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WTO ANALYTICAL INDEX: ANTI-DUMPING AGREEMENT Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement) |
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> Article 1 |
I. Article 1 back to top
Members hereby agree as follows: Article 1(1): Principles An anti-dumping measure shall be applied only under the circumstances provided for in Article VI of GATT 1994 and pursuant to investigations initiated(1) and conducted in accordance with the provisions of this Agreement. The following provisions govern the application of Article VI of GATT 1994 in so far as action is taken under anti-dumping legislation or regulations.
(footnote original) 1 The term "initiated" as used in this Agreement means the procedural action by which a Member formally commences an investigation as provided in Article 5. 1. The Appellate Body in US - 1916 Act rejected the argument that, based on the history of Article 1, "the phrase 'anti-dumping measure' refers only to definitive anti-dumping duties, price undertakings and provisional measures."(2) The Appellate Body stated that "the ordinary meaning of the phrase 'anti-dumping measure' seems to encompass all measures taken against dumping. We do not see in the words 'an anti-dumping measure' any explicit limitation to particular types of measures."(3) (b) "initiated and conducted in accordance with the provisions of this Agreement" 2. Regarding a claim raised under Article 1, the Panel on US - 1916 Act (EC) noted that "if we find a violation of other provisions of the Anti-Dumping Agreement, it will be demonstrated that the anti-dumping investigation ... is not 'initiated and conducted in accordance with the provisions of this Agreement' and a breach of Article 1 will be established."(4) (c) Relationship with other Articles 3. In EC - Bed Linen, the Panel touched on the relationship between Articles 1 and 15 in interpreting Article 15. See paragraph 464 below. 4. In Guatemala - Cement II, the Panel found that the subject anti-dumping duty order of Guatemala was inconsistent with Articles 3, 5, 6, 7, 12, and paragraph 2 of Annex I of the Anti-Dumping Agreement. The Panel then opined that Mexico's claims under other articles of the Anti-Dumping Agreement, including Article 1, were "dependent claims, in the sense that they depend entirely on findings that Guatemala has violated other provisions of the AD Agreement. There would be no basis to Mexico's claims under Articles 1, 9 and 18 of the AD Agreement, and Article VI of GATT 1994, if Guatemala were not found to have violated other provisions of the AD Agreement."(5) In light of this dependent nature of Mexico's claim, the Panel considered it not necessary to address these claims. 5. In US - Stainless Steel, addressing Korea's claim that "because certain provisions of the AD Agreement have been violated, Article VI of the GATT 1994 and Article 1 of the AD Agreement are consequently violated"(6), the Panel also stated: "[b]ecause of their dependent nature, we can perceive of no useful purpose that would be served by ruling on these claims. Accordingly, we do not consider it necessary to address them."(7) 6. The relationship between Article 1 and other provisions of the Anti-Dumping Agreement was discussed in Guatemala - Cement II and US - Stainless Steel. See paragraphs 4-5 above.
II. Article 2 back to top Article 2: Determination of Dumping 2.1 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.
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 low volume of the sales in the domestic market of the exporting country(2), 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.
(footnote original) 2 Sales of the like product destined for consumption in the domestic market of the exporting country shall normally be considered a sufficient quantity for the determination of the normal value if such sales constitute 5 per cent or more of the sales of the product under consideration to the importing Member, provided that a lower ratio should be acceptable where the evidence demonstrates that domestic sales at such lower ratio are nonetheless of sufficient magnitude to provide for a proper comparison.
2.2.1 Sales of the like product in the domestic market of the exporting country or sales to a third country at prices below per unit (fixed and variable) costs of production plus administrative, selling and general costs may be treated as not being in the ordinary course of trade by reason of price and may be disregarded in determining normal value only if the authorities(3) determine that such sales are made within an extended period of time(4) in substantial quantities(5) and are at prices which do not provide for the recovery of all costs within a reasonable period of time. If prices which are below per unit costs at the time of sale are above weighted average per unit costs for the period of investigation, such prices shall be considered to provide for recovery of costs within a reasonable period of time.
(footnote original) 3 When in this Agreement the term "authorities" is used, it shall be interpreted as meaning authorities at an appropriate senior level.
(footnote original) 4 The extended period of time should normally be one year but shall in no case be less than six months.
(footnote original) 5 Sales below per unit costs are made in substantial quantities when the authorities establish that the weighted average selling price of the transactions under consideration for the determination of the normal value is below the weighted average per unit costs, or that the volume of sales below per unit costs represents not less than 20 per cent of the volume sold in transactions under consideration for the determination of the normal value.
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. Authorities shall consider all available evidence on the proper allocation of costs, including that which is made available by the exporter or producer in the course of the investigation provided that such allocations have been historically utilized by the exporter or producer, in particular in relation to establishing appropriate amortization and depreciation periods and allowances for capital expenditures and other development costs. Unless already reflected in the cost allocations under this sub-paragraph, costs shall be adjusted appropriately for those non-recurring items of cost which benefit future and/or current production, or for circumstances in which costs during the period of investigation are affected by start-up operations.(6)
(footnote original) 6 The adjustment made for start-up operations shall reflect the costs at the end of the start-up period or, if that period extends beyond the period of investigation, the most recent costs which can reasonably be taken into account by the authorities during the investigation.
2.2.2 For the purpose of paragraph 2, the amounts for administrative, selling and general costs and for profits shall be based on actual data pertaining to production and sales in the ordinary course of trade of the like product by the exporter or producer under investigation. When such amounts cannot be determined on this basis, the amounts may be determined on the basis of:
(i) the actual amounts incurred and realized by the exporter or producer in question in respect of production and sales in the domestic market of the country of origin of the same general category of products;
(ii) the weighted average of the actual amounts incurred and realized by other exporters or producers subject to investigation in respect of production and sales of the like product in the domestic market of the country of origin;
(iii) any other reasonable method, provided that the amount for profit so established shall not exceed the profit normally realized by other exporters or producers on sales of products of the same general category in the domestic market of the country of origin.
2.3 In cases where there is no export price or where it appears to the authorities concerned that the export price is unreliable because of association or a compensatory arrangement between the exporter and the importer or a third party, the export price may be constructed on the basis of the price at which the imported products are first resold to an independent buyer, or if the products are not resold to an independent buyer, or not resold in the condition as imported, on such reasonable basis as the authorities may determine.
2.4 A fair comparison shall be made between the export price and the normal value. This comparison shall be made at the same level of trade, normally at the ex-factory level, and in respect of sales made at as nearly as possible the same time. Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are also demonstrated to affect price comparability.(7) In the cases referred to in paragraph 3, allowances for costs, including duties and taxes, incurred between importation and resale, and for profits accruing, should also be made. If in these cases price comparability has been affected, the authorities shall establish the normal value at a level of trade equivalent to the level of trade of the constructed export price, or shall make due allowance as warranted under this paragraph. The authorities shall indicate to the parties in question what information is necessary to ensure a fair comparison and shall not impose an unreasonable burden of proof on those parties.
(footnote original) 7 It is understood that some of the above factors may overlap, and authorities shall ensure that they do not duplicate adjustments that have been already made under this provision.
2.4.1 When the comparison under paragraph 4 requires a conversion of currencies, such conversion should be made using the rate of exchange on the date of sale(8), provided that when a sale of foreign currency on forward markets is directly linked to the export sale involved, the rate of exchange in the forward sale shall be used. Fluctuations in exchange rates shall be ignored and in an investigation the authorities shall allow exporters at least 60 days to have adjusted their export prices to reflect sustained movements in exchange rates during the period of investigation.
(footnote original) 8 Normally, the date of sale would be the date of contract, purchase order, order confirmation, or invoice, whichever establishes the material terms of sale.
2.4.2 Subject to the provisions governing fair comparison in paragraph 4, the existence of margins of dumping during the investigation phase shall normally be established on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-to-transaction basis. A normal value established on a weighted average basis may be compared to prices of individual export transactions if the authorities find a pattern of export prices which differ significantly among different purchasers, regions or time periods, and if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average-to-weighted average or transaction-to-transaction comparison.
2.5 In the case where products are not imported directly from the country of origin but are exported to the importing Member from an intermediate country, the price at which the products are sold from the country of export to the importing Member shall normally be compared with the comparable price in the country of export. However, comparison may be made with the price in the country of origin, if, for example, the products are merely transshipped through the country of export, or such products are not produced in the country of export, or there is no comparable price for them in the country of export.
2.6 Throughout this Agreement the term "like product" ("produit similaire") shall be interpreted to mean a product which is identical, i.e. alike in all respects to the product under consideration, or in the absence of such a product, another product which, although not alike in all respects, has characteristics closely resembling those of the product under consideration.
2.7 This Article is without prejudice to the second Supplementary Provision to paragraph 1 of Article VI in Annex I to GATT 1994. 7. At its meeting of 4-5 May 2000, regarding appropriate periods of data collection, the Committee on Anti-Dumping Practices recommended with respect to original investigations to determine the existence of dumping and consequent injury: "1. As a general rule:
(a) the period of data collection for dumping investigations normally should be twelve months, and in any case no less than six months, ending as close to the date of initiation as is practicable;
(b) the period of data collection for investigating sales below cost, and the period of data collection for dumping investigations, normally should coincide in a particular investigation;
(c) the period of data collection for injury investigations normally should be at least three years, unless a party from whom data is being gathered has existed for a lesser period, and should include the entirety of the period of data collection for the dumping investigation;
(d) In all cases the investigating authorities should set and make known in advance to interested parties the periods of time covered by the data collection, and may also set dates certain for completing collection and/or submission of data. If such dates are set, they should be made known to interested parties.
2. In establishing the specific periods of data collection in a particular investigation, investigating authorities may, if possible, consider practices of firms from which data will be sought concerning financial reporting and the effect this may have on the availability of accounting data. Other factors that may be considered include the characteristics of the product in question, including seasonality and cyclicality, and the existence of special order or customized sales.
3. In order to increase transparency of proceedings, investigating authorities should include in public notices or in the separate reports provided pursuant to Article 12.2 of the Agreement, an explanation of the reason for the selection of a particular period for data collection if it differs from that provided for in: paragraph 1 of this recommendation, national legislation, regulation, or established national guidelines."(8) (b) Relationship between the paragraphs of Article 2 8. In US - Stainless Steel, the Panel found the United States treatment of unpaid export sales as direct selling costs to be inconsistent with Article 2.4. In the context of this finding, the Panel explained the relationship between Articles 2.1, 2.3 and 2.4, as follows: "In our view, both Article 2.3 and Article 2.4 play an important role in respect of the construction of export prices. When determining whether dumping exists, Article 2.1 usually requires a comparison of the export price with the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country. Article 2.3, however, authorizes a Member to construct the export price where, inter alia, the actual export price is unreliable because of association between the exporter and the importer. As discussed in section VI.C.2.(b)(i), it was pursuant to this authorization that the DOC disregarded the export price charged by POSCO to its affiliated importer POSAM in these investigations and instead constructed the export price.
Further, Article 2.3 specifies that the export price may be constructed on the basis of the price at which the imported products are first resold to an independent buyer. It is clear from this language that, while the price charged to the first independent buyer is a starting-point for the construction of an export price, it is not itself the constructed export price. Nor does Article 2.3 itself contain any guidance regarding the methodology to be employed in order to construct the export price. Rather, the only rules governing the methodology for construction of an export price are set forth in Article 2.4 of the AD Agreement, which provides that, '[i]n the cases referred to in paragraph 3, allowances for costs, including duties and taxes, incurred between importation and resale, and for profits accruing, should also be made.' Although the United States repeatedly refers to these allowances as 'Article 2.3 adjustments', the provision governing these allowances is found in Article 2.4 and it is therefore evident to us that a claim regarding the appropriateness of allowances made to construct an export price may be made pursuant to that Article.(9)"(10) (a) Conditions on sales transactions for the calculation of normal value 9. In US - Hot-Rolled Steel, the Appellate Body considered that "[t]he text of Article 2.1 expressly imposes four conditions on sales transactions in order that they may be used to calculate normal value: first, the sale must be "in the ordinary course of trade"; second, it must be of the "like product"; third, the product must be "destined for consumption in the exporting country"; and, fourth, the price must be "comparable".(11) 10. In US - Hot-Rolled Steel, the United States authorities, in calculating the normal value, discarded certain sales by exporters to their affiliates because these sales were not "in the ordinary course of trade". The authorities replaced the discarded sales with downstream sales of the product, transacted between the affiliate and the first independent buyer, which had been made "in the ordinary course of trade". Japan objected to the use of these sales in calculating normal value, under Article 2.1, because, according to it, it is implicit in that Article that the exporter must be the seller in order that a sales transaction may properly be used to calculate normal value and this was not the case here. The Appellate Body, reversing the Panel's finding, considered that Article 2.1 is silent in that respect and that, provided all four explicit conditions (see paragraph 9 above) in Article 2.1 are satisfied, the identity of the "seller of the "like product" is not a ground for precluding the use of a downstream sales transaction when calculating normal value". However, the Appellate Body stressed that the identity of the seller is not irrelevant when calculating normal value since it may affect comparability, although that aspect is taken care by Article 2.4: "The text of Article 2.1 is, however, silent as to who the parties to relevant sales transactions should be. Thus, Article 2.1 does not expressly mandate that the sale be made by the exporter for whom a margin of dumping is being calculated. Nor does Article 2.1 expressly preclude that relevant sales transactions might be made downstream, between affiliates of the exporter and independent buyers. In our view, provided that all of the explicit conditions in Article 2.1 of the Anti-Dumping Agreement are satisfied, the identity of the seller of the "like product" is not a ground for precluding the use of a downstream sales transaction when calculating normal value. In short, we see no reason to read into Article 2.1 an additional condition that is not expressed.
We do not mean to suggest that the identity of the seller is irrelevant in calculating normal value under Article 2.1 of the Anti-Dumping Agreement. However, to ensure that prices are "comparable", the Anti-Dumping Agreement provides a mechanism, in Article 2.4, which allows investigating authorities to take full account of the fact, as appropriate, that a relevant sale was not made by the exporter or producer itself, but was made by another party... ... ... the use of downstream sales prices may necessitate the provision of appropriate "allowances", under Article 2.4, which take into account any differences demonstrated to affect price comparability. We will explore this issue further below."(12) (b) Sales "in the ordinary course of trade" (i) Definition of sales "in the ordinary course of trade" 11. In US - Hot-Rolled Steel, the Appellate Body confirmed that the Anti-Dumping Agreement does not define the term "in the ordinary course of trade".(13) In this dispute, Japan, the complainant, had agreed with the definition of this term given by the United States authorities, namely: "[g]enerally, sales are in the ordinary course of trade if made under conditions and practices that, for a reasonable period of time prior to the date of sale of the subject merchandise, have been normal for sales of the foreign like product."(14) The Appellate Body considered that for the purpose of the appeal, it was content with that definition.(15) 12. The Appellate Body in US - Hot-Rolled Steel, when looking into the meaning of "sales in the ordinary course of trade" under Article 2.1 of the Anti-Dumping Agreement, noted that Article 2.2.1 does provide for a method to determine whether "sales below cost" are "in the ordinary course of trade". However, the Appellate Body considered that the said provision does not purport to exhaust the range of methods for determining whether sales are "in the ordinary course of trade" and it does not cover the more specific issue of sales between affiliated parties: "We note that Article 2.2.1 of the Anti-Dumping Agreement itself provides for a method for determining whether sales below cost are "in the ordinary course of trade". However, that provision does not purport to exhaust the range of methods for determining whether sales are "in the ordinary course of trade", nor even the range of possible methods for determining whether low-priced sales are "in the ordinary course of trade". Article 2.2.1 sets forth a method for determining whether sales between any two parties are "in the ordinary course of trade"; it does not address the more specific issue of transactions between affiliated parties. In transactions between such parties, the affiliation itself may signal that sales above cost, but below the usual market price, might not be in the ordinary course of trade. Such transactions may, therefore, be the subject of special scrutiny by the investigating authorities."(16) (ii) Investigating authorities' discretion under Article 2.1 13. The Appellate Body in US - Hot-Rolled Steel noted that the investigating authorities' discretion under Article 2.1 to determine how to avoid distortions in the normal value should be exercised in a even-handed way that is fair to all parties: "Although we believe that the Anti-Dumping Agreement affords WTO Members discretion to determine how to ensure that normal value is not distorted through the inclusion of sales that are not "in the ordinary course of trade", that discretion is not without limits. In particular, the discretion must be exercised in an even-handed way that is fair to all parties affected by an anti-dumping investigation. If a Member elects to adopt general rules to prevent distortion of normal value through sales between affiliates, those rules must reflect, even-handedly, the fact that both high and low-priced sales between affiliates might not be "in the ordinary course of trade"."(17) (iii) Sales not in the ordinary course of trade Purpose of excluding sales not in the ordinary course of trade 14. In US - Hot-Rolled Steel, the Appellate Body explained that the exclusion of sales not in the ordinary course of trade from the calculation of the normal value is mandated by Article 2.1 in order to ensure that the normal value is indeed "normal": "Article 2.1 requires investigating authorities to exclude sales not made 'in the ordinary course of trade', from the calculation of normal value, precisely to ensure that normal value is, indeed, the 'normal' price of the like product, in the home market of the exporter. Where a sales transaction is concluded on terms and conditions that are incompatible with "normal" commercial practice for sales of the like product, in the market in question, at the relevant time, the transaction is not an appropriate basis for calculating 'normal' value."(18) Prices above or below the ordinary course of trade price 15. In US - Hot-Rolled Steel, Japan had challenged the so-called "arm's length" test which allowed the United States authorities to automatically disregard the sales of a given exporter to individual affiliated parties as not being in the ordinary course of trade when the weighted average selling price to that affiliated party is below 99.5 percent of the weighted average price of sales to all non-affiliated parties. Japan claimed that the application of this test was inconsistent with Article 2.1 of the Anti-Dumping Agreement because, first, the test excluded only low-priced affiliated sales, thereby inflating normal value, and, second, the test operated on the basis of an arbitrary threshold that did not take account of usual variation of prices in the marketplace. The Panel found that the application of the 99.5 percent test "does not rest on a permissible interpretation of the term 'sales in the ordinary course of trade'."(19) The Appellate Body upheld the Panel's finding, although it followed a different reasoning.(20) 16. The Appellate Body in US - Hot-Rolled Steel considered that determining "whether a sales price is higher or lower than the "ordinary course" price is not simply a question of comparing prices" and that the other terms and conditions of the transaction must be taken into account: "We note that determining whether a sales price is higher or lower than the "ordinary course" price is not simply a question of comparing prices. Price is merely one of the terms and conditions of a transaction. To determine whether the price is high or low, the price must be assessed in light of the other terms and conditions of the transaction. Thus, the volume of the sales transaction will affect whether a price is high or low. Or, the seller may undertake additional liability or responsibilities in some transactions, for instance for transport or insurance. These, and a number of other factors, may be expected to affect an assessment of the price."(21) 17. The Appellate Body in US - Hot-Rolled Steel further considered that nothing excludes that, even in the absence of any common ownership, "a sales transaction might not be "in the ordinary course of trade", either because the sales price is higher than the "ordinary course" price, or because it is lower than that price": "Clearly, the lower the degree of common ownership, implying common control, between the parties to a sales transaction, the less likely it is that the transaction will not be "in the ordinary course of trade". However, even where the parties to a sales transaction are entirely independent, a transaction might not be "in the ordinary course of trade".(22) In this appeal, we do not need to define all the circumstances in which transactions might not be "in the ordinary course of trade". It suffices to recognize that, as between affiliates, a sales transaction might not be "in the ordinary course of trade", either because the sales price is higher than the "ordinary course" price, or because it is lower than that price."(23) Scope of the investigating authorities' duties under Article 2.1 18. The Appellate Body in US - Hot-Rolled Steel described the duties of the investigating authorities under Article 2.1 as follows: "In our view, the duties of investigating authorities, under Article 2.1 of the Anti-Dumping Agreement, are precisely the same, whether the sales price is higher or lower than the "ordinary course" price, and irrespective of the reason why the transaction is not "in the ordinary course of trade". Investigating authorities must exclude, from the calculation of normal value, all sales which are not made "in the ordinary course of trade". To include such sales in the calculation, whether the price is high or low, would distort what is defined as "normal value".
In view of the many different types of transaction not "in the ordinary course of trade" - some including affiliated parties, others not; some including high prices, others low prices; some including prices below cost, others not - investigating authorities need not, under the Anti-Dumping Agreement, scrutinize, according to identical rules, each and every category of sale that is potentially not "in the ordinary course of trade"."(24) Sales between affiliated companies 19. In US - Hot-Rolled Steel, the Appellate Body upheld the Panel's findings (albeit for different reasons) that the application by the United States authorities of its 99.5 per cent test to determine whether the sales between affiliated companies were in the ordinary course of trade did not rest upon a permissible interpretation of Article 2.1. See paragraphs 15-17 above. 20. In US - Hot-Rolled Steel, the United States authorities, in calculating the normal value, discarded certain sales by exporters to their affiliates because these sales were not "in the ordinary course of trade". The authorities had replaced the discarded sales with downstream sales of the product, transacted between the affiliate and the first independent buyer, which had been made "in the ordinary course of trade". See paragraph 10 above. 21. In Guatemala - Cement II, the Panel rejected Mexico's argument that the request for cost data was not justified under Articles 2.1 and 2.2 because the application did not contain any allegation that Mexican producers were selling below cost, and stated that "[n]othing in those provisions prevents an investigating authority from requesting cost information, even if the applicant does not allege sales below cost."(25) (d) Relationship with other paragraphs of Article 2 of the Anti-Dumping Agreement (i) Relation with Article 2.2.1 of the Anti-Dumping Agreement 22. See paragraph 12 above. (ii) Relation with Article 2.4 of the Anti-Dumping Agreement 23. See paragraph 10 above. (a) Request for cost information 24. With respect to the request for cost information by investigating authorities, see paragraph 21 above. 25. In US - Hot-Rolled Steel, the Appellate Body, when looking into the meaning of "sales in the ordinary course of trade" under Article 2.1, noted that Article 2.2.1 of the Anti-Dumping Agreement "itself provides for a method for determining whether sales below cost are "in the ordinary course of trade". However, that provision does not purport to exhaust the range of methods for determining whether sales are "in the ordinary course of trade", nor even the range of possible methods for determining whether low-priced sales are "in the ordinary course of trade"." See paragraph 12 above. Cost data 26. The Panel on US - DRAMS addressed Korea's claim that the United States' authority had acted inconsistently with the first sentence of Article 2.2.1.1 by disregarding cost data which met with the two requirements set forth in the proviso of that Article, namely, "in accordance with generally accepted accounting principles" and "reasonably reflect costs". The Panel considered that the first sentence is only applicable to "records kept by the exporter or producer under investigation", and thus refused to apply this Article to cost data prepared by an outside consultant on behalf of the producer.(26) Burden of proof 27. Referring to EC - Hormones(27), the Panel on US - DRAMS noted that the burden of establishing a prima facie case of inconsistency with Article 2.2.1.1 was on the complaining party.(28) Relationship with Article 2.2.2 28. In Egypt - Steel Rebar, the Panel noted that both Articles 2.2.1.1 and 2.2.2 "emphasize two elements, first, that cost of production is to be calculated based on the actual books and records maintained by the company in question so long as these are in keeping with generally accepted accounting principles but that second, the costs to be included are those that reasonably reflect the costs associated with the production and sale of the product under consideration".(29) 29. In response to the argument that the order of methodological options for calculating reasonable amount for profit set out in Article 2.2.2 reflects a preference for one option over another, the Panel on EC - Bed Linen, in a finding subsequently not addressed by the Appellate Body, concluded that "the order in which the three options are set out in Article 2.2.2(i)-(iii) is without any hierarchical significance and that Members have complete discretion as to which of the three methodologies they use in their investigations."(30) The Panel set out the following reasoning: "Looking first at the text of Article 2.2.2, we see nothing that would indicate that there is a hierarchy among the methodological options listed in subparagraphs (i) to (iii). Of course, they are listed in a sequence, but this is an inherent characteristic of any list, and does not in and of itself entail any preference of one option over others. Moreover, we note that where the drafters intended an order of preference, the text clearly specifies it. ... Had the drafters wished to indicate a hierarchy among the three options, surely they would have done so in a manner that made that hierarchy explicit. Certainly, we would have expected something more than simply a numbered listing. Thus, in context, it seems clear to us that the mere order in which the options appear in Article 2.2.2 has no preferential significance.
... Paragraphs (i)-(iii) provide three alternative methods for calculating the profit amount, which, in our view, are intended to constitute close approximations of the general rule set out in the chapeau of Article 2.2.2. These approximations differ from the chapeau rule in that they relax, respectively, the reference to the like product, the reference to the exporter concerned, or both references, spelled out in that rule ...
In our view, there is no basis on which to judge which of these three options is 'better'. Certainly, there were differing views during the negotiations as to how this issue was to be resolved, and there is no specific language in the Agreement to suggest that the drafters considered one option preferable to the others. Given, as explained above, that each of the three options is in some sense 'imperfect' in comparison with the chapeau methodology, there is, in our opinion, no meaningful way to judge which option is less imperfect -or of greater authority - than another and, thus, no obvious basis for a hierarchy. And it is, in our view, for the drafters of an Agreement to set out a hierarchy or order of preference among admittedly imperfect approximations of a preferred result, and not for a panel to impose such a choice where it is not apparent from the text."(31) (ii) Relationship with Article 2.2.2 30. See paragraph 28 above. (iii) Article 2.2.2(i) - "same general category of products" 31. In Thailand - H-Beams, in a finding not reviewed by the Appellate Body, the Panel rejected Poland's argument that the Thai authority had, for the purpose of calculating profit in constructed normal value, adopted too narrow a definition of the term "same general category of products". The Panel stated: "[W]e note that the text of Article 2.2.2 (i) simply refers without elaboration to 'the same general category of products' produced by the producer or exporter under investigation. Thus, the text of this subparagraph provides no precise guidance as to the required breadth or narrowness of the product category, and therefore provides no support for Poland's argument that a broader rather than a narrower definition is required."(32) 32. The Panel on Thailand - H-Beams went on to explain the contextual bases for its interpretation of Article 2.2.2(i) quoted in paragraph 31 above. The Panel first opined that the context of Article 2.2.2.(i) supports a narrow rather than a broad interpretation of the term "same general category of products": "We do find a certain amount of guidance in other provisions of Article 2.2.2, in particular its chapeau and its overall structure, however. In particular, we note that, in general, Article 2.2 and Article 2.2.2 concern the establishment of 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 that price cannot be used. As such, as the drafting of the provisions makes clear, the preferred methodology which is set forth in the chapeau is to use actual data of the exporter or producer under investigation for the like product. Where this is not possible, subparagraphs (i) and (ii) respectively provide for the database to be broadened, either as to the product (i.e., the same general category of products produced by the producer or exporter in question) or as to the producer (i.e., other producers or exporters subject to investigation in respect of the like product), but not both. Again this confirms that the intention of these provisions is to obtain results that approximate as closely as possible the price of the like product in the ordinary course of trade in the domestic market of the exporting country.
This context indicates to us that the use under subparagraph (i) of a narrower rather than a broader 'same general category of products' certainly is permitted. Indeed, the narrower the category, the fewer products other than the like product will be included in the category, and this would seem to be fully consistent with the goal of obtaining results that approximate as closely as possible the price of the like product in the ordinary course of trade in the domestic market of the exporting country."(33) 33. The Panel on Thailand - H-Beams found additional contextual support in Article 3.6 for its finding that the term "same general category of products" under Article 2.2.2 (i) permits a narrower rather than a broader approach: "Additional contextual support can be found in Article 3.6 (a provision related to data concerning injury), which provides that when available data on 'criteria such as the production process, producers' sales and profits' do not permit the separate identification of production of the like product, 'the effects of the dumped imports shall be assessed by the examination of the production of the narrowest group or range of products, which includes the like product, for which the necessary information can be provided' (emphasis supplied). Although this provision concerns information relevant to injury rather than dumping, and although we do not mean to suggest that use of the narrowest possible category including the like product is required under Article 2.2.2(i), in our view Article 3.6 provides contextual support for the conclusion that use of a narrow rather than a broader category is permitted.
We note Poland's argument that a broader category is more likely than a narrower one to yield 'representative' results (by which we presume Poland to mean representative of the price of the like product in the ordinary course of trade in the domestic market of the exporting country), but we believe that as a matter of logic the opposite more often is likely to be true. The broader the category, the more products other than the like product will be included, and thus in our view the more potential there will be for the constructed normal value to be unrepresentative of the price of the like product. We therefore disagree with Poland that Article 2.2.2(i) requires the use of broader rather than narrower categories, and believe to the contrary that the use even of the narrowest general category that includes the like product is permitted."(34) (iv) Article 2.2.2(ii) - "weighted average" and data from "other exporters or producers" 34. In EC - Bed Linen, the Appellate Body reversed the Panel's finding under Article 2.2.2(ii) that the existence of data for more than one other exporter or producer is not a necessary prerequisite for application of the approach using "weighted average" in calculating the amount for administrative, selling and general costs ("SG&A") to determine the constructed normal value of subject products. The Appellate Body stated: "In our view, the phrase 'weighted average' in Article 2.2.2(ii) precludes, in this particular provision, understanding the phrase 'other exporters or producers' in the plural as including the singular case. To us, the use of the phrase 'weighted average' in Article 2.2.2(ii) makes it impossible to read 'other exporters or producers' as 'one exporter or producer'. First of all, and obviously, an 'average' of amounts for SG&A and profits cannot be calculated on the basis of data on SG&A and profits relating to only one exporter or producer. Moreover, the textual directive to 'weight' the average further supports this view because the 'average' which results from combining the data from different exporters or producers must reflect the relative importance of these different exporters or producers in the overall mean. In short, it is simply not possible to calculate the 'weighted average' relating to only one exporter or producer. Indeed, we note that, at the oral hearing in this appeal, the European Communities conceded that the phrase 'weighted average' envisages a situation where there is more than one exporter or producer.
The requirement to calculate a 'weighted average' in Article 2.2.2(ii) is, in our view, the key to interpreting that provision. It is indispensable to the calculation method set forth in this provision, and, thus, it is indispensable to the entire provision - which deals only with the mechanics of that calculation. We disagree with the Panel that 'the concept of weighted averaging is relevant only when there is information from more than one other producer or exporter available to be considered.' (emphasis in the original) We see no justification, textual or otherwise, for concluding that amounts for SG&A and profits are to be determined on the basis of the weighted average some of the time but not all of the time. In so interpreting Article 2.2.2(ii), the Panel, in effect, reads the requirement of calculating a 'weighted average' out of the text in some circumstances. In those circumstances, this would substantially empty the phrase 'weighted average' of meaning.(35)
In our view, then, the use of the phrase 'weighted average', combined with the use of the words 'amounts' and 'exporters or producers' in the plural in the text of Article 2.2.2(ii), clearly anticipates the use of data from more than one exporter or producer. We conclude that the method for calculating amounts for SG&A and profits set out in this provision can only be used if data relating to more than one other exporter or producer is available."(36) (v) Article 2.2.2(ii) - production and sales amounts "incurred and realized" 35. In EC - Bed Linen, the Appellate Body reversed the Panel's conclusion that "an interpretation of Article 2.2.2(ii) under which sales not in the ordinary course of trade are excluded from the determination of the profit amount to be used in the calculation of a constructed normal value is permissible".(37) The Appellate Body emphasized that Article 2.2.2(ii) refers to "actual amounts incurred and realized by other exporters and producers" and concluded that, in the light of this wording, in the calculation of weighted average all of the actual amounts have to be included, regardless of whether the underlying sales were made in the ordinary course of trade or not: "Here, we note especially that Article 2.2.2(ii) refers to 'the weighted average of the actual amounts incurred and realized by other exporters or producers'. (emphasis added) In referring to 'the actual amounts incurred and realized', this provision does not make any exceptions or qualifications. In our view, the ordinary meaning of the phrase 'actual amounts incurred and realized' includes the SG&A actually incurred, and the profits or losses actually realized(38) by other exporters or producers in respect of production and sales of the like product in the domestic market of the country of origin. There is no basis in Article 2.2.2(ii) for excluding some amounts that were actually incurred or realized from the 'actual amounts incurred or realized'. It follows that, in the calculation of the 'weighted average', all of 'the actual amounts incurred and realized' by other exporters or producers must be included, regardless of whether those amounts are incurred and realized on production and sales made in the ordinary course of trade or not. Thus, in our view, a Member is not allowed to exclude those sales that are not made in the ordinary course of trade from the calculation of the 'weighted average' under Article 2.2.2(ii)."(39) 36. The Appellate Body in EC - Bed Linen also discussed the first sentence of the chapeau of Article 2.2.2 as part of the context supporting its interpretation of Article 2.2.2(ii) quoted in paragraph 35 above. The Appellate Body stated: "In contrast to Article 2.2.2(ii), the first sentence of the chapeau of Article 2.2.2 refers to 'actual data pertaining to production and sales in the ordinary course of trade'. (emphasis added) Thus, the drafters of the Anti-Dumping Agreement have made clear that sales not in the ordinary course of trade are to be excluded when calculating amounts for SG&A and profits using the method set out in the chapeau of Article 2.2.2.
The exclusion in the chapeau leads us to believe that, where there is no such explicit exclusion elsewhere in the same Article of the Anti-Dumping Agreement, no exclusion should be implied. And there is no such explicit exclusion in Article 2.2.2(ii). Article 2.2.2(ii) provides for an alternative calculation method that can be employed precisely when the method contemplated by the chapeau cannot be used. Article 2.2.2(ii) contains its own specific requirements. On their face, these requirements do not call for the exclusion of sales not made in the ordinary course of trade. Reading into the text of Article 2.2.2(ii) a requirement provided for in the chapeau of Article 2.2.2 is not justified either by the text or by the context of Article 2.2.2(ii)."(40) (vi) no separate "reasonability" test 37. The Panel on EC - Bed Linen, in a finding subsequently not addressed by the Appellate Body, rejected the argument by India that "the results of a proper calculation under Article 2.2.2(ii) are subject to a separate test of 'reasonability' before they may be used in constructing a normal value for other producers".(41) The Panel was unable to find a basis for such a separate reasonability test in the wording of Article 2.2.2: "The text ... indicates that the methodologies set out in Article 2.2.2 are outlined 'for the purpose' of calculating a reasonable profit amount pursuant to Article 2.2. There is no specific language establishing a separate reasonability test, or indicating how such a test should be conducted. In these circumstances, we consider that there is no textual basis for such a requirement. Thus, the ordinary meaning of the text indicates that if one of the methods of Article 2.2.2 is properly applied, the results are by definition 'reasonable' as required by Article 2.2.
Further, we note that Article 2.2.2(iii) provides for the use of 'any other reasonable method', without specifying such method, subject to a cap, defined as 'the profit normally realized by other exporters or producers on sales of products of the same general category in the domestic market of the country of origin'. To us, the inclusion of a cap where the methodology is not defined indicates that where the methodology is defined, in subparagraphs (i) and (ii), the application of those methodologies yields reasonable results. If those methodologies did not yield reasonable results, presumably the drafters would have included some explicit constraint on the results, as they did for subparagraph (iii).
Thus, we conclude that the text indicates that, if a Member bases its calculations on either the chapeau or paragraphs (i) or (ii), there is no need to separately consider the reasonability of the profit rate against some benchmark. In particular, there is no need to consider the limitation set out in paragraph (iii). That limitation is triggered only when a Member does not apply one of the methods set out in the chapeau or paragraphs (i) and (ii) of Article 2.2.2. Indeed, it is arguably precisely because no specific method is outlined in paragraph (iii) that the limitation on the profit rate exists in that provision."(42) 38. Similarly to the Panel on EC - Bed Linen, the Panel on Thailand - H-Beams also considered that no separate "reasonability" test is required under Article 2.2.2, and rejected Poland's argument that the results of applying any of the specified methodologies are at best rebuttably presumed to be reasonable. The Panel stated: "We find no trace in the texts of the relevant provisions of such a rebuttable presumption, however. To the contrary, the ordinary meaning of the text seems rather to indicate that, if one of the methodologies is applied, the result is by definition reasonable. First, as noted, the phrase 'for the purpose of paragraph 2' is without qualification in the text. In our view, this phrase is straightforward and means that Article 2.2.2 gives the specific instructions as to how to fulfil the basic but unelaborated requirement in Article 2.2 to use no more than a 'reasonable' amount for profit.
Second, we note that the chapeau of Article 2.2.2 provides that where the methodology in the chapeau 'cannot' be used, one of the methodologies in subparagraphs (i), (ii) or (iii) 'may' be used. Poland argues that the word 'may' only provides for the possibility of using such methodologies and implies that any results derived thereby would be subject to a reasonability test arising under Article 2.2. We disagree, as in our view the word 'may' constitutes authorization to use the methodologies in the subparagraphs where the methodology in the chapeau, which is the preferred methodology, 'cannot' be used. We note that the text of Article 2.2.2 establishes no hierarchy among the subparagraphs and that there is no disagreement between the parties concerning this issue."(43) 39. The Panel on Thailand - H-Beams, similarly to the Panel on EC - Bed Linen, went on to find that the existence of a "cap" under subparagraph (iii) of Article 2.2.2. with respect to "any other reasonable method" implied that the methodologies under subparagraphs (i) and (ii) ipso facto yielded "reasonable" results, such that no separate constraint existed in respect of these paragraphs.(44) The Panel, in a finding subsequently not reviewed by the Appellate Body, then also noted the requirement to use "actual data" under the Article 2.2.2 chapeau and subparagraphs (i) and (ii): "We note also the requirement in the chapeau of Article 2.2.2 as well as in subparagraphs (i) and (ii) that actual data be used. In our view, the notion of a separate reasonability test is both illogical and superfluous where the Agreement requires the use of specific types of actual data. That is, where actual data are used and the other requirements of the relevant provision(s) are fulfilled (e.g., that the 'same general category of products' is defined in a permissible way where 2.2.2(i) is applied), a correct or accurate result is obtained, and the requirement to use actual data is itself the mechanism that ensures reasonability in the sense of Article 2.2 of that (correct) result. By contrast, under subparagraph (iii) where no specific methodology or data source is required, and the use of 'any other reasonable method' is permitted, the provision itself contains what is in effect a separate reasonability test, namely the cap on the profit amount based on the actual experience of other exporters or producers. Thus, in our view, Article 2.2.2's requirement that actual data be used (and its establishment of a cap where this is not the case) are intended precisely to avoid the outcome that Poland seeks, namely subjective judgements by national authorities as to the 'reasonability' of given amounts used in constructed value calculations."(45) (d) Relationship with other paragraphs of Article 2 40. In Egypt - Steel Rebar, the Panel indicated that, in its view, what might be necessary to take into account by way of due allowance in a particular investigation in order to comply with the obligation to ensure a fair comparison under Article 2.4 could not be limited by the simplistic characterisation of a normal value as being one arrived at by way of a construction under Article 2.2: "[W]e do not think that the construction of a normal value under Article 2.2 precludes consideration of the making of various adjustments as between that normal value and the export price with which it is to be compared. A constructed normal value is, in effect, a notional price, "built up" by adding costs of production, administrative, selling and other costs, and a profit. In any given case, such a built-up price might or might not reflect credit costs. Thus, what might be necessary to take into account by way of due allowance in a particular investigation in order to comply with the obligation to ensure a fair comparison under Article 2.4 cannot be limited by the simplistic characterisation of a normal value as being one arrived at by way of a construction under Article 2.2."(46) 41. In US - Stainless Steel, the Panel explained the status of paragraph 3 in Article 2. See paragraph 8 above. (i) Fair comparison of export price and normal value 42. In Egypt - Steel Rebar, the Panel considered that "Article 2.4 in its entirety, including its burden of proof requirement, has to do with ensuring a fair comparison, through various adjustments as appropriate, of export price and normal value".(47) The Panel indicated that the ordinary meaning of this provision confirms that it has to do with the nature of the comparison of export price and normal value. In the Panel's view, "the immediate context of this provision, namely Articles 2.4.1 and 2.4.2 confirms that Article 2.4 and in particular its burden of proof requirement, applies to ... the calculation of the dumping margin". The Panel thus found that this provision did not apply to the investigating authority's establishment of normal value as such: "Article 2.4, on its face, refers to the comparison of export price and normal value, i.e., the calculation of the dumping margin, and in particular, requires that such a comparison shall be "fair". A straightforward consideration of the ordinary meaning of this provision confirms that it has to do not with the basis for and basic establishment of the export price and normal value (which are addressed in detail in other provisions)(48), but with the nature of the comparison of export price and normal value. First, the emphasis in the first sentence is on the fairness of the comparison. The next sentence, which starts with the words "[t]his comparison", clearly refers back to the "fair comparison" that is the subject of the first sentence. The second sentence elaborates on considerations pertaining to the "comparison", namely level of trade and timing of sales on both the normal value and export price sides of the dumping margin equation. The third sentence has to do with allowances for "differences which affect price comparability", and provides an illustrative list of possible such differences. The next two sentences have to do with ensuring "price comparability" in the particular case where a constructed export price has been used. The final sentence, where the reference to burden of proof at issue appears, also has to do with "ensur[ing] a fair comparison". In particular, the sentence provides that when collecting from the parties the particular information necessary to ensure a fair comparison, the authorities shall not impose an unreasonable burden of proof on the parties.
The immediate context of this provision, namely Articles 2.4.1 and 2.4.2 confirms that Article 2.4 and in particular its burden of proof requirement, applies to the comparison of export price and normal value, that is, the calculation of the dumping margin. Article 2.4.1 contains the relevant provisions for the situation where "the comparison under paragraph 4 requires a conversion of currencies" (emphasis added). Article 2.4.2 specifically refers to Article 2.4 as "the provisions governing fair comparison", and then goes on to establish certain rules for the method by which that comparison is made (i.e., the calculation of dumping margins on a weighted-average to weighted-average or other basis)."(49) (ii) Relationship with other sentences 43. In US - Stainless Steel, having found a violation of the third and fourth sentence of Article 2.4 in respect of certain allowances, the Panel considered that it was "not ... necessary to examine Korea's claims that the United States' treatment of bad debt breached a more general 'fair comparison' requirement under Article 2.4 of the AD Agreement."(50) (i) "sales made at as nearly as possible the same time" 44. The Panel on US - Stainless Steel rejected the United States argument that the "same time" requirement of Article 2.4 implies a preference for shorter rather than longer averaging periods when calculating the dumping margin pursuant to the weighted average/weighted average method in Article 2.4.2, first sentence. See paragraph 66 below. (c) Third sentence: "Due allowance" (i) "in each case, on its merits" 45. In Argentina - Ceramic Tiles, the Panel analysed the meaning of the requirement to make "due allowance in each case, on its merits" for differences in physical characteristics affecting price comparability. The Panel concluded that this requirement "means at a minimum that the authority has to evaluate identified differences in physical characteristics" and not only the most important ones: "Article 2.4 places the obligation on the investigating authority to make due allowance, in each case on its merits, for differences which affect price comparability, including differences in physical characteristics. The last sentence of Article 2.4 provides that the authorities shall indicate to the parties in question what information is necessary to ensure a fair comparison. We believe that the requirement to make due allowance for such differences, in each case on its merits, means at a minimum that the authority has to evaluate identified differences in physical characteristics to see whether an adjustment is required to maintain price comparability and to ensure a fair comparison between normal value and export price under Article 2.4 of the AD Agreement, and to adjust where necessary. ... ...We do not agree with Argentina's view that Article 2.4, through the qualifying language that due allowance shall be made "in each case" "on its merits", permits an investigating authority to adjust only for the most important of the physical differences that affect price comparability, even if making the remaining adjustments would have been, as the parties agree, complex. The DCD chose not to conduct a model-by-model comparison and it was then left to find other means to account for the remaining physical differences affecting price comparability. It did not do so."(51) 46. In Egypt - Steel Rebar, the Panel read Article 2.4 as explicitly requiring a fact-based, case-by-case analysis of differences that affect price comparability: "... we read Article 2.4 as explicitly requiring a fact-based, case-by-case analysis of differences that affect price comparability. In this regard, we take note in particular of the requirement in Article 2.4 that "[d]ue allowance shall be made in each case, on its merits, for differences which affect price comparability" (emphasis added). We note as well that in addition to an illustrative list of possible such differences, Article 2.4 also requires allowances for "any other differences which are also demonstrated to affect price comparability" (emphasis added). Finally, we note the affirmative information-gathering burden on the investigating authority in this context, that it "shall indicate to the parties in question what information is necessary to ensure a fair comparison and shall not impose an unreasonable burden of proof on those parties" (emphasis added). In short, where it is demonstrated by one or another party in a particular case, or by the data itself that a given difference affects price comparability, an adjustment must be made. In identifying to the parties the data that it considers would be necessary to make such a demonstration, the investigating authority is not to impose an unreasonable burden of proof on the parties. Thus, the process of determining what kind or types of adjustments need to be made to one or both sides of the dumping margin equation to ensure a fair comparison, is something of a dialogue between interested parties and the investigating authority, and must be done on a case-by-case basis, grounded in factual evidence."(52) (ii) "differences which affect price comparability" 47. In US - Hot-Rolled Steel, the Appellate Body ruled that the investigating authorities cannot exclude any differences affecting price comparability from being the object of an allowance: "Article 2.4 of the Anti-Dumping Agreement provides that, where there are "differences" between export price and normal value, which affect the "comparability" of these prices, "[d]ue allowance shall be made" for those differences. The text of that provision gives certain examples of factors which may affect the comparability of prices: "differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences". However, Article 2.4 expressly requires that "allowances" be made for "any other differences which are also demonstrated to affect price comparability." (emphasis added) There are, therefore, no differences "affect[ing] price comparability" which are precluded, as such, from being the object of an "allowance"."(53) (iii) Differences in "terms and conditions of sale" 48. In US - Stainless Steel, the Panel examined Korea's argument that in violation of the third sentence of Article 2.4, which permits an adjustment "for differences affecting price comparability, including differences in conditions and terms of sales ...", the United States treated export sales which had not been paid because the customer had gone bankrupt later, as "direct selling expenses", and allocated these direct selling expenses over all United States' sales. The Panel rejected the United States' argument that bad debts are expenses directly related to the payment terms of the contract, and stated: "We do not consider that the phrase 'differences in conditions and terms of sale', interpreted in accordance with customary rules of interpretation of public international law, can be understood to encompass differences arising from the unforeseen bankruptcy of a customer and consequent failure to pay for certain sales. In this respect, we note that Article 2.4 refers to the 'terms and conditions of sale'. Although of course both words - 'term' and 'condition' - have many meanings, both are commonly used in relation to contracts and agreements. Thus, 'term' is defined, inter alia, to mean 'conditions with regard to payment for goods or services', while 'condition' is defined, inter alia, as 'a provision in a will, contract, etc., on which the force or effect of the document depends'. Thus, we consider that, read as a whole, the phrase 'conditions and terms of sale' refers to the bundle of rights and obligations created by the sales agreement, and 'differences in conditions and terms of sale' refers to differences in that bundle of contractual rights and obligations. Thus, to the extent that there are, for example, differences in payment terms in the two markets, a difference in the conditions and terms of sale exists. The failure of a customer to pay is not a condition or term of sale in this sense, however. Rather, non-payment involves a situation where the purchaser has violated the 'conditions and terms of sale' by breaching its obligation to pay for the merchandise in question."(54) 49. The Panel on US - Stainless Steel specifically responded to the United States' argument that unpaid export sales were to be treated as "direct selling expenses" in distinguishing between "differences in conditions and terms of sale" and the "mode or state of being" of such sales: "We perceive no textual basis for the United States' effort to characterize all differences in costs associated with the terms of the contract and expenses directly related to the sale as 'differences in terms and conditions of sale'. The United States contends that 'conditions' of sale can be read in this context to mean the 'mode or state of being' of sales, such that 'differences in conditions and terms of sale' include the 'mode or circumstances' under which sales are made. Assuming this interpretation to be a permissible one, it might allow for adjustments for 'differences in conditions and terms of sale' in cases where the contractual provisions governing sales in the two markets were identical but the seller was aware from circumstances existing at the time of sale that those provisions would likely entail different costs.(55) Thus to take an example often cited by the United States in this dispute, a seller might extend identical warranties in different markets or to different customers, knowing in advance that the costs related to those warranties in one market would likely be higher than in the other. Similarly, a seller might extend sales on the same credit terms in two different markets or to two different customers in the awareness that the risk of default - and thus the likely costs associated with the extension of credit - would be higher in one case than in the other. However, we fail to see how the fact that a customer who has purchased on credit subsequently went bankrupt and failed to pay for his purchases could be deemed a 'circumstance under which sales are made', at least in a case such as this one where the seller had no knowledge of the precarious financial situation of the purchaser.
We consider that an examination of the context in which the phrase 'differences in conditions and terms of sale' is used supports our understanding of the ordinary meaning of this phrase. We recall that Article 2.4 identifies 'differences in conditions and terms of sale' as one of several 'differences which affect price comparability'. Thus, the notion of price comparability informs our interpretation of 'differences in conditions and terms of sale'. In our view, the requirement to make due allowance for differences that affect price comparability is intended to neutralise differences in a transaction that an exporter could be expected to have reflected in his pricing. A difference that could not reasonably have been anticipated and thus taken into account by the exporter when determining the price to be charged for the product in different markets or to different customers is not a difference that affects the comparability of prices within the meaning of Article 2.4. This reinforces our view that the phrase 'differences in conditions and terms of sale' cannot permissibly be interpreted to encompass an unanticipated failure of a customer to pay for certain sales."(56) 50. Further, the Panel on US - Stainless Steel rejected the United States' argument that its methodology for the treatment of bad debt was simply a practical way to address differing levels of risks between markets in cases where sales are made on credit. The Panel opined that differences in risk of non-payment might be a difference relevant for the purposes of Article 2.4 and that actual bad debt could be evidence for establishing such different levels of risk of non-payment. However, it found that the United States' methodology did not base its determination on these factors: "[W]e agree with the United States that a difference in risk of non-payment between markets that was known at the time of sale might represent a difference for which due allowance could properly be made under Article 2.4. Nor do we preclude that actual bad debt experience during the period of investigation might be evidence relevant to establishing the existence of such a difference.(57) The United States did not however treat actual experience with respect to levels of unpaid sales as evidence of different levels of risk in the two markets in these investigations. Rather, it stated that it was the DOC's practice to treat bad debt as a direct selling expense when the expense was incurred in respect of the subject merchandise. Thus, even assuming that the US methodology was somehow intended to address differences in risk of non-payment, we do not accept the proposition that the existence of a higher level of non-payment in one market than in another during the period of investigation may be deemed to demonstrate the existence of such differences in risk and thus represent a permissible adjustment for 'differences in conditions and terms of sale'.(58)"(59) 51. In US - Stainless Steel, the United States argued that the fourth sentence of Article 2.4 is not mandatory since it provides that allowances for costs and profits "should" be made in constructing an export price. The Panel agreed that the Anti-Dumping Agreement permits, but does not require such allowances, but opined that a Member may not make allowances other than those authorized by Article 2.4: "The term 'should' in its ordinary meaning generally is non-mandatory, i.e., its use in this sentence indicates that a Member is not required to make allowance for costs and profits when constructing an export price.(60) We believe that, because the failure to make allowance for costs and profits could only result in a higher export price - and thus a lower dumping margin - the AD Agreement merely permits, but does not require, that such allowances be made.(61)
... In our view, that the AD Agreement does not require such allowances does not mean that a Member is free to make any allowances it desires, including allowances not specified in this provision. To the contrary, we view this sentence as providing an authorization to make certain specific allowances. We therefore consider that allowances not within the scope of that authorization cannot be made.(62) If a Member were free to make any additional allowances it desired, there would be no effective disciplines on the methodology for construction of an export price and the provision in question would in our view be reduced to inutility.(63) Thus, we conclude that it would be inconsistent with Article 2.4 of the AD Agreement to make allowances in the construction of the export price that are not within the scope of the authorization found in that Article.
Our conclusion that Article 2.4 contains binding obligations regarding the scope of the permissible allowances that can be made in constructing an export price does not mean that we equate allowances for differences which affect price comparability with allowances relating to the construction of the export price. Rather, the third sentence of Article 2.4 requires due allowance to be made for differences affecting price comparability, while the fourth sentence provides that in the cases referred to in paragraph 3 - i.e., when constructing an export price - allowance for certain costs and profits should also be made. Finally, the fifth sentence of Article 2.4 makes clear that allowances relating to the construction of the export price could in fact reduce price comparability, such that one of several compensating steps should be taken. For all these reasons, it is clear to us that allowances in respect of construction of the export price are separate and distinct from allowances for differences which affect price comparability and are governed by different substantive rules."(64) (ii) "costs ... incurred between importation and resale" 52. In US - Stainless Steel, the Panel agreed with Korea's argument that it was inconsistent with Article 2.4 to treat export sales unpaid as a result of the bankruptcy of a customer as direct selling costs, because the related costs were not "incurred between importation and resale" mentioned in the fourth sentence of Article 2.4. The Panel established the "foreseeability" of costs as the decisive factor: "[W]e note that Article 2.4 uses the word 'between'. That term is defined to mean, inter alia, '[i]n the interval separating two points of time, events, etc.'. Thus, the phrase costs 'incurred between importation and resale' in its ordinary meaning is most naturally read to refer to costs that were incurred between the date of importation and the date of resale. Under this reading, it might be difficult to conclude that a cost incurred after the date of resale was a cost incurred 'between importation and resale'.
We are cognizant, however, that dictionary definitions can only take the interpreter so far, and that in interpreting a provision of a treaty we must take into account both context and object and purpose.(65) As discussed above, it is clear that the purpose of allowances to construct an export price is not to insure price comparability per se. Rather, an export price is constructed, and the appropriate allowances made, because it appears to the investigating authorities that the export price is unreliable because of association or a compensatory arrangement between the exporter and the importer or third party. By working backwards from the price at which the imported products are first resold to an independent buyer, it is possible to remove the unreliability. Thus, we agree with the United States that the purpose of these allowances is to construct a reliable export price to use in lieu of the actual export price or, as expressed by the EC as third party, to arrive at the price that would have been paid by the related importer had the sale been made on a commercial basis.
Read in light of this object and purpose, we recognize that costs related to the resale transaction but not incurred in a temporal sense between the date of importation and resale could as a general matter be considered to be 'incurred between importation and resale' and thus deducted in order to construct an export price. Nor do we preclude that an amount to cover the risk of non-payment might be considered to be such a cost. We do not believe, however, that this interpretation of costs 'incurred between importation and resale' can be stretched to include costs that not only were not incurred in an accounting sense until after the date of resale but which were entirely unforeseen at that time. In this regard, we observe that, while we agree with the United States that as a general principle a related importer may be expected to establish price based on costs plus profit, a price certainly cannot be expected to reflect an amount for costs that were entirely unforeseen at the time the price was set. To deduct costs which not only were incurred after the date of resale but which were entirely unforeseen at that time would not result in a 'reliable' export price in the sense of the price that would have been paid by the related exporter had the sale been made on a commercial basis."(66) 53. In US - Hot-Rolled Steel, the Appellate Body considered that "the obligation to ensure a "fair comparison"" under Article 2.4 "lies on the investigating authorities, and not the exporters. It is those authorities which, as part of their investigation, are charged with comparing normal value and export price and determining whether there is dumping of imports."(67) 54. In US - Stainless Steel, the complainant, Korea, argued that Article 2.4.1 is the only provision of the Anti-Dumping Agreement that addresses exchange rates and the permissible modification to the dumping calculation methodology to account for exchange rate fluctuations, and thus, that the use of multiple averaging periods to account for the depreciation of the Korean won during the period of investigation was inconsistent with Article 2.4.1. The Panel responded as follows: "In our view, Article 2.4.1 relates to the selection of exchange rates to be used where currency conversions are required. It establishes a general rule - conversion should be made using the rate of exchange on the date of sale - and an exception to this general rule for sales on forward markets. It also establishes special rules in the case of fluctuations and sustained movements in exchange rates. We note Korea's view that the requirements of the second sentence of Article 2.4.1 prescribe specific results, rather than describing a method for selecting exchange rates. It appears to us, however, that, read in context, these special rules also relate to the selection of exchange rates, and not to the construction of averages. Rather, the permissibility of the use of multiple averaging is an issue addressed by Article 2.4.2.
Even if Article 2.4.1 were not restricted to the issue of the selection of exchange rates, we find nothing in that Article that would prohibit a Member from addressing, through multiple averaging, a situation arising from a currency depreciation. Korea contends, and the United States does not dispute, that the provision of Article 2.4.1 requiring Members to allow exporters sixty days to adjust their export prices to sustained movements in exchange rates applies only in the case of currency appreciation, and not in the case of currency depreciation. Assuming that the parties are correct in this regard, the requirement that a Member take certain actions in the case of currency appreciation does not in our view mean that Members are prohibited from taking any action to address a situation arising from a currency depreciation.(68)"(69) 55. In US - Stainless Steel, the complainant, Korea, argued that while Article 2.4.1 permits currency conversions only when such conversions are "required", i.e., when there is no other reasonable alternative, the United States' authority had performed an unnecessary "double conversion" of Korean local sales by converting the dollar amounts appearing in their invoices into won at one exchange rate and converting them back into dollars at a different exchange rate, in order to compare the prices of the local sales with those of exports to the United States. The Panel found that the conversions were not required because the prices being compared were in the same currency (dollars), and thus concluded that the currency conversions were inconsistent with Article 2.4.1: "While Article 2.4.1 does not spell out the precise circumstances under which currency conversions are to be avoided, we consider that it does establish a general - and in our view, self-evident - principle that currency conversions are permitted only where they are required in order to effect a comparison between the export price and the normal value. We note that a contrary interpretation would call into doubt the utility of the introductory clause of Article 2.4.1. If the drafters had not intended to establish a rule that currency conversions be performed only when required, they could easily have drafted Article 2.4.1 to provide that 'Currency conversions should be made using the rate of exchange on the date of sale ....' Further, such an interpretation could result in the unusual situation where currency conversions that were required in order to perform a comparison under Article 2.4 would be subject to the rules set forth in Article 2.4.1, but unnecessary currency conversions could be performed without regard to the rules of Article 2.4.1.
We need not here arrive at any general understanding as to when currency conversions are or are not required within the meaning of Article 2.4.1, nor do we express any view regarding Korea's 'reasonable alternative' test. ..."(70) 56. In US - Stainless Steel, one of the issues in the context of Article 2.4.1 was whether the Korean local sales had been made for United States dollars or Korean won. The Panel stated that "if the amount of won actually paid was based on the dollar amount identified in the invoice at the market rate of exchange on the date of payment (which, because the local sales in question were letter of credit sales, came some months after the date of invoice), then the controlling amount would be the dollar amount appearing in the invoice."(71) (iii) Relationship with Article 2.4 57. In US - Stainless Steel, the complainant, Korea, argued that certain factual determinations of the United States' authority on currency conversion were inconsistent with Article 2.4 as well as Article 2.4.1. The Panel held that the United States' determination which it found consistent with Article 2.4.1 was also consistent with Article 2.4(72), but that with respect to the other determination, which it found in violation of Article 2.4.1, "we do not consider it necessary to examine Korea's claim that those double conversions breached a more general 'fair comparison' requirement under Article 2.4 of the AD Agreement."(73) 58. In EC - Bed Linen, the Panel interpreted the word "margins" in Article 2.4.2 as meaning the individual margin of dumping determined for each of the investigated exporters and producers of the product under investigation, for that particular product. The Appellate Body agreed with this interpretation.(74) 59. In EC - Bed Linen, the Appellate Body stated with reference to the text of Article 2.4.2, that "[f]rom the wording of this provision, it is clear to us that the Anti-Dumping Agreement concerns the dumping of a product, and that, therefore, the margins of dumping to which Article 2.4.2 refers are the margins of dumping for a product."(75) (ii) Weighted average / weighted average 60. In EC - Bed Linen the Appellate Body examined the first method under Article 2.4.2 for establishing the existence of margins of dumping, i.e. the comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions. The Appellate Body found the European Communities' practice of "zeroing"(76) inconsistent with this method because by, inter alia, zeroing the negative dumping margins, the European Communities had not taken fully into account the entirety of the prices of some export transactions: "[W]e recall that Article 2.4.2, first sentence, provides that 'the existence of margins of dumping' for the product und |
