala – Cement II, para. 8.53 (both discussing Article 5.2 of the Anti-Dumping Agreement).
17 United States' first written submission, para. 74, quoting Panel Report, US – Offset Act (Byrd Amendment), para. 7.61
18 United States' response to Panel question 1, para. 6.
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subsidy elements and were based on simple assertion. Further, the applications did not state that relevant information was not "reasonably available".19 The United States alleges deficiencies in the application in relation to the following programmes:
Medicare Prescription Drug, Improvement and Modernization Act
The United States argues that the application included no evidence indicating that the alleged subsidy was specific. According to the United States, the statement in the AK Steel Annual Report indicating that AK Steel sponsors the relevant type of healthcare plan to qualify for the subsidy does not indicate that the company was the only such company to do so, or that it was one of a limited group of such companies. Further, there was no evidence to indicate that "sponsors of retiree healthcare benefit plans that included a qualified prescription drug benefit" was a de jure or de facto specific group.
Economic Recovery Tax Act of 1981
The United States notes that the Economic Recovery Tax Act of 1981 was in effect for only two years and ceased to operate 27 years prior to the period of investigation. The United States argues that the application contained no evidence indicating that a benefit existed during the period of investigation. According to the United States, China's speculation, after the fact, that it is possible the subsidy could have been allocated over time, and that the allocation period, which was never alleged in the first place, could have exceeded 20 years, is inadequate to support a decision to initiate.20
Tax Reform Act of 1986
The United States complains that the applicant failed to provide any evidence indicating that a benefit could exist during the period of investigation in relation to subsidies allegedly provided 24 years prior to this period. 21
Steel Import Stabilization Act of 1984
According to the United States, the application was deficient due to lack of evidence of the existence of a financial contribution. The application alleged that the voluntary restraint agreements (VRAs) established under the Steel Import Stabilization Act constituted a price support mechanism within the meaning of Article 1.1(a)(2) of the SCM Agreement.22 However, the sole evidence relied upon by the petitioner was that the VRAs "effectively provided" steel producers with a price support mechanism. According to the United States, this is not evidence that the VRAs constituted "price support" within the meaning of the SCM Agreement.23
State of Indiana Steel Advisory Service
The United States argues that the application included no evidence that the State of Indiana Advisory Service constitutes a financial contribution. The applicant merely stated that the Advisory Service constitutes the provision of a good or service and that the programme was "indicative" of a
19 United States' first written submission, paras. 76-77. The United States responds to China's argument that it did not engage in a serious evaluation of the evidence that accompanied the application and therefore did not make a prima facie case under Article 11, by noting that it addressed the contents of the application and each allegation at para. 78 of its first written submission, paras. 4-36 of its second written submission and in Exhibits US-2, US-16, US-29, US-30 and US-31.
20 United States' opening statement at the first meeting of the Panel, para. 8.
21 United States' second written submission, para. 13. 22 United States' second written submission, para. 14. 23 United States' second written submission, para. 15.
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financial contribution and could "quite plausibly" have constituted a financial contribution.24 The United States contends that no evidence was provided indicating that a study would be performed under the programme and, even if it were, whether it would be available to the steel industry. Finally, the United States argues that the application did not indicate what the benefit under the programme would be.25
Grace periods for compliance with the Clean Air Act
According to the United States, the application appears to allege that steel companies were given a three year postponement for compliance with certain environmental standards in the Clean Air Act and that this "special environmental immunity is virtually an income support to the steel industry". However, the United States argues that the application included insufficient evidence of actual income or price support within the meaning of Article 1.1(a)(2) of the SCM Agreement.26 With respect to benefit, the United States notes that the "special environmental immunity" ended on 31 December 1985. The applicant did not provide evidence indicating how a benefit could exist in relation to a grace period that expired more than 20 years prior to the start of the period of investigation.27
2003 Economic Stimulus Plan of Pennsylvania
According to the United States, the petition did not include sufficient evidence of specificity in relation to the 2003 Economic Stimulus Plan of Pennsylvania. Noting that there are steel production facilities in Pennsylvania does not constitute evidence that steel is a "favoured" industry. Although a focal point of the programme was to provide "[r]esources that allow our traditional industries, especially manufacturing, to access new technology", the United States argues that this was only one of seven focal points. In fact, the Plan "sought to serve a wide variety of economic sectors, industries and firms".28
Pennsylvania's Alternative Energy Funding Programme
The United States argues that the application was deficient in providing evidence of specificity. The application asserted that "looking at the full range, the applicants could easily discover the fact that…most…grantees were from energy or steel industries" and that the steel industry "was absolutely one of the most important receivers". The United States argues that it is unclear how these statements provide sufficient evidence of specificity.29 The United States also argues that the application did not provide evidence of the existence of a benefit. MOFCOM ignored evidence provided by the United States demonstrating that, for the most part, the programme was not operational during the period of investigation. For the part of the programme that was operational, the United States provided evidence that the respondent companies did not receive a benefit.
Natural Gas
The United States argues that the petition included no evidence of a financial contribution, benefit or specificity in relation to the allegation that GOES producers received a countervailable
24 United States' second written submission, paras. 16-17. 25 United States' second written submission, paras. 16-17. 26 United States' second written submission, para. 18.
27 United States' second written submission, para. 20. In response to Panel question 39, the
United States confirms that it is not challenging MOFCOM's initiation of an investigation with respect to the 1990 amendments to the Clean Air Act.
28 United States' second written submission, paras. 28-30; United States' response to Panel question 5, paras. 13-15 and United States' opening statement at the first meeting of the Panel, para. 7.
29 United States' second written submission, para. 32.
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subsidy through the pricing of natural gas. The evidence provided by the applicants demonstrated that the natural gas market was deregulated in 1985, at which time users negotiated directly with producers to set prices.30 China does not point to any evidence in the application to indicate that the United States Government sets prices, let alone sets prices in a discriminatory manner. Further, price differentiation is not, in and of itself, evidence of specificity. Finally, to the extent the applicants argued that subsidies were provided to natural gas producers, China cannot point to any evidence in the application to indicate pass-through of such subsidies.31
Electricity
According to the United States, the petitioners' allegation that GOES producers received a subsidy through the pricing of electricity was not supported by evidence of a financial contribution, benefit or specificity. The evidence in the petition was consistent with the fact that, while the United States Government regulates the provision of electricity, it does not set retail electricity prices. Further, the evidence did not support the applicant's assertion that the United States Government sets preferential prices for certain industries and regions. Price differentiation is not, in and of itself, evidence of specificity and China cannot point to any evidence indicating that the United States Government sets prices in a discriminatory fashion.32 In addition, the United States notes that, to the extent the applicants argued that subsidies were provided to electricity producers, no evidence was cited indicating pass-through of such subsidies to the steel industry.33
Coal
The United States notes that there was no evidence in the application that any subsidization to the coal industry passes-through to the steel industry. This was merely asserted by the applicants. Further, China cannot point to any evidence that the United States Government sets the price for coal or in any way sells coal to the steel industry on preferential terms.
Article 11.3 of the SCM Agreement
The United States claims that China acted inconsistently with its obligations under Article 11.3 because MOFCOM failed to examine the accuracy and adequacy of the evidence provided to substantiate the existence of a subsidy. Regarding the correct interpretation of Article 11.3, the United States cites the panel's interpretation of the analogous provision under the Anti-Dumping Agreement in US – Softwood Lumber V, in particular that a panel should determine "whether an unbiased and objective investigating authority would have found that the application contained sufficient information to justify initiation of the investigation".34
According to the United States, for many of the programmes included in the petition, evidence of the basic subsidy elements was missing. The United States argues that no reasonable investigating authority would have initiated an investigation of the 11 programmes at issue.35 Prior to the initiation, the United States highlighted to MOFCOM the problems with the application. Notwithstanding the information provided to it by the United States, MOFCOM initiated the countervailing duty investigation with respect to all of the programmes at issue.36
30 United States' second written submission, para. 23.
31 United States' second written submission, paras. 24-25.
32 United States' second written submission, para. 21. 33 United States' second written submission, para. 21. 34 United States' first written submission, para. 79.
35 United States' first written submission, para. 80.
36 United States' first written submission, para. 80 and second written submission, para. 36.
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China disputes the United States' claim that MOFCOM acted inconsistently with Articles 11.2 and 11.3 of the SCM Agreement. In fact, China contends that the United States has not made a prima facie case with respect to its Article 11 claims. In particular, China argues in its first and second written submissions that the United States failed to engage in a serious evaluation of the evidence that accompanied the application at issue. Rather, the United States simply asserted that "the petition did not contain any evidence" of one or more elements of an actionable subsidy, without referring to the information accompanying the application.37 China also argues that the allegation that the application failed adequately to allege one or more elements of a subsidy with respect to each of the 11 programmes at issue is in fact incorrect.
Article 11.2 of the SCM Agreement
According to China, Article 11.2 of the SCM Agreement contains a low application threshold that requires far less substantiation and analysis than claimed by the United States.38 The objective of Article 11.2 is to limit the evidentiary burden on the applicant. Although China agrees with the United States that Article 11.2 requires evidence of a financial contribution, benefit and specificity, this is qualified by the chapeau to Article 11.2, which requires only the information "reasonably available to the applicant".39 China argues that, given the lack of any direct reference to "specificity" in Article 11.2, and the difficulty applicants face in obtaining evidence of specificity, particularly de facto specificity, a different and less stringent evidentiary standard exists for this element.40
China contends that the jurisprudence relating to the analogous provision under the Anti- Dumping Agreement, namely Article 5.2, provides important context for the interpretation of Article 11.2 of the SCM Agreement.41 According to China, the panels that have examined Article 5.2 of the Anti-Dumping Agreement have held that applicants need only submit enough evidence to justify an investigation and do not need to analyse the evidence or explain the ultimate conclusion. China notes "the quantity and quality of the information provided by the applicant need not be such as would be required in order to make a preliminary or final determination" and the inclusion of raw information is sufficient to overcome the proscription on simple assertion.42
Although China's primary position is that the United States has not made a prima facie case under Article 11.2 of the SCM Agreement, China also seeks to demonstrate that the application for initiation included sufficient evidence for each of the 11 programmes at issue:
Medicare Prescription Drug, Improvement and Modernization Act
In response to the United States' claim that the application did "not include any evidence of specificity", China argues that AK Steel's Annual Report, which was annexed to the application, stated that the Medicare Act "provides a federal subsidy to sponsors of retiree healthcare benefit plans" and that AK Steel is such a sponsor. According to China, this demonstrates contingent access to the subsidy and could indicate the existence of de jure or de facto specificity.43
37 China's first written submission, paras. 25 and 28 and China's second written submission, paras. 12-
13.
38 China's first written submission, para. 14.
39 China's first written submission, paras. 16-17.
40 China's response to Panel question 37.
41 China's first written submission, para. 19.
42 China's first written submission, para. 22.
43 China's first written submission, paras. 34-36.
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Economic Recovery Tax Act 1981
China disputes the significance of the United States' argument that the application did not include any evidence showing that the programme provided a benefit during the period of investigation. According to China, implicit in the evidence of a large benefit to the steel industry is a claim that a benefit was received during the period of investigation. There is no requirement to fix a benefit allocation period at the time of filing an application. China concludes that the lack of analysis linking evidence of the subsidy in 1981 and 1982 to benefits during the POI does not invalidate the allegation.44
Tax Reform Act 1986
In response to the United States' allegation that the application did not contain evidence of a benefit during the period of investigation, China relies upon the explanation provided for in the Economic Recovery Tax Act. Further, China contends that the applicant had no evidence before it indicating that the programme had been repealed, leaving open the possibility that it was still in effect during the period of investigation.45
Steel Import Stabilization Act 1984
China disputes the United States' argument that the application included no evidence that the VRAs concluded under the Act constituted a financial contribution. According to China, the application included information that actions under the Act led to "pecuniary benefits" to the United States steel industry. China concludes that whether this could definitively be found to be a financial contribution was not for the application conclusively to determine.46 In response to a Panel question, China argues that the VRAs caused a transfer of wealth from steel purchasers to the United States steel industry, due to higher domestic steel prices. This could be construed generally as a form of price or income support. Alternatively, China argues that it could be evidence of a financial contribution under Article 1.1(a)(1)(iv) of the SCM Agreement because the effect of the measure is to cause a transfer of funds from private parties to the steel industry.47
State of Indiana Steel Industry Advisory Service
China argues that the evidence in the application demonstrated that the programme provided support to the steel industry, including a mandate to examine laws and problems affecting the industry, and that this was "indicative of a financial contribution" in the form of the provision of goods or services.48 In response to the United States' argument that a study was never actually conducted under the programme, China argues that the applicants were dealing with imperfect information.49
Grace Periods for Compliance with the Clean Air Act
China argues that the application articulated a theory regarding the existence of a financial contribution, namely the provision of income or price support to the industry through delaying an obligation to invest in clear air technology. Regarding the United States' argument that the application did not include evidence of benefit, China argues that the applicant provided specific estimates of the cost savings associated with the grace periods. Although the grace periods ended
44 China's first written submission, paras. 37-39.
45 China's first written submission, para. 40
46 China's first written submission, paras. 41-42.
47 China's response to Panel question 38.
48 China's first written submission, paras. 43-44.
49 China's opening statement at the first meeting of the Panel, para. 15.
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more than 20 years ago, China relies on its previous argument that it is not necessary to allocate a benefit across time in the context of an application for initiation.50
2003 Economic Stimulus Plan of Pennsylvania
China argues that there was "circumstantial evidence of specificity" included in the application, which is sufficient for the purposes of Article 11.2 of the SCM Agreement. In particular, China argues that the evidence demonstrating the prominence of the GOES industry within Pennsylvania was evidence of specificity. Further, the programme included a focus on "resources that allow…traditional industries, especially manufacturing, to access new technology". China argues that a programme emphasizing traditional manufacturing industries suggests the prospect of de facto specificity.51 Finally, China rejects the United States' argument that if more than one sector of an economy is targeted for support, a finding of sufficient evidence of specificity is not possible for the purposes of initiation.52
Pennsylvania's Alternative Energy Funding Plan
China argues that the application included evidence that certain defined projects were eligible for loans under the programme. Further, "based on actual utilization, these categories could in fact define a very small range of industries that benefited, providing the basis for a de facto specificity finding". On the question of benefit, China contends that evidence that individual respondents actually received a benefit under the programme is not required. Rather, presenting evidence of the "implication of a program focused on clean energy in relation to an industry known to be high polluting" is plausible evidence of the existence of a benefit.53
Natural Gas and (x) Electricity
China argues that, contrary to the United States' allegation, the application did provide evidence of a financial contribution, benefit and specificity associated with the supply of electricity and natural gas to the steel industry. In particular, the application included evidence that the United States Government regulates the electricity and natural gas industries and that the average price paid by the steel industry for electricity and natural gas is lower than the total average price paid in the United States and the price paid by other sectors.54
(xi) Coal
China argues that the application included evidence of subsidies to the coal industry, which "is evidence of benefit through an indirect financial contribution" and evidence of the steel industry's substantial use of coal, "which goes to the issue of de facto specificity".55 Further, China argues that the Coal Subsidy Act is "directly related to the steel industry's use of coal" and therefore provides evidence of a direct financial contribution to the industry.56
50 China's first written submission, paras. 45-46. 51 China's first written submission, paras. 53-55. 52 China's response to Panel question 40.
53 China's first written submission, paras. 56-58.
54 China's first written submission, paras. 47-50 and China's response to Panel question 1, para. 11.
55 China's first written submission, paras. 51-52.
56 China's response to Panel question 1, para. 14.
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Article 11.3 of the SCM Agreement
According to China, Articles 11.2 and 11.3 of the SCM Agreement impose distinct obligations.57 Article 11.3 obligates an investigating authority to satisfy itself that the information in an application is sufficient evidence of the existence of a financial contribution, benefit and specificity for the purposes of initiating an investigation.58 China agrees with the United States that in examining whether an initiation is justified, the standard of review to be applied by a panel is "whether an unbiased and objective investigating authority would have found that the application contained sufficient information to justify initiation of the investigation".59 China argues that Article 11.3 does not require a full investigation; rather the investigating authority's obligation is only to substantiate a need for a more in-depth analysis.60 As a result, the quantity and quality of the information provided by an applicant need not be such as would be required in order to make a preliminary or final determination.61
China questions whether the United States has made a prima facie case under Article 11.3. In particular, the United States' Article 11.3 claim is dependent upon its flawed Article 11.2 claim.62 In any event, China argues that MOFCOM's initiation of the investigation with respect to the 11 programmes at issue before the Panel was consistent with Article 11.3 of the SCM Agreement. China acknowledges that the United States raised certain objections regarding the evidence underlying some of the programmes at issue. However, MOFCOM concluded that these were issues to be resolved during the course of the investigation, rather than issues fatal to initiation of an investigation.63
Honduras
According to Honduras, the evidence required under Article 11.2 cannot consist of mere conjecture, speculation or abstract inferences.64 In relation to those programmes at issue that expired prior to the period of investigation, Honduras argues that the lack of guidelines in the SCM Agreement regarding the allocation of subsidies over time does not lead to an exception to the requirement to provide sufficient evidence of the existence of a subsidy under Article 11.2.65 In relation to the State of Indiana Steel Advisory Service, Honduras argues that the mere creation of an entity whose apparent function is to conduct studies or analyses should not be considered sufficient evidence of the existence of a financial contribution.66
India
India notes that whether the application included the requirements found in Article 11.2 of the SCM Agreement is a question of fact, which India urges the Panel to "evaluate…cautiously and keeping in view an objective interpretation of the requirements enunciated under Article 11.2".67
57 China's response to Panel question 1, para. 15.
58 China's first written submission, para. 59. 59 China's first written submission, para. 65. 60 China's first written submission, para. 66.
61 China's second written submission, para. 17.
62 China's first written submission, para. 67. 63 China's first written submission, para. 68. 64 Honduras's third party statement, para. 6.
65 Honduras's third party statement, paras. 7-8.
66 Honduras's third party statement, para. 9.
67 India's third party statement, paras. 2.2 and 2.10.
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Korea
Korea submits that the initiation of a countervailing duty investigation is supposed to be a meaningful step, in which the investigating authority carefully examines the information in the petition to determine whether an investigation is justified.68 Article 11.3 of the SCM Agreement requires the investigating authority to examine all the relevant information and materials in the application and to confirm its veracity before making a decision to initiate an investigation. According to Korea, an investigating authority cannot "passively accept the allegations in the petition…and initiate an investigation hoping to confirm the veracity down the road".69
Saudi Arabia
According to Saudi Arabia, Articles 11.2 and 11.3 of the SCM Agreement establish "strict disciplines" to govern the initiation of investigations. The jurisprudence on initiation establishes that authorities have an obligation to ensure that the evidence in an application gives a "reasonable indication" of the existence of subsidization.70 Further, Saudi Arabia notes that the "reasonable availability" of the evidence to the applicant under Article 11.2 is not determinative of the "sufficiency" of the evidence under Article 11.3.71
The United States claims that China acted inconsistently with Articles 11.2 and 11.3 of the SCM Agreement. According to the United States, with respect to 11 programmes, the initial and additional applications did not meet the requirements of Article 11.2. Further, under Article 11.3, an objective investigating authority would not have found sufficient evidence to initiate the investigations. The Panel notes that the United States' claim is the first under Articles 11.2 and 11.3 of the SCM Agreement in the context of WTO dispute settlement, although the initiation of a countervailing duty investigation was considered in the context of the Tokyo Round Subsidies Code.72
The relationship between Articles 11.2 and 11.3 of the SCM Agreement
Article 11 of the SCM Agreement sets out certain procedural rules relating to the initiation of countervailing duty investigations. In particular, Article 11.2 of the SCM Agreement sets forth the evidence that must be included in an application for initiation submitted to an investigating authority by or on behalf of a domestic industry. Article 11.3 of the SCM Agreement requires an investigating authority to review the accuracy and adequacy of the evidence in order to determine whether it is "sufficient" to justify initiation of an investigation.
The Panel notes that the WTO covered agreements are international agreements between the WTO Members. Consequently, the obligations embodied in them are binding only upon Members and not upon private actors. In the Panel's view, the obligation upon Members in relation to the sufficiency of evidence in an application finds expression in Article 11.3 of the SCM Agreement, which provides that an investigating authority must assess the accuracy and adequacy of the evidence in an application to determine whether it is sufficient to justify initiation. The obligation in Article 11.3 must be read together with Article 11.2 of the SCM Agreement, which sets forth the requirements for "sufficient evidence". If an investigating authority were to initiate an investigation without "sufficient evidence" before it, this would be inconsistent with Article 11.3. Given this
68 Korea's third party submission, paras. 13 and 16.
69 Korea's third party statement, para. 6.
70 Saudi Arabia's third party statement, para. 4.
71 Saudi Arabia's third party submission, paras. 3, 10 and 12.
72 GATT Panel Report, US – Softwood Lumber II.
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interpretation, the Panel considers it appropriate to make findings under Article 11.3 with respect to the 11 programmes at issue. The Panel will reach its conclusions by reference to the requirements for "sufficient evidence" set forth in Article 11.2, but does not consider it necessary to reach separate conclusions under this provision.
Article 11.3 of the SCM Agreement
Regarding the standard of review that the Panel should apply under Article 11.3 of the SCM Agreement, both parties agree with the interpretation of the analogous provision under the Anti- Dumping Agreement adopted by the panel in US – Softwood Lumber V. In particular, the parties submit that a panel should determine "whether an unbiased and objective investigating authority would have found that the application contained sufficient information to justify initiation of the investigation".73 The Panel agrees with the parties that its role is not to conduct a de novo review of the accuracy and adequacy of the evidence to arrive at its own conclusion regarding whether the evidence in the application was sufficient to justify initiation. Rather, the Panel must consider the reasonableness of MOFCOM's conclusions, by reference to the test articulated by the panel in US – Softwood Lumber V.
Under Article 11.3 of the SCM Agreement an investigating authority has an obligation to determine whether there is "sufficient evidence" to justify initiation of an investigation. Part of this analysis must involve an assessment of the accuracy and adequacy of the evidence furnished. In the Panel's view, when evidence not in the application but relevant to the decision to initiate is submitted to an investigating authority, for example by an exporting Member, an unbiased and objective investigating authority would weigh this evidence in its assessment. Indeed, this is what the language in Article 11.3 implies, in providing that an investigating authority has a duty to determine the accuracy and adequacy of the evidence in the application.74
The "sufficient evidence" requirement under Articles 11.2 and 11.3 of the SCM Agreement
A major issue in contention between the parties is the meaning of "sufficient evidence" under Articles 11.2 and 11.3 of the SCM Agreement. China argues that the standard for "sufficient evidence" is much lower than that advocated by the United States.
The term "evidence" is defined, relevantly, as "the available facts, circumstances, etc. supporting or otherwise a belief, proposition, etc., or indicating whether or not a thing is true or valid" and "information given personally or drawn from a document etc. and tending to prove a fact or proposition". The term "sufficient" is defined, relevantly, as "adequate".75 The Panel notes that the phrase "sufficient evidence" in Articles 11.2 and 11.3 of the SCM Agreement is used in the context of determining whether the initiation of a countervailing duty investigation is justified. In making this determination, the investigating authority is balancing two competing interests, namely the interest of the domestic industry "in securing the initiation of an investigation" and the interest of respondents in ensuring that "investigations are not initiated on the basis of frivolous or unfounded suits".76 It is clear that at the stage of initiating an investigation, an investigating authority is not required to reach definitive conclusions regarding the existence of a subsidy, injury or a causal link between the two. Rather, as the panel noted in Guatemala – Cement II, an "investigation is a process where certainty on
73 Panel Report, US – Softwood Lumber V, para. 7.78.
74 Article 13.1 of the SCM Agreement also suggests that an investigating authority is required to weigh
the evidence submitted prior to initiation by an exporting Member, as a part of the process of "clarifying the situation" as to the matters in Article 11.2 of the SCM Agreement.
75 The Concise Oxford English Dictionary, D. Thompson (ed.) (Clarendon Press, 1995), pp. 467 and
1392.
76 Panel Reports, US – Offset Act (Byrd Amendment), para. 7.61 and Guatemala – Cement I, para. 7.52.
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the existence of all the elements necessary in order to adopt a measure is reached gradually as the investigation moves forward".77 Indeed, both parties appear to agree with the reasoning of the panel in US – Softwood Lumber V, in examining the analogous provisions under the Anti-Dumping Agreement, that "the quantity and the quality of the evidence required to meet the threshold of sufficiency of the evidence is of a different standard for purposes of initiation of an investigation compared to that required for a preliminary or final determination".78
Therefore, while the amount and quality of the evidence required at the time of initiation is less than that required to reach a final determination, at the same time the requirement of "sufficient evidence" is also a means by which investigating authorities filter those applications that are frivolous or unfounded. Although definitive proof of the existence and nature of a subsidy, injury and a causal link is not necessary for the purposes of Article 11.3, adequate evidence, tending to prove or indicating the existence of these elements, is required. Indeed, in considering the quality of the evidence that should be provided in an application before an investigation is justified, we note that Article 11.2 requires "sufficient evidence of the existence of a subsidy", meaning that the evidence should provide an indication that a subsidy actually exists. It is also clear from the terms of Article 11.2 that "simple assertion, unsubstantiated by relevant evidence" is not sufficient to justify the initiation of an investigation.
According to China, the standard for "sufficient evidence" must be interpreted in the light of the requirement in Article 11.2 that the application contain such information as is "reasonably available" to the applicant. In the Panel's view, the fact that an applicant must provide such information as is "reasonably available" to it confirms that the quantity and quality of the evidence required at the stage of initiating an investigation is not of the same standard as that required for a preliminary or final determination. However, an investigation cannot be justified where, for example, there is no evidence of the existence of a subsidy before an investigating authority, even if such evidence is not "reasonably available" to the applicant. Indeed, to justify initiation under Article 11.3, an investigating authority must have "sufficient evidence" (whether from the applicant, exporting Member or arising out its own enquiries) and not mere assertion before it.79
In the light of these considerations, the Panel considers that the standard advocated by China is at times overly permissive, as indicated in the Panel's consideration of the 11 programmes at issue.
The required evidence
Although the parties disagree about the appropriate standard for "sufficient evidence" under Articles 11.2 and 11.3 of the SCM Agreement, they concur about the categories of evidence referred to under Article 11.2. In particular, the parties note that evidence of the "existence of a subsidy" requires evidence of the existence of a financial contribution and a benefit. The parties also agree that the reference in Article 11.2(iii) to evidence of the "nature" of a subsidy refers to whether or not the subsidy is specific under Article 2 of the SCM Agreement. However, in response to a Panel question, China argues that the lack of any direct reference to "specificity" under Article 11.2 suggests a different and lower evidentiary standard in relation to it. According to China, this distinction
77 Panel Report, Guatemala – Cement II, para. 8.35.
78 Panel Report, US – Softwood Lumber V, para. 7.84.
79 In relation to whether evidence must be analysed by an applicant, we note that with respect to each of the 11 programmes at issue in this case, the matter in contention between the parties is whether "sufficient
evidence" was included in the application, rather than whether included evidence was analysed or not. In any event, we agree with the United States' statement that mere allegations cannot constitute sufficient evidence and that an applicant need not engage "in an in-depth analysis of the available information" (United States' response to Panel question 3, para. 11). However, we note that an investigating authority must review the accuracy and adequacy of the evidence in accordance with Article 11.3 of the SCM Agreement.
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recognises the difficulty applicants may face in obtaining evidence of specificity, particularly de facto
specificity.80
The Panel notes that Article 1.1 of the SCM Agreement provides that a subsidy exists when
(a) there is a financial contribution or any form of income or price support; and (b) a benefit is thereby conferred. Therefore, the Panel agrees with the parties that evidence of the existence of a subsidy requires evidence of these two elements.
In relation to whether evidence of specificity is required in an application, the Panel concurs with the parties that the reference to evidence of the "nature of the subsidy" includes evidence regarding whether the subsidy is specific. Article 11 is found within Part V of the SCM Agreement. Further, Article 1.2 provides that a subsidy will be subject to Part V only if it is specific within the meaning of Article 2. Therefore, in our view, it is reasonable to conclude that evidence of the "nature of the subsidy" includes evidence regarding whether the subsidy is specific. The alternative would be that the initiation of an investigation would be justified under Article 11.3, even though it may be clear at the time of initiation that the alleged subsidy is not subject to the disciplines of Part V of the SCM Agreement because it is broadly available in a given jurisdiction. This would not be effective in filtering those applications that are "frivolous or unfounded".
The Panel acknowledges that the term "nature" is used in a number of sections of the SCM Agreement, and that it may not necessarily refer to "specificity" in each instance. For example, the reference to "nature" in Article 4.5 of the SCM Agreement appears to refer to whether or not a subsidy is prohibited. However, in the Panel's view, and as both parties agree, a consideration of the context in which a term is used can result in different meanings across different provisions.81 As outlined in the previous paragraph, the context in which Articles 11.2 and 11.3 are found supports the parties' view that the "nature" of a subsidy under Article 11.2 (iii) includes evidence of whether or not an alleged subsidy is specific.
Having concluded that the evidence referred to in Article 11.2 of the SCM Agreement includes evidence of specificity, the Panel finds no basis for China's argument that a lower evidentiary standard applies in relation to it. There is nothing within the terms of Articles 11.2 or 11.3 to suggest that differing evidentiary standards apply depending upon the purpose for which the evidence is furnished. Rather, the same standard of "sufficient evidence" applies regardless of whether the evidence relates to the existence of a financial contribution, benefit or specificity.
The 11 programmes at issue
Medicare Prescription Drug, Improvement and Modernization Act
The issue in contention between the parties is whether the application included any evidence of specificity in relation to the Medicare Prescription Drug, Improvement and Modernization Act. While the United States claims that the application "did not…include any evidence of specificity"82, China argues that evidence that "could represent the existence of either a de jure or de facto specific measure" was submitted with the application.83
The purported evidence of specificity relied upon by China is a statement from the AK Steel Annual Report, annexed to the application, that the subsidy is available to "sponsors of retiree
80 China's response to Panel question 37, para. 1.
81 For support for this proposition, see Appellate Body Report, Japan – DRAMs (Korea), para. 272. For the views of the parties on this matter, see the United States' and China's responses to Panel question 37.
82 United States' first written submission, para. 78.
83 China's first written submission, para. 35.
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healthcare benefit plans that include a qualified prescription drug benefit" and that AK Steel is a sponsor of such a plan. The Panel notes that the application also includes a statement that "the subsidy…is specific".84
In the Panel's view, the fact that the subsidy programme is available to sponsors of particular healthcare plans does not provide an indication of de jure specificity. To the contrary, the evidence indicates that eligibility for the subsidy is governed by "objective criteria or conditions" in the sense of Article 2.1(b) of the SCM Agreement, which provides that, subject to Article 2.1(c), "specificity shall not exist" under such circumstances. Further, the evidence that AK Steel sponsors the relevant type of healthcare plan merely indicates that AK Steel is a user of the programme. In our view, this is not sufficient for an unbiased and objective investigating authority to conclude there was any evidence to indicate that the programme was de facto specific. For this purpose, at least some evidence that, for example, AK Steel was the only user or one of a limited number of users of the programme would be required.
Further, the Panel is not convinced by China's argument that the purported evidence of specificity was sufficient in the light of the pervasive government support to the United States steel industry, which was discernible from the application. Article 11.2(iii) requires evidence of the "nature", namely the specificity, "of the subsidy in question". In our view, this requires evidence of the nature of each alleged subsidy programme. General information about government policy, with no direct connection to the programme at issue, is not "sufficient evidence" of specificity.
China suggests that direct evidence of de facto specificity is typically not reasonably available to applicants.85 However, the fact that an applicant must provide such information as is reasonably available to it does not suggest that an investigating authority is justified in initiating an investigation under Article 11.3 of the SCM Agreement even though there is no evidence of specificity before it.
The Panel finds that an unbiased and objective investigating authority could not have concluded that there was sufficient evidence of specificity to initiate the investigation in relation to this programme. Therefore, the Panel finds that China acted inconsistently with Article 11.3 of the SCM Agreement.
Economic Recovery Tax Act 1981
According to the evidence annexed to the application, the Economic Recovery Tax Act 1981 allowed unprofitable corporations with certain unusable federal income tax credits and deductions effectively to sell them to profitable corporations that could use them to reduce their tax liabilities.86 The Act operated for a period of two years, expiring in 1983.87
The applicants alleged that the United States steel industry received a subsidy under the Act to the value of USD 750 million.88 The issue in contention between the parties is whether the application included sufficient evidence of the existence of a benefit during the period of investigation, where the application proposed and was based upon a period of investigation from 2006
84 Petition for an Anti-Dumping and an Anti-Subsidy Investigation (29 April 2009) ("the Application"), Exhibit CHN-2, pp. 63-64 and Exhibit US-2, p. 36. AK Steel Annual Report for 2008 (Annex 15-4 to the Application) ("AK Steel Annual Report 2008"), Exhibit CHN-3, p. 63. We note that the United States' interpretation of the statement on specificity is that "the subsidy…has the characteristic of special orientation".
85 See, for example, China's first written submission, para. 36 and China's response to Panel question 37, para. 10.
86 Paying the Price for Big Steel (Annex 15-2 to the Application), Exhibit CHN-4, p. 133.
87 Paying the Price for Big Steel (Annex 15-2 to the Application), Exhibit CHN-4, p. 133 and United States' first written submission, para. 78.
88 Application, Exhibit CHN-2, p. 74.
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through the first quarter of 2009 (i.e. the same as the period of investigation ultimately adopted by MOFCOM).89 The purported evidence relied upon by China is a "large benefit" to the steel industry when the subsidies were disbursed over a two year period concluding in 1983.
In the view of the Panel, in order to impose a countervailing duty, it is necessary that the product against which it is imposed be presently subsidized. We find support for this in Article 19.1 of the SCM Agreement, which provides that a countervailing duty may be imposed where the "subsidized imports" are causing injury. Further, footnote 36 of the SCM Agreement states that a countervailing duty is "levied for the purpose of offsetting any subsidy bestowed directly or indirectly upon the manufacture, production or export of any merchandise". If the product were not currently subsidized, there would be no subsidy to offset and therefore, no basis for the imposition of countervailing duties. The panel in Japan – DRAMs (Korea) agreed that "present subsidization" is required before countervailing duties may be imposed. In the case of non-recurring or expired subsidies, "present subsidization" requires the benefit of the subsidy to be allocated to the period of investigation and indeed, to the period of imposition of countervailing duties.90
Given that Articles 11.2 and 11.3 of the SCM Agreement set out the evidence required before an investigating authority is justified in initiating a countervailing duty investigation, in order to filter those applications that are frivolous or unfounded, we consider that the reference in Article 11.2 to evidence of the existence of a subsidy refers to evidence of the existence of a present subsidy, including the existence of a benefit during the expected period of investigation. The alternative would be that an investigation would be justified under Article 11.3, even though it may be clear that there was no present subsidization and therefore that countervailing duties would ultimately not be authorized.
In the Panel's view, an unbiased and objective investigating authority would not have found that the application included "sufficient evidence" to indicate the existence of a benefit during the period of investigation proposed by the applicants. Although the programme ceased to operate more than 20 years prior to the period of investigation, the application does not mention the allocation of the benefit of the subsidy or allege that it would be appropriate to allocate the subsidy over time, much less provide any concrete evidence to this effect. While we do not disagree with China's argument that it may not be appropriate to finalize the allocation period for the benefit of a subsidy at the time of initiation of an investigation, this does not lead to the conclusion that no evidence or even argument regarding "present subsidization" was required in the application. Although China argues that "implicit" in the evidence of a large benefit to the steel industry is a claim that the benefit was allocated to the period of investigation, in our view, in the light of the long period between the expiration of the programme and the period of investigation, an unbiased and objective investigating authority would not conclude that such a claim was indeed implicit in the evidence regarding the amount of the subsidy.
In conclusion, given the absence in the application of even a reference to or an argument about allocation of the benefit of the subsidy to the proposed period of investigation, much less the inclusion of any evidence in this regard, the Panel finds that China acted inconsistently with Article 11.3 of the SCM Agreement. In our view, an unbiased and objective investigating authority would not have concluded that initiation was justified.
89 See, for example, Application, Exhibit CHN-2, pp. 9, 97 and 100.
90 Panel Report, Japan – DRAMs (Korea), paras. 7.349-7.361.
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Tax Reform Act 1986
The Tax Reform Act 1986 granted the steel industry a special transition rule to mitigate the impact of the repeal of a federal investment tax credit.91 The application claimed that this resulted in a benefit of USD 574 million to the United States steel industry over the period 1986-1990. The issue in contention between the parties is the same as that in relation to the Economic Recovery Tax Act, namely whether the application included sufficient evidence of the existence of a benefit during the period of investigation. The United States argues that the alleged subsidies referred to in the application were provided over 15 years prior to the beginning of the period of investigation.92
Similarly to its argument in relation to the Economic Recovery Tax Act, China argues that "given the outstanding issue of a potential allocation period and petitioners' claim that a benefit was received", there was sufficient evidence of benefit in the application. Perhaps in an attempt to highlight that the applicants were operating with imperfect information about the subsidy programme and that they presented the information reasonably available to them, China also argues that there was no indication in the evidence collected and presented by the applicants that the programme had been repealed, leaving open the possibility that the programme was still in operation during the period of investigation.93
In relation to the latter point, the Panel does not find this line of argument convincing. The evidence in the annex to the application, and cited by the applicants, states that the cost of the subsidy to the government was incurred over the period 1986-1990.94 Further, the evidence cited in the application indicates that the Tax Reform Act provided "an exceptional transitional period" for the steel industry to mitigate the repeal of a certain tax credit. In these circumstances, it is difficult to conclude that the programme may still have been in operation at the time of filing the application, particularly in the light of the fact that the document from which the information was drawn was written in 1999 and does not state that any benefit was received after 1990.95
For the same reasons as expressed in relation to the Economic Recovery Tax Act, the Panel concludes that China acted inconsistently with Article 11.3 of the SCM Agreement. In particular, the evidence in the application indicates that the benefit of the subsidy was received during the period 1986-1990, over 15 years prior to the expected period of investigation. In these circumstances, we consider that an unbiased and objective investigating authority would not view information about the amount of the benefit to be sufficient evidence of the existence of a benefit during the period of investigation.
Steel Import Stabilization Act 1984
The annex to the application indicates that under the Steel Import Stabilization Act, VRAs restricting imports of steel into the United States were established. Total imports of steel were capped at 18.5% of market share, with this later increasing to 20.26%.
The issue in contention between the parties appears to be whether the application included sufficient evidence of the existence of a financial contribution under Article 1.1(a)(i) of the SCM Agreement, or of "any form of…price support" within the meaning of Article 1.1(a)(2).
91 Subsidies to the U.S. Steel Industry (Annex 15-1 to the Application), Exhibit US-31, p. 2 and Paying the Price for Big Steel (Annex 15-2 to the Application), Exhibit CHN-4, pp. 133 and 136-137.
92 United States' first written submission, para. 78.
93 China's first written submission, para. 40.
94 Application, Exhibit CHN-2, pp. 75-76; Subsidies to the U.S. Steel Industry, (Annex 15-1 to the Application), Exhibit US-31, p. 2.
95 Subsidies to the U.S. Steel Industry (Annex 15-1 to the Application), Exhibit US-31 and United States' first written submission, para. 78.
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At the outset we note that it is not entirely clear whether the applicants were alleging that the VRAs constituted a financial contribution or a form of price support or both. The application uses the sub-heading "financial contribution", but the sub-section states that that the voluntary restraint agreements constituted a "government compulsory pricing support mechanism". The sub-section also includes a reference to a document prepared by the American Institute for International Steel, which provides that the Steel Import Stabilization Act "protected the domestic market share of U.S. steel producers…effectively providing them with a government-enforced price support mechanism".96 However, the application also states that the VRAs constituted a subsidy within the meaning of Article 3 of the Chinese Regulations on Countervailing Measures.97 Article 3 effectively replicates Article 1.1(a) of the SCM Agreement, including a reference to financial contribution and "any form of income or price support". In its first written submission, China contends that the application included sufficient evidence of the existence of a financial contribution. In response to Panel questioning, China argues the applicants alleged that the VRAs were a subsidy within the meaning of Article 3 of the Regulations on Countervailing Measures and, according to China, the evidence supported the existence of a financial contribution within the meaning of Article 1.1(a)(1)(iv) of the SCM Agreement, although the application did not include the latter assertion. China notes that, in suggesting the VRAs provided a price support mechanism, the applicants did not specifically reference GATT Article XVI. Nevertheless, the VRAs "might be construed generally as a price or income support".98
In the Panel's view, the commentary in the application indicates that the applicants were focused on the VRAs as a form of price support within the meaning of Article 1.1(a)(2) of the SCM Agreement. The application twice refers to the VRAs as a "government compulsory pricing support mechanism" and includes a similar reference in the annex to the application.99 Although there is a reference to Article 3 of the Regulations on Countervailing Measures, this Article refers to "any form of income or price support", so does not necessarily indicate that the applicants were alleging the existence of a financial contribution, as suggested by China. In any event, despite the absence in the application of a specific assertion regarding the existence of a financial contribution, the Panel will assess whether the application included sufficient evidence of either a financial contribution or price support. This is consistent with the terms of Article 11.2 of the SCM Agreement, which focuses on the evidence, rather than the assertions, included in an application.
Regarding whether the application included sufficient evidence that the VRAs constituted a form of price support, we note that Article 1.1(a)(2) of the SCM Agreement provides that a subsidy shall be deemed to exist if "there is any form of income or price support in the sense of Article XVI of GATT 1994", where Article XVI deals with subsidies that increase exports or decrease imports. In order to assess whether the application included sufficient evidence of "price support", it is necessary to consider the meaning of this term under Article 1.1(a)(2). There is no definition or other form of guidance in the SCM Agreement regarding the meaning of "price support". Although the Appellate Body has commented that the concept of "income or price support" under Article 1.1(a)(2) broadens the range of measures capable of providing subsidies beyond those that constitute financial contributions, it has not otherwise been required to consider the meaning of Article 1.1(a)(2), and nor has any WTO dispute settlement panel.100
On the one hand, the phrase "any…price support" under Article 1.1(a)(2) of the SCM Agreement is broad and, on its face, could be read to include any government measure that has the
96 Subsidies to the U.S. Steel Industry (Annex 15-1 to the Application), Exhibit US-31, p. 2.
97 Application, Exhibit CHN-2, p. 80.
98 China's response to Panel question 38, para. 2.
99 Application, Exhibit CHN-2, p. 80 and Subsidies to the U.S. Steel Industry (Annex 15-1 to the Application), US-31, p. 2.
100 Appellate Body Report, US – Softwood Lumber IV, para. 52.
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effect of raising prices within a market. According to Blacks Oxford Dictionary of Economics, price support includes "government policies to keep the producer prices…above some minimum level".101 This does not necessarily contradict a broad reading of Article 1.1(a)(2), although it does suggest that the government sets or targets a given price, and consequently does not capture every government measure that has an incidental and random effect on price.102
However, despite the potential for a broad interpretation of the term "price support", reading it in the context of Article 1.1(a) of the SCM Agreement suggests that a more narrow interpretation is appropriate. Under Article 1.1(a)(1)(i)-(iv), the existence of each of the four types of financial contribution is determined by reference to the action of the government concerned, rather than by reference to the effects of the measure on a market. This is consistent with the panel's interpretation of "financial contribution" in US – Export Restraints, which the Appellate Body concurred with in US
Countervailing Duty Investigation on DRAMS.103 In US – Export Restraints, the panel noted that the concept of "financial contribution" was included in the definition of subsidy in order to avoid an effects-based approach to the concept of a subsidy. According to the panel:
[B]y introducing the notion of financial contribution, the drafters foreclosed the possibility of the treatment of any government action that resulted in a benefit as a subsidy. Indeed, this is arguably the principal significance of the concept of financial contribution, which can be characterised as one of the 'gateways' to the SCM Agreement, along with the concepts of benefit and specificity. To hold that the concept of financial contribution is about the effects, rather than the nature, of a government action would be effectively to write it out of the Agreement, leaving the concepts of benefit and specificity as the sole determinants of the scope of the Agreement.
Reading the term "price support" in this context, it is our view that it does not include all government intervention that may have an effect on prices, such as tariffs and quantitative restrictions. In particular, it is not clear that Article 1.1(a)(2) was intended to capture all manner of government measures that do not otherwise constitute a financial contribution, but may have an indirect effect on a market, including on prices. The concept of "price support" also acts as a gateway to the SCM Agreement, and it is our view that its focus is on the nature of government action, rather than upon the effects of such action. Consequently, the concept of " price support" has a more narrow meaning than suggested by the applicants, and includes direct government intervention in the market with the design to fix the price of a good at a particular level, for example, through purchase of surplus production when price is set above equilibrium.
Although neither the Appellate Body nor any WTO dispute settlement panels have been required to resolve the meaning of the term "price support" under Article 1.1(a)(2) of the SCM Agreement, we find some support for our approach in the reasoning of a GATT panel, which speculated on the circumstances under which "a system which fixes domestic prices to producers at above the world price level might be considered a subsidy in the meaning of Article XVI". The panel agreed that "a system under which a government, by direct or indirect methods, maintains such a price by purchases and resale at a loss is a subsidy". However, the Panel speculated that "where a
101 Oxford Dictionary of Economics, 3rd ed., J. Black (ed.) (Oxford University Press, 2009), p. 355.
102 Indeed, the Macmillan Dictionary of Economics, 4th ed., D.W. Pearce (ed.), (Macmillian Press Ltd., 1992) defines a "price support scheme" as " a method of artificially raising the price of a good in the market.
This will give rise to a situation in which supply exceeds demand and would therefore normally result in the government agency responsible for the support having to purchase the excess supplies itself". A similar definition is provided in the Dictionary of Economics, G. Banncok, R.E. Baxter and E. Davis (eds.) (the Economist Books, 1999). This supports a much more narrow concept of price support than suggested in the application.
103 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 114.
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government fixes by law a minimum price to producers which is maintained by quantitative restrictions…there would be no loss to government" and consequently, no subsidy.104 We note that the conclusion regarding the latter example is less relevant in the context of the SCM Agreement, under which the benefit of a subsidy is defined by reference to market benchmarks, rather than by the cost to government. However, both examples used by the GATT panel at least illustrate that it envisaged "price support" to involve the government setting and maintaining a fixed price, rather than a random change in price merely being a side-effect of any form of government measure.
Further, although the SCM Agreement does not include a definition of the term "price support", we note that a concept of "market price support" is included in the Agreement on Agriculture. Annex 3 of that Agreement provides that "market price support" is calculated as the difference between an external reference price and the "applied administered price".105 This indicates, at least for the type of price support contemplated in Annex 3 of the Agreement on Agriculture, that a direct form of government control over domestic prices is required, in the form of a fixed, administered price, rather than a movement in prices being an indirect effect of another form of government intervention.
In the light of these considerations, in the Panel's view, "any form of…price support" is not broad enough to encompass VRAs, which may have an incidental side-effect, of random magnitude, on prices. Therefore, we conclude that an unbiased and objective investigating authority would not have concluded that an investigation was justified under Article 11.3 on the basis of the existence of a subsidy in the form of price support.
In relation to whether the application included sufficient evidence of the existence of a financial contribution under Article 1.1(a)(1), in its first written submission, China argues that the evidence indicating that the VRAs resulted in "pecuniary benefits" to the United States steel industry constitutes evidence of a financial contribution. In response to a Panel question, China clarifies that its argument relates to Article 1.1(a)(1)(iv) of the SCM Agreement. In particular, according to China, the evidence that the VRAs led to a transfer of wealth from steel purchasers to the United States steel industry "might be seen as evidence of a financial contribution under Article 1.1(a)(1)(iv) of the SCM Agreement given the effect of the measure on private parties, causing them to provide a transfer of funds in the form of higher prices".106
The Panel does not agree with the interpretation of Article 1.1(a)(1)(iv) of the SCM Agreement that is advocated by China. In particular, the Panel does not consider that when a government policy, such as a border measure, has the indirect effect of increasing prices in a market, the government has entrusted or directed private consumers to provide direct transfers of funds to the industry selling the good in the affected market.
In US – Countervailing Duty Investigation on DRAMS, the Appellate Body found that under Article 1.1(a)(1)(iv) the term "entrusts" connotes "the action of giving responsibility to someone for a task or an object" and the term "directs" involves the exercise of authority by a government over a private body.107 In our view, when the action of a private party is a mere side-effect resulting from a government measure, this does not come within the meaning of entrustment or direction under Article 1.1(a)(1)(iv). The fact that the VRAs resulted in private bodies paying increased prices for
104 GATT Panel on Subsidies and State Trading, Report on Subsidies, L/1160, 23 March 1960. See
L. Rubini, The Definition of Subsidy and State Aid: WTO and EC Law in Comparative Perspective, (Oxford University Press, 2009), pp. 123-125 for discussion of this GATT panel.
105 This is multiplied by the quantity of production eligible to receive the applied administered price, to calculate the "aggregate measures of support".
106 China's response to Panel question 38, para. 2.
107 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, paras. 110-111.
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steel to the United States steel producers was in no way the result of United States Government action giving responsibility to purchasers to transfer funds to the steel industry or because the Government exercised its authority over the purchasers to ensure that a transfer of funds would occur. Therefore, the increased revenue that the steel industry received after the VRAs came into existence cannot be characterised as evidence of a financial contribution.
This conclusion accords with our reasoning in analysing of the meaning of the term "price support".108 In that context, we noted that a financial contribution is defined by reference to the nature of the government action, rather than by its effects. Indeed, in US – Countervailing Duty Investigation on DRAMS, the Appellate Body agreed with the panel's analysis on this point in US – Export Restraints. The Appellate Body stated:
Entrustment and direction do not cover 'the situation in which the government intervenes in the market in some way, which may or may not have a particular result simply based on the given factual circumstances and the exercise of free choice by the actors in that market'. Thus, government 'entrustment' or 'direction' cannot be inadvertent or a mere by-product of governmental regulation…[N]ot all government measures capable of conferring benefits would necessarily fall within Article 1.1(a); otherwise paragraph (i) through (iv) of Article 1.1(a) would not be necessary because all government measures conferring benefits, per se, would be subsidies.
In the light of the preceding reasons, the Panel concludes that China acted inconsistently with Article 11.3 of the SCM Agreement. In the Panel's view, an unbiased and objective investigating authority would not have concluded that the application included sufficient evidence of the existence of price support or a financial contribution.109 The fact that a side-effect of the VRAs was that the United States steel industry received increased revenue does not provide evidence of the existence of a financial contribution under Article 1.1(a)(1)(iv). Further, China's reference to the evidence of "pecuniary benefits" received by the steel industry is not evidence of government action within the meaning of Article 1.1(a)(1)(i)-(iv). Therefore, we find that an unbiased and objective investigating authority would not have concluded that sufficient evidence existed to justify an investigation under Article 11.3.
State of Indiana Steel Industry Advisory Service
According to the information annexed to the application, in 1987 the State of Indiana formed a "Steel Advisory Commission to examine state and federal laws affecting the steel industry and to consider industry problems such as foreign competition and economic decline".110
The issues in contention between the parties are whether the application included sufficient evidence of the existence of a financial contribution and a benefit. The purported evidence of a financial contribution relied upon by China is the existence of "a program established to perform a function in support of the steel industry", including a mandate to "examine state and federal laws affecting the steel industry and to consider industry problems".111 In relation to evidence of a benefit,
108 See para. 7.85 of this Report.
109 Indeed, we note that Article 11(1)(b) of the Safeguards Agreement prohibits the use of voluntary
export restraints. This further reinforces our conclusion that voluntary export restraints were not intended to be disciplined by the SCM Agreement.
110 Subsidies to the U.S. Steel Industry (Annex 15-1 to the Application), Exhibit US-31, p. 3.
111 China's first written submission, para. 44 and Subsidies to the U.S. Steel Industry (Annex 15-1 to the Application), Exhibit US-31, p. 3.
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China argues that the fact the government assumed an obligation that might normally be undertaken by the industry itself is evidence of the conferral of a benefit.112
In relation to whether the application included sufficient evidence of the existence of a financial contribution, the Panel notes that it is entirely possible that a programme under which a government studies the laws and problems affecting an industry could give rise to a financial contribution in the form of a provision of a good or service. However, the Panel is not satisfied that an unbiased and objective investigating authority could have concluded that the application included "sufficient evidence" to indicate that this was the case in relation to the Steel Industry Advisory Service. The application includes an assertion that the "government undertook a project which should had been founded by companies with large expense, and therefore provided a large financial contribution".113 Yet the application does not include evidence to indicate that studies under the programme were to be provided or made available to the steel industry, rather than being for internal government use, for the purpose of formulating government policy, for example. Given that "simple assertion unsubstantiated by relevant evidence" is not sufficient under Article 11.2, in the Panel's view, further evidence was required from the applicants tending to indicate that the government was providing a good or service under the programme. The fact that, according to China, the programme "quite plausibly" constituted the provision of a good or service is not sufficient. Rather, some evidence, although not definitive proof, to indicate that the programme conferred a financial contribution was required.
The United States argues that a further problem in relation to whether the application included evidence of a financial contribution was that there was no evidence indicating that a study had actually been performed under the programme. In response, China contends that the applicants were dealing with imperfect information and did not know with certainty whether the programme had ever produced a study. Even if such information were not "reasonably available" to the applicants, without evidence of the existence of a financial contribution before it, an unbiased and objective investigating authority could not have found initiation to be justified under Article 11.3 of the SCM Agreement. In the Panel's view, as indicated in the preceding paragraph, and also in the light of the fact that there was no evidence in the application of a study having been conducted under the programme, the evidence regarding the existence of a financial contribution was not such that an unbiased and objective investigating authority could have found an investigation justified. In any event, given that the programme has been in existence since 1987, it would be reasonable to expect the applicants to be able to point to some evidence of its use.
In the light of the Panel's finding that China acted inconsistently with Article 11.3 with respect to the evidence of a financial contribution, the Panel does not consider it necessary to proceed to consider the United States' arguments regarding the sufficiency of the evidence of the existence of a benefit.
Grace Periods for Compliance with the Clean Air Act
The application explains that in 1981, legislation granting the steel industry a three-year extension on the deadline for complying with the Clean Air Act came into force. The legislation extended the deadline from 31 December 1982 until 31 December 1985 and the applicants alleged that this reduced the steel industry's costs by USD 3.7 billion.114 The application also refers to a
112 China's response to Panel question 40, para. 4.
113 Application, Exhibit CHN-2, p. 81.
114 Application, Exhibit CHN-2, p. 84. See also, Paying the Price for Big Steel (Annex 15-to the Application), Exhibit CHN-4, p. 147.
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30 year exception for complying with certain standards in the Clean Air Act Amendment of 1990, which was granted to the steel industry in 1989.115
The United States' challenge is limited to the decision to initiate an investigation into the allegation that the three-year extension for compliance with certain environmental standards in the Clean Air Act constituted a subsidy. The United States does not challenge China's investigation into the 30 year exception granted to the steel industry in relation to compliance with the Clean Air Amendment Act of 1990.116
The issue in contention between the parties is whether the application included sufficient evidence of the existence of a financial contribution or "any form of income or price support" within the meaning of Article 1.1(a)(2) of the SCM Agreement, and whether it included sufficient evidence of the existence of a benefit during the period of investigation.117
The Panel commences its analysis by consideration of the latter point, namely whether the application included sufficient evidence of the existence of a benefit during the expected period of investigation. We note that the grace period for complying with the Clean Air Act ended on 31 December 1985.118 The United States argues that the applicants did not indicate how a benefit could exist during the period of investigation in circumstances where the grace period ended more than 20 years prior to the expected period of investigation. This aspect of the United States' claim raises the same issues as arose in relation to the alleged taxation subsidies.
As indicated in our analysis of the taxation programmes, in circumstances where a long period of time has elapsed between the expiry of the alleged subsidy and the period of investigation, a lack of any evidence, or indeed any argument or assertion, regarding whether allocation of the benefit to the period of investigation would be appropriate, leads us to the conclusion that an unbiased and objective investigating authority would not have concluded that there was sufficient evidence of the existence of a benefit during the period of investigation to justify initiation.119
Consequently, the Panel concludes that China acted inconsistently with Article 11.3 of the SCM Agreement. In the light of this conclusion, the Panel does not consider it necessary to proceed to consider the second issue in contention between the parties, namely whether, in relation to the grace periods for compliance, the application included sufficient evidence of the existence of "any form of income or price support" within the meaning of Article 1.1(a)(2) of the SCM Agreement.
2003 Economic Stimulus Plan of Pennsylvania
The evidence annexed to the additional application indicates that Pennsylvania introduced an Economic Stimulus Plan aimed at "creating jobs, bolstering business growth, and revitalizing…communities".120
The issue in contention between the parties is whether the additional application included sufficient evidence of de facto specificity. The purported evidence relied upon by China includes documentation demonstrating that AK Steel and ATI are located and prominent in Pennsylvania.
115 Application, Exhibit CHN-2, p. 84.
116 United States' response to Panel question 39, para. 7.
117 United States' first written submission, para. 78; China's first written submission, paras. 45-46 and United States' second written submission, paras. 18-20.
118 Paying the Price for Big Steel (Annex 15-2 to the Application), Exhibit CHN-4, p. 147.
119 See paras. 7.71-7.74 and 7.78 of this Report.
120 2003 Economic Stimulus Plan (Annex 5-32 to the Additional Application) (20 June 2009), Exhibit
CHN-8.
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Further, China contends the evidence in the additional application demonstrates that the programme is focused on "traditional industries, especially manufacturing".121
The Panel does not consider the information regarding the presence and prominence of GOES manufacturers in Pennsylvania to be evidence of de facto specificity. This information demonstrates that AK Steel and ATI may be eligible to be users of the programme, but does not provide any evidence that the steel industry is one of a limited number of users or that it receives a disproportionately large amount of the subsidy, for example. The additional application also states that "the purpose of the Stimulus Packages is to create jobs, bolster businesses and revitalize communities. To achieve this, the Packages must particularly provide its contributions and preference to those influential enterprises and industries in creating jobs and bolstering economies, such as steel industry. Indeed, it's not difficult to discover the de facto specificity clearly existed".122 In our view, the notion that the steel industry must be one of a limited number of enterprises to receive the subsidy, on the basis that the purpose of the Economic Stimulus Plan is to create jobs, bolster business growth and revitalize communities, is mere assertion and is not supported by relevant evidence.
The second element of China's argument regarding the sufficiency of the evidence of specificity is that the economic development plan included a focus on "resources that allow our traditional industries, especially manufacturing, to access new technology to enhance their productivity". The parties' arguments regarding whether this provides evidence of specificity seem to reflect different conceptual approaches to the issue. The United States argues that because the Economic Stimulus Plan as a whole included six other focal points, apart from traditional manufacturing industries, the information regarding traditional industries is not evidence of specificity. However, China submits that individual subsidies within a single piece of legislation or measure should be analysed separately. China argues that otherwise there would be "a huge loophole in the specificity requirement where authorities would simply lump different kinds of support for different sectors of the economy into a single piece of legislation or measure in order to claim that, in the aggregate, the measure is too diverse or generally available to justify a finding of specificity".123
In order to assess whether the information regarding the focus on traditional industries constitutes sufficient evidence of specificity, it is necessary for the Panel to determine the appropriate conceptual approach to analysing this issue. If the legislation through which a subsidy is enacted necessarily defines the breadth of the specificity analysis, loopholes in the SCM Agreement may arise. In addition to allowing governments to group specific subsidy programmes together in a single piece of legislation to avoid a finding of specificity, a broadly available subsidy programme could be found to be specific if extended to each industry through separate pieces of legislation. Consequently, in the specificity analysis, a subsidy programme should be considered as a whole. The programme should define the breadth of the specificity analysis, rather than the legislation through which it is enacted.
In the circumstances of this case, we note that the evidence in the annex to the additional application provides that the economic development package includes:124
Over $2.8 billion dollars in loans, grants, and guarantees;
CHN-8.
p. 27.
CHN-8.
121 2003 Economic Stimulus Plan (Annex 5-32 to the Additional Application) (20 June 2009), Exhibit
122 New Subsidy Allegations Application (20 July 2009) ("Additional Application"), Exhibit CHN-5,
123 China's response to Panel question 41, para. 6.
124 2003 Economic Stimulus Plan (Annex 5-32 to the Additional Application) (20 June 2009), Exhibit
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Programs to leverage funds generating at least USD 5 billion in private investment in economic and community development projects;
Investments in rural, urban, and suburban sites;
New capital resources for small cities and communities;
Tools to make Pennsylvania a leader in real estate and business development;
Incentives and services to attract high-growth firms;
Resources that allow our traditional industries, especially manufacturing, to access new technology to enhance their productivity
In response to a Panel question, China appears to argue that the final "focal point" listed above is an individual subsidy and that its specificity should be analysed by reference to the universe of industries and enterprises to which it applies.125 However, an examination of the additional application indicates that the applicants treated the Economic Stimulus Plan as a single subsidy programme. Although it was open to the applicants to present their arguments on the basis of a number of individual subsidy programmes all enacted under the Economic Stimulus Plan, there is no indication in the additional application that the applicants did this or viewed the provision of access to new technologies as a separate subsidy programme. Rather, the allegations regarding financial contribution and benefit refer to the programme as a whole, with particular examples provided by reference to certain aspects of the programme, including the loans and grants, the research and development tax credits and the joint venture investment guarantees.126 The access to new technologies is not referred to by the applicants until the section on specificity. Certainly, the applicants did not provide any arguments regarding the existence of a financial contribution and benefit in relation to the access to new technologies. As a result, we cannot find any basis for treating this as a separate subsidy programme. Consequently, we consider it appropriate to analyse the question of specificity by reference to the Economic Stimulus Plan as a single subsidy programme.
We note that the Economic Stimulus Plan included a diverse range of "focal points", such as economic and community development projects; rural urban and suburban sites; resources for small cities and communities; real estate and business development; and high-growth firms. The information in the additional application indicates that a number of enterprises or industries may have been eligible to receive the alleged subsidies under the programme, including, for instance, the real estate industry, venture capital partnerships, businesses making research and development investments and high-growth enterprises.127 Further, in relation to some of aspects of the programme, such as the provision of loans, grants and guarantees, it is not clear from the evidence in the additional application whether or not these were broadly available. In our view, the evidence suggests that the programme had a much wider application than suggested by China. Consequently, the Panel is not convinced that an unbiased and objective investigating authority would have found that the information regarding a focus on "traditional industries, especially manufacturing" was sufficient evidence of specificity to justify initiation under Article 11.3 of the SCM Agreement.
Finally, we note that China repeats the argument made in relation to the Medicare Prescription Drug Improvement, and Modernization Act, namely that the purported evidence of specificity was sufficient in the light of the pervasive government support to the United States steel industry, which was discernible from the application. For the reasons expressed in relation to the Medicare Act, we again do not consider this argument convincing.128
125 China's response to Panel question 41, paras. 5-6.
126 Additional Application, Exhibit CHN-5, p. 27.
127 Additional Application, Exhibit CHN-5, p. 26; Research and Development Tax Credit (Annex 5 to the Additional Application), Exhibit CHN-6, p. 189 (of the pdf version of the Exhibit) and New Pennsylvania Venture Guarantee Programme, Exhibit CHN-6, p. 191 (of the pdf version of the Exhibit).
128 See 7.66 of this Report.
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Therefore, we conclude that the additional application did not include sufficient evidence of specificity for an unbiased and objective investigating authority to conclude that initiation was justified under Article 11.3 of the SCM Agreement. Although China argues that information regarding de facto specificity is typically not reasonably available to applicants, in the Panel's view, an investigating authority must nevertheless have "sufficient evidence" of specificity before it before an investigation is justified under Article 11.3.
Pennsylvania's Alternative Energy Funding Plan
The evidence in the annex to the additional application indicates that the State of Pennsylvania invested USD 650 million towards "expanding the alternative fuel, clean energy and efficiency sectors". Approximately half of the funding is managed by the Department of Community and Economic Development and this part of the programme focuses on "investing in infrastructure, economic development projects, alternative energy companies and early-stage activities". The remainder of the programme is administered through the Commonwealth Financing Authority, which focuses on business assistance through providing loans and grants to companies for certain categories of projects.129
The issue in contention between the parties is whether the additional application included sufficient evidence of the existence of a benefit during the expected period of investigation and sufficient evidence of specificity. The purported evidence of benefit relied upon by China is the "implication of a programme focused on clean energy in relation to an industry known to be high polluting". According to China, evidence that individual respondents actually received a benefit under the programme is not required. The purported evidence of specificity relied upon by China is the documentation which it claims indicates that the loan programme was directed at a narrow group of beneficiaries.130
At the outset, we note that the alleged subsidy to the steel industry, as detailed in the additional application, relates to that part of the Alternative Energy Funding Plan administered through the Commonwealth Financing Authority. This is evident because the information in the additional application regarding the existence of a financial contribution refers to the "provision of loans and grants to the local enterprises for their clean and alternative energy projects". Further, the section of the additional application relating to benefit discusses the "provision of loans and grants to qualified enterprises".131 The allegations in the additional application regarding the existence of a financial contribution, benefit and specificity do not refer to the projects to be managed by the Department of Community and Economic Development, namely investment in "infrastructure, economic development projects, alternative energy companies and early-stage activities".132
In relation to whether the additional application included sufficient evidence of the existence of a benefit, China argues that for the purposes of an application, it is not necessary to demonstrate that the steel industry actually received a benefit under the programme. However, in our view, on the of basis the totality of the evidence before the investigating authority, an unbiased and objective investigating authority could not have considered an investigation justified under Article 11.3. This is because the United States submitted evidence to MOFCOM demonstrating that the only aspect of the programme administered by the Commonwealth Financing Authority under which loans and grants were distributed during the period of investigation was the Solar Energy project. The evidence provided by the United States to MOFCOM included a document, prepared by the Commonwealth Financing Authority, listing eight companies that had had projects approved for loans and grants as of
129 Annex 5 to the Additional Application, (Annex 5-38, Alternative Energy Funding), Exhibit CHN-6.
130 China's first written submission, paras. 56-58.
131 Additional Application, Exhibit CHN-5, p. 29.
132 Annex 5 to the Additional Application, (Annex 5-38, Alternative Energy Funding), Exhibit CHN-6.
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14 July 2009.133 None of the companies listed were producers of GOES, or indeed part of the steel industry. As discussed previously in our reasons, when evidence not in the application but relevant to the decision to initiate is submitted to an investigating authority, an unbiased and objective investigating authority should weigh this evidence in its consideration of whether initiation is justified.134 Indeed, this is what the language in Article 11.3 implies, namely that an investigating authority has a duty to determine the accuracy and adequacy of the evidence in the application. Weighing the evidence submitted to MOFCOM by the United States, namely a document prepared by a government body indicating that no financial contribution or benefit was received by the respondent companies during the period of investigation, against the additional application which did not include any evidence or even an assertion to the contrary, a reasonable investigating authority could not have concluded that an investigation into the programme was justified. This is because it was clear at the time of initiating that there would be no basis to impose countervailing duties against the products exported by AK Steel and ATI. In reaching this conclusion, we note that the additional application is concerned with a benefit to be received directly by the steel industry, rather than a benefit "passed- through" from other companies.
Therefore, the Panel concludes that China acted inconsistently with Article 11.3 of the SCM Agreement on the basis that an unbiased and objective investigating authority could not have concluded that there was sufficient evidence of the existence of a benefit to the steel industry during the expected period of investigation to justify initiation. In the light of this conclusion, the Panel does not consider it necessary to proceed to examine whether the additional application included sufficient evidence of specificity.
Natural Gas
The issue in dispute between the parties is whether the additional application included "sufficient evidence" of the existence of a financial contribution, benefit and specificity under Articles 11.2 and 11.3 of the SCM Agreement. The additional application includes allegations of two different types of subsidies. In particular, the additional application contends first, that the United States Government regulates the price of natural gas and provides it to the steel industry at below market prices and second, that subsidies provided to the natural gas industry "pass-through" to the steel industry.135
The annex to the additional application includes a significant amount of evidence related to the natural gas industry. In its first written submission, China highlights a number of aspects of this evidence that it relies upon as "sufficient" for the purposes of Articles 11.2 and 11.3 of the SCM Agreement. In particular, China notes the evidence of a long history of government regulation of the natural gas sector; evidence of price differentiation between the prices paid by the steel industry and the average price paid in the economy; and evidence of subsidies to the natural gas industry.136
In relation to the first type of subsidy alleged in the additional application, namely the government provision of goods or services at below market prices, the additional application
133 United States' Comment Regarding the Initiation Based on the New Allegations, (17 Aug. 2009) Exhibit US-29, p. 6 and second attachment to the Comment, "Pennsylvania - State of Innovation: Commonwealth Financing Authority" (see link to "Commonwealth Financing Authority Approved Projects - Energy Programs", i.e. the last page of the second attachment to the Comment). We note that there appears to be an error on p. 6 of the Comment (Exhibit US-29). In particular, the United States refers to the "Geothermal and Wind Energy" project as the only project operational during the period of investigation. However, an examination of the list prepared by the Commonwealth Financing Authority indicates that it was the Solar Energy project under which loans and grants had been distributed as of 14 July 2009.
134 See para. 7.52 of this Report.
135 Additional Application, Exhibit CHN-5, pp. 12-13.
136 China's first written submission, para. 49.
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discusses historical regulation by the United States Government of natural gas prices. The additional application also states that despite the "loosening of regulation…over the natural gas industry…industrial enterprises still had no other choice but to buy natural gas from the network companies at regulated prices".137 However, an examination of the evidence regarding the United States natural gas industry in the annex to the additional application does not support the applicant's position that the government currently regulates natural gas prices. In particular, the evidence suggests a history of government regulation of natural gas prices, with a gradual decrease in the degree of regulation, to the current situation of market determined prices. The evidence provides that in 1985, the Federal Energy Regulatory Commission published Decree 436, which opened up the function of the delivery of natural gas "to allow the user to negotiate directly with the producer to set the price".138 Further, in 1989 the Natural Gas Wellhead Decontrol Act was passed, which abolished all regulation over the wellhead price of gas. The Act required abolition of the price regulation by 1993, from which time the market determined the natural gas price.139 Finally, in 1992, the Federal Energy Regulatory Commission published Decree 636, which abolished "take-or-pay" contracts and reorganized network companies to allow users to choose any producer of natural gas.140
Although China argues that the additional application includes evidence of "continued vestiges of government price regulation through lower-reach development companies", we do not agree with this reading of the evidence.141 The evidence regarding the history of government regulation of the natural gas industry, found in the annex to the additional application, indicates that, when the government began loosening its regulation over the industry "the lower-reaches distribution companies (LDC) and industrial corporations still had no other choices but to purchase gas from network companies at the regulated price".142 However, the annex states that Decree 436, published in 1985, required network companies to "open the function of delivering natural gas to all natural gas users including low-reaches selling companies…and to allow the user to negotiate directly with the producer to set the price".143 As indicated in the preceding paragraph, the government continued with further deregulation after Decree 436. Therefore, China's reference to government price regulation through lower-reach development companies is a reference to historical regulation and does not provide support for the allegation that the government currently provides natural gas to the steel industry at below market prices.
As well as the evidence in the additional application indicating that the United States Government does not regulate natural gas prices, this was drawn to MOFCOM's attention in the United States' comments on the new subsidy allegations. In its comments, the United States noted that "the natural gas market was deregulated in the 1980s. The market described by petitioners no longer exists (if, indeed, it ever existed). GOES producers purchase natural gas on the open market".144
137 Additional Application Exhibit CHN-5, p. 13.
138 Annex 5 to the Additional Application, (Annex 5-16, Overview and Comments on the U.S. Government Regulation of the Natural Gas Market), pp. 4-5, Exhibit CHN-6.
139 Annex 5 Additional Application, (Annex 5-16, Overview and Comments on the U.S. Government Regulation of the Natural Gas Market), p. 5, Exhibit CHN-6.
140 Annex 5 to Additional Application, (Annex 5-16, Overview and Comments on the U.S. Government Regulation of the Natural Gas Market), p. 5, Exhibit CHN-6.
141 China's first written submission, para. 49.
142 Annex 5 to Additional Application, (Annex 5-16, Overview and Comments on the U.S. Government Regulation of the Natural Gas Market), p. 4, Exhibit CHN-6.
143 Annex 5 to the Additional Application, (Annex 5-16, Overview and Comments on the U.S.
Government Regulation of the Natural Gas Market), p. 4, Exhibit CHN-6.
144 United States' Comment Regarding the Initiation Based on the New Allegations (17 August 2009), Exhibit US-29, p. 3.
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Therefore, in the light of the evidence provided by the applicants themselves, which was supplemented by comments from the United States to MOFCOM prior to initiation, the Panel concludes that China acted inconsistently with Article 11.3 of the SCM Agreement. In the Panel's view, an unbiased and objective investigating authority could not have concluded that there was sufficient evidence of a financial contribution or a benefit, in the form of government provision of a good or service at below market prices, to justify initiation under Article 11.3 of the SCM Agreement.145 The evidence indicates that natural gas is purchased by the steel industry at prices determined by the market.
With respect to the second type of subsidy referred to in the additional application, namely indirect subsidization of the steel industry via subsidies provided to the natural gas industry, the Panel is not convinced that an unbiased and objective investigating authority could have found that the additional application included sufficient evidence of specificity to justify initiation under Article 11.3 of the SCM Agreement.
The Panel is satisfied that the additional application includes evidence of subsidies granted to the natural gas industry.146 Regarding the existence of a benefit to the steel industry, the additional application includes an allegation, although no supporting evidence, of "pass-through" of the subsidies to the steel industry. The position of China appears to be that an allegation of pass-through of a subsidy from an upstream to a downstream producer is sufficient for the purposes of initiating an investigation. The Panel does not consider it necessary to resolve what type of evidence of pass- through is required at the stage of initiating an investigation. This is because, even assuming that the additional application included sufficient evidence of pass-through of the benefit to the steel industry, an unbiased and objective investigating authority could not have concluded that there was sufficient evidence of specificity.
Although the subsidies could be specific to the natural gas industry, the applicants alleged that the subsidies ultimately flow through to the steel industry, with steel being the product to be countervailed. In these circumstances, some evidence that the steel industry falls within a category of "certain enterprises" to which the subsidy is specific is required. However, there is no evidence that any pass-through that occurs is specific to the steel industry. In particular, if an allegation of pass- through is accepted for the purposes of the application, there is no reason to assume that the benefit did not pass-through to all purchasers of natural gas, rather than to the steel industry specifically. In this regard, we note the panel's statement in US – Softwood Lumber IV that where a subsidy is provided in the form of the provision of a good by the government, where the good is in the form of a natural resource, there is no implication that such a subsidy is necessarily specific, precisely because such goods may be used by an indefinite number of industries.147 Similarly, in this case, the subsidy to the natural gas industry may "pass-through" to an indefinite number of industries that purchase natural gas.
Although China appears to rely upon evidence of price differentiation to indicate "the possibility of…specificity",148 in circumstances where we have found that natural gas prices are set by the market, we have no basis to conclude that any price differentiation indicates that pass-through is
145 Although it does not seem to be the case, if it was the intention of the applicants that countervailing duties be imposed to counteract injury arising from the time when the government did regulate prices, the application suffers from the same problem as it does in relation to the taxation programmes. In particular, it does not include any evidence or arguments to support the existence of present subsidization.
146 See, for example, Annex 5 to the Additional Application, (Annex 5-2, Federal Financial Interventions and Subsidies in Energy Markets 2007).
147 Panel Report, US – Softwood Lumber IV, para. 7.116.
148 China's first written submission, para. 49.
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specific to the steel industry. There is nothing to indicate this is the case rather than the price differentiation being due to market forces.
Finally, the Panel notes that China makes a general argument that evidence of specificity may not be "reasonably available" to applicants.149 In the Panel's view, whether or not this is the case, an investigating authority must nevertheless have "sufficient evidence" of specificity before it, whether provided by the applicants or otherwise, before an investigation can be justified. The Panel is not convinced that this was the case.
Therefore, with respect to the second type of subsidy alleged in the additional application, namely indirect subsidization of the steel industry via subsidies provided to the natural gas industry, the Panel finds that an unbiased and objective investigating authority could not have concluded that the additional application included sufficient evidence of specificity to justify initiation under Article 11.3 of the SCM Agreement.
Electricity
The issue in contention between the parties is whether the additional application included sufficient evidence of the existence of a financial contribution, benefit and specificity in accordance with Articles 11.2 and 11.3 of the SCM Agreement. The applicants alleged that the United States electricity industry, including its pricing, is largely controlled by the United States Government and that electricity is provided to the steel industry at a low price. The applicants also argued that subsidies provided to the electricity industry pass-through to the steel industry.
Before addressing the substance of the United States' claim, we note that the additional application includes a number of exhibits related to the electricity industry in the United States. For the purposes of our analysis, we have found the following information in the exhibits to be of most relevance:
The Federal Energy Regulatory Commission regulates interstate power transmission and the wholesale electricity market. The regulation of the wholesale market includes examining and approving the power price. In particular, every power company submits a tariff table to the Federal Energy Regulatory Commission, which has the power to adjust and amend the table if it is not in line with the public interest150;
There are also state-based electric power regulatory institutions that regulate the price for power distribution and in-state retail sales151;
The additional application also indicates that there are four categories of companies that make up the United States electricity industry: (a) public power companies that are "operated by privates"; (b) independent power generating companies; (c) municipal power companies owned by local governments; and (d) the hydropower regulatory bureaus belonging to the Federal Government152; and
149 See, for example, China's response to Panel question 1, para. 10.
150 Annex 5 to the Additional Application, (Annex 5-16 Reform of the U.S. Electric Power System; Annex 5-11, Report of the U.S Regulatory System on Electric Power).
151 Annex 5 to the Additional Application, (Annex 5--16 Reform of the U.S. Electric Power System;
Annex 5-11, Report of the U.S Regulatory System on Electric Power).
152 Annex 5 to the Additional Application, (Annex 5-11, Report of the U.S Regulatory System on Electric Power.)
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There is differentiated pricing in the electricity market, with the steel industry receiving a lower price than some other industries and a lower price than the national average.153
In its comments on the additional application, the United States adds the following information about the United States electricity industry:154
There are no national policies directing the electricity industry to provide energy to the steel industry at lower prices;
There is no agency that sets retail prices for electricity for the entire country;
Any difference in price paid by the steel industry for electricity is due to a "bulk discount" negotiated directly between the steel industry and the electricity company;
Differences in prices are due to market forces;
Steel producers pay less for electricity because they purchase it from non-utilities at a substantial discount; and
One of the GOES companies in the United States receives its electricity purely from private entities.
With respect to the alleged direct subsidies to the steel industry, assuming arguendo that the additional application included sufficient evidence of the existence of a financial contribution, namely the provision of goods or services by the government, or by a private body entrusted or directed by the government, the Panel is not convinced that the additional application included sufficient evidence of the existence of a benefit, such that an unbiased and objective investigating authority could have considered initiation of an investigation to be justified. The additional application asserts that "the amount of subsidy for this program shall be the difference between the preferential electricity power price actually paid by the companies concerned and the normal market electricity power price payable to the companies concerned".155 However, the additional application does not include evidence of the appropriate market benchmark price, or evidence that the comparison between the benchmark and the price charged to the steel industry was performed by the applicants. Although the additional application compares the price paid by the steel industry with the national average electricity price and with two selected industries, it is not clear why these constitute comparisons to an appropriate market benchmark. Indeed, if the electricity industry operates as the applicants asserted, namely that the government intervenes to set prices, rather than market forces doing so, a benchmark chosen from within this system would not appear to represent a market price.
Similarly, even assuming that the government intervenes in the electricity market to provide it to the steel industry at below market prices, there is nothing to suggest that the steel industry alone benefits from this intervention, or that access to this subsidy is otherwise limited to "certain enterprises". The additional application includes broad assertions regarding specificity, including "the [United States Government]… controls the electricity power price of electricity power companies owned or controlled by the government to provide low-priced electricity to the steel industry…such preferential treatment specific to a certain industry is clearly characterised as specific".156 However,
153 Annex 5 to the Additional Application, (Annex 5-13 Average Prices of Purchased Electricity, Natural Gas and Steam, 2002).
154 United States' Comment Regarding the Initiation Based on the New Allegations (17 August 2009), Exhibit US-29, pp. 2-3 and attachments.
155 Additional Application, Exhibit CHN-5, p. 10.
156 Additional Application, Exhibit CHN-5, p. 10.
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the additional application does not include evidence to indicate that the alleged subsidy is indeed only provided to the steel industry or to a limited group of beneficiaries. In our view, an unbiased and objective investigating authority could not have concluded that the differentiated pricing in the market provided sufficient evidence of specificity. In fact, the evidence of the wide range of prices charged by the electricity industry in the United States tends to suggest that deviation from the market benchmark price, whatever that may be, is widespread. In general, the arguments in the additional application that the Government intervenes in the pricing of electricity specifically to benefit the steel industry are somewhat speculative.
The additional application also includes an allegation of pass-through of subsidies from the electricity industry to the steel industry.157 To the extent the allegation of pass-through relates to private companies that are entrusted or directed to provide electricity to the steel industry at particular prices, including being directed to pass-through subsidies, the preceding paragraph of our reasoning applies. In particular, apart from assertion, there was not sufficient evidence in the additional application for an unbiased and objective investigating authority to conclude that the steel industry specifically benefits from this intervention.
To the extent the allegation of pass-through refers to subsidies provided to private electricity companies that are not directed by the government to provide electricity to the steel industry at particular prices, we refer to our analysis of the allegations of pass-through in relation to the natural gas industry.158 Even assuming that the additional application included sufficient evidence of pass- through of the benefit to the steel industry, an unbiased and objective investigating authority could not have found that the additional application included sufficient evidence of specificity. Although the subsidies could be specific to the electricity industry, the applicants alleged that the subsidies ultimately flowed through to the steel industry, with steel being the product to be countervailed. In these circumstances, some evidence that the steel industry falls within a category of "certain enterprises" to which the subsidy is specific is required. However, there is no evidence that any pass- through that occurs is specific to the steel industry. In particular, if an allegation of pass-through is accepted for the purposes of the application, there is no reason to assume that the benefit did not pass- through to all purchasers of electricity, rather than to the steel industry specifically. Although China appears to rely upon evidence of price differentiation for this purpose,159 in circumstances where a private company is setting the price for electricity, without direction from the government, which is the focus of our analysis in this paragraph as opposed to the preceding one, there is no basis to conclude that any price differentiation indicates that pass-through is specific to the steel industry. There is nothing to indicate this is the case rather than the price differentiation being due to market forces.
Therefore, the Panel finds that the additional application included insufficient evidence for an unbiased and objective investigating authority to conclude that initiation was justified under Article 11.3 of the SCM Agreement.
Coal
The issue in contention between the parties is whether the additional application included sufficient evidence of the existence of a financial contribution, benefit and specificity for the purposes of Articles 11.2 and 11.3 of the SCM Agreement. The additional application alleges that the
157 Additional Application, Exhibit CHN-5, pp. 8-10.
158 See paras. 7.126-7.130 of this Report.
159 China's first written submission, para. 47.
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United States Government provides subsidies to the coal industry and that the subsidies "pass- through" to the steel industry, which is a major user of coal.160
The Panel notes that the additional application included some evidence of subsidization of the coal industry, although not through the American Clean Energy Security Act 2009, which did not exist during the proposed period of investigation.161
In relation to whether the additional application included sufficient evidence of pass-through of the benefit of the subsidies from the coal industry to the steel industry, we note that the additional application included an allegation that the subsidies to the coal industry would "no doubt allow the subsidized companies to…confer considerable benefits to the GOES producers".162 The additional application does not include any supporting evidence for this statement.
Again, in a similar manner to our reasoning in relation to the alleged pass-through of natural gas subsidies, the Panel does not consider it necessary to determine what evidence would be "sufficient" under Articles 11.2 and 11.3 for the purposes of tending to prove the "pass-through" of a benefit from an upstream to a downstream entity. This is because, in any event, in the Panel's view an unbiased and objective investigating authority could not have concluded that the additional application included sufficient evidence tending to indicate that any subsidy to the steel industry was specific. Although the subsidies may have been specific to the coal industry, the applicants alleged that the subsidies ultimately flow through to the steel industry, with steel being the product to be countervailed. In these circumstances, some evidence that the steel industry falls within a category of "certain enterprises" to which the subsidy is specific is required.
In the section on specificity, the additional application asserts that "coal is an important energy input for the steel industry".163 Further, China argues that "the steel industry's substantial use of coal…goes to the issue of de facto specificity".164 However, this is not evidence indicating or tending to prove specificity. It does not demonstrate that the coal subsidies pass-through to a limited number of enterprises or in a disproportionately large amount to the steel industry, for example.
The application also relies upon a history of government support to the steel industry as evidence of specificity.165 However, as indicated in our analysis of the Medicare Prescription Drug, Improvement and Modernization Act, Article 11.2(iii), which sets out categories of evidence for which sufficient evidence is necessary before an investigation is justified under Article 11.3, requires evidence of the nature "of the subsidy in question". In our view, this requires evidence of the specificity of each alleged subsidy programme. General information about government policy, with no direct connection to the programme at issue, is not "sufficient evidence" of specificity.
160 Additional Application, Exhibit CHN-5, pp. 15-16.
161 For evidence of subsidization see Annex 5 to the Additional Application, (Annex 5-2, Federal Financial Interventions and Subsidies in Energy Markets 2007). Also, see Annex 5 to the Additional
Application, (Annex 5-19, US House of Representatives Passes the American Clean Energy Security Act) for evidence that the American Clean Energy Security Act was only at the House of Representatives stage in mid- 2009. See also, United States' Comment Regarding the Initiation Based on the New Allegations (17 August 2009), Exhibit US-29, p. 3 and United States' first written submission, para. 78.
In its response to Panel question 1, para. 14, China suggests that the Clean Energy Security Act provides a direct financial contribution to the steel industry. In response to this, we refer to the foregoing evidence indicating that the Act did not exist during the period of investigation.
162 Additional Application, Exhibit CHN-5, p. 16. 163 Additional Application, Exhibit CHN-5, p. 16. 164 China's first written submission, para. 51.
165 Additional Application, Exhibit CHN-5, p. 16 and China's first written submission, para. 51.
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Although China argues that evidence of de facto specificity is typically not reasonably available to applicants, in the Panel's view, an investigating authority must nevertheless have "sufficient evidence" of specificity before it to justify an investigation under Article 11.3 of the SCM Agreement.
In the light of the preceding reasons, the Panel concludes that an unbiased and objective investigating authority would not have found that the additional application contained sufficient information of specificity to justify initiation of the investigation. Consequently, China acted inconsistently with Article 11.3 of the SCM Agreement.
Conclusion
The Panel concludes that China acted inconsistently with Article 11.3 of the SCM Agreement in relation to each of the 11 programmes at issue.
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLES 12.4.1 OF THE SCM AGREEMENT AND 6.5.1 OF THE ANTI-DUMPING AGREEMENT BECAUSE MOFCOM FAILED TO REQUIRE ADEQUATE NON-CONFIDENTIAL SUMMARIES
Article 12.4.1 of the SCM Agreement and Article 6.5.1 of the Anti-Dumping Agreement provide:
The authorities shall require [interested Members or] interested parties providing confidential information to furnish non-confidential summaries thereof. These summaries shall be in sufficient detail to permit a reasonable understanding of the substance of the information submitted in confidence. In exceptional circumstances, such [Members or] parties may indicate that such information is not susceptible of summary. In such exceptional circumstances, a statement of the reasons why summarization is not possible must be provided.166
The applicants sought and obtained from MOFCOM confidential treatment in relation to a number of types of information, listed in Part II-1 of the application.167 Consequently, broad categories of information about GOES were redacted from the application, including the total domestic output, the applicants' total output, the domestic sales price, domestic consumption and the applicants' sales revenue, costs and pre-tax profit. The United States argues that the applicants did not provide adequate non-confidential summaries of the information.
The United States submits that Article 12.4.1 of the SCM Agreement and Article 6.5.1 of the Anti-Dumping Agreement require parties to furnish adequate non-confidential summaries, allowing for a reasonable understanding of the substance of the confidential information.168 The United States interprets China's position as claiming the existence of "exceptional circumstances", to excuse it from
166 Where only the SCM Agreement includes the references to Members.
167 Application, Exhibit US-2, p. 79. Part II-1 of the application lists 15 categories of information in relation to which the applicants sought and obtained confidential treatment from MOFCOM.
168 United States' second written submission, para. 38.
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the obligation of providing non-confidential summaries. The United States notes that this was never asserted during the course of the investigation and is post hoc rationalization.169
According to the United States, an examination of the petition demonstrates that the applicants intended Part II of the petition to constitute the non-confidential summary of the redacted information. This is clear because page 2 of the petition states that "a non-confidential summary of the confidential information was provided along with this petition" and Part I of the petition directs the reader to consult Part II of the petition for the purported non-confidential summaries. Further, Part II is entitled "non-confidential summary".170 The United States argues that the purported non- confidential summaries in Part II are "utterly inadequate" and say almost nothing about the "substance" of the confidential information submitted.171
The United States suggests that MOFCOM could have used any of a number of techniques to summarize the information in a manner that would have preserved its confidentiality, while still allowing interested parties to have a reasonable understanding of the substance of the information submitted. The United States gives the example of presenting numerical data as a trend-line or in indexed fashion, instead of in absolute terms.172
The United States characterizes China's response to its claim as suggesting that an "adequate" non-confidential summary need only be provided if an interested party objects to the manner in which confidential information is summarized. However, the United States argues that whether an interested party objects during the proceeding to the adequacy of a summary is irrelevant to whether the obligations in Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement are met.173 The United States also argues that China's submissions reflect a mistaken view that an investigating authority's obligation to ensure that the interested parties furnish adequate non- confidential summaries may be excused if there is some subsequent "non-confidential analysis" contained in the investigating authority's own determinations.174
The United States' primary position is that Part II of the petition contains the purported non- confidential summaries. However, the United States contends that even if the general statements "scattered" throughout Part-I of the petition could be relied upon as summarizing the confidential information, as argued by China, the supposed summaries in the body of the petition are inadequate. Unlabelled trend lines and year-over-year percentage changes without the necessary context of absolute values (in the form of an average, for example) are inadequate. Further, the absence of a label or other form of identification linking the purported non-confidential summaries, found throughout the petition, with the redacted information, is a factor that undermines the adequacy of the summaries. According to the United States, it was not practicable for interested parties to piece together information from the record to create non-confidential summaries.175 The United States addresses the arguments of China in relation to each of the categories of confidential information that it challenges as inadequately summarized:
169 United States' second written submission, para. 46.
170 United States' second written submission, para. 47; United States' response to Panel question 9, para. 21; and United States' opening statement at the first meeting of the Panel, para. 17.
171 United States' first written submission, para. 83 and United States' second written submission,
para. 47.
172 United States' first written submission, para. 86.
173 United States' second written submission, paras. 39-40.
174 United States' second written submission, paras. 41-42 and United States' response to Panel
question 8, para. 19.
175 United States' second written submission, paras. 37 and 48; United States' response to Panel question 9, para. 22 and United States' response to Panel question 45, para. 8.
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Output of the applicants, total output of GOES in China, proportion of the applicant's output in relation to China's total output
According to the United States, at no point does China assert that the non-confidential summary of the output of the applicants was sufficient. Rather, China contends that the "details are not needed" or that the "main point" was standing and that this was evident from the other information provided. The United States argues that China requires the respondents to engage in guesswork to surmise an understanding or "the point" of the substance of the confidential information. Further, China's reliance on "Appendix 13" as summarizing the output of the applicants is inapposite. The petition does not contain a single reference to Appendix 13 and it is impossible to determine whether the applicants relied on Appendix 13 for their output figures. Therefore, it is not possible to determine whether Appendix 13 provides an adequate non-confidential summary.176
The Chinese Industry
Regarding trends in domestic consumption, the United States argues that redacting the data on the consumption of GOES in China and stating that it represents "a growth of about 50% over 2006", does not provide a reasonable understanding of the redacted information. Without absolute values, it is impossible to attribute any meaning to the statement that there was 50% growth.
With respect to the trends in domestic production, the United States argues that stating domestic output grew less rapidly than imports does not shed light on the contents of the redacted information, namely the numerical data on domestic output over the period 2006-2008. Further, China's reliance on percentage changes more than fifty pages later in the petition is not credible and would require respondents to engage in a fishing expedition for the missing information.
Regarding trends in domestic prices, the United States contends that stating "the price of subject imports was always lower than that of the applicants" does not shed light on the contents of the redacted information, namely the domestic price per ton. China's reliance on unlabelled trend lines in a section of the petition disconnected from the Chinese domestic industry discussion is an inadequate summary of the information.177
Similarity or likeness of production techniques
The United States notes that the application simply redacts certain information. Therefore, the respondents could not comment meaningfully on the "like product" issue.178
Change of price
The United States' position is that the trend lines found in the petition are an inadequate summary of the pricing data. The United States argues that trend lines need to be labelled to provide necessary context.179
Dumping margin of GOES imports from the United States
In response to China's position that the United States could have performed reverse engineering to obtain the redacted data, the United States argues that this is an admission that the non-
176 United States' second written submission, paras. 49-51. 177 United States' second written submission, paras. 52-56. 178 United States' second written submission, para. 57.
179 United States' second written submission, para. 58.
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confidential summary was inadequate. It is not acceptable to require respondents to make educated guesses regarding information for which a non-confidential summary was not provided. 180
Apparent consumption of GOES in China
The United States contends that the purported summaries of the consumption of GOES in China are inadequate. The reliance by China on Table 23 of the petition does not advance China's case, because the information in it is entirely redacted, with no cross-reference to a summary in any other section of Part I of the petition.181 Further, the "percentage change" discussed fifty pages earlier in the petition is merely a statement that consumption grew by 50% between 2006 and 2008. Finally, in relation to China's reliance upon Table 32 of the petition, the United States notes that the table does not provide a proper contextual framework to allow the substance of the information to be understood.182
Suppressing or depressing effects on domestic prices
The United States argues that year-on-year percentage changes in domestic average prices are not an adequate non-confidential summary because the significance of the absolute changes is not revealed. Unlabelled trend lines are also inadequate.183
Influence on the Chinese domestic industry
The United States contends that a significant portion of the injury indicia data is missing some or all of the non-confidential summary information. In particular, aside from the fact that year-over- year percentage changes are not an adequate non-confidential summary, they are not provided on a consistent basis for all indicators.184
Statistics and information about dumping by the United States
According to the United States, China does not contest its claim that the petitioners provided an inadequate summary of this category of confidential information.185
China disputes the United States' claims under Articles 12.4.1 of the SCM Agreement and
6.5.1 of the Anti-Dumping Agreement. In particular, China argues that proper non-confidential summaries were provided in Part I of the petition and that these summaries were later supplemented by the non-confidential analysis by MOFCOM in its determination and by the parties in their arguments to MOFCOM.186 China does not invoke the "exceptional circumstances" exemption under Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement. Rather, China argues that the adequacy of the non-confidential summaries should be assessed in the context of the circumstances of the investigation. In particular, China argues that in the GOES investigation the fact that there were only two Chinese producers constitutes an "exceptional circumstance".187 In this context, if an authority were to aggregate the data provided by all domestic producers in order to provide a non-confidential summary to interested parties, each domestic producer would be able to
180 United States' second written submission, para. 59.
181 United States' response to Panel question 46, paras. 12-13.
182 United States' second written submission, paras. 60-61.
183 United States' second written submission, para. 62.
184 United States' second written submission, para. 63.
185 United States' response to Panel question 12, para. 23.
186 China's first written submission, paras. 71 and 87.
187 China's response to Panel question 11, paras. 40-41.
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disaggregate the data to reveal the confidential information submitted by its competitor. This would not adequately protect the confidential information.188
According to China, Article 12.4.1 of the SCM Agreement and Article 6.5.1 of the Anti- Dumping Agreement do not require complete or perfect disclosure. Rather, the summary must be in "sufficient detail" to allow a reasonable understanding of the information, in the light of the purpose for which the information is submitted.189 In determining whether a summary permits a "reasonable understanding" of the confidential information, relevant context, such as the importance of precise numerical information to an argument and whether there is public information that can provide context for the missing information, should be considered. China argues that the United States' approach, requiring a statement of reasons if a single number is missing, is too impractical and mechanical.190
China contends that the United States mistakenly focuses on the statements in Part II of the petition, assuming that they are the non-confidential summaries. Part II of the petition clearly states that the "petitioners made explanations in the public version of the petition about the part that were applied for confidential treatment".191 Part II was included "to identify each category of information for which confidential treatment was requested, to justify confidential treatment on the basis of competitive or adverse effects, and to ensure that other parties fully understood what information was redacted".192
In addressing Part I of the petition, China understands the United States to be arguing that it cannot comprehend the non-confidential summaries because they are in the substantive portion of the text of the petition (Part I), rather than in the portion of the text which describes the categories of information for which confidential treatment was sought.193 China responds to this argument by noting that Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement do not address the manner in which a non-confidential summary should be identified or the form it should take. In particular, there is no requirement for the non-confidential information to be "linked" to the information being summarized.194
China addresses each of the topic areas that United States claims was treated confidentially but was not adequately summarized:
Output of petitioners and standing
China acknowledges that a table regarding the production of the petitioners was redacted. However, China reasons that the information was relevant to the standing of the petitioners. As the public version of the petition makes a factual assertion of standing, this is sufficient to allow a reasonable understanding of the table. China also argues that there was evidence in the public version of the petition indicating that the two petitioners make up the entire Chinese GOES industry, therefore satisfying the standing criteria under WTO rules.195
188 China's first written submission, para. 136.
189 China's first written submission, para. 89.
190 China's response to Panel question 11, para. 44.
191 China's first written submission, para. 90.
192 China's response to Panel question 10, para. 39.
193 China's second written submission, para. 30.
194 China's second written submission, paras. 24 and 31.
195 China's first written submission, paras. 93-96.
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Chinese domestic industry
China notes that a section of the petition detailing trends in the Chinese GOES industry had specific numbers deleted. China argues that the deleted information was summarized either in the same section or elsewhere in the public version of the petition. For example, trends in consumption were summarized through the provision of percentage changes in domestic apparent consumption; trends in domestic production were summarized by contrasting the rate of growth of imports with the rate of growth of domestic shipments and by providing the specific growth percentages in another section of the petition; trends in domestic prices were summarized by asserting that import average unit values were below the average unit values of the petitioners and by graphing trend lines.196
Similarity or likeness of production techniques
China argues that information about specific production processes was confidential but that a "general overview of the basic points" of this information was provided. 197
Change of price
China notes that information on specific average unit values of the petitioners' product was removed from a table. However, the public version of the petition includes a non-confidential version of the information in the form of trend lines, comparing relative domestic and import prices.198 According to China, when read in conjunction with public import prices, the trend lines allow interested parties to understand both the relative trend in prices and the magnitude of the price differential over time.199
Dumping margins for GOES from the United States
China notes that the petitioners' estimates of freight costs and the numbers derived from that information are deleted from the petition. However, China contends that disclosing the relevant methodology and the majority of numbers is an adequate summary. Further, based on the formula and numbers disclosed, some of the missing information could have been derived by the United States.200
Apparent consumption of GOES in China
China argues that deleted information about the apparent level of domestic consumption was summarized in the form of year-to-year percentage changes. 201
Suppressing or depressing effects on domestic prices
China submits that data on average unit values for the domestic product was summarized through the use of trend lines and percentage changes.202
196 China's first written submission, paras. 97-101. 197 China's first written submission, paras. 102-103. 198 China's first written submission, para. 104.
199 China's second written submission, para. 33.
200 China's first written submission, paras. 105-109. 201 China's first written submission, paras. 110-116. 202 China's first written submission, paras. 117-121.
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Influence on the Chinese domestic industry
Actual numbers regarding the state of the domestic industry were deleted. However, China states that for each indicator a percentage change was provided as a non-confidential summary.203
Statistics and information about dumping by the United States
China relies upon the same summary as it does for the category "dumping margin of GOES".204
Argentina
Argentina submits that the objective of Article 6.5.1 of the Anti-Dumping Agreement and Article 12.4.1 of the SCM Agreement is to guarantee a right of defence to interested parties. MOFCOM should have required the interested parties to furnish non-confidential summaries.205
According to Argentina, providing year-on-year percentage changes and trend lines not labelled to scale does not constitute an adequate non-confidential summary because information on absolute values should be provided. However, Argentina submits that absolute values should not be required for production costs, due to the sensitivity of this information.
European Union
The European Union argues that Articles 6.5.1 of the Anti-Dumping Agreement and 12.4.1 of the SCM Agreement not only impose an obligation on the interested party to provide a non- confidential statement, but also impose an obligation on investigating authorities to require that such a statement be provided.206
The European Union is not convinced by China's position that "exceptional circumstances" within the meaning of Articles 6.5.1 of the Anti-Dumping Agreement and 12.4.1 of the SCM Agreement exist when there are only two producers. In the European Union's view, in cases where there are only two producers, it is still possible to prepare non-confidential summaries (in the form of indices, for example).207
India
India submits that Article 6.5.1 of the Anti-Dumping Agreement is of critical importance in preserving the balance between the interests of confidentiality and the ability of interested parties to defend their rights in an investigation.208
Korea
Korea notes that in its anti-dumping investigations, the Korea Trade Commission utilizes "percentage numbers" in lieu of actual numbers, as a form of non-confidential summary. However, if indices or other alternative means of summarization would reveal confidential information (for
203 China's first written submission, paras. 122-128.
204 China's response to Panel question 12, para. 45.
205 Argentina's third party submission, paras. 8 and 11. 206 European Union's third party submission, para. 4. 207 European Union's third party statement, para. 16. 208 India's third party statement, para. 3.2.
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example, when only two or three firms are involved), "such information may warrant confidential treatment".209
Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement
The issue in contention between the parties is whether the applicants provided non- confidential summaries of the confidential information redacted from the application, in accordance with the requirements of Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement.
Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement oblige investigating authorities to require interested parties, and interested Members in the case of the SCM Agreement, to furnish non-confidential summaries of any confidential information provided. The summaries must permit a "reasonable understanding" of the substance of the confidential information submitted. In the Panel's view, the broad nature of the requirement to furnish non-confidential summaries applies to confidential information submitted in an application, as well as to information submitted in the course of an investigation. Articles 12.4.1 and 6.5.1 permit an exemption to the requirement to provide non-confidential summaries when "exceptional circumstances" exist, which render the confidential information incapable of summarization. However, in such a case, a statement of reasons why summarization is not possible must be provided.
The obligations in Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement fall upon the investigating authorities. The Appellate Body agreed with this interpretation in EC – Fasteners (China). The Appellate Body found that in respect of information treated as confidential under Article 6.5, Article 6.5.1 imposes an obligation on the investigating authority to require that a non-confidential summary of the information be furnished.210 The Appellate Body noted that this accommodates the concerns of confidentiality, transparency and due process.211 Where "exceptional circumstances" exist, such that non-confidential information is not susceptible of summary, Article 6.5.1 requires that the party identify the exceptional circumstances and provide a statement explaining why summarization is not possible. The investigating authority must scrutinize such statements to determine whether they establish "exceptional circumstances".212
An issue in contention between the parties in the circumstances of this case is when the obligation to furnish a non-confidential summary arises. In particular, China argues that the "non- confidential summaries provided in the application itself were later supplemented by non-confidential analysis provided by MOFCOM in its determination, and by the parties in their arguments to MOFCOM".213 In the Panel's view, China's reasoning in this regard is not convincing. Given the Appellate Body's statement that Article 6.5.1 of the Anti-Dumping Agreement affords "due process" to interested parties in an investigation, China's argument that non-confidential information submitted in the application can be summarized in the investigating authority's determination is problematic. In order to allow an interested party the opportunity to defend its interests, the summary of the
209 Korea's third party response to Panel question 2.
210 Appellate Body Report, EC – Fasteners (China), para. 542.
211 Appellate Body Report, EC – Fasteners (China), para. 542.
212 Appellate Body Report, EC – Fasteners (China), para. 544. A number of panels have also taken this approach, see in particular, Panel Reports, Guatemala – Cement II, para. 8.213; Mexico – Steel Pipes and
Tubes, para. 7.379; EC – Fasteners (China), para. 7.515, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina), para. 7.135; and Mexico – Olive Oil, para. 7.89. These panels held that meaningful interpretation of the provisions must impose an obligation on the investigating authorities to require interested parties to provide a statement of reasons regarding why summarization is not possible.
213 China's first written submission, para. 84.
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confidential information needs to be provided before the investigating authority has reached its determination. Further, Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement expressly provide that the authorities shall require "interested parties providing confidential information to furnish non-confidential summaries thereof". It is difficult to read this obligation as being fulfilled when an investigating authority produces a summary of information submitted to it.
The parties also disagree regarding the relevance of whether a respondent contests the issue the subject of the summary. In its first written submission, in defending the adequacy of its non- confidential statements with respect to certain categories of information, China variously notes that "this issue was not seriously contested" by the respondents. However, whether or not a respondent makes a substantive challenge regarding the subject matter that has been treated confidentially does not affect the standard for an adequate non-confidential summary under Articles 12.4.1 of the SCM Agreement or 6.5.1 of the Anti-Dumping Agreement. Indeed, without an adequate non-confidential summary, the ability of an interested party to contest the relevant issue is compromised.
Finally, with respect to whether the "exceptional circumstances" exemption is at issue, in response to a Panel question, China clarifies that, in the event the Panel finds the non-confidential summaries inadequate, it does not invoke the exceptional circumstances exemption. Indeed, the text of the provisions at issue, and the Appellate Body and panel reports, clearly state that if information is not susceptible of summarization, the party must identify the exceptional circumstances and provide a statement explaining why summarization is not possible. The investigating authority is required to scrutinize such statements to determine whether they establish "exceptional circumstances". It is clear that this did not occur in the context of this case. However, although it does not rely on the exemption, China contends that the adequacy of the non-confidential summaries should be assessed in the light of the "exceptional circumstance" that there were only two Chinese producers of GOES, making it difficult for summaries of aggregate data adequately to protect the confidentiality of the information.
In considering China's argument in this regard, we note that Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement explicitly establish the standard by which the sufficiency of non-confidential summaries is to be assessed, namely by reference to whether the summaries "permit a reasonable understanding of the substance of the information submitted in confidence". If the information is not susceptible of summary, for example because it would not be possible to summarize the information while still preserving its confidentiality, the provisions allow for an exemption to the requirement to furnish a non-confidential summary. However, if this "exceptional circumstance" exemption is not invoked, as in this case, there is no basis to conclude that purported "exceptional circumstances" alter the standard that applies under Articles 12.4.1 and 6.5.1. Therefore, the Panel will assess the adequacy of the non-confidential summaries by reference to whether they "permit a reasonable understanding of the information submitted in confidence". If they do not, the fact that there were only two Chinese producers of GOES will not alter the conclusion that China acted inconsistently with Articles 12.4.1 and 6.5.1.
Part II of the application
The major issue in contention between the parties is where in the application the non- confidential summaries can be found. While the United States contends that the purported non- confidential summaries are the general statements found in Part-II of the application, China contends that non-confidential summaries can be found throughout Part-I of the application.
We note that within Part-I of the application, there are several sections in which confidential information, generally numerical, has been redacted. The end of each section containing redacted information includes the phrase "[p]lease see Part II-2, Non-confidential summary [x] for confidential
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information".214 Part II-2 of the application is entitled "non-confidential summary" and its introductory paragraph, in China's version of the English translation, provides:
For the convenience of interested parties to have a general idea about the confidential information, the petitioner hereby summarize the confidential information applied including the narratives and annex marked **.
By contrast, the United States' translation of the opening paragraph of Part II-2 provides:
To help other interested parties to access to comprehensive information the petitioners applied for confidential treatment, the petitioners made explanations in the public version of the petition about the part that were applied for confidential treatment, and below are non-confidential summaries of the appendices that have been applied for confidential treatment.215
A review of the application provides support for the United States' position that the applicants intended Part II-2 of the application to provide the non-confidential summaries of the redacted information. This is due to the consistent instructions in the body of the application, following redacted sections, to consult Part II of the application for summaries of the non-confidential information. Further, the title to Part II-2 is "non-confidential summary", which somewhat undermines China's argument that Part II merely identifies each category of information for which confidential treatment was requested and justifies the confidential treatment for each category. Further, China's English translation of the introductory paragraph to Part II-2 states that "the petitioner hereby summarize[s] the confidential information applied".
We note that Part II-2 of the application consists of short and general statements regarding the nature of the information treated as confidential. For example, the section in Part II-2 that refers to the redacted information regarding "change in price" provides:
This part involves sales price of the subject merchandise by the petitioners from 2006 to February 2009. As they are business proprietary of the petitioners, disclosure of which will seriously harm the interest of the petitioners; therefore, the petitioners applied for confidential treatment of the information.
Therefore, in the Panel's view, the "summaries" in Part II-2 provide minimal descriptions of the nature, rather than the substance, of the information treated as confidential. Indeed, China does not even attempt to argue that the summaries in Part II-2 are sufficient under Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement.
Consequently, the Panel concludes that Part II of the application was intended to provide the non-confidential summaries of the confidential information, but the summaries are inadequate under Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement.
Part I of the application
Although the Panel concludes that Part II of the application was intended to provide the non- confidential summaries, we note China's argument that neither Article 12.4.1 of the SCM Agreement nor Article 6.5.1 of the Anti-Dumping Agreement specify that the required non-confidential
214 Application, Exhibit US-2 (English translation), see for example pp. 4 and 5.
215 Application, Exhibit US-2 (English translation), p. 79. We note that the equivalent paragraph in the
English translation of the application submitted by China does not include a statement that earlier parts of the application included non-confidential summaries (see, Exhibit CHN-2, p. 126).
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summaries must take a particular form or be labelled in a particular manner. Consequently, China argues that non-confidential summaries can be interspersed throughout the body of an application and still provide a reasonable understanding of the substance of the confidential information. Even if we were to accept China's argument that non-confidential summaries can be found in Part I of the application, as indicated in the reasons which follow the Panel is not convinced that the purported summaries provide a reasonable understanding of the substance of the confidential information.
At the outset, we note certain problems with some of the summaries relied upon by China. In particular, in some instances, China's position is that a non-confidential summary has been furnished within the meaning of Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement when it is possible to infer the "main point" of the confidential information from the context surrounding the redaction. In our view, this is not what is envisaged as a non-confidential summary under the SCM and Anti-Dumping Agreements. Articles 12.4.1 and 6.5.1 explicitly require the interested party furnishing the confidential information to provide a summary thereof, rather than requiring other interested parties to infer, derive and piece together a possible summary of the confidential information. The following analysis of a selection of the categories of confidential information redacted from the application highlights the problems with the purported summaries relied upon by China. Given our conclusion that certain categories of confidential information were not adequately summarized in Part I of the application, we have not considered it necessary to proceed to analyse each of the nine categories set out in the United States' first written submission.216
Output of the petitioners, total output of GOES in China, proportion of the petitioners' output in China's total output
Table 1 of the application includes information about the output of each applicant, the total output of GOES in China and the proportion of total output of each of the two applicants over the period 2006 through the first quarter of 2009. All of the numerical information in the table is redacted. The information in the application that China claims summarizes the table includes:
an assertion that the applicants met the standing requirements under the Chinese regulations;
the discussion of the domestic industry in the application, which mentions only two producers. China argues that this indicates that the applicants account for 100% of the domestic industry; and
Appendix 13 to the application, which provides figures for the total domestic GOES output and the output of each applicant over the period 2006-2007, and estimates for 2008 and beyond.217
China argues that Table 1 was included in the application for the purpose of demonstrating that the applicants met the standing requirements under the Anti-Dumping and SCM Agreements. Although the United States argues that "standing" was not mentioned in the application, it is included in China's version of the English translation of the application. While the United States' translation does not include the term "standing", the description under Table 1 makes clear that whether the two companies "qualify for petitioners" was at issue.218
216 United States' first written submission, para. 83.
217 GOES Supply: Domestic Output Growth Insignificant, while Import Pressure Mounts, CICC (Appendix 13 of the Application), Exhibit CHN-13.
218 Application, Exhibit CHN-2, p. 9 and Exhibit US-2, pp. 3-4.
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According to China, the assertion that the applicants met the standing requirements under WTO rules is an adequate summary of the confidential information redacted from Table 1 of the application. However, we recall the Appellate Body's statement that Article 6.5.1 of the Anti- Dumping Agreement accommodates the concerns of confidentiality, transparency and due process. In the Panel's view, to accommodate the concern of due process, interested parties must have access to a summary of the confidential information that is relied upon to draw certain conclusions, so that those conclusions may be challenged. Simply relying on the conclusion as the non-confidential summary does not provide interested parties with a means to challenge whether the confidential information in fact provides a basis for the conclusion drawn. China's position is that interested parties reading the application should assume that the applicants correctly interpreted the redacted data to reach the conclusion relating to standing. In our view, this is not what is envisaged by Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement. Rather, it is necessary to provide a summary of the substance of the confidential information and not merely to assert the conclusions that may be drawn from it.
With respect to the discussion of the domestic industry, China relies on Part I(1)(i)(d) of the application, which discusses the technology investments made by the two applicants and also states that "in recent years, major steelmakers in China are making huge investments to expand GOES production capacity to satisfy domestic demand. Up to now, most capacities built with newly added investment are ready for production".219 In our view, this does not make it as clear as China asserts that the domestic industry consisted of only two producers. Although China argues that "it was common knowledge" that there were only two producers in the Chinese GOES industry and "this was widely known from the public press reports about the Chinese industry", this begs the question of why the information was treated as confidential.220 If information is treated as confidential in an application or investigation, the obligation to provide a non-confidential summary of it cannot be avoided by claiming that the information is public in any event.
Finally, China relies upon Appendix 13 as a summary of Table 1 of the application. However, we find reliance on this appendix to be problematic. Appendix 13 is referenced twice in the body of the application: first, in explaining the use of the export price to the European Union as the normal value, and second, in claiming the existence of threat of material injury. In both instances, it is relied upon for the information it includes regarding the state of the steel markets in the United States and Russia.221 In no place in the application, least of all in relation to Table 1, is the information in Appendix 13 regarding domestic output of GOES in China referenced. It is uncertain whether the data in Appendix 13 is the source for the confidential information in Table 1 or provides a summary of it. Indeed, the information in Appendix 13 includes actual values only up to and including 2007, with estimates of output provided for 2008 and beyond. Given this mismatch between the data in Table 1 and Appendix 13, and the stated purpose in the body of the application for the inclusion of Appendix 13, in our view it does not provide readers of the application with a summary of the confidential information redacted from Table 1.
Consequently, even if we were to accept China's argument that the non-confidential summaries are to be found in Part I rather than Part II of the application, the information relied upon by China as the summary of the confidential information redacted from Table 1 is inadequate under Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement.
219 Application, Exhibit US-2, pp. 4-5.
220 China's first written submission, para. 95.
221 Application, Exhibit CHN-2, pp. 36, 116.
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Apparent consumption of GOES in China
Tables 23 and 24 of the application redact data on the annual domestic apparent consumption of GOES over the period 2006 through the first quarter of 2009. China relies upon the following sections of the application as the non-confidential summaries of this information:
Percentage changes in domestic apparent consumption on page 5 of the application. In particular, page 5 states that since 2006, domestic apparent consumption has maintained a year-on-year growth rate of 20%. By 2008, there had been a growth of 50% over 2006 levels.
Table 32 of the application provides year-on-year percentage changes from 2006 to 2007 and from 2007 to 2008. These figures are also discussed in the commentary on causation following Tables 32 and 33.
Appendix 13 to the application, which provides public data on apparent domestic consumption over the period 2006-2007, with estimates for 2008 and beyond.
The United States and China disagree regarding whether year-on-year percentage changes can provide an adequate non-confidential summary of the confidential information on the apparent domestic consumption of GOES in China. According to the United States, it is impossible to gain a reasonable understanding of the substance of the redacted information because, in the absence of information about the absolute values, "growth of about 50%" could mean growth from 100 to 150 or 100,000 to 150,000.222 The United States argues that absolute values could have been reported as an average without disclosing the confidential information.223 However, a review of Tables 23 and 24 in the application indicates that the tables report data in the form of annual averages, including redacting the data on the annual average domestic apparent consumption. Therefore, it is the annual averages of domestic apparent consumption of GOES that is treated as confidential in the application. Given that the United States has not brought a claim regarding the classification of particular types of information, including annual averages, as confidential under Articles 6.5 of the Anti-Dumping Agreement or 12.4 of the SCM Agreement, its argument that the very information treated as confidential should have been disclosed under Articles 6.5.1 of the Anti-Dumping Agreement and
12.4.1 of the SCM Agreement is not convincing.
However, in the Panel's view, there remain significant problems with the purported summaries of the confidential information relied upon by China. In particular, there is a mismatch between the redacted information and the alleged summaries. Table 32 includes the percentage change in domestic apparent consumption between 2006 to 2007 and between 2007 to 2008. Although the information redacted from Tables 23 and 24 includes a figure for apparent domestic consumption in the first quarter of 2009, no percentage change or other form of summary is provided for this in Table 32 or elsewhere in the application, including on page 5. Therefore, even accepting China's arguments regarding the adequacy of year-on-year percentage changes as a means of summarizing confidential information, the summary is deficient in any event, with respect to the data for the first quarter of 2009.
With respect to China's reliance upon Appendix 13 of the application as a form of non- confidential summary, we recall our previous discussion of this Appendix at paragraph 7.207 of this Report.
222 United States' second written submission, para. 60.
223 United States' response to Panel question 45, para. 8.
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Finally, we note the United States' argument that China would require respondents to "piece together a puzzle of data and information scattered throughout the petition". This is because information 50 pages prior to, and 8 pages after, Tables 23 and 24 is supposed to summarize the information redacted from Tables 23 and 24.224 On the one hand, the Panel notes that Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement do not include any requirements regarding the form a non-confidential summary must take. However, on the other hand, given the lack of cross-referencing and the mismatch between the redacted information and the purported non- confidential summaries, a respondent may be confused regarding whether the summary information is based on the same data source as the redacted information and thus represents the "non-confidential" summary. In this sense, the due process objective of Articles 12.4.1 and 6.5.1 may be undermined, as an interested party may not be aware that the redacted information has in fact been summarized and can be contested.
In the light of this reasoning, even if we were to accept China's argument that year-on-year percentage changes in domestic apparent consumption may constitute non-confidential summaries, there remain significant problems with the summaries relied upon by China, such that they are inadequate under Articles 12.4.1 and 6.5.1 of the SCM and Anti-Dumping Agreements.
Influence on the Chinese domestic industry
The section of the application describing the impact of the dumped imports on the domestic industry includes 24 tables of data, from which either all or a significant portion of the data is redacted.225 China relies upon year-on-year percentage changes as the relevant non-confidential summaries, provided either within the relevant tables or in the accompanying commentary. China again relies upon Appendix 13 as providing a non-confidential summary of some of the factors at issue.
Again, even accepting that year-on-year percentage changes may constitute a form of non- confidential summary, there remain certain gaps in the summaries provided in the section of the application examining the impact of the dumped imports on the domestic industry, as outlined in the following paragraphs.
Figures for the injury indicators are provided separately for each applicant, WISCO and Baosteel. Generally, the percentage change in each indicator from 2006 to 2007 and from 2007 to 2008 is provided for WISCO. However, summary data is generally not provided for Baosteel. We note that Baosteel commenced production in May 2008 and therefore, the redacted information presumably included absolute values for Baosteel for 2008 and the first quarter of 2009.226 Further, China did not claim that such information was incapable of summarization due to "exceptional circumstances" under Articles 12.4.1 of the SCM Agreement or 6.5.1 of the Anti-Dumping Agreement. In Table 38, summary data is provided for Baosteel, by breaking the data down and providing quarter-on-quarter changes, indicating that some form of summarization was possible for Baosteel. Therefore, for those tables where no summary data is provided for Baosteel, and the subsequent commentary also fails to summarize the information, we cannot conclude that China acted consistently with Articles 12.4.1 of the SCM Agreement or 6.5.1 of the Anti-Dumping Agreement.227
For some of the tables in which no summary data is provided for Baosteel, year-on-year changes for WISCO and for the total industry are provided. Therefore, it is possible to derive
224 United States' second written submission, para. 61.
225 Application, Exhibit US-2, pp. 61-72.
226 Application, Exhibit US-2, p. 67.
227 Application, Exhibit US-2. For instances of this, see Tables 27, 34, 42 and 50, pp. 61, 65-66, 69 and
72.
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Baosteel's contribution in 2008 and the first quarter of 2009.228 However, where an interested party is required to perform its own calculations in order to derive its own summary of the confidential information, this is an indication that the party providing the confidential information did not furnish an adequate summary to the investigating authority in accordance with Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement.
Although year-on-year percentage changes are generally provided for WISCO, in relation to a number of tables a percentage change for only one year is provided, with the summary data for the other annual change missing.229 Finally, in a number of instances, no year-on-year summary is provided for either WISCO or Baosteel. In these cases, there is some limited commentary following the redacted tables.230
In the light of these observations, even if we were to accept China's theory that the non- confidential summaries can be found in Part I of the application, the purported summaries relied upon by China are deficient in a number of respects. Consequently, we cannot conclude that the summaries provide a reasonable understanding of the substance of the confidential information in accordance with Articles 6.5.1 of the Anti-Dumping Agreement and 12.4.1 of the SCM Agreement.
Dumping Margin of GOES imports from the United States
China argues that the dumping margins for GOES were adequately summarized because the methodology for calculating the margins was outlined and the vast majority of numbers were provided in Part I of the application. Given the Panel's conclusions regarding the numerous problems with the purported non-confidential summaries in relation to the three preceding categories of confidential information, we do not consider it necessary to reach a definitive conclusion regarding whether, in this context, outlining the methodology for calculating the dumping margins was sufficient to permit a reasonable understanding of substance of the redacted information.
However, in relation to China's argument that, based on the formulas and numbers disclosed, interested parties could derive much of the missing data, the Panel feels it necessary to comment that this kind of process is not what is envisaged by Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement. The Articles explicitly require parties to furnish non-confidential summaries of any information submitted in confidence. Where other interested parties are required to derive their own summary and make educated guesses about the substance of the redacted information, the requirements of Articles 6.5.1 and 12.4.1 are not met.
Conclusion
The Panel concludes that Part II-2 of the application was furnished by the applicants as the non-confidential summary required under Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement. However, the purported summaries in Part II are inadequate in permitting a reasonable understanding of the substance of the information submitted in confidence.
and 68.
228 Application, Exhibit US-2. For instances of this, see Tables 28, 29, 31 and 40, pp. 61-62, 63-64,
229 Application, Exhibit US-2. For instances of this, see commentary following Tables 41 and 45 on
pp. 69 and 71.
230 For example, the commentary accompanying Table 30 indicates that the sales volume to output rate was dropping for the applicants over the period 2006-2009. With respect to Table 33, the commentary indicates
that market share for the applicants rose between 2006 and 2007 and then fell in 2008. Finally, with respect to Table 36, no summary information is provided for Baosteel, apart from a statement that its capacity utilization rate was low (see Application, Exhibit US-2, pp. 63, 65 and 67.)
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As highlighted in the preceding reasons, the Panel has analysed the information on the basis of China's argument that the non-confidential summaries can be found in Part I of the application. The Panel has concluded that, for at least some of the categories of confidential information, there are deficiencies in the purported summaries relied upon by China, such that they do not provide a reasonable understanding of the substance of the confidential information. In addition, we are not convinced by that aspect of China's defence which suggests that a non-confidential summary exists where an interested party is able to derive, or infer from the context, the possible nature of the confidential information. Rather, there is an explicit obligation under Articles 6.5.1 of the Anti- Dumping Agreement and 12.4.1 of the SCM Agreement for an interested party submitting confidential information to furnish a summary of it. It is not for other interested parties to derive their own summary based on the context from which the information is redacted.231
Accordingly, the Panel concludes that China acted inconsistently with Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement.
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLE 12.7 OF THE SCM AGREEMENT IN ITS USE OF FACTS AVAILABLE IN CALCULATING THE SUBSIDY RATES (FOR THE TWO KNOWN RESPONDENTS) UNDER CERTAIN PROCUREMENT PROGRAMMES
MOFCOM applied facts available to calculate the subsidy rates for the two known respondents, AK Steel and ATI. MOFCOM found that the respondents had not cooperated with its investigation, since they had failed to provide certain sales data.
The United States contends that MOFCOM's reliance on facts available was improper, and therefore contrary to China's obligations under Article 12.7 of the SCM Agreement.
China asks the Panel to reject the United States' claim.
The United States denies that the two respondents failed to provide requested information, or that they otherwise impeded MOFCOM's investigation. The United States asserts that the respondents cooperated, responded to MOFCOM's questionnaires, and to the extent they did not provide information it was because MOFCOM's own questionnaires did not require it. The United States asserts that the two respondents engaged with MOFCOM on its terms throughout the investigation.
Regarding the information actually used by MOFCOM once it resorted to facts available, the United States also contends that there were no facts available on the record supporting MOFCOM's choice of a 100% utilization rate, i.e. a rate indicating that all domestic sales of GOES and non-GOES products by the respondents were subsidized.
Failure to cooperate / provide data
The United States notes that, in its original August 2009 questionnaire, MOFCOM gave the following general instructions for the respondents:
231 Although not expressly stipulated in Articles 12.4.1 of the SCM Agreement or 6.5.1 of the Anti- Dumping Agreement, the Panel notes the important contribution to transparency, and to assisting parties in gaining a reasonable understanding of the substance of the confidential information, that labelling non- confidential summaries as such provides.
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Please read questions carefully before answering. When answering a question, please write the question down first and put your answer directly below it and point out the support evidence to it. If the question does not apply to you, please write down explicitly, "this question does not apply to my company" and state the reasons.232
The United States asserts that, in addition, MOFCOM posed the following questions under the heading "government procurement programs" relating to the applicants' government procurement allegations:
Please answer all the questions listed by Annex I.
Does your company attend bidding when selling products to government? If yes, please explain the specific bidding procedure and bidding rules as well as the agencies and departments to which your company submit bid tender.
Please provide all the relevant information (not limited to the subject merchandise), in the form of tables, regarding government procurement signed within the POI as well as those not performed within the POI, which includes: the specific names of the purchaser, purchasing time, name of purchased products, the supply quantity, [value], price, payment and the contract progress, etc. The contract, bid tender etc. related evidence shall be provided. The selling price of the involved products that are sold to other private purchaser shall be provided as well.
Please provide the information regarding domestic sales of all the products in POI, in the form of tables. The quantity and [value] of each product sold to each client shall be provided.233
The United States contends that, in response to questions 2 and 3, AK Steel answered that, as demonstrated by the sale data for subject merchandise provided in the parallel anti-dumping proceeding, the company did not sell any GOES to any government entity during the POI. AK Steel continued: "[a]s a result, this alleged subsidy program is not relevant to AK Steel."234 The United States asserts that ATI provided a similar answer.235 The United States asserts that, pursuant to MOFCOM's instructions, AK Steel noted that no government procurement was signed during the POI, and therefore the question was inapplicable.
The United States submits that, in response to Question 4, which only relates to the POI, and which does not contain the proviso "not limited to the subject merchandise" found in Question 3, AK Steel referred MOFCOM to the sale data for subject merchandise provided in the parallel anti- dumping proceeding.236 ATI indicated that the question was "[n]ot applicable."237 The United States contends that, in the light of the fact that AK Steel and ATI did not use the alleged program, and none of the predicates for reporting data in response to Question 3 were met, the summary quantity and value data requested in Question 4 were superfluous.
The United States acknowledges that MOFCOM issued a deficiency letter regarding the respondents' replies to the above questions. The United States asserts that, in its deficiency letter
232AK Steel, Original Questionnaire Response, Aug. 10, 2009 (BCI), Exhibit US-11, p. 6; AK Steel, Revised Questionnaire Response, Sept. 9, 2009 (BCI), Exhibit US-14, p. 6.
233 China's first written submission, para. 147.
234 AK Steel, Original Questionnaire Response, (BCI), Exhibit US-11, pp. 21-22.
235 Exhibit US-38, at 19 (“not applicable”).
236 AK Steel, Original Questionnaire Response, (BCI), Exhibit US-11, pp. 21-22.
237 Excerpt from ATI Questionnaire Response, Exhibit US-38, p. 19.
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issued 10 August 2009, regarding government procurement, MOFCOM appears to request transaction data, but at the same time explains that if the facts are such that the request is not applicable, the respondents should demonstrate inapplicability:
The prima facie evidence owned by the Investigating Authority showed that your company's products (not limited to the product concerned) could have been sold to the USG or public bodies, or have been sold to contractors of relevant projects who have been bound by the Buy America Act. There was a possibility that the prices of these transactions was higher than then market prices and consequently brought benefit to your company. Therefore, so long as your company's products were sold in the domestic market, the transactions shall be reported. If your company was of the view that, regarding the product concerned and your company's other products, there was no purchase from the government or public body, or there was no transaction bound by the Buy America Act, it was your company who shall bear the burden of proof.238
According to the United States, both of MOFCOM's requests are predicated on the existence of government procurement transactions. In the original questionnaire, MOFCOM asked for volumes of information for "signed" procurement contracts and sales of "involved" products to private parties. In the new subsidy questionnaire, MOFCOM asked for sales "under the influence" of any "Buy American" law. The United States submits that, in the absence of any procurement sales, a company would have no transactional data to report, and the quantity and value data requested by MOFCOM for the POI in the original questionnaire would be irrelevant.
The United States explains that, in its revised questionnaire response dated 9 September 2009, AK Steel attached a customer list showing that the government did not purchase any AK Steel products (i.e. GOES or non-GOES) during the POI – including products unrelated to subject merchandise, and revised its narrative response to address the question as clarified by the deficiency letter.239 In its separate deficiency letter response, also dated September 9, 2009, AK Steel explained that it was impossible to know what its customers did with its products. According to the United States, AK Steel's customer list and explanation were responsive to the deficiency letter.240 According to the United States, therefore, AK Steel did not impede the investigations; it explained why the question was not applicable. The United States notes, moreover, that MOFCOM did not follow-up with any additional questions on this subject or otherwise suggest that AK Steel's explanation was not adequate. The United States asserts that AK Steel only learned of MOFCOM's dissatisfaction with its response when MOFCOM issued the preliminary determination.
Regarding ATI, the United States asserts that ATI attached a customer list to its revised questionnaire response and pointed to the financial statements submitted with its original questionnaire response to establish the fact that ATI made no sales of the subject merchandise (i.e. GOES) to the United States Government. ATI also pointed out that MOFCOM could confirm the inapplicability of the question to ATI when MOFCOM conducted the on-site verification.
The United States asserts that MOFCOM failed to react to the respondents' supplemental questionnaire responses until issuance of its preliminary determination on 14 December 2009. The United States asserts that this appears to be the first instance where MOFCOM highlighted any need for transaction data without conditions. The United States contends that, in response to MOFCOM's
238AK Steel Deficiency Letter (26 August 2009), Exhibit CHN-19, p. 3; ATI Deficiency Letter (26 August 2009), Exhibit CHN-20, p. 3.
239 AK Steel, Revised Questionnaire Response (BCI), Exhibit US-14, p. 25.
240 GOES Supply: Domestic Output Growth Insignificant, while Import Pressure Mounts, CICC (Appendix 13 of the Application), Exhibit CHN-13, p. 3.
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approach in the preliminary determination, AK Steel submitted the sales data for subject merchandise as an exhibit to its comments on the preliminary determination about a week before the verification began.241 The United States asserts that ATI appeared to have decided that it no longer had an opportunity to engage with MOFCOM, as it concluded that MOFCOM had a pre-determined result in mind. The United States suggests that, as demonstrated by MOFCOM's treatment of AK Steel's sales data, ATI's decision was correct.
The United States submits that, in its January 2010 CVD verification memo, MOFCOM acknowledges that the sales data submitted by AK Steel is at least partially responsive, but nonetheless rejects the sales data because of past supposed "non-cooperation":
Since the investigation authority had already given explanations to relevant issues and offered the respondent a chance of re-submitting the responses, the investigation regret to see that AK Steel Corporation still didn't answer the questions for Government Procurement Program as required by the questionnaire. Therefore, though AK Steel Corporation provided some of its domestic sales data in the Comments on Preliminary Determination, the investigation authority would not verify those sales data in the anti-subsidy verification.242
According to the United States, MOFCOM therefore refused to verify the sales data, which were already in its possession, and had been verified in the parallel anti-dumping proceeding. Regarding the customer lists, AK Steel submitted a written request to verify the customer lists. The United States asserts that MOFCOM, however, did not verify the lists.243
The United States notes that China complained that the companies' failure to provide transaction data prior to the verification denied MOFCOM "the ability to plan efficiently" for verification.244 The United States suggests that, to the extent that MOFCOM may have suffered any inconvenience, however, this was simply the result of its own questionnaire and the apparent differences between the instructions in the questionnaire and what MOFCOM actually wanted. The United States contends that if MOFCOM deemed transactional data necessary from the outset without regard to whether a company participated in government procurement during the relevant period, its questionnaire should have so stated from the outset.
Factual basis for 100% utilization rate
The United States contends that, even if an investigating authority is entitled to resort to facts available, the investigating authority does not have carte blanche in choosing which facts, or information, to rely on. The United States asserts that the investigating authority must take into account the information actually provided by the exporter. The United States relies in this regard on the following findings of the Appellate Body in Mexico – Anti-Dumping Measures on Rice:
We understand that recourse to facts available does not permit an investigating authority to use any information in whatever way it chooses....to the extent possible, an investigating authority using "facts available" in a countervailing duty investigation must take into account all the substantiated facts provided by an interested party, even if those facts may not constitute the complete information
241 AK Steel, Comments on Preliminary Determination, Exhibit 1, Customer Lists (BCI), Exhibit US-
23.
242 MOFCOM, the Disclosure Letter for Fundamental Facts of the Verification on AK Steel
Corporation in the GOES Anti-Subsidy Investigation, 3 Mar. 2010 (BCI), Exhibit US-24, p. 3.
243 United States' first written submission, para. 105.
244 China's first written submission, para. 151.
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requested by the party...the facts available to the agency are generally limited to those that may reasonably replace the information that an interested party failed to provide.245
Regarding the context of Article 12.7 of the SCM Agreement, the United States submits that the Appellate Body has compared the Anti-Dumping Agreement to the SCM Agreement, and stated that an investigating authority is obliged to consider information submitted by an interested party:
Like Article 6 of the Anti-Dumping Agreement, Article 12 of the SCM Agreement as a whole sets out evidentiary rules that apply throughout the course of the...investigation, and provides also for due process rights that are enjoyed by interested parties throughout...an investigation....[T]his due process obligation...requires the investigating authority...to take into account the information submitted by an interested party.246
Though the SCM Agreement does not have a facts available Annex, "it would be anomalous if Article 12.7 of the SCM Agreement were the permit the use of facts available in countervailing duty investigations in a manner markedly different from that in anti-dumping investigations."247
The United States argues that MOFCOM appears to have concluded that if a company does not provide some information, or if the information provided does not perfectly fit the request to which it responds, MOFCOM may reject all information provided by the company. The United States recalls that the respondents provided sales data showing that they did not sell subject merchandise to the United States Government. AK Steel additionally provided customer lists showing that it did not make any direct sales to the United States Government. The United States contends that MOFCOM rejected these facts, which were verifiable, and assumed that the United States companies sold all of their output to the United States Government, and that this output garnered a 25% price premium. The United States submits that there are no facts available on the record to support MOFCOM's conclusion that the respondents sold all of their output to the Government.
The United States contends that MOFCOM ignored information on the record demonstrating that the respondents did not sell exclusively to the US Government or Government contractors. The United States explains that, to calculate the amount of the alleged "subsidy" to producers resulting from the procurement programs, MOFCOM assumed that AK Steel and ATI sold all of their output to the government under programs requiring the payment of a 25% price premium. Had MOFCOM not entirely disregarded the factual information actually supplied by the companies, it could not have assumed that the companies sold all of their output to the government. At most, AK Steel, for example, could have sold 29% of its output to industries with some relation to construction. MOFCOM required AK Steel's 10-K annual report be translated in its entirety. Page 2 of that report provides the percentage of AK Steel's sales attributable to three market segments. In 2008, the percentages were:
Automotive: 32%;
Infrastructure and Manufacturing: 29%; and
Distributors and Converters: 39%.248
245 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, at para. 294. 246 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, at para. 292. 247 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, at para. 295.
248 AK Steel Annual Report for 2008, (Annex 15-4 of the Application), Exhibit CHN-3, p. 2.
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The United States asserts that MOFCOM improperly ignored this information on the record. The United States contends that, to the extent that any AK Steel products could have made their way through commerce to government construction contractors, these sales would be included in the infrastructure and manufacturing segment. Because neither automotive manufacturers nor distributors and converters include construction contractors, sales to these market segments are necessarily unaffected by the government procurement statutes under investigation. The United States asserts that if MOFCOM was going to ignore all evidence indicating that AK Steel sold nothing to the government, MOFCOM should have at least limited its subsidy calculation to AK Steel's United States sales of products for the infrastructure and manufacturing segment, or 29% of the company's United States sales.
Failure to cooperate / provide data
China submits that MOFCOM's requests for data, and the underlying theory of indirect subsidization, were well articulated and plainly understood by the respondents. Regarding question 3 in MOFCOM's original questionnaire, China asserts that Question 3 went to the issue of acknowledged utilization under the program. The exporters were to report all transactions during the POI involving government purchases, not limited to the subject merchandise, as well as information on the selling price for the same products in transactions outside the program. Question 4 was broader. It sought a simple tabulation of all domestic sales by product in the POI, including quantity, value, and customer. According to China, the questions were unambiguous in referring to both GOES and non-GOES products.
China notes that AK Steel's response to Question 3 only concerned sales of GOES to government entities during the POI. AK Steel did not provide any information regarding sales of non- GOES products to government entities during the POI. China notes that AK Steel's reply to Question 4 referred only to sales data for GOES transactions submitted for the purpose of the anti- dumping proceeding. Regarding ATI, China notes that ATI merely stated that Questions 3 and 4 were inapplicable to the company or its affiliates. China notes that, ultimately, AK Steel provided transaction data for GOES products only, whereas ATI submitted no transaction data at all (not even for GOES). According to China, therefore, neither respondent provided sales data for all (i.e. GOES and other steel) products over the period of investigation, as requested by MOFCOM. China asserts that both respondents had understood the questions to refer to both GOES and non-GOES products, as AK Steel argued that data for non-GOES products was irrelevant, and ATI stated that it did not benefit from any subsidies for either GOES or non-GOES products.249
China submits that MOFCOM's deficiency letter was even clearer in requiring transaction data for all products, since it stated that "so long as your company's products were sold in the domestic market, the transactions shall be reported". The deficiency letter also stated that, before making any arguments as to whether or not transactions involved government entities, or were bound by the Buy America Act, "it was of the first importance that [respondents] respond completely and accurately to the questions of the Investigating Authority". China submits that MOFCOM's deficiency letter could not have been clearer.250
China contends that AK Steel's response to the deficiency letter was similar to its reply to the original questionnaire, although AK Steel did provide a table listing all customers of its products (i.e. GOES and non-GOES). However, China notes that AK Steel still did not provide non-GOES
249 China's response to Panel question 19, paras. 74 and 76.
250 China's response to Panel question 19, para. 78.
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transaction data. In addition, China notes that AK Steel also made the following remarks in an accompanying letter:
With regard to government procurement, AK Steel provides in Exhibit II.3 of the Revised Subsidy Questionnaire Response a list of all its customers during the period of investigation ("POI") grouped by product category. This list demonstrates that AK Steel did not sell either the subject merchandise or any other product to any government entity during the POI.
To the extent MOFCOM is requiring AK Steel to demonstrate that none of the steel it sold to non-government entities was used in a project that was subject to the "Buy America" or similar act, MOFCOM is imposing an impossible burden. AK Steel has no reason to know what its customers do with their purchases. Because such a substantial proportion of AK Steel's products are sold to service centers, which resell the products to end users, there is no way to find out. Moreover, as stated in AK Steel's questionnaire response, even if the government ultimately overpaid for a project incorporating steel that may have originated with AK Steel, the entity that received the overpayment did not provide any of that overpayment to AK Steel, which received only a market-determined price for its product.251
According to China, "AK Steel had thrown down the gauntlet" by being argumentative.252 China further contends that MOFCOM needed the transaction data precisely in order to test AK Steel's assertions that it "has no reason to know what its customers do with their purchases", and that "even if the government ultimately overpaid for a project incorporating steel that may have originated with AK Steel, the entity that received the overpayment did not provide any of that overpayment to AK Steel, which received only a market-determined price for its product". China submits that AK Steel's continued refusal to respond again seriously impeded the investigation. China submits that ATI's response to the deficiency letter was even less forthcoming, since it provided only a customer list for GOES, and stated that it did not sell GOES to any government entities.
China acknowledges that AK Steel did ultimately submit transaction data for sales of GOES during the POI (i.e. the same data that had already been submitted in the anti-dumping proceeding), after issuance of MOFCOM's preliminary determination. According to China, though, the data came
150 days after the original deadline for submission, 142 days after the extended deadline for submission, 126 days after the deadline for the second opportunity provided by MOFCOM to respond, and just 3 business days before the commencement of verification. Moreover, the data was limited to GOES transactions even though AK Steel clearly understood that Question 4 of the initial questionnaire was seeking POI transaction data on all sales.
Furthermore, China notes that even the United States appears to concede that, at the very latest, MOFCOM's requests for data were clear as of issuance of the 26 August 2009 deficiency letter. China notes in this regard the US statement, in describing the deficiency letter, that "MOFCOM… demanded that the respondents prove non-use of the alleged programs by providing detailed sales information for all products and all customers over the POI and the preceding 14 years".253
Factual basis for 100% utilization rate
China contends that MOFCOM reasonably determined, based on the "facts available", the degree of utilization of the Government Purchase of Goods Program. China notes the United States'
251 AK Steel, Response to Deficiency Letter (9 September 2009), Exhibit US-13, pp. 3-4.
252 China's response to Panel question 19, para. 79.
253 United States' response to Panel question 8, para. 30.
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argument that, according to AK Steel's 10-K report, only sales within the infrastructure and manufacturing segment, representing 29% of total sales, could be relevant to the program at issue.254 China contends that the use of this 29% figure, however, does not represent the most reasonable "facts available," given the circumstances of this particular case. China asserts that MOFCOM had four alternatives before it: (1) find 0% utilization; (2) find 29% utilization; (3) find some other degree of utilization; or (4) find 100% utilization, as it did in the preliminary determination. China submits that, after considering these alternatives, and comparing each of them relative to the others based on the facts before MOFCOM – including critically the nature and degree of non-cooperation – MOFCOM reasonably determined that 100% utilization was the most reasonable "facts available" in this particular case.
China asserts that the first option, 0% utilization, was inconsistent with the record, which showed at least some degree of utilization of the program. China asserts that this fact has been conceded by the United States. China also asserts that the various arguments by the United States respondents had always focused on direct utilization, and consciously avoided (or admitted) indirect utilization. China states that, given the MOFCOM focus on both direct and indirect utilization, the available facts strongly suggested that the degree of utilization was not 0% and was some other figure.
China identifies "several serious problems" with the second option of 29% utilization. First, although AK Steel asserted that only the relevant segment was the "facility and manufacturing industry segment" – which represented 29% of the AK Steel sales for calendar year 2008 – MOFCOM had no factual support for this assertion. China contends that a customer in the "automobile manufacturing" segment might well have produced items that were sold to the government or were used in some construction project. Similarly, a customer in the "distributor and converters" segment might well have resold items to the government or government related construction projects.
Second, China asserts that the 29% figure came from a financial report prepared for the calendar year 2008, which does not relate specifically to the period of investigation (March 2008 through February 2009). MOFCOM had no equivalent figure for the period of investigation.
Third, China asserts that the 29% alternative came very late in the process, in AK Steel's comments on the preliminary determination, a submission not filed until 30 December 2010. Coming on the very eve of the verification, MOFCOM was unable fully to evaluate and test this alternative during the verification.
Fourth, this alternative was filed on the same day – 30 December 2010 as the final AK Steel effort belatedly to respond to the MOFCOM request for information. Yet even at this late date, AK Steel still did not respond properly, and provided transaction data only for a subset of the customers that had been previously identified. Indeed, AK Steel did no more than submit data that it had readily available for months. So instead of making a good faith effort finally to respond to the request, AK Steel yet again decided it could pick and choose how and whether to respond. Thus, rather than submitting data that would allow MOFCOM to ascertain the actual rate of utilization, AK Steel submitted proposed 29% without any factual basis.
Regarding the third option, of some other rate of utilization, China identifies two "fundamental flaws". First, as a factual matter MOFCOM had no data from respondents that would allow it to determine some other number in which it would have any degree of confidence. Second, as a legal matter a utilization figure not grounded in the record evidence would not qualify as "facts available", for it would not be a "fact" in any sense of that term, and would be pure speculation by MOFCOM.
254 United States' first written submission, paras. 97-98.
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Regarding the fourth option, of 100% utilization, China contends that MOFCOM had announced this figure in its preliminary determination, and thereby squarely put this alternative into play and made that fact clear to all the parties. China notes that, with full knowledge that MOFCOM was actively considering 100% utilization, AK Steel still refused to cooperate. Instead, it made a calculated judgment that it was somehow better off proposing 29% rather than submitting the information needed to determine the actual degree of utilization, and allowing that information to be verified.
According to China, MOFCOM knew the correct utilization was more than 0%. MOFCOM also had a reasonable basis to believe the correct utilization was more than 29%, since AK Steel had proposed that alternative rather than providing the requested data. Furthermore, MOFCOM had no information with which it could determine some alternative more than 29% but less than 100%, in large part due to the refusal of ATI to provide any information and AK Steel to provide complete information. In these circumstances, China asserts that the "facts available" announced in the preliminary determination proved still to be the most reasonable "facts available" for the final determination.
Korea
Korea argues that Annex II of the Anti-Dumping Agreement sheds some light on the application of facts applicable in the context of countervailing duty investigations. In particular, according to Korea, an investigating authority is required to consider the information actually provided by a respondent, even if the respondent does not submit all the requested information.255
Saudi Arabia
In Saudi Arabia's view, the standards that apply to the use of facts available in anti-dumping proceedings apply equally to countervailing duty proceedings. Saudi Arabia argues that if an authority receives information from a respondent, it must use that information if the respondent acted to the best of its ability. Facts available should only be used to fill in gaps in the necessary information. Further, facts available must not be used in a punitive manner.256
There are two main issues raised by the United States' Article 12.7 claim. First, did MOFCOM properly find that the respondents failed to cooperate with MOFCOM's requests to provide transaction data for domestic sales of GOES and non-GOES products during the POI? Second, did MOFCOM properly apply a 100% utilization rate when determining the extent to which respondents' domestic sales of GOES and non-GOES products during the POI were subsidized? We address each of these issues in turn, after first considering the text and obligations inherent in the relevant provision.
Provision at issue
The United States' claim is brought under Article 12.7 of the SCM Agreement, which provides:
255 Korea's third party submission, paras. 19 and 21.
256 Saudi Arabia's third party submission, paras. 14, 16 and 20-21.
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In cases in which any interested Member or interested party refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation, preliminary and final determinations, affirmative or negative, may be made on the basis of the facts available.
Did MOFCOM properly find that the respondents failed to cooperate with MOFCOM's requests to provide transaction data for domestic sales of GOES and non-GOES products during the POI?
In order to resolve this first issue, we begin by examining the relevant requests for information made by MOFCOM, and the respondents' responses to those requests. We then examine MOFCOM's finding of non-cooperation, and consider whether that finding was justified by the facts. Thereafter, we consider a United States argument that data requested by MOFCOM was not "necessary" within the meaning of Article 12.7 of the SCM Agreement.
The relevant requests for information were set out in Questions 3 and 4 of MOFCOM's original questionnaire, as clarified by deficiency letters issued by MOFCOM on 26 August 2009. Questions 3 and 4 of the original questionnaire were worded as follows:
Please provide all the relevant information (not limited to the subject merchandise), in the form of tables, regarding government procurement signed within the POI as well as those not performed within the POI, which includes: the specific names of the purchaser, purchasing time, name of purchased products, the supply quantity, [value], price, payment and the contract progress, etc. The contract, bid tender etc. related evidence shall be provided. The selling price of the involved products that are sold to other private purchaser shall be provided as well.
Please provide the information regarding domestic sales of all the products in POI, in the form of tables. The quantity and [value] of each product sold to each client shall be provided.257
In its initial questionnaire response, AK Steel replied to Question 3 in the following terms:
As demonstrated in Table 4-2 of AK Steel's Antidumping questionnaire response, the company did not sell any GOES to any government entity during the POI. As a result, this alleged subsidy program is not relevant to AK Steel.258
AK Steel provided a similar response to Question 4:
Please see Table 4-2 in AK Steel's Antidumping Questionnaire Response for a list of companies that purchased GOES from AK Steel during the POI.259
In its initial questionnaire response, ATI made the following introductory remarks to its replies to inter alia Questions 3 and 4.
This question does not apply to Allegheny Ludlum or the ALC Affiliates because no subsidies provided pursuant to the [relevant procurement programmes] benefitted the Subject
257 China's first written submission, para. 147.
258 AK Steel, Original Questionnaire Response (BCI), Exhibit US-11, p. 22.
259 AK Steel, Original Questionnaire Response (BCI), Exhibit US-11, p. 22.
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Merchandise or like or similar products during the POI and the 14-year period prior to March 1, 2008.260
Thereafter, ATI simply asserted that Questions 3 and 4 were "not applicable".
On 26 August 2009, MOFCOM issued letters identifying a number of deficiencies in the respondents' replies to the original questionnaire. For present purposes, we first note that the deficiency letter addressed to AK Steel explained that MOFCOM was maintaining separate records for the parallel anti-dumping and countervail proceedings. Accordingly, MOFCOM stated that the consequence of AK Steel referring to Table 4-2 of its anti-dumping questionnaire response (as it did in response to Question 3) "was that essentially, the company failed to respond to relevant questions…"261
Second, we note that the deficiency letters addressed to AK Steel and ATI explained that MOFCOM was investigating the possibility of both direct and indirect subsidization. In particular, MOFCOM explained that "the subsidy that could be investigated in an anti-subsidy proceeding is not limited to a subsidy that is directly related to the product concerned". The deficiency letter also stated:
Regarding Government Purchase of Goods Program, the prima facie evidence owned by the Investigating Authority showed that your company's products (not limited to the product concerned) could have been sold to the USG or public bodies, or have been sold to contractors of relevant projects who have been bound by the Buy America Act. There was a possibility that the prices of these transactions was higher than the market prices and consequently brought benefit to your company. Therefore, so long as your company's products were sold in the domestic market, the transactions shall be reported. If your company was of the view that, regarding the product concerned and your company's other products, there was no purchase from the government or public body, or there was no transaction bound by the Buy America Act, it was your company who shall bear the burden of proof. If your company was of the view that even if other products were benefited by subsidizations but no effect would be conferred to the product concerned, it was your company who shall prove the benefit generated through purchase of other products did not have any effect to various aspects of the product concerned such as the cost and the pricing. Before making these arguments, it was of the first importance that your company respond completely and accurately to the questions of the Investigating Authority.262
AK Steel filed a revised questionnaire response on 9 September 2009. In its revised response, AK Steel submitted a table listing all customers for all its products. AK Steel also stated:
With regard to government procurement, AK Steel provides in Exhibit II.3 of the Revised Subsidy Questionnaire Response a list of all its customers during the period of investigation ("POI") grouped by product category. This list demonstrates that AK Steel did not sell either the subject merchandise or any other product to any government entity during the POI.
To the extent MOFCOM is requiring AK Steel to demonstrate that none of the steel it sold to non-government entities was used in a project that was subject to the "Buy America" or similar act, MOFCOM is imposing an impossible burden. AK Steel has
260 Excerpt from ATI Questionnaire Response, Exhibit US-38, p. 19.
261 AK Steel Deficiency Letter (26 August 2009), Exhibit CHN-19, p. 1.
262 AK Steel Deficiency Letter (26 August 2009), Exhibit CHN-19, p. 3 (emphasis in original).
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no reason to know what its customers do with their purchases. Because such a substantial proportion of AK Steel's products are sold to service centers, which resell the products to end users, there is no way to find out. Moreover, as stated in AK Steel's questionnaire response, even if the government ultimately overpaid for a project incorporating steel that may have originated with AK Steel, the entity that received the overpayment did not provide any of that overpayment to AK Steel, which received only a market-determined price for its product.263
In its revised initial questionnaire response dated 9 September 2009, ATI submitted a list of its GOES customers, and stated that it did not sell GOES to any government agencies. ATI did not submit any information relating to sales of non-GOES products.
In its preliminary determination, MOFCOM made the following findings regarding the nature of MOFCOM's requests for information, and the quality of the respondents' replies:
[T]he Investigating Authority asked the responding companies to provide information about the domestic sales for all of their products;
…
Because the responding companies did not provide transaction information, the Investigating Authority could not determine whether their products were sold to the government or public bodies or their project contractors, and whether the transaction prices were abnormal, etc. Therefore, the transaction price between the responding companies and the entity which might have received the payment of premium cannot be proved to be market price;
…
The responding companies did not cooperate in the investigation as they did not provide relevant information and data;264
MOFCOM made the following findings in its final determination:
the original questionnaire issued to the responding companies on 26 June 2009 put forward the requirement that the responding companies should report the status of all domestic sales, which has never changed;
…
with regard to the government purchase of goods program, under the circumstances that the responding companies failed to cooperate and provide the status of their domestic sales, the Investigating Authority considered that their products (not limited to the product concerned) may be sold to the USG or public bodies, or relevant project contractors…;
…
263 AK Steel, Response to Deficiency Letter, (9 September 2009), Exhibit US-13, pp. 3-4.
264 Preliminary Determination [2009] No. 99 (10 December 2009) ("Preliminary Determination") Exhibit CHN-17, pp. 34-37.
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for examining if the subsidy confers any benefits to recipients, the responding companies should cooperate with the investigation and provide the domestic sales of all the products;
…
Although AK Steel Corporation submitted the domestic sales of the product concerned as exhibit to its comment on preliminary determination this responding company nonetheless failed to submit the required information i.e. the information about domestic sales of all of its products in a reasonable time as requested by the Investigating Authority and by doing so, impeded future investigation;265
On 30 December 2009, in comments on MOFCOM's preliminary determination, AK Steel submitted POI transaction data for GOES. This was the same sales data that AK Steel had submitted in the parallel anti-dumping investigation. ATI provided no additional information to MOFCOM.
In considering whether or not MOFCOM's finding of non-cooperation was justified by the facts, we first examine the issue of whether or not MOFCOM could properly be considered to have requested transaction data for domestic sales (of both GOES and non-GOES products) by respondents during the POI. We then examine the extent, if any, to which respondents complied with this request.
According to China, both Questions 3 and 4 of MOFCOM's initial questionnaire required respondents to provide transaction data for sales of all products during the POI.266 China asserts that MOFCOM repeated its request for transaction data in its deficiency letters, with an accompanying explanation as to the need for such data. The United States disagrees. According to the United States, it only became clear that MOFCOM was making unqualified requests for transaction data when MOFCOM issued its preliminary determination. Until then, the United States contends that MOFCOM's requests for transaction data (in its original questionnaire and deficiency letters) were predicated on the existence of government procurement transactions. According to the United States, in the original questionnaire MOFCOM only requested transaction data for "government procurement signed within the POI". In the deficiency letter, MOFCOM requested transaction data, but permitted the respondents to prove that the government did not purchase their products, or that other transactions were not subject to the alleged procurement programs.
We do not read Questions 3 and 4 of MOFCOM's initial questionnaire as requiring the submission of transaction data for all domestic sales of all products during the POI, as alleged by China. The request for transaction data in Question 3 is predicated on the existence of government procurement contracts. While we accept China's argument that Question 3 relates to both GOES and non-GOES products ("not limited to the subject merchandise"), the request for transaction data contained in Question 3 is contingent on the existence of government procurement contracts. In the absence of government procurement contracts, no transaction data need be provided.
Nor do we read Question 4 of the initial questionnaire as requiring the submission of transaction data for all domestic sales of all products during the POI. While the reference to "sales of all the products" could be understood to mean both GOES and non-GOES (even though the "not
265 Final Determination [2010] No. 21 (10 April 2010) ("Final Determination"), Exhibit CHN-16, pp. 41-43.
266 See, for example, China's response to Panel question 19, para. 73 ("Question 3 went to the issue of
acknowledged utilization under the program. The exporters were to report all transactions during the POI involving government purchases, not limited to the subject merchandise, as well as information on the selling price for the same products in transactions outside the program. Question 4 was broader. It sought a simple tabulation of all domestic sales by product in the POI, including quantity, value, and customer") (emphasis in the original).
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limited to the subject merchandise" formulation of Question 3 is not used), we do not understand Question 4 to require transaction data. Rather, the instruction to provide "the quantity and [value] of each product sold to each client" could legitimately be understood by respondents as requiring only the submission of aggregate, rather than transaction-specific, data.
That being said, we consider that the scope of Questions 3 and 4 was effectively revised by the deficiency letters issued to respondents on 26 August 2009. While we regret MOFCOM's failure to reformulate Questions 3 and 4 so as to remove all uncertainty, on balance we consider that MOFCOM was entitled to consider that the overall effect of the deficiency letters was to put the respondents on notice that MOFCOM was in fact seeking transaction data for all domestic sales of all products during the POI. In this regard, we note MOFCOM's explanation of its concern that the respondents' products ("not limited to the subject merchandise") could have been sold to the United States Government, public bodies or government contractors, and that "the prices of these transactions" could have been above market. Of greater significance is MOFCOM's instruction that "so long as your company's products were sold in the domestic market, the transactions shall be reported". In our view, MOFCOM was entitled to consider that it had informed respondents (through the deficiency letters) that, notwithstanding the more limited scope of Questions 3 and 4 of the original questionnaire, MOFCOM was actually seeking transaction data for all domestic sales of all products during the POI. To the extent respondents still considered MOFCOM's request to be unclear, they could have contacted MOFCOM to seek further clarification. There is no evidence that they did so. Nor is there any evidence that respondents sought additional time in which to comply with MOFCOM's request.
As explained above, the United States accepts that MOFCOM requested transaction data, but claims that the requests for transaction data were conditional until issuance of MOFCOM's preliminary determination. According to the United States, the deficiency letter "permitted the respondents to prove that the government did not purchase their products, or that other transactions were not subject to the alleged procurement programs."267 We disagree. While the deficiency letter referred to the possibility of respondents demonstrating that there were no government procurement transactions, or transactions involving government contractors under the Buy America Act, or that there was no pass through of subsidies on non-GOES products to GOES, the deficiency letter clearly stated that "[b]efore making these arguments, it was of the first importance that your company respond completely and accurately to the questions of the Investigating Authority".268 MOFCOM was therefore entitled to consider that it had properly informed respondents that transaction data should in any event be provided, notwithstanding the possibility of respondents presenting additional arguments regarding the question of indirect subsidization.269
267 United States' second written submission, para. 74.
268 AK Steel Deficiency Letter (26 August 2009), Exhibit CHN-19, p. 3.
269 We also note that the United States' argument is inconsistent with its assertion that MOFCOM's 26 August 2009 deficiency letter "demanded that the respondents prove non-use of the alleged programs by
providing detailed sales information for all products and all customers over the POI and the preceding 14 years in a revised submission" (United States' response to Panel question 23, para. 30, footnote omitted). It is also inconsistent with the United States' statement that "[i]n the subsidy questionnaires issued to AK Steel and ATI, MOFCOM demanded volumes of information unrelated to the subject merchandise. For example, MOFCOM demanded that AK Steel provide detailed transaction data for billions of dollars in transactions involving carbon steel, stainless steel, non-oriented electrical steels, and tubular products – products that are neither inputs for GOES nor substitutable for GOES" (United States' first written submission, para. 19, footnotes omitted). Furthermore, comments made by the United States during the underlying proceeding indicate that the United States understood MOFCOM to have requested transaction-specific data. Thus, in comments made on MOFCOM's preliminary determination, the United States asserted that MOFCOM had "unreasonably requested that the two respondent companies report all individual domestic sales of all products produced by the companies of whatever type" (Exhibit US-4, p. 3, emphasis in original). The context of this statement makes it
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Having established that MOFCOM could properly be considered to have requested POI transaction data for domestic sales of GOES and non-GOES products, we now consider the extent, if any, to which respondents complied with this request. As explained above, ATI failed to provide any transaction data for any domestic sales of any products for any period. In our view, MOFCOM was consequently entitled to treat ATI as non-cooperative for the purpose of Article 12.7 of the SCM Agreement.
AK Steel provided transaction data for domestic sales of GOES during the POI. However, AK Steel only submitted that data on 30 December 2009, in its comments on MOFCOM's preliminary determination. AK Steel did not submit this data in response to the requests set forth in MOFCOM's deficiency letter.270 Given AK Steel's failure to respond adequately to MOFCOM's deficiency letter, and given AK Steel's failure to include any non-GOES data when it did finally provide transaction data in its comments on MOFCOM's preliminary determination, we consider that MOFCOM was also entitled to treat AK Steel as non-cooperative for the purpose of Article 12.7 of the SCM Agreement.
The United States asserts that AK Steel had actually made a timely submission of its GOES sales data, as it was submitted within the deadline provided for comments on MOFCOM's preliminary determination. We understand the United States to be referring to Annex II, paragraph 3 of the Anti- Dumping Agreement, which provides that "[a]ll information which is … supplied in a timely fashion
… should be taken into account when determinations are made". In the light of the guidance provided by the Appellate Body in Mexico – Anti-Dumping Measures on Rice,271 and given "the need for the consistent resolution of disputes arising from anti-dumping and countervailing duty measures",272 we agree that, as a matter of law, Annex II of the Anti-Dumping Agreement provides relevant context for our evaluation of the United States' claim under Article 12.7 of the SCM Agreement. As a matter of fact, though, the United States' argument is only valid if one accepts that the relevant deadline was that concerning comments on the preliminary determination. As explained above, this was not the case, as the request for transaction data had effectively been made in MOFCOM's deficiency letters (and AK Steel failed to submit its GOES transaction data within the deadline for responses to those deficiency letters). Accordingly, AK Steel's submission was not "timely".
We note the additional United States argument that transaction data for sales of GOES was not "necessary" within the meaning of Article 12.7 of the SCM Agreement because MOFCOM was only going to use this data as a tool to inform its verification strategy, and because this data had already been provided in the parallel anti-dumping proceeding.273 The issue of whether or not the requested data is "necessary" is important, as Article 12.7 of the SCM Agreement only concerns the provision of "necessary" information. If respondents had failed to provide information that was not "necessary", the Article 12.7 facts available mechanism would not have been available to MOFCOM.
clear that the United States was referring to a request made before the preliminary determination was issued, thereby further undermining the United States' argument that MOFCOM's unqualified request for transaction data only became apparent in the preliminary determination.
270 We have already explained that MOFCOM effectively requested this data in its deficiency letter dated 26 August 2009, and that the deadline for responses to the deficiency letter was 9 September 2009 (see para. 7.285).
271 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 295.
272 Declaration on Dispute Settlement Pursuant to the Agreement on Implementation of Article VI of
the General Agreement on Tariffs and Trade 1994 or Part V of the Agreement on Subsidies and Countervailing Measures, adopted by the Trade Negotiations Committee on 15 December 1993.
273 United States' response to Panel question 52(iv). The United States also contends that the aggregate
quantity and value data requested in MOFCOM's Question 4 was not "necessary", since aggregate data would not have helped MOFCOM to identify allegedly anomalous transactions (United States' response to Panel question 52 (iii), para. 21). As explained above, we consider that, through its deficiency letters, MOFCOM had effectively made it clear to respondents that it was no longer interested in merely aggregate sales data. Accordingly, the United States' argument has no merit.
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Regarding the use to which the requested data was to be put, we acknowledge that China has asserted that the requested data was needed to allow planning for verification.274 However, China also contends that "it is wrong to consider the requested data as only a tool for verification".275 According to China, MOFCOM might have used the data to identify anomalous transactions, to identify needs for additional information, or to determine that a different approach should be used. We accept China's argument. Given MOFCOM's investigation of alleged indirect subsidization, we are not persuaded that MOFCOM would only have used the data to prepare for verification. Furthermore, even if the requested data were only to be used to assist the authority in planning for verification, verification forms an important part of the investigative process. Thus, even information that is only needed to prepare for verification might still be treated as "necessary" for the purpose of Article 12.7 of the SCM Agreement.
Nor are we persuaded by the United States' argument that transaction data was not "necessary" for MOFCOM's countervail investigation because it was on MOFCOM's record in the parallel anti-dumping proceeding. First, we recall that MOFCOM's deficiency letter to AK Steel specifically addressed this issue, informing AK Steel that the consequence of AK Steel referring to Table 4-2 of its anti-dumping questionnaire response "was that essentially, the company failed to respond to relevant questions…"276 Second, the anti-dumping record only contained data for domestic sales of GOES. It did not contain data for non-GOES transactions. In the light of these considerations, we do not consider that MOFCOM was precluded from treating the requested data as "necessary" within the meaning of Article 12.7 of the SCM Agreement for the purpose of its countervailing duty investigation.
Finally, we note that the United States has made a number of references to the "burden"277 imposed by MOFCOM's requests for information, particularly concerning MOFCOM's apparent request for data covering a total of 15 years. China submits that "this might constitute part of the exercise in determining whether the respondents acted to the best of their ability within the meaning of Annex II, paragraph 5 of the AD Agreement, and the implications thereof under Annex II, paragraph 7. But this is left to speculation. The argument is not articulated anywhere".278 We agree that the United States has not explained how the alleged burden imposed on respondents might influence our evaluation of the United States' claim under Article 12.7 of the SCM Agreement.279 Nor has the United States explained how an overly burdensome request for transaction data, if any were made, would have prevented respondents from submitting any transaction data in a timely manner. Although the United States asserts that "[b]ecause of the volumes of information requested, neither AK Steel nor ATI could fulfil all of the requests made in the CVD proceeding",280 there is no evidence that either respondent stated that they were unable to provide the relevant transaction data within the deadline imposed by MOFCOM. Rather, respondents complained that the requested data, concerning alleged indirect subsidization, was not relevant.281
274 China's response to Panel question 20, para. 86.
275 China's response to Panel question 56, para. 30.
276 AK Steel Deficiency Letter (26 August 2009), Exhibit CHN-19, p. 1.
277 See, for example, United States' first written submission, para. 24.
278 China's second written submission, para. 44.
279 We recall that the United States has not filed any substantive claim concerning MOFCOM's reliance on the theory of indirect subsidization.
280 United States' first written submission, para. 20.
281 See, for example, ATI's assertion that MOFCOM's request for non-GOES data "is overly-burdensome, unreasonable, and will yield information that is completely irrelevant to the determination
of whether GOES benefited from countervailable subsidies during the POI" (Excerpt from ATI Supplementary Response, Exhibit US-39, pp. 21-22).
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For the above reasons, we conclude that MOFCOM properly found that the respondents failed to cooperate with MOFCOM's requests to provide transaction data for domestic sales of GOES and non-GOES products during the POI.
Did MOFCOM properly apply a 100% utilization rate when determining the extent to which respondents' domestic sales of GOES and non-GOES products during the POI were subsidized?
We recall that the United States' claim is based on Article 12.7 of the SCM Agreement, which allows investigating authorities to use information or facts to fill gaps in the record resulting from non-cooperation on the part of interested parties.
The facts available mechanism provided for in Article 12.7 of the SCM Agreement means that the work of an investigating authority should not be frustrated or hampered by non-cooperation on the part of interested parties. As stated by the Appellate Body, though, "[w]ith respect to the facts that an agency may use when faced with missing information, the agency's discretion is not unlimited".282 The Appellate Body has also stated that, in applying facts available, the investigating authority is expected to employ the best information, or facts, available.283 Implicit in the requirement that the best facts available be used is a more fundamental requirement that facts must be used. In other words, even when applying facts available, an investigating authority's determination must have a factual foundation.284 We emphasise this point because of the United States' argument that there was no factual support for MOFCOM's decision to apply a 100% utilization rate.
In response to the United States argument, China suggests that MOFCOM had to choose a rate between 0 and 100%, but knew that a rate of 0% would be inaccurate, because of record evidence allegedly showing certain sales to the United States Government. China also suggests that MOFCOM considered the rate of 29% proposed by AK Steel to be inadequate, as AK Steel was presumed to be proposing a rate that was less than actual utilization. China suggests that the 100% rate was appropriate because the facts available announced in MOFCOM's preliminary determination "proved still to be the most reasonable 'facts available' for the final determination".285
We begin our evaluation with the observation that there is no justification for the application of a 100% utilization rate, or any indication of the factual foundation for this rate, in MOFCOM's final determination. Nor has China referred to extracts from the final determination in support of its arguments.
However, China has directed the Panel to facts available allegedly announced in MOFCOM's preliminary determination. In response to a question from the Panel asking China to identify precisely which facts available were announced in the preliminary determination, China referred the Panel to 11 pages of the preliminary determination. China summarized the relevant facts available as:
(i) statutes and regulations denying effective access to foreign-produced steel, (ii) evidence from applicants concerning the use of the respondents' products in construction, (iii) the refusal of respondents to provide requested information, and the reasonable inference to be drawn from that refusal to cooperate, and (iv) data indicating that the United States composite price for steel was seven per cent higher than a World composite price.286 In reviewing the 11 pages identified by China, we
282 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 289.
283 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 289.
284 This basic point is acknowledged by China. See China's first written submission, para. 187
("Legally, a utilization figure not grounded in the record evidence would not qualify as 'facts available' – it would not be a 'fact' in any sense of that term, and would be pure speculation by MOFCOM").
285 China's second written submission, para. 75.
286 In its comments on China's response to Panel question 55, the United States contends that MOFCOM improperly assumed that all sales concerned carbon steel, and that all of the procurement
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see no explanation by MOFCOM of how the factors identified by China were used by MOFCOM to support MOFCOM's determination that all of the respondents' domestic sales of all products were made to government entities or government contractors. Instead, MOFCOM simply stated:
The responding companies did not cooperate in the investigation as they did not provide relevant information and data. Therefore, pursuant to Article 21 of the Regulations on Countervailing Measures, the Investigating Authority determined the benefits under this program based on the facts available. Under the circumstance that the Investigating Authority did not get answers to the relevant questions of the questionnaire from the responding companies, it was deduced that all the products of the responding companies sold in domestic sales were sold to the government, public bodies or project contractors thereof, at the highest premium, i.e., at a price 25% higher than that of foreign products.287
There is no additional explanation by MOFCOM of the basis on which "it was deduced" that all sales were made to government entities or government contractors. MOFCOM did observe that it "cannot be ruled out that these products may have been sold to the USG and public bodies, or to those project contractors who are subject to the Buy American Act".288 However, a statement by MOFCOM that products "may" have been sold to government entities, or government contractors, does not provide any factual basis for the conclusion that all domestic sales (of all products) were made to government entities or government contractors.
The above extract from MOFCOM's preliminary determination begins with a reference to the respondents' failure to cooperate. MOFCOM's reference to the respondents' failure to cooperate suggests that MOFCOM considered that the fact of non-cooperation by itself was sufficient to justify the application of a 100% utilization rate. Indeed, China has stated that MOFCOM drew "reasonable inferences" from such non-cooperation.289 China also contends that "authorities may draw certain inferences – plainly adverse -- from [the] failure to cooperate, and the breadth of inferences available grows commensurate with the level of non-co-operation".290
We disagree with China. In our view, the use of facts available should be distinguished from the application of adverse inferences. While paragraph 7 of Annex II of the Anti-Dumping Agreement states that non-cooperation by an interested party "could lead to a result which is less favourable to the party than if the party did cooperate", we see no basis in Annex II for the drawing of
programmes applied a 25% price premium. We are presently considering the extent, if any, to which MOFCOM was entitled to determine that all domestic sales were made to government entities or government construction contractors. We do not consider that the United States' claim under Article 12.7 of the SCM Agreement has been argued in a way that challenges MOFCOM's finding of a 25% price premium, or MOFCOM's finding that all sales concerned carbon steel. In its first written submission, the United States asserts that "to calculate the amount of the alleged 'subsidy' to producers resulting from the procurement programs, MOFCOM assumed that AK Steel and ATI sold all of their output to the government under programs requiring the payment of a 25% price premium. Had MOFCOM not entirely disregarded the factual information actually supplied by the companies, it could not have assumed that the companies sold all of their output to the government" (United States' first written submission, para. 89, footnote omitted). Thus, the focus of the United States is on MOFCOM's alleged disregard of factual information in finding that respondents sold all of their output to the government, rather than on MOFCOM's finding that all such sales benefited from a 25% price premium.
287 Preliminary Determination, Exhibit CHN-17, p. 37.
288 Preliminary Determination, Exhibit CHN-17, p. 36. A similar observation was made on p. 35: "the Investigating Authority considered that their products (not limited to the product concerned) may be sold to the
USG or public bodies, or relevant project contractors constrained by the "Buy American Act".
289 China's response to Panel question 55, para. 28.
290 China's first written submission, para. 163.
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adverse inferences. In our view, the purpose of the facts available mechanism is not to punish non- cooperation by interested parties. As explained by the Appellate Body, the purpose of Article 12.7 of the SCM Agreement is rather to "ensure that the failure of an interested party to provide necessary information does not hinder an agency's investigation", in the sense that "the provision permits the use of facts on record solely for the purpose of replacing information that may be missing".291 While non- cooperation triggers the use of facts available, non-cooperation does not justify the drawing of adverse inferences. Nor does non-cooperation justify determinations that are devoid of any factual foundation. Accordingly, MOFCOM was still required to establish a factual foundation for its determination that the utilization rate of certain subsidy programmes by the respondents was 100%. In the light of our review of both the preliminary and final determination, we find that MOFCOM failed to do so.
We further observe that, not only did MOFCOM fail to establish any factual basis for a 100% utilization rate, but MOFCOM's application of this rate was actually at odds with information on the record suggesting that a lesser rate of utilization should be applied.292 In considering such record information, we note that the 100% utilization rate effectively means that the two respondents made all of their sales, for both GOES and non-GOES products, to government entities or to government contractors operating under the relevant government procurement programmes. Concerning sales of GOES to government entities, we note that the record included statements by the United States Government to the effect that it had not purchased GOES from either of the respondents. In addition, both respondents provided customer lists indicating that they had not sold any GOES to government entities.
Pursuant to MOFCOM's theory of indirect subsidization,293 the absence of sales to government entities leaves open the possibility that respondents had sold all of their GOES to government contractors. Given the nature of the government procurement programmes at issue, though, this would have meant that all sales were made to government construction contractors.294 In this regard, the United States had explained to MOFCOM that "GOES, which is primarily used in transformers, has no direct application in construction projects".295 ATI had similarly explained to MOFCOM that GOES is used in power transformers, and that nearly all of its GOES was "sold directly to end-use customers".296 Indeed, MOFCOM itself found that "the main applications [of GOES] include [a] variety of industries such as transformers, rectifiers, reactors, and large electric motors etc. industries".297 Given information in MOFCOM's record attesting to the limited application of GOES, there would seem to be extremely little likelihood that of all of the respondents'
291 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 293.
292 To be clear, we do not find that MOFCOM was required by Annex II(5) of the Anti-Dumping
Agreement to use all of the information provided by the respondents. This is because Annex II(5) only applies in respect of interested parties that have "acted to the best of [their] ability". In failing to cooperate with MOFCOM's requests for data, the respondents did not act to the best of their ability. However, MOFCOM was still required to base its determination on "facts" available.
293 We recall that the United States has not filed any substantive claim concerning MOFCOM's reliance on the theory of indirect subsidization.
294 The fact that MOFCOM's investigation concerned government construction contractors, rather than contractors generally, is evident from MOFCOM's final determination (see, for example, Final Determination,
Exhibit CHN-16, p. 39: "even if the USG had not purchased the product concerned or other steel product through supply contracts, it failed to prove that this program had not been used because the government purchase of goods included not only the supply contract but also the construction contract. The USG did not prove that the contractor had not purchased American steel in the construction contract.").
295 United States Questionnaire Response, 17 August 2009, Exhibit US-3, p. 65.
296 Excerpt from ATI Supplementary Response, Exhibit US-39, pp. 21-22 (quoting from ATI's 2008 financial statements, which were submitted to MOFCOM as Exhibit I to ATI's response to the Enterprise Questionnaire on GOES Anti-Subsidy Investigation, 10 August 2009).
297 Final Determination, Exhibit CHN-16, p. 2.
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sales of GOES would have been made to government contractors operating in the construction sector. Based on the information in the record, therefore, and in the absence of further explanation by MOFCOM, we do not consider that an objective and impartial investigating authority could properly have found that all of the respondents' sales of GOES were made to government entities or government construction contractors.
We consider that MOFCOM's determination is particularly flawed in its treatment of AK Steel. AK Steel had submitted lists identifying all of its GOES and non-GOES customers. These lists indicated that AK Steel did not sell any GOES or non-GOES products to government entities. Regarding the possibility of all of AK Steel's sales being made to government construction contractors (pursuant to MOFCOM's uncontested theory of indirect subsidization), MOFCOM's record contained AK Steel's 2008 10-K report, which indicates that 32% of AK Steel's net sales in 2008 were attributed to the Automotive segment, 29% to the Infrastructure and Manufacturing segment, and 39% to Distributors and Converters. AK Steel asserted that, to the extent that any of its products could have made their way through commerce to government construction contractors, these sales would be included in the "Infrastructure and Manufacturing" segment. According to AK Steel, its 2008 10-K report indicates that sales to government construction contractors could not have accounted for more than 29% of its business.
According to China, MOFCOM declined to rely on AK Steel's 2008 10-K report for a number of reasons.298 First, China asserts that MOFCOM had no factual support for the assertion that all relevant contractor sales would have been booked to the Infrastructure and Manufacturing sector. In this regard, we note MOFCOM's statement that "it cannot be ascertained that the sales to distributors and resellers were not related to government purchase and construction contractor's purchase".299 Upon examining AK Steel's 2008 10-K report, we find that immediately below the list of the relevant segments is a statement that "[t]he Company historically has referred to these markets by somewhat different names…More specifically, the market previously described as ‘Appliance, Industrial Machinery and Equipment, and Construction' now is referred to as Infrastructure and Manufacturing".300 In our view, this explanation would have prevented - at least without further justification - an objective and impartial investigating authority from rejecting AK Steel's assertion that sales to government construction contractors would have been booked to the Infrastructure and Manufacturing segment.301
Second, China asserts that AK Steel's 2008 10-K report did not relate specifically to the POI. In our view, though, the factual record before an investigating authority that has found that respondents failed to provide necessary information will necessarily be compromised to some extent, precisely because the necessary information initially requested by the investigating authority has not been provided. However, the fact that information in the record is not perfect does not mean that the investigating authority is entitled to ignore it. AK Steel's 10-K report concerned the calendar year 2008, which coincided with three-quarters of the POI. In addition, the 10-K report also included data concerning the attribution of AK Steel's net sales in 2006 and 2007. According to this data, 29% and
298 China's first written submission, paras 181-184.
299 Final Determination, Exhibit CHN-16, p. 45.
300 Exhibit I.II.ii to the AK Steel Revised Original Questionnaire Response (AK Steel's 10-K report, 2008), Exhibit US-9, p. 2, (emphasis added).
301 Furthermore, although MOFCOM refers to the possibility of the relevant sales being booked to the
"Distributors and Converters" segment, MOFCOM does not address the possibility of sales to government construction contractors being booked to the "Automotive" segment. While China argues that "[a] customer in the 'automobile manufacturing' segment might well have produced items that were sold the government or were used in some construction project", (China's first written submission, para. 181), China does not identify any part of MOFCOM's Final Determination exploring this possibility, or the likelihood thereof. This would suggest that MOFCOM accepted that AK Steel's sales to government construction contractors would not have been booked to the "Automotive" segment.
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26% of net sales were attributed to Infrastructure and Manufacturing in 2006 and 2007 respectively. This data suggests stability in the proportion of AK Steel's net sales attributed to the Infrastructure and Manufacturing segment. In these circumstances, we do not consider that an objective and impartial investigating authority could properly have dismissed outright AK Steel's 2008 10-K report simply because its reporting period did not coincide exactly with the POI.
Third, China suggests that, because AK Steel's 10K report came only "on the very eve of the verification, MOFCOM was unable to fully evaluate and test this alternative during the verification".302 In fact, AK Steel's 10K report was attached to the application, and had therefore been in MOFCOM's possession throughout the investigation.303
In the light of the above considerations, we consider that an objective and impartial investigating authority would have attached relevance to AK Steel's 10-K report when determining the applicable utilization rate. While we do not conclude that the above considerations should necessarily have led MOFCOM to apply a utilization rate of 29%,304 at a minimum a proper consideration of AK Steel's 10-K report should have caused MOFCOM to apply a utilization rate of less than 100%.
For the above reasons, we find that there is no factual basis for MOFCOM's determination to apply a 100% utilization rate. We also find that, in making this determination, MOFCOM ignored record information and evidence indicating that a utilization rate of less than 100% should have been applied.
Conclusion
We reject the United States' claim that MOFCOM's decision to resort to facts available is inconsistent with Article 12.7 of the SCM Agreement. However, we uphold the United States' claim that MOFCOM's application of a 100% utilization rate is inconsistent with Article 12.7 of the SCM Agreement.
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLE 12.2.2 OF THE ANTI-DUMPING AGREEMENT BECAUSE IT DID NOT DISCLOSE THE DATA AND CALCULATIONS USED TO ESTABLISH THE DUMPING MARGINS
Article 12.2.2 of the Anti-Dumping Agreement provides:
A public notice of conclusion or suspension of an investigation in the case of an affirmative determination providing for the imposition of a definitive duty or the acceptance of a price undertaking shall contain, or otherwise make available through a separate report, all relevant information on the matters of fact and law and reasons which have led to the imposition of final measures or the acceptance of a price undertaking, due regard being paid to the requirement for the protection of
302 China's first written submission, para. 183.
303 Furthermore, we query what sort of analysis would have been required for an authority to prepare itself to verify the contents of the 10-K report. While the requisite review might take a considerable amount of time during the verification visit, we fail to see what sort of time-consuming analysis would be needed before
verification.
304 The United States' claim is not limited to this specific issue. The United States' claim concerns the
broader question of whether or not MOFCOM was entitled to apply a 100% utilization rate. It is not directly concerned with whether or not MOFCOM should, instead, have applied a 29% utilization rate.
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confidential information. In particular, the notice or report shall contain the information described in subparagraph 2.1, as well as the reasons for the acceptance or rejection of relevant arguments or claims made by the exporters and importers, and the basis for any decision made under subparagraph 10.2 of Article 6.
Article 12.2.1 of the Anti-Dumping Agreement provides, relevantly, that a public notice or separate report "shall, due regard being paid to the requirement for the protection of confidential information, contain…(iii) the margins of dumping established and a full explanation of the reasons for the methodology used in the establishment and comparison of the export price and the normal value under Article 2".
Following the issuance of the preliminary determination and the final disclosure documents, on 10 April 2010, MOFCOM issued its final determination for the anti-dumping and countervailing duty investigations.
The United States notes MOFCOM included only bare summaries of its methodologies, adjustments and calculations in its preliminary determination, final disclosure document and final determination. The United States argues that this is inconsistent with Article 12.2.2 of the Anti- Dumping Agreement.305
According to the United States, the calculations employed by an investigating authority to determine dumping margins, and the data underlying the calculations, constitute "relevant information on matters of fact and law and reasons which have led to the imposition of final measures" within the meaning of Article 12.2.2. Given that Article 12.2.2 requires that "all" such relevant information be made available, it follows that Article 12.2.2 requires an investigating authority to release to the affected interested parties its final calculations, which are the mathematical basis for arriving at the dumping margins.306
In response to China's argument that Article 12.2 pertains only to "public notice", the United States notes that Article 12.2.2 mentions the possibility of a "separate report" in addition to a "public notice". The "separate report" is a vehicle for making available all relevant information on matters of fact and law and it need not be public. Further, Article 12.2.2 mandates that "due regard be…paid to the requirement for the protection of confidential information".307 Therefore, the United States' position is that China cannot rely on the fact that the calculations included confidential data as an excuse for not making them available. The United States does not suggest that MOFCOM was obliged to disclose confidential information to parties other than to those parties that the information already belonged. Rather, a respondent company is entitled to see the calculations performed to arrive at the dumping margin applied to it.308 In this regard, the United States argues that footnote 23 of the Anti-Dumping Agreement should be read in the context of the requirement in Article 12.2.2 to pay "due regard…to the…protection of confidential information". The United States argues that the requirement under footnote 23 to make the "separate report" available to the public cannot outweigh this requirement.309
305 United States' first written submission, para. 113. 306 United States' first written submission, para. 112. 307 United States' second written submission, para. 106. 308 United States' first written submission, para. 115.
309 United States' response to Panel question 28, paras. 45-46.
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In response to China's argument that if there is any obligation to disclose the final dumping calculations it is found under Article 6.9 of the Anti-Dumping Agreement, the United States argues that Article 6.9 pertains to the disclosure of essential facts before the final determination is made. However, the final dumping calculations, to which the United States' claim relates, cannot be disclosed before the final determination.310
Turning to the facts of this case, the United States argues that the preliminary determination, final disclosure and final determination contain only MOFCOM's vague reasoning and description of its methodologies for determining and adjusting the export price and normal value. They do not include the actual data used in the dumping margin calculations or the calculations themselves. MOFCOM should at least have made available (i) adjustments to the starting price to account for differences in the circumstances of sale; (ii) revisions to the data reported by the respondent; and (iii) the calculation of constructed normal value.311
In response to China's argument that the two exporters were able to replicate the dumping calculations on their own, the United States submits that MOFCOM did not disclose sufficient information to allow this. In any event, even if the exporters were able to replicate the calculations, this would not relieve China of its obligation to disclose the calculations performed by MOFCOM. Without access to the actual calculations, the exporters could not check MOFCOM's methodology or mathematics for errors. The United States argues that the ability to check for errors is crucial, in the event that an interested party chooses to exercise its rights to judicial review under Article 13 of the Anti-Dumping Agreement, or in the event a Member seeks WTO dispute settlement.312
With respect to the United States' argument that MOFCOM was obliged under Article 12.2.2 of the Anti-Dumping Agreement to release the actual calculations performed in determining the margins of dumping, China contends that the United States has misinterpreted Article 12.2.2. According to China, the United States' claim is based on bald assertion and is not supported by the plain meaning of Article 12.2.2 or any WTO jurisprudence.313
Regarding the text of Article 12.2.2 of the Anti-Dumping Agreement, China notes that there is no reference in the Article to the "calculation" of margins of dumping. The only reference to margins is in Article 12.2.1(iii), which is incorporated into Article 12.2.2, and which requires that the "margins of dumping established", rather than the calculations themselves, be disclosed in the relevant notice.314 Further, the references in Article 12.2.2 to "relevant information on matters of fact and law and reasons which have led to the imposition of final measures" and to "the reasons for the acceptance or rejection of relevant arguments or claims" do not articulate any requirement that authorities disclose the actual calculations of the margins of dumping. Finally, there is nothing in the text of the provision to suggest that, by virtue of the disclosures under Article 12.2.2, a respondent should be in a position to replicate or check the calculations of the margins of dumping.315
According to China, reading Article 12.2.2 of the Anti-Dumping Agreement in its context does not support the United States' position. The title of Article 12, "Public Notice and Explanation of Determinations", indicates that the Article imposes a requirement upon investigating authorities to
310 United States' second written submission, para. 105 and United States' opening statement at the first meeting of the Panel, para. 44.
311 United States' first written submission, para. 113.
312 United States' second written submission, paras. 107-110; United States' response to Panel question 27, paras. 40-44 and United States' opening statement at the first meeting of the Panel, paras. 45-47.
313 China's second written submission, para. 35.
314 China's first written submission, para. 203.
315 China's first written submission, paras. 204-206.
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explain their determinations. China argues that an explanation does not require a repetition of all facts, but rather a sufficient description of the facts to permit an understanding of the causes, context and consequences of those facts.316 Further, China contends the requirement in Article 12.2 to disclose those findings and conclusions considered "material" by the investigating authority indicates that the methodology, the source of the data and the final margins should be disclosed, as these are the "material" findings in the context of determining margins of dumping. According to China, this interpretation is also supported by the requirement in Articles 12.2 and 12.2.1 to provide "sufficient" rather than full detail in the explanations. Finally, China notes that Article 12.2.1(iii) requires that authorities provide a "full explanation of the reasons for the methodology used", which is quite distinct from requiring the calculations of the margins of dumping.317
With respect to the object and purpose of Article 12.2.2, China argues that this is to provide interested parties with notice of determinations made by authorities and an explanation of the determinations. The context suggests that this notice should consist of the reasons for the determination, the methodology used in arriving at the determination and the results actually reached, namely the margins of dumping. China contrasts this with the object and purpose of Article 6.9 of the Anti-Dumping Agreement, which is to provide the "essential facts" to enable interested parties "to defend their interests". China suggests that perhaps the United States' complaint regarding the disclosure of the actual calculations may more properly lie under Article 6.9. However, even if such an Article 6.9 claim were properly before the Panel, China is not convinced that Article 6.9 requires the level of disclosure sought by the United States.318
Although China's principal argument is that Article 12.2.2 of the Anti-Dumping Agreement does not include a requirement to disclose the calculations for the margins of dumping used by an investigating authority, China argues that, in any event, the information disclosed by MOFCOM was sufficient to allow the respondents to replicate the authority's calculations.319
European Union
In the European Union's view, the calculations and data underlying the dumping margins are "essential facts under consideration" that are required to be disclosed under Article 6.9 of the Anti- Dumping Agreement. However, if after the disclosure under Article 6.9, which occurs prior to the final determination, there is any revision to the data or calculations, this constitutes relevant information on matters of fact leading to the imposition of final measures. Consequently, this should be set out and explained in the public notice or separate report under Article 12.2.2 of the Anti- Dumping Agreement. The European Union notes that Article 12.2.2 requires due regard to be paid to the protection of confidential information. Consequently, to the extent the calculations and data are confidential information, their disclosure would be made through a "separate report".320
316 China's first written submission, paras. 207-209 and China's opening statement at the first meeting of the Panel, para. 33.
317 China's first written submission, paras. 210-214.
318 China's first written submission, paras. 215-218.
319 China's first written submission, paras. 222-224 and China's opening statement at the first meeting of the Panel, para. 34.
320 European Union's third party response to Panel questions 3 and 4.
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India
India submits that if authorities have provided a sufficiently detailed explanation on how they established the margin of dumping, it may not be necessary to include the actual data in the public notice under Article 12.2.2, keeping in mind the need for protection of confidential information.321
Japan
Japan contends that Article 12.2.2 of the Anti-Dumping Agreement requires an explanation that includes the export price and normal value, the comparison of these figures and the calculation of dumping.322 In its third party statement, Japan submits that the disclosure under Article 12 of the entire dumping margin calculation is critical for the exporter to present an effective defence, because even a tiny mistake could result in a grave distortion of the margin calculation.323 However, in response to a Panel question, Japan notes that anti-dumping investigations involve a large volume of data and it would be impractical to require the authorities to cite every individual piece of information in the public notice or separate report. Nevertheless, the public notice or separate report must include all "relevant information", which at least includes the identity of the data and the margin calculation methodology. The information disclosed must be such as to allow an exporter to replicate the entire dumping margin calculation based on the raw data the exporter submitted.324
Japan notes that Article 12.2.2 requires an authority to satisfy two requirements at the same time, namely the statement of "all relevant information" and the protection of confidential information. The provision does not provide guidance regarding how the authorities should satisfy both obligations. However, it is clear that the requirement to protect confidential information does not absolve the authority of the responsibility to provide all relevant information.325
The United States complains that MOFCOM did not disclose the data and calculations it used to arrive at the dumping margins for AK Steel and ATI and that this is inconsistent with Article 12.2.2 of the Anti-Dumping Agreement. Therefore, the issue for the Panel to determine is whether an investigating authority is required to include such calculations and data in the "public notice…or…separate report" under Article 12.2.2 of the Anti-Dumping Agreement.
The information that MOFCOM did include in the final determination consists of a description of the methodology used to establish and adjust the normal value and export prices for the two respondent companies. It also includes the dumping margins and a brief description of the methodology used to calculate these margins.326
The text of Article 12.2.2 of the Anti-Dumping Agreement provides that a "public notice…or…separate report" shall contain "all relevant information on the matters of fact and law which have led to the imposition of final measures…In particular, the notice or report shall contain the information described in subparagraph 2.1, as well as the reasons for the acceptance or rejection of relevant arguments or claims". Therefore, the list in Article 12.2.1 of the Anti-Dumping Agreement is incorporated into the information on matters of fact and law that must be included in the public notice or separate report under Article 12.2.2. We note that Article 12.2.1(iii) provides that "the margins of
321 India's third party statement, para. 5.3. 322 Japan's third party submission, para. 30. 323 Japan's third party statement, para. 3.
324 Japan's response to Panel question 6, para. 5.
325 Japan's response to Panel question 6, paras. 7-8.
326 Final Determination, Exhibit US-28, pp. 21-27.
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dumping established and a full explanation of the reasons for the methodology used in the establishment and comparison of the export price and the normal value" shall be included in the public notice or separate report.
Although the requirement to give public notice of "all relevant information on matters of fact and law" may appear wide enough to encompass the data and calculations used to determine the dumping margins, this requirement must be read in the light of the more particular obligation spelt out in Article 12.2.1(iii), which is incorporated by reference into Article 12.2.2. In the Panel's view, it is significant that the text in Article 12.2.1(iii) sets out in detail the information regarding dumping margins that must be included in a public notice or separate report, but omits any reference to the calculations or data. While Article 12.2.2 provides that its disclosure obligations apply "in particular" to the factors in Article 12.2.1(iii) and to the reasons for acceptance or rejection of relevant arguments or claims, we acknowledge that this is not an exhaustive description of the "relevant information" that may be included in a public notice or separate report under Article 12.2.2. Nevertheless, some relevance must be attributed to the fact that the drafters of Article 12.2 specified with some particularity a list of the information required in the public notice or separate report and chose not to list the data and calculations used to arrive at a dumping margin, even though, on the United States' argument, this is "relevant information" that should be included in every public notice or separate report issued at the conclusion of an anti-dumping investigation. Therefore, on the text of Article 12.2.2, which by cross-reference includes the text of Article 12.2.1, it is difficult to conclude that there is an obligation to disclose the calculations and data underlying a dumping margin.
We find support for this position when reading Article 12.2.2 of the Anti-Dumping Agreement in its context. The title to Article 12, "Public Notice and Explanations of Determinations", indicates that Article 12 requires public notification. Although Article 12.2.2 also provides for disclosure through a "separate report", footnote 23 to the Anti-Dumping Agreement states that "where authorities provide information and explanation under the provisions of this Article in a separate report, they shall ensure that such report is readily available to the public". Article 12.2.3 of the Anti- Dumping Agreement also provides relevant context. It indicates that only the "non-confidential part" of an undertaking need be disclosed in the public notice or separate report following the acceptance of an undertaking. This also provides an indication that Article 12 of the Anti-Dumping Agreement is concerned with public disclosures and that the obligations it contains do not extend to confidential information. The Panel notes that the data underlying a dumping margin calculation is confidential to the respondent providing it. Therefore, it is not surprising that an obligation to disclose such data cannot be found in the text of Article 12.2.2, which requires notification to the public.
In this regard, when confidential information does fall within the notification obligations under Article 12.2.2, an investigating authority is under dual obligations. The investigating authority must treat the information confidentially, in accordance with Article 6.5 of the Anti-Dumping Agreement, but must also disclose the "relevant information on matters of fact and law" under Article 12.2.2, subject to its requirement to pay due regard to the protection of confidential information. In the Panel's view, the way in which an investigating authority should meet these dual obligations is to include only a non-confidential summary of relevant confidential information in the public notice or separate report (which must also be public). This would meet the requirements of Article 6.5 and also disclose the relevant information under Article 12.2.2, while paying due regard to the protection of confidential information. This method of protecting confidential information finds expression elsewhere in the Anti-Dumping Agreement. For instance, under Article 6.5.1, when an interested party submits confidential information to an investigating authority, a non-confidential summary of such information must also be furnished to provide interested parties with a reasonable understanding of the information.
In the case of confidential data and calculations underlying a dumping margin, we cannot find within the text of Article 12.2.2 an obligation to include this information in the relevant public notice
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or separate report. In our view, a non-confidential summary of such information is provided for in the disclosure obligations under Article 12.2.1(iii). In particular, disclosure of the dumping margins and an explanation of the methodology used to arrive at the margins seems to provide a non-confidential summary of the relevant information regarding the margins and their calculation. There is no additional obligation to disclose the actual data and calculations and to do so would be inconsistent with Article 6.5 of the Anti-Dumping Agreement.
Although the United States argues that the "separate report" can be provided on a confidential basis to each respondent, and in this way the data and calculations can be disclosed under Article 12.2.2 of the Anti-Dumping Agreement, it is difficult to reconcile this with footnote 23, which requires the separate reports to be "readily available to the public". Therefore, given the confidentiality of the data and calculations at issue, we cannot conclude that MOFCOM was required to include this information in the public notice or the public separate report. We find support for this conclusion in the reasoning of a number of other panels. These panels concluded that a failure to disclose confidential data could not be a violation of Article 12.2.2.327
According to the United States, the data and calculations used to arrive at dumping margins must be included in the public notice or separate report to allow respondents to check the calculations used by an investigating authority. Although we do not disagree with the United States that the disclosure of the data and calculations may be very useful for respondents in this regard, we cannot find this obligation within the terms of Article 12.2.2. While Article 6.9 of the Anti-Dumping Agreement expressly provides that the disclosure it requires allows "parties to defend their interests", a similar statement cannot be found within Article 12. Rather, Article 12.2.2 provides the public with notice of affirmative determinations and interested parties with a public explanation, in sufficient detail, of the facts and reasons underlying such determinations. In the light of the text of Article 12.2.2, and the context in which it is found, there is no basis to conclude that it requires inclusion of the data and calculations underlying the dumping margin in the public notice or separate report.
Therefore, the Panel concludes that China did not act inconsistently with Article 12.2.2 of the Anti-Dumping Agreement in failing to include in the final determination the data and calculations upon which its dumping margin calculations were based.
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLE 22.3 OF THE SCM AGREEMENT BECAUSE IT FAILED TO PROVIDE SUFFICIENT INFORMATION ON THE FINDINGS AND CONCLUSIONS OF LAW IT CONSIDERED MATERIAL WITH RESPECT TO THE BENEFIT DETERMINATION UNDER THE GOVERNMENT PROCUREMENT STATUTES
Articles 22.3 of the SCM Agreement provides, relevantly:
Public notice shall be given of any preliminary or final determination, whether affirmative or negative…Each such notice shall set forth, or otherwise make available through a separate report, in sufficient detail the findings and conclusions reached on all issues of fact and law considered material by the investigating authorities.
327 Panel Reports, EC – Tube or Pipe Fittings, paras. 7.427 and 7.443; Korea – Certain Paper, paras. 7.208, 7.210, 7.314 and 7.316.
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Following the issuance of the preliminary determination and the final disclosure documents, on 10 April 2010, MOFCOM issued its final determination for the anti-dumping and countervailing duty investigations.
According to the United States, China acted inconsistently with Article 22.3 of the SCM Agreement because MOFCOM did not provide any rationale for its conclusion in the preliminary and final determinations that competitive bidding under United States procurement laws does not result in market prices.
The United States notes that Article 22.3 of the SCM Agreement requires an investigating authority to "set forth…in sufficient detail the findings and conclusions reached on all issues of fact and law considered material by the investigating authorities". The United States interprets this as an obligation to explain findings or conclusions that are "important", "essential" or "relevant" in the public notice of a preliminary or final countervailing duty determination.328 In response to a Panel question, the United States confirms that the focus of Article 22.3 is on the findings and conclusions actually reached by an investigating authority.329
According to the United States, in its preliminary and final determinations, MOFCOM stated that "although there is a competitive bidding process" under the Buy American Act, the scope of "participating products" is restricted and therefore the competitive bidding process does not reflect full market competition. Further, with some exception, the competition is only among United States steel producers and therefore the price obtained does not reflect true market conditions.330 However, at various times throughout the investigation, the United States argued before MOFCOM that the prices generated as a result of competitive bidding under the federal procurement laws reflect market conditions. 331
The United States complains that MOFCOM did not provide a sufficient rationale for its conclusion that the competitive bidding process under the procurement laws does not result in market prices. Further, MOFCOM did not explain why it disregarded the arguments presented by the United States. According to the United States, MOFCOM's reasoning does not explain its benefit determination. MOFCOM merely concluded that the United States price was higher than foreign prices and that some foreign producers were excluded from the competitive bidding process, leading to a distorted market. However, under Article 14(d) of the SCM Agreement, authorities are to use market prices in the country of purchase unless they establish that prices are so distorted that the market price is unusable. According to the United States, MOFCOM's flawed logic appears to be based on the assumption that any government involvement in a market leads to distortion and unusable benchmark prices.332 Without an adequate explanation, it is impossible to identify how MOFCOM arrived at this conclusion. An adequate explanation would have discussed how the level of government involvement distorted the market to such an extent that a price derived from a competitive bidding process was unusable.333 The United States argues that merely stating vague and conclusory assertions is insufficient.334
328 United States' first written submission, para. 117.
329 United States' response to Panel question 65, para. 45.
330 United States' first written submission, para. 119.
331 United States' first written submission, para. 120.
332 United States' second written submission, paras. 115-117.
333 United States' response to Panel question 68, para. 51.
334 United States' comments on China's response to Panel question 65, para. 48.
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Therefore, the United States claims that China acted inconsistently with Article 22.3 of the SCM Agreement because it did not explain how it found that market prices resulting from the competitive bidding process were distorted.335
China rejects the United States' argument that it acted inconsistently with Article 22.3 of the SCM Agreement. According to China, MOFCOM provided sufficient detail on why the government procurement programmes at issue led to a benefit, in the form of above-market rate payments for the provision of goods, to ATI and AK Steel. Further, MOFCOM addressed the arguments advanced by the respondents during the investigation.
With respect to the preliminary determination, China disputes the United States' argument that MOFCOM failed to explain why, if a foreign producer is excluded from a competitive bidding process, the resulting price is not a market price. The preliminary determination explains that United States producers are afforded a 25% price cushion over competing foreign prices and that in certain states, foreign participation is prohibited. On the basis of these facts, MOFCOM reached the conclusion in the preliminary determination that the resulting price would not reflect a competitive market price.336
In relation to the final determination, China rejects the United States' contention that it merely repeats the findings in the preliminary determination and did not address the arguments made by the respondents. According to China, the final determination includes a factual finding by MOFCOM that the import volume excluded from the market was approximately 15% of United States total steel consumption. MOFCOM also quantified the price difference between North American and non-North American prices, based upon a submission from AK Steel. Finally, MOFCOM presented evidence from verification noting the extremely limited use of foreign products within Buy American projects.337 MOFCOM based its conclusion, namely that the resulting bidding price could not be competitive, on these facts. China argues that this was an expansion upon the detail in the preliminary determination for the purpose of responding to the arguments advanced by AK Steel and ATI.338
China agrees with the United States that the obligation under Article 22.3 refers to the findings actually reached by an investigating authority, rather than to an objective standard of what the authorities should have found.339 According to China, Article 22.3 of the SCM Agreement contains obligations of a procedural nature and that it is not appropriate for the United States to attempt to bootstrap a substantive claim relating to Article 14 of the SCM Agreement to its challenge under Article 22.3.340
India
India notes that MOFCOM was obliged to provide sufficient details regarding how it found that the competitive bidding price was not an acceptable market benchmark.341
335 United States' first written submission, paras. 118 and 121.
336 China's first written submission, paras. 229-231.
337 China's opening statement at the first meeting of the Panel, para. 41.
338 China's first written submission, paras. 223-234.
339 China's response to Panel question 65, para. 54.
340 China's opening statement at the second meeting of the Panel, paras. 39-40.
341 India's third party statement, para. 7.1.
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Japan
Japan contends that the public notice must explain how the evidence on the record supports the findings of the market price or benchmark.342
Korea
Korea argues that the sufficiency of the explanation provided by MOFCOM under Article 22.3 of the SCM Agreement should be assessed in the light of Article 14 of the SCM Agreement, which is the substantive provision governing the benefit determination. Korea notes that the benchmark in a benefit determination should be based on the prevailing conditions in the market in question, unless the market is distorted. In Korea's view, it is not obvious that exclusion of certain foreign producers automatically supports the proposition that the market in question is distorted. Korea submits that the Panel should consider whether MOFCOM conducted such an inquiry and whether it adequately explained it in accordance with Article 22.3 of the SCM Agreement.343
The United States complains that MOFCOM did not adequately explain, in either the preliminary or final determinations, why the exclusion of foreign producers from the competitive bidding process under the United States Government procurement statutes led to the conclusion that the resulting prices were not market prices for the purposes of the benefit determination. According to the United States, this is inconsistent with Article 22.3 of the SCM Agreement.
Article 22 of the SCM Agreement sets out a series of requirements regarding the public notices and separate reports that must be issued by investigating authorities. Article 22.3 of the SCM Agreement requires a public notice of a preliminary or final determination, or a separate report, to set forth "in sufficient detail the findings and conclusions reached on all issues of fact and law considered material by the investigating authorities". By way of contrast, Article 22.3, unlike Article 22.5, does not explicitly require public notice of "all relevant information on matters of fact and law and reasons which have led to the imposition of final measures" or "the reasons for the acceptance or rejection of relevant arguments or claims made by interested Members and by the exporters and importers".
In the Panel's view, and as the parties agree, the obligation in Article 22.3 of the SCM Agreement is procedural in character, relating to the nature of the public notice an investigating authority must provide with respect to its substantive determinations.344 The text of Article 22.3 indicates that the disclosure required relates to the findings and conclusions actually reached by an investigating authority, rather than the findings and conclusions that should reasonably have been reached under an objective standard and by reference to the substantive obligations at issue. This is evident because the text of Article 22.3 refers to the "findings and conclusions reached on all issues of fact and law", rather than the findings and conclusions that should reasonably have been reached for a given substantive claim. Further, the obligation relates to the "issues of fact and law considered material by the investigating authorities". This indicates that the disclosure obligation relates to those issues that an investigating authority subjectively considers material. Therefore, in our view, Article 22.3 is a procedural provision that does not discipline the substantive adequacy of an investigating authority's reasoning. If this were not the case, claims under Article 22.3 may be difficult to distinguish from substantive claims relating to preliminary and final determinations.
342 Japan's third party submission, para. 33.
343 Korea's third party submission, paras. 40-41.
344 See United States' response to Panel question 64, para. 44 and China's response to Panel question 64, paras. 52-53.
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The United States' claim relates to MOFCOM's benefit determination under the United States government procurement laws. The preliminary determination indicates that MOFCOM applied facts available in determining the price paid by the government in purchasing GOES. Seemingly based upon the fact that the obligations regarding domestic steel procurement do not apply where the use of domestic materials increases a project cost by 25%, MOFCOM determined that the Government purchased GOES from AK Steel and ATI at a price 25% higher than that of foreign steel prices. For the purposes of the benefit determination, this purchase price was compared to a market benchmark based on the price of carbon steel in the United States steel market.345 The United States' claim relates to the explanation provided by MOFCOM for its conclusion that the price paid by the Government, as a result of a competitive bidding process, did not reflect "market competition in the usual sense", leading to the conclusion that a benefit was conferred through the purchase of GOES for more than adequate remuneration (i.e. for a price above the market price).
In the preliminary determination, MOFCOM provided the following explanation for its conclusion that the prices paid by the United States Government were not market prices:
The Investigating Authority found that, according to provisions in the Buy American Act and other regulations, although there is competitive bidding process, using steel and finished products produced in the U.S. is required unless there is a waiver. The Investigating Authority holds that this fact shows that the scope of products allowed for bidding under Buy American Act has actually been limited to some extent, and thus the bidding is not market competition in the usual sense. In addition to the public interest exception, the conditions for using foreign products include that, the quantity of U.S. iron and steel products is not enough, or the purchase of U.S. iron and steel products would cost 25% higher than foreign products. In other words, when purchases of U.S. iron and steel products do not cost 25% more than foreign products, the foregoing so-called competitive bidding is only competition among U.S. products. Of course, it may include a part of foreign products which can participate in U.S. government procurement in accordance with international agreements (such as Agreement on Government Procurement). However, the Investigating Authority noticed that at the state level of the U.S., there were still more than a dozen states which excluded members of the Agreement on Government Procurement when purchasing construction steel and other goods (including requirements for the sub- contract). That is, in these states (including Pennsylvania), only U.S. iron and steel can be used. Therefore, the Investigating Authority considered that the competitive bidding restricted the scope of participating products, and thus could not reflect the full market competition. Even if there is competition, it is competition only among the U.S. domestic steel products (may include part of the foreign products at the federal level and in some regions). Hence the price obtained through competitive bidding does not reflect the true market conditions.346
In the final determination, MOFCOM did not alter its conclusion and offered the following reasoning:
345 Preliminary Determination, Exhibit CHN-17, pp. 37-38. MOFCOM explained that it could not find information on the prices of all steel products, so it used prices in the carbon steel market on the basis that carbon steel accounts for the "vast majority of steel products". The price of foreign steel was also limited to carbon steel, for the purpose of constructing the price paid for GOES by the United States Government. See also, China's opening statement at the second meeting of the Panel, para. 41, in which China emphasizes that an out-of-country benchmark was not used, despite the United States' apparent discussion of out-of-country benchmarks in its second written submission, para. 115.
346 Preliminary Determination, Exhibit CHN-17, pp. 33-34.
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The USG argued in the comment on the preliminary determination that 'the Ministry of Commerce did not make any actual analysis before drawing the conclusion that the price obtained by competitive bidding could not reflect real market conditions. This conclusion was not based on explicit evidence and it did not take into account that if there were enough bidders, the price afforded by the government would be reduced to the minimum production cost. Under such circumstances, the lowest bidding price would become the market price.' AK Steel Corporation argued in the comment on the preliminary determination that without any evidence that demonstrated the purchase at premium, the Ministry of Commerce simply equalled the exclusion of some foreign products with the absolute purchase at premium by the USG or government contractor. The Investigating Authority found in further investigation that the import volume of the excluded foreign products usually accounted for 15% of total steel consumption in the U.S.; maybe this rate was not significant, but if this part of foreign products had an even lower price, then the competitive bidding excluded these relatively cheaper steel, so the competitive bidding cannot demonstrate the real market competition. AK Steel Corporation once mentioned such data in the comment on the preliminary determination and claimed: 'when calculating the price difference between the American steel or foreign steel, comparisons should be made between the North American price with the foreign price or non-North American price (such as Asian and European prices). Only such calculations could reflect the price gap between the North American steel and steel from other markets. If the North American price was excluded from the global price, then the calculated price difference between the U.S. and foreign steel products was even more accurate, the result would be 11.02%.' The Investigating Authority considered that according to the claim, at least it could be confirmed at least that the American steel price (due to the existence of North American Free Trade Area, the North American price can be regarded as the American price) was 10% higher than the non-North American steel prices. The Investigating Authority considered that the bidding price obtained within a bidding range that excluded potential low-priced bidders cannot reflect real market prices. The competitive bidding had excluded these foreign products of relatively lower price, therefore this competitive bidding cannot reflect the real market competition. In addition, in the verification, the verification team was informed by the Federal Expressway Administration that the use of foreign products in their projects according to exclusion requirements was less than 1%, while in Pennsylvania, the verification team got to know that the steel produced in America must be used in the infrastructure construction in this state. In light of the above facts, the Investigating Authority did not accept in the definitive determination the claim from the USG and relevant interested parties that government purchase through bidding could obtain the market price so that there was no benefit in this program.347
The United States variously claims that MOFCOM's explanation in relation to the benefit determination was deficient under Article 22.3 of the SCM Agreement in the following respects:
MOFCOM does not explain why, if a foreign producer is excluded, a price derived from the competitive bidding process does not reflect a market price. MOFCOM does not explain how the evidence supports this conclusion or why it disregarded the arguments made before it by the United States348;
MOFCOM did not explain how it arrived at the conclusion that the price resulting from a competitive process did not reflect market conditions. Vague and conclusory
347 Final Determination, Exhibit CHN-16, pp. 40-41.
348 United States' first written submission, para. 121.
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assertions are insufficient.349 Rather, an investigating authority should adequately disclose its logic350;
MOFCOM did not explain its benefit determination. Rather, "all MOFCOM did was conclude that the U.S. price was higher than foreign prices, and that some foreign producers are excluded from the competitive bidding process, leading to a distorted market"351; and
MOFCOM's "flawed logic appears to be based on the assumption that any government involvement in a market leads to a distorted market with prices that are unusable as a benchmark price."352
Therefore, the crux of the United States' complaint is that, in the light of MOFCOM's statement that "there is a competitive bidding process", MOFCOM did not adequately explain why a price derived from such a process, namely the purchase price paid by the government, would not be equal to the market price (and consequently result in a finding of no benefit).
At the outset, we note that the United States' claim under Article 22.3 of the SCM Agreement relates to the adequacy of the explanation in both the preliminary and final determinations. However, given that it is the final determination that is currently in force and providing the basis for the imposition of the countervailing duties, we consider it necessary to make a finding only in relation to it. In our view, making a finding in relation to the preliminary determination would not assist in securing a positive solution to this dispute. In response to a Panel question, the United States agreed that it "does not consider it necessary [for the Panel] to reach a conclusion in relation to both the preliminary and final determination".353
In the Panel's view, the United States has not made out its claim under Article 22.3 of the SCM Agreement. The United States argues that MOFCOM did not explain why a price derived from a competitive bidding process would not be equal to the market price. However, in its explanation in the final determination, MOFCOM set forth the factual findings that it considered supported its legal conclusion that the United States Government purchased domestically produced GOES for more than adequate remuneration. In particular, MOFCOM found:
the scope of foreign products competing in the bidding process is restricted. The import volume of excluded foreign products accounts for 15% of steel consumption in the United States;
although, in accordance with the Government Procurement Agreement, there may be some competition from foreign products, in certain states, including Pennsylvania, foreign products are completely excluded; and
the North American price for steel is 10% higher than non-North American prices.
On the basis of the partial or complete exclusion of lower priced foreign products from the "competitive bidding"354 process, MOFCOM concluded that the bidding would not result in a market price. The United States argues that there is a step missing in this logic, namely an explanation of how this exclusion could result in a non-market price, despite the existence of a "competitive bidding
349 United States' comments on China's responses to Panel questions 64 and 65.
350 United States' response to Panel question 68, para. 52. 351 United States' second written submission, para. 114. 352 United States' second written submission, para. 115. 353 United States' response to Panel question 67, para. 50. 354 Final Determination, Exhibit CHN-16, p. 39.
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process". However, MOFCOM explained that, in its view, the lower prices of the excluded goods would result in a non-market price even despite its conclusion that a "competitive bidding process" of some sort existed. The United States does not agree with this conclusion. It refers to the "flawed logic" and "flawed discussion" proffered by MOFCOM.355 It also argues that "[t]he fact that one foreign company may have been excluded from what China admitted was a competitive bidding process does not mean that a given transaction was not conducted based on prevailing market conditions".356
The Panel notes that Article 22.3 does not discipline the substantive adequacy of an investigating authority's reasoning.357 MOFCOM included in its public notice the findings and conclusions on matters of law that it considered material, and also referred to the material facts it was relying upon to reach those conclusions. There is nothing to suggest that MOFCOM reached other findings or conclusions that it considered material yet did not disclose. In this respect, we recall that Article 22.3 requires only the findings and conclusions actually reached by an investigating authority to be included in the public notice or separate report, rather than the findings and conclusions that should reasonably have been reached, by reference to the substantive matter at issue.
The United States argues that MOFCOM did not explain why it "chose to disregard arguments from the United States". Unlike Article 22.5 of the SCM Agreement, Article 22.3 does not explicitly require the disclosure of the "reasons for the acceptance or rejection of relevant arguments or claims made by interested Members and by the exporters and importers". In any event, in the final determination MOFCOM in fact outlined and responded to the arguments presented to it by the United States and by AK Steel. For instance, in response to the United States' contention that, with enough bidders, the lowest bid becomes the market price, MOFCOM explained that, in its view, the exclusion of foreign GOES, priced lower than United States GOES, and accounting for 15% of steel consumption in the United States, would not lead to a market price, even if the bidding between the non-excluded steel manufacturers was competitive. Although the United States may not agree with the substance of this explanation, and may consider that there are certain flaws and gaps in this logic, this does not lead to the conclusion that MOFCOM failed to give public notice of the "findings and conclusions reached on all issues of facts and law" it considered material, in accordance with Article 22.3 of the SCM Agreement.
Consequently, the Panel concludes that China did not act inconsistently with Article 22.3 of the SCM Agreement in relation to the explanation of its benefit determination under the government procurement statutes. We have no basis to find that MOFCOM reached other findings and conclusions on issues of fact and law that it considered material to the issue but did not include in the final determination.
355 United States, second written submission, paras. 112 and 115.
356 United States, second written submission, para. 117.
357 The United States' claim was not one of substance, for example under Articles 1.1(b) or 14(d) of the
SCM Agreement. In our view, the fact that the United States may disagree with the substance of MOFCOM's reasoning is not relevant to an analysis under Article 22.3 of the SCM Agreement.
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WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLES 6.8, 6.9, 12.2, 12.2.2 AND ANNEX II OF THE ANTI-DUMPING AGREEMENT IN RELATION TO THE "ALL OTHERS" RATE FOR UNKNOWN EXPORTERS IN THE ANTI-DUMPING DUTY INVESTIGATION
Provisions at issue
The United States' claim relates to Article 6.8 and paragraph 1 of Annex II of the Anti- Dumping Agreement. Article 6.8 provides:
In cases in which an interested party refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation, preliminary and final determinations, affirmative or negative, may be made on the basis of facts available. The provisions of Annex II shall be observed in the application of this paragraph.
Annex II, paragraph 1 reads:
As soon as possible after the initiation of the investigation, the investigating authorities should specify in detail the information required from any interested party, and the manner in which that information should be structured by the interested party in its response. The authorities should also ensure that the party is aware that if information is not supplied within a reasonable time, the authorities will be free to make determinations on the basis of the facts available, including those contained in the application for the initiation of the investigation by the domestic industry.
Factual Background
In calculating the anti-dumping rates, MOFCOM applied "facts available" to exporters/producers that were "unknown" to it, but did not apply "facts available" to the two investigated exporters, namely AK Steel and ATI. MOFCOM applied a "facts available" duty rate of 64.8% to unknown exporters.
In relation to the unknown exporters, in initiating the GOES anti-dumping and countervailing duty investigations, MOFCOM issued public notices of initiation. In these notices, MOFCOM indicated that any interested party should register for investigation and that failure to register would result in the application of best information available. MOFCOM provided the initiation notices to the two known exporters/producers of GOES in the United States and placed the notices on its website and in its public reading room. MOFCOM also notified the United States Embassy in Beijing of the initiations and requested that the Embassy notify the relevant exporters and producers. However, apart from AK Steel and ATI, no United States producers/exporters of GOES registered for investigation. As a result, in calculating the dumping rate for producers/exporters other than AK Steel and ATI, namely for "unknown" exporters, MOFCOM applied "facts available".
Arguments of the United States
The United States claims that China acted inconsistently with Article 6.8 and paragraph 1 of Annex II of the Anti-Dumping Agreement, due to the improper use of "facts available" in calculating the "all others" dumping rate for unknown exporters. The United States argues that Article 6.8 and paragraph 1 of Annex II of the Anti-Dumping Agreement, read in the light of Article 6.1, clearly
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establish that a dumping margin based on facts available may only be applied to an entity when the authority has specifically asked the party to provide certain information.358
The United States argues that China acted inconsistently with Article 6.8 and paragraph 1 of Annex II because MOFCOM applied facts available to firms it did not investigate and to which it did not send copies of the questionnaire or give notice of the consequences of failing to provide the required information. Apart from AK Steel and ATI, MOFCOM made no attempt to identify other United States exporters/producers of GOES. Rather, MOFOM merely requested that the United States Embassy in Beijing "notify the relevant exporters and producers".359
The United States rejects China's position that MOFCOM was within its rights to base the "all others" rate on facts available because, while Article 6.10 of the Anti-Dumping Agreement limits the anti-dumping rate that can be applied to known producers/exporters that are not individually examined, there are no such limits placed on unknown producers/exporters. The United States argues that this overlooks the clear direction in Article 6.1 and paragraph 7 of Annex II to notify all interested parties of the information required of them. Further, China's argument overlooks the fact that Article 6.8 and paragraph 7 of Annex II address situations where a party does not cooperate and withholds information from the investigating authority. A failure to cooperate cannot be found where there is no evidence that any other producer/exporter was aware of the investigation or the specific information required of it.360
Arguments of China
China's response to the United States' claim is twofold, namely that (i) it adequately notified all exporters/producers of GOES of the investigation and its requirements; and (ii) in circumstances where there is no explicit guidance in the Anti-Dumping Agreement regarding how to determine margins of dumping for unknown exporters/producers, Article 6.8 is the most relevant provision to apply.
China contends that MOFCOM issued a public notification of the initiation of the GOES investigation and indicated in the notice that all exporters/producers of GOES should register for investigation. The notification stated that failure to register within a specified time period would result in the application of best information available. China submits that the initiation notice was provided to the United States, ATI and AK Steel. It was also posted on MOFCOM's website and placed in the MOFCOM reading room. According to China, this satisfied the notice requirements under Article 6.1 of the Anti-Dumping Agreement.361
China submits that it followed the general rule in Article 6.10 of the Anti-Dumping Agreement by determining individual margins of dumping for each known exporter or producer and therefore, Article 9.4 did not apply. China argues that neither Article 6.10 nor any other provision of the Anti-Dumping Agreement addresses the issue of treatment of exporters or producers that are not known to the authority and therefore cannot be individually examined. This means that an investigating authority must exercise its own discretion in determining how to calculate margins of dumping for such exporters or producers.362
China reasons that, in the circumstances of the case, where "unknown exporters/producers [did] not cooperate by making themselves known and participating in the investigation", the provision
358 United States' first written submission, paras. 158-161.
359 United States' first written submission, para. 166.
360 United States' opening statement at the first meeting of the Panel, paras. 59-60.
361 China's first written submission, paras. 243-244.
362 China's first written submission, paras. 241-242.
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most relevant for calculating the anti-dumping margins for "unknown and unresponsive" exporters is Article 6.8 of the Anti-Dumping Agreement.363 China's position is that the exporters or producers that did not register for the investigation were "not cooperating" and therefore the application of facts available under Article 6.8 was warranted. According to China, this position is supported by paragraph 7 of Annex II of the Anti-Dumping Agreement, which provides that if a party does not cooperate, this can lead to a less favourable result for the party. China argues that if it were to apply to unknown exporters an "all others" rate based on the rates applied to cooperating respondents, "there would be no incentive for unknown companies to make themselves known and participate in the investigation".364
Although China is aware of the Appellate Body's decision in Mexico – Anti-Dumping Measures on Rice, it argues that there is an important factual distinction between that case and the case at hand. In particular, China contends that in Mexico – Anti-Dumping Measures on Rice, "the authority was apparently dealing with many other known exporters. Indeed a rice association entered an appearance on behalf of those other exporters that were not individually investigated".365 Therefore, China argues it is unclear to what extent the Appellate Body considered the significance of the lack of any other exporters or producers, as was the case in the GOES investigation, when it issued its findings. Further, it is not clear to China that the panel and the Appellate Body in Mexico – Anti-Dumping Measures on Rice considered the policy implications of their decisions. China has not been able to reconcile Mexico – Anti-Dumping Measures on Rice with the need to encourage co- operation by unknown respondents and with the absence of any guidance in the Anti-Dumping Agreement on how unknown respondents should be treated in the context of an investigation in which the authority is seeking to implement the general rule of Article 6.10.366
Arguments of third parties
India
According to India, based on Article 6.8 and paragraph 1 of Annex II of the Anti-Dumping Agreement, it appears that facts available may not be applied to an interested party that has not been asked to submit any information.367
Japan
Japan argues that the Anti-Dumping Agreement clearly establishes that an investigating authority may not use facts available to determine the margin of dumping for exporters/producers that were not given notice of the information required of them.368 According to Japan, a mere request in a public notice of initiation posted on a website, that interested parties make themselves known to the authorities, cannot be the basis to apply facts available.369 MOFCOM's notice of initiation did not request exporters and producers to submit specific information, but merely requested them to register with MOFCOM. Therefore, there was no basis to apply facts available.370
363 China's first written submission, paras. 241 and 245.
364 China's first written submission, paras. 245-246.
365 China's response to Panel question 15, para. 49.
366 China's response to Panel question 15, paras. 49-50.
367 India's third party statement, para. 6.3. 368 Japan's third party submission, para.43. 369 Japan's third party submission, para. 47. 370 Japan's third party statement, para. 14.
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Saudi Arabia
In Saudi Arabia's view, the use of facts available is permissible only when the parties have been given proper notice both of the information required by the investigating authority, and of the possibility that facts available will be applied in the event of non-cooperation with the authority.371
Evaluation by the Panel
In relation to the United States' claim under Article 6.8 and paragraph 1 of Annex II of the Anti-Dumping Agreement, the question before the Panel is whether the conditions for the application of "facts available" were met.
Article 6.8 of the Anti-Dumping Agreement provides that resort to facts available may occur when an interested party (i) refuses access to necessary information within a reasonable period; (ii) otherwise fails to provide necessary information within a reasonable period; or (iii) significantly impedes an investigation. The application of Article 6.8 is also subject to the provisions of Annex II of the Anti-Dumping Agreement, paragraph 1 of which provides that an investigating authority should "specify in detail the information required from any interested party" and "ensure that the party is aware that if information is not supplied within a reasonable time, the authorities will be free to make determinations on the basis of the facts available". Further, the United States argues that Article 6.8 should be read in the light of Article 6.1 of the Anti-Dumping Agreement, which states that interested parties "shall be given notice of the information which the authorities require".
Therefore, Annex II imposes additional preconditions for the application of resort to facts available, including that investigating authorities give interested parties notice of the precise information required of them and of the consequences of failure to provide the information. This requirement to notify interested parties of the necessary information also finds expression in Article 6.1 of the Anti-Dumping Agreement, which is relied on as context by the United States. In the circumstances of this case, China argues that MOFCOM satisfied the notice requirement of Article 6.1 by providing the notice of initiation to the United States, AK Steel and ATI, posting it on its website and placing it in its reading room. The United States notes that MOFCOM also asked United States embassy officials in Beijing to notify interested parties of the investigation.
The Anti-Dumping Agreement does not include explicit guidance regarding the form in which the notice required by Annex II must be provided to interested parties. However, paragraph 1 of Annex II provides that authorities should "ensure that the party is aware" of the consequences of not supplying necessary information. Arguably, posting a notice in a public place or on the internet will not necessarily ensure this awareness in each interested party. In any event, in the circumstances of this case, it is not necessary for the Panel to resolve whether notice can ever be adequate if given through a public reading room or an internet posting. This is because the notice of initiation, relied upon by China as providing the requisite notification, did not specify in detail the information required of the interested parties for the purposes of the anti-dumping investigation. While the notice of initiation requested interested parties to provide some general information at the time of registering with MOFCOM, namely "the volume and value of exports to China from March 2008 to February 2009", MOFCOM replaced more information than this with "facts available" for the purposes of arriving at an "all others" anti-dumping rate. Therefore, it is clear that MOFCOM should have provided detailed notice of this further required information, although the Panel does not comment on the form or manner in which this notice should have been conveyed. In the view of the Panel, paragraph 1 of Annex II and Article 6.1 place the notification obligation on investigating authorities and it is difficult to find in the terms of the Anti-Dumping Agreement any obligation on unknown exporters to come forward after a general public notice of initiation is published.
371 Saudi Arabia's third party statement, para. 13.
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Consequently, in the Panel's view, China's argument that the notice of initiation met the notification requirements embodied in paragraph 1 of Annex II and Article 6.1 cannot be sustained.
In relation to the other preconditions for the application of facts available found in Article 6.8 of the Anti-Dumping Agreement, given that the unknown exporters were not notified of the "necessary information" required of them, the Panel cannot conclude that they refused access to or failed to provide the information. Further, China does not advance evidence to suggest that the unknown exporters impeded the investigation. This conclusion is all the more compelling in the light of China's acknowledgment that, apart from AK Steel and ATI, there were no other exporters of GOES in existence during the period of investigation.372 It is not clear how non-existent exporters could possibly refuse to provide information or impede an investigation.
The Panel finds support for its reasoning in the report of the Appellate Body in Mexico – Anti- Dumping Measures on Rice. In that case, the Mexican investigating authority, Economía, sent the public notice of initiation and a questionnaire to two known exporters and to the United States embassy in Mexico City. Further, the public notice of initiation gave 30 days for interested parties to appear before Economía to submit an official investigation form. Two exporters as well as an industry association appeared of their own initiative and received a questionnaire.373 The investigating authority ultimately used facts available against all exporters apart from the four that received a questionnaire. The Appellate Body held that the second sentence of paragraph 1 of Annex II of the Anti-Dumping Agreement conditions the use of facts available on making the interested party aware that if necessary information is not supplied by it within a reasonable time, the investigating authority will be free to resort to facts available. According to the Appellate Body, this indicates that an exporter must be given the opportunity to provide the information required by the investigating authority, before the latter resorts to the use of facts available. An exporter that is unknown to the investigating authority, and therefore not notified of the information required of it, is denied the opportunity to provide the information. Consequently, the Appellate Body concluded that an investigating authority that applies facts available to such exporters acts inconsistently with paragraph 1 of Annex II of the Anti-Dumping Agreement and therefore, with Article 6.8.374 A similar conclusion was reached by the panel in Argentina – Ceramic Tiles. The panel held that paragraph 1 of Annex II "strongly implies that investigating authorities are not entitled to resort to best information available in a situation where a party does not provide certain information if the authorities failed to specify in detail the information which was required".375
The conduct of the investigating authorities in this case and in Mexico – Anti-Dumping Measures on Rice in attempting to give notice to interested parties is remarkably similar. In response to a Panel question, China attempts to distinguish the facts of the cases by arguing that in Mexico – Anti-Dumping Measures on Rice there were many other known exporters, including the members of the rice association that appeared in the investigation, and that this was not the case before MOFCOM, where there were no other known exporters/producers.376 China argues that the Appellate Body may not have considered the significance of the "lack of any other producers/exporters" when it issued its findings. However, the Panel does not agree with China's interpretation of the Appellate Body's findings. In particular, we are of the view that the Appellate Body found that only the four exporters for which Economía calculated an individual margin of dumping were "known", while other exporters, including those that may have been members of the industry association that came forward during the investigation, were "unknown". This is evident from the Appellate Body's finding that, in calculating individual dumping margins for the two exporters included in the application for initiation
372 China's response to Panel question 13, para. 47.
373 Panel Report, Mexico – Anti-Dumping Measures on Rice, para. 7.179.
374 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, paras. 259-260.
375 Panel Report, Argentina – Ceramic Tiles, para. 6.55.
376 China's response to Panel question 15, para. 49.
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and the two that came forward of their own initiative, Economía determined an individual margin of dumping for "each exporter of which it knew at the time" and therefore did not act inconsistently with Article 6.10 of the Anti-Dumping Agreement.377 Therefore, the Panel is not convinced by China's attempt to distinguish the facts of Mexico – Anti-Dumping Measures on Rice. If China is attempting to highlight that, in this case, apart from AK Steel and ATI, there were in fact no other exporters/producers of GOES in existence during the period of investigation, this fact does not seem to diminish the relevance of the Appellate Body's findings. The Appellate Body suggests that a consequence of an exporter being "unknown" is that it is not possible to give it notice of the required information.378 The same reasoning extends to, and in fact applies more forcefully, to non-existent exporters.
China also argues that in Mexico – Anti-Dumping Measures on Rice, the Appellate Body did not consider the policy implications of its decision. In particular, China submits that preventing resort to facts available for unknown exporters creates a lacuna in the Anti-Dumping Agreement, because neither Article 6.10, Article 9.4 nor any other provision addresses how an investigating authority should determine margins of dumping for unknown exporters. While the Panel agrees that there is indeed a gap in the Anti-Dumping Agreement regarding how dumping margins should be calculated for unknown exporters, Article 6.8 and Annex II are very explicit regarding the conditions that must exist before an investigating authority may resort to facts available. The existence of a lacuna in the Anti-Dumping Agreement does not mean that the conditions should be ignored in order to fill the gap. Although the lack of guidance in the Anti-Dumping Agreement may leave investigating authorities with some discretion regarding the calculation of margins of dumping for unknown exporters, in our view, this discretion should not extend to acting inconsistently with the express terms of Article 6.8 and paragraph 1 of Annex II.
China also submits that it is unable to reconcile the Appellate Body's decision in Mexico – Anti-Dumping Measures on Rice with the need to encourage unknown respondents to cooperate so that margins can be established on an individual company basis in accordance with the general rule expressed in Article 6.10 of the Anti-Dumping Agreement. To support its position that adverse facts available can be applied to the disadvantage of companies that do not make themselves known to investigating authorities, China relies upon one part of paragraph 7 of Annex II, namely "if an interested party does not cooperate…the situation could lead to a result which is less favourable to the party than if the party did cooperate". However, paragraph 7 also provides that authorities should use "special circumspection" when basing their findings on information from a secondary source. This suggests that the recourse to facts available is not intended to lead to excessive margins of dumping in order to encourage cooperation by interested parties. Rather, special care to attain as accurate a margin as possible must be used, with an acknowledgment that non-cooperation could nevertheless lead to a less favourable result compared with cooperation. In this regard, we recall our previous discussion in which we concluded that an investigating authority's discretion is not unlimited in the use of facts available and nor is the use of facts available equivalent to the application of adverse inferences. Rather, the best information available must be used and facts available should not be applied in a manner to punish non-cooperation.379 We note that the general rule expressed in Article 6.10 explicitly applies to each "known" exporter or producer.380 It is not clear that Article 6.10 establishes a general objective relating to unknown exporters. In any event, even if an overriding
377 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 256.
378 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 259: "An exporter that is unknown to the investigating authority - and, therefore, is not notified of the information required to be submitted" (emphasis added).
379 See paras. 7.296 and 7.302 of this Report.
380 Indeed, the Appellate Body found in Mexico – Anti-Dumping Measures on Rice, para. 255, that "the
rule set out in the first sentence of Article 6.10…covers the exporters or foreign producers of which the investigating authority knows at the time the calculation of margins of dumping is made".
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objective exists to encourage unknown exporters to participate in an investigation, so that individual margins of dumping can be applied to them, the achievement of this objective would not justify a violation of the express terms of Article 6.8 of the Anti-Dumping Agreement, which establishes clear conditions regarding when it is permissible to resort to the use of facts available.
Therefore, while there is no system of precedent under the DSU, China has not advanced a convincing reason for the Panel to depart from the reasoning of the Appellate Body in Mexico – Anti- Dumping Measures on Rice.
In sum, in the view of the Panel, MOFCOM did not notify the "all other" exporters of the necessary information required of them and so did not meet one of the preconditions for the application of facts available, as found in paragraph 1 of Annex II of the Anti-Dumping Agreement. Further, exporters that were unknown to MOFCOM, and indeed that were non-existent, cannot reasonably be held to have refused to provide necessary information or to have impeded an investigation within the meaning of Article 6.8 of the Anti-Dumping Agreement.
Therefore, the Panel finds that China acted inconsistently with Article 6.8 and paragraph 1 of Annex II of the Anti-Dumping Agreement.
Provision at issue
Article 6.9 of the Anti-Dumping Agreement provides:
The authorities shall, before a final determination is made, inform all interested parties of the essential facts under consideration which form the basis of the decision whether to apply definitive measures. Such disclosure should take place in sufficient time for the parties to defend their interests.
Factual Background
Following the preliminary determination, and prior to issuing its final determination, MOFCOM issued a final disclosure document, including certain disclosures regarding the dumping margins and subsidy rates to be applied to the investigated companies and to the "unknown" exporters.
Arguments of the United States
The United States notes that in its preliminary determination, MOFCOM established an "all others" dumping rate of 25%, with the explanation that its calculation relied upon facts available for "the other U.S. companies who failed to register responses or to submit responses". In its final disclosure document, MOFCOM revealed that it was increasing the "all others" rate to 64.8%, "based on transaction information of the respondents" pursuant to the facts available method. In its final determination, MOFCOM applied the "all others" dumping rate of 64.8%, based upon "facts available and the information submitted by respondent companies".381
The United States argues that MOFCOM did not disclose the "essential facts" forming the basis for applying an "all others" dumping rate of 64.8%. Although China argues that it could not
381 United States' first written submission, paras. 168-170.
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disclose the essential facts because to do so would have compromised the confidentiality of the information supplied by the two respondent companies, the United States submits that the facts forming the basis to apply facts available in the first place would not have been confidential to the respondent companies. Further, MOFCOM could have publicly summarized the information used or at least disclosed the methodology it employed. According to the United States, disclosure of the essential facts was particularly important, because it is difficult to understand how MOFCOM used the information of the two respondent companies and arrived at an "all others" dumping margin more than three times as high as the margin for one of the respondent companies and more than eight times as high as the margin for the other.382 The United States argues that without the disclosure of this information, it was unable to defend its interests.383
Arguments of China
In relation to the application of facts available to the calculation of the "all others" dumping rate, China argues that it provided an adequate explanation of the basis for the "all others" rate. In the preliminary determination MOFCOM indicated that the "all others" dumping margins were based on the information alleged and contained in the petition. In relation to the "all others" rate that was revealed in the final determination, China argues that MOFCOM could provide only a general explanation because the "all others" rate was based upon confidential information of one of the responding companies.
China argues that because the unknown companies did not cooperate, the investigating authority had an unlimited discretion to arrive at a result less favourable to the non-cooperating parties. Therefore, failing to disclose the details of the calculation had no effect on the ability of the parties to defend their interests.384
Arguments of third parties
European Union
The European Union agrees with the United States on the "essential facts" that should have been disclosed in relation to the "all others" dumping rate. The European Union submits that if the United States' allegations are confirmed with respect to the lack of disclosure, China has acted inconsistently with Article 6.9 of the Anti-Dumping Agreement.385
Japan
With respect to the disclosure required under Article 6.9 of the Anti-Dumping Agreement, Japan submits that the disclosure of the "essential facts" must be distinguished from mere individual items of evidence.386 Japan argues that the normal value and export prices used to calculate margins of dumping in the final determination, and the process to reach ex-factory prices, are "essential facts" that should have been disclosed in relation to the calculation of the "all others" dumping rate.387
382 United States' second written submission, paras. 132-133 and United States' opening statement at the first meeting of the Panel, para. 66.
383 United States' first written submission, para. 175.
384 China's first written submission, paras. 247-248 and China's opening statement at the first meeting of the Panel, para. 47.
385 European Union's third party submission, paras. 21-24.
386 Japan's third party submission, para. 6.
387 Japan's third party submission, para. 19.
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Saudi Arabia
Saudi Arabia notes that the disclosure of "essential facts" under Article 6.9 of the Anti- Dumping Agreement must occur prior to the final determination, to allow sufficient time for parties to defend their interests. Further, the "essential facts" must be explicitly identified as such, so that the parties know whether a particular fact is important.388
Evaluation by the Panel
In its preliminary determination, MOFCOM established an "all others" dumping rate of 25% for unknown exporters. In the final disclosure document, released prior to the final determination, MOFCOM indicated that the rate had increased to 64.8%.
In relation to the "all others" dumping rate, the following disclosures were made by MOFCOM:
The preliminary determination stated "[r]egarding the other U.S. companies who failed to register to respond or to submit responses, in accordance with Article 21 of the Anti-Dumping Regulation, the Investigation Authority decided to adopt the obtained and best information available to make the determination as for dumping and dumping margin".389
The final disclosure document provided that the "margin for all other American companies was calculated based on transaction information of the respondents pursuant to Article 21 of the Antidumping Regulations".390
The United States argues that MOFCOM did not disclose the "essential facts" forming the basis for applying an "all others" dumping rate of 64.8%. In particular MOFCOM did not reveal:
the facts relating to the United States companies refusing access to necessary information or significantly impeding the investigation391;
the facts leading to the conclusion that 64.8% was the appropriate "all others" rate;
the "transaction information" from the two respondents that formed the basis for the 64.8% "all others rate"; or
the facts underpinning the calculation of the 64.8% rate and the details of the calculation.392
In the Panel's view, the obligation under Article 6.9 of the Anti-Dumping Agreement requires investigating authorities to disclose those facts underlying the final findings and conclusions in respect of the essential elements that must exist for the application of definitive anti-dumping duties.393 In an anti-dumping investigation, the essential elements include the existence of dumping,
388 Saudi Arabia's third party submission, para. 25.
389 Preliminary Determination, Exhibit US-5, p. 17.
390 Memorandum Regarding The Factual Disclosure On The Dumping Margin and Ad Valorem Subsidy Rate for Grain Oriented Flat-Rolled Electrical Steel Antidumping and Countervailing Cases, 15 March 2010, ("Final Disclosure form"), Exhibit US-26, p. 41.
391 United States' opening statement at the first meeting of the Panel, para. 65.
392 United States' first written submission, para. 173.
393 In this regard, see Panel Report, Mexico - Olive Oil, para. 7.110, where the Panel examines the analogous provision under the SCM Agreement.
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injury and causation. We agree with those panels that have noted the disclosure obligation does not apply to the reasoning of the investigating authorities, but rather to the "essential facts" underlying the reasoning.394
In our view, China acted inconsistently with its disclosure obligations under Article 6.9 of the Anti-Dumping Agreement in relation to the "all others" dumping rate. In particular, in reaching its conclusion on the existence of dumping by "all other" exporters, MOFCOM must have considered a number of facts leading to the conclusion that the use of "facts available" was warranted. In the circumstances of this case where, apart from AK Steel and ATI, there were in fact no other exporters of GOES, it is not clear on what basis MOFCOM concluded that non-existent exporters refused access to necessary information or otherwise impeded the investigation. Therefore, in order to allow the United States, as an interested party, to defend its interests, it was vital that MOFCOM disclose the factual basis for its use of best information available.
Further, MOFCOM revealed that it relied upon certain facts submitted by the respondents in finding the existence of dumping by "all other" exporters at a margin of 64.8%. However, MOFCOM did not disclose the particular information from the respondents upon which the dumping margin was based. In the circumstances of this case, some indication of the information from the respondents which formed the basis of the "all others" dumping rate seems particularly important given the large disparity between the "all others" rate and the rates for the respondents. It is certainly not self-evident how such a large disparity could have arisen, in circumstances where the rates were apparently based upon the same set of facts. In our view, some disclosure in this regard to allow the United States to defend its interests was required under Article 6.9 of the Anti-Dumping Agreement.
We note China's argument that the transaction information upon which MOFCOM relied in calculating a dumping rate of 64.8% was confidential to the respondents. In this regard, we note that where information which is by nature confidential, or is submitted to an investigating authority on a confidential basis, is also part of the "essential facts under consideration", an investigating authority is under dual obligations. On the one hand, Article 6.5 of the Anti-Dumping Agreement requires that confidential information be treated as such and not be disclosed without the permission of the party submitting it. On the other hand, Article 6.9 requires that the essential facts be disclosed so that interested parties may defend their interests. Article 6.9 does not include a carve-out in relation to confidential information. Therefore, in our view, when information is both confidential but also part of the "essential facts under consideration", the obligation to disclose the information is nevertheless binding. However, where the party submitting the confidential information does not give permission for the information to be disclosed, the investigating authority could meet its obligations under Article 6.9 through the use of non-confidential summaries of the "essential" but confidential facts. Therefore, in our view, a non-confidential summary of the information from the respondents which formed the factual basis of the "all others" dumping rate should have been prepared and disclosed for the purposes of Article 6.9 of the Anti-Dumping Agreement.
In failing to disclose these facts underlying the "all others" dumping rate, the ability of the United States to defend its interests was compromised. We disagree with China's suggestion to the contrary, which is based on the argument that MOFCOM had "unlimited discretion" to arrive at a result less favourable to the unknown companies that did not cooperate. As indicated in our reasoning in relation to the United States' claim under Article 6.8 of the Anti-Dumping Agreement, the premise of China's argument fails, due to our conclusion that the unknown, non-existent companies did not fail to cooperate. Further, as indicated in our analysis of Article 6.8 and Annex II of the Anti-Dumping
394 Panel Reports, Argentina – Poultry Anti-Dumping Duties, para. 7.228; US – Oil Country Tubular Sunset Reviews (Article 21.5 – Argentina), para. 7.148 and EC – Salmon (Norway), para. 7.808.
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Agreement, an investigating authority does not have unlimited discretion in applying facts available.395
Consequently, we find that China acted inconsistently with Article 6.9 of the Anti-Dumping Agreement in failing to disclose certain "essential facts" forming the basis of the conclusion that "all other" exporters were dumping at a rate of 64.8%.
Provisions at issues
Articles 12.2 and 12.2.2 of the Anti-Dumping Agreement provide, relevantly:
12.2 Public notice shall be given of any preliminary or final determination…Each such notice shall set forth, or otherwise make available through a separate report, in sufficient detail the findings and conclusions reached on all issues of fact and law considered material by the investigating authorities.
12.2.2 A public notice of conclusion or suspension of an investigation in the case of an affirmative determination providing for the imposition of a definitive duty or the acceptance of a price undertaking shall contain, or otherwise make available through a separate report, all relevant information on the matters of fact and law and reasons which have led to the imposition of final measures or the acceptance of a price undertaking, due regard being paid to the requirement for the protection of confidential information. In particular, the notice or report shall contain the information described in subparagraph 2.1, as well as the reasons for the acceptance or rejection of relevant arguments or claims made by the exporters and importers, and the basis for any decision made under subparagraph 10.2 of Article 6.
Factual Background
Following the issuance of the preliminary determination and the final disclosure document, on 10 April 2010, MOFCOM issued its final determination for the anti-dumping and countervailing duty investigations.
Arguments of the United States
The United States claims that China acted inconsistently with Articles 12.2 and 12.2.2 of the Anti-Dumping Agreement. In particular, in the preliminary determination, the final disclosure document and the final determination, MOFCOM failed to disclose the rationale for its decision to apply facts available in calculating the "all others" dumping margin. The United States argues that the single sentence in the preliminary and final determinations, simply stating that the "all others" rate was calculated on the basis of facts available, is insufficient to satisfy the requirements of Articles 12.2 and 12.2.2.396
395 See, for example, para. 7.391 of this Report.
396 United States' first written submission, paras. 179-182.
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Arguments of China
China argues that it provided an adequate explanation of the basis for the "all others" rate. In this regard, China relies upon the same arguments as it did in relation to the United States' claim under Article 6.9 of the Anti-Dumping Agreement. In particular, China argues that MOFCOM could provide only a general explanation in the final determination because the "all others" rate was based upon confidential information of one of the responding companies. 397
Arguments of the third parties
Japan
According to Japan, under Article 12.2.2 of the Anti-Dumping Agreement the reasons for all factual and legal issues related to an authority's final determination must be disclosed. Authorities cannot pick and choose the issues on which they will provide an explanation.398
Saudi Arabia
According to Saudi Arabia, the public notices referred to in Article 12.2.2 of the Anti- Dumping Agreement must contain sufficient detail to allow interested parties to discern either the significance or lack thereof of the factors the investigating authority was obligated to address in its analysis.399
Evaluation by the Panel
The United States argues that China acted inconsistently with its obligations under Articles 12.2 and 12.2.2 of the Anti-Dumping Agreement on the basis that MOFCOM did not provide the factual and legal basis underlying its resort to "facts available" for the purposes of calculating the "all others" dumping rate for unknown exporters.400
We note that a number of other panels have exercised judicial economy in relation to claims under Articles 12.2 or 12.2.2 of the Anti-Dumping Agreement in circumstances where a substantive inconsistency with another provision of the Anti-Dumping Agreement has been found.401 However, in the circumstances of this case, the Panel is of the view that findings under the public notice provisions may be relevant in the context of implementation. Consequently, we consider that such findings will be useful in reaching a positive solution to the dispute and therefore we will proceed to examine the United States' claims in this regard.402
The information in the preliminary determination relating to the "all others" dumping rate is set forth in paragraph 7.405 of this Report. The final determination states that for those United States companies that neither responded to the investigation nor submitted questionnaire responses,
397 China's first written submission, paras. 247-248 and China's opening statement at the first meeting of the Panel, para. 47. See also, summary of China's argument at para. 7.399 of this Report.
398 Japan's third party submission, para. 26.
399 Saudi Arabia's third party submission, para. 44.
400 In its first written submission, the United States quotes the text of Article 12.2 of the Anti-Dumping Agreement. Although in paras. 180 and 182 of its first written submission the United States refers to
"Article 12" of the Anti-Dumping Agreement, the arguments in paras. 179-180 are based on the text of Article 12.2. Therefore, we infer that the United States' reference to Article 12 in paras. 180 and 182 is intended to be a reference to Article 12.2, and we have made a finding accordingly. This is consistent with the United States' panel request (see WT/DS414/2, para. 11).
401 See, for example, Panel Report, EC – Bed Linen, para. 6.259.
402 See also, the United States' response to Panel question 29.
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MOFCOM applied "the best information available and facts already known and [used] the information submitted by the responding companies to make determination on dumping and dumping margin".403
The United States' position is that the preliminary and final determinations should have disclosed the factual and legal basis for MOFCOM's resort to "facts available", including the facts supporting a finding that the unknown exporters refused access to, or otherwise did not provide, necessary information within a reasonable period, or significantly impeded the investigation.404
Although the United States' claim relates to both the preliminary and final determinations, given that it is the final determination that is currently in force and providing the basis for the imposition of anti-dumping duties, we consider it necessary to make findings only in relation to it. In our view, making a finding in relation to the preliminary determination would not assist in the securing a positive solution to the dispute.
The decision to resort to facts available to determine the existence and the margin of dumping in relation to "all other" exporters is one step in the process leading to the imposition of a final measure, within the meaning of Article 12.2.2 of the Anti-Dumping Agreement. In the Panel's view, the final determination did not set forth "all relevant information on matters of fact" or the "findings…reached on all issues of fact" supporting the conclusion that unknown, indeed non- existent, exporters refused to provide necessary information or otherwise impeded the investigation.
Further, the final determination does not set forth the relevant matters of fact, or the findings and conclusions reached on all issues of fact, leading to the conclusion the 64.8% was the appropriate anti-dumping margin for "all other" exporters. Although the final determination states that best information available was used, including information submitted by the responding companies, it is now clear that MOFCOM applied adverse facts available to calculate the dumping margin. However, there is no indication of this in the final determination and it still remains unclear exactly what factual findings MOFCOM made to support a dumping of margin of 64.8%, which differs markedly from the rate calculated for the two respondent companies.
Consequently, the Panel concludes that MOFCOM did not disclose in "sufficient detail the findings and conclusions reached on all issues of fact" or "all relevant information on matters of fact". Therefore, we find that China acted inconsistently with Articles 12.2 and 12.2.2 of the Anti-Dumping Agreement.
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLE VI:2 OF THE GATT 1994
Article VI:2 of the GATT 1994 provides, relevantly:
In order to offset or prevent dumping, a contracting party may levy on any dumped product an anti-dumping duty not greater in amount than the margin of dumping in respect of such product.
403 Final Determination, Exhibit CHN-16, p. 31.
404 United States' first written submission, para. 181.
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The United States claims that China acted inconsistently with Article VI:2 of the GATT 1994 because the duties China levied on the "all other" companies that were unknown to the investigating authority were greater in amount than the appropriate margin of dumping.
The United States refers to its argument that China impermissibly assigned an adverse facts available margin of 64.8% when calculating the "all others" margin for companies that were unknown to the investigating authority. As a result of the adverse assumptions made in this calculation, the anti-dumping duty levied on the unknown companies was greater in amount than the margin of dumping that could have permissibly been calculated under the Anti-Dumping Agreement.405
In response to the United States' claim under Article VI:2 of the GATT 1994, China refers the Panel to its substantive arguments regarding the "all others" anti-dumping duty rate.406
The United States' claim under Article VI:2 of the GATT 1994 challenges the amount of the anti-dumping duty levied by MOFCOM on the "all other" unknown exporters. The Panel has previously concluded that the manner in which MOFCOM calculated the "all others" anti-dumping duty rate, and the way in which it disclosed the facts underlying this calculation, are inconsistent with both substantive and procedural provisions of the Anti-Dumping Agreement, namely Articles 6.8, 6.9 and 12.2.2.
Given that we have upheld the United States' claims under the Anti-Dumping Agreement with respect to the "all others" anti-dumping duty rate, it is not necessary also to make a finding with respect to this measure under Article VI:2 of the GATT 1994. The Appellate Body found in Canada
Wheat Exports and Grain Imports that the practice of judicial economy "allows a panel to refrain from making multiple findings that the same measure is inconsistent with various provisions when a single, or a certain number of findings of inconsistency, would suffice to resolve the dispute".407 In our view, the findings made under Articles 6.8, 6.9, 12.2 and 12.2.2 of the Anti-Dumping Agreement with respect to the "all others" anti-dumping duty rate are such as to allow the DSB to make sufficiently precise recommendations and rulings in order to ensure the effective resolution of this dispute.408 Therefore, we exercise judicial economy in relation to the United States claim under Article VI:2 of the GATT 1994.
405 United States' first written submission, para. 185.
406 China's first written submission, para. 251.
407 Appellate Body Report, Canada – Wheat Exports and Grain Imports, para. 133.
408 See also, Appellate Body Reports, Brazil – Retreaded Tyres, para. 257 and Australia – Salmon,
para. 223.
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WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLES 12.7, 12.8, 22.3 AND 22.5 OF THE SCM AGREEMENT IN RELATION TO THE "ALL OTHERS" RATE FOR UNKNOWN EXPORTERS IN THE COUNTERVAILING DUTY INVESTIGATION
Provision at issue
The United States' claim relates to Article 12.7 of the SCM Agreement. Article 12.7 provides:
In cases in which any interested Member or interested party refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation, preliminary and final determinations, affirmative or negative, may be made on the basis of facts available.
Factual Background
In calculating the subsidy rates, MOFCOM applied "facts available" to both the investigated and the "unknown" exporters, although the rationale for doing so, and the "facts available" relied upon, were different for the two categories of exporters. MOFCOM's method for notifying the initiation of an investigation was the same as that outlined in relation to the anti-dumping investigation, described at paragraph 7.371 of this Report. We recall that, apart from AK Steel and ATI, no United States producers/exporters of GOES registered for investigation. As a result, in calculating the "all others" subsidy rate for producers/exporters other than AK Steel and ATI, MOFCOM applied "facts available".
Arguments of the United States
The United States notes that in its final determination MOFCOM published an "all others" subsidy rate of 44.6%, a rate more than two times higher than the highest rate for an investigated company. MOFCOM provided no explanation regarding how it arrived at this figure, apart from a reference indicating that it had made use of "facts available".409
The United States argues that the use of facts available in calculating the "all others" rate is inconsistent with Article 12.7 of the SCM Agreement. MOFCOM appears to have determined that by failing to register as respondents, "all other" producers/exporters failed to provide MOFCOM with necessary information and thereby triggered the use of facts available. However, the United States' position is that, read in the context of Article 12.1, the use of facts available under Article 12.7 is conditioned on the investigating authority specifying in sufficient detail the information required and alerting the interested party that failure to supply such information will result in a determination based on facts available.410 According to the United States, apart from AK Steel and ATI, MOFCOM did not identify the existence of any other United States exporters/producers of GOES. Indeed, the United States notes China's response to a Panel question, in which it acknowledges that "there are no other U.S. producers" of GOES, apart from AK Steel and ATI. According to the United States, this
409 United States' first written submission, para. 124.
410 United States' first written submission, para. 129.
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begs the question of what basis China had to apply adverse facts available to non-existent entities for failure to cooperate.411
Even if it were appropriate for MOFCOM to make use of facts available, the United States maintains that the manner in which MOFCOM applied facts available was incorrect. According to the Appellate Body in Mexico – Anti-Dumping Measures on Rice, in applying facts available, all substantiated facts on the record of the investigation must be taken into account and "facts available" must only fill in information an interested party refused access to or failed to provide. The United States argues that to obtain a facts available subsidy rate of 44.6%, MOFCOM must have included in its calculation the unsupported factual assertions contained in the petition, relating to subsidy programmes that MOFCOM ultimately found to be non-countervailable.412 In so doing, MOFCOM ignored substantiated facts on the record, namely that certain programmes did not provide specific subsidies.413
Arguments of China
In response to the United States' argument that MOFCOM did not give notice to all interested parties before applying facts available, China responds that MOFCOM provided notice to the United States Government, AK Steel and ATI. It also placed a copy of the petition in its public reading room and published public notices of initiation. On this basis, China concludes that "notice was thereby given to each known interested party".414
In relation to the United States' complaint that the manner in which MOFCOM applied facts available was inconsistent with Article 12.7 of the SCM Agreement because substantiated facts on the record were ignored, China confirms that the facts are "as identified by the United States". Further, in response to a Panel question, China explicitly acknowledges that "the 'all others' subsidy rate for unknown exporters contained programmes found by MOFCOM not to confer countervailable subsidies on the two known respondents".415
Arguments of the Third Parties
European Union
The European Union argues that the inclusion of programmes found during the course of the investigation not to be countervailable in the calculation of the all others subsidy rate constitutes an abusive use of facts available, contrary to Article 12.7 of the SCM Agreement.416
India
According to India, the conclusion that can be drawn from Article 6.8 and paragraph 1 of Annex II of the Anti-Dumping Agreement, namely that facts available may not be applied to an
411 United States' second written submission, para. 120. In the United States' response to Panel question 13, the United States submits that even though it knows of no other producers of GOES, apart from AK Steel and ATI, the "all others" rates would apply to any new United States shipper of GOES to China.
412 United States' second written submission, para. 124.
413 United States' first written submission, paras. 136-137.
414 China's first written submission, para. 238 and China's opening statement at the first meeting of the Panel, para. 43.
415 China's response to Panel question 14, para. 48. See also, China's first written submission,
para. 239, where China indicates that the "all others" rate was derived from the estimate of the subsidy margin found in the petition and based on all programmes under investigation.
416 European Union's third party submission, para. 16.
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interested party that has not been asked to submit any information, can also be drawn from Article 12.7 of the SCM Agreement.417
Japan
According to Japan, the "basic discipline" under the Anti-Dumping Agreement, namely that an investigating authority may not use facts available to determine the margin of dumping for exporters/producers that were not given notice of the information required of them, also applies under the SCM Agreement, by virtue of Articles 12.1 and 12.7. This is supported by the Appellate Body's comment in Mexico – Anti-Dumping Measures on Rice that "it would be anomalous if Article 12.7 of the SCM Agreement were to permit the use of 'facts available' in countervailing duty investigations in a manner markedly different from that in anti-dumping investigations".418
Korea
According to Korea, Article 12.7 is concerned with due process, and the Panel should carefully review whether the due process rights have been adequately respected in this case.419
Saudi Arabia
In Saudi Arabia's view, the standards that apply to the use of facts available in anti-dumping proceedings apply equally to countervailing duty proceedings. Further, facts available should only be used to fill in gaps in the necessary information and must not be used in a punitive manner.420
Evaluation by the Panel
The United States' claim under Article 12.7 of the SCM Agreement raises two questions for the Panel to determine. First, whether the conditions for the application of facts available to the unknown exporters were met and second, whether the manner in which facts available were applied was consistent with Article 12.7.
Whether the conditions for the application of facts available were met
The Panel recalls that the investigating authority took the same steps to attempt to notify interested parties as it did in the context of the anti-dumping investigation.421 The United States' claim raises the question of whether, despite the absence in the SCM Agreement of an equivalent to Annex II of the Anti-Dumping Agreement, an investigating authority is required to notify interested parties of the "necessary information" before the investigating authority may resort to facts available.422 In this regard, the Panel considers that Article 12.1 provides relevant context for the interpretation of "necessary information" in Article 12.7. In particular, Article 12.1 provides that interested parties "shall be given notice of the information which the authorities require". This confirms that it is for the investigating authorities to define the parameters of the "necessary information" and to give interested parties notice of this information. Therefore, even in the absence of an equivalent to Annex II, the Panel considers that a similar conclusion to that reached under Article 6.8 of the Anti-Dumping Agreement is appropriate. In particular, in the absence of being notified of the "necessary information" in the context of a particular investigation, it is difficult to conclude that unknown exporters refused access to or failed to provide necessary information or
417 India's third party statement, paras. 6.3-6.4.
418 Japan's third party statement, para. 16.
419 Korea's third party statement, para. 10.
420 Saudi Arabia's third party submission, paras. 14, 16 and 20-21.
421 See para. 7.371 of this Report.
422 This issue is also considered at para. 7.289 of this Report.
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otherwise impeded the investigation. Indeed, in the circumstances of this case, where there were in fact no other exporters/producers of GOES during the period of investigation, apart from AK Steel and ATI, a conclusion that non-existent exporters refused to provide information or impeded the investigation seems illogical.423
We note that our conclusion finds support in the reasoning used by other panels to have considered Article 12.7 of the SCM Agreement. In particular, the panel in Mexico – Anti-Dumping Measures on Rice noted that exporters not given notice of the information required of them cannot be considered to have failed to provide necessary information.424 Further, in US – Anti-Dumping and Countervailing Duties (China), the United States' investigating authority did not request specific necessary information because it did not realize the need for such information until late in the investigation. The panel held that this circumstance did not warrant the resort to facts available. The panel noted that Article 12.7 of the SCM Agreement permits recourse to facts available only when an interested party (i) refuses access to necessary information within a reasonable period; (ii) otherwise fails to provide such information within a reasonable period; or (iii) significantly impedes the investigation.425 The panel held that the exporters in question did not refuse access to necessary information. Rather, it was clear that the investigating authority did not ever request the information to be provided.426 Consequently, the panel found that none of the conditions permitting the recourse to facts available were satisfied and the United States had acted inconsistently with Article 12.7.427
In sum, the Panel concludes that in applying "facts available" to exporters that were not notified of the information required of them, and that did not refuse to provide necessary information or otherwise impede the investigation, China acted inconsistently with Article 12.7 of the SCM Agreement.
The manner in which facts available were applied
In the Panel's view, the United States' has a strong claim that MOFCOM applied facts available in a manner inconsistent with Article 12.7 of the SCM Agreement by including programmes found by MOFCOM not to confer countervailable subsidies in the calculation of the "all others" subsidy rate. Indeed, China does not seriously contest this aspect of the United States' case, but merely confirms that the calculation of the "all others" subsidy rate occurred in this manner.
The Panel recalls the Appellate Body's findings in Mexico – Anti-Dumping Measures on Rice regarding the way in which facts available may be applied under Article 12.7 of the SCM Agreement. The Appellate Body noted that although the SCM Agreement does not include an equivalent to Annex II of the Anti-Dumping Agreement, this does not mean that there are no conditions under the SCM Agreement to govern which "facts" might be "available" for an investigating authority to use when a respondent fails to provide necessary information.428 According to the Appellate Body, Article 12 of the SCM Agreement "set[s] out evidentiary rules that apply throughout the course of the…investigation".429 The Appellate Body held that the due process obligation under Article 12.1, namely that an interested party be permitted to present all the evidence it considers relevant, concomitantly requires that the investigating authority, where appropriate, take into account the information submitted by an interested party. Further, the Appellate Body found that Article 12.7 is intended to ensure that the failure of an interested party to provide necessary information does not
423 See China's response to Panel question 13, para. 47.
424 Panel Report, Mexico – Anti-Dumping Measures on Rice, footnote 211.
425 Panel Report, US – Anti-Dumping and Countervailing Duties (China), para. 16.9. 426 Panel Report, US – Anti-Dumping and Countervailing Duties (China), para. 16.15. 427 Panel Report, US – Anti-Dumping and Countervailing Duties (China), para. 16.16. 428 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 291.
429 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 292.
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hinder an agency's investigation. Therefore, the provision permits the use of facts available only for the purpose of replacing information that may be missing, in order to arrive at an accurate subsidization or injury determination.430 The Appellate Body concluded that the recourse to facts available does not permit an investigating authority to use any information in whatever way it chooses. The recourse to facts available is "not a licence to rely on only part of the evidence provided".431 Rather, to the extent possible, an investigating authority making use of facts available must take into account all of the substantiated facts on the record.
In the view of the Panel, the conclusion reached by the Appellate Body finds support within the terms of Article 12.7 of the SCM Agreement. The fact that resort to facts available is conditioned on refusal to supply necessary information suggests that it should be used to replace only that information to which the refusal relates. Further, the Panel accords significance to the fact that China does not address the Appellate Body's findings or suggest any reasons for the Panel to depart from them, despite a specific Panel question to China asking it to comment on this aspect of the reasoning in Mexico – Anti-Dumping Measures on Rice.432
Therefore, the Panel concludes that by ignoring substantiated facts on the record, namely that certain programmes included in the application did not confer countervailable subsidies, China acted inconsistently with Article 12.7 of the SCM Agreement.
Provision at issue
Article 12.8 of the SCM Agreement provides:
The authorities shall, before a final determination is made, inform all interested Members and interested parties of the essential facts under consideration which form the basis of the decision whether to apply definitive measures. Such disclosure should take place in sufficient time for the parties to defend their interests.
Factual Background
Following the preliminary determination, and prior to issuing its final determination, MOFCOM issued a final disclosure document, including certain disclosures regarding the subsidy rates to be applied to the investigated companies and to the "unknown" exporters.
Arguments of the United States
The United States explains that in its preliminary determination, MOFCOM established an "all others" subsidy rate of 12%. Prior to the final determination, MOFCOM released its final disclosure document, in which it revealed that the "all others" subsidy rate had increased to 44.6%. The only explanation given for the increase was that MOFCOM had relied on "facts available" in its calculation.433 Although the United States objected to the unexplained increase, MOFCOM imposed
430 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, paras. 292-293.
431 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, para. 294.
432 China's response to Panel question 15.
433 United States' first written submission, para. 144.
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an "all others" subsidy rate of 44.6% in its final determination. MOFCOM explained that the rate was calculated according to information submitted by the petitioner.434
The United States argues that MOFCOM did not disclose the "essential facts" forming the basis for its imposition of a 44.6% all others subsidy rate. The United States argues that this is particularly troublesome given that MOFCOM changed its calculation, and the basis for its calculation, including to the use of facts available, between the preliminary and final determinations, resulting in a nearly quadrupling of the subsidy rate. The United States and interested companies were unable adequately to defend their interests because they were unaware of the factual basis for MOFCOM's determination.435
Arguments of China
In response to the United States' claim that MOFCOM failed to inform the parties of the "essential facts" under consideration forming the basis of the application and calculation of the all others subsidy rate, China argues that the final disclosure and the final determination revealed that the all others rate was based upon information disclosed by the petitioners. China states that in its submissions, the United States readily identified this as the source of the information underlying the all others rate.436
Arguments of third parties
European Union
The European Union agrees with the United States on the "essential facts" that should have been disclosed in relation to the "all others" subsidy rate. The European Union submits that if the United States' allegations are confirmed with respect to the lack of disclosure, China has acted inconsistently with Article 12.8 of the SCM Agreement.437
Japan
In relation to the "all others" subsidy rate, Japan argues that the government actions which the investigating authority characterizes as a subsidy, and the calculation of the per-unit ad valorem subsidy rates, are "essential facts" to be disclosed in accordance with Article 12.8 of the SCM Agreement.438
Saudi Arabia
Saudi Arabia notes that the disclosure of "essential facts" under Article 12.8 of the SCM Agreement must occur prior to the final determination, to allow sufficient time for parties to defend their interests. 439
434 United States' first written submission, para. 145.
435 United States' first written submission, paras. 149-152.
436 China's first written submission, para. 240; China's opening statement at the first meeting of the Panel, para. 44 and China's response to Panel question 25, para. 101.
437 European Union's third party submission, paras. 17-20.
438 Japan's third party submission, paras. 23-24.
439 Saudi Arabia's third party submission, para. 25.
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Evaluation by the Panel
In its preliminary determination, MOFCOM established an "all others" subsidy rate of 12% for unknown exporters. In the final disclosure document, released prior to the final determination, MOFCOM indicated that the rate had increased to 44.6%. The final disclosure stated:
"The margin for all other American companies was calculated based on information submitted by the petitioners pursuant to article 21 of the CVD regulations" [where Article 21 of the Chinese regulations pertains to the use of facts available].440
According to the United States, MOFCOM should also have disclosed:
the facts leading to the conclusion that the use of "facts available" was appropriate;
the facts leading to the conclusion that 44.6% was the appropriate subsidy rate; and
the facts underpinning the calculation of the 44.6% rate and the details of the calculation.441
Article 12.8 of the SCM Agreement requires the disclosure of the essential facts under consideration "which form the basis of the decision whether to apply definitive measures". We agree with the statement of the panel in Mexico – Olive Oil that "essential facts" are those that underlie an investigating authority's final findings and conclusions in respect of the essential elements that must be present for the application of definitive measures. In the case of a countervailing duty investigation, these elements are subsidization, injury and causation.442 Given that an investigation must be terminated and countervailing duties cannot be imposed where the amount of subsidization is de minimis, the rate of subsidization also forms the basis of the decision whether to apply definitive measures. Therefore, the essential facts underlying an investigating authority's conclusions regarding the amount of subsidization should also be disclosed under Article 12.8.
In our view, China acted inconsistently with the disclosure obligations under Article 12.8 of the SCM Agreement. In particular, MOFCOM's finding of subsidization was based upon a number of underlying facts, including those leading to the conclusion that the application of "facts available" was warranted. In the circumstances of this case, where China acknowledges that there were in fact no other exporters of GOES, apart from AK Steel and ATI, it is not clear how non-existent exporters failed to provide necessary information or otherwise impeded the investigation. MOFCOM should have disclosed the facts leading to this conclusion in order to allow interested parties to defend their interests.
Further, the "facts available" actually relied upon by MOFCOM, resulting in a subsidy rate of 44.6%, should have been disclosed in accordance with Article 12.8 of the SCM Agreement. Given the significant increase in the "all others" subsidy rate between the preliminary determination and the final disclosure, and the large disparity between the all others "facts available" subsidy rate and the rates calculated for the known exporters, a more detailed disclosure of the "essential facts" under consideration leading to an "all others" rate of 44.6% was required to allow the United States to defend its interests.
440 Final Disclosure document, Exhibit US-26, p. 41.
441 United States' first written submission, para. 148 and United States' opening statement at the first meeting of the Panel, para. 62.
442 Panel Report, Mexico – Olive Oil, para. 7.110.
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Therefore, the Panel finds that China acted inconsistently with Article 12.8 of the SCM Agreement in failing to disclose certain essential facts underlying its decision to apply an "all others" subsidy rate of 44.6%.
Provisions at issue
Articles 22.3 and 22.5 of the SCM Agreement provide:
22.3 Public notice shall be given of any preliminary or final determination, whether affirmative or negative…Each such notice shall set forth, or otherwise make available through a separate report, in sufficient detail the findings and conclusions reached on all issues of fact and law considered material by the investigating authorities.
22.5 A public notice of conclusion or suspension of an investigation in the case of an affirmative determination providing for the imposition of a definitive duty…shall contain…all relevant information on the matters of fact and law and reasons which have led to the imposition of final measures…due regard being paid to the requirement for the protection of confidential information. In particular, the notice…shall contain…the reasons for the acceptance or rejection of relevant arguments or claims made by…the exporters and importers.
Factual Background
Following the issuance of the preliminary determination and the final disclosure documents, on 10 April 2010, MOFCOM issued its final determination for the anti-dumping and countervailing duty investigations.
Arguments of the United States
The United States claims that China acted inconsistently with Articles 22.3 and 22.5443 of the SCM Agreement on the basis that MOFCOM did not provide, in the public notice of the final determination, any rationale for its decision to apply adverse facts available to "all other" United States producers/exporters of GOES. Further, the final determination did not include information on the facts and reasons that led MOFCOM to conclude that a 44.6% subsidy rate was an appropriate "all others" rate, an explanation of which was particularly necessary given that the subsidy rates for the two respondent companies were substantially lower. The United States also complains that MOFCOM did not reveal the facts underpinning the calculation of the 44.6% rate and the details of the calculation itself.444 The United States argues that MOFCOM's failure is particularly troublesome given that MOFCOM changed its "all others" rate calculation, and the basis for it, between the preliminary and final determinations.445
443 United States' response to Panel question 30.
444 United States' response to Panel question 30, para. 50.
445 United States' response to Panel question 30, para. 52.
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Arguments of China
China does not provide arguments in response to the United States' claim.446
Arguments of third parties
(i) Japan
Japan notes that under Article 22.5 of the SCM Agreement, the reasons for all factual and legal issues related to an authority's final determination must be disclosed. Authorities cannot pick and choose the issues on which they will provide an explanation.447
Evaluation by the Panel
The United States' claims under Articles 22.3 and 22.5 of the SCM Agreement relate to the explanation in the final determination regarding the "all others" subsidy rate for unknown exporters. The final determination states "[f]or other U.S. companies who did not submit questionnaire responses, the Investigating Authority made a determination on Ad Valorem subsidy rate according to the information submitted by the Petitioners pursue to Article 21 of the Anti-Subsidy Regulations" (where Article 21 relates to the use of facts available).448
Articles 22.3 and 22.5 of the SCM Agreement require that the public notice of a final determination (or otherwise a separate report), set forth in sufficient detail the findings and conclusions reached on all issues of fact and law considered material by the investigating authorities. Article 22.5 also requires that the reasons leading to the imposition of final measures be disclosed.
The final determination does not set forth the relevant matters of fact leading to the conclusion that 44.6% was the appropriate subsidy rate for "all other" exporters. Although the final determination states that the "all others" subsidy rate was based upon information submitted by the applicants, it is now clear that this included information on programmes that MOFCOM had found not to constitute countervailable subsidies. However, there was no indication of this in the final determination and it was not clear from the determination what relevant facts led to an "all others" rate that was substantially higher than the subsidy rate calculated for the two known exporters. Consequently, the Panel concludes that MOFCOM did not disclose in "sufficient detail the findings and conclusions reached on all issues of fact" or "all relevant information on matters of fact". Therefore, China acted inconsistently with Articles 22.3 and 22.5 of the SCM Agreement.
PRICE EFFECTS ANALYSIS
Introduction
MOFCOM conducted a single injury and causation analysis pertinent to both the anti- dumping and countervailing duty investigations. Further, a cumulative assessment of injury was performed, which collectively took into account GOES imports from both the United States and
446 See Part F of China's first written submission, where China responds only to the claims under Articles 12.7 and 12.8 of the SCM Agreement in relation to MOFCOM's determination of the "all others" countervailing duty rate for unknown exporters.
447 Japan's third party submission, para. 26.
448 Final Determination, Exhibit US-28, p. 49.
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Russia. In its final determination, MOFCOM found that China's GOES industry sustained material injury and that there was a causal link between this injury and the dumped imports of GOES from Russia, and the dumped and subsidized imports of GOES from the United States. In the course of its injury analysis, MOFCOM found that the effect of subject imports was to "significantly depress[] and suppress[] the price of domestic like products."449
The United States challenges MOFCOM's finding that the dumped and subsidized imports had significant price effects. In particular, the United States challenges MOFCOM's findings on price undercutting, price depression and price suppression. The United States contends that MOFCOM's analysis of these price effects is conclusory, fails to reflect an objective examination of the evidence, and is not based on positive evidence. The United States contends that MOFCOM's price effects analysis is therefore contrary to Articles 3.1 and 3.2 of the Anti-Dumping Agreement, and Articles 15.1 and 15.2 of the SCM Agreement.
China submits that MOFCOM properly found adverse price effects from the increasing volume of subject imports. In particular, China asserts that MOFCOM properly found price suppression and price depression in 2008 and 2009. China submits that MOFCOM did not make specific findings about price undercutting, and was not required to do so. Furthermore, China contends that even if the Panel were to find MOFCOM's analysis of price effects to be WTO- inconsistent, the Panel should still affirm the overall finding of causation under Article 3 of the Anti- Dumping Agreement and Article 15 of the SCM Agreement.
Provisions at issue
Articles 3.1 and 3.2 of the Anti-Dumping Agreement provide:
A determination of injury for purposes of Article VI of GATT 1994 shall be based on positive evidence and involve an objective examination of both (a) the volume of the dumped imports and the effect of the dumped imports on prices in the domestic market for like products, and (b) the consequent impact of these imports on domestic producers of such products.
With regard to the volume of the dumped imports, the investigating authorities shall consider whether there has been a significant increase in dumped imports, either in absolute terms or relative to production or consumption in the importing Member. With regard to the effect of the dumped imports on prices, the investigating authorities shall consider whether there has been a significant price undercutting by the dumped imports as compared with the price of a like product of the importing Member, or whether the effect of such imports is otherwise to depress prices to a significant degree or prevent price increases, which otherwise would have occurred, to a significant degree. No one or several of these factors can necessarily give decisive guidance.
Articles 15.1 and 15.2 of the SCM Agreement are identical, except that the phrase "dumped imports" is replaced by the phrase "subsidized imports".
Arguments of the United States
The United States submits that Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement impose two important requirements regarding injury determinations. The first is that the determination be based on "positive evidence", which the Appellate Body has described as
449 Final Determination, Exhibit CHN-16, page 59.
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evidence that is "relevant and pertinent with respect to the issue being decided, and that has the characteristics of being inherently reliable and trustworthy".450 The second requirement is that the injury determination involve an "objective examination" of the volume of the dumped or subsidized imports, their price effects and the impact on the domestic industry. The Appellate Body has found that an "objective examination" must be conducted in good faith, must be based on data that provides an accurate and unbiased account of what is being examined and must be conducted without favouring the interests of any particular party.451
The United States also notes that Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement describe in further detail the nature of the examination that authorities must conduct to determine the price effects of dumped or subsidized imports. In particular, the investigating authority must consider whether the imports have resulted in price undercutting, price depression or price suppression in the domestic market. The United States challenges each of these three alleged aspects of MOFCOM's analysis.452 In doing so, the United States first establishes that MOFCOM's determination was indeed based on both volume and price effects, rather than volume effects only.
Price Undercutting
The United States notes that MOFCOM does not expressly make a finding of significant price undercutting. Nevertheless, the United States argues that several of its findings suggest that an essential predicate of the price effects analysis is that the prices for the imports under investigation were lower than the prices of domestically produced products. The United States notes that China has acknowledged that MOFCOM made findings about the "low prices" of subject imports.453 According to the United States, MOFCOM purported to rely on information about the price levels of the imports, and found that these price levels were "low" in comparison with the domestic like product.
Furthermore, although the United States accepts the proposition (as argued by China) that an investigating authority can make a finding of significant price effects without finding significant underselling, the United States relies on the panel report in EC – Salmon (Norway) to argue that the question of significant price underselling must in any event be considered (even if there is ultimately no determination that significant price underselling exists). Furthermore, the United States contends that examination of relative price levels of the domestically produced product and the imports under investigation is an important element in ascertaining whether price depression or suppression is actually the effect of the imports, as opposed to some other factor.
With respect to the substance of MOFCOM's alleged price undercutting findings, the United States argues that MOFCOM never disclosed any underlying facts that would support the finding that the exporters of GOES adopted a "low price" strategy. There is no indication regarding how MOFCOM conducted a price comparison and the only price comparison result reported is that the imports under investigation were not priced lower than domestically produced products during the first quarter of 2009.454 Further, the United States contends that the undisclosed and unspecified "records" of the petitioners in which the low price strategy of the exporters is allegedly reflected
450 United States' first written submission, para. 207. 451 United States' first written submission, para. 208. 452 United States' first written submission, para. 209.
453 China's first written submission, para. 296. See also, China's opening statement at the first meeting of the Panel, para. 57.
454 United States' first written submission, paras. 210-211.
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cannot constitute positive evidence of low "prices" absent some proof that the records reflect the prices actually charged by the exporters.455
Price Depression
The United States makes arguments about both (i) the actual existence of significant price depression during the period of investigation, and (ii) whether any such price depression can properly be attributed to subject imports. According to the United States, it is not enough for the investigating authority merely to demonstrate price depression. The authority must also establish that any price depression was an effect of the dumped or subsidized imports.
Regarding the existence of significant price depression per se, the United States argues that MOFCOM's price depression analysis is devoid of evidentiary support and is contradicted by the only available evidence. The sole price depression finding made by MOFCOM was that "[b]ecause subject merchandise was kept at a low price, and the import volumes of subject merchandise increased greatly since 2008, domestic producers had to lower their prices to keep market share". The United States notes MOFCOM's finding that domestic prices increased by 6.66% in 2007 and by 14.53% in 2008. The United States contends that MOFCOM never made a finding that depression occurred in 2008. The United States notes that, according to China, MOFCOM had quarterly domestic price data showing that prices decreased by 15.3% in the last quarter of 2008.456 However, the United States contends that the only finding made by MOFCOM in respect of 2008 was that domestic prices increased by 14.53% in that year. The United States asserts that, according to the information disclosed by MOFCOM, the only period during which prices for domestically produced GOES declined was the first quarter of 2009, when prices dropped by 30.25%. The United States further asserts that MOFCOM failed to explain how any such price depression was "significant".
The United States asserts that MOFCOM purported to show that price depression was an effect of subject imports by relying on comparisons between "low" import prices and allegedly higher prices for domestically produced products. The United States contends that this finding was not supported by positive evidence. The United States asserts that MOFCOM did not collect information in a manner designed to yield accurate or unbiased information about price levels. For instance, nothing in MOFCOM's determinations indicates that it relied upon actual pricing data. Rather, MOFCOM references only average unit values for the imports, without providing an explanation of why average unit data was a reasonable proxy for pricing data. Further, MOFCOM relied upon average unit values that were an aggregate of Russian and United States imports, even though separate data would have been available.457 Finally, MOFOCM collapsed all transactions for 2006, 2007 and 2008 into a single observation for each calendar year. In the light of this, the United States argues that MOFCOM manipulated the data to minimize its accuracy and comprehensiveness.458
Concerning the issue of whether any price depression in the last quarter of 2008 could properly be attributed to subject imports, the United States asserts that China does not contend, and there is no indication in the portions of the MOFCOM record disclosed to the Panel, that MOFCOM conducted any similar quarterly analysis concerning other factors pertinent to whether price depression was the effect of the imports. Without the comprehensive quarterly analysis that MOFCOM failed to conduct, the record indicates no more than increasing imports were coincident with increasing domestic prices for certain portions of 2008, but were coincident with declining prices for other portions of 2008. In such circumstances, attributing the price declines for a portion of the year to the imports under investigation is not a conclusion that "is reasoned and adequate, in light of
455 United States' first written submission, para. 214.
456 See China's response to Panel question 33, para. 121. 457 United States' first written submission, paras. 216-217. 458 United States' first written submission, para. 221.
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the evidence on the record and other plausible alternative explanations."459 MOFCOM's use of quarterly data for 2008 only for the purpose of examining domestic price levels "was selective and provided only a part the picture" of what might have caused any pricing declines in the fourth quarter.460 The United States contends that MOFCOM therefore failed to undertake an objective examination of the data.
The United States notes MOFCOM's finding that price depression existed in the first quarter of 2009. The United States contends, though, that the import volume of GOES during this period, relative to Chinese consumption, did not increase "greatly". The market share of imports increased by 1.17%, which was almost the same as the increase in the domestic industry's market share, namely 1.04%. Further, the price of the imports under investigation during the first quarter of 2009 was in fact higher than the prices for domestically produced products.461 For these reasons, the United States submits that price depression in the first quarter of 2009 could not properly be treated as an effect of subject imports.
Price Suppression
As for price depression, the United States makes arguments about both (i) the actual existence of significant price suppression during the period of investigation, and (ii) whether any such price suppression can properly be attributed to subject imports. According to the United States, it is not enough for the investigating authority merely to demonstrate price suppression. The authority must also establish that any price suppression was an effect of the dumped or subsidized imports.
The United States notes that MOFCOM's price suppression conclusion concerning 2008, namely that "the sales price for the domestic like product failed to cover rising costs", is not supported by positive evidence. In particular, MOFCOM disclosed no information regarding the domestic industry's cost levels during the period of investigation. In fact, the information that MOFCOM did disclose indicates that pre-tax profits increased in 2008. The United States argues that this is not consistent with the usual understanding of price suppression, namely that prices and sales revenue do not increase commensurately with cost. The United States argues that, contrary to the requirements of Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement, China did not identify any evidence to demonstrate that the imports under investigation prevented price increases that would otherwise have occurred.462 The United States contends that, in the light of MOFCOM's finding that domestic prices increased by 14.53% in 2008, MOFCOM would need to have established that the imports under investigation precluded the domestic industry from achieving price hikes significantly greater than 14.53%. This MOFCOM failed to do.
The United States contends that materials China introduced to the Panel in connection with the first written submission raise serious questions about whether MOFCOM's analysis of changes in the "price-cost differential" was objective. MOFCOM's analysis assumes that the underlying cost structure of the industry was static from 2007 to 2008, and that the only factors that changed were the volume and pricing of the imports under investigation. According to the United States, though, there were significant changes in the domestic industry's structure from 2007 to 2008. In particular, the United States notes that, according to the applicants, domestic producer Baosteel began production operations in May 2008.463 When they begin production, steel production facilities frequently incur
459 The United States refers to the Appellate Body Report in US – Anti-Dumping and Countervailing Duties (China), para. 516.
460 The United States refers in this regard to the Appellate Body Report in Mexico – Anti-Dumping Measures on Rice, para. 176.
461 United States' first written submission, paras. 223-226. 462 United States' first written submission, paras. 229-230. 463 Application, Exhibit CHN-2, pp. 95, 102-03.
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high start-up costs.464 The increased costs associated with a new facility can skew any analysis of the industry's ability to recover costs. The United States asserts that MOFCOM apparently did not examine, and certainly made no findings, whether the Chinese industry in 2007 and the Chinese industry in 2008 were actually comparable for purpose of cost comparisons.
The United States contends that, even assuming arguendo that a comparison of 2007 and 2008 cost data is valid, China overlooks a central point that is critical to the analysis required by Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement. In certain circumstances, an industry may forego price increases for its own benefit, and not as a response to import competition. If an industry can sell greater quantities exercising some price restraint – which may be achieved either by cutting prices or by not fully passing through cost increases to purchasers – its overall revenues and profits may increase despite the fact that the ratio of cost to sales revenues on a per unit basis will also be rising. According to the United States, the experience of China's GOES industry during 2008 illustrates this. During 2008, sales quantities of the Chinese GOES industry increased by 5.04%. Because, as previously explained, the prices the domestic industry charged also increased that year, sales revenues increased by 20.3%. As a result, the industry's pre-tax profit increased by 1.24% in 2008.465 Thus, the information disclosed by MOFCOM indicates that, because it was able to garner additional sales, the Chinese industry's financial condition improved in 2008 notwithstanding the increase in the per unit ratio of cost to sales revenues. In the light of these circumstances, to satisfy the requirements of Articles 3.2 and 15.2, MOFCOM needed to provide some reasoned explanation of why the change in the per-unit ratio was significant. It did not do so.
With respect to MOFCOM's price suppression finding for the first quarter of 2009, the United States argues that the finding was not based upon an objective examination of the record. MOFCOM found that the "great increase" in quantity of imports during the first quarter of 2009 was the cause of the adverse change in the domestic industry's price-cost differential during the first quarter of 2009. However, in reaching this conclusion, MOFCOM relied on data relating to only three months of a 39 month period of investigation.466 According to the United States, an analysis of the entire data set for the period of investigation as a whole indicates that there was not a sufficient nexus between increasing quantities of subject merchandise and significant price suppression. For example during the period 2006-2008, although the quantity of imports increased, the domestic industry's prices and profits also increased.467 Therefore, the evidence indicates that the Chinese GOES industry was able to increase revenues more rapidly than its costs rose, notwithstanding a large increase in the quantity of imports under investigation. The United States argues that by confining its examination to data relating to the first quarter of 2009, MOFCOM's analysis was skewed and failed to reflect an objective examination of the evidence.468 The United States also contends that, although China argues that the 2009 data indicate a continuation of the price suppression found in 2008, the absence of any basis for MOFCOM's finding of price suppression in 2008 also undermines its finding of price suppression in the first quarter of 2009.
Furthermore, the United States submits that MOFCOM's stated reason for finding that the increasing ratio of costs to sales revenues in the first quarter of 2009 was the effect of the subject imports was the purported "low price" strategy adopted by the importers under investigation.469 The
464 See "Scheduling a Successful Start-Up", Iron Age, July 1992, Exhibit US-40, p. 2 (noting that new steel production facilities can be characterized by various start-up problems which can seriously impact earnings).
465 Essential Facts Under Consideration Which Form the Basis of the Determination on Industry Injury, 5 March 2010, ("Final Injury Disclosure document"), Exhibit CHN-29, sec. VI(3), (5), (6).
466 United States' first written submission, paras. 231-232.
467 United States' first written submission, paras. 232-234.
468 United States' first written submission, paras. 234 and 236.
469 Final Determination, Exhibit CHN-16, sec. VI (Industry Injury)(III)(3).
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United States recalls its argument (in respect of price depression) that there is no positive evidence that the imports followed a "low price" policy and China does not even attempt to defend this finding.
Arguments of China
China argues that MOFCOM correctly analysed price effects and that the United States' arguments to the contrary are without merit.
Price undercutting
China notes that the United States' arguments concerning price undercutting rest on the mistaken premise that MOFCOM made price undercutting findings. However, China submits that MOFCOM relied on the low prices of subject imports only as a supporting factor and did not make a specific finding of price undercutting.470 Furthermore, China contends that MOFCOM had positive evidence supporting its statements regarding "low prices". While China asserts that MOFCOM did not go into as much detail about this secondary issue because it not make any detailed and specific findings of price undercutting, China contends that the record clearly supported MOFCOM's statements about "low price". China refers in this regard to evidence in the public version of the application which, according to China, was confirmed by confidential information collected by MOFCOM.
Further, contrary to the United States' arguments, China contends that it was under no obligation to find price undercutting under Article 3.2 of the Anti-Dumping Agreement or Article 15.2 of the SCM Agreement.471 In this regard, China notes that the United States itself concedes that an authority is not required to make a determination of price undercutting. As to the issue of whether or not price undercutting must be "considered", China disagrees with the finding by the panel in EC – Salmon (Norway) that the question of price undercutting must be considered. China contends that the text of both Article 3.2 and Article 15.2 uses the key term "or." In other words, the authority "shall consider" either price undercutting or price depression or price suppression. Nothing in the text suggests that all three must each be considered. An authority may "consider" price depression and price suppression, and by doing so fully comply with the obligations in Article 3.2 and Article 15.2. In addition, the United States' view that analysis of price undercutting is essential is at odds with the absence of any requirement for the authorities to use any particular methodology. To the extent that an obligation to "consider" price undercutting does exist, China contends that MOFCOM's determination properly discussed the issue of relative prices. After considering all the facts, though, MOFCOM chose to base its determination on price depression and price suppression.
Furthermore, China submits that any concerns about price undercutting do not affect MOFCOM's conclusions about price depression or price suppression. China contends that both price depression and price suppression can occur regardless of whether subject import prices are higher or lower than domestic prices.
Regarding the United States' argument that MOFCOM failed to engage in an analysis of "transaction prices,"472 China contends that MOFCOM did not pursue specific findings on price undercutting in this particular case because it did not believe such findings were the most appropriate analytic tool given the data available in this case. Moreover, MOFCOM also had to take into account the fact that it would be conducting analysis based on cumulated subject imports, so that any transaction specific data would be blurred and obscured when combined on a cumulated basis. For
470 China's first written submission, paras. 255-256.
471 China's first written submission, para. 301.
472 United States' response to Panel question 32, para. 63.
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both of these reasons, MOFCOM focused the broader measure of average prices as reflected in average unit values.
Price depression
China submits that MOFCOM properly made findings of price depression for 2008 and 2009 on the basis of positive evidence. Although the United States argues that a price depression finding was made only for 2009, China states that MOFCOM found price depression in both 2008 and 2009 and cites statements on the record to support this. China argues that the positive evidence to support this finding was the domestic pricing data before MOFCOM.473 Although in the final determination MOFCOM's findings were based on average domestic prices over an annual basis, which did not demonstrate price depression over 2008, China submits that MOFCOM had collected quarterly data showing that domestic prices fell by 15.3% in the last quarter of 2008.474
In relation to the price depression finding for the first quarter of 2009, China submits that the United States' arguments are related to causation and do not acknowledge the "undisputed fact" that in early 2009 domestic prices fell by more than 30%. China further contends that, even if the gain in subject import volume in early 2009 was modest relative to the market,475 the increase was still an increase of more than 23% compared to the comparable period in 2008. Moreover, domestic prices still fell sharply in early 2009. China contends that the United States argument looks at early 2009 in isolation, and ignores the fact that the 1.17 percentage point gain in market share was in addition to the 5.6 percentage point increase in market share that had just taken place the year before. Even more telling, the United States overlooks the impact of the further gain in United States market share. China asserts that the gain of 1.17 percentage points of market share over one quarter would annualize to a gain of 4.7 percentage points – almost as large as the gain in subject import market share in 2008. Moreover, the United States argument does not acknowledge the effect of subject import volume in 2008 on prices in 2009. China asserts that, in the light of the large increase of subject imports in 2008 and the 5.5 percentage point gain of market share, domestic producers began 2009 concerned about their shipments and market share and decided to lower prices to stop the loss of market share. According to China, the underlying facts and MOFCOM's discussion of those facts mean that the pricing trends in late 2008 and early 2009 need to be considered together.
China notes the United States argument that MOFCOM found that price depression was an effect of the low price of subject imports. China asserts that price depression can occur with or without price undercutting, in the sense that price depression does not depend on any comparison with subject import price levels. China further asserts that price depression can result from the volume of subject imports. China contends that the United States implicitly admits as much, when it argues that the price depression "was not solely because imports were increasing."476 China contends that this is what MOFCOM found, in the sense that the volume of subject imports increased significantly in 2008 and began to capture market share, and the domestic industry reacted by lowering their prices to try to retain market share, which lead to the price depression. According to China, MOFCOM found that the "sharp increase" in the volume of subject imports depressed domestic industry prices. Furthermore, China submits that Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement require only the showing of the existence of the adverse price effects – the declining prices (price depression), or the price-cost squeeze and declining profitability (price suppression) – and do not require any explanation as to the causes of these adverse price effects.
473 China's first written submission, paras. 280-288. 474 China's response to Panel question 33, para. 121. 475 United States' first written submission, para. 226.
476 United States' first written submission, para. 72 (emphasis added).
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Price suppression
China contends that MOFCOM had positive evidence for the findings of price suppression in 2008 and 2009. According to China, in relation to the price suppression findings in 2008, the United States ignores some of the evidence relied upon by MOFCOM, and misunderstands other aspects of it. In particular, the United States ignores the statement in the final determination that in 2008 domestic GOES products failed to absorb rising costs, resulting in a 7% drop in the cost-price differential. According to China, this was the positive evidence to support MOFCOM's price suppression finding for 2008.477 Further, China rejects the United States' claim that MOFCOM failed to disclose cost data, since the price-cost squeeze documented by MOFCOM for both 2008 and the first quarter of 2009 was demonstrated by the drop in per unit profits. China asserts that the fall in per unit profits in the first quarter of 2009 was even more pronounced than the fall in 2008. China contends that MOFCOM was entitled to analyse price suppression on the basis of per unit profits, as neither Article 3.2 of the Anti-Dumping Agreement nor Article 15.2 of the SCM Agreement impose any specific requirements as to the methodology for analysing the price suppression. China contends that the United States misunderstands the data in arguing that the small gain in pre-tax profits in 2008 is inconsistent with price suppression.478
China denies that MOFCOM "assume[d]" that increasing subject imports "caused" the decline in per unit profits.479 Rather, MOFCOM explained that the significant increasing volume of subject imports captured significant market share, and this volume of subject imports forced the domestic industry to react by lowering its prices so as to stop the continued loss of market share. China asserts that the prices were lowered because of this competition with subject imports, and were thus lower than they otherwise would have been.
In relation to MOFCOM's price suppression findings for 2009, China contends that the United States "essentially concedes the existence of price suppression in the first quarter of 2009".480 According to China, the United States' arguments about the 2009 price suppression findings are essentially arguments about causation, rather than the existence of price suppression. China repeats its argument that there is no need to show that adverse price effects were caused by subject imports. According to China, Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement require only the showing of the existence of the adverse price effects – the declining prices (price depression), or the price-cost squeeze and declining profitability (price suppression) – and do not require any explanation as to the causes of these adverse price effects.
Arguments of third parties
(i) European Union
With respect to MOFCOM's price undercutting analysis, the European Union notes that it is unclear what evidence supports the comparative analysis of prices mentioned by MOFCOM or the finding of the exporters' strategy of charging low prices. According to the European Union, it seems that MOFCOM did not rely on any information about actual pricing levels. It is also not evident that MOFCOM objectively evaluated the exporters' arguments.481
The European Union also submits that it is not clear on what positive evidence MOFCOM based its price depression analysis. MOFCOM did not specify the period to which its finding of price
477 China's first written submission, paras. 256-264. 478 China's first written submission, paras. 270-271. 479 United States' first written submission, para. 79. 480 China's first written submission, para. 275.
481 European Union's third party submission, paras. 40-41.
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depression refers. Further, the available evidence does not support the conclusion that such a finding would apply to 2008 or the first quarter of 2009.482
The European Union argues that MOFCOM's price suppression findings do not seem to be supported by positive evidence. For example, MOFCOM did not disclose any data concerning the domestic industry's cost levels or trends. Further, MOFCOM does not seem to have provided an explanation for its finding that in 2008, while the price of domestic products and producers' profits were increasing, imports prevented greater price increases than those which occurred. Finally, MOFCOM's price suppression analysis appears to be based upon data concerning only the last three months of the investigated period of 39 months.483
Therefore, the European Union agrees with the United States that MOFCOM's price undercutting, price depression and price suppression analyses are inconsistent with Articles 3.1 and
3.2 of the Anti-Dumping Agreement and 15.1 and 15.2 of the SCM Agreement.484
Evaluation by the Panel
The United States claims that MOFCOM's price effects analysis is not based on positive evidence and that, in conducting its price effects analysis, MOFCOM did not engage in an objective examination of the evidence.
We begin by considering the relevant issues regarding MOFCOM's finding of significant price depression. We then turn to MOFCOM's finding of significant price suppression. Before concluding, we also address the United States' claim regarding MOFCOM's alleged finding of price undercutting.
In addressing these issues, we recall that it is well established that the role of the Panel is not to conduct a de novo review nor simply defer to the conclusions of the investigating authority. Rather, we must determine whether the explanation for the conclusions reached by the investigating authority is reasoned and adequate in the light of other plausible alternative explanations.485 Furthermore, we must determine whether the quality of the evidence relied on by MOFCOM met the "positive evidence" standard set forth in Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement. In this regard, we recall that in US – Hot Rolled Steel, the Appellate Body clarified that "positive evidence" relates to the quality of the evidence that authorities may rely upon in making a determination, and that the evidence "must be of an affirmative, objective and verifiable character, and it must be credible".486 In addition, the Appellate Body has referenced with approval a description of "positive evidence" as "evidence that is relevant and pertinent with respect to the issue being decided, and that has the characteristics of being inherently reliable and trustworthy."487 We must also determine whether MOFCOM undertook an objective examination of the evidence. We note that the Appellate Body has found that an "objective examination" must be conducted in good faith, must be based on data that provides an accurate and unbiased account of what is being examined, and must be conducted without favouring the interests of any particular party.488
482 European Union's third party submission, para. 43.
483 European Union's third party submission, paras. 44-45.
484 European Union's third party submission, paras. 42, 43 and 46.
485 See, for example, Appellate Body Report, US – Tyres (China), para. 280.
486 Appellate Body Report, US – Hot Rolled Steel, para. 192.
487 Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, paras. 163-164.
488 United States' first written submission, para. 208.
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Price depression
The United States challenges both MOFCOM's finding of the existence of significant price depression per se, and MOFCOM's finding that such price depression was an effect of subject imports. We address each issue in turn.
The existence of price depression per se
MOFCOM found that domestic prices rose and then fell489 during the period of investigation. Specifically, MOFCOM found that:
[C]ompared with the same period of the previous year, the price of domestic like products increased by 6.66% and 14.53% in 2007 and 2008 respectively, and it
dropped by 30.25% in Q1 2009.490
The United States' arguments regarding the existence of price depression per se are focused on the year 2008. The United States asserts that any finding of price depression in 2008 would be inconsistent with the above-mentioned evidence that prices rose by 14.53% from 2007 to 2008. In response, China argues that MOFCOM found price depression in both 2008 and the first quarter of 2009. Regarding the existence of price depression in 2008, China refers to evidence on MOFCOM's record allegedly indicating that prices fell in the last quarter of 2008.
We do not consider it necessary to address the dispute between the parties regarding the existence of price depression in 2008. Even if prices did not fall in 2008, MOFCOM's final determination contains a finding that domestic prices did fall by 30.25% in the first quarter of 2009. The United States has not challenged this finding.491 Nor has the United States contended that MOFCOM was not entitled to treat price depression of this magnitude as "significant" within the meaning of Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement. In these circumstances, there is no basis for us to conclude that MOFCOM's determination of significant price depression could not rest on its finding that prices fell by 30.25% in the first quarter of 2009.
Whether price depression was an effect of subject imports
Having upheld MOFCOM's finding of the existence of significant price depression per se, we now consider the United States' claim against MOFCOM's finding that such price depression was an effect of subject imports. We begin by examining whether the provisions relied on by the United States, i.e. Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement, require an investigating authority to demonstrate that the relevant price depression is an effect of subject imports. We then evaluate the relevant findings made by MOFCOM in the light of the principal arguments of the parties. While MOFCOM found that significant price depression was an effect of both the increase in volume of subject imports, and the low price thereof, the United States' arguments relate primarily to MOFCOM's finding that subject imports were priced lower than domestic products. Accordingly, we limit our examination to MOFCOM's finding that price depression was an effect of the low price of subject imports. We complete our evaluation by considering whether, even if MOFCOM's analysis of the price effects of subject imports was flawed, MOFCOM's finding that price depression was an effect of subject imports might nevertheless stand
489 Final Determination, Exhibit CHN-16, p. 58.
490 Final Determination, Exhibit CHN-16, p. 58.
491 The United States' challenge regarding the first quarter of 2009 is directed at MOFCOM's finding
that price depression was an effect of subject imports (see, for example, United States' first written submission, para. 226).
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on the basis of MOFCOM's analysis of the effect of the increase in the volume of subject imports in depressing domestic prices.
Whether Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement require an investigating authority to demonstrate that the relevant price depression is an effect of subject imports.
The United States challenges MOFCOM's determination that the significant price depression found to exist was an effect of subject imports. The United States' arguments are premised on its position that, as a matter of law, an investigating authority is required by Article 3.2 of the Anti- Dumping Agreement or Article 15.2 of the SCM Agreement to demonstrate that any price depression found to exist is an effect of subject imports. China denies that any such obligation is contained in these provisions. According to China, the need to establish a link between price effects and subject imports is part of the broader obligations in Article 15.5 of the SCM Agreement and Article 3.5 of the Anti-Dumping Agreement to establish a causal link between subject imports and material injury suffered by the domestic industry.
Having regard to the text of the relevant provisions, we note that the analysis envisaged by the second sentence of Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement concerns "the effect of the [dumped/subsidized] imports on prices." Furthermore, the authority must consider whether "the effect of [dumped/subsidized] imports is … to depress prices to a significant degree". Accordingly, merely showing the existence of significant price depression does not suffice for the purposes of Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement. An authority must also show that such price depression is an effect of the subject imports.
In support of its argument that Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement do not require an authority to show that adverse price effects are an effect of subject imports, China relies on the statement by the panel in EC – Countervailing Measures on DRAM Chips that:
Article 15.2 of the SCM Agreement does not, as such, require an investigating authority to establish a causal link between the subsidized imports and the domestic prices which would require it to examine all other factors affecting domestic prices at the same time…. As written, Article 15.2 focuses on the effect of the subsidized imports on prices.492
In our view, the panel in EC – Countervailing Measures on DRAM Chips was dealing with a different issue than the one at hand. In particular, that panel had to consider Korea's claim that the European Communities should have examined a variety of factors known to have been affecting domestic prices, in addition to subject imports. The panel reasoned that such analysis of all known factors was not required under Article 15.2 of the SCM Agreement, but noted that such analysis was required under Article 15.5 of the SCM Agreement. The Panel in the present case is not confronted with this issue. The United States is not suggesting that MOFCOM should have considered the effect of other known factors on domestic prices. The United States is merely suggesting that MOFCOM was required, by Article 15.2 of the SCM Agreement, to consider the effect of subject imports on prices. Furthermore, the panel's statement that "Article 15.2 focuses on the effect of subsidized imports on prices" seems to be premised on the notion that subject imports should, in the context of Article 15.2 of the SCM Agreement, be shown to have an effect on domestic prices. Indeed, the very next sentence in the panel's report (which was omitted by China) states that "[t]he EC examined the effect of the subsidized imports on domestic prices and thus, in our view, complied with Article 15.2".
492 Panel Report, EC – Countervailing Measures on DRAM Chips, para 7.338.
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Accordingly, we do not accept that the report of the panel in EC – Countervailing Measures on DRAM Chips stands for the proposition that an authority is not required by Article 15.2 of the SCM Agreement to show that the relevant price depression is an effect of subject imports. As a result, we consider that the United States is entitled to pursue a claim under Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement against MOFCOM's finding that the relevant price depression was an effect of subject imports. We now examine the merits of this claim.
Whether MOFCOM properly found that price depression was an effect of the low price of subject imports.
The United States' primary arguments against MOFCOM's finding that price depression was an effect of subject imports relate to MOFCOM's analysis of the effect of the price of subject imports on domestic prices, and MOFCOM's determination that subject imports were priced lower than domestic products. The United States contends that MOFCOM's findings are not based on an objective examination of positive evidence.
In this regard, we note MOFCOM's finding that subject import prices were "low" relative to domestic prices, and that there was a "pricing policy" of setting subject import prices lower than domestic prices.493 According to China, these findings were based on positive evidence in the application, and positive evidence collected by MOFCOM during its investigation.494 We shall examine the probative value of both types of evidence.
Turning first to evidence of "low" prices allegedly found in the application, we note that China refers to two tables showing that the weighted average price of imports from the United States and Russia together, and from the United States separately, was lower than the average price charged by the applicants during the period of investigation.495 We note that this evidence in the application was not expressly referenced, or incorporated into, MOFCOM's final determination. Furthermore, regarding the reliability of the evidence, we note that the evidence indicates that subject import prices were lower than domestic prices in both 2008 and the first quarter of 2009. The fact that this is at odds with MOFCOM's own finding that subject import prices were not less than domestic prices during the first quarter of 2009496 undermines the reliability of the evidence. For these reasons, we do not consider that the applicants' evidence could properly be treated as "positive evidence" supporting MOFCOM's finding that price depression was an effect of subject imports.
Turning next to the evidence collected by MOFCOM during its investigation, we shall first examine MOFCOM's reliance on a comparison of the average unit values ("AUVs") of subject imports and domestic sales. We shall then examine MOFCOM's reliance on certain contractual documents regarding an alleged "pricing policy" of setting subject import prices lower than domestic prices.
Regarding the AUV data collected by MOFCOM, China asserts that this data revealed a gap of 8 to 12% between the AUVs of subject imports and domestic sales.497 Given the absence of any such evidence in MOFCOM's final determination, the Panel asked China to provide the confidential AUV data. In response, China provided ranges of the relevant AUVs, in order "to protect the sensitive [Business Confidential Information] of showing the exact level of the domestic AUV" of
493 See, for example, Final Determination, Exhibit CHN-16, pp. 58 and 59.
494 China's second written submission, para. 102.
495 Application, Exhibit CHN-2, p. 98.
496 Final Determination, Exhibit CHN-16, p. 70: "the Investigating Authority did not conclude that import price of the product concerned was lower than the price of the domestic like product in Q1 of 2009".
497 China's second written submission, footnote 95. The AUVs relied on by MOFCOM represent the volume weighted average unit values for all transactions during a given calendar year.
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each of the two domestic producers at issue.498 Although China failed to respond fully to the Panel's request,499 ultimately the Panel was able to address the issues raised by the United States using the more limited data provided by China.
We have a number of misgivings regarding the AUV data relied on by MOFCOM, particularly concerning MOFCOM's failure to consider the need for adjustments to ensure price comparability. First, we note that China has failed to rebut the United States' argument that the subject import and domestic AUVs were fixed at different levels of trade. According to the United States, the domestic AUVs reflected transactions between the domestic producer and the end user, whereas subject import AUVs were fixed at a higher level of trade, between the exporter and the first Chinese purchaser, which is typically an importer who resells to end users. Second, we note that the relevant AUVs included products of different grades, without any attempt by MOFCOM to adjust for differences in physical characteristics.500 The inclusion of different grades is reflected in Exhibit US-41, which shows that the relevant grades were classified under at least two different tariff headings. China did not contest any of the data set forth in that Exhibit.501 Third, the determination of a single price point intended to represent prices throughout the course of an entire year does not provide a sufficiently precise basis, in our view, for comparing prices. Given the possibility of prices varying over time, an objective and impartial investigating authority would rather conduct contemporaneous price comparisons, or at least comparisons during a relatively short period of time.
China does not deny that MOFCOM failed to make any form of adjustment to ensure price comparability. Rather, China argues that because MOFCOM did not make findings of price undercutting, "price comparability did not arise as an issue".502 China contends that adjustments were not necessary because MOFCOM was not relying on the magnitude of price undercutting, but simply noting the existence503 of price undercutting as a supporting fact for its findings on price depression, price suppression, and causation.504
We are not persuaded by China's argument. China concedes that MOFCOM relied on the existence of price undercutting. MOFCOM did so to show that price depression was an effect of the low price of subject imports relative to the price of domestic products. Thus, even though MOFCOM did not make a finding of significant price undercutting (i.e. price undercutting of a certain magnitude), MOFCOM did rely on a finding that subject import prices undercut domestic prices. In our view, a proper finding of the existence of price undercutting necessarily entails a comparison of prices,505 and the authority should ensure that the prices it is using for its comparison are properly
498 China's 25 November 2011 response to question (a) of the Panel questions dated 18 November 2011, p. 1.
499 The panel notes that China had previously indicated that it was prepared to submit this confidential data (China's second written submission, footnote 95).
500 Even if domestic products and subject imports are "like", adjustments to reflect differences in physical characteristics might still be necessary.
501 The United States has also criticised MOFCOM's failure to report separate AUVs for subject
imports from the United States and Russia respectively (United States' first written submission, para. 217). We recall that MOFCOM undertook a cumulative assessment of injury, which the United States has not challenged. Accordingly, there is no basis for us to find that MOFCOM should have reported separate AUVs for subject imports from the two target countries.
502 China's response to Panel question 101, para. 142.
503 China's response to Panel question 105, para. 161.
504 China's response to Panel question 105, para. 161.
505 MOFCOM itself acknowledged that it had undertaken a comparison of prices: "the relevant content of the determination makes a comparative analysis of price. There is an analysis on the low-price sales of the
product concerned" (Final Determination, Exhibit CHN-16, p. 70). While China denies that this refers to any finding of price undercutting (China's first written submission, para. 299), we see no basis on which to conclude
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comparable.506 As soon as price comparisons are made, price comparability necessarily arises as an issue. MOFCOM's reliance on AUVs, without any consideration of the need for adjustments to ensure price comparability, is neither objective, nor based on positive evidence.
Regarding the evidence supporting MOFCOM's finding that there was a "pricing policy" of setting subject import prices lower than domestic prices, MOFCOM stated:
During the on-the-spot verification, the petitioner provided contracts and records of price setting to show that a pricing policy aiming at setting the price down to a level lower than the price of the domestic like product was adopted by producers of product concerned.507
China submitted the relevant "contracts and records of price" to the Panel in the form of four BCI Exhibits, in response to a request from the Panel dated 18 November 2011. Exhibit CHN-37 contains a contract between a Russian trading company and a Chinese buyer of subject imports. Exhibits CHN-38, 39, and 40 provide examples of price negotiations between a Chinese supplier and its customers. China contends that in all three examples, "the Chinese supplier quoted a price, the customer responded by noting the specific amount by which the Chinese offer was higher than the alternatives available from Russian or U.S. suppliers, and the Chinese supplier was then forced to lower its price".508
Turning first to Exhibit CHN-37, we note that this contract establishes prices for certain subject imports. The contract also contains a provision whereby, in the words of the applicants, "the Russian companies … set their prices lower than [WISCO]".509 While this contract may be of relevance regarding the broader relationship between domestic and subject import prices, we note that the contract is dated 9 January 2009. Accordingly, the contract was applicable during the first quarter of 2009. Since MOFCOM found that subject import prices were not lower than domestic prices in this period,510 there was no valid basis for MOFCOM to determine that the Exhibit CHN-37 contract actually translated into price undercutting by subject imports. Rather, MOFCOM's finding that there was no price undercutting in this period undermines the probative value of Exhibit CHN-37. In the absence of any explanation as to why the Exhibit CHN-37 contract should trump MOFCOM's finding that subject imports were not priced lower than domestic products in the first quarter of 2009, we do not consider that an objective and impartial investigating authority could properly have relied on this contract to support a finding that subject imports were priced "lower" than domestic products in that period.
Regarding Exhibits CHN-38 and 40, we note that these price negotiations occurred in February 2009, with delivery scheduled in March and April 2009. The price negotiations referred to in Exhibit CHN-39 occurred in December 2008, with delivery scheduled for January 2009. Thus, the deliveries for all three sets of price negotiations were scheduled for the first quarter of 2009. Again, we note that MOFCOM found that subject import prices were not lower than domestic prices in that period. MOFCOM's finding that there was no price undercutting in this period undermines the
that MOFCOM is referring to anything other than a comparative analysis of the price of subject imports relative to domestic sales.
506 It may be, as alleged by China (China's response to Panel question 95(iii), para. 128), that certain
adjustments would actually inflate subject import price. In our view, this observation simply confirms the need for appropriate adjustments to ensure that any price comparisons made are accurate and valid.
507 Final Determination, Exhibit CHN-16, p. 58.
508 China's 25 November 2011 response to question (b) of the Panel questions dated 18 November 2011, p. 2.
509 Final Determination, Exhibit CHN-16, p. 59.
510 Final Determination, Exhibit CHN-16, p. 70: "the Investigating Authority did not conclude that import price of the product concerned was lower than the price of the domestic like product in Q1 of 2009".
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probative value of Exhibits CHN-38 and 40. In the absence of any explanation as to why the evidence contained in these Exhibits should trump MOFCOM's finding that subject imports were not priced lower than domestic products in the first quarter of 2009, we do not consider that an objective and impartial investigating authority could properly have relied on these negotiations to support a finding that subject imports were priced "lower" than domestic products in that period.
Finally, we note that MOFCOM also relied on "the drop of the import price of the product concerned in Q1 2009" when finding that price depression was an effect of subject imports. In this regard, we note MOFCOM's finding that subject import prices fell by 1.25% from the first quarter of 2008 to the first quarter of 2009.511 However, MOFCOM also found that subject import prices increased by 2.97% and 17.57% in 2007 and 2008 respectively.512 In addition, MOFCOM also found that the subject import price was not lower than the domestic price in the first quarter of 2009. In the absence of any further clarification by MOFCOM, we are not persuaded that an objective and impartial investigating authority could properly have found that, following a 17.57% increase in subject import price in 2008, a 1.25% decrease in subject import price in the first quarter of 2009 could have had the effect of depressing domestic prices, particularly as subject imports prices in any event remained higher than domestic prices in that period.
For all of the above reasons, we do not consider that the evidence available to MOFCOM could have allowed an objective and impartial investigating authority to determine that subject imports were priced lower than domestic products.
Whether MOFCOM's finding that price depression was an effect of subject imports might nevertheless stand on the basis of MOFCOM's analysis of the effect of the increase in the volume of subject imports in depressing domestic prices.
We note China's argument that MOFCOM's finding that price depression was an effect of subject imports remains valid, despite any flaws in MOFCOM's analysis of the relative prices of subject imports and domestic products, because MOFCOM's finding of causation was also based on the effect of the increase in volume of subject imports. According to China, since MOFCOM based its analysis of causation on both volume effects and price effects, those price effects can support an overall finding of causation, even if they might not have been sufficient to justify finding a causal link on their own.513 In considering this argument, we also note China's statements that "MOFCOM properly found adverse price effects from the increasing volume of subject imports,"514 that MOFCOM drew a "key connection … between the domestic industry lowering prices in an effort to regain market share that had been lost to subject imports",515 and that MOFCOM "relied heavily"516 on volume effect. In addition, we note China's assertion that "[t]he low prices of subject imports were discussed more generally as a supporting factor for the analysis, not as the primary basis of the overall finding about price effects."517
Having regard to the various statements made by China, we understand China to argue that the increase in the volume of subject imports was the primary basis for MOFCOM's finding that price depression was an effect of subject imports, and that this primary basis for MOFCOM's finding is sufficient in and of itself to uphold that finding, even if MOFCOM's analysis of the supporting basis,
i.e. the price effects of subject imports, is flawed. This argument raises the issue of whether the Panel
511 Final Determination, Exhibit CHN-16, p. 58. 512 Final Determination, Exhibit CHN-16, p. 58. 513 China's first written submission, para. 328.
514 China's first written submission, heading at para. 257.
515 Chinas' second written submission, para. 81. 516 China's second written submission, para. 121. 517 China's first written submission, para. 295.
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could uphold MOFCOM's finding that price depression was an effect of subject imports purely on the basis of MOFCOM's findings regarding the volume effects of subject imports. In addressing this issue, we begin by considering whether or not MOFCOM's final determination supports China's argument that volume effects were the primary basis for MOFCOM's finding that price depression was an effect of subject imports. We then consider certain guidance offered by the Appellate Body.
We do not consider that MOFCOM's final determination supports China's argument that volume effects were the primary basis for MOFCOM's finding that price depression was an effect of subject imports. In suggesting that MOFCOM relied more heavily on the volume of subject imports than the low price thereof, China actually refers to extracts from MOFCOM's final determination that appear to lend equal weight to considerations of both subject import volume and price. For example, when arguing that MOFCOM drew a "key connection … between the domestic industry lowering prices in an effort to regain market share that had been lost to subject imports",518 China refers to MOFCOM's determination that:
Under the impact of the large volume of imports of the product concerned at a low price, in order to keep the market share, the price of the domestic like product was lowered.519
Thus, MOFCOM refers both to the increased volume of subject imports, and the allegedly low price thereof. In addition, we note that the relevant sub-section in the final determination is entitled "The impact of the import price of the product concerned on the price of domestic like products".520 In these circumstances, it is difficult to accept that MOFCOM's finding that price depression was an effect of subject imports was based primarily on the volume effect of subject imports. In our view, there is nothing in MOFCOM's determination to indicate that MOFCOM relied more heavily on the increase in the volume of subject imports than it did on the low price thereof for the purpose of establishing that price depression was an effect of subject imports.
Furthermore, we note the Appellate Body's finding in Japan – DRAMs (Korea) that:
[T]here may be cases in which certain intermediate findings may be so central to the ultimate conclusion of an investigating authority that an error at an intermediate stage of reasoning may invalidate the final conclusion. Indeed, an evaluation of the significance of the different factors considered by an investigating authority is at the heart of the assessment a panel must make.521
We agree with this finding by the Appellate Body, and we consider that a panel must exercise great caution in determining whether or not to engage in analyses not undertaken by the investigating authority itself.522 There is nothing in MOFCOM's determination to indicate that MOFCOM relied more heavily on the volume effects of subject imports than it did on the price effects thereof for the purpose of establishing that price depression was an effect of subject imports. Accordingly, we consider that MOFCOM's finding that subject imports were priced lower than domestic products was so central to MOFCOM's overall conclusion that price depression was an effect of subject imports that the above-mentioned flaws in this finding must invalidate MOFCOM's overall conclusion that price depression was an effect of subject imports. In these circumstances, it is not possible to
518 Chinas' second written submission, para. 81.
519 Final Determination, Exhibit CHN-16, p. 65 (emphasis added).
520 Final Determination, Exhibit CHN-16, p. 58.
521 Appellate Body Report, Japan – DRAMs (Korea), paras. 131-135 (footnotes deleted).
522 There is nothing in MOFCOM's determination to suggest that MOFCOM itself found that the
volume effects of subject imports alone were sufficient to conclude that price depression was an effect of subject imports.
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conclude that MOFCOM's finding that price depression was an effect of subject imports might be upheld purely on the basis of MOFCOM's findings regarding the effect of the increase in the volume of subject imports.
Conclusion
In the light of the foregoing, we find that MOFCOM's determination that price depression was an effect of subject imports was neither made pursuant to an objective examination, nor based on positive evidence.
Price suppression
MOFCOM found that there was significant price suppression in 2008 and the first quarter of 2009. MOFCOM's principal findings on price suppression were drafted in the following terms:
Starting from 2008, the selling price of the domestic like products failed to absorb the rising costs, the price-cost differential dropped by 7% compared with 2007. In Q1 of 2009, while the unit cost of sales was rising compared to the same period of last year, the selling price greatly dropped by 30.25%, which resulted that the cost-price differential dropped continually and greatly by 75% compares to the same period of last year.523
…
To be more specific, the sharp increase of the import volume of the product concerned since the beginning of 2008 and the drop of the import price of the product concerned in Q1 2009 significantly depressed and suppressed the price of domestic like products.524
We begin by examining the United States' challenge against MOFCOM's finding of the existence of price suppression per se. We then consider the United States' arguments against MOFCOM's finding that price suppression was an effect of subject imports.
The existence of price suppression per se
We are not persuaded by the United States' argument that MOFCOM was precluded from relying on changes in the price-cost ratio between 2007 and 2008, and between the first quarter of 2008 and the first quarter of 2009, to establish the existence of price suppression. We note that neither Article 3.2 of the Anti-Dumping Agreement nor Article 15.2 of the SCM Agreement prescribes the manner in which an investigating authority must establish the existence of price suppression. Nor do these provisions exclude an investigating authority's reliance on changes in per unit price-cost ratios. In the light of the text of these provisions, we consider that an authority is entitled to find price suppression whenever prices have not been able to match increases in costs. Accordingly, we find no flaws in MOFCOM's reliance on changes in the price-cost ratio to find the existence of price suppression in 2008 and the first quarter of 2009.
Whether price suppression was an effect of subject imports
To challenge MOFCOM's finding that price suppression was an effect of subject imports, the United States relies on the same arguments as it did to challenge MOFCOM's finding that price
523 Final Determination, Exhibit CHN-16, p. 58.
524 Final Determination, Exhibit CHN-16, p. 59.
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depression was an effect of subject imports. The United States also makes the additional argument that MOFCOM failed to consider whether, in the relevant factual circumstances, changes in the price- cost ratio merely reflected changes in the underlying cost structure of the domestic industry. In considering these arguments, we recall our finding that, pursuant to Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement, an investigating authority must demonstrate that price depression is an effect of subject imports.525 The same necessarily applies in respect of an authority's finding of price suppression. Since MOFCOM relied on the same analysis of the price effects of subject imports to show that both price depression and price suppression was an effect of subject imports, the same flaws that undermined MOFCOM's finding that price depression was an effect of subject imports also undermine MOFCOM's finding that price suppression was an effect of subject imports. In these circumstances, we are not required to consider the United States' additional argument concerning alleged changes in the underlying cost structure between 2007 and the later stages of the period of investigation. We shall do so, though, for the sake of completeness.
In the factual circumstances of the underlying investigation, we consider that the commencement of Baosteel's operations in May 2008 should have caused MOFCOM to examine whether the 2008 change in the price-cost ratio was merely a function of the inclusion of the additional start-up costs incurred by Baosteel,526 rather than an adverse effect of subject imports on price. In particular, because of the risk of Baosteel's start-up costs distorting the results of a simple analysis of changes in the price-cost ratio, MOFCOM should have considered whether the underlying cost structure of the domestic industry in 2007 was comparable to that in 2008 and the first quarter of 2009. While China argues that the cost structures in 2007 and 2008 were comparable because Baosteel would also have incurred start-up costs in 2007, we note that MOFCOM's record only includes costs booked by Baosteel as of 2008.527 Accordingly, there is no basis in the record for the argument that Baosteel's start-up costs were also incurred prior to 2008, in a period when no price suppression occurred.
We do acknowledge that, prior to the arrival of Baosteel in 2008, the existing producer, WISCO, had already been expanding capacity. However, while some new capacity was introduced in 2007, a significantly greater amount of new capacity was introduced in 2008.528 In our view, the introduction of such a significant amount of new capacity in 2008 should have caused MOFCOM to consider the possibility that the change in the price-cost ratio between 2007 and 2008 was, at least in part, a reflection of the start-up costs associated with the commencement of Baosteel's operations in May 2008, rather than an effect of subject imports. An objective and impartial investigating authority would have recognized the need to check that the underlying cost structures of 2007 and 2008 were comparable, and would have investigated accordingly.529
525 See paras. 7.519 - 7.522 of this Report.
526 We note that China does not deny the United States' argument that the introduction of new steel production facilities incurs start-up costs.
527 Application, Exhibit CHN-2, p. 109, Table 40. We note that China failed to rebut the United States'
assertion (made in its reply to Panel question 75, para. 71) that "[t]he only pertinent information in the record available to the Panel and the United States indicates that, for purposes of the application, Baosteel did not provide MOFCOM with financial performance data for any period prior to 2008".
528 According to the Final Injury Disclosure document, Exhibit CHN-29, p. 12, capacity increased by 35.33% in 2007, and by 53.67% in 2008. In addition, the capacity added by Baosteel was entirely new, whereas
the capacity added by WISCO in 2007 was not entirely the result of opening new production facilities, but involved improving the efficiency of existing production facilities (See United States' response to Panel question 75, para. 71, referring to the Application, Exhibit CHN-2, pp. 100 and 107). We accept the United States' view (not contested by China) that the introduction of entirely new capacity is likely to engender greater start-up costs than mere improvements to existing capacity.
529 The same applies to changes in the price-cost ratio between the first quarter of 2008 and the first quarter of 2009, when capacity increased by 80.13%. As Baosteel commenced operations only in May 2008,
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China contends that even if there were start-up costs in 2008, such costs are a natural part of business. China asserts that a domestic industry should be able to expand, incur start-up costs, and yet still maintain its profitability. China asserts that the domestic industry could not do this because of the surge in the volume of subject imports during 2008. We accept that, up to a certain point, the market may allow companies to increase prices to recover increased costs, including costs associated with starting-up new production facilities. This process of price matching increasing cost cannot continue indefinitely, though. After a certain point, the market will consider that the increased costs are not commercially reasonable, and that prices should not be allowed to rise accordingly. The point at which this occurs will depend on many factors, including the relationship between capacity, supply (domestic and foreign) and demand. It is not for the Panel to determine de novo whether the start-up costs incurred by the domestic industry were commercially reasonable, such that domestic prices should have been able to rise to the full extent of such costs. This is a complex issue that should have been considered by MOFCOM. Instead, MOFCOM simply assumed that (i) prices should have been able to rise with costs, and (ii) the only reason prices were not able to rise with costs was because of the effect of subject imports.
In the light of the foregoing, we find that MOFCOM's determination that price suppression was an effect of subject imports was not made pursuant to an objective examination, based on positive evidence.
Price undercutting
The basic issue raised by the parties is whether or not MOFCOM made a finding of "significant price undercutting" within the meaning of Article 3.2 of the Anti-Dumping Agreement and Article 15.2 of the SCM Agreement. The United States acknowledges that MOFCOM did not make an express finding of significant price undercutting, but contends that an essential predicate of MOFCOM's price effects analysis is that prices for subject imports were lower than domestic prices.530 China denies that MOFCOM made any finding of significant price undercutting.
In examining MOFCOM's final determination, we are unable to find any express finding by MOFCOM that there was significant price undercutting by subject imports. Although, as discussed above, MOFCOM purported to establish the existence of price undercutting for the purpose of showing that price depression and price suppression were an effect of the relatively lower prices of subject imports, MOFCOM did not rely on the magnitude of such price undercutting. In particular, MOFCOM did not conclude that such price undercutting was "significant" within the meaning of Article 3.2 of the Anti-Dumping Agreement or Article 15.2 of the SCM Agreement. In these circumstances, there is no finding of "significant price undercutting" for us to review.
Conclusion
For the above reasons, we conclude that MOFCOM's findings regarding the price effects of subject imports are inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, and Articles 15.1 and 15.2 of the SCM Agreement.
data for the first quarter of 2008 would not have included Baosteel's start-up costs. Accordingly, MOFCOM should also have considered whether the underlying cost structure of the first quarter of 2009 was comparable with that of the first quarter of 2008.
530 United States' first written submission, paras. 210 and 211.
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Provisions at issue
Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement provide:
The authorities shall, before a final determination is made, inform all [interested Members and] interested parties of the essential facts under consideration which form the basis of the decision whether to apply definitive measures. Such disclosure should take place in sufficient time for the parties to defend their interests.531
Factual Background
Following the preliminary determination, and prior to issuing its final determination, MOFCOM issued a final injury disclosure document, with the stated purpose of disclosing the "basic facts upon which the final injury determination is made".
Arguments of the United States
The United States argues that the price effects analysis is inconsistent with Article 12.8 of the SCM Agreement and Article 6.9 of the Anti-Dumping Agreement because MOFCOM did not disclose the "essential facts" underlying the analysis and ultimately forming the basis for its decision to apply definitive measures. The United States explains that MOFCOM's injury determination is based upon a finding that the allegedly dumped and subsidized imports had significant price effects on the like domestic product. However, in its final injury disclosure document and its final determination, MOFCOM disclosed "strikingly few facts" regarding pricing. The United States submits that the findings are cursory and lack any apparent evidentiary basis.
According to the United States, China does not dispute MOFCOM's failure to disclose any information about price levels for the domestically produced product or any comparisons between prices for this product and the imports under investigation. The United States rejects China's argument that such information was not "essential" because MOFCOM did not rely on an underselling analysis. According to the United States, even if MOFCOM did not make a finding of significant underselling, it repeatedly referred to the purportedly "low prices" of the imports under investigation to justify its findings of price depression and price suppression. Information about the prices of domestically produced products, and whether these prices exceeded import prices, was an essential element in MOFCOM's finding that import prices were "low". However, MOFCOM did not disclose this information.532
The United States argues that MOFCOM did not disclose the following information central to its price effects analysis: 533
information about price levels for the domestically produced product;
the source of the information provided concerning pricing trends for the domestically produced product;
531 Where the text in brackets is included only in Article 12.8 of the SCM Agreement and not in Article 6.9 of the Anti-Dumping Agreement.
532 United States' second written submission, para. 162.
533 United States' first written submission, para. 191 and United States' second written submission, para. 164.
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any comparisons between prices of the domestically produced product and prices of the imports under investigation. The United States notes that this information would not normally be confidential534;
the purported "strategies" that the exporters of GOES from Russia and the United States devised to undercut domestic prices;
the levels or trends of the domestic industry costs. The United States argues that this information is no more confidential than the other trends concerning the domestic industry that MOFCOM disclosed;
general information about what aspects of domestic producers' costs were increasing. The United States argues that to the extent the domestic industry's costs increased in 2009, information about the type of costs that increased is critical to understanding the basis of MOFCOM's findings on price suppression and depression; or
should the Panel agree that MOFCOM found declining prices for domestically produced GOES during the fourth quarter of 2008, information about quarterly price trends should have been disclosed. 535
The United States argues that these facts were critical to MOFCOM's price effects analysis, which in turn was critical to its affirmative injury determination. The failure to disclose these "essential facts" seriously impaired the ability of interested parties to defend their interests.536 Further, China provides no explanation regarding why non-confidential summaries of the information on pricing and costs could not be disclosed.537
Arguments of China
China asserts that, contrary to the United States' claim, MOFCOM disclosed all of the "essential facts" under consideration, as required by Article 6.9 of the Anti-Dumping Agreement and Article 12.8 of the SCM Agreement. The disclosures can be found in the preliminary determination and the final injury disclosure report, which are the two documents containing all of the "essential facts" on which China relied in the final determination.538
According to China, the United States' claim overlooks the obligations on investigating authorities to protect confidential information, which can be found in Articles 6.5 and 12.2.2 of the Anti-Dumping Agreement and Articles 12.4 and 22.5 of the SCM Agreement. In the light of the fact that there were so few companies involved in the investigation, it was not possible to present aggregated information without breaching confidentiality obligations.539 According to China, the United States has not identified any specific piece of information that was both an "essential fact" and could be disclosed while maintaining confidentiality.540
534 United States' second written submission, para. 163. 535 United States' second written submission, para. 165. 536 United States' first written submission, paras. 195-196. 537 United States' second written submission, para. 166.
538 China's first written submission, para. 306 and China's opening statement at the first meeting of the Panel, para. 51.
539 China's first written submission, paras. 307-308.
540 China's opening statement at the first meeting of the Panel, para. 52.
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In relation to the five specific pieces of information that the United States complains were not disclosed, China responds as follows:541
Domestic prices - MOFCOM presented the trend in domestic prices, showing the percentage change from year to year. The actual level of prices was confidential information;
Source of information concerning domestic price trends - the source of information is not an "essential fact". Moreover, it was "quite clear" to any "reasonable reader" that the domestic industry pricing was drawn from the questionnaire responses submitted by the Chinese producers;
Price comparisons between domestically produced GOES and the subject imports - MOFCOM did not make a price undercutting finding and therefore the price comparisons were not "essential facts" forming the basis of its decision;
Evidence of description of the pricing strategies used by the exporters of GOES - MOFCOM disclosed the basic facts concerning the pricing strategies and was under no obligation to disclose evidence supporting its factual statements or further details that could compromise the confidentiality of the information; and
Levels and trends of costs - MOFCOM did disclose the trends in costs. The level of costs was confidential information and therefore could not be disclosed.
China concludes that the United States has not made a prima facie case in relation to its claims under Article 6.9 of the Anti-Dumping Agreement and Article 12.8 of the SCM Agreement.542
Arguments of third parties
European Union
If information about price levels for domestically produced products was never disclosed to the interested parties, the European Union agrees with the United States that this should result in a finding that China acted inconsistently with Articles 12.8 of the SCM Agreement and 6.9 of the Anti-
Dumping Agreement.543
Japan
With respect to MOFCOM's price effects analysis, Japan notes that MOFCOM seems to have made certain price comparisons. For example, in the final determination MOFCOM found that "the sale of the product concerned was kept at a low price".544 According to Japan, the results of such a price comparison were "essential facts" which should have been disclosed, subject to confidentiality issues.545
Evaluation by the Panel
According to the United States, five principal areas of MOFCOM's price effects analysis were not accompanied by adequate disclosure of the "essential facts under consideration" in accordance
541 China's first written submission, paras. 310-314.
542 China's first written submission, para. 317.
543 European Union's third party submission, paras. 28-29.
544 Japan's third party statement, para. 8.
545 Japan's third party submission, paras. 11-13.
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with Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement. In particular, the United States claims that MOFCOM did not disclose (i) the price levels for the domestically produced product; (ii) the source of the information on pricing trends for the domestically produced product;
(iii) price comparisons between the domestically produced and imported products; (iv) information regarding the purported low price "strategies" adopted by the United States and Russian exporters of GOES; or (iv) the levels or trends of the domestic industry's costs.
The Panel will commence its analysis with a consideration of whether MOFCOM adequately disclosed essential facts on the price comparison between domestically produced and imported products. China's primary response to the United States on this point is that MOFCOM did not make a price undercutting finding. Rather, MOFCOM simply noted the low price of subject imports, and the relative price levels of such imports in comparison to the GOES produced in China, as supporting evidence for its conclusions regarding price suppression and price depression. Consequently, China argues that there were no "essential facts" relating to price comparisons that needed to be disclosed.
Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement require investigating authorities to "inform all interested parties of the essential facts under consideration which form the basis for the decision whether to apply definitive measures". In order to apply definitive measures at the conclusion of countervailing and anti-dumping investigations, an investigating authority must find dumping or subsidization, injury and a causal link Therefore, the "essential facts" underlying the findings and conclusions relating to these elements form the basis of the decision to apply definitive measures and should be disclosed. China characterizes its injury analysis as based on its price suppression and price depression findings. Even accepting China's argument that it did not make a price undercutting finding, nevertheless, its conclusion regarding the "low price" of subject imports was repeatedly referenced throughout its determination.546 In the Panel's view, this conclusion formed an essential part of the reasoning MOFCOM used to support its price suppression and price depression findings. Therefore, MOFCOM was required to disclose not only the conclusion regarding the existence of a "low price", but also the "essential facts" supporting this conclusion, in order to allow interested parties to defend their interests.
In response to a Panel question regarding where in MOFCOM's determinations information regarding "low" or "lower" subject import prices can be found, China responds that the determinations included non-confidential summaries of the information underlying its findings of "low" subject import prices.547 In this regard, China relies upon the following disclosures in the preliminary determination and the final injury disclosure document:
The preliminary determination announces significant margins of dumping, demonstrating that United States exporters were charging lower prices in China than in their home market;
The preliminary determination and the final injury disclosure document state that a "pricing policy aiming at setting the price to a level lower than that of the domestic like product was adopted when selling the product concerned in China"548;
The preliminary determination states that "there was no evidence supporting the claim" that Russian prices were not causing price suppression. According to China, this is a reference to the evidence that the parties had submitted;
546 See, for example, Final Determination, Exhibit CHN-16, pp. 58, 59, 60, 61, 62, 63, 65.
547 China's response to Panel question 90.
548 Final Injury Disclosure Document, Exhibit CHN-29, p.15.
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The final injury disclosure document refers to "data obtained from investigation" to highlight that Russian producers had a pricing policy of "setting the price to a lower level than that of the domestic like product"549; and
The preliminary determination notes that the United States sales were below normal value and were supported by subsidies. It also notes the declining trend in subject import average unit values.
We acknowledge China's argument that the price comparison data at issue is confidential. As indicated in our reasons at paragraph 7.410 of this Report, where confidential information is an "essential fact under consideration", the disclosure obligations under Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement should be met through the use of non- confidential summaries.
In the Panel's view, the non-confidential disclosures relied upon by China do not provide a summary of the "essential facts" supporting the finding of "low" subject imports prices. In particular, disclosures regarding the existence of dumping and subsidization are not on point as they do not relate to the prices of subject imports, relative to GOES produced by the domestic Chinese industry, which is the matter at issue. In our view, the existence of dumping or subsidization cannot be used to infer the relative prices of subject imports and the domestically produced product.550 Similarly, information on the trends in subject import average unit values does not indicate that the values are "lower" than the values of domestically produced GOES. Further, a mere reference to the existence of evidence to support a certain finding does not disclose or summarize the "essential facts" underlying the finding.
In the Panel's view, the references in the preliminary determination and the final injury disclosure document to the low pricing strategies of the Russian and United States exporters are also insufficient as a summary of the "essential facts" supporting the conclusion of "low" import prices. In order to allow the respondents to defend their interests, a summary of the "essential facts" supporting the finding of a "low price strategy" was required, rather than merely stating the conclusion that such a strategy existed. In response to a Panel question, China was able to provide additional non- confidential information regarding the price setting behaviour it was relying upon to conclude that a "low price strategy existed". For example, China stated that "the Chinese supplier quoted a price, the customer responded by noting the specific amount by which the Chinese offer was higher than the alternatives available from Russian or U.S. suppliers, and the Chinese supplier was then forced to lower its price".551 This is more specific than the information included in the preliminary determination and the final injury disclosure document.552 More importantly, in response to a Panel question, China provided non-confidential information regarding the dates of the transactions in which the "pricing strategies" were allegedly employed. Once provided with this information
549 Final Injury Disclosure Document, Exhibit CHN-29, p.13.
550 See also the United States' arguments on this point in United States' comments on China's response to Panel question 90, footnote 100.
551 China's 25 November 2011 response to question (b) of the Panel questions dated 18 November 2011.
552 The preliminary determination and the final injury disclosure included the following statements
regarding the "pricing strategies" of the United States and Russian producers of GOES: "the pricing policy aiming at setting the price down to a level lower than the price of the domestic like product adopted by producers of product concerned"; "the price of imported GOES was set according to the variation of price of like products"; "the materials provided by the petitioner…demonstrated a pricing policy adopted by the producers of the product concerned who watched closely the price of the products of major producers in China and sold the imported products in a lower price"; and "relevant evidence shows that a pricing policy aiming at setting the price to a level lower than that of the domestic like product was adopted when selling the product concerned to the Chinese market".
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regarding the timing of the transactions, the United States was able to challenge before the Panel the relevance of the transactions relied upon by China to support its price depression finding.553 This information clearly formed a part of the "essential facts" underlying the finding of "low" import prices and ultimately the price depression finding.
It is clear MOFCOM considered a number of facts leading to the conclusion of "lower" subject import prices. For instance, in its second written submission, China disclosed that over the period 2006-2008, the average unit values of subject imports was 8%-12% below the average unit value of domestic shipments. In response to a request from the Panel, China provided, in the form of a non-confidential range, the percentage difference between the average unit values of subject imports and the average unit value of the domestic product for 2006, 2007 and 2008. In the Panel's view, these facts were "essential" to MOFCOM's conclusion that subject import prices were "low". China's disclosures during the Panel proceedings demonstrated that the facts could be summarized in non- confidential format. In the Panel's view, such summaries should have been included in the preliminary determination or the final injury disclosure document to allow interested parties to defend their interests.
The Panel concludes that the failure to disclose the "essential facts" underlying MOFCOM's finding of "low" subject import prices was inconsistent with Articles 12.8 of the SCM Agreement and
6.9 of the Anti-Dumping Agreement. Given this conclusion, the Panel does not consider it necessary to proceed to consider whether MOFCOM's disclosures on other matters, such as costs, were also inconsistent with Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement.
Provisions at issue
Articles 22.5 of the SCM Agreement and 12.2.2 of the Anti-Dumping Agreement provide, relevantly:
A public notice of conclusion or suspension of an investigation in the case of an affirmative determination providing for the imposition of a definitive duty…shall contain, or otherwise make available through a separate report, all relevant information on the matters of fact and law and reasons which have led to the imposition of final measures…due regard being paid to the requirement for the protection of confidential information. In particular, the notice shall contain…the reasons for the acceptance or rejection of relevant arguments or claims made by…the exporters and importers.
Factual Background
Following the issuance of the preliminary determination and the final disclosure documents, on 10 April 2010, MOFCOM issued its final determination for the anti-dumping and countervailing duty investigations.
553 China's 25 November 2011 response to question (b) of the Panel questions dated 18 November 2011 and United States' 14 December 2011 comments on China's 25 November 2011 response to question (b). Also, see paras. 7.533-7.534 of this Report for the Panel's analysis of the relevance of the contracts, in the light of their timing, to the price effects analysis.
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Arguments of the United States
The United States claims that China acted inconsistently with Article 22.5 of the SCM Agreement and Article 12.2.2 of the Anti-Dumping Agreement because its final determination did not contain sufficient information regarding its price effects analysis.
In the United States' view, it is indisputable that MOFCOM's analysis of price effects was a consideration leading to the imposition of definitive measures. Consequently, Article 12.2.2 of the Anti-Dumping Agreement and Article 22.5 of the SCM Agreement require that MOFCOM provide "all relevant information" on the facts underlying the price effects analysis.554 However, the United States argues that the price effects analysis is based upon the mere assertion that importers of GOES had "policies" or "strategies" of charging low prices.555 The United States contends that the final determination does not contain any facts supporting this. Further, the final determination does not provide any information concerning price levels for the domestically-produced product and so does not contain any facts supporting a finding that prices of the merchandise under investigation were at any time lower than the prices of the domestically produced product.556
In response to China's argument that MOFCOM relied upon confidential information when making its findings on adverse price effects, the United States contends that China has not identified what, if any, document may contain the confidential findings MOFCOM failed to articulate in the final determination. According to the United States, the parties to an investigation, the exporting Member and much less members of a dispute settlement panel are not supposed to be placed in a position of guessing the basis for an authority's findings.557
The United States also argues that China acted inconsistently with Article 12.2.2 of the Anti- Dumping Agreement and Article 22.5 of the SCM Agreement because MOFCOM did not provide adequate reasons for the rejection of the arguments of the parties opposing the imposition of measures. For example, Russian and United States exporters argued that Chinese producers were actually the price leaders in the Chinese GOES market. MOFCOM dismissed this in a single sentence, which was utterly devoid of evidentiary basis: "[t]he relevant evidence shows that the low price policy was adopted when selling the subject merchandise in the Chinese market and forced Petitioners to drop the price of like products and caused the differential between price and cost to continue decreasing".558
Arguments of China
China asserts that MOFCOM provided the "relevant information" and the "reasons" required under Article 22.5 of the SCM Agreement and Article 12.2.2 of the Anti-Dumping Agreement in relation to its price effects findings. The obligations under the provisions at issue must be considered in the light of an investigating authority's discretion to decide what is material to its determination and also the authority's obligations, as expressed in both provisions, to protect confidential information.559
In response to the United States' argument that MOFCOM did not provide sufficient detail regarding the "pricing strategy" employed by the exporters of GOES, China argues that MOFCOM provided as much information as it could, in the light of the need to protect confidential information. Further, MOFCOM was not obliged to disclose every detail about the pricing strategy. Rather, only
554 United States' first written submission, paras. 200-201.
555 United States' first written submission, para. 198. 556 United States' first written submission, para. 201. 557 United States' second written submission, para. 168.
558 United States' first written submission, paras. 202-203.
559 China's first written submission, paras. 319-321 and 327.
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the information an investigating authority considers "material" need be provided.560 Finally, China argues that the United States is mistaken in thinking that the "pricing strategy" was the centrepiece of MOFCOM's findings. The pricing strategy information was merely used as corroborating evidence to support its price suppression and depression findings.561 China also rejects the United States' contention that MOFCOM did not provide sufficient reasons for rejecting the arguments of the exporters.562
Arguments of third parties
European Union
The European Union argues that if the United States' allegations regarding MOFCOM's failure to provide a meaningful description of numerous facts critical to its price effects analysis are correct, then China has acted inconsistently with Article 22.5 of the SCM Agreement and Article 12.2.2 of the Anti-Dumping Agreement.563
Japan
Japan submits that because the analysis of price effects was relevant to the injury determination, the authorities were required to provide a sufficiently detailed explanation of it.564
Saudi Arabia
According to Saudi Arabia, the public notices referred to in Article 12.2.2 of the Anti- Dumping Agreement and Article 22.3 of the SCM Agreement must contain sufficient detail to allow interested parties to discern either the significance or lack thereof of the factors the investigating authority was obligated to address in its analysis.565
Evaluation by the Panel
The United States argues that China acted inconsistently with Articles 22.5 of the SCM Agreement and 12.2.2 of the Anti-Dumping Agreement on the basis that MOFCOM's final determination did not include facts supporting a finding that the United States and Russia had a strategy of charging low prices and supporting a finding that the prices of GOES from the United States and Russia were at any time lower than prices for the domestically produced product. The United States also complains that MOFCOM did not provide reasons for the acceptance or rejection of the relevant arguments of the exporters and importers.
The Panel will commence its analysis with a consideration of whether MOFCOM provided adequate public notice and explanation regarding its finding that the prices of GOES from the United States and Russia were "lower" than prices for the domestically produced product.
Articles 22.5 of the SCM Agreement and 12.2.2 of the Anti-Dumping Agreement require that the public notice or separate report released at the conclusion of an investigation contain "all relevant information on matters of fact and law and reasons which have led to the imposition of final measures…due regard being paid to the protection of confidential information". As indicated at paragraph 7.335 of this Report, when confidential information also forms part of the "relevant
560 China's first written submission, para. 322.
561 China's first written submission, para. 323.
562 China's first written submission, paras. 324-326. 563 European Union's third party submission, para. 34. 564 Japan's third party submission, para. 37.
565 Saudi Arabia's third party submission, para. 44.
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information on matters of fact and law", within the meaning of Articles 22.5 and 12.2.2, an investigating authority can meet its dual obligations to disclose the relevant information while also protecting its confidentiality, by providing only a non-confidential summary of the confidential information in the public notice or separate report.
It is clear that the price effects analysis, in particular the findings of price suppression and price depression, were essential elements in MOFCOM's reasoning leading to the imposition of final measures. Even accepting China's argument that MOFCOM did not make a price undercutting finding, but rather relied upon the existence of "low" subject import prices to support its price suppression and price depression findings, the final determination repeatedly refers to the "low" price of subject imports.566 In the Panel's view, this indicates that the conclusion regarding the "low" price of subject imports was an important aspect of MOFCOM's reasoning leading to the imposition of final measures.
We recall the Appellate Body's observation in US - Countervailing Duty Investigation on DRAMS that "Article 22.5 does not require the agency to cite or discuss every piece of supporting record evidence for each fact in the final determination".567 We agree with the Appellate Body in this regard. However, given the importance that the conclusion regarding the "lower" price of subject imports played in MOFCOM's reasoning, the Panel is of the view that further information on the matters of fact leading to this conclusion was required under Articles 22.5 of the SCM Agreement and
12.2.2 of the Anti-Dumping Agreement. It is clear that MOFCOM had before it information on the prices of subject imports and the prices of the domestic product and undertook a comparative analysis of this information. For example, in its second written submission, China provided a non-confidential summary of the factual information which MOFCOM had before it and relied upon to support its conclusion regarding the "low price" of subject imports. In particular, China revealed that over the period 2006-2008, the average unit values of subject imports was 8%-12% below the average unit value of domestic shipments.568 However, the final determination did not include any indication that a comparative analysis of prices had been performed or provide the factual information arising from the comparison.
Consequently, the Panel concludes that China acted inconsistently with Articles 22.5 of the SCM Agreement and 12.2.2 of the Anti-Dumping Agreement by failing adequately to disclose "all relevant information on matters of fact" underlying MOFCOM's conclusion regarding the existence of "low" import prices. Given this conclusion, the Panel does not consider it necessary to proceed to consider the remainder of the United States' arguments regarding whether China met its obligations under Articles 22.5 and 12.2.2.
CAUSATION ANALYSIS
Introduction
The United States argues that MOFCOM's causation analysis is inconsistent with Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement. The United States also claims that MOFCOM's analysis is inconsistent with Article 3.1 of the Anti-Dumping Agreement and
566 See, for example, Final Determination, Exhibit CHN-16, pp. 58, 59, 60, 61, 62, 63, 65. 567 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 164. 568 China's second written submission, footnote 95.
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Article 15.1 of the SCM Agreement because it does not comply with the "objective examination" and "positive evidence" requirements embodied in those provisions.
China asks the Panel to reject the United States' claim.
Provisions at issue
Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement are set out above.
Article 3.5 of the Anti-Dumping Agreement provides:
It must be demonstrated that the dumped imports are, through the effects of dumping…causing injury within the meaning of this Agreement. The demonstration of a causal relationship between the dumped imports and the injury to the domestic industry shall be based on an examination of all relevant evidence before the authorities. The authorities shall also examine any known factors other than the dumped imports which at the same time are injuring the domestic industry, and the injuries caused by these other factors must not be attributed to the dumped imports. Factors which may be relevant in this respect include, inter alia, the volume and prices of imports not sold at dumping prices, contraction in demand or changes in the patterns of consumption…the export performance and productivity of the domestic industry.
Article 15.5 of the SCM Agreement is virtually identical, with references to "subsidized imports" and "subsidies", rather than "dumped imports" and "dumping".
Factual Background
MOFCOM conducted a single causation analysis pertinent to both the anti-dumping and countervailing duty investigations. Ultimately, MOFCOM found that there was a causal link between the dumped imports of GOES from Russia, the dumped and subsidized imports of GOES from the United States and the material injury suffered by the domestic industry. In establishing causation, MOFCOM rejected arguments that alleged overexpansion and overproduction by the domestic industry was an alternative cause of injury.
Arguments of the United States
The United States challenges two particular aspects of MOFCOM's causation analysis, namely MOFCOM's use of price effects findings, and MOFCOM's examination of the domestic industry's increase in capacity and production as a potential alternative cause of injury.
Use of price effects findings
The United States relies upon its claim that MOFCOM's price effects analysis was inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement and Articles 15.1 and 15.2 of the SCM Agreement, to argue that China has not established that the imports under investigation had any significant price effects. The United States contends that because price effects findings were an essential element of MOFCOM's causal link analysis, the flaws in MOFCOM's price effects analysis render MOFCOM's causation determination inconsistent with Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement.
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Other causes of injury: domestic capacity, production, demand and inventories
According to the United States, MOFCOM erroneously concluded that the rapid increase in capacity of the domestic GOES industry during the period of investigation, and the consequent overproduction and inventory build-up, could not have been a cause of injury to the domestic industry. The United States argues that there is no positive evidence to support the conclusion that the imports under investigation were the sole cause of the massive rise in inventory levels between 2008 and the first quarter of 2009. According to the United States, the domestic industry was at least in substantial share responsible for the increase because of its decision to expand capacity and production far in excess of growth in domestic demand.569 The United States concludes that because there was a known factor other than dumped or subsidized imports causing injury, MOFCOM needed to examine this factor as part of a non-attribution analysis. However, MOFCOM failed to do so. As a result, the United States contends that China acted inconsistently with Articles 3.1 and 3.5 of the Anti- Dumping Agreement and 15.1 and 15.5 of the SCM Agreement.
The United States notes that MOFCOM provided three reasons for its determination that overexpansion and overproduction was not a cause of injury to the domestic industry. First, MOFCOM found that the domestic industry's capacity expansion was a response to an increase in domestic demand. The United States argues that there is nothing in the record disclosed by MOFCOM to support this view. According to the United States, the data on the record indicates that the capacity expansion far exceeded any historical or projected increases in domestic demand.570 Furthermore, even if the domestic industry did not expand capacity in excess of demand, the United States asserts that the domestic industry was in any event not entitled to assume that it could expand capacity in such a way that it must displace all imports (whether fairly or unfairly traded) in order to be able to use that increased capacity to meet demand. The United States notes MOFCOM's additional finding that the domestic producers "restrained their new production,"571 and did not increase their production to the same extent that they increased their capacity, with the result that capacity utilization decreased. The United States contends, though, that far from having been restrained, Chinese producers used their increased capacity to increase production far beyond what the market demanded, resulting in sharply increasing inventories, particularly in the first quarter of 2009. The United States notes in particular that between the first quarters of 2008 and 2009, the domestic industry's output increased by 55.23%, although demand only increased by 12.46%.572
The United States notes that the second reason relied on by MOFCOM was a purported absence of correlation between the domestic industry capacity increases and the inventory build-up. The United States argues that this conclusion, relating to a period when capacity and production increased far more rapidly than demand, is both counterintuitive and incorrect. According to the United States, an objective examination of the data corroborates the common sense proposition that the greater the disparity between increases in production capacity and increases in demand, the more likely it is that inventories will rise.573
Third, the United States notes MOFCOM's finding that "the volume of [subject imports] did not increase at a constant speed." According to the United States, MOFCOM seems to reason that the increase in imports of GOES was so rapid that the entire inventory overhang in the first quarter of 2009 can be attributed to the imports under investigation.574 The United States argues that there is no discernible basis in the record for this finding. Rather, the evidence indicates that the domestic
569 United States' first written submission, para. 253. 570 United States' first written submission, para. 247. 571 China's first written submission, para. 366.
572 Final Injury Disclosure document, Exhibit CHN-29, secs. VI(1), (2).
573 United States' first written submission, paras. 249-250.
574 United States' first written submission, para. 251.
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industry and imports were growing at approximately the same rate during the period of investigation, in response to growing domestic demand. It was not a case of the imports encroaching upon the market share of the domestic industry.575
The United States notes that, in addition to the three above-mentioned factors, MOFCOM also stated that the United States "did not submit any evidence to substantiate" its comments regarding the effect of overexpansion and overproduction on the domestic industry. The United States denies that the parties opposing imposition of duties had the obligation of submitting evidence to prove that the domestic industry's excessive production and consequent inventory overhang contributed to its injury.576 According to the United States, the only obligation that the Agreements place on the parties is that of identifying "known" factors of injury other than the imports under investigation that the authorities should examine. The United States asserts in this regard that China has acknowledged577 that United States exporter ATI brought to MOFCOM's attention that overproduction was contributing to any difficulties that the domestic industry may have experienced since 2008.578 The United States submits that, because Articles 3.5 and 15.5 state that "[t]he authorities shall also examine any known factor other than the [unfairly traded] imports which at the same time are injuring the domestic industry" (emphasis added), the Agreements placed on MOFCOM the responsibility to conduct the requisite examination.
Arguments of China
China denies the United States' claim. Further, China argues that the United States' claim must be analysed according to the standard of review set by the Appellate Body for injury determinations, namely the Panel should consider whether "the evidence and explanation relied upon by the investigating authority reasonably supports its conclusions". China contends that merely demonstrating that another conclusion might have been reached does not demonstrate inconsistency with the Anti-Dumping and SCM Agreements.579
Use of price effects findings
In relation to the United States' argument that if its price effects arguments are successful, then China's causation analysis necessarily disintegrates, China argues that its causal link analysis includes a finding of both price and volume effects. China argues that even without its price effects findings, the adverse volume effects support the finding of a causal link.580 China notes that the United States has not challenged MOFCOM's analysis of volume effects.
Other causes of injury: domestic capacity, production, demand and inventories
China disputes the United States' argument that MOFCOM erroneously concluded that the rapid increase in the capacity of the Chinese GOES industry was not a cause of injury. In particular, China notes that MOFCOM fully addressed this factor after it was raised by one of the respondents, ATI. China argues that, because MOFCOM received no new evidence from ATI, MOFCOM's
575 United States' first written submission, para. 252.
576 China's first written submission, para. 357; see also China's opening statement at the first meeting of the Panel, para. 57.
577 China's response to Panel question 36, para. 134.
578 ATI's Comments on the Preliminary Determination of the Antidumping Investigation on GOES
from the U.S. and Russia and the Anti-subsidy Investigation on GOES from the U.S. (Industry Injury and Causal Link) (Public version) (30 December 2009) ("ATI's Comments on the Preliminary Determination"), Exhibit CHN-31, p. 9.
579 China's first written submission, paras. 336-337.
580 China's first written submission, paras. 339-341.
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analysis must be viewed in the light of the lack of evidence to support it.581 Furthermore, China contends that all reasons advanced by MOFCOM for dismissing the argument that the increase in domestic capacity severed the causal link were fully supported by the record.
China contends that the United States relies on misleading percentages to demonstrate that the increase in capacity exceeded the increase in demand. China asserts that percentage comparisons are misleading because of the different bases from which the relevant percentages are calculated. China argues that the evidence before MOFCOM confirms that domestic capacity did not increase more than demand.
China also argues that, because of the restraint exercised by domestic producers, the increased capacity was not actually fully utilized.582 Although China concedes that the details were not included in the specific response to the alternative cause, China asserts that MOFCOM had earlier in its final determination explained that from 2007 to 2008, domestic capacity increased by 53.67% but that domestic production increased by only 23.91%.583 China submits that this significant gap confirms the restraint by the domestic producers who did not produce more than the market could bear and instead allowed capacity utilization rates to fall.
According to China, MOFCOM's finding that there was no correlation between the production capacity change and the inventory change is supported by the data, which indicates that the inventory increase corresponds with the increase in volume of imports rather than the increase in production capacity.584 MOFCOM found that the levels of inventory did not correspond with the deteriorating condition of the domestic industry, but that changing levels of imports did. According to China, this analysis thus confirmed what MOFCOM had already found – that increased domestic capacity was not the problem, but rather subject imports were the problem. China contends that MOFCOM's comparison of the relative trends to see whether there was any correlation in the trends that would suggest some adverse effects being improperly attributed "ensured that it did not 'attribute' any effects of the change in domestic industry capacity to subject imports".585
In addition, China submits that the United States has improperly re-characterized the nature of the alternative cause at issue here. China asserts that, during the proceedings, the arguments focused on excess production capacity, and did not discuss excess production. China contends that now the United States has shifted its argument to "overproduction,"586 and "production growing far more rapidly than demand,"587 even though these arguments about excess production had never been presented to MOFCOM during the investigation. China contends that MOFCOM addressed the alternative cause that respondents had raised – excess capacity – and it is improper for the United States now to propose an alternative cause that had never been raised before the authorities.
Overall, China submits that the United States has at most proposed an alternative explanation for one aspect of domestic industry performance. China asserts that prior panels have found as inadequate non-attribution arguments that do no more than posit an alternative explanation or a partial explanation for the condition of the domestic industry. China relies in this regard on the reports of the panels in EC – Fasteners and US – Countervailing Duty Investigation on DRAMS.588
581 China's first written submission, paras. 357-358.
582 China's first written submission, para. 363.
583 Final Determination, Exhibit CHN-16, page 60.. 584 China's first written submission, paras. 364-365. 585 China's second written submission, para. 113.
586 United States' opening statement at the first meeting of the Panel, para 86.
587 United States' opening statement at the first meeting of the Panel, para 87.
588 China refers specifically to Panel Reports, EC – Fasteners (China), para 7.429, and US – Countervailing Duty Investigation on DRAMS, paras. 7.361-362.
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Arguments of third parties
Argentina
Argentina submits that an investigating authority is required to carry out a non-attribution analysis as a part of its causation investigation. This may include examining whether, in the light of their volume or prices, the effects of non-subject imports are such to break the causal link between the subject imports and the injury. This may require an examination of the forms of competition in the relevant markets.589
European Union
The European Union argues that, in the light of its flawed price effects analysis, MOFCOM could not have conducted a correct causal link analysis. Unless imports have proven significant price effects, the investigating authorities cannot find such imports to be causing injury within the meaning of Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement. Further, any causation analysis must take into account the "volume and prices" of imports.590
Saudi Arabia
Saudi Arabia argues that investigating authorities must separate and distinguish the injurious effects of dumped imports from the injurious effects of other factors. It is only through doing this that the degree of injury caused by the dumped or subsidized imports can be assessed. This process requires a satisfactory or meaningful explanation of the nature and extent of the injurious effects caused by other factors.591
Evaluation by the Panel
The United States' claim raises issues regarding MOFCOM's use of price effects findings, and MOFCOM's examination of the domestic industry's increase in capacity and production as an alternative cause of injury. Before addressing the substance of these issues, we first make a number of observations regarding the applicable legal framework for the Panel's evaluation of the United States' claim.
Legal framework
In terms of the applicable legal standard, we note that the Appellate Body has provided some guidance regarding the interpretation of Article 3.5 of the Anti-Dumping Agreement which we consider equally applicable to Article 15.5 of the SCM Agreement. Thus, in US - Hot Rolled Steel the Appellate Body noted that investigating authorities are required, as a part of their causation analysis, to examine all "known factors" other than dumped imports which are causing injury to the domestic industry. Where such other known factors are causing injury, the investigating authority must ensure that the injurious effects of these factors are not "attributed" to the dumped imports. The non- attribution analysis requires "separating and distinguishing the injurious effects of the other factors from the injurious effects of the dumped imports", rather than making "mere assumptions" about the effects of the imports and the other factors.592
589 Argentina's third party submission, paras. 14-15.
590 European Union's third party submission, paras. 47-48.
591 Saudi Arabia's third party submission, paras. 38-39.
592 See, for example, Appellate Body Report, US – Hot-Rolled Steel, para. 226.
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We recall that it is well established that the role of the Panel is not to conduct a de novo review nor simply defer to the conclusions of the investigating authority. Rather, we must determine whether the explanation for the conclusions reached by the investigating authority is reasoned and adequate in the light of other plausible alternative explanations. Furthermore, we must determine whether the quality of the evidence relied on by MOFCOM met the "positive evidence" standard set forth in Article 3.1 of the Anti-Dumping Agreement and Article 15.1 of the SCM Agreement. We must also determine whether MOFCOM undertook an objective examination of the evidence. More details of our standard of review are set forth at paragraph 7.513 above.
Use of price effects findings
Our evaluation of MOFCOM's findings on price depression and price suppression has revealed a number of shortcomings in MOFCOM's analysis of the price effects of subject imports. Since MOFCOM relied on the price effects of subject imports in support of its finding that subject imports caused material injury to the domestic industry,593 the abovementioned shortcomings also undermine MOFCOM's conclusion on the causal link between subject imports and the material injury suffered by the domestic industry.
We note China's argument that MOFCOM did not rely exclusively on the price effects of subject imports in the present case, such that MOFCOM's finding of causation might rest on MOFCOM's analysis of the adverse volume effects of the subject imports. We recall our earlier findings in this regard.594 In particular, while MOFCOM did indeed rely on both the volume and price effects of subject imports, we recall that there is nothing in the final determination to suggest that volume effects were the primary basis for MOFCOM's findings, or that MOFCOM relied more heavily on volume effects than price effects. Rather, MOFCOM's finding that subject imports were priced lower than domestic products was central to MOFCOM's finding that price depression and price suppression was an effect of subject imports, and MOFCOM's overall conclusion that subject imports caused material injury to the domestic industry. In these circumstances, it is not appropriate for us to consider the possibility that MOFCOM's finding of causation might be upheld purely on the basis of MOFCOM's analysis of the volume effects of subject imports.
We now turn to the United States' argument regarding MOFCOM's evaluation of the domestic industry's increase in capacity and production.
Other causes of injury: domestic capacity, production, demand and inventories
For present purposes, we note that Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement require an investigating authority to "examine any known factors other than" subject imports "which at the same time are injuring the domestic industry". These provisions also state that "the injuries caused by these other factors must not be attributed to" the subject imports. Before considering the applicability of these provisions, we must first clarify the precise nature of the "other factor" at issue. We must also clarify the precise nature of the finding made by MOFCOM in respect of that "other factor".
593 Final Determination, Exhibit CHN-16, p. 65 ("The evidence available shows that during the investigation period, since the product concerned imported from the U.S. and Russia had been sold in the domestic market of China at a price below normal value and at the same time, the product concerned imported from the U.S. received subsidy from the USG, the import of the product concerned in large quantity and at a low price caused material injury to the domestic industry of China").
594 See paras. 7.537-7.542 of this Report.
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The nature of the "other factor"
China argues that the United States improperly re-characterized the "other factor" at issue, shifting its argument to "overproduction,"595 and "production growing far more rapidly than demand."596 According to China, during the proceedings, the arguments focused on excess production capacity, and did not discuss excess production. China contends that it is improper for the United States now to propose an alternative cause that had never been raised before the authorities.
We are not persuaded by China's argument. In comments made during the course of MOFCOM's investigation, the United States stated:
In 2008, the Chinese industry increased both its capacity and production far in excess of any increase in demand. There is certainly a colorable argument that the enormous increase in Chinese producers' inventories due to the domestic industry's incorrect assessment of demand…forced the Chinese industry to engage in massive price cuts during the first quarter of 2009, resulting in operating performance declines during that period.597
The United States' comment clearly refers to the domestic industry's increase in production, in addition to the increase in capacity. Furthermore, ATI's comment included the statement that "[t]he huge gap between the production capacity and demand would necessarily change the supply-demand relation which further affected the domestic market price."598 When addressing an unrelated matter in its first written submission, China sought to make "a very important point: capacity does not affect the supply-demand balance in the market until that capacity has been turned into production."599 We agree with China's observation. For this reason, we consider that ATI's remark about the gap between capacity and demand affecting supply and demand was necessarily premised on the notion that such capacity had been turned into production. Furthermore, we note that MOFCOM itself referred to "production output" when responding to the interested parties' comments.600 In these circumstances, China's argument that the issue of the domestic industry's increase in production was not raised before MOFCOM is not tenable.
The nature of MOFCOM's finding
We now turn to the nature of the finding made by MOFCOM, in order to resolve the disagreement between the parties regarding the prima facie case that needs to be established by the United States. The United States alleges that the only finding made by MOFCOM was that the domestic industry's increase in capacity and production did not cause injury to the domestic industry. The United States contends that it need only establish a prima facie case that MOFCOM's finding that the domestic industry's increase in capacity and production did not cause injury is flawed. The United States asserts that MOFCOM did not conduct any non-attribution analysis in respect of this factor. According to China, though, MOFCOM addressed both issues. First, MOFCOM found that excess capacity and excess production was not a cause of injury. Second, MOFCOM discussed (1) the correlation between inventory levels and subject imports, and (2) the lack of correlation between inventory levels and changes in production capacity. According to China, this second discussion both confirmed MOFCOM's finding that capacity changes were not a cause of injury, and served as a non-
595 United States' opening statement at the first meeting of the Panel, para 86.
596 United States' opening statement at the first meeting of the Panel, para 87.
597 Anti-Subsidy Investigation on Imported Grain Oriented Flat-Rolled Electrical Steel Originating in the United States: United States' Comments on the Preliminary Determination, (30 Dec. 2009), Exhibit US-4,
p. 9.
598 ATI's Comments on the Preliminary Determination, Exhibit CHN-31, p. 9.
599 China's first written submission, para. 363.
600 Final Determination, Exhibit CHN-16, p. 72.
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attribution analysis.601 According to China, therefore, the United States must establish a prima facie case both that MOFCOM's finding that the domestic industry's increase in capacity and production did not cause injury is flawed, and that MOFCOM's non-attribution analysis is flawed.
It is well established that a proper non-attribution analysis requires the injury caused by "other factors" to be separated and distinguished from the injury caused by increased imports.602 In other words, injury caused by other factors must be clearly identified, to ensure that it is not attributed to subject imports. In the present case, MOFCOM found that there was no injury caused by the domestic industry's increase in capacity and production. Having made this finding, we do not see how MOFCOM could then have identified the injury caused by that factor, and ensured that such injury - of which there was allegedly none - was not attributed to subject imports. Accordingly, we reject China's argument that MOFCOM undertook a non-attribution analysis in respect of the domestic industry's increase in capacity and production. In our view, the only finding made by MOFCOM was that this factor was not a cause of injury to the domestic industry. This, then, is the finding in respect of which the United States must establish a prima facie case. In particular, the United States has the burden of establishing a prima facie case that MOFCOM's finding that the domestic industry's increase in capacity and production did not cause injury is flawed. We shall now determine whether or not the United States has discharged that burden in the light of the parties' arguments.
The principal arguments set forth in the United States' first written submission concerned the relationship between, and changes in, capacity, production, inventories, demand, and the volume of subject imports.603 MOFCOM's final determination contains only relatively limited information regarding these factors. After determining that additional information was necessary in order for the Panel to undertake a more complete evaluation of the issues raised by the United States, the Panel asked China to provide the confidential data supporting MOFCOM's finding, including data on demand, domestic capacity, capacity utilization, domestic production and inventories.604 China failed, however, to provide the bulk of the requisite confidential data. Indeed, for the most part China failed to provide any actual data at all, preferring to submit indexed summaries and numerical ranges. Although the Panel was not provided with access to all of the relevant data, the Panel nevertheless evaluates the United States' claim with the more limited information at hand.
The United States has asserted, on the basis of the various estimates that it has prepared, that the inventory overhang exceeded the increase in the volume of subject imports.605 We note that an
601 China's response to Panel question 107(ii), para. 185.
602 See, for example, Appellate Body Report, US – Hot-Rolled Steel, para. 226
603 United States' first written submission, paras 246 - 255.
604 The Panel addressed a fax to China dated 18 November 2011. In that fax, the Panel requested "certain confidential data from China". In particular, the Panel requested "[t]he data supporting MOFCOM's
finding that the domestic industry's increase in capacity and production did not cause any injury, including data on demand, domestic capacity, capacity utilization, domestic production and inventories". China contends that the Panel asked only for "data", and "did not specify any particular documents, numbers, or time periods" (China's reply to Panel question 105(c), para. 167). We reject this argument. In our view, the relevant fax clearly requested "confidential data", "including data on demand, domestic capacity, capacity utilization, domestic production and inventories". By failing to provide this data, China failed to respond fully to the Panel's request.
605 China has criticised some of those estimates on the basis that the United States made an error regarding the amount of domestic capacity as a per cent of demand (China's response to Panel question 105(c),
para. 174). In our view, the number used by the United States was based on a not unreasonable reading of an assertion made by China. (China asserted that "[d]omestic capacity as a per cent of total apparent consumption was ranged between [x] and [y] during the period of investigation". The United States understood that the figure "y" corresponded to the capacity as a proportion of demand in 2008. In our view, it is not unreasonable to interpret China's assertion to mean that the figure "y" indicated the relevant value in the latter part of the period of investigation.) Furthermore, although China alleged an error by the United States, China failed to state what
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important element in MOFCOM's reasoning was indeed that inventory overhangs were not explained by increases in domestic capacity and domestic production, but rather by the increase in the volume of subject imports from 2007 to 2008. This is clear from the various references made by MOFCOM to the increase in the volume of subject imports in the following extract from the final determination:
Due to the increase of import volume of the product concerned in 2008, the increase rate of the domestic like product's sales volume decreased greatly. The normal sales of the domestic industry of China were seriously suppressed and consequently the inventory increased largely. Thirdly, the import volume of the product concerned did not increase at a constant speed. As the Investigating Authority had analysed in detail in the determination, the imports of the product concerned increased greatly in 2008. The increase rate of the import volume of the product concerned in 2008 and Q1 of 2009 were higher than the increase rate of the domestic demand of China by 42.55 percentage points and 11.11 percentage points respectively and higher than the increase rate of sales volume of domestic like product by 55.60 percentage points and by 8.74 percentage points. 606
This understanding is consistent with China's own explanation of MOFCOM's finding.607 Thus, China explains that, although production kept pace as capacity expanded in 2007, "that situation changed when subject imports increased in 2008 and Q1 2009".608 China also explains that "[b]oth the large presence and growth of the unfairly traded imports … impeded domestic sales".609 Furthermore, China asserts that "[e]ven with capacity increasing in 2007, before the surge in subject imports the domestic industry was able to increase its production and shipments, and draw down its inventory".610 China asserts that this "situation changed dramatically in 2008", when "subject imports surged", allowing subject imports to gain more than 5.56 percentage points of market share "directly from the domestic industry".611 According to China, the domestic industry "could not ship any additional volume because the unfairly traded subject imports seized a large portion of the market".612
Thus, according to MOFCOM, the increase in inventories was caused by the increase in subject imports, rather than by the increase in the domestic industry's capacity and production. Information before the Panel,613 though, indicates that inventory overhangs would have occurred notwithstanding the increase in subject imports, thereby undermining MOFCOM's assessment of this issue. In this regard, we note that the upper end of the range of 2008 inventory data provided by China exceeds the increase in the volume of subject imports in 2008. Thus, the range of data provided by China indicates that inventories may have increased by more than subject imports. China's assertion that "the domestic production in 2008 that could not be shipped was due almost
the correct number should be. In these circumstances, we do not consider that China's mere assertion of error, without providing the actual underlying data, should necessarily cause us to reject the basic point being made by the United States.
606 Final Determination, Exhibit CHN-16, pp. 72-73.
607 China's 25 November 2011 response to the Panel questions dated 18 November 2011, pp. 3-7.
608 China's 25 November 2011 response to the Panel questions dated 18 November 2011, p. 4.
609 China's 25 November 2011 response to the Panel questions dated 18 November 2011, p. 5. While China refers to the both the "presence" and "growth" of subject imports, MOFCOM did not make any finding of
injury based on the "presence" of subject imports in 2007. (Indeed, according to China, "[t]he domestic industry had been doing fine in 2006 and 2007" (China's first written submission, para. 254). Rather, MOFCOM's determination, regarding the possible role of the domestic industry's increase in capacity and production, is focused on the "growth" in subject imports between 2007 and 2008).
610 China's 25 November 2011 response to the Panel questions dated 18 November 2011, p. 5.
611 China's 25 November 2011 response to the Panel questions dated 18 November 2011, pp. 5 and 6.
612 China's 25 November 2011 response to the Panel questions dated 18 November 2011, p. 6.
613 See Annex H: Annex Containing Business Confidential Information.
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entirely to the gain in subject imports" confirms that this was indeed the case.614 In particular, the fact that the increase in subject imports accounts for "almost" all of the inventory overhang indicates that part of that overhang was caused by something other than the increase in the volume of subject imports. In addition, China has provided a range of data for domestic production in 2008.615 We developed an equivalent range for 2007 production, on the basis of China's assertion that the domestic industry increased its production by 24% between 2007 and 2008.616 The absolute difference between both the lower and the upper numbers of the 2007 and 2008 ranges comfortably exceeds the absolute increase in the volume of subject imports over the same period. In other words, the increase in production by the domestic industry from 2007 to 2008 was greater than the increase in subject imports, and would have accounted for (at least some of) the inventory build-up that could not be attributed to the (lesser) increase in subject imports. In these circumstances, an objective and impartial investigating authority could not properly have found that the domestic industry's increase in production was not a cause of injury.
A similar picture emerges from the limited information available regarding the first quarter of 2009. The United States asserts that the domestic industry produced a significant number of tons of GOES more than it could ship during the first quarter of 2009. The United States contends that the "quantity of excess production is staggering".617 Our own calculations confirm that the increase in subject imports could only account for a minor portion of the increase in inventories in the first quarter of 2009. Thus, the amount of domestic production directed to inventory in the first quarter of 2009 was significantly greater than the increase in subject imports from the first quarter of 2008 to the first quarter of 2009. Indeed, the increase in inventory in the first quarter of 2009 was even greater than the total volume of subject imports in the first quarter of 2009. Thus, even if there had not been any subject imports in the first quarter of 2009, there would still have been a substantial increase in inventories in this period.
Accordingly, the limited information available to us supports the United States' argument that domestic capacity618 and domestic production increased by more than the increase in the volume of subject imports in 2008 and the first quarter of 2009. This is at odds with MOFCOM's determination that the increase in the domestic industry's capacity and production was not a cause of injury, and that the real cause of the injurious inventories was the increase in the volume of subject imports.
Before concluding, we note China's reliance on MOFCOM's finding that total domestic capacity did not exceed total domestic demand. We are unable to verify this finding, because of China's failure to provide the underlying data. However, even if this finding were accurate, it would not change the fact that subject imports did not account for the totality of the injurious inventory overhangs.
We also note China's argument that ATI had failed to support its assertions regarding this "other factor" with "public information". Given the difficulties we have experienced in obtaining all of the information necessary to evaluate the United States' claim, we are not persuaded that ATI could reasonably have been expected to provide "public information" regarding this matter. Furthermore, we do not consider that a respondent is required to provide evidence regarding "other factors". Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement provide that
614 China's response to Panel question 105(c), para. 176.
615 China's response to Panel question 105(c), para. 175.
616 China's 25 November 2011 response to the Panel questions dated 18 November 2011, p. 6.
617 United States' comments on China's response to Panel question 105, para. 119.
618 Since domestic producers were not utilizing 100% of their capacity in 2008 (China's 25 November 2011 response to the Panel questions dated 18 November 2011, p. 4. See also Final
Determination, Exhibit CHN-16, p. 64: "Capacity utilization had a substantial decline" from 2007 to 2008), domestic capacity necessarily exceeded domestic production in 2008.
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"[t]he authorities shall also examine any known factors other than the [subject] imports which at the same time are injuring the domestic industry". Accordingly, once the "other factor" becomes "known" to the investigating authority, it is for the investigating authority to investigate.
As explained above, the burden is on the United States to establish a prima facie case that MOFCOM's finding that the domestic industry's increase in capacity and production did not cause injury is flawed. Our evaluation of the United States' arguments in the light of the limited information available to us, and our analysis of that information, indicate that the domestic industry's increase in capacity and production were at least partly responsible for the accumulation of inventory in 2008 and the first quarter of 2009. Accordingly, we find that the United States has established a prima facie case that MOFCOM's determination that the domestic industry's increase in capacity and production was not a cause of injury is flawed. We further find that China has failed to rebut that prima facie case. As a result, we find that MOFCOM failed properly to examine whether a known factor other than subject imports was at the same time injuring the domestic industry, contrary to the obligation set forth in the third sentences of Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement.
Conclusion
For all of the above reasons, we conclude that MOFCOM's finding that subject imports caused material injury to the domestic industry is inconsistent with Articles 3.1 and 3.5 of the Anti- Dumping Agreement, and Articles 15.1 and 15.5 of the SCM Agreement.
Provisions at issue
Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement provide:
The authorities shall, before a final determination is made, inform all [interested Members and] interested parties of the essential facts under consideration which form the basis of the decision whether to apply definitive measures. Such disclosure should take place in sufficient time for the parties to defend their interests.619
Factual Background
Following the preliminary determination, and prior to issuing its final determination, MOFCOM issued a final injury disclosure document, with the stated purpose of disclosing the "basic facts upon which the final injury determination is made".
Arguments of the United States
The United States claims that MOFCOM's failure to disclose information concerning non- subject imports is inconsistent with Article 12.8 of the SCM Agreement and Article 6.9 of the Anti- Dumping Agreement. As MOFCOM purported to consider whether imports not subject to investigation were a cause of material injury to the domestic industry, facts pertaining to such imports were essential to its causal link analysis.620 However, MOFCOM disclosed no information regarding
619 Where the text in brackets is included only in Article 12.8 of the SCM Agreement and not in Article 6.9 of the Anti-Dumping Agreement.
620 United States' first written submission, para. 259.
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the volume and prices of imports from sources other than Russia and the United States. Consequently, the United States was unable to prepare a meaningful argument regarding the role of such imports in contributing to any material injury to the domestic GOES industry.621 According to the United States, China does not seriously dispute that MOFCOM failed to disclose any information about the volume or prices of imports from sources other than Russia and the United States and nor does China dispute that such information is essential to a causation analysis.622
In response to China's argument that MOFCOM was not required to disclose further information about non-subject imports because the interested parties did not continue to submit arguments on the issue, the United States contends that this turns the purpose of Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement on its head. The provisions do not exist to allow authorities to counter arguments parties have made. Rather, they require authorities to provide information so that parties may defend their interests.623
According to the United States, in its first written submission China for the first time discloses detailed information about the volume and value of non-subject imports. The United States contends that if MOFCOM had disclosed this information, which was information essential to any reasoned analysis of the issue, the United States may well have developed arguments to submit to MOFCOM. 624
Arguments of China
China argues that it did disclose the "essential facts under consideration" with respect to the role of non-subject imports in the causation analysis. In particular, China cites the preliminary determination as identifying non-subject imports as an "other" factor under consideration. The preliminary determination also notes that the imports under investigation were capturing a larger share of the market than non-subject imports.625 This provided notice that China was addressing non- subject imports and that subject imports were gaining a share of total imports. Further, China contends that by comparing the percentage loss in market share experienced by the domestic industry with the percentage gain by the imports under investigation, it was possible for interested parties to calculate the gain in market share by non-subject imports (namely, 0.09%).626 With respect to the pricing of non-subject imports, China argues that MOFCOM considered this, but only indirectly. MOFCOM observed that there was no evidence of the dumping of non-subject imports, but did not otherwise investigate or consider the prices of such imports.627
China also argues that having identified in the preliminary determination that non-subject imports were being considered by MOFCOM, the interested parties did not comment on this issue. Therefore, China did not need to develop this issue further. In addition, China argues that the interested parties could have derived information about non-subject imports from publicly available sources.628
621 United States' first written submission, para. 260. 622 United States' second written submission, para. 181. 623 United States' second written submission, para. 185.
624 United States' second written submission, paras. 186-187.
625 China's first written submission, para. 373.
626 China's first written submission, para. 374 and China's opening statement at the first meeting of the Panel, para. 58
627 China's response to Panel question 70, para. 63.
628 China's first written submission, para. 375 and China's opening statement at the first meeting of the Panel, para. 59.
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Arguments of third parties
European Union
The European Union argues that any proper causation analysis must take into account the "volume and prices" of non-subject imports. MOFCOM appears to have undertaken such an assessment, but did not disclose any of the relevant data to the parties. Therefore, MOFCOM failed to comply with Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement.629
Japan
With respect to the causation analysis, Japan gives a number of examples of "essential facts" which may underlie an investigating authority's conclusions, including the facts found relating to the effect of non-subject imports and the analysis of the raw data supporting these findings.630 In response to China's argument that MOFCOM disclosed the relevant facts in the preliminary determination, Japan notes that a preliminary determination does not always result in sufficient disclosure of the "essential facts" before the final determination. The "essential facts" may change between a preliminary determination and an "on-the-spot investigation". If so, an exporter should be informed of any changes in the "essential facts".631
Evaluation by the Panel
The issue in contention between the parties is whether MOFCOM disclosed the essential facts under consideration in relation to its causation analysis, in particular in relation to the effect of non- subject imports on the domestic industry.
China argues that the following disclosures made in the preliminary determination met the requirements of Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement:
The preliminary determination states, in the section analysing the other factors that may cause injury to the domestic industry, that "[d]uring the POI, the proportion of imports of the subject merchandise as a percentage of China's total imports increased, while the proportion of the volume of GOES imported from Other Countries and regions in total imports continued to drop. Meanwhile, there is no evidence that imports from other countries (regions) ever dumped or received subsidies. Therefore, there is no evidence suggesting that imported GOES from Other Countries and regions caused material injury to China's domestic industry"632; and
The preliminary determination also states, in the section analysing the economic factors and indices having a bearing on the state of the domestic industry, that "the market share of like product of China's domestic industry declined by 5.65%...at the same period, the share of product concerned in China market increased by 5.56%".633 China argues that this indicates that non-subject imports were responsible for 0.09% of market share loss.
629 European Union's third party submission, paras.48-49.
630 Japan's third party submission, para. 17.
631 Japan's third party statement, paras. 10-11.
632 Preliminary Determination, Exhibit US-5, p. 57.
633 Preliminary Determination, Exhibit CHN-17, p. 60.
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The United States claims that more detailed information regarding non-subject imports, in particular their volumes and prices, should have been disclosed in accordance with Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement.
At the outset, we recall China's argument that it did not need to provide further disclosure regarding non-subject imports following the preliminary determination because the interested parties made no further arguments on the issue. The Panel does not find this line of reasoning convincing. Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement are not a means by which authorities respond to arguments made by interested parties. Rather, the provisions allow interested parties to "defend their interests" through review and response to the essential facts under consideration disclosed by the investigating authorities. Indeed, the ability of an interested party to submit arguments on the facts under consideration is dependent upon adequate disclosure of those facts. Consequently, if the requirement for an investigating authority to disclose information under Articles 12.8 and 6.9 were not triggered until interested parties submitted arguments, the provisions may become meaningless. Further, in relation to the argument that the interested parties could have consulted publicly available information regarding the non-subject imports of GOES into the Chinese market, the Panel notes that the obligations under Articles 12.8 and 6.9 fall upon investigating authorities and do not make any distinction between confidential and publicly available facts. It is not for a respondent to guess at and research the information being considered by an investigating authority.
Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement require investigating authorities to "inform all interested parties of the essential facts under consideration which form the basis for the decision whether to apply definitive measures". In order to apply definitive measures at the conclusion of countervailing and anti-dumping investigations, an investigating authority must find dumping or subsidization, injury and a causal link. Therefore, the "essential facts" underlying the findings and conclusions relating to these elements form the basis of the decision to apply definitive measures and should be disclosed. Our interpretation in this regard accords with that of the panel in Mexico – Olive Oil.634
In considering the disclosure obligations under Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement, the question arises regarding whether the "essential facts" are the facts that were actually under consideration by the investigating authority, or the facts that should have been considered by a reasonable investigating authority, depending upon the substantive obligations at issue. In this respect, the Panel interprets Articles 12.8 and 6.9 as requiring an investigating authority to disclose those facts that are actually under consideration by it (i.e. the body of facts before it). We find support for this in the text of the provisions, which state that the disclosure requirement applies to the "essential facts under consideration", rather than the essential facts that should reasonably be considered in resolving a claim. If the standard were otherwise, claims under Articles 12.8 and 6.9 may be difficult to distinguish from substantive claims relating to the application of definitive measures. Finally, the purpose of the disclosure in Articles 12.8 and 6.9 is to allow parties to "defend their interests". In order for this to be meaningful, the actual facts under consideration are the relevant facts to be disclosed, so that omissions or the use of incorrect facts can be challenged.
In the circumstances of this case, the United States claims that MOFCOM should have disclosed the volume and prices of imports from sources other than Russia and the United States. In examining this claim, it is necessary for the Panel to consider whether the volume and prices of non- subject imports were "essential facts" under consideration by MOFCOM in reaching its final determination and, if so, whether the disclosures relied upon by China were sufficient for the purposes of Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement.
634 Panel Report, Mexico – Olive Oil, para. 7.110.
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It is clear that in reaching its conclusion relating to causation, MOFCOM considered whether non-subject imports were an "other" factor that may have caused injury to the domestic industry.635 In the preliminary determination, MOFCOM stated:
During the POI, the proportion of imports of the subject merchandise as a percentage of China's total imports increased, while the proportion of the volume of GOES imported from Other Countries and regions in total imports continued to drop. Meanwhile, there is no evidence that imports from other countries (regions) ever dumped or received subsidies. Therefore, there is no evidence suggesting that imported GOES from Other Countries and regions caused material injury to China's domestic industry.636
Whether the volume and value of non-subject imports were facts actually under consideration by MOFCOM, rather than MOFCOM merely reaching a conclusion about the effect of non-subject imports based on the very general information about market share disclosed in the preliminary determination, is less clear. While reaching a conclusion about the effects of non-subject imports based purely on general information on market share trends could potentially be inconsistent with the substantive obligations under the SCM and Anti-Dumping Agreements, whether an investigating authority acts inconsistently with disclosure obligations under Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement depends upon whether it failed to disclose essential facts that were actually before it.
In the circumstances of this case, the Panel concludes that in reaching its finding on the effect of non-subject imports, MOFCOM had before it and considered data on the volume of such imports, rather than merely the market shares. In response to a Panel question, China states that "MOFCOM considered both the volume and prices of non-subject imports, but considered the volume directly and considered the prices indirectly".637 In relation to volume, China argues that the market share trends for non-subject imports, disclosed in the preliminary determination, allowed MOFCOM to conclude that non-subject imports were not a source of injury to the Chinese GOES industry. In this regard, China states that "in the light of the analysis that MOFCOM conducted that showed non-subject imports were not gaining market share, MOFCOM properly considered and addressed this issue".638 This suggests that MOFCOM had more detailed data on volume before it, which it analysed and used to derive the information on market share. Indeed, information about the volume and value of non- subject imports, at least for 2008, was submitted to MOFCOM in an annex to the application.639 In the light of this, we conclude that data on the volume of non-subject imports was a part of the body of facts being considered by MOFCOM as a part of its causation analysis.
The Panel considers that the data on volume was an "essential fact under consideration" with respect to the causation analysis and finding. For the purposes of Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement, it is insufficient merely to state a general finding and conclusion regarding non-subject imports, namely that as a proportion of total imports into China, non-subject imports "continued to drop" and therefore were not a cause of injury to the domestic industry. Rather, the facts underlying these findings and conclusions should have been disclosed, in order to allow parties to "defend their interests" by challenging the basis for the findings and conclusions. In this case, disclosure of the data on the volume of imports was required.
635 MOFCOM expressly disclosed this in the Preliminary Determination, Exhibit CHN-17, p. 65.
636 Preliminary Determination, Exhibit US-5, p. 57.
637 China's response to Panel question 70, para. 61.
638 China's opening statement at the second meeting of the Panel, para. 82.
639 United States' second written submission, paras. 185-187. See, 2008 Customs Monthly Imports Data (Annex 6 of Petition for an Anti-Dumping and an Anti-Subsidy Investigations), Exhibit CHN-33.
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Clearly the data on the volume of non-subject imports was not disclosed. Rather, the preliminary determination included (i) a general statement about the share of non-subject imports as a proportion of total imports; and (ii) a statement from which information regarding the market share of non-subject imports in 2008 could be derived, although was not expressly disclosed. This undermined the ability of interested parties to challenge the basis for MOFCOM's conclusion that non-subject imports were not a cause of injury to the domestic industry.
Consequently, the Panel concludes that China acted inconsistently with Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement in not disclosing the data on volume of non-subject imports. In the light of this conclusion, the Panel does not consider it necessary to proceed to consider whether MOFCOM also failed to disclose "essential facts under consideration" by not disclosing the prices of non-subject imports.
Provisions at issue
Articles 22.5 of the SCM Agreement and 12.2.2 of the Anti-Dumping Agreement provide, relevantly:
A public notice of conclusion or suspension of an investigation in the case of an affirmative determination providing for the imposition of a definitive duty…shall contain, or otherwise make available through a separate report, all relevant information on the matters of fact and law and reasons which have led to the imposition of final measures…due regard being paid to the requirement for the protection of confidential information. In particular, the notice…shall contain…the reasons for the acceptance or rejection of relevant arguments or claims made by [interested Members and by] the exporters and importers.640
Factual Background
Following the issuance of the preliminary determination and the final disclosure documents, on 10 April 2010, MOFCOM issued its final determination for the anti-dumping and countervailing duty investigations.
Arguments of the United States
The United States claims that China acted inconsistently with Article 12.2.2 of the Anti- Dumping Agreement and Article 22.5 of the SCM Agreement because of its cursory and fact free analysis of the effect of non-subject imports.
The United States argues that information on the volume and prices of imports from sources other than Russia and the United States was directly relevant to MOFCOM's injury analysis. However, MOFCOM's final determination disclosed no information to support its finding that the non-subject imports were not a cause of injury, although such information would not have been
640 Where the text in brackets is included only in the SCM Agreement and not in the Anti-Dumping Agreement.
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confidential.641 According to the United States, Article 12.2.2 of the Anti-Dumping Agreement and Article 22.5 of the SCM Agreement are intended to avoid such opacity in decision-making.642
In response to China's argument that non-subject import market share increased only modestly in 2008, the United States contends that MOFCOM made no such finding. Rather, MOFCOM found that imports "continued to drop", which is not consistent with China's response regarding an increase in market share for non-subject imports. According to the United States, the "divergence between China's proffered justification for the finding that non-subject imports were not a cause of injury to the domestic GOES industry and MOFCOM's stated justification indicates that the actual basis for the finding remains unclear". Consequently, the final determination does not contain "all relevant information on the matters of fact and law" which led MOFCOM to conclude that non- subject imports were not a cause of injury to the domestic GOES industry.643 Further, the United States argues that China's acknowledgment that non-subject imports gained market share in 2008 cannot possibly serve as a factual justification for a conclusion that non-subject imports were not a cause of injury.644
Arguments of China
China does not clearly distinguish between its arguments that relate to disclosing the "essential facts under consideration" and those that relate to the notice requirements under Article 12.2.2 of the Anti-Dumping Agreement and Article 22.5 of the SCM Agreement. In any event, in addition to the arguments outlined at paragraphs 7.644-7.645 of this Report, China also rejects the contention that MOFCOM did not provide any "factual substantiation" for its conclusions on non-subject imports. China submits that the demonstration that non-subject imports gained only 0.09% market share is factual substantiation. Further, in the light of the failure of the United States to use publicly available information to develop arguments on this issue, MOFOM provided adequate discussion of it.645
Arguments of third parties
European Union
The European Union argues that not providing information on non-subject imports in the context of the causation analysis falls short of the transparency requirements embodied in Articles 22.5 of the SCM Agreement and 12.2.2 of the Anti-Dumping Agreement.646
Saudi Arabia
According to Saudi Arabia, the public notices referred to in Article 12.2.2 of the Anti- Dumping Agreement and Article 22.5 of the SCM Agreement must contain sufficient detail to allow interested parties to discern either the significance or lack thereof of the factors the investigating authority was obligated to address in its analysis.647
641 United States' first written submission, paras. 263-264. 642 United States' first written submission, paras. 264-265. 643 United States' second written submission, para. 188.
644 United States' second written submission, para. 189.
645 China's first written submission, para. 376. It is evident from China's footnote reference to the
United States' submission that this part of China's submission relates to the claim under Article 12.2.2 of the Anti-Dumping Agreement and Article 22.5 of the SCM Agreement, rather than Article 6.9 of the Anti-Dumping Agreement and 12.8 of the SCM Agreement.
646 European Union's third party submission, para. 50.
647 Saudi Arabia's third party submission, para. 46.
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Evaluation by the Panel
The United States argues that the final determination did not include "all relevant information on matters of fact and law" leading to the imposition of definitive measures. In particular, the United States argues that the final determination was "essentially devoid of information" relating to imports from sources other than Russia and the United States. According to the United States, the final determination contained no information concerning the volume and value of non-subject imports. Further, the lack of factual substantiation for MOFCOM's conclusion rendered it impossible to review.648 Consequently, the United States claims that China acted inconsistently with Articles 22.5 of the SCM Agreement and 12.2.2 of the Anti-Dumping Agreement.
The final determination included the following statement about non-subject imports:
During the POI, the proportion of imports of subject merchandise in China's total imports had been increasing, while the proportion of the volume of GOES imported from other countries and regions in total imports continued to drop. Meanwhile, there is no evidence that imports from other countries (regions) were ever dumped or subsidized. Therefore, there is no evidence suggesting that GOES imported from other countries or regions caused material injury to China's domestic industry.649
The final determination also stated, in the section analysing domestic industry indicators, that "in 2008, the market share of like product of China's domestic industry declined by 5.65%...in the same period, the share of the subject merchandise in the Chinese market increased by 5.56%".650 China argues that this disclosed that non-subject imports were responsible for 0.09% of market share loss.
The text of Articles 22.5 of the SCM Agreement and 12.2.2 of the Anti-Dumping Agreement can be read relatively broadly, in that "all relevant information on matters of fact and law and reasons which have led to the imposition of final measures" must be included in the public notice or separate report. However, in contrast to Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement, Articles 22.5 and 12.2.2 do not provide that they allow interested parties to "defend their interests". Rather, the title to Articles 22 of the SCM Agreement and 12 of the Anti-Dumping Agreement, indicate that they are directed at providing the public with notice of the outcome of an investigation and providing interested parties with an explanation for the outcome reached. Although the explanations may form the basis of a party's request for review of a determination, either in domestic judicial review proceedings or at the WTO, the Panel is not convinced that Articles 22.5 and
12.2.2 necessarily require a second disclosure, this time public, of the same detailed information, such as datasets, that may have required disclosure under Articles 12.8 of the SCM Agreement and 6.9 of the Anti-Dumping Agreement.
In any event, it is clear that the causation analysis is one of the essential elements leading to the imposition of final measures. Therefore, the relevant information on matters of fact and law and reasons underlying the causation analysis must be set forth in the public notice or separate report in accordance with Articles 22.5 of the SCM Agreement and 12.2.2 of the Anti-Dumping Agreement. The causation analysis includes examination of other factors, apart from the dumped or subsidized imports, that may be injuring the domestic industry. In this context, MOFCOM considered the effect of non-subject imports on the domestic industry. However, MOFCOM's disclosure in the final determination on this point was extremely limited. In the section of the determination relating to other factors that may have been causing injury, MOFCOM stated that non-subject imports as a
648 United States' first written submission, paras. 262, 264-265.
649 Final Determination, Exhibit US-28, p. 61.
650 Final Determination, Exhibit US-28, p. 57.
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proportion of total imports "continued to drop". While China argues that information on the market share of non-subject imports during 2008 could be derived from disclosures in other sections of the determination, namely that non-subject imports increased by 0.09% in 2008, this disclosure was not explicit and its relevance to the analysis of the non-subject imports as a factor that could be injuring the domestic industry was not clear, particularly in the light of the fact that the information from which it could be derived was in a different section of the determination.
Even if we were to accept that MOFCOM disclosed that non-subject imports increased by 0.09% in 2008, the Panel is not convinced that MOFCOM adequately disclosed all relevant information on the matters of fact and law and reasons underlying the conclusion that non-subject imports were not injuring the domestic industry. As indicated in paragraph 7.657 of this Report, it is clear that MOFCOM had information before it and undertook some analysis of that information in addressing non-subject imports as an "other" cause of injury. However, there is no indication of this in the public notice. Indeed, China defends the merits of MOFCOM's conclusion by reference to reasons and facts which it states "underscores the reasonableness of MOFCOM's judgment on this issue". For instance, China argues that during the first and fourth quarters of 2008, "subject imports gained 21.3 million kgs, while non-subject imports gained only 8.9 million kgs. The overall market was growing, so both increased. But unfairly trade subject imports were gaining volume faster, and then gaining market share. Fairly traded non-subject imports increased more modestly and did not gain market share".651 Given our earlier conclusion that MOFCOM had detailed data on the volume of non-subject imports before it652, and that China argues that this data supports MOFCOM's conclusion, it is our view that the public notice fails to set forth "all relevant information on the matters of fact and law and reasons which have led to the imposition of final measures". We do not consider it necessary to proceed to decide whether MOFCOM should also have disclosed the full set of data on the volume and prices of non-subject imports as a part of its final determination.
Consequently, in the light of this reasoning, the Panel concludes that China acted inconsistently with Articles 22.5 of the SCM Agreement and 12.2.2 of the Anti-Dumping Agreement.
WHETHER CHINA ACTED INCONSISTENTLY WITH ARTICLE 1 OF THE ANTI-DUMPING AGREEMENT AND ARTICLE 10 OF THE SCM AGREEMENT
Article 10 of the SCM Agreement provides, relevantly:
Members shall take all necessary steps to ensure that the imposition of a countervailing duty on any product of the territory of any Member imported into the territory of another Member is in accordance with the provisions of Article VI of GATT 1994 and the terms of this Agreement.
Similarly, Article 1 of the Anti-Dumping Agreement provides, relevantly:
An anti-dumping measure shall be applied only under the circumstances provided for in Article VI of GATT 1994 and pursuant to investigations initiated and conducted in accordance with the provisions of this Agreement.
651 China's opening statement at the second meeting of the Panel, para. 88.
652 See para. 7.657 of this Report.
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The United States argues that because China's conduct of the GOES investigation breached numerous other provisions of the SCM and Anti-Dumping Agreements, China also breached Articles 10 and 1 of these Agreements respectively.653
China argues that to the extent it has addressed all the substantive claims raised by the United States and has acted consistently with its obligations, the claims under Articles 10 and 1 of the SCM and Anti-Dumping Agreements respectively, should be set aside.654
The United States' claims under Article 1 of the Anti-Dumping Agreement and Article 10 of the SCM Agreement are dependent on the other claims it has brought in this dispute.
Therefore, to the extent we have upheld the United States' claims under the SCM and Anti- Dumping Agreements, we find that China has also acted inconsistently with Article 10 of the SCM Agreement and Article 1 of the Anti-Dumping Agreement.
653 United States' first written submission, paras. 183 and 267.
654 China's first written submission, paras. 249 and 377-378.
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CONCLUSIONS
In the light of the findings set forth in this Report, the Panel concludes that China acted inconsistently with:
Article 11.3 of the SCM Agreement, on the basis that MOFCOM initiated countervailing duty investigations into each of the 11 programmes challenged before the Panel by the United States, without sufficient evidence to justify this;
Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement, on the basis that MOFCOM did not require the applicants to furnish non-confidential summaries in sufficient detail to permit a reasonable understanding of the substance of the information submitted in confidence;
Article 12.7 of the SCM Agreement in connection with MOFCOM's use of a 100% utilization rate in calculating the subsidy rates for the two known respondents under certain procurement programmes;
Articles 6.8, 6.9, 12.2, 12.2.2 and paragraph 1 of Annex II of the Anti-Dumping Agreement, in connection with the resort to facts available to calculate the "all others" dumping margin for unknown exporters and due to deficiencies in the related essential facts disclosure and public notice and explanation;
Articles 12.7, 12.8, 22.3 and 22.5 of the SCM Agreement, in connection with the resort to facts available to calculate the "all others" subsidy rate for unknown exporters and due to deficiencies in the related essential facts disclosure and public notice and explanation;
Articles 15.1, 15.2, 12.8 and 22.5 of the SCM Agreement and 3.1, 3.2, 6.9 and 12.2.2 of the Anti-Dumping Agreement, in connection with MOFCOM's findings regarding the price effects of subject imports and due to deficiencies in the related essential facts disclosure and public notice and explanation;
Articles 15.1, 15.5, 12.8 and 22.5 of the SCM Agreement and 3.1, 3.5, 6.9 and 12.2.2 of the Anti-Dumping Agreement, in connection with MOFCOM's finding that subject imports caused material injury to the domestic industry and due to deficiencies in the related essential facts disclosure and public notice and explanation; and
Article 10 of the SCM Agreement and Article 1 of the Anti-Dumping Agreement, as a consequence of the foregoing violations of these Agreements.
In the light of the findings set forth in this Report, the Panel concludes that the United States has not established that China acted inconsistently with:
Article 12.2.2 of the Anti-Dumping Agreement by not including in a public notice or separate report the data and calculations used to determine the respondent companies' final dumping margins;
Article 12.7 of the SCM Agreement due to MOFCOM's resort to facts available to calculate the subsidy rates for the two known respondents under certain procurement programmes; and
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Article 22.3 of the SCM Agreement in connection with MOFCOM's explanation of the findings and conclusions supporting its determination that the bidding process under the United States Government procurement statutes at issue did not result in prices that reflected market conditions.
In the light of the findings set forth in paragraphs 8.1 and 8.2 of this Report, the Panel does not consider it necessary to make findings with respect to the United States' claims under:
Article 11.2 of the SCM Agreement; and
Article VI:2 of the GATT 1994.
RECOMMENDATION
Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment of benefits under that agreement. Accordingly, to the extent China has acted inconsistently with certain provisions of the SCM and Anti-Dumping Agreements, we conclude that it has nullified or impaired benefits accruing to the United States under those Agreements.
Pursuant to Article 19.1 of the DSU, having found China acted inconsistently with certain provisions of the SCM and Anti-Dumping Agreements, we recommend China bring its measures into conformity with its obligations under those Agreements.