MASTER THESIS
UNIVERSITY OF AMSTERDAM
EVOLUTION OF EU’S ANTI-DUMPING REGULATION
UNDER FAIR TRADE PERCEPTION
Beril ABBAK GÜGÜNAGAOGLU
INTERNATIONAL TRADE AND INVESTMENT LAW
Table of Contents
INTRODUCTION...3
I. FAIR TRADE AND EU POLICY IN TRADE DEFENCE INSTRUMENTS...4
II. NEW AMENDMENTS OF THE EU’s ANTI-DUMPING REGULATION...8
a) Overview of the Legislative Procedure of the New Anti-Dumping Regulation...8
b) Significant Distortions...12
c) Grandfathering Provisions...14
III. DIFFERENCE REGARDING TO MARKET/NON-MARKET DISTINCTION BETWEEN THE EU’S NEW AND PREVIOUS ANTI-DUMPING REGULATIONS...15
a) Non-Market Economies in the EU’s Previous Anti-Dumping System...15
b) Non-Market Economy Treatment in the EU’s Previous Anti-Dumping Regulations. .18 c) The Non-Market Economy Status in the Context of the WTO...21
d) The EU’s Anti-Dumping Methodology for Non-Market Economies Under WTO Obligations...25
IV. THE LABOUR AND ENVIRONMENTAL CRITERIA FOR FAIR TRADE UNDER THE EU’S NEW ANTI-DUMPING METHODOLOGY...29
V. REMOVING UNFAIR COMPETITION’s DETRIMENTAL EFFECT WITH EU’s NEW ANTI-DUMPING AMENDMENTS...32
CONCLUSION...36
List of Abbreviations
ACP African, Caribbean and Pacific Group of States ADA Anti-Dumping Agreement
CNV Constructed Normal Value DSB Dispute Settlement Body
EC European Commission
EU European Union
GATT General Agreement on Tariffs and Trade GSP Generalized Scheme of Preferences ILO International Labor Organization MET Market Economy Treatment
NME Non-Market Economy
PMS Particular Market Situation SME Small-Medium Sized Enterprise SOE State Owned Enterprise
TDI Trade Defense Instruments
TRIPS the Agreement on Trade Related Intellectual Property Measures UNCTAD United Nation Conference on Trade and Development
VAT Value Added Tax
INTRODUCTION
Traditionally, anti-dumping defines in the EU as selling a product at a price below its normal value. This normal value is the actual sales price of exporter's own domestic market. Thus, a country's exports are deemed as dumped if the prices in its home market are higher than its export prices (e.g. price discrimination). Price discrimination may stem from different reasons such as by the presence of high import duties into the country of origin or non-tariff barriers. As a consequence, exporters are protected from international competition on their home market and thus they can demand higher prices. Another point in this situation is the existence of state-based distortions of the cost of production such as the cost of capital, raw materials, labor and deprivation of suitable enforcement of bankruptcy proceedings. These kinds of distortions tend to change cost and price structures and result to hinder establishing normal value in the domestic market. In order to protect domestic producers from the effect of dumping, the European Union (EU) promulgated its first anti-dumping regulation in 1968 and it has been amended over the years. The present basic texts, which shape the legal basis of anti-dumping in the EU, enacted in March 1996 and October 1997 respectively. After that, with the amendment in 2016 anti-dumping rules were synchronized GATT/WTO rules which is Regulation (EU) 2016/1037 of the European Parliament and of the Council on protection against dumped imports from countries not members of the European Union – Codified Version1.
However, over the time, these anti-dumping rules have become insufficient to needs of EU during the anti-dumping investigations and it became inevitable to modernize anti-dumping regulation. Therefore, these regulations were modified recently, firstly the methodology of the Anti-Dumping has changed in 12 December 2017 (2017/2321) and secondly amendment which is the modernization of the EU’s Anti-Dumping regulation was made in 30 May 2018 (2018/825). These new amended regulations include an array of provisions which aimed at providing a balanced application of the EU's Anti-Dumping rules on all interested parties.1
1 European Commission, “Report from the Commission to the European Parliament and the Council, 36th Annual Report from the Commission to the Council and the EU Parliament on the EU’s Dumping, Anti-Subsidy and Safeguard Activities (2017), 2018, COM (2018)561 Final.
In this thesis, the EU' s new anti-dumping regulations will be determined from the perspective of fair trade. The starting point by the EU for modernization of the anti-dumping regulations is that implement country-neutral approach and become more transparent in anti-dumping investigations. Because, fair trade requires transparency and respect and seeks greater equity between the trading partners. In this regard, as emphasized by the EU Commission, the main idea of the new anti-dumping regulations is reaching more fair standards during the anti-dumping investigations.
In this context, it will be examined the new anti-dumping amendments in point of three aspects under fair trade concept which are removing the market-non/market economy distinction, social and environmental standards, abolishing the unfair competition's effect during the anti-dumping investigations.
In the first part, it will be defined the fair trade notion and the point of view of the EU to fair trade. In the second part, it will be given the overview about the new amendments and the rest of three parts it will be determined the three important fair trade impacts of the EU's new anti-dumping regulation which are removing the market-non/market economy distinction, social and environmental criteria and unfair competition effect over anti-dumping.
I.
FAIR TRADE AND EU POLICY IN TRADE DEFENCE INSTRUMENTS
The European Union considers the Trade Defense Instruments (anti-dumping, countervailing duties and safeguards) are keystone of the EU’s trade policy for fighting unfair trade. In general, trade defense instruments improved in order to battle unfair trade from foreign products during the twentieth century. The using of trade remedies has criticized for a long time by economists and legal scholars due to drive foreign competitors out of market.2
However, over the time, it has been accepted that anti-dumping is an important tool to combat unfair trade practices especially selling products under the domestic market price by the foreign producers. In this part, it will be shown the analysis of the EU’s contemporary view about fair trade and its effect on the EU’s anti-dumping regulations.3
2Bernard Hoekman, Michel Kostecki, “The Political Economy of the World Trading System. The WTO and Beyond”, 2001, (2nd ed.) (Oxford: Oxford University Press).
3Brink Lindsey, Daniel J. Ikenson, “Antidumping Exposed. The Devilish Details of Unfair Trade Law”, 2003, Washington, DC: Cato Institute).
The first political statement about fair trade was made in January 1991 with the adoption a resolution on Support of Third World coffee producers (OJ C 280,08.10.1991). In this resolution the European Parliament stated her choices to use trade for promoting coffee producers in the South and invited other EU institutions to support these producers in the same way.4 Also, the Resolution on promoting fairness and solidarity in North-South trade
issued in January 1994 (OJ C44,14.02.1994). This resolution brought more support for North-South Trade. It offers that the fair trade target should be utterly integrated into the EU's development and cooperation policy. In addition, the European Council asserted with this resolution that international trade negotiations should involve fair terms for instance within the GATT.5 In 2000, the Cotonou Agreement between the EU and ACP (African, Caribbean
and Pacific Groups of States) was including for the first time a mentioning of fair trade in Article 23(i) in a multilateral forum. Furthermore, the EU widened the scope of its core labor standards by its Generalized Scheme of Preferences (GSP) reforms in 20016. The GSP shaped
with the UNCTAD advices which helps to the developing countries to export its products to the European Union. GSP reduced the tariffs for their goods when entering the goods to the EU market. Also, the GSP is subject to WTO law, it accepted as 'Enabling Clause' which allows for an exception to the GATT 'most-favored nation principle.7
The commitment to fair trade gained momentum throughout the years in the EU. Besides, fair trade notion has been supported officially by the basic treaties of the European Union. The statement of 'fair trade' was presented through the Treaty of Lisbon which is amending the Treaty on the European Union. Article 3.5 of the Treaty on European Union states that '[the Union] shall contribute to...free and fair trade'.
In this context, each adaptation on new regulations of the EU attached importance to WTO principles such as non-discrimination and transparency. In this regard, the new anti-dumping regulations which are issued in 2017 November and 2018 May can be a good example for
4Official Journal of the European Communities, C 280, 28 October 1991
5Council Directive 94/4/EC of 14 February 1994 amending Directives 69/169/EEC and 77/388/EEC and increasing the level of allowances for travelers from third countries and the limits on tax-free purchases in intra-Community travel, 1994, Official Journal L 060 P. 0014 - 0015
6 Council Regulation (EC) No 2501/2001 of 10 December 2001 applying a scheme of generalized tariff preferences for the period from 1 January 2002 to 31 December 2004
7 European Commission Official Website, “The EU’s New Generalized Scheme of Preference”, <http://trade.ec.europa.eu/doclib/docs/2012/december/tradoc_150164.pdf>, accessed 24.12.2018.
EU's fair- trade attempts.8 Because new Anti-dumping regulations of the EU pay attention to
social standards, the need of small-medium sized enterprises and also new calculation system in regard to significant distortions include more fair implementations both of foreign and domestic producers.
More precisely, EU Commission’s definition of fair trade movement in 2009 is as "Fair Trade is a trading partnership, based on dialogue, transparency, and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, disadvantaged producers and worker." Also, EU has a strategy for Corporate Social Responsibility which promotes firms to 'integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis" therefore, with this strategy, the EU extend its fair-trade definition.9
In this regard, the European Parliament supports trade remedies and combat against unfair trade. Some quotes from European Parliament which are shown below emphasizes the importance of fair trade notion with anti-dumping. Chair of the Committee on International Trade, MEP Vital Moreira stated as in 2011, “... ‘trade defense instruments’, or anti-dumping and anti-subsidy measures... are essential to fair trade, as they constitute action that can be taken against unfair and anti-competitive trade practices by certain countries – China, for one – that cause serious harm to European companies within the European market itself.”10 In
addition, Michal Tomasz Kaminski from European Conservatives and Reformist Group (ECR) in European Parliament emphasized in 2012 that “Unfair trade is seen as harmful, which calls for fighting it and protecting the European market. The need of protection against unfair trade is also exemplified in the following statement: ‘in matters concerning definitive
anti-8Regulation (EU) No 2017/2321 of the European Parliament and of the Council Amending Regulation (EU) 2016/1036 on Protection Against Dumped Imports from Countries Not Members of the EU and Regulation (EU) 2016/1037 on Protection Against Subsidies Imports from Countries Not Members of the EU, [2017] OJ L338/3 Regulation EU 2018/825 of the European Parliament and of the Council Amending Regulation (EU) 2016/1036 on Protection Against Dumped Imports from Countries Not Members of the EU and Regulation (EU) 2016/1037 on Protection Against Subsidies Imports from Countries Not Members of the EU [2018], OJ L 143/4.
9Deborah Martens,” An EU Fair Trade Policy? Conceptual Analysis and Mapping the Field”, 2016, Centre for EU Studies, Ghent University.
10European Parliament (2011d) Plenary debates, point 9: Explanations of vote, CRE 04/04/2011–15, Tuesday, 27 September 2011, Strasbourg, cited in Josué F. Mathieu & Sharon Weinblum, “The Battle Against Unfair Trade in the EU Trade Policy: A Discourse Analysis of Trade Protection”, 2013, Perspectives on European Politics and Society, Volume14, Issue 2 p. 185-202
dumping measures, (it) is to be welcomed that we are establishing mechanisms which can protect the European market, and which can protect consumers.”11
Firstly, unfair trade implementations stem from having economic relations with the non-market economies and these economies might be described as economies that do not behave with the rules of the market. The EU supports the notion that if a country does not respect the rules of market economy and it causes to distorted competition should have to pay higher tariffs to Europe in order to protect EU market. Kader Arif behalf of the S&D Group emphasized in European Parliament in 2012 that "...when we are faced with unfair practices, it is clear that protection is necessary, but the principle of it must be accepted and defended internationally and the sometimes-false accusations of protectionism (must be) dismissed once and for all."12
The second issue which triggers the fair-trade notion is the lack of social and environmental standards. Unfair trade might stem from inexistent of social standards also the differences in the cost of labor. The cheap labor and social dumping problems can be seen in developing and emerging countries. Therefore, anti-dumping rules plays an important role within this scope for providing environmental and social standards. According to European Union the solution can be achieved by to "require imported goods to comply with the same social and environmental standards as European products. Also, it is emphasized that if these conditions are not implemented, the EU cannot compete with low cost and low-quality imports." (Marielle De Sarnez (ALDE), European Parliament, 2010)13 As it is stated before, the
unfair trade comes to exist with the trade of non-market economies or economies which use state subsidies; with distortions of competition; with social dumping and environmental dumping. Although these reasons such as social and environmental dumping, distorted markets may not be included into the legal definition of anti-dumping regulations, but these factors expand the anti-dumping's scope.
11 European Parliament (2012b) Plenary debates, point 10: Explanations of vote, PV 14/03/2012–9.1 (Document A7- 0447/2011), Wednesday, 14 March 2012, Strasbourg cited in Josué F. Mathieu & Sharon Weinblum, “The Battle Against Unfair Trade in the EU Trade Policy: A Discourse Analysis of Trade Protection”, 2013, Perspectives on European Politics and Society, Volume14, Issue 2 p. 185-202
12European Parliament (2012d) Plenary debates, explanations of votes, Point 13: EU and China: Unbalanced trade? CRE 22/05/2012–13 (Document A7-0141/2012), Tuesday, 22 May 2012, Strasbourg cited in Ibid 13 Ibid
Thirdly, another link about fair trade is the competition policies. Although it is claimed that trade remedies do not contain competition criteria, for European Commission, trade defense instruments and competition policies have a strong bond. Furthermore, The European Commission claims that anti-dumping rules are important tools for fighting distortions of competition. Commissioner De Gucht emphasized in the European Parliament the importance of the trade defense instruments importance in regard to competition and fair trade as "...the defense of EU production against international trade distortions should be considered as a necessary component of an open and fair trade strategy... Now, continuing on the broader issues, trade defense instruments are there for good reasons. In the absence of international competition rules and other rules associated with properly functioning markets, trade defense instruments are the only possible means of protecting our industry against unfairly traded goods."14
The quotes selected above shows the necessity of the anti-dumping regulations for removing the harmful effect of the unfair trade. Therefore, it must be distinguished to the detrimental effect of unfair trade with the assistance of the trade defense instruments. In this context dumping rules fight with distorted markets, social and environmental issues and anti-competitive circumstances with the new EU’s Anti-Dumping regulations.
II.
NEW AMENDMENTS OF THE EU’s ANTI-DUMPING REGULATION
a) Overview of the Legislative Procedure of the New Anti-Dumping Regulation
The new EU’s anti-dumping methodology entered into force on 20 December 2017 (2017/2321) and it sets out new rules for a removing market/non-market economy distinction and establishes normal value in terms of “significant distortions” in the market of exporting country if the use of domestic prices and costs are improper. One of the most important points of new regulation is that the new EU methodology provides a country-neutral approach by removing market/non-market economy distinction. Although, country neutral approach of new methodology is criticized in particular aspects, EU Trade Commissioner Cecilia Malmström stated as “[T]he proposal is important because it means that the EU is living up to its WTO commitments. This method is country neutral and does not grant 'market economy status' to
14European Parliament (2010c) Karel De Gucht, ‘Speaking points: Anti-dumping cases state of play and perspectives’, answer to oral questions, 24 November 2010, Strasbourg.
any country. The proposal, once adopted by the European Parliament and the Council, will ensure that the EU's Trade Defense Instruments are adapted to face new challenges as well as our legal and economic realities. We also maintain an equivalent level of protection."15 Malmström’s statement is significant because she emphasized that new regulation offers fair trade in imports into the EU. Even though it is emphasized that the new arrangement has a sense of country neutral approach, it is claimed that the focus of this arrangement is China’s WTO Accession Protocol in 200116 because China became a market economy for other WTO
members. As a result of this situation, making a new regulation or amend the Basic Anti-Dumping Regulation became inevitable for the EU. For better understanding the objective of the EU’s new anti-dumping methodology, it is necessary to examine amendments in depth.
Firstly, Regulation (EU) 2016/1036 in Article 2 is inserted as below;
6a. (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.”17
As it can be seen from the paragraph 6a(a), ‘significant market distortions’ is included in the scope of calculation of “normal value” determination. In particular, the amendment gives opportunity to use a newmethodology about cost of production for calculating normal value if significant distortions occurred in exporting country’s market. The amendment allows to use similar method as it was used before in calculating normal value in terms of surrogate prices when dealing with non-market economies. However, the important difference arises from not using any special subject (such as China or other non-markets) in the new methodology. While the Basic Anti-Dumping Regulation needed to indicate particular countries as non-market economy, the new amended regulation does not classify the countries as market or non-market economy. The new regulation indicates in Article 2(6a) (b) that significant distortions can be deemed to exist when reported prices or costs, including the costs of raw materials and energy are not the result of free market forces due to the effect of substantial government
15 European Commission Website, “Commission Proposes Changes to the EU’s Dumping and Anti-Subsidy Legislation”, November 2016, Accessed 20.09.2018, <http://trade.ec.europa.eu/doclib/press/index.cfm? &id=1573>
16 World Trade Organization, “Accession of the People’s Republic of China”, 2001, WT/L/432
intervention.18 In addition to that, the new regulation embodied detailed list of criteria for
determining distortions. This list consists of some important aspects such as presence of the exporting country on market such as ownership, control, policy supervision or guidance, state's interference with regard to prices or costs, public policies or measures discriminating in favor of domestic suppliers or otherwise influencing free market forces and access to finance granted by institutions which implement public policy objectives. In addition to that when the Commission has well-founded evidences related to significant distortions in a certain country or a certain market sector for a country, it can produce, make public a report in order to describing the market circumstances. Interested parties can express their views and comments relating to investigation or evidences which can be used by parties.19
Another significant point in terms of the new methodology is when calculating dumping, social and environmental standards shall take into account. Article 2(6a) (a) indicates that during the calculation of the injury margin in anti-dumping investigations, the Commission make a choice between a number of representative countries which have similar social and environmental level. In addition to that, it is emphasized in Article 7 in the new regulation “… Where there is more than one such country, preference shall be given, where appropriate, to countries with an adequate level of social and environmental protection. Account shall also be taken of time limits. Where it is necessary, an appropriate representative country which is subject to the same investigation shall be used.”20
The previous method of calculation about normal value in EU relied on analogue country method. According to the EU’s previous anti-dumping regulation the normal value defined as i) the home market price or ii) the cost of production plus a reasonable profit and selling cost or iii) the export price to a third country. In such circumstances if exporting country is a non-market economy (NME), such as China, Vietnam, Belarus, Albania, Armenia, Azerbaijan, Mongolia, Kazakhstan, the normal value is calculated according to a market economy country on the basis of both price or costs of production and this situation defined as analogue country method. Therefore, the choice of market economy country as analogue country affected the results of anti-dumping investigation. One of the significant deficiency of analogue country method is that the old regulation ensured insufficient guidance for choosing criteria. In many cases the selected analogue country had dissimilar cost structure in regard to higher domestic
18 Ibid
19Folkert Graafsma, Joris Kornelis, ‘European Union’ in Folkert Graafsma and Joris Kornelis(eds), International Trade Law Review (The Law Reviews, 2017).
price level or costs. Therefore, the dumping margins did not represent the levels of alleged dumping. Furthermore, the deprivation of sufficient information for selecting analogue country caused to concern for exporting country. For these reasons, the NME exporters were not eager for cooperating because they know that this method cause to higher dumping margins.21
Furthermore, in analogue country method caused to different cost structures and thus it occurred unreal normal values.22 With the new amendment, 'the analogue country' term has
not been used no longer.
The new methodology can be applied to all new and expiry review investigations are initiated after 20 December 2017. Interim reviews and incomer reviews of investigations will be identified according to old methodologies.The Commission emphasized that any alteration in the applicable methodology will not in itself be a cause to initiate a changed circumstances interim reviews.23
After the EU's new anti-dumping methodology (2017/2321) entered into force in November 2017, the EU brought new regulation again about modernization of anti-dumping in May 2018 (2018/825).24 One of the most remarkable novelty of this regulation is the partial waiver of the
lesser duty rule (LDR). The lesser duty rule is a duty can be imposed to remove the effects of dumping on imports of a particular product. This implementation is often used to remove the injurious effects of dumping. Measures are imposed at the level of dumping or injury whichever is lower. The essence of the matter, the lesser duty rule prevents the Commission from imposing anti-dumping duties above the calculated level of injury. With the new regulation Article 2(a) states that the EU can brings a limited waiver of the LDR in anti-dumping cases and the lesser duty rule would no longer apply if the following conditions are simultaneously met:
i) it can be applied in case of distortions in raw material prices in the exporting country under the investigation. These consist of: “dual pricing schemes, export taxes, export surtax, export quota, export prohibition, fiscal tax on exports, licensing requirements, minimum
21 Herbert Smith Freehills, “EU Anti-Dumping”, Legal Guide 2nd Edition, 2016, pp.10
22 Kommeskollegium, National Board of Trade, “Review of EU Trade Defense Instruments in Brief”, 2013, Accessed 23.09.2018,
<https://www.kommers.se/Documents/dokumentarkiv/publikationer/2013/faktablad/tdibrief-2-the-analogue-country-method-in-anti-dumping-investigations.pdf>
23 Herbert Smith Freehills (n.21)
export price, [and] value added tax (VAT) refund reduction or withdrawal” among others.
ii) The raw materials, whether unprocessed or processed and including energy, for which a distortion is established must account, taken individually, for at least 17 percent of the cost of production of the product concerned. To perform this calculation, a non-distorted price of the raw material, as established in representative international markets, is to be used.
iii) If the non-application of the lesser duty rule is in the Union interest.25
Furthermore, the Commission can waive the lesser duty rule for companies considered to be non-cooperating.26 Although partial waiver of lesser duty rule is based on the existence of 'raw
material distortions', it is different from the significant distortions principle under the new anti-dumping methodology. It can be understood from this regulation that duties can never exceed the dumping margin established and duties are to be set on the basis of the dumping margin or the injury margin.27
Furthermore, with the new amendment which was entered into force in May 2018, the future higher costs of the EU industry which are related to comply with social and environmental standards are considered. In addition, the EU does not admit price undertakings from third countries with an unsatisfying implementation about International Labor Organization (ILO) conventions and multilateral environmental agreements. Social and Environmental Standards have become an important part in the Commission’s annual report on trade defense instruments.
b) Significant Distortions
The new EU anti-dumping methodology defines significant distortions in Article 6(a)(b) as “… 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 substantial government intervention.” Furthermore, it is defined the situation detailed when significant distortions can be occurred in the new regulation. These cases are stated as below;
25Regulation EU 2018/825 of the European Parliament and of the Council [2018], OJ L 143/4 (n.8).
26 Van Bael & Bellis,” The new EU Anti-Dumping Methodology and Other Upcoming Changes to the EU Ant-Dumping Rules”, 2017.
- The market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision/guidance of the exporting country authorities;
- There is State presence in firms allowing the state to interfere with respect to prices or costs;
- Public policies or measures discriminate in favor of domestic suppliers or otherwise influence free market forces;
- Access to finance is granted by institutions implementing public policy objectives or otherwise not acting autonomously from the state;
- Bankruptcy, corporate or property laws are lacking, discriminatorily applied or inadequately enforced; and
- Wage costs are distorted.28
The important issue about significant distortions is that how the Commission decide whether the economy of a country is distorted. The Commission explained that distortions are determined in each and every case based on its own merits. For these reasons, the Commission shall use information in regarding distortions brought by industry or can rely on investigation which is brought by industry. Furthermore, the Commission might prepare and publish reports identifying particular circumstances of the market about any country or sector. In addition to that, any information which proves distortions in an exporting country, could be part of the evidence in the anti-dumping investigation.29
However, at this stage, some questions can be asked regarding significant distortions such as how the Commission tackle with significant distortions for determining and what are the problematic aspects of significant distortions? First of all, it is necessary to answer the question that how the Commission deal with significant distortions? For answering this question, it is necessary to analyze the approach of the Commission. If the Commission realize that significant distortions occurred, normal value is established on the basis of costs of production and sale reflecting undistorted prices or benchmarks. For constructing a normal value, the new EU regulation presents a non-exhaustive list. The list consists of undistorted international reference prices, the costs of production in an appropriate country
28 Regulation (EU) No 2017/2321 of the European Parliament and of the Council OJ L338/4 (n.8)
29European Commission's Fact Sheet, “The EU's New Trade Defense Rules and First Country Report”, 2017, Accessed 27.09.2018,< http://europa.eu/rapid/press-release_MEMO-17-5377_en.pdf >
with adequate level of social and environmental protection.30 The problem in here would be
that the non-exhaustive list for determining the presence of significant distortions lack clarity and detail. The Commission and the Council that significant distortions methodology is non-discriminatory, country-neutral, compatible with WTO agreements such as Agreement on Implementation of Art. VI of the General Agreement on Tariffs and Trade 1994. However, the best interpretation whether there is a complete harmonization with WTO agreements in regard to significant distortions could be made during the any dispute settlement or antidumping investigation.
With the new amendments on Anti-Dumping Regulation 2017/2321, Article 11(9) states that the Commission is responsible to establish existing the significant distortions in a particular country. Thus, it is not brought any additional burden on EU industry during anti-dumping investigations. When bringing a request for the initiation of an anti-dumping investigation EU producers will be able to rely on the Commission's reports as evidence that distortions exist.31
c) Grandfathering Provisions
The new Anti-dumping methodology clarifies that the transition in methodology does not constitute uncertainty for interim reviews and new reviews. New approach can only be implemented to investigations which initiated after the entry into force of the amendments. Article 11(3) and 11(4) of the new Basic-Anti Dumping Regulation remarked that " the new EU methodology shall replace the original methodology used for the determination of the normal value only [from/after] the date on which the first expiry review of those measures, after [19/20] December 2017, is initiated." Therefore, it can be understood that the entering into force of new amendments does not constitute adequate reason to review existing measures and any review which is initiated as a result of change in the circumstances of the exportercan be evaluated at the basis of the old methodology.32
Furthermore, it can be said that any future expiry review can only result in continuation or abolish of the existing measures. Therefore, it can be understood that expiry reviews shall
30 Edwin Vermulst, ‘The Birth of a Monstrosity: The EU’s Significant Distortions Proposal’, 2017, Wolters Kluwer Regulating for Globalization
31Regulation (EU) No 2017/2321 of the European Parliament and of the Council OJ L338/4 (n.8) 32 Folkert Graafsma, Joris Kornelis (n.19) pp.71-72.
evaluated based on the old analogue country methodology regarding to continuation of measures.33
III.
DIFFERENCE REGARDING TO MARKET/NON-MARKET DISTINCTION
BETWEEN THE EU’S NEW AND PREVIOUS ANTI-DUMPING REGULATIONS
a) Non-Market Economies in the EU’s Previous Anti-Dumping System
Non-market economy may be defined as state-controlled economy in terms of domestic market prices or cost of production. However, there are different kinds of economic parameters and subtle classification between a market economy or a NME. Therefore, identification of market/non-market economy might be legally difficult. While the United Nations Conference on Trade and Development (UNCTAD) is defining the meaning of non-market economy, other international organizations and even countries have not made a clear definition for non-market economy. At most, every state determines the official structure of market economies and also, whether a country should consider as a market economy.34
According to UNCTAD’s definition:
"...In a "non-market" economy, production targets, prices, costs, investment allocations, raw materials, labor, international trade and most other economic aggregates are manipulated within a national economic plan drawn up by a central planning authority; hence, the public sector makes the major decisions affecting demand and supply within the national economy."35
Due to difficulty of determining normal value of imports from non-market economy countries, WTO revealed some conditions to identified non-market economy situation. Note to Article VI of GATT 1994 indicates as follows;
“It is recognized that, in the case of imports from a country which has complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the state, special difficulties may exist in determining price comparability for the purposes of paragraph I and in such cases importing contracting parties may find it
33 Van Bael & Bellis (n.26) pp. 4.
34 Vera Thorstensen, Daniel Ramos Caroline Muller, Fernanda Bertolaccini, “WTO-Market and Non-Market Economies: the hybrid case of China”, 2013, Latin American Journal of International Trade Law, V.1 Issue 2 p. 765-798.
35 UNCTAD Report, “The Non-Market Economy Issue in International Trade in the Context of WTO Accessions”, 2012.
necessary to take into account the possibility that a strict comparison with domestic prices in such a country may not always be appropriate.”36
In regard to EU legislation, the first Antidumping legislation entered into force in 196837,
however, rules which are related to non-market economy first time introduced in 1979.38 In
1998, the EU made amendment in its Anti-Dumping Regulation and introduced a ‘special market economy regime’ for the People’s Republic of China and Russia.39 It was claimed that
this changing was made because of the efforts of China and Russia to transform their economies.40 With this regulation (Article 2(7)(b)), it was provided Market Economy
Treatment (MET) to produces from China and Russia under some conditions. Therefore, their normal value determinations could be made with the same method of the market economy countries. Under this regulation, dumping margins was calculated on the basis of their own domestic selling prices and/or cost of production instead of gathering data from producers in analogue country. The regulation amended and broaden the scope of MET in 2000. Thus, the special market economy regime was implemented to Ukraine, Vietnam and Kazakhstan as well as other non-market economy countries.
The previous regulation of the (EU) 2016/1036 Article 2(7) classified all non-market economy countries as follows;
1- The first group consists of China, Ukraine, Vietnam and Kazakhstan. “In anti-dumping
investigations concerning imports from the People's Republic of China, Vietnam and Kazakhstan and any non-market-economy country which is a member of the WTO at the date of the initiation of the investigation, the normal value shall be determined on the basis of properly substantiated claims by one or more producers subject to the investigation and in accordance with the criteria and procedures, that market-economy conditions prevail for this producer or producers in respect of the manufacture and sale of the like product concerned.”
36 Second Supplementary Provision to paragraph 1 of Article VI in Annex I to GATT 1994.
37Regulation (EEC) No 459/68 of the Council of 5 April 1968 on protection against dumping or the granting of bounties or subsidies by countries which are not members of the European Economic Community, OJ L 93, 17.4.1968
38
Van Bael &Bellis, Antidumping and Other Trade Protection Laws of the EC (4th edn. 2004) cited in Helena Detlof, Hilda Fridh, The EU Treatment of Non-Market Economy Countries in Antidumping Proceedings (Kommerskollegium National Board of Trade 2006) and Commission Regulation (EEC) No 2391/79 of 26 October 1979 imposing a provisional anti-dumping duty on lithium hydroxide originating in the United States of America and the Soviet Union39 Council Regulation 905/98, 1998 O.J. (L 128) 18)
40 Communication from the Commission to the Council and the European Parliament on the Treatment of Former Non-Market Economies in Anti-Dumping Proceedings, COM (97)677 final, at 1 cited in Van Bael &Bellis, Antidumping and Other Trade Protection Laws of the EC (4th edn. 2004)
2-The second group included Albania, Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Mongolia, North Korea, Tajikistan, Turkmenistan and Uzbekistan and other non-market economies. “In the case of imports from non-non-market-economy countries, 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, including the Union, or, where those are not possible, on any other reasonable basis, including the price actually paid or payable in the Union for the like product, duly adjusted if necessary to include a reasonable profit margin.”41
As it is stated above, the EU’s treatment to non-market economy countries had changed over the years. Although there is not explicit definition about the structure of the non-market economy, initial feature of these markets would be state intervention. Before the new amendments, the EU classified the non-market economy countries and the EU treated them under certain conditions. In this regard, over the time there were many disputes had occurred under the WTO dispute settlement system between the EU and NME Countries. In below, it is showed the EU’s Anti-Dumping Initiations to WTO between 1995 and 2017.42
In the second chart, it is demonstrated that the definite anti-dumping measures which was imposed by EU Commission in 2017. At the end of 2017, 97 definite and 29 extensions anti-dumping measures were in force. Also, the number of measures to applied to NMEs by EU Commission is shown according to 36th Annual Report from the Commission to the Council and the EU Parliament on the EU's Anti-Dumping Activities for 2017.
41 Council Regulation 2016/1036, 2006 O.J. (L 176/26)
42 European Commission Website, Cases, Accessed 24.12.2018, http://trade.ec.europa.eu/actions-against-eu-exporters/cases/index.cfm
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
0
10
20
30
40
50
60
70
European Union's Anti-Dumping Initiations to WTO
N u m b er o f th e In iti ati o n s
Figure 1- EU’s Anti-Dumping Initiations to WTO Between 1995-2017
China Russia Belarus Ukraine
0 10 20 30 40 50 60 70 80 90
Number of EU Commission's Definite Anti-Dumping Measures to NMEs in 2017
Number of Definitive Anti-Dumping Measures
Figure 2- EU Commission’s Definite Measures to NME Countries
b) Non-Market Economy Treatment in the EU’s Previous Anti-Dumping Regulations
Before the entry into force Regulation of 2017/2321, the EU had three basic approaches to determine normal value for non-market economies. First one was the selection of an analogue country. Therefore, the price and constructed value of the like product could be
evaluated. Second was selection of the method on the basis which method could be used for calculating normal value in the analogue country, such as; the domestic selling price, the constructed value, the export price to other countries etc. and any other reasonable basis, including the price actually paid or payable in the Community for the like product. Third approach was that in some conditions it would be necessary to identify physical characteristic or conditions of sale between the analogue country and non-market economy for making adjustment.43
In regard to selection of analogue country in the previous Anti-Dumping Regulation Article 2(7)(a) stated three main criteria:
According to this regulation, analogue country should be a third country. Therefore, it means that the EU member countries do not preferable for selecting as an analogue country. The Community shall be selected only if the use of price or constructed value as established in a third country is not possible.44 Another criterion was that during the selection of analogue
country reliable information must be relied and selection should be basis on reasonable manner. In addition to these criteria, third market economy shall be used which was subject to the same investigation and also time limits should be considered. However, in practice, the selection of analogue country relied on a market economy country which was produced like product with the same processes and technical standards. In addition to that, often times the analogue country was selected by tacit agreement between parties. For example, the Commission make an offer in the course of proceeding and it was not objected by the other parties and therefore, the selection of analogue country was accepted by both side.
After the analogue country selection, next step was the determination of normal value. Normal value must be identified on the basis the domestic price of the like product, constructed value of the like product, the export price of the like product of the market economy third country selected and other reasonable determinations which comply with Article 2(7) Anti-Dumping Basic Regulation. If normal value calculated according to Article 2(7)(a) and the export price are not appropriate on a comparable basis, adjustments are considered with regard to Article 2(10). Over the time, the EC Institutions has accepted to reveal that the comparative adjustments and the decision allowed to take such comparative benefits into account such as proximity to raw materials in consequences of the location of
43 Van Bael &Bellis, Antidumping and Other Trade Protection Laws of the EC (4th edn. 2004), Wolters Kluwer 44 Pure silk typewriter ribbon fabrics (China), 1990 O.J. (L 174) 27 cited in Van Bael &Bellis, Antidumping and Other Trade Protection Laws of the EC (4th edn. 2004)
the exporting country. In Magnesium Oxide case45, Turkey was chosen as an analogue
country and China objected that the constructed normal value did not represent the natural advantages of China. Because China claimed that processing and extracting magnesite is easier than Turkey, therefore, some cost factors did not exist in China. The Commission was agreed with China and considered that additional allowance should be made because of the ease of access to raw materials in China comparison with Turkey.46
In certain conditions countries are described as ‘special market economy regime’ and hereinafter these countries are not accepted as non-market economy countries by the Commission. To be granted as special market economy, it must be ensured that decisions of firms in regard to prices, costs, inputs (for example, raw materials, costs of technology and labor, output, sales and investment) should reflect supply and demand without state interference and accounting records must be harmonized with international accounting standards. The production costs and financial aspects of firms should not be subject of significant distortions and bankruptcy and property laws must be guaranteed in a certainty and stability. The Commission defined the sign of state interference as below;
- The company shares are hold by state and decisions related to amendments to the Articles of Associations are taken by states47,
- The state affect to management of the company and the creation of distortions in the costs of major inputs48,
- The Chairman of the board of directors was appointed by states and the company was majority State-owned49,
- Tax rebates50
Another treatment for non-market economy countries for granting market economy situation is individual treatment. In the previous EU’s Anti-Dumping Regulation Article 9(5) stated that like special market economy regime, to be granted individual treatment some conditions are required by Commission. These conditions can be stated as;
-For foreign owned or joint venture firms should be free to repatriate capital and profits, 45 Council Regulation (EC) No 1334/1999 of 21 June 1999 imposing a definitive anti-dumping duty on imports
of magnesium oxide originating in the People's Republic of China, OJ L 159, 25.6.1999 46 Magnesium Oxide (China), 1993 O.J. (L 145) 1 and 1999 O.J. (L 159) 1, at recital 29.
47 Urea (Belarus, Crotia, Estonia, Libya, Lithuania, Romania, Ukraine), 2001 O.J. (L 197) 4, at recital 121. 48 Ferro molybdenum (China), 2001 O.J. (L 214) 3, at recital 20.
49 Aluminum foil (China, Russia), 2001, O.J. (L 134) 1, at recital 22.
50 Malleable cost iron tube or pipe fittings (Brazil, Czech Republic, Japan, China, Korea, Thailand), 2000 O.J. (L 55) 3, at recital 116.
-Export prices, amounts and conditions of sale should be freely determined, - The vast majority of share should belong to private persons,
- Exchange rate conversions are carried put at the market
If these conditions were met by non-market economy countries, Commission would have granted individual treatment to these countries.
c) The Non-Market Economy Status in the Context of the WTO
In the international sphere, unfair trade practices such as dumping has been considered as a threat to international market since 1947 which the first GATT agreement was signed. The GATT include some articles which allows GATT members about taking action when the injury is a matter of domestic market of GATT members. Current trade environment includes different economic models and also transportations and communications can be made more cheaper and quicker. In this context, trade defense instruments have become more important and also to recourse anti-dumping investigations have become widespread due to trade distortions.51
The idea of the Multilateral Trading System was established in the 1940's with the GATT and it aimed to liberalize and develop trade. The notion of the Multilateral Trading System put support and gave incentives both market and non-market economies to participate in its trade activities.52 Namely, after the establishment of the WTO, the accession and presence of
NME countries in the Multilateral Trading System enhanced the trade relations between market and non-market economies. The non-market economy status was interpreted different sessions and situations in the context of GATT and WTO. During the Review Session of GATT, Article VI which involves dispositions on subsidies and dumping issues, was interpreted through the second Supplementary Provision to paragraph 1 (Ad Note):
Ad Article VI Paragraph 1
2. It is recognized that, in the case of imports from a country which has a complete or
substantially complete monopoly of its trade and where all domestic prices are fixed by the
51 European Commission, “Report from the Commission to the European Parliament and the Council, 36th Annual Report from the Commission to the Council and the EU Parliament on the EU’s Dumping, Anti-Subsidy and Safeguard Activities (2017), 2018, COM (2018)561 Final.
State, special difficulties may exist in determining price comparability for the purposes of paragraph 1 (...). (Emphasis added)
Ad Article VI Paragraph 1 defines the type of non-market economy which has a complete or substantially complete state intervention. This claim can be proved through the EC- Fasteners case. The reference to the Ad Note in the heading of Paragraph 1 by the Dispute Settlement Body (DSB) and this interpretation was confirmed by Appellate Body.53 The Appellate Body
states in its decision:
We observe that the second Ad Note to Article VI:1 refers to a “country which has a complete or substantially complete monopoly of its trade" and "where all domestic prices are fixed by the State". This appears to describe a certain type of NME, where the State monopolizes trade and sets all domestic prices.54
Furthermore, the Agreement on Trade Related Intellectual Property Measures (TRIPS) handles the market or non-market economy condition in order to cope with transitional situation.
Article 65 -Transitional Arrangements
3. Any other Member which is in the process of transformation from a centrally- planned
into a market, free-enterprise economy and which is undertaking structural reform of its
intellectual property system and facing special problems in the preparation and implementation of intellectual property laws and regulations, may also benefit from a
period of delay as foreseen in paragraph 2.
Although, in Anti-Dumping Agreement (ADA) has not an explicit definition of non-market economy, some points of non-market economy emphasized in Article 2. The WTO categorize anti-dumping in Article 2 of its anti-dumping agreement (ADA) and Article VI of the General Agreement on Tariffs and Trade (GATT) 1994 as "... into the commerce of another country at less than its normal value." In this statement, 'normal value' indicates to a "comparable price in the ordinary cause of trade" which specifies whether competition is fair. Therefore, it provides that products are not 'dumped' on another economy for less than the domestic price in its country of origin. In this context, Market Economy States becomes an important
53 WTO, EC-Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, Appellate Body Report 2011, WT/DS397/25.
54WTO EC – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China (DS397), WT/DS397/AB/R, Appellate Body Report adopted on 15 July 2011, para. 285, footnote 460.
due to determine the 'ordinary course of trade'. In this direction, a comparison between different markets could only be fair, if they treat under similar conditions.55
Article XVII of the GATT regulates the situation of the State-Owned Enterprises (SOEs) in the economy of the contracting parties in order to restrain potential negative effects on fair trade between private and SOEs. It specifies that:
1. (a) Each contracting party undertakes that if it establishes or maintains a state enterprise,
wherever located, or grants to any enterprise, formally or in effect, exclusive or special privileges, such enterprise shall, in its purchases or sales involving either imports or exports,
act in a manner consistent with the general principles of non-discriminatory treatment prescribed in this Agreement for governmental measures affecting imports or exports by private traders.
(b) The provisions of subparagraph (a) of this paragraph shall be understood to require that
such enterprises shall, having due regard to the other provisions of this Agreement, make any such purchases or sales solely in accordance with commercial considerations, including
price, quality, availability, marketability, transportation and other conditions of purchase or sale, and shall afford the enterprises of the other contracting parties adequate opportunity, in accordance with customary business practice, to compete for participation in such purchases or sales.
(c) No contracting party shall prevent any enterprise (whether or not an enterprise described in subparagraph (a) of this Paragraph) under its jurisdiction from acting in
accordance with the principles of subparagraphs (a) and (b) of this paragraph.
Article XVII determines the principles which all enterprises should carry on. In this sense, it compels SOEs to act as private enterprises on the purpose of guaranteeing fair competition opportunity to the enterprises of other contracting parties. Although, theoretically respond to the challenges posed by competition between private and SOEs, in practice it has been difficult to determine analyzing whether purchases which is made by SOEs it has been made in accordance with commercial considerations.56
The relationship between market and non-market economies has evolved on how the GATT and the WTO cope with specificities trade between the two economic systems. For example; the accession of China required 15 years of negotiations, including extensive economic and
55 Lisa Schaler, “2016 Market Economy Treatment for China? An Assessment from a EU Perspective”, 2015
56Korea — Various Measures on Beef, WT/DS161/12WT and Canada — Wheat Exports and Grain Imports, WT/DS267/20 (Both cases showed the difficulties behind the act of SOEs import decisions and whether they act in accordance with commercial considerations.)
legal analysis in regard to adaptations of China for its accession. These adaptations include some kinds of obligations in the areas of: foreign exchange; state ownership and privatization; pricing policies; trading rights; subsidies; industrial policy; state-trading enterprises; investment; rule of law and transparency. These obligations were deemed as inevitable by the members of WTO in order to establishment trade with China and for the well-functioning of the WTO legal order.57
Generally, acceding may compromise to a short transition period for still being considered NMEs. This time period uses by other WTO members for synchronize their regulations and responsibilities within the scope of WTO and ADA or redress the respective administering regulations. If this agreement is not complied with, after the expiration of the transition period parties can be free to initiate dispute settlement cases.58
The WTO agreements do not explicitly touch upon non-market economy situation. Nevertheless, Anti-Dumping Agreement (ADA) Article 2.2 remarks that the WTO member can use the 'third country methodology' if there is a 'particular market situation'. The obligation of the WTO members is to apply a special methodology, especially a 'surrogate country' approach, to "a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State". It can be stated that normal value determinations vis-a-vis countries whose economic systems relied on state interference must be addressed through provisions of the ADA concerning this issue, especially Articles between 2.1 and 2.6.59
d) The EU’s Anti-Dumping Methodology for Non-Market Economies Under WTO Obligations
57 Vera Thorstensen, Daniel Ramos, Caroline Muller, Fernanda Bertollaccini (n.34) p. 798
58 Alexander Polouektov, “Non-Market Economy Issues in the WTO Anti-Dumping Law and Accession Negotiations; Revival of a Two-Tier Membership?”, 2002, Journal of World Trade 36(1): 1-37, Kluwer Law International
As discussed above, the EU’s new Anti-dumping methodology offers country-neutral approach to tackle with price distortions caused by State intervention. However, it is an important point that the EU's objective and results of the new methodology should be compatible with the relevant provisions of ADA and GATT. Furthermore, the EU's methodology should conform what extent ADA permits sanctioning state intervention in the market of the exporting country under anti-dumping investigations. In this section, it will be discussed that what are the results of the disregarding domestic prices and using a Constructed Normal Value (CNV) in identification normal value and how CNV can be calculated in accordance with Article 2.2 of the ADA. The ADA ensures two main conditions for disregarding domestic prices. These conditions are particular market situation and insufficient or no sales in the ordinary course of trade. In regard to particular market situation ADA Article 2.2 states that;
"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
low 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 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."
Hereunder, if the conditions of Particular Market Situation (PMS) exist, normal value can be constructed by reference the selling price of 'like' product in a third country or by adding up the cost of production, other costs relevant with the sale of the goods in the domestic market and the profit on the domestic sale. Notwithstanding, the Article 2.2 and the rest of the ADA do not determine an information about what may constitute a PMS.60 Therefore,
deprivation of the multilateral standards about the conditions of PMS lead to determine to states own standards. Although, there is no jurisprudence of WTO about the determining of PMS, Article 2.2 of the ADA is considered in EEC - Cotton Yard- and the panel stated that:
60 Stephanie Noel, Weihuan Zhou, ‘Replacing the Non-Market Economy Methodology: Is the European
Union’s Alternative Approach Justified Under the World Trade Organization Anti-Dumping Agreement?’, 2016, Global Trade and Customs Law, Volume 11, Issue 11-12, Kluwer Law International.
"The wording of Article 2.4 (now Article 2.2 of the ADA) made it clear that the test for having
any... recourse (to use of CNV) was not whether or not a particular market situation existed per se. A 'particular market situation' was only relevant insofar as it had the effect of rendering the sales themselves unfit to permit a proper comparison. In the Panel's view, therefore, Article 2.4 specified that there must be something intrinsic to the nature of the sales themselves that dictates they cannot permit a proper comparison.”61
From the statement of panel, two interpretations can be made. Firstly, whether any situation in the market has resulted in price distortions of the subject goods so that a PMS cannot be established unless such distortions can be found.
The second interpretation is about whether a proper comparison can be made between export price and normal value in order to establish a PMS. If this comparison cannot be made, PMS would not establish. Nevertheless, even if PMS is found to presence and CNV is calculated based on benchmark production costs, it is necessary to fulfil the requirement of fair comparison between the export price of the subject goods and the CVN according to Article 2.4 of the ADA. Appellate Body has concluded in its report on EC-Fasteners:
“Article 2.4 of the Anti-Dumping Agreement has to be read in the context of the second Ad Note to Article VI:1 of the GATT 1994 and Section 15(a) of China’s Accession Protocol. We recall that the rationale for determining normal value on the basis of [the surrogate prices] was that the Chinese producers had not clearly shown that market economy conditions prevail in the fasteners industry in China. Costs and prices in the Chinese fasteners industry thus cannot, in this case, serve as reliable benchmarks to determine normal value. In our view, the investigating authority is not required to adjust for differences in costs between the NME producers under investigation and the analogue country producer where this would lead the investigating authority to adjust back to the costs in the Chinese industry that were found to be distorted.62 The Appellate Body’s decision in para 5.205 “while the Appellate
Body was concerned about the reintroduction of distorted production costs into a CNV if adjustments are made to such costs, it referred to the specific and limited circumstances where the use of surrogate costs is explicitly authorized under the WTO, that is, the second Ad Note to Article VI:1 of the GATT and section 15(a) of China’s Accession Protocol. This
61 GATT Panel Report, EC -Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil, 42S/17, para. 478.
62 EC- Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China: Report of Appellate Body, 2011, WT/DS397/AB/R.
suggests that the obligation of making adjustments under Article 2.4 may be qualified by specific provisions of the AD Agreement or other WTO instruments such as Accession Protocols which explicitly allow the replacement of distorted costs with surrogate costs in the determination of a CNV. However, while a finding of PMS may trigger the use of CNV, the calculation of the CNV must still be based on the actual costs of the producers/exporters under investigation.”63
Also, in EU-Biodiesel case the panel stated that “Article 2.2.1.1 of the ADA does not allow for consideration of the reasonableness of the actual producers’ costs but merely authorizes an assessment of whether the costs are accurately and faith fully recorded.64 Accordingly, the
panel ruled that the EU authorities’ finding of the price distortion of soy- beans and soybean oil (the main raw materials used in the production of biodiesel) caused by Argentinean government interventions ‘does not constitute a legally sufficient basis under Article 2.2.1.1 for concluding that the producers’ records do not reasonably reflect the costs associated with the production and sale of biodiesel.”65
As it is stated above, the second circumstance for disregarding domestic prices is no sales in the ordinary course of trade with regard to ADA. ADA does not give precise definition of ordinary course of trade. Therefore, this situation leaves the door open to WTO members for interpreting the means of ordinary course of trade. However, it does not mean that every WTO member interpretation is consistent with ADA. Article 2.2.1 of the ADA provides that " for the purpose of this Agreement, a product is to be considered as being dumped, i.e. introduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country." From this point of view, it can be said that an evaluation of whether sales of product in the domestic market of the exporting country are in the ordinary course of trade shall rely on determination of the characteristic of the commercial transaction in question. If the transaction has an extraordinary characteristic for the market, especially in regard to profitability, should be considered outside the ordinary course of trade. This situation is emphasized in the report of Appellate Body in US-Hot Rolled Steel which is 'to
63 Stephanie Noel, Weihuan Zhou (n.60)
64 Panel Report, European Union- Anti- Dumping Measures on Biodiesel from Argentina, WT/DS473/R (2016), para 7.242
determine whether the price is high or low, the price must be assessed in light of the other terms and conditions of the transaction.’66 It shows that an evaluation of whether sales are in
the ordinary course of trade is related to terms and conditions of the transaction, not about other issues such as the costs and profits. In addition to that, the determination of whether sales are not in the ordinary course of trade contains comparing the terms and conditions of the transaction with the other transactions. Thus, if the price of the sale conforms with the usual pricing practice in the domestic market, this sale should be considered as in the ordinary course of trade.67 For determining whether sales are made in the ordinary course of
trade, it must be relied on an objective consideration about the conditions of commercial transactions irrespective of whether there is a state intervention in the market. Although state intervention often causes in sales not in the ordinary course of trade, state intervention ensures indirect evidence for the ordinary course of trade test.
Article VI of GATT states as “the contracting parties recognize that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of the products, is to be condemned if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry.” It can be understood from this indication that dumping is to be deemed only insofar as it leads or threatens material injury to the industry of the importing parties. In addition to that Article VI does not accept the harmful dumping, it has not directed effect to importing countries to take an action against it. It solely allows them to levy antidumping duties to offset or prevent dumping.68 The GATT does not directly
forbid dumping, also it limits to allowing the importing country to take measures otherwise member may violate its obligations under the GATT in respect to the most favored nation principle, the obligation to not raise tariffs above bound tariffs levels. Furthermore, GATT has not any reference regard to unfair pricing practices in its anti-dumping provisions. GATT covers all types of dumping, whether anti-competitive or not, it includes each and every case of price differentiation.69 As Noel mentioned, “if the purpose of anti-dumping measures were
to counteract unfair practices, most likely would dumping be actionable per se, while
anti-66 Appellate Body Report, United States -Anti Dumping Measures on Certain Hot Rolled Steel Products from Japan, WT/DS184/AB/R, para 142 cited in Stephanie Noel, Weihuan Zhou, ‘Replacing the Non-Market Economy Methodology: Is the European Union’s Alternative Approach Justified Under the World Trade Organization Anti-Dumping Agreement?
67 Stephanie Noel, Weihuan Zhou (n.60) p.304
68 Stepanie Noel, “Why the European Union Must Dump So-Called ‘Non-Market Economy’ Methodologies and Adjustments in Its Anti-Dumping Investigations”, 2016, Global Trade and Customs Journal, Volume 11, Issue 7&8, Kluwer Law International.
