Whether the EU’s 2017-Amended Basic AD Regulation is Consistent with
WTO obligations
Author: Xiaonan Wang
E-Mail: wangxiaonan2018hl@163.com
Student Number: 12079871
Mastertrack: International and European Law: International Trade and Investment Law
Name of Supervisor: Dhr. Dr. J.H. (James) Mathis Date of Submission: 2313 Julyne 2019
Abstract:
Following the expiration of Article 15 (a) (ii) of the China Accession Protocol, whether WTO Member States can keep using analogue country method has become the concern of many States. The US and the EU both expressed their attitudes that, as China is still a Non-Market Economy State, the application of the method is permitted. China brought disputes concerning this question to the DSB, claiming that measures of the US and the EU are not in consistent with the AD Agreement and GATT 1994. In 2016, the EU-Biodiesel dispute limited the usage of the analogue country method. To comply with the Appellate Body Report and as response to China’s claims, the EU amended the Basic AD Regulation. This article is going to discuss the consistency of the amended Basic AD Regulation with the WTO obligations, and offer a comparison between the US anti-dumping rules and the amended Basic AD Regulation.
I. Introduction
Article 15 (a) of the Protocol on the Accession of People’s Republic of China (“Accession Protocol”) allows other WTO Member States to adopt a specific methodology concerning price comparability in anti-dumping proceedings, which is the so-called “analogue country method”. Member States, instead of using Chinese prices or costs for the industry under investigation, are allowed to use a method not based on a strict comparison with domestic prices or costs in China under certain conditions.1
However, Article 15 (d) (“Sunset Clause”) illustrates that Art. 15 (a)(ii) would expire 15 years after the date of accession, in other words, on 11 December 2016. After this date, the US, the EU, Japan and certain countries all expressed their positions, as they did not admit that China is a “market economy” State, they would still adopt this method in anti-dumping proceedings. China considered this as a significant violation of certain WTO laws and brought two cases before the Dispute Settlement Body (“DSB”), which were respectively targeted on the US and the EU. Since the procedure of
US-Measures Related to Price Comparison Methodologies (DS515) suspended in consultations, this
article will focus on the EU-Measures Related to Price Comparison Methodologies (DS516), which is in suspension now.
In the Request for Consultations by China, China argued that the Article 2(1) to 2(7) of Regulation
(EU) 2016/1036 ("the Basic AD Regulation") were in breach of WTO rules, especially Article 2(7),
which expressly named China.2 To deal with the situation, the European Commission submitted a
proposal to amend the Basic AD Regulation in November 2016 and the amendment, which was approved by the Council, entered into force on 20 December 2017. Since in the Request for the Establishment of a Panel by China, Para. 12 so said that, “this request for panel establishment also concerns any modification, replacement or amendment to the measures identified above, and any closely connected, subsequent measures”3, the amended Basic AD Regulation is also within the scope
of the Panel Report.
1 See Protocol of Accession of the People’s Republic of China, World Trade Organization, 23 Nov. 2001, Article 15 (a) (ii): “The
importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.”
2 See Request for Consultations by China, European Union—Measures Related to Price Comparison Methodologies, WTO Doc.
WT/DS516/1 (15 Dec. 2016), para. 3.
3 See Request for the Establishment of a Panel by China, European––Measures Related to Price Comparison Methodologies, WTO
China’s arguments are that, 1) Article 2(1) to 2(7) of the Basic AD Regulation are inconsistent with Article I: 1 of the GATT 1994; 2) Article 2(7) is inconsistent with Articles 2.1 and 2.2 of the
Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
(“AD Agreement”), Article VI:1 of the GATT 1994 and the second paragraph of the Ad Note to Article VI: 1 of the GATT 1994 (“the Ad Note”).4 In the old version of the Basic AD Regulation,
Article 2(1) to 2(6) provides the rules to determine the normal value in anti-dumping measures. Article 2(7) is aimed at so-called “non-market economy” State, including China. In situations
concerning these States, the rules provided before could only be applied when these producers could prove the “market economy” conditions prevail in the industry, otherwise, the analogue country method would be adopted. This special provision5 obviously violated the “Most-Favored-Nation”
treatment in Article I:1 of the GATT after the cessation of Article 15 (a) (ii) of the Accession
Protocol. The EU failed to grant an equal treatment to China as other WTO Member States, which is the most basic rule of the WTO. However, after the amendment, the EU deletes the direct expression of “NME States”, instead, Article 2 (6a) creates a special rule for conditions when “it is not
appropriate to use domestic prices and costs in the exporting country”:
…that it is not appropriate to use domestic prices in the exporting country due to the existence in that country of significant distortions within the meaning of point (b), the normal value shall be constructed exclusively…
Further, Article 2 (6a) (b) explained what can be seen as the conditions referred in Article 2 (6a) (a).
Significant distortions are those distortions…are not the result of free market forces because they are affected by substantial government intervention…
4 See, Ibid, para.5.
5 See Article 7 of the Regulation (EU) 2016/1036: “7. (a) In the case of imports from non-market-economy countries (1), the normal
value shall be determined on the basis of the price or constructed value in a market economy third country, or the price from such a third country to other countries, …
(b)In anti-dumping investigations concerning imports from the People's Republic of China … the normal value shall be determined in accordance with paragraphs 1 to 6 …”
This amended provision does not specify any State but treats all WTO Members equally, once the situation satisfied the requirements, the special calculation methods would be adopted. In my opinion, the amended Basic AD Regulation does not violate the MFN clause any more.
Then it follows with the most important questions of this article, which is the second argument of China, whether Article 2 (7), now Article 2 (6a), is consistent with Articles 2.1 and 2.2 of the AD Agreement, Article VI: 1 of the GATT 1994 and the second paragraph of the Ad Note. Article 2.1 of the AD Agreement and Article VI: 1 (a) both prescribe the definition of dumping, in which the comparable price, namely normal value, is for the like product in the exporting country. Article 2.2 and Article VI: 1(b) describe exceptions in the absence of such domestic price. These two provisions allow the adoption of a comparable price of the like product from the exporting country to a third country, or the construction value based on cost of production in the country of origin plus a
reasonable amount for selling cost and profit. They do permit the possibility of using a representative third country’s price to construct the normal value.
In China’s perspective, due to the expiration of Article 15 (a)(ii), there is no other legal basis for the EU to derogate from the articles mentioned above. In this case, the EU’s Basic AD Regulation must be in line with the AD Agreement and the GATT 1994. This article will analyze the compatibility of the amended Basic AD Regulation with the Article 2.2 of the AD Agreement and Article VI: 1 of the GATT 1994. The structure of the article will follow the main arguments of China and make a
comparison between the anti-dumping measures of the EU and the US. In Section II, I will deal with the controversy between China and the EU about whether the Accession Protocol still provides legal basis for the EU to adopt the analogue country method. In Section III, I will consider the question regarding the existence of “as such” or “as applied” inconsistency in the amended Basic AD Regulation with the WTO obligations. Section IV will focus on the relationship between the AD Agreement and the Agreement on Subsidies and Countervailing Measures (“SCM Agreement”), and Section V talks about the anti-dumping regimes of the US. Finally, I will make some concluding remarks.
II. Legal Effect of the Article 15 of the Accession Protocol6
In interpreting this article, the EU holds to the “shifting in burden of proof” approach.7 By doing so,
the EU argues that the termination of Article 15 (a)(ii) just moves the burden, which is to prove that the concerning industry in China is in an NME status, to the investigating authority, thus, the EU can still apply the analogue country method according to the Accession Protocol as long as the
investigating authority proves the NME status. The EU expressed its position in both Submissions to the Panel. In the first written Submission to the Panel, para. 109 so said,
This does not mean that nothing changed on 11 December 2016. As illustrated in Table A above, the legal position with respect to the burden of proof under Section 15 changed significantly.8
In the Second Written Submission to the Panel, the EU emphasized its position again,
……But this is explicable, and indeed has been explained at great length in the EU submissions to the Panel. It is explained by the fact that, for 15 years, Section 15(a)(ii) imposed a burden of proof on Chinese exporters, and that rule no longer applies with effect from 11 December 2016.
However, all the other rules apply and, contrary to what China asserts, those rules do not prohibit
6 Article 15 of the Accession Protocol reads as follows:
“Article VI of the GATT 1994, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ("AD Agreement") and the Agreement on Subsidies and Countervailing Measures (“the SCM Agreement”) shall apply in proceedings involving imports of Chinese origin into a WTO Member consistent with the following:
(a) In determining price comparability under Article VI of the GATT 1994 and the AD Agreement, the importing WTO Member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China based on the following rules:
(i) If the producers under investigation can clearly show that market economy conditions prevail in the industry producing the like product with regard to the manufacture, production and sale of that product, the importing WTO Member shall use Chinese prices or costs for the industry under investigation in determining price comparability;
(ii) The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.
(…)
(d) Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member's national law contains market economy criteria as of the date of accession. In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession. In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the non-market economy provisions of subparagraph (a) shall no longer apply to that industry or sector.” (emphasis added)
7 See Jorge Miranda, 'Implementation of the ‘Shift in Burden of Proof’ Approach to Interpreting Paragraph 15 of China’s Protocol of
Accession' (2016) 11 Global Trade and Customs Journal, Issue 10, pp. 452.
8 Directorate-General for Trade European Commission. European Union's First Written Submission. Certified as Delivered in the
World Trade Organization Panel Proceedings EUROPEAN UNION – MEASURES RELATING TO PRICE COMPARISON METHODOLOGIES (DS516). 14 Nov. 2017, para. 109.
an investigating authority, in certain circumstances, from having recourse to data or evidence from a third country, as a proxy, duly adjusted when necessary.9
However, in my view, the EU’s argument is untenable. Article 31 of Vienna Convention provides the basic rules to interpret the treaty provisions, which are from the text, the context and the object and purpose of the article.10 Firstly, there is no evidence shown in the text to support the “shifting in
burden of proof” approach. The chapeau of Article 15 (a) did allow the use of certain methodology, but it also says that “based on the following rules”, which refers to the subparagraphs. Now
according to the Sunset Clause, subparagraph (ii) has expired and the legal basis to adopt the surrogate price does not exist, too. The EU adds too many of their own thoughts into the interpretation, which has no textual evidence at all.
Secondly, from the context perspective to interpret, the EU’s position is also opposite to what the provision really wants to express. The EU understands that, under the principle of effective interpretation, the rest of the provision must be given certain meaning. Since the subparagraph (i) says when the exporters could prove that market economy conditions prevail in the industry, the importing States shall use Chinese prices or costs, hence subparagraph (ii) regulates the situation when the exporters fail to prove. Now, with subparagraph (ii) expired, no regulation concerning the second situation exists. So, once the EU could prove that market economy does not prevail in the industry, NME treatment could still be used. However, as mentioned above, there is no text expressing this discretion. Plus, the termination of subparagraph (ii) would not leave the rest part meaningless. Subparagraph (i) is another special rule, which regulates the situation when WTO
9 Directorate-General for Trade European Commission. European Union's Second Written Submission. Certified as Delivered in the
World Trade Organization Panel Proceedings EUROPEAN UNION – MEASURES RELATING TO PRICE COMPARISON METHODOLOGIES (DS516). 27 Feb. 2018, para. 347.
10 See Article 31 of the Vienna Convention: “Article 31 General rule of interpretation
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2.The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3.There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties.
Member States shall use the domestic prices. The cessation of subparagraph (ii) has nothing to do with the legal effect of it. In EC-Fasteners, the Appellate Body said in the Report that,
Paragraph 15(d) of China’s Accession Protocol … also provides that other WTO Members shall grant before that date the early termination of paragraph 15 (a) with respect to China’s entire economy or specific sectors or industries if China demonstrates under the law of the importing WTO Member ‘that it is a market economy’ or that ‘market economy conditions prevail in a particular industry or sector’. Since paragraph 15 (d) provides for rules on the termination of paragraph 15 (a), its scope of application cannot be wider than that of paragraph 15 (a). Both paragraphs concern exclusively the determination of normal value. In other words, paragraph 15 (a) contains special rules for the determination of normal value in antidumping investigations involving China. Paragraph 15 (d) in turn establishes that these special rules will expire in 2016 and sets out certain conditions that may lead to the early termination of these special rules before 2016.11
The Appellate Body explicitly expressed that Article 15 (a) are special rules setting in antidumping cases involving China. In other words, after the termination, the special rules disappeared and back to normal rules. Not like what the EU understands, the special rules still exist in another form. Article 15 (d) provides the opportunity for early termination of Article 15 (a), but it explicitly points out that no matter the criteria of market economy are met or not, subparagraph (ii) must be
terminated. So, even though the EU could prove that the industry still cannot be seen as a market economy, there are no special rules supporting the investigating authority to “use a methodology that is not based on a strict comparison with domestic prices or costs in China”.
On the contrary, it is EU’s interpretation that leads subparagraph (ii) to be null and void. An a
contrario interpretation of subparagraph (i) shall not be adopted. According to the EU’s
understanding, the Sunset Clause would be meaningless as the interpretation confers the same right to the EU with the expired subparagraph (ii). During the first 15 years of China’s accession to the WTO, the adoption of the specific method must be based on the rules provided in subparagraph (ii).
11 Appellate Body Report, European Communities — Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from
After its termination, the special rules do not exist anymore. It does not mean that the importing States are prohibited from using the surrogate prices, nor enforces them to recognize China as a market economy State. It merely requires WTO Member States to follow the rules set in the AD Agreement and the GATT 1994.
The Report of the Working Party on the Accession of China (“Working Party Report”) proves this conclusion again. According to Article 31 (2) (b), the Working Party Report should also be taken into consideration as context. There is no doubt that this instrument is connected to the conclusion of the Accession Protocol, since it is a part of China’s final accession package and provides the
summary of discussions between working party and China. According to the paragraph 151 of the Working Party Report,
The representative of China expressed concern with regard to past measures…which had treated
China as a non-market economy and imposed anti-dumping duties on Chinese companies …
including with respect to the method of price comparison in the determinations. In response to these concerns, members of the Working Party confirmed that in implementing subparagraph (a)(ii) of
Section 15 of the Draft Protocol, WTO Members would comply with the following…12
The Working Party Report reflects that the fair and transparency problem in adopting the analogue country method is within the scope of subparagraph (ii). In other words, it is the subparagraph (ii) provides the legal basis for the special calculation rule, not others. Thus, the EU’s interpretation derogates from the original meaning of the text of the provisions themselves.
Thirdly, according to Article 32 of the Vienna Convention13, the preparatory work helps us to
confirm the interpretation above. Article 15 of the Accession Protocol is mainly the result of the bilateral negotiation between the US and China.14 The US insisted that the GATT Article VI and the
12 World Trade Organization, Report of the Working Party on the Accession of China, 1 Oct. 2001, para. 151 (emphasis added). 13 See Article 32 of the Vienna Convention: “Recourse may be had to supplementary means of interpretation, including the
preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable.”
14 See Weihuan, Zhou, and Delei Peng. “EU – Price Comparison Methodologies (DS516): Challenging the Non-Market Economy
Methodology in Light of the Negotiating History of Article 15 of China’s WTO Accession Protocol.” Journal of World Trade, vol. 52, no. 3, 2018, pp. 519.
Ad Note is insufficient in dealing with anti-dumping measures involving China, so that Article 15 came out as a special rule. During the process of negotiation, it is not hard to find out that China’s attitude to the Sunset Clause is quite clear and firm, the termination of subparagraph (ii) symbolizes that there is no special legal basis for WTO Member States to adopt analogue country method only due to the NME status in China. This is actually accepted by the US at that moment. Charlene Barshefsky, who was the US chief negotiator in the bilateral negotiation between the US and China, stated before the Congress, that “China’s WTO entry will guarantee our right to continue using our current ‘non-market economy’ methodology in anti-dumping cases for fifteen years after China’s Accession to the WTO”.15 After the conclusion of the US-China Bilateral WTO Agreement, the
White House website also stated that,
The U.S. and China have agreed that we will be able to maintain our current antidumping
methodology (treating China as a non-market economy) in future anti-dumping cases without risk of legal challenge. This provision will remain in force for 15 years after China’s accession to the WTO.16
What’s more, the EU Commission indicated its attitude in a memorandum, stated that “[t]he EU’s present legislation which provides specific procedures for dealing with cases of alleged dumping by Chinese exporters, which may not yet be operating in normal market conditions, will remain
available for up to fifteen years after China enters the WTO”.17 Obviously, both the US and the EU
admitted that the legal basis for adopting NME methodology is subparagraph (ii), which would only last 15 years. What is worth to mention is that, during the process of negotiation between the EU and China, the EU even made a comment that the fifteen-year timeframe was too long and unbeneficial for the trade development.18
EU’s “shifting in burden of proof” approach betrays the initial meaning of Article 15 of the Accession Protocol and grants too much discretion. In the light of the principle of treaty
interpretation, there is no evidence in the text, the context and the objective and purpose of the rules
15 See Suse, Andrei. “Old Wine in a New Bottle: The EU’s Response to the Expiry of Section 15(a)(Ii) of China’s WTO Protocol of
Accession.” Journal of International Economic Law, vol. 20, no. 4, 2017, pp. 961.
16 See Zhou and Peng, above n 14, pp. 528. 17 See Suse, above n 15, pp.962.
to support the theory of the EU. In conclusion, the special legal basis for WTO Member States to adopt analogue country method in measures against China no longer exists anymore. Now the Member States need to follow the rules set in AD Agreement and the GATT to issue the anti-dumping cases involving China, which are the only legal basis for them.
III. “As such” or “As applied”
A. EU’s new methodology
In the amended Basic AD Regulation, the provision regarding the analogue country method is Article 2 (6a). It regulates the exceptions in anti-dumping measures. Like what was mentioned above, instead of naming directly NME States, the provision provides special rules for situations when there are “significant distortions” in the domestic prices and costs. The third paragraph of Article 2 (6a) (a) reads that, “without prejudice to Article 17, that assessment shall be done for each exporter and producer separately”. It means that it is the investigating authority’s burden to prove that situation falls within the scope of subparagraph (b), that is to say, “significant distortions” which “are not the result of free market forces because they are affected by substantial government
intervention”. Once this distortion is determined, the normal value “shall be constructed exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks”. The sources of the costs and sale including that “in an appropriate representative country”, “undistorted international prices” and domestic prices which are proved to be undistorted.
To summarize, there are three steps in this special rule. First, the authority determines whether the exporter falls within the scope of point (b). If so, then it comes to second step, the normal value shall be constructed, including undistorted costs of production and sale, reasonable amount for
administrative, selling and general costs and for profits. Third step is to determine the sources used by the Commission to decide undistorted costs. In the third step, analogue country is one of the options.19
19 See Cornelia Furculiță, 'Cost of Production Calculation in EU Anti-Dumping Law: WTO Consistent ‘As Such’ After EU –
B. Rules in WTO law
Rules in WTO law, which are concerning determining the comparable price in anti-dumping proceedings, are focused on Articles 2.1, 2.2 of the AD Agreement and GATT Article VI: 1. These can be divided into two parts, basic rules and exceptions. Article 2.1 of the AD Agreement and GATT Article VI: 1 (a) are targeted on normal situations, where comparable price is the domestic price “for the like product when destined for consumption in the exporting country”. Article VI: 1 (b) suggested the situation where the domestic price is absent, the comparable prices could be the
highest export price in the country of origin to the third country, or the constructed price. Article 2.2 of the AD Agreement specifies the situation when the domestic prices are unavailable, which
respectively are when there are no sales of the like product in the exporting country, when there is particular market situation in the exporting country and when the volume of the sales is too low in the domestic market of the exporting country. It further stipulates how to construct the normal value, which is formed by costs of production in the country of origin (Article 2.2.1 sales and Article 2.2.1.1 costs) and reasonable amount for administrative, selling and general costs and for profits (Article 2.2.2). Details of these provisions would be discussed below with the Article 2 (6a) of the Basic AD Regulation and the EU-Biodiesel dispute.
C. EU-Biodiesel (Argentina)
EU-Biodiesel dispute is the most important case in analyzing the compatibility of EU’s analogue
country method, as it is the core problem of this case. The Panel Report and the Appellate Body Report both clarify on the issue whether the adoption of surrogate price in determining normal value is in line with the AD Agreement or not. What needs to be pointed out is that the EU applied the analogue country method due to State intervention, which is exactly what the EU claims about China’s domestic price. The similarity between this dispute and the situation between the EU and China is pretty high. What’s more, the Appellate Body Report was adopted by the DSB on 26 October 2016, which was just a little ahead of the expiration date of Article 15 (a) (ii). It can be seen as a signal of the WTO to the analogue country method concerning China.
Argentina challenged the compatibility of Article 2(5) of the Basic AD Regulation with the AD Agreement. In an anti-dumping measure against the biodiesel from Argentina, the EU decided to adopt international price of raw materials to construct the normal value of the product, because the authority considered that the domestic price in Argentina was distorted due to State intervention. Argentina considered this approach was in breach of Article 2.2 of the AD Agreement, as the articles so provide that Member States should use the costs recorded by the producers.
The Panel and the Appellate Body both ruled that there was no “as such” inconsistency with the AD Agreement but an “as applied” inconsistency. As this article is focused on the rule of construction of normal value, I would only pick the related part of the rulings to talk about. First, the Appellate Body analyzed the Article 2.2.1.1 of the AD Agreement.
Article 2.2.1.1 For the purpose of paragraph 2, costs shall normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration…… (emphasis added)
The word “shall” indicates that this is a mandatory rule and the word “normally” implies that there may be possibilities that the calculation of costs derogates from this rule.20 Then the word
“provided” suggests that there are two conditions for this rule, one is “in accordance with the generally accepted accounting principles (GAAP) of the exporting country” and another is
“reasonably reflect”. There is nothing much to say about the first condition as it is quite explicit. The second condition raised some disputes. In the Panel Report, the panel considered that “reasonably reflect” requires that the records must depict all the costs it has incurred in a manner that is accurate and reliable within acceptable limits.21 While the EU insisted that the recorded cost itself should also
be reasonable, the Appellate Body agreed with the Panel’s position, that what “reasonably reflect” requires is the manner and has nothing to do with the record itself. Further, the Panel took the purpose and objective of this provision into consideration, and found that the “costs associated with
20 Appellate Body Report, European Union — Anti-Dumping Measures on Biodiesel from Argentina, WTO Doc. WT/DS473/AB/R
(adopted 26 Oct. 2016), para. 6.5.
the production and sale of the product under consideration” are those that a producer actually incurred, in other words, there should be a genuine link with the recorded costs and the production and sale under investigation.22
Besides, the beginning of the Article 2.2.1.1 so says, “For the purpose of paragraph 2”, which refers to Article 2.2. Thus, the “costs” here actually refers to the “cost” in the second calculation method.23
The word “normally” further means the records of the investigated exporter or producer is the favored resources in the calculation.24 What’s more, as the Article 2.2 modifies “the costs” with “in
the country of origin”, the costs in its subparagraph should also mean the costs in the country of origin. The Appellate Body Report indicates their explanation in paragraph 6.23:
……Article 2.2.1.1 should not be interpreted in a way that would allow an investigating authority to evaluate the costs reported in the records kept by the exporter or producer pursuant to a
benchmark unrelated to the cost of production in the country of origin.25
Thus, the Appellate Body agreed with the Panel’s reasoning and interpretation of the Article 2.2.1.1. In their conclusion, the reason for the EU to determine not to adopt the Argentine producers’ records of the soybean is insufficient under Article 2.2.1.1. Therefore, the EU’s action was inconsistent with the Article 2.2.1.1 of the AD Agreement.26
Then the Appellate Body interpreted the Article 2.2 of the AD Agreement and GATT Article VI: 1 (b). These two provisions are provided as below:
Article 2.2 When there are no sales of the like product in the ordinary course of trade in the domestic market of the exporting country or when, because of the particular market situation or the below volume of the sales in the domestic market of the exporting country, such sales do not permit a proper comparison, the margin of dumping shall be determined by comparison with a comparable price of the like product when exported to an appropriate third country, provided that
22 Ibid, para. 6.7. 23 Ibid, para. 6.23. 24 Ibid, para. 6.18. 25 Ibid, para. 6.23. 26 Ibid, para 6.57.
this price is representative, or with the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits.
Article VI: 1 (b) in the absence of such domestic price, is less than either,
…
(ii) the cost of production of the product in the country of origin plus a reasonable addition for selling cost and profit.
(emphasis added)
In the Panel’s finding, these two provisions both do not preclude the possibility for investigating authority to use sources outside the country to determine the costs of production. This is also be testified by the Article 2.2.1.1 as it provides that the authority “shall consider all available evidence”.27 However, “in the country or origin” qualifies the “costs”, which indicates that the
investigating authority needs to adjust the information outside of the exporting country to reflect the situation prevailing in the origin country. These findings were confirmed by the Appellate Body. In sum, the Appellate Body considered that it was allowed that the EU adopt a surrogate price in determination of the cost of production, but as the EU did not adapt the surrogate price into
situations in Argentina, they violated the Article 2.2 of the AD Agreement and Article VI: 1(b)(ii) of the GATT 1994.28
D. As such
Back to the main topic of this article, whether the amended Basic AD Regulation is inconsistent with the WTO obligations “as such” or “as applied”. Here comes the problem, what is a measure
inconsistent “as such”? The answer can be found in the Appellate Body Report of the EC-Biodiesel dispute. The Appellate Body said,
27 Ibid, para. 6.62. 28 Ibid, para. 6.82.
We recall that a claim that a measure is inconsistent “as such” challenges a measure of a Member that has general and prospective application, whereas a claim that a measure is inconsistent “as applied” challenges one or more specific instances of the application of such a measure.29
To be more specific, a measure inconsistent “as such” is based on municipal laws which require the Member State to behave in breach of their WTO obligations. Does this mean that only mandatory measures have the possibility to be inconsistent “as such”? The position of the Appellate Body is negative. By citing the ruling of the US - Corrosion-Resistant Steel Sunset Review, the Appellate Body came with the conclusion that “the discretionary nature of the measure is no barrier to a challenge ‘as such’”30. To identify whether Article 2 (6a) of the amended Basic AD Regulation is
inconsistent with WTO obligations “as such”, I will first ascertain the meaning of the provision.31
In general, this new article still allows the application of the analogue country methodology, as it states that when there are significant distortions, the normal value shall be constructed on the basis of costs of production and other reasonable amounts. Here the sources to determine the costs of
production includes the surrogate prices. In fact, on 20 July 2016, which was the day when the Commission decided to propose a new methodology to replace the one applicable to the China at that time, Cecilia Malmström, who is the EU Trade Commissioner, wrote in the blog that “we create an additional, new non-standard methodology that takes into account distortions provoked by State intervention, in a given country or sector. The new methodology would lead to approximately the
29 Ibid, para 6.154. 30 Ibid, para 6.229.
31 Article 2 (6a) of the Basic AD Regulation: “(a) In case it is determined, when applying this or any other relevant provision of this
Regulation, that it is not appropriate to use domestic prices and costs in the exporting country, due to the existence in that country of significant distortions within the meaning of point (b), the normal value shall be constructed exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks, subject to the following rules.
The sources the Commission may use include:
- corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country, provided the relevant data are readily available; where there is more than one such country, preference shall be given, where appropriate, to countries with an adequate level of social and environment protection;
- if it considers appropriate, undistorted international prices, costs, or benchmarks; or
- domestic costs, but only to the extent that they are positively established not to be distorted, on the basis of accurate and appropriate evidence, including in the framework of the provisions on interested parties in point (c).
Without prejudice to Article 17, that assessment shall be done for each exporter and producer separately.
The constructed normal value shall include an undistorted and reasonable amount for administrative, selling and general costs and for profits.
(b) Significant distortions are those distortions which occur when reported prices or costs, including the costs of raw materials and energy, are not the result of free market forces because they are affected by substantial government intervention. In assessing the existence of significant distortions regard shall be had, inter alia, to the potential impact of one or more of the following elements: …”
same level of anti-dumping duties as today”32. The purpose and objective of this new article is pretty
clear, it is to ensure the EU can still apply the analogue country method after the expiration of Article 15 (a) (ii) of the Accession Protocol.
As what I have explained above, the Article 2 (6a) requires three steps to determine the normal value. First is to determine the existence of significant distortions; second is to construct the normal value based on the costs and sales of production and reasonable amounts for administrative, selling and general costs and for profits; third is to choose the sources for the determination of costs of production. Article 2.2 of the AD Agreement provides the legal basis for the calculation of normal value in such construction method. When sales do not permit a proper comparison, the comparable price “shall” be the constructed normal value. Then it comes with two questions, 1) when can the authority use this method? 2) how to construct the normal value?
Article 2 (6a) (a) illustrates that the reason for adopting the constructed normal value is the existence of significant distortions in the domestic market. To clarify this condition, it is only possible to fall within the scope of the second situation of the Article 2.2 of the AD Agreement ––– particular market situation (“PMS”). As there is no official definition of the PMS, I will interpret it through the context. In the chapeau of the Article 2.2, the PMS is listed together with two other conditions, which are respectively “no sales of the like product” and “the low volume of the sales” in the domestic market of the exporting country. The emphasis of the amount or the scale of the sales responds to the following supplement “such sales do not permit a proper comparison”. In other words, a proper comparison requires the sales in the exporting country to be representative enough to reflect the actual situation in domestic market. This is reaffirmed by the Article 2 (3) of the Basic AD Regulation.33 According to this interpretation, in my perspective, significant distortions cannot be
clarified into the PMS completely, because not all government interventions would cause the
32 See https://ec.europa.eu/commission/commissioners/2014-2019/malmstrom/blog/reform-counter-unfair-trade_en, visited 8 June
2018.
33 See Article 2 (3) of the Basic AD Regulation: “3. When there are no or insufficient sales of the like product in the ordinary course
of trade, or where, because of the particular market situation, such sales do not permit a proper comparison, the normal value of the like product shall be calculated on the basis of the cost of production in the country of origin plus a reasonable amount for selling, general and administrative costs and for profits, or on the basis of the export prices, in the ordinary course of trade, to an appropriate third country, provided that those prices are representative.
A particular market situation for the product concerned within the meaning of the first subparagraph may be deemed to exist, inter alia, when prices are artificially low, when there is significant barter trade, or when there are non-commercial processing arrangements.”
comparison between the domestic prices and export prices improper. There are several precedents which can support my opinion. The Appellate Body in US-Softwood Lumber IV dispute held,
[w]here the producer of the input is not the same entity as the producer of the processed product, it
cannot be presumed . . . that the subsidy bestowed on the input passes through to the processed product. In such case, it is necessary to analyze to what extent subsidies on inputs may be included
in the determination of the total amount of subsidies bestowed upon the processed products . . . (emphasis added).34
Article 2 (6a) (b) illustrates that “significant distortions” are the results of government intervention.35
However, the government intervention may cause the same effects on both domestic prices and export prices, which is just like the Appellate Body said –––– “pass through”. Therefore, the margin would not be affected as they are intervened to the same extent. Only State intervention cannot be a sufficient reason to identify that the domestic prices do not allow a proper comparison between reported prices and export prices. This is supported by the Appellate Body in the US-Anti-Dumping
and Countervailing Duties dispute,
We recall that, in principle, an export subsidy will result in a pro rata reduction in the export price of a product, but will not affect the price of domestic sales of that product. That is, the subsidy will lead to increased price discrimination and a higher margin of dumping. In such circumstances, the situation of subsidization and the situation of dumping are the "same situation" … By comparison, domestic subsidies will, in principle, affect the prices at which a producer sells its goods in the domestic market and in export markets in the same way and to the same extent. Since any lowering of prices attributable to the subsidy will be reflected on both sides of the dumping margin calculation, the overall dumping margin will not be affected by the subsidization…36
34 Appellate Body Report, United States — Final Countervailing Duty Determination with respect to certain Softwood Lumber from
Canada, WTO Doc. WT/DS257/AB/R (adopted 17 Feb. 2004), para.140.
35 See Article 2 (6a) (b) of the Basic AD Regulation: “Significant distortions are those distortions which occur when reported prices or
costs, including the costs of raw materials and energy, are not the result of free market forces because they are affected by substantial government intervention.”
36 Appellate Body Report, United State –– Definitive Anti-Dumping and Countervailing Duties on Certain Products from China,
What’s more, as what I have explained above, from the analysis in the Appellate Body Report of the
EU-Biodiesel dispute, even in the construction of normal value, State intervention is not excluded.
Thus, the “significant distortions” is not a proper precondition to determine the adoption of construction method. Only when the State intervention does not affect the domestic prices and the export prices even-handedly, the investigating authorities are allowed to apply the following rules.37
In this condition, only the domestic prices are artificial low, which is due to the State intervention. Although the point (b) of the Article 2 (6a) does not specify that the significant distortions are those not even-handedly, it does say when “it is not appropriate to use domestic prices”, the construction method shall be used. There is no provision which does not allow the investigating authorities not to apply normal rules instead of the Article 2 (6a) when there are significant distortions. Therefore, the precondition in the Article 2 (6a) (a) is in line with the AD Agreement.
The method to construct the normal value has been talked about in the EU- Biodiesel dispute by the Appellate Body. The sources of the information to determine the costs of production do not preclude the information outside the country of origin according to Article 2.2. However, to use the sources which are not from the exporting country, there must be an adaption to make them reflect the situation prevailing in the exporting country. The latter requirement is not shown in the Article 2 (6a), instead, it only states that the investigating authority could use the surrogate prices to determine the costs of production. However, it needs to pay attention to the word “may” in the second
paragraph of the Article 2 (6a) (a). The article does not require the authority to use the surrogate price once there is a significant distortion. It just provides the options for the authority to choose. The situation here is quite similar with that in the EU-Biodiesel dispute, the Appellate Body also came to the same conclusion that, “the existence of that possibility does not mean … requires the EU
authorities to construct the normal value on the basis of costs prevailing in countries other than the country of origin”38, so is here. It does have the possibility that the EU authority may adopt a
surrogate price without adaption to construct the normal value, which is inconsistent with the WTO obligations, however, it is not mandatory. After all, there is nothing in the amended Basic AD
37 See Weihuan, Zhou, and Andrew, Percival. “Debunking the Myth of ‘Particular Market Situation’ In WTO Antidumping Law.”
Journal of International Economic Law, vol. 19, no. 4, Oxford University Press, Dec. 2016, pp. 881.
Regulation, when the investigating authorities uses surrogate prices, that does not allow them to adjust those prices back to the country of origin.
In sum, Article 2 (6a) is not inconsistent “as such” with the Article 2.2 and Article 2.2.1.1 of the AD Agreement. The EU is pretty careful with the wording of the provision, to avoid any “as such” inconsistency. Nonetheless, as what I mentioned before, the purpose and objective of the amendment is quite clear and obvious. The EU tries to keep the old methodology against China, which is
analogue country method, in the following practices even after the cessation of the Article 15 (a) (ii) of the Accession Protocol. Therefore, there is still high probability that the investigating authority would adopt the surrogate price to determine the normal value of the investigated product from China. Like what is shown in the EU-Biodiesel dispute, the threshold for using surrogate prices is
complex and there still might be “as applied” inconsistency in the following practices.
E. As applied
The application of the analogue country methodology must be in line with the Articles 2.2 and 2.2.1.1 of the AD Agreement. The first is the precondition of the application. State intervention must be not even-handedly. Only the domestic prices are artificially low due to the government
intervention, so that the analogue country method may be used. If the investigating authority considers that the domestic price of the exporting country is distorted due to State intervention, it is reasonable to assume that the export price is also a distorted price. The export price, thus, should be artificially lower than what it should be under free market. Now the investigating authority compare the constructed normal value which is based on a surrogate price of a third country, with a distorted export price which is lower than the price it should be under free market. The dumping margin would be larger than what it should be.
Then it comes to the requests for application. Primary is the Article 2.2.1.1. According to the ruling of the Appellate Body of the EU-Biodiesel dispute, it is clear that the qualified records kept by the investigated exporter and producer is the preferred resource to determine the costs of production. State intervention cannot be a sufficient reason to derogate from the domestic price. Once the records are in line with the GAAP and “reasonably reflect” the costs actually incurred in the exporting
country, they “shall” be used. The Appellate Body has already denied that there is a requisite for the records themselves to be reasonable:
… the object of the comparison is to establish whether the records reasonably reflect the costs actually incurred, and not whether they reasonably reflect some hypothetical costs that might have been incurred under a different set of conditions or circumstances and which the investigating authority considers more “reasonable” than the costs actually incurred.39
The “reasonableness” of the records is not required, in other words, as long as the records are what was actually incurred in the exporting country, no matter whether there is a State intervention or not, they should be adopted. From this prospective, the EU cannot use the excuse that there is significant distortion in China to drop the records inside China. Moreover, as what the Panel said above, the standard of “reasonableness” is hypothetical. To be honest, every State can claim their own criteria for “reasonableness”. Thus, it is quite unfair to the investigated exporter, as they need to satisfy these different thresholds.40 Furthermore, State intervention is a factor which cannot be avoided by all
States. All States need to control and accelerate the development of their economy by various regulations and incentives. To what extent can the State intervention be acceptable? Can the
surrogate price be completely free of State intervention? The EU Commission published a Working Document on Significant Distortions in the Economy of the People’s Republic of China for the Purposes of Trade Defence Investigations (“the Working Document”) on 20 December 2017. It can be foreseen that the EU wants to use this Working Document to justify their analogue country methodology in anti-dumping investigations involving China. This Working Document analyzed cross-cutting, horizontal, and sectoral distortions existed in China’s economy.41 However, in short,
these are still State interventions. Nevertheless, only due to State intervention, the EU cannot adopt the surrogate price.
39 Panel Report, European Union — Anti-Dumping Measures on Biodiesel from Argentina, WTO Doc. WT/DS473/P/R (adopted 26
Oct. 2016), para 7.242.
40 Chien-Huei Wu, Key Issues regarding the EU's Concurrent Imposition of Anti-Dumping and Countervailing Duties on Chinese
Coated Fine Papers: Analogue Country, Market Economy Treatment, Individual Treatment, and Double Remedy, 10 Asian J. WTO & Int'l Health L & Pol'y 263 (2015), pp.282.
41 See European Commission. Commission Staff Working Document on Significant Distortions in the Economy of the People’s
What is next is the Article 2.2 of the AD Agreement. When applying a surrogate price outside the investigated country, the adjustment is necessary, as the provision so requires that “the cost of production in the country of origin”. The Appellate Body considered that the EU’s adoption of international price is inconsistent with Article 2.2 because they did not see the relationship between the adopted price and the Argentina’s domestic price of the soybean, not to mention that the EU did not try to adapt it into the costs in Argentina. They highlighted that “the EU authorities selected this cost precisely because it was not the cost of soybeans in Argentina”.42 Therefore, if the EU
investigating authority wants to adopt the surrogate price to determine the constructed normal value, they must adjust it to the extent that it can reflect the situation prevailing in China. The Appellate Body further pointed out that,
…On the contrary, the EU authorities specifically selected the surrogate price for soybeans to remove the perceived distortion in the cost of soybeans in Argentina. As the Panel stated, the EU authorities specifically selected and used this particular information precisely because it did not represent the cost of soybeans in Argentina. …43
This suggests that the application of surrogate price cannot ignore the policy and regulatory
environment of the country, which is what the adjustments need to reflect.44 It also implies that the
factor of State intervention should also be taken into consideration when adapting the surrogate prices. The Appellate Body Report also said that “we consider that the mere fact that a reference price is published by the Argentina Ministry of Agriculture does not necessarily make this price a domestic price in Argentina”.45 Hence, when the EU authorities apply the surrogate price, they need
to take it back to the Chinese unique market, to make sure the price could reflect the actual cost of production in China. Every factor in the process of production should be taken into consideration, even the State intervention. Only by doing so, the adjustment can make the surrogate prices reflect the domestic situation.
42 Appellate Body Report, above n 20, para 6.77 (emphasis added). 43 Ibid, para 6.81
44 See Weihuan, Zhou. “Appellate Body Report on EU−Biodiesel: The Future of China's State Capitalism under the WTO
Anti-Dumping Agreement.” Vol. 17, no. 4, 2018, pp. 621.
As the Appellate Body stated in the report that,
… the purpose of calculating the cost of production and constructing the normal value on the basis of the cost is to identify an appropriate proxy for the price of the like product in the ordinary course of trade in the domestic market of the exporting country when such price cannot be used. It flows from this purpose that the “cost associated with the production and sale of the product under consideration” are those that a producer actually incurred, “since there would yield such a proxy more accurately”.46
The constructed normal value is aimed at restoring the actual situation of the production, but not restoring the “reasonable situation” which the investigating authority considers. This does not mean that the investigating authority can do nothing but to adopt the domestic costs of production. The Appellate Body explained that,
These provisions set out rules for an investigating authority’s allocation and adjustment of costs.47
…
An investigating authority is “certainly free to examine the reliability and accuracy of the costs recorded in the records of the producers/exporters” to determine, in particular, whether all costs incurred are captured; whether the costs incurred have been over- or understated; and whether non-arms-length transactions or other practices affect the reliability of the reported costs. …48
It is the investigating authority’s responsibility to check the reliability of the records, whether they “reasonably reflect” the actual production situation. As long as the records do reasonably reflect the actual situation of production in the exporting country, they should be applied to construct the normal value.
In conclusion, the answers to the two questions mentioned above are clear now. The “significant distortions” must be uneven-handedly on domestic prices and export prices, then the construction
46 Ibid, para 6.7. 47 Ibid, para 6.22. 48 Ibid, para 6.41.
method can be used. In the construction of normal value, the EU authority can use a surrogate price to determine the normal value of investigated product came from China, however, it must satisfy two conditions. First, the domestic records do not meet the two conditions in the first sentence of Article 2.2.1.1 of the AD Agreement. In other words, the records are not in line with the GAAP, or do not reasonably reflect the actual costs. Second, once adopting a surrogate price, it must be adjusted to reflect the production situation in Chinese domestic market. Every factor in the process of production needs to be taken into consideration. Any application of the analogue country methodology, which does not meet these criteria, will be inconsistent with the AD Agreement “as applied”.
IV. Relationship with the SCM Agreement
Although China’s submission to the panel of this dispute (DS516) is unavailable, the EU’s submissions are public on the website of EU Commission. From EU’s submissions, it can be deduced what China argued in the proceedings. There is a main argument of China that the EU transposes the price comparability rules from the SCM Agreement to the price comparability rules in AD Agreement improperly.49 There are four reasons, but as the oral submission is unpublished, I
cannot give an accurate reference. According to the EU’s response to the Panel, China is supposed to have raised the “circularity” problem in the context of the SCM Agreement, double remedies
problem and the scope of the SCM Agreement and the AD Agreement. The fourth reason may be something related to the SCM Agreement, however, as the EU did not answer it, here I will not talk about it.
To deal with the relationship between the AD Agreement and the SCM Agreement, the purposes and objectives of each are the first thing to consider. Paragraph 6.25 of the Appellate Body Report of the
EU-Biodiesel dispute suggests the objective and purpose of the AD Agreement,
Taken as a whole, the object and purpose of the Anti-Dumping Agreement is to recognize the right of Members to take anti-dumping measures to counteract injurious dumping while, at the same
49 See Directorate-General for Trade European Commission. European Union's Responses to the Questions from the Panel after the
First Substantive Meeting. Certified as Delivered in the World Trade Organization Panel Proceedings EUROPEAN UNION – MEASURES RELATING TO PRICE COMPARISON METHODOLOGIES (DS516). 19 Jan. 2018, para. 49-61.
time, imposing substantive conditions and detailed procedural rules on anti-dumping investigations and on the imposition of anti-dumping measures.50
From Article 9.1 of the AD Agreement51, Article 19.252 and Article 19.4 of the SCM Agreement53, it
is obvious that both the purposes and objectives of the anti-dumping measures and the countervailing measures are to remove the injury of the domestic industry of the importing country suffered due to the dumping and subsidies. Thus, double remedies are not allowed in the trade defence.
From the analysis of Article 2.2.1.1 and Article 2.2 of the AD Agreement, we can find that the price comparison is between the export price and the actual normal value in the exporting State. In other words, the AD Agreement is to deal with private behaviors –––– whether the exporter sacrifices its normal profit in the exporting events. I will give an example to explain it more detailed. Assuming the investigated product’s (“X”) normal value in EU is 100, now the X’s export price from China is 90 and does injury to the industry in the EU, the investigating authority thus initiates an investigation against the Chinese exporter. As the authority determines there is significant distortions in China, it decides to apply Article 2 (6a) to construct the normal value of the X. The investigating authority tries to adopt the surrogate price because it knows that if adopts the domestic recorded costs of production, the constructed normal value would be 90, which is as same as the export price. Then there will be no dumping. The authority finds out that the domestic records in China are lower than the normal value of the X in the EU, because there is State intervention. Thus, China now argues that if the EU wants to deal with the State intervention, the authority should apply the SCM Agreement instead of the AD Agreement. The actual costs of production incurred in China is lower than those in the EU, so the export price is lower than the normal value in the EU. It cannot become dumping within the definition of the AD Agreement. The injury which the EU’s industry suffered should be
50 Appellate Body Report, above n 20, para 6.25.
51 Article 9.1 of the AD Agreement: “… It is desirable that the imposition be permissive in the territory of all Members, and that the
duty be less than the margin if such lesser duty would be adequate to remove the injury to the domestic industry.” (emphasis added)
52 Article 19.2 of the SCM Agreement: “… that the duty should be less than the total amount of the subsidy if such lesser duty would
be adequate to remove the injury to the domestic industry, and that procedures should be established which would allow the authorities concerned to take due account of representations made by domestic interested parties whose interests might be adversely affected by the imposition of a countervailing duty.” (emphasis added)
53 Article 19.4 of the SCM Agreement: “No countervailing duty shall be levied51 on any imported product in excess of the amount of
attributed to the government instead of exporters. These exporters are doing their business according to the normal market rules, setting the export price in the ordinary course of trade.
The EU disagrees with China’s argument according to mainly three reasons. First, it considers that this comparison is “circular” and meaningless. In the EU’s Response to the Questions from the Panel After the First Substantive Meeting (“the Response”), the Commission so states,
All that is happening is that the impact of the Chinese State's intervention on the normal value side is being compared with the same impact of the Chinese State's intervention on the export price side. In other words, the effects of the distortion introduced by the Chinese State are just being compared with themselves, which is circular.54
On the contrast, the China’s position on this question is consistent with the purpose and objective of the AD Agreement. As mentioned before, the comparison should be between the export price and the normal value, which is based on the costs actually incurred in the country of origin. No matter the recorded costs are under the distortions or not, as long as they reasonably reflect the actual situation of production in the country of origin and in line with the GAAP, they should be adopted. Besides, the rulings of the US - Hot-Rolled Steel dispute also support Chinese opinions. In considering what is the “ordinary course of trade”, which provides normal value, the Appellate Body clarified that this test concerns the transactions, in other words, business activities.55 Hence, investigating authorities
must rely on an objective assessment of the terms and conditions of commercial transactions, regardless of whether there is State intervention in the market.56 The AD Agreement is aimed at
recovering the export price to the normal value in the ordinary course of trade in the domestic market of the exporting country, the only exception given by the Ad Note is when the investigated country “has a complete or substantially complete monopoly of its trade and all domestic prices are fixed by the State”. China obviously does not fall within the scope of the Ad Note. Therefore, the comparison is consistent with the AD Agreement. The normal value constructed in the ordinary course of trade within the Chinese market should be the comparable price. If the EU authorities consider it is lower
54 See Directorate-General for Trade European Commission, above n 49, para. 52.
55 See Appellate Body Report, United States –– Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WTO
Doc. WT/DS184/AB/R (adopted 23 Aug. 2011), para. 140-143.
than what they find under a so-called “free market” due to the State intervention, they should not deal with this question by applying AD Agreement.
The second reason given by the EU is the incoherency between the comparable prices under the AD Agreement and the SCM Agreement.57 The EU contends that to apply the rules against double
remedies, the calculation methods in the AD Agreement and the SCM Agreement should be coherent, so that there could be double counting. Under the method imposed by China, the costs of raw material would be different from the market benchmark, which precludes the subsidies and is the comparable price in the SCM Agreement. In my point of view, this is not a problem. Under the China’s construction method, the subsidies would be calculated into the costs of production, thus, there would be no double counting at all. There would be no need to apply the rules against double remedies.
The third point of the EU is that, the scope of the AD Agreement overlaps with the scope of the SCM Agreement, hence, the State intervention should be considered in the determination of dumping.58
Again, as what I have analyzed above, the Appellate Body’s ruling of the US- Hot-Rolled Steel has indicated that the AD Agreement deals with the business activities of exporters, regardless of State intervention. “The cost of production in the country of origin” in Article 2.2 of the AD Agreement and the Article VI: 1 (b) (ii) both support this opinion. The comparable price should reflect the prevailing situation in the exporting country, what the ordinary course of trade should be like in the market of the exporting country. This implies that the special situation of the market in the exporting country should also be taken into account.
Overall, the China’s position is consistent with the purpose and objective of the AD Agreement, which should be taken into consideration. After the EU-Biodiesel dispute, it leaves little room for Member States to deal with the government issue in anti-dumping measures. Moving this issue to the SCM Agreement would be more flexible and practical.
V. Comparison between the US’s Anti-Dumping Rules and Basic AD Regulation
57 See Directorate-General for Trade European Commission, above n 49, para. 57. 58 Ibid, para. 60.
A. The US’s AD Rules concerning Non-Market Economy (“NME”) State
Under the US Trade law, the rules of anti-dumping mainly come from the Tariff Act of 1930 (“Tariff Act”). Section 771 (18) of the Tariff Act provides the definition of NME State and authorizes the US Department of Commence (“USDOC”) the power to make the determination which country is NME State.59 According to Section 773 (c) (1), if the investigated product satisfies two condition, one is
that it is from an NME State, and the other is that the USDOC finds that “available information does not permit the normal value of the subject merchandise to be determined under subsection (a) of this section”; the normal value shall be constructed on the basis of costs of production of a third market economy country and a reasonable amount for other expenses of production and for profits.60 There
is an exception to the rules above, which is the market-oriented industry (MOI) test. It is quite similar with the Article 15 (a)(i) of the Accession Protocol. As long as the investigated exporters can prove that the market economy situation prevails in their industry, the rules concerning NME States will not apply to them.61 However, the USDOC has not given a decision of this kind ever.
In 2006, the USDOC decided that China is an NME State and has not revoked this decision since then. What’s more, on 26 October 2017, the USDOC published a Memorandum62 in an
anti-dumping investigation against China, reaffirmed that China is still an NME State according to the Section 771 (18) of the Tariff Act. This also implies the US’s attitude towards China in anti-dumping issues after the expiration of Article 15 (a) (ii) of the Accession Protocol. As the USDOC recognizes China as an NME State, the investigating authority can apply the analogue country method in
determining the normal value of products from China. What can be foreseen is, the US would not
59 Section 771 (18) of the Tariff Act:
“(A) In general.
The term "nonmarket economy country" means any foreign country that the administering authority determines does not operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise.
(B) Factors to be considered. …
(C) Determination in effect.
(i) Any determination that a foreign country is a nonmarket economy country shall remain in effect until revoked by the administering authority.
…”
60 See James J. Nedumpara; Archana Subramanian, China and the Non-Market Economy Treatment in Anti-Dumping Cases: Can the
Surrogate Price Methodology Continue Post-2016, 4 J. Int'l & Comp. L. 253 (2017), pp.270.
61 See Jieun Lee, 'China’s Nonmarket Economy Treatment and US Trade Remedy Actions' (2017) 51 Journal of World Trade, Issue 3,
pp. 501.
