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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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> Relationship with other WTO Agreements
> Declaration on Dispute Settlement Pursuant to the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 or Part V of the Agreement on Subsidies and Countervailing Measures
> Decision on Review of Article 17.6 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
> Decision on Anti-Circumvention

 

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I. General     back to top

A. Object and Purpose of the Anti-Dumping Agreement

1.     In US — 1916 Act (Japan), the Panel stated that:

“[The preambles of the WTO Agreement and the GATT do not provide precise directives. We note however that both preambles refer to the ‘substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations’. We also note that the WTO preamble refers to the development of a ‘more viable and durable multilateral trading system’. We consider that the approach of the United States which would allow Members to take any type of measure against dumping as such outside the framework of Article VI, as long as they are not incompatible with other provisions of the WTO Agreement, does not seem to be commensurate with the objectives highlighted above.”(1)

2.     The Panel in US — Corrosion-Resistant Steel Sunset Review noted that “[t]he Anti-dumping Agreement itself does not contain provisions which specify its object and purpose”.(2)

3.     In US — Softwood Lumber V (Article 21.5 — Canada), the Appellate Body considered it unnecessary to engage in an analysis of the object and purpose of the Anti-Dumping Agreement for the purposes of resolving the issue before it:

“We turn to examine what guidance is provided by the object and purpose of the Anti-Dumping Agreement for the interpretation of Article 2.4.2. The Anti-Dumping Agreement does not contain a preamble or an explicit indication of its object and purpose. Neither participant referred to the object and purpose in its written submission. At the oral hearing, Canada and certain third participants indicated that the object and purpose of the Anti-Dumping Agreement could be discerned from Article 1 of the Anti-Dumping Agreement. The United States and New Zealand, in contrast, said guidance could be found in Article VI of the GATT 1994. We do not consider it necessary for purposes of resolving the issue before us on appeal to engage in an in-depth analysis of the object and purpose of the Anti-Dumping Agreement.”(3)

4.     In US — Zeroing (EC), the Panel offered several observations on arguments relating to the object and purpose of the Anti-Dumping Agreement:

“[S]ince the AD Agreement contains no discrete statement of objectives, one can only derive or deduce its objectives from the operational provisions of the Agreement. While it is perhaps possible at a very high level of generality to deduce from the operational provisions of the AD Agreement as a whole that for instance, one of the ‘objectives’ of the AD Agreement is to provide a multilaterally agreed framework of rules governing actions against injurious dumping, claims of more specific objectives are difficult to discern with any facility or compelling force due to the lack of anything that could properly be described as constituting a clear statement of the objectives of the AD Agreement.”(4)

 

PART I

 

II. Article 1     back to top

A. Text of Article 1

Members hereby agree as follows:

Article 1:(5) 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.


B. Interpretation and Application of Article 1

1. General

(a) “anti-dumping measure”

5.     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.”(6) 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.”(7)

(b) “initiated and conducted in accordance with the provisions of this Agreement”

6.     Regarding a claim raised under Article 1, the Panel in 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.”(8)

7.     The Panel in EC — Tube or Pipe Fittings rejected the assertion that in case of a devaluation in the fourth quarter of the period of investigation, Article 1 of the Anti-Dumping Agreement and Article VI of the GATT 1994 require the investigating authority to base its determination only on the period following the devaluation to examine whether there was present dumping causing injury. The Panel stated that “Article 1 of the Anti-Dumping Agreement does not require an investigating authority to re-assess its own determination made on the basis of an examination of data pertaining to the IP prior to the imposition of an anti-dumping measure in the light of an event that occurred during the IP”.(9)

(c) Relationship with other Articles

8.     In EC — Bed Linen, the Panel touched on the relationship between Articles 1 and 15 in interpreting Article 15. See paragraph 862 below.

9.     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 Anti-Dumping Agreement. There would be no basis to Mexico’s claims under Articles 1, 9 and 18 of the Anti-Dumping Agreement, and Article VI of the GATT 1994, if Guatemala were not found to have violated other provisions of the Anti-Dumping Agreement.”(10) In light of this dependent nature of Mexico’s claim, the Panel considered it not necessary to address these claims.

10.     In US — Stainless Steel (Korea), 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”(11), 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.”(12)

11.     The relationship between Article 1 and other provisions of the Anti-Dumping Agreement was discussed in Guatemala — Cement II and US — Stainless Steel (Korea). See paragraphs 910 above.

12.     See also under Articles 17.4 and 18 below.

 

III. Article 2     back to top

A. Text of Article 2

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.

 
B. Interpretation and Application of Article 2

1. General

(a) Period of data collection

(i) Recommendation by the Committee on Anti-Dumping Practices

13.     At its meeting of 4–5 May 2000, the Committee on Anti-Dumping Practices adopted the following recommendation concerning the periods of data collection for original anti-dumping investigations to determine the existence of dumping and consequent injury:

“The Committee notes that although the Agreement on Implementation of Article VI of GATT 1994 refers to the period of data collection for dumping investigations when it refers to the ‘period of investigation’, it does not establish any specific period of investigation, nor does it establish guidelines for determining an appropriate period of investigation, for the examination of either dumping or injury.

 

The Committee considers that guidelines for determining what period or periods of data collection may be appropriate for the examination of dumping and of injury would be useful. The Committee also recognizes, however, that such guidelines do not preclude investigating authorities from taking account of the particular circumstances of a given investigation in setting the periods of data collection for both dumping and injury, to ensure that they are appropriate in each case.

 

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.”(13)

(ii) Role of the period of investigation

14.     In EC — Tube or Pipe Fittings, the Appellate Body rejected Brazil’s argument that the investigating authority was obliged to base its export price determination on data relating to only that part of the period of investigation (POI) that followed a steep devaluation of the Brazilian currency. According to the Appellate Body, “certain anomalous results would flow from Brazil’s assertion that when a major change, such as in this case a steep and lasting devaluation, occurs at a late stage of the POI, the dumping determination should be confined to and based on the data following that major change. If such a change were to take place at the very end of the POI, Brazil’s approach would imply that the determination would have to be based on the data of a very short period.”(14) The Appellate Body, pointing out that there could also be a revaluation late in the POI, considered as follows:

“Permitting such discretionary selection of data from a period of time within the POI would defeat the objectives underlying investigating authorities’ reliance on a POI for the purposes of a dumping determination. As the Panel correctly noted, the POI ‘form[s] the basis for an objective and unbiased determination by the investigating authority.’ Like the Panel and the parties to this dispute, we understand a POI to provide data collected over a sustained period of time, which period can allow the investigating authority to make a dumping determination that is less likely to be subject to market fluctuations or other vagaries that may distort a proper evaluation. We agree with the Panel that the standardized reliance on a POI, although not fixed in duration by the Anti-Dumping Agreement, assures the investigating authority and exporters of ‘a consistent and reasonable methodology for determining present dumping’, which anti-dumping duties are intended to offset. In contrast to this consistency and reliability, Brazil’s approach would introduce a significant level of subjectivity on the part of the investigating authority to determine when data from a subset of the POI may be a reliable indicator of an exporter’s future pricing behaviour. As the European Communities points out, the ‘broad judgmental role’ accorded investigating authorities by Brazil’s approach is not consistent with the detailed nature of the rules and obligations of the Anti-Dumping Agreement governing various aspects of the dumping determination.”(15)

15.     The same Report found that “the Anti-Dumping Agreement takes into account the possibility of such major changes occurring at a late stage of the POI, or even after the POI, not by allowing investigating authorities to pick and choose a subset of data or sub-periods of a POI according to their subjective considerations, but by review mechanisms.”(16)

2. Article 2.1

(a) General

16.     The Appellate Body in US — Stainless Steel (Mexico) found that “Article 2.1 of the Anti-Dumping Agreement defines ‘dumping’, and the opening phrase of that Article makes it clear that the definition applies ‘[f]or the purpose of this Agreement’. Therefore, ‘dumping’ and ‘margin of dumping’ have the same meaning throughout the Anti-Dumping Agreement.”(17)

(b) “Product”

17.     In EC — Bed Linen, the Appellate Body referred to Article 2.1 in relation to Article 2.4.2 and remarked that “From 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.”(18)

18.     In US — Zeroing (Japan), Japan argued that Article 2.1 proscribed zeroing in general, due to the fact that “dumping” and “margins of dumping” are defined in terms of a “product (s)”. Japan argued that “product” had to be understood as “product as a whole” and therefore “dumping” and “margins of dumping” could not be applied to models, types, categories, sub-groups or transactions.(19) The Appellate Body in US — Zeroing (Japan) found that Article 2.1 of the Anti-Dumping Agreement and Articles VI:1 of the GATT were definitional provisions, and read in isolation did not impose independent obligations. Because the Appellate Body found the United States was acting “inconsistently with Article 2.4.2 of the Anti-Dumping Agreement by maintaining zeroing procedures in original investigations on the basis of T-T comparisons”(20), it did not consider it necessary to make any additional findings under Article 2.1 or Article VI:I.

19.     The Panel in US — Orange Juice (Brazil) found that in light of the Appellate Body’s decisions regarding this issue, “the only permissible interpretation of the definition of ‘dumping’ contained in Article 2.1 of the AD Agreement, with relevance for the entire AD Agreement, is one that is based on an understanding that ‘dumping’ can only be determined for the ‘product as a whole’, and not individual transactions.”(21)

(c) “like product”

20.     The Panel in EC — Salmon (Norway) considered Norway’s claim that the “product under consideration” must consist of a single, internally homogeneous product or, alternatively, categories that are each individually “like” each other so as to constitute a single homogenous product.(22) The Panel found that “[t]here is simply nothing in the text of Article 2.1 that provides any guidance whatsoever as to what the parameters of that product should be. The mere fact that a dumping determination is ultimately made with respect to ‘a product’ says nothing about the scope of the relevant product. There is certainly nothing in the text of Article 2.1 that can be understood to require the type of internal consistency posited by Norway.”(23) The Panel cited other provisions of the Anti-Dumping Agreement as relevant context for interpretation:

Article 6.10 provides for limited examination in cases where the number of ‘types of products involved’ is so large as to make it impracticable to determine an individual margin of dumping. Similarly, the Appellate Body has recognized that an investigating authority may divide a product into groups or categories of comparable goods for purposes of comparison of normal value and export price the practice of ‘multiple averaging’. Neither of these would be necessary if Norway’s view of the meaning of ‘a product’ in Article 2.1 were the only permissible interpretation. There would be no possibility of investigating more than one ‘type of product’ as mentioned in Article 6.10, and no reason to group comparable goods for purposes of making price comparisons for each group in the process of calculating a single dumping margin for the product as a whole.”(24)

21.     The Panel in EC — Salmon (Norway) concluded that Articles 2.1 and 2.6 did not have to be interpreted to require an investigating authority (in this case, the European Communities) to have defined the product under consideration to include only products that are “like”.(25)

22.     In EC — Fasteners (China), the Panel also concluded that Articles 2.1 and 2.6 did not require the investigating authority to define the product under consideration to include only products that are “like”. The Panel remarked that “The mere fact that a dumping determination is ultimately made with respect to ‘a product’ says nothing about the scope of that product. There is certainly nothing in the text of Article 2.1 that can be understood to require any consideration of ‘likeness’ in the scope of the exported product investigated…’.(26)” (27) The Panel concluded that “while Article 2.1 establishes that a dumping determination is to be made for a single ‘product under consideration’, there is no guidance for determining the parameters of that product, and certainly no requirement of internal homogeneity of that product, in that Article.”(28)

23.   See also the related discussion under Article 2.6 below.

(d)   “less than its normal value”: calculation of normal value

(i)   Use of sales transactions for calculating normal value

24.     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’.(29)

25.     The Panel in US — Oil Country Tubular Goods Sunset Reviews (Article 21.5 — Argentina) noted that “As Article 2.1 makes clear, the starting point for normal value is ‘the comparable price, in the ordinary course of trade’ for the like product when destined for consumption in the exporting country. Thus, the concept of dumping is, in the first instance, a comparison of home market and export prices. Only in the circumstances set forth in Article 2.2 may an investigating authority look to alternative bases to home market prices, such as costs, when determining normal value.”(30)

(ii) Use of downstream sales for calculating normal value

26.     In US — Hot-Rolled Steel, the US 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”, and 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, arguing that it is implicit in Article 2.1 that a sales transaction may only be used to calculate normal value if the exporter is the seller. The Appellate Body, reversing the Panel, considered that Article 2.1 is silent on this issue and that, if all four explicit conditions in Article 2.1 are satisfied (see paragraph 24 above), 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”. The Appellate Body noted that the identity of the seller may still affect normal value because it may affect comparability though that aspect is dealt with 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.”(31)

(e) Sales “in the ordinary course of trade”

(i) Definition of sales “in the ordinary course of trade”

27.     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”.(32) 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.”(33) The Appellate Body considered that for the purpose of the appeal, it was content with that definition.(34)

28.     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.”(35)

(ii) Investigating authorities’ discretion under Article 2.1

29.     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 an evenhanded 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’.”(36)

(iii) Sales not in the ordinary course of trade

Purpose of excluding sales not in the ordinary course of trade

30.     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.”(37)

Prices above or below the ordinary course of trade price

31.     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 per cent 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 per cent test “does not rest on a permissible interpretation of the term ‘sales in the ordinary course of trade’.”(38) The Appellate Body upheld the Panel’s finding, although it followed a different reasoning.(39)

32.     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.”(40)

33.     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’.(41) 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.”(42)

Scope of the investigating authorities’ duties under Article 2.1

34.     The Appellate Body in US — Hot-Rolled Steel described the duties of the investigating authorities under Article 2.1:

“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’.”(43)

Sales between affiliated companies

35.     In US — Hot-Rolled Steel, the Appellate Body upheld, with different reasoning, the Panel’s finding that the application by the US authorities of a 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 3133 above. In US — Hot-Rolled Steel, the US 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 26 above.

(f)   Request for information

36.     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.”(44)

(g) Relationship with other paragraphs of Article 2

37.     In US — Stainless Steel (Korea), the Panel found the US 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.(45)”(46)

(i) Article 2.2.1

38.     See paragraph 28 above.

(ii) Article 2.4

39.     See paragraph 26 above.

(h) Relationship with other Articles

(i) Article 3.6

40.     In EC — Salmon (Norway), Norway argued that Article 3.6 supported the proposition that under the Anti-Dumping Agreement the results of separate production processes could not be considered a single product under investigation and therefore could not be the subject of a single investigation. The Panel disagreed:

Article 3.6 is a provision about what information an investigating authority may evaluate in considering the effects of dumped imports for the purpose of determining injury to a domestic industry. It simply has no bearing on the question of product under consideration. Article 3.6 addresses a particular question about the data to be considered in an investigating authority’s inquiry into the effects of dumping. This happens, in every investigation, after the product under consideration has been defined, the domestic like product has been determined pursuant to Article 2.6, and the relevant domestic industry has been determined pursuant to Article 4.1 … we consider Norway’s reliance on Article 3.6 to be misplaced and unpersuasive.”(47)

3. Article 2.2

(a) Request for cost information

41.     With respect to requests for cost information by investigating authorities, see paragraph 36 above.

(b) Article 2.2.1

42.     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 28 above.

43.     The Panel in EC — Salmon (Norway) explained how, in its view, Article 2.2.1 functioned:

“As we have already noted, Article 2.2.1 establishes a methodology for determining when below-cost sales may be treated as outside of the ordinary course of trade by reason of price. Pursuant to this methodology, below cost sales may be found to be outside of the ordinary course of trade, and thereby disregarded from the calculation of normal value, when three conditions are satisfied the below-cost sales must be made: (i) within an extended period of time; (ii) in substantial quantities; and (iii) at prices which do not provide for the recovery of all costs within a reasonable period of time.”(48)

44.     In EC — Salmon (Norway), Norway claimed that the investigating authority had acted inconsistently with the European Communities’ obligations under Article 2.2.1 when it excluded sales of certain investigated companies from its calculation of normal value, on the grounds that they were outside of the ordinary course of trade by reason of price. The Panel found that an “a contrario” reading of Article 2.2.1 would be conducive to the effective and expeditious conduct of investigations, which the Panel considered to be an important practical consideration:

“In our view, in adopting the text of the last sentence of Article 2.2.1, the drafters intended to describe a methodology that if applied would result in compliance with the obligation to ‘determine’ that below-cost sales do not provide for the recovery of costs within a reasonable period of time.”(49)

45.     After examining the EC regulation and conducting an analysis of Article 2.2.1 that led to a conclusion that it could be read a contrario, the Panel in EC — Salmon (Norway) found that the investigating authority’s exclusion of the sales in question was not inconsistent with Article 2.2.1:(50)

“[W]e find that the last sentence of Article 2.2.1 was intended to be read a contrario, such that a finding of sales made at prices above weighted average costs for the period of investigation would be sufficient to show that all sales not found to be above weighted average costs for the period of investigation do not provide for the recovery of costs within a reasonable period of time.”(51)

(i) “Reasonable period of time”

46.     In EC — Salmon (Norway), Norway claimed that the “investigating authority failed to ‘determine’ that the below cost sales did not provide for the recovery of all costs within a reasonable period of time because its findings did not include an explicit and unambiguous explanation of why the prices of the sales discarded did not provide for the recovery of costs within a reasonable period of time.”(52) The Panel understood Norway’s concern to be “focused on the alleged absence of any mention of the terms ‘cost recovery’ and ‘reasonable period of time’ in the investigating authority’s determination, as well as the alleged lack of any statement of the duration of the ‘reasonable period of time’.”(53) The Panel found that “an investigating authority that acts consistently with the second sentence of Article 2.2.1 need not ‘state’ that the ‘reasonable period of time’ is equivalent to the period of investigation because these two periods are equated by definition under the express terms of the second sentence.”(54)

(ii) Article 2.2.1.1

Cost data requirements or elements

47.     The Panel in 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.(55)

48.     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”.(56)

Positive obligations on investigating authorities

49.     The Panel in US — Lumber V considered that Article 2.2.1.1 contained only a limited obligation to base the cost on the records of the exporter or producer under investigation under certain circumstances. The Panel was of the view that Article 2.2.1.1 does not require that costs be calculated in accordance with Generally Accepted Accounting Principles (GAAP) nor that they reasonably reflect the costs associated with the production and sale of the product under consideration:

“In our view, Article 2.2.1.1 imposes certain positive obligations on investigating authorities, including the obligation to calculate costs on the basis of records kept by the exporter or producer under investigation and to consider all available evidence on the proper allocation of costs. Neither of these obligations is absolute, however, as in both cases the obligations apply only if (‘provided‘) certain conditions are met. The role of these conditions is therefore not to impose positive obligations on Members, but to set forth the circumstances under which certain positive obligations do or do not apply. Thus, Article 2.2.1.1 does not in our view require that costs be calculated in accordance with GAAP nor that they reasonably reflect the costs associated with the production and sale of the product under consideration. Rather, it simply requires that costs be calculated on the basis of the exporter or producer’s records, insofar as those records are in accordance with GAAP and reasonably reflect the costs associated with the production and sale of the product under consideration. Similarly, Article 2.2.1.1 does not require that all allocations made by an investigating authority have been historically utilised by the exporter or producer; rather it simply provides that investigating authorities must consider all available evidence on the proper allocation of costs, including that made available by respondents, insofar as such allocations have been historically utilised by the exporter or producer. Bearing this in mind, we shall examine Canada’s arguments relating to Article 2.2.1.1.”(57)

Consider all available evidence on the proper allocation of costs

50.     In US — Softwood Lumber V, the Appellate Body considered that the requirement to consider all available evidence on the proper allocation of costs may in certain circumstances require the authorities to compare advantages and disadvantages of alternative cost allocation methodologies:

“In our view, the parameters of the obligation to ‘consider all available evidence’ will vary case-by-case. It may well be that, in the light of the facts of a particular case, the requirement to ‘consider all available evidence’ may be satisfied by the investigating authority without comparing allocation methodologies or aspects thereof. However, in other instances such as where there is compelling evidence available to the investigating authority that more than one allocation methodology potentially may be appropriate to ensure that there is a proper allocation of costs the investigating authority may be required to ‘reflect on’ and ‘weigh the merits of’ evidence that relates to such alternative allocation methodologies, in order to satisfy the requirement to ‘consider all available evidence’. Thus, although the second sentence of Article 2.2.1.1 does not, as a general rule, require investigating authorities to compare allocation methodologies to assess their respective advantages and disadvantages in each and every case, there may be particular instances in which the investigating authority may be required to compare them in order to satisfy the explicit requirement of the second sentence of Article 2.2.1.1 to ‘consider all available evidence on the proper allocation of costs’.”(58)

Burden of proof

51.     Referring to EC — Hormones(59), the Panel in 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.(60)

Non-recurring costs (NRCs)

52.     The Panel in EC — Salmon (Norway) explained its understanding of the obligation in the final sentence of Article 2.2.1.1:

“This sentence establishes an obligation on investigating authorities to make appropriate adjustments to cost of production for ‘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’, when not ‘already reflected in the cost allocations’ that are contemplated under the second sentence. The first point to note about the second sentence is that it establishes a conditional obligation to make appropriate adjustments to cost of production for two types of cost: NRCs ‘which benefit future and/or current production’; and start-up costs.”(61)

53.     The Panel in EC — Salmon (Norway) found that the standard for determining whether or not nonrecurring costs (NRCs) may be properly counted as part of the cost of production is whether they are “associated with the production and sale” of the like product during the period of investigation.(62)

“[B]ecause the notion of costs ‘associated’ with production is broader than costs that ‘benefit’ production, it does not necessarily follow that costs which do not ‘benefit’ production cannot be ‘associated’ with production. In any case, as we have already noted, the obligation established under the last sentence of Article 2.2.1.1 does not define when NRCs may be included in cost of production, but merely recalls that where no cost allocation has been made for NRCs which benefit future and/or current production, investigating authorities must make an appropriate adjustment.”(63)

54.     The Panel in EC — Salmon (Norway) therefore disagreed with Norway that Article 2.2.1.1 required that NRCs could only be included in the cost of production when they benefited future and/or current production that was an incorrect interpretation of Article 2.2.1.1.(64)

55.     Regarding the allocation of NRCs, the Panel in EC — Salmon (Norway) noted that Article 2.2.1.1 did not prescribe any particular methodology, but that any methodology applied “must reflect the relationship that exists between the costs being allocated and the production activities to which they are ‘associated’.”(65) An explanation was also necessary:

“[W]e believe that it was incumbent on the investigating authority to at the very minimum explain why it was appropriate to allocate the relevant NRCs over a period of time that was equivalent to what the investigating authority considered to be the average period of time to farm salmon. However, we can find no such explanation, even in general terms, anywhere in the investigating authority’s findings. Absent any such explanation, the approach undertaken by the investigating authority fails the test that is established under Article 2.2.1.1.”(66)

(c) Article 2.2.2

(i) Amounts based on actual data pertaining to production and sales of the like product

56.     The Panel in US — Softwood Lumber V was of the view that amounts for general and administrative expenses “pertain to” the production and sale of the like product unless it can be demonstrated that the product under investigation did not benefit from a particular General and Administrative costs (G&A) cost item:(67)

“We next examine the term ‘pertain to’ within the meaning of the chapeau of Article 2.2.2. ‘Pertain’ is defined as ‘relate or have reference to’.(68) In our view, a meaningful interpretation of the term ‘pertain[ing] to’ must take into account the nature of those costs because, as Canada acknowledges, they ‘are not directly attributable to the product under investigation or [to] any particular product’. Thus, it would appear to us that, unless a particular G&A cost can be tied to a particular product manufactured by a company, G&A costs because normally they cannot be attributed to any particular product but are costs incurred by the company in the production and sale of goods pertain or relate to all of those goods. Canada’s argument that G&A costs ‘benefit all products that a company (or division within a company) may produce rather than specific products’ supports our view. If G&A costs benefit the production and sale of all goods that a company may produce, they must certainly relate or pertain to those goods, including in part to the product under investigation.”(69)

(ii) Use of low-volume sales in determining selling, general and administrative costs (SG&A) and profits for the purpose of calculating constructed normal value

57.     In EC — Tube or Pipe Fittings, the Appellate Body was asked to examine whether an investigating authority must exclude data from low-volume sales when determining the amounts for SG&A and profits under the chapeau of Article 2.2.2, having disregarded such low-volume sales for normal value determination under Article 2.2. The Appellate Body reasoned:

“Examining the text of the chapeau of Article 2.2.2, we observe that this provision imposes a general obligation (‘shall’) on an investigating authority to use ‘actual data pertaining to production and sales in the ordinary course of trade’ when determining amounts for SG&A and profits. Only ‘[w]hen such amounts cannot be determined on this basis’ may an investigating authority proceed to employ one of the other three methods provided in subparagraphs (i)(iii). In our view, the language of the chapeau indicates that an investigating authority, when determining SG&A and profits under Article 2.2.2, must first attempt to make such a determination using the ‘actual data pertaining to production and sales in the ordinary course of trade’. If actual SG&A and profit data for sales in the ordinary course of trade do exist for the exporter and the like product under investigation, an investigating authority is obliged to use that data for purposes of constructing normal value; it may not calculate constructed normal value using SG&A and profit data by reference to different data or by using an alternative method.

 

As the Panel correctly observed, it is meaningful for the interpretation of Article 2.2.2 that Article 2.2 specifically identifies low-volume sales in addition to sales outside the ordinary course of trade. In contrast to Article 2.2, the chapeau of Article 2.2.2 explicitly excludes only sales outside the ordinary course of trade. The absence of any qualifying language related to low volumes in Article 2.2.2 implies that an exception for low-volume sales should not be read into Article 2.2.2.”(70)

58.     The Appellate Body in EC — Tube or Pipe Fittings concluded that it is “significant that Article 2.2.2 specifies the data to be used by an investigating authority when constructing normal value. The text of that provision excludes actual data outside the ordinary course of trade, but does not exclude data from low-volume sales. The negotiators’ express reference to sales outside the ordinary course of trade and to low-volume sales in Article 2.2, and the omission of a reference to low volume sales in the chapeau of Article 2.2.2, confirms our view that low-volume sales are not excluded from the chapeau of Article 2.2.2 for the calculation of SG&A profits.”(71) Thus, the Appellate Body found that in cases where low-volume sales are in the ordinary course of trade, an investigating authority does not act inconsistently with the chapeau of Article 2.2.2 by including actual data from those sales to derive SG&A and profits for the construction of normal value.

59.     The Panel in Korea — Certain Paper accepted that the KTC’s decision to disregard the domestic sales data submitted by Indah Kiat and Pindo Deli was not WTO-inconsistent because those data were not verifiable:

“It follows that the KTC could not possibly carry out the determinations set out under Article 2.2 of the Agreement before resorting to constructed normal value for Indah Kiat and Pindo Deli. We therefore conclude that the KTC did not act inconsistently with Article 2.2 in basing its normal value determination on constructed value under Article 2.2 for these two companies and reject Indonesia’s claim.(72)”(73)

60.     In EC — Salmon (Norway), the European Communities argued that the result of taking into account data from non-representative sales would have been to construct normal values that were identical to the normal values that would be determined on the basis of the prices of the same non-representative sales. The Panel saw the “main cause of the dilemma identified by the EC to be the requirement in Article 2.2.2 that actual profit margins pertaining to all sales in the ordinary course of trade be used when constructing normal value.”(74) However, in light of the text of Article 2.2.2 and the Appellate Body’s observations in EC — Tube or Pipe Fittings the Panel found that “Article 2.2.2 did not envisage a ‘low-volume’ sales exception to the rule that SG&A costs and profit used for the purpose of constructing normal value be calculated on the basis of data pertaining to sales made in the ordinary course of trade.”(75)

(iii) Ordinary course of trade

61.     The Panel in EC — Salmon (Norway) did not agree with the European Communities that the notion of sales in the “ordinary course of trade” had to be interpreted so as to permit low-volume sales to be treated outside the “ordinary course of trade” for the purpose of Article 2.2.2:

“We note that Article 2.2.1 does not exhaust the situations where domestic sales may be considered to be outside the ‘ordinary course of trade’. Indeed, as the Appellate Body has found, Article 2.2.1 establishes but one methodology for determining when below-cost sales may be treated as not being made in the ‘ordinary course of trade’ by reason of price. There may be many other reasons why domestic sales transactions might not be considered to be ‘outside of the ordinary course of trade’. Thus, to find that sales determined to be outside of the ‘ordinary course of trade’ under Article 2.2.1 cannot also be considered to be ‘outside of the ordinary course’ for the purposes of Article 2.2.2, does not render 2.2.2 ineffective. Indeed, it is clear to us that the appreciation of sales in ‘ordinary course of trade’ that is called for under Article 2.2.2 envisages the identification of all sales that are outside the ‘ordinary course of trade’ by any means other than the below-cost sales test set out in Article 2.2.1. Given how we understand that Articles 2.2.1 and 2.2.2 are intended to operate in practice, we cannot see how any other result is practically possible. In this light we can find no support in the so-called ‘logical circle’ for the EC’s suggestion that the notion of sales in the ‘ordinary course of trade’ must be interpreted in such a manner that would permit ‘low volume’ sales to be treated as outside of the ‘ordinary course of trade’ for the purpose of Article 2.2.2.”(76)

62.     In EC — Salmon (Norway) the investigating authority in the European Communities applied a less-than-10 per cent profitable sales test. The Panel determined this was an impermissible means of determining whether domestic sales were in the ordinary course of trade. That is, the Panel found that the less-than-10 per cent profitable sales test was not a permissible means of determining whether domestic sales were made outside of the ordinary course of trade, and, as such, the investigating authority’s decision to disregard the profit margin data of three of the ten investigated parties could not be justified under the terms of Article 2.2.2:

“[W]e note that one of the justifications the EC advances for the less-than-10 per cent profitable sales test is that it provides a ‘complement to the less-then-20 per cent unprofitable rule’ that is set out in footnote 5 to Article 2.2.1, and thereby ‘helps to achieve the goal of evenhandedness that was identified by the Appellate Body’. In making this statement, we understand the EC to suggest that the application of Article 2.2.1 may result in findings that are not ‘even-handed’ and ‘fair to all parties affected by an anti-dumping investigation’. We are not convinced that the drafters of Article 2.2.1 agreed to establish a rule that could itself only result in ‘even-handed’ findings when applied in conjunction with another rule that does not appear elsewhere in the provisions of the AD Agreement. By agreeing to the rules in footnote 5, it is evident that the drafters of the AD Agreement recognized that a minimum volume of below-cost sales is not incompatible with sales being made in the ordinary course of trade. As such, the result achieved through the operation of footnote 5 is, in and of itself, fair and even-handed, and therefore does not require the application of any complementary rule to ensure that normal value is appropriately calculated.”(77)

(iv) Priority of options

63.     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 in EC — Bed Linen 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.”(78) 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.”(79)

(v) Relationship with Article 2.2.1.1

64.     See paragraph 48 above.

(vi) Article 2.2.2(i) — “same general category of products”

65.     In Thailand — H-Beams, 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.”(80)

66.     The Panel in Thailand — H-Beams went on to explain the contextual bases for its interpretation of Article 2.2.2(i) quoted in paragraph 65 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.”(81)

67.     The Panel in 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.”(82)

(vii) Article 2.2.2(ii) — “weighted average” and data from “other exporters or producers”

68.     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.(83)

 

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.”(84)

(viii) Article 2.2.2(ii) — production and sales amounts “incurred and realized”

69.     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”.(85) 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(86) 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).”(87)

70.     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 69 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).”(88)

(ix) Article 2.2.2(ii) — should “weighted” average be based on the value or the volume of sales?

71.     The Panel in EC — Bed Linen (Article 21.5 — India) rejected India’s claim that the weighting of averages under Article 2.2.2(ii) was to be performed on the basis of sales volume rather than value data. According to the Panel:

“It is clear from the text of Article 2.2.2(ii) that the amounts for SG&A and for profits to be used in constructing normal value must be weighted averages. However, nothing in the text specifies the factor to be used in calculating those weighted averages. There is clearly no specific direction requiring that the averages be weighted on the basis of volume, rather than value. Article 2.2.2(ii) is simply silent on this issue. Article 2.2.2(ii) does not specify the factor, volume or value, to be used in calculating weighted averages.”(89)

72.     The Panel in EC — Bed Linen (Article 21.5 — India) further explained that, in its view, “either volume or value may be relevant in the context of Article 2.2.2(ii), and both are ‘neutral’ in the sense that the weighted average will reflect the relative importance of the companies with respect to that factor”.(90) According to the Panel, “the fact that the choice of the factor used in calculating the weighted average will affect the outcome is simply irrelevant to the question whether Article 2.2.2(ii) requires the use of one volume rather than value as the weighting factor.”(91)

(x) No separate “reasonability” test

73.     The Panel in EC — Bed Linen 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”(92). 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.”(93)

74.     Similarly to the Panel in EC — Bed Linen, the Panel in 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 rebuttable 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 theme thodology 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.”(94)

75.     The Panel in Thailand — H-Beams, similarly to the Panel in 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.(95) The Panel 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.”(96)

(xi) Article 2.2.2(iii)

76.     The Panel in EC — Salmon (Norway) addressed a claim by Norway regarding the meaning of “reasonable” in the context of this provision:

“In our view, a methodology for calculating SG&A [selling, general and administrative] that inflates SG&A costs above what they should have been cannot be ‘reasonable’ within the meaning of Article 2.2.2(iii). Accordingly, we find that the investigating authority acted inconsistently with Article 2.2.2(iii) of the AD Agreement when it determined [[XXX]] SG&A costs on the basis of data pertaining to the [[XXX]] consolidated accounts without excluding the G&A costs originally reported by [[XXX]] from the calculation of its costs of production.”(97)

(d) Relationship with other paragraphs of Article 2

77.     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 characterization 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 characterization of a normal value as being one arrived at by way of a construction under Article 2.2.”(98)

78.     The Panel in EC — Tube or Pipe Fittings found that the definition of “like product” in Article 2.6 governs how an investigating authority identifies the scope of the “like product” for the purposes of the investigation and of the Agreement. The Panel considered that, since the chapeau of Article 2.2.2 requires the use of actual data from all relevant sales of the like product, “actual data from relevant transactions relating to sales of the ‘like product’ as a whole may be taken into account to construct normal value. There is no provision to the effect that constructed normal value is to be based only on a limited subset of data relating to sales of certain selective product types falling within the definition of like product, but excluding data relating to sales of other such types.”(99)

4. Article 2.3

79.     In US — Stainless Steel (Korea), the Panel explained the status of paragraph 3 in Article 2. See paragraph 37 above.

5. Article 2.4

(a) First sentence

(i) Fair comparison of export price and normal value

80.     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”.(100) 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)(101), 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).”(102)

81.     In US — Zeroing (EC), the Appellate Body recalled and affirmed the Panel’s view that “the ‘fair comparison’ language in the first sentence of Article 2.4 creates an independent obligation with the implication that this ‘fair comparison’ requirement is not defined exhaustively by the specific requirements set out in the remainder of that paragraph.(103)”(104)

82.     With regard to the meaning of “fair comparison”, the Appellate Body in US — Zeroing (EC) agreed with the Panel that the legal rule set out in the first sentence of Article 2.4 “is expressed in terms of a general and abstract standard,” which implies that “this requirement is also applicable to proceedings governed by Article 9.3.”(105)

83.     The Appellate Body in US — Softwood Lumber V (Article 21.5 — Canada) found that the view of the Panel below that Article 2.4.2 was lex specialis was “not a correct representation of the relationship between the two provisions [with Article 2.4]. Rather, the introductory clause to Article 2.4.2 expressly makes it ‘[s]ubject to the provisions governing fair comparison’ in Article 2.4.”(106) The Appellate Body summarized by saying:

“In sum, the use of zeroing under the transaction to- transaction comparison methodology artificially inflates the magnitude of dumping, resulting in higher margins of dumping and making a positive determination of dumping more likely. This way of calculating cannot be described as impartial, even-handed, or unbiased. For this reason, we do not consider that the calculation of ‘margins of dumping’, on the basis of a transaction-to-transaction comparison that uses zeroing, satisfies the ‘fair comparison’ requirement within the meaning of Article 2.4 of the Anti-Dumping Agreement.”(107)

84.     The Panel in US — Zeroing (Japan) exercised judicial economy regarding Japan’s claim that model zeroing procedures in the context of original investigations were inherently biased and therefore inconsistent with the obligation to make a “fair comparison” under Article 2.4 of the Anti-Dumping Agreement given that the Panel had found model zeroing was inconsistent with Article 2.4.2. The Panel considered Japan’s claim that simple zeroing in the context of original investigations was inherently biased and therefore inconsistent with the obligation to make a “fair comparison” under Article 2.4 of the Anti-Dumping Agreement. Japan interpreted the scope and substantive requirement to make a “fair comparison” as a basis for a general prohibition on zeroing. The Panel disagreed:

“[A] general prohibition of zeroing would undermine the effectiveness of provisions in Article 9 that in our view clearly permit Members to assess anti-dumping duties on a transaction-specific basis.(108) There is nothing in the second sentence of Article 2.4.2 or in Article 9 that indicates that these provisions establish exceptions to the ‘fair comparison’ requirement of Article 2.4. Therefore, if the ‘fair comparison’ requirement operates to prohibit zeroing, it necessarily also applies in the context of these provisions. Consequently, it is impossible, in our view, to reconcile the proposition that the ‘fair comparison’ requirement must be interpreted to create a general prohibition of zeroing with the second sentence of Article 2.4.2 and the provisions on duty assessment in Article 9 in a manner consistent with the requirement of effective treaty interpretation.”(109)

85.     The Panel in US — Zeroing (Japan) found that by maintaining simple zeroing procedures in the context of original investigations the US Department of Commerce did not act inconsistently with Article 2.4 of the Anti-Dumping Agreement.(110) The Appellate Body in US — Zeroing (Japan) reversed this finding of the Panel, based on its reasoning in US — Softwood Lumber V (Article 21.5 — Canada) (see also paragraph 83 above). The Appellate Body also reversed the Panel in Japan’s “as such claim” on periodic reviews (Article 9.3) and new shipper reviews (Article 9.5), finding that Article 2.4 and the obligation to make a “fair comparison” would not be met if anti-dumping duties were assessed in a manner which resulted in anti-dumping duties being collected from importers in excess of the amount of the margin of dumping of the exporter.(111)

(ii) Relationship with other sentences

86.     In US — Stainless Steel (Korea), the Panel having found a violation of the third and fourth sentence of Article 2.4 in respect of certain allowances, 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.”(112)

(b) Second sentence

(i) “sales made at as nearly as possible the same time”

87.     The Panel in US — Stainless Steel (Korea) 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 130 below.

(c) Third sentence: “Due allowance”

(i) “in each case, on its merits”

88.     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.”(113)

89.     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:

“[W]e 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.”(114)

90.     The Panel in EC — Tube or Pipe Fittings considered that Article 2.4 did not set forth any particular methodology for calculating adjustments and that a Panel could therefore only examine whether the investigating authority acted in an unbiased and even-handed manner when calculating the adjustments made:

“An investigating authority must act in an unbiased, even-handed manner and must not exercise its discretion in an arbitrary manner. This obligation also applies where an investigating authority confronts practical difficulties and time constraints. We do not find, in Article 2.4, or in any other relevant provision in the Agreement, any specific rules governing the methodology to be applied by an investigating authority in calculating adjustments. In the absence of any precise textual guidance in the Agreement concerning how adjustments are to be calculated, and in the absence of any textual prohibition on the use of any particular methodology adopted by an investigating authority with a view to ensuring a fair comparison, we consider that an unbiased and objective authority could have applied this methodology applied by the European Communities and calculated this adjustment on the basis of the actual data in the record of this investigation. Moreover, Tupy had an opportunity to substantiate its claimed adjustment.”(115)

(ii) “differences which are demonstrated to affect price comparability”

91.     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’.”(116)

92.     The Panel in US — Softwood Lumber V considered that there is no requirement to adjust for any and all differences but rather only those differences demonstrated to have affected the price comparability:

“We consider that Article 2.4 does not require that an adjustment be made automatically in all cases where a difference is found to exist, but only where based on the merits of the case that difference is demonstrated to affect price comparability. An interpretation that an adjustment would have to be made automatically where a difference in physical characteristics is found to exist would render the term ‘which affect price comparability’ nugatory. Further, such an interpretation would make little sense in practice, as not all differences in physical characteristics necessarily affect price comparability.”(117)

93.     Reflecting further on the meaning of the term comparability in Article 2.4, the Panel in US — Softwood Lumber V concluded that an investigating authority must, based on the facts before it, on a case-by-case basis decide whether a certain factor is demonstrated to affect price comparability:

“The identified differences concerning the products sold in the two markets must affect the comparability of normal value and export price for the obligation to make due allowance to apply. Article 2.4 does not define what comparability means, but includes a non-exhaustive list of factors which may affect price comparability. Comparability is a term which, in our view, cannot be defined in the abstract. Rather, an investigating authority must, based on the facts before it, on a case-by-case basis decide whether a certain factor is demonstrated to affect price comparability. We can imagine situations where although differences exist, they do not affect price comparability. For instance, this could occur where in the exporting country all cars sold are painted in red, while cars exported are all black. The difference is obvious; in fact, it is one of those differences listed in Article 2.4 itself a difference in physical characteristics. However, there might be no variable cost difference among the two cars because the cost of the paint whether red or black might be the same. If instead of differences in cost, we were looking at market value differences, we might reach the same conclusion if either the seller or the purchaser, would be willing to sell or purchase at the same price, regardless whether the car is red or black.”(118)

94.     The Panel in Korea — Certain Paper noted that the fact that a trading company is involved in the distribution of the subject product either in the export or the domestic market does not in and of itself mean that there is a difference that affects price comparability and that an adjustment has to be made under Article 2.4:

“The interested party claiming such an adjustment has to demonstrate that the involvement of the trading company gives rise to a difference that affects price comparability.”(119)

95.     The Appellate Body in US — Zeroing (EC) found that the third sentence of Article 2.4 applies a contrario and that, accordingly, it implies that allowances should not be made for differences that do not affect price comparability. It also concluded that the principle set out in the third sentence of Article 2.4, including its a contrario application, does not cover all adjustments, but only adjustments made for those differences that fall within the scope of that principle:

“[I]f allowances could be made for differences not affecting price comparability, the purpose of the requirement of the third sentence of Article 2.4 would be undermined. Therefore, … this sentence implies that allowances should not be made for differences that do not affect price comparability.”(120)

96.     The Panel in EC — Fasteners (China) considered a claim that the anti-dumping authorities had violated Article 2.4 by denying certain adjustments. The Panel noted that “[t]here is no methodological guidance in Article 2.4 as to how due allowance for differences affecting price comparability is to be made.”(121) It found that although the investigating authorities are obligated to make a fair comparison:

“[U]nder Article 2.4, it is the investigating authorities, not the foreign exporters, that must ensure a fair comparison between the normal value and the export price. This does not, however, mean that the exporters have no obligation in this process. Although the obligation to make a fair comparison lies with the investigating authorities, it is for the exporters, who would be expected to have the necessary knowledge of the product in question, to make substantiated requests for adjustments in order to ensure such comparison. If it is not demonstrated to the authorities that there is a difference affecting price comparability, there is no obligation to make an adjustment. (122) Moreover, the fair comparison obligation does not mean that the authorities must accept each request for an adjustment. The authorities ‘must take steps to achieve clarity as to the adjustment claimed and then determine whether and to what extent that adjustment is merited’.(123) If no adjustment is requested, or if an adjustment is requested with respect to a difference that is not demonstrated to affect price comparability, or if the authority determines that an adjustment is not merited, no adjustment need be made. It follows that, in order to make a prima facie case of violation of Article 2.4 in this dispute, China has to demonstrate to the Panel that an adjustment should have been made with respect to (1) a difference (2) that was demonstrated to affect price comparability between the normal value and the export price, and that the Commission failed to make the adjustment.”(124)

97.     The Panel rejected claims by China under Article 2.4 on the basis that no evidence had been proffered to the investigating authority to demonstrate that differences in categorization or quality affected price comparability. (125) The Appellate Body upheld the Panel’s evaluation of the record evidence, but found that the Panel had erred in its application of Article 2.4 by failing to take into account the last sentence of Article 2.4, relevant facts in the case and its finding under Article 6.4; by failing to communicate the basis for determining normal value in a timely manner, the investigating authority had deprived the Chinese producers of the ability to request adjustments. See paragraph 105 below. In this connection, the Appellate Body commented as follows regarding the duties under Article 2.4 of the investigating authority and the interested parties:

“The Panel, quoting the panel’s finding in EC — Tube or Pipe Fittings, found that the investigating authorities ‘must take steps to achieve clarity as to the adjustment claimed and whether and to what extent that adjustment is merited’.(126) Logically, as a step ‘to achieve clarity as to the adjustment claimed’, authorities must first evaluate the differences identified to assess whether they affect price comparability. Therefore, we do not consider that the Panel’s interpretation of Article 2.4 differs from China’s view that an investigating authority must evaluate identified differences and then make adjustments. We are less convinced, however, by China’s assertion that the authority must evaluate any identified differences, regardless of whether a request for adjustment has been made. It is likely that, in an anti-dumping investigation, the differences between the products sold in the foreign producer’s domestic and export markets would be numerous. Differences between the products, however, would not always affect price comparability and require adjustments by the authorities. China’s assertion may place an undue burden on an investigating authority to assess each difference in order to determine whether adjustment is needed in every case, even without a request by the interested party.”(127)

(iii) Differences in “terms and conditions of sale”

98.     In US — Stainless Steel (Korea), 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.”(128)

99.     The Panel in US — Stainless Steel (Korea) 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.(129) 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 neutralize 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.”(130)

100.     Further, the Panel in US — Stainless Steel (Korea) 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. (131) 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 nonpayment 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’.(132)”(133)

(d) Fourth sentence

(i) Legal effect (“should”)

101.     In US — Stainless Steel (Korea), 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.(134) 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.(135)

 

… 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.(136) 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. 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.”(137)

(ii) “costs … incurred between importation and resale”

102.     In US — Stainless Steel (Korea), 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.(138) 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.”(139)

(e) Fifth sentence: “the authorities shall”

103.     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.”(140)

104.     See also above under “differences which are demonstrated to affect price comparability” at paragraphs 91 and following.

(f) Sixth sentence: “The authorities shall indicate… what information is necessary”

105.     The Panel Report in EC — Fasteners (China) found that in the anti-dumping investigation at issue, the structure of the questionnaire suggested that requests for adjustments would not be necessary; however, the investigating authority later decided to use a different method of product grouping to conduct the comparison, and informed the Chinese producers one day before the final date for comments in the proceeding; see paragraph 487 below. The Appellate Body noted that

“[T]he facts of the case indicate that, because the Commission did not clearly indicate the product types used for purposes of price comparisons until very late in the proceedings, the European Union acted inconsistently with its obligations under Article 2.4 by depriving the Chinese producers of the ability to request adjustments for differences that could have affected price comparability.”(141)

106.     Although the Panel found no violation of Article 2.4 because China had not shown that interested parties requested adjustments and were denied them, the Appellate Body reversed the Panel:

“[B]ecause of the Commission’s failure to provide a timely opportunity to see the information concerning the basis of the price comparisons, the Chinese producers were precluded from requesting any adjustments for purposes of ensuring a fair comparison. The ‘absence’ of a request from the Chinese producers for adjustments on the basis of the PCN characteristics, therefore, should not have prevented a finding of inconsistency under Article 2.4. On the contrary, it further demonstrates that, due to the Commission’s failure to indicate what information was necessary for a fair comparison, the Chinese producers were unable to exercise their rights under Article 2.4 to ensure that the Commission conducted a fair comparison of the export price and the normal value. Thus, in failing to consider the last sentence of Article 2.4 in the light of the relevant facts of the case and its finding under Article 6.4, the Panel erred in its application of Article 2.4 of the Anti-Dumping Agreement.”(142)

(g) Article 2.4.1

(i) Scope of Article 2.4.1

107.     In US — Stainless Steel (Korea), 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.(143)”(144)

(ii) “required”

108.     In US — Stainless Steel (Korea), 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… .”(145)

109.     In US — Stainless Steel (Korea), 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.”(146)

(iii) Relationship with Article 2.4

110.     In US — Stainless Steel (Korea), 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 (147), 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.”(148)

111.     In EC — Tube or Pipe Fittings, the Panel found that Article 2.4.1 “refers to currency conversion in connection with the prices of export sales, rather than to any conversion that may occur in the calculation of specific adjustments to either the normal value or the export price”.(149) It thus concluded that “the obligations concerning currency conversions in Article 2.4.1 do not apply to all conversions made in order to calculate adjustments under Article 2.4.1 we can conceive of certain situations in which differences affecting price comparability that might lead to an adjustment under Article 2.4 might not correspond precisely with the date of the export sale (e.g. credit and warranty expenses), and where conversion of all currency data as at the date of export sale might therefore distort a fair comparison.”(150)

(h) Article 2.4.2

(i) “model zeroing” and “simple zeroing”

112.     In US — Zeroing (Japan), the Panel explained the concepts of “model zeroing” and “simple zeroing”:

“By ‘model zeroing’ Japan means the method whereby USDOC makes average-to-average comparisons of export price and normal value within individual ‘averaging groups’ established on the basis of physical characteristics (‘models’) and disregards any amounts by which average export prices for particular models exceed normal value in aggregating the results of these multiple comparisons to calculate a weighted average margin of dumping. Specifically, ‘model zeroing’ means that when USDOC aggregates the results of model-specific, average-to-average comparisons of normal value and export price into a weighted average margin of dumping, the numerator of that margin of dumping only includes the results of models for which the average export price is less than the normal value.

 

By ‘simple zeroing’ Japan means the method whereby USDOC determines a weighted average margin of dumping based on average-to-transaction or transaction-to transaction comparisons between export price and normal value and disregards any amounts by which export prices of individual transactions exceed normal value in aggregating the results of these multiple comparisons. Specifically, ‘simple zeroing’ means that when USDOC aggregates the results of comparisons of normal value and export price made on an average-to-transaction basis or on a transaction-to-transaction basis, the numerator of the weighted average margin of dumping only includes the results of those comparisons in which individual export prices are less than the normal value.(151)”(152)

(ii) “margins”

113.     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.(153) The Appellate Body upheld this interpretation, stating that “[f]rom the wording of [Article 2.4.2], 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.”(154)

114.     In US — Softwood Lumber V, the Appellate Body further clarified its position that “‘margins of dumping’ can be found only for the product under investigation as a whole, and cannot be found to exist for a product type, model, or category of that product”.(155) On this basis, the Appellate Body rejected the argument that zeroing would be allowed as long as all comparable transactions had been taken into consideration at the model or type level:

“It is clear that an investigating authority may undertake multiple averaging to establish margins of dumping for a product under investigation. In our view, the results of the multiple comparisons at the sub-group level are, however, not ‘margins of dumping’ within the meaning of Article 2.4.2. Rather, those results reflect only intermediate calculations made by an investigating authority in the context of establishing margins of dumping for the product under investigation. Thus, it is only on the basis of aggregating all these ‘intermediate values’ that an investigating authority can establish margins of dumping for the product under investigation as a whole.

 

We fail to see how an investigating authority could properly establish margins of dumping for the product under investigation as a whole without aggregating all of the ‘results’ of the multiple comparisons for all product types. There is no textual basis under Article 2.4.2 that would justify taking into account the ‘results’ of only some multiple comparisons in the process of calculating margins of dumping, while disregarding other ‘results’. If an investigating authority has chosen to undertake multiple comparisons, the investigating authority necessarily has to take into account the results of all those comparisons in order to establish margins of dumping for the product as a whole under Article 2.4.2. Thus we disagree with the United States that Article 2.4.2 does not apply to the aggregation of the results of multiple comparisons.”(156)

115.     The Panel in US — Zeroing (Japan) considered that “the language used in the first sentence of Article 2.4.2 of the Anti-Dumping Agreement warrants the conclusion that model zeroing is proscribed. This follows in particular from the requirement in the first sentence of Article 2.4.2 that the weighted average normal value be compared with a weighted average export price that reflects the prices of all comparable export transactions and from the fact that this sentence does not contain language that indicates that margins of dumping can be determined in respect of individual models of a product ….”(157) The Panel concluded that zeroing procedures in the context of original investigations were, as such, inconsistent with Article 2.4.2 of the Anti-Dumping Agreement.(158)

(iii) Weighted average normal value / weighted average export price, the first methodology

116.     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”(159) 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 under investigation shall normally be established according to one of two methods. At issue in this case is the first method set out in that provision, under which ‘the existence of margins of dumping’ must 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 …’

 

Under this method, the investigating authorities are required to compare the weighted average normal value with the weighted average of prices of all comparable export transactions. Here, we emphasize that Article 2.4.2 speaks of ‘all’ comparable export transactions. As explained above, when ‘zeroing’, the European Communities counted as zero the ‘dumping margins’ for those models where the ‘dumping margin’ was ‘negative’. As the Panel correctly noted, for those models, the European Communities counted ‘the weighted average export price to be equal to the weighted average normal value … despite the fact that it was, in reality, higher than the weighted average normal value.’(160) By ‘zeroing’ the ‘negative dumping margins’, the European Communities, therefore, did not take fully into account the entirety of the prices of some export transactions, namely, those export transactions involving models of cotton-type bed linen where ‘negative dumping margins’ were found. Instead, the European Communities treated those export prices as if they were less than what they were. This, in turn, inflated the result from the calculation of the margin of dumping. Thus, the European Communities did not establish ‘the existence of margins of dumping’ for cotton-type bed linen on the basis of a comparison of the weighted average normal value with the weighted average of prices of all comparable export transactions that is, for all transactions involving all models or types of the product under investigation. Furthermore, we are also of the view that a comparison between export price and normal value that does not take fully into account the prices of all comparable export transactions such as the practice of ‘zeroing’ at issue in this dispute is not a ‘fair comparison’ between export price and normal value, as required by Article 2.4 and by Article 2.4.2.”(161)

117.     In US — Softwood Lumber V, the Appellate Body confirmed its view that an authority is not allowed to practise zeroing when using the weighted-average to weighted-average comparison methodology for calculating the margin of dumping:

“Zeroing means, in effect, that at least in the case of some export transactions, the export prices are treated as if they were less than what they actually are. Zeroing, therefore, does not take into account the entirety of the prices of some export transactions, namely, the prices of export transactions in those sub-groups in which the weighted average normal value is less than the weighted average export price. Zeroing thus inflates the margin of dumping for the product as a whole.”(162)

“comparable export transactions

118.     In EC — Bed Linen, the Appellate Body specifically addressed the term “comparable” used in Article 2.4.2, which the European Communities referred to as a basis for its appeal. More specifically, the European Communities claimed that Article 2.4.2 requires a comparison with a “weighted average of prices of all comparable export transactions” which, in the view of the European Communities, was not the same as requiring a comparison with a weighted average of all export transactions:

“In our view, the word ‘comparable’ in Article 2.4.2 does not affect, or diminish in any way, the obligation of investigating authorities to establish the existence of margins of dumping on the basis of ‘a comparison of the weighted average normal value with the weighted average of prices of all comparable export transactions’. (emphasis added)

 

The ordinary meaning of the word ‘comparable’ is ‘able to be compared’. ‘Comparable export transactions’ within the meaning of Article 2.4.2 are, therefore, export transactions that are able to be compared… .

 … All types or models falling within the scope of a ‘like’ product must necessarily be ‘comparable’, and export transactions involving those types or models must therefore be considered ‘comparable export transactions’ within the meaning of Article 2.4.2.” (163)

119.     In support of its proposition that the term “comparable” in Article 2.4.2 did not detract from the obligation of investigating authorities to consider all relevant transactions, the Appellate Body in EC — Bed Linen referred to Article 2.4 as part of the context of Article 2.4.2:

Article 2.4 sets forth a general obligation to make a ‘fair comparison’ between export price and normal value. This is a general obligation that, in our view, informs all of Article 2, but applies, in particular, to Article 2.4.2 which is specifically made ‘subject to the provisions governing fair comparison in [Article 2.4]’. Moreover, Article 2.4 sets forth specific obligations to make comparisons at the same level of trade and at, as nearly as possible, the same time. Article 2.4 also requires that ‘due allowance’ be made for differences affecting ‘price comparability’. We note, in particular, that Article 2.4 requires investigating authorities to make due allowance for ‘differences in … physical characteristics’.

 

We note that, while the word ‘comparable’ in Article 2.4.2 relates to the comparability of export transactions, Article 2.4 deals more broadly with a ‘fair comparison’ between export price and normal value and ‘price comparability’. Nevertheless, and with this qualification in mind, we see Article 2.4 as useful context sustaining the conclusions we draw from our analysis of the word ‘comparable’ in Article 2.4.2. In our view, the word ‘comparable’ in Article 2.4.2 relates back to both the general and the specific obligations of the investigating authorities when comparing the export price with the normal value. The European Communities argues on the basis of the ‘due allowance’ required by Article 2.4 for ‘differences in physical characteristics’ that distinctions can be made among different types or models of cotton-type bed linen when determining ‘comparability’. But here again we fail to see how the European Communities can be permitted to see the physical characteristics of cotton type bed linen in one way for one purpose and in another way for another.”(164)

120.     The Panel in US — Shrimp (Ecuador) (whose analysis was followed by three other panels cited below) drew on the analysis of the Appellate Body in US — Softwood Lumber V in determining that the United States had acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in using zeroing under the weighted-average to weighted-average methodology. The Panel explained the Appellate Body’s reasoning in US — Softwood Lumber V thus:

         “The Appellate Body began its analysis with the text of Article 2.4.2 and noted that the question before it was the proper interpretation of the terms ‘all comparable export transactions’ and ‘margins of dumping’ in Article 2.4.2. In examining the arguments of the parties with respect to these phrases, the Appellate Body concluded that the parties’ disagreement centred on whether a Member could take into account ‘all’ comparable export transactions only at the sub-group level, or whether such transactions also had to be taken into account when the results of the sub-group comparisons are aggregated. To examine that issue, the Appellate Body noted the definition of dumping in Article 2.1 of the Anti-Dumping Agreement. The Appellate Body found that ‘it [was] clear from the texts of [Article VI:1 of the GATT 1994 and Article 2.1 of the Anti-Dumping Agreement] that dumping is defined in relation to a product as a whole as defined by the investigating authority’. The Appellate Body further considered that the definition of ‘dumping’ contained in Article 2.1 applies to the entire Agreement, including Article 2.4.2, and that “[d]umping”, within the meaning of the Anti-Dumping Agreement, can therefore be found to exist only for the product under investigation as a whole, and cannot be found to exist only for a type, model, or category of that product.’ Next, the Appellate Body relied on its Report in EC — Bed Linen, in which it stated that ‘[w]hatever the method used to calculate the margins of dumping … these margins must be, and can only be, established for the product under investigation as a whole.’(165) Thus, the Appellate Body noted that ‘[a]s with dumping, “margins of dumping” can be found only for the product under investigation as a whole, and cannot be found to exist for a product type, model, or category of that product.’ The Appellate Body therefore rejected the United States’ arguments in that case that Article 2.4.2 does not apply to the aggregation of the results of multiple comparisons at the sub-group level; for the Appellate Body, while an investigating authority may undertake multiple averaging to establish margins of dumping for a product under investigation, the results of the multiple comparisons at the sub-group levels are not margins of dumping within the meaning of Article 2.4.2; they merely reflect intermediate calculations made by an investigating authority in the context of establishing margins of dumping for the product under investigation. It is only on the basis of aggregating all such intermediate values that an investigating authority can establish margins of dumping for the product under investigation as a whole.(166) On this basis, the Appellate Body held that zeroing, as applied by the USDOC in US — Softwood Lumber V:

 

‘mean[t], in effect, that at least in the case of some export transactions, the export prices are treated as if they were less than what they actually are. Zeroing, therefore, does not take into account the entirety of the prices of some export transactions, namely, the prices of export transactions in those sub-groups in which the weighted average normal value is less than the weighted average export price. Zeroing thus inflates the margin of dumping for the product as a whole.’

The Appellate Body on this basis concluded that the treatment of comparisons for which the weighted average normal value is less than the weighted average export price as ‘non-dumped’ comparisons was not in accordance with the requirements of Article 2.4.2 of the Anti-Dumping Agreement.(167) As a result, the Appellate Body upheld the Panel’s finding that the United States had acted inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in determining the existence of margins of dumping on the basis of a methodology incorporating the practice of zeroing.”(168)

121.     The Panel in US — Shrimp (Thailand) concluded that the issues raised by Thailand’s claim were “identical in all material respects to those addressed by the Appellate Body on Softwood Lumber — V.” Given that Thailand was found to have established a prima facie case that the United States had acted inconsistently with Article 2.4.2 because the US Department of Commerce had not calculated the dumping margins on the basis of the “product as a whole” in that it “failed to take into account all comparable export transactions in calculating the margins of dumping”(169), the Panel ruled in favour of Thailand.

122.     In US — Anti-Dumping Measures on PET Bags, the Panel also referred to (and adopted) the reasoning in the Panel Report in US — Shrimp (Ecuador). The Panel concluded that Thailand had established a prima facie case that the USDOC’s methodology used to calculate the margins at issue was the same in all legally relevant respects as the methodology in US — Softwood Lumber V. The Panel concluded that the United States had acted inconsistently with its obligations under Article 2.4.2 by using the zeroing methodology in this manner.(170)

123.     Similarly, the Panel in US — Zeroing (Korea) concluded that Korea had established a prima facie case that the methodology used by the USDOC in calculating the margins of dumping in the investigations at issue was the same in all legally relevant respects as the methodology in US — Softwood Lumber V. The Panel concluded that the United States had acted inconsistently with its obligations under Article 2.4.2 by using the zeroing methodology in this manner.(171)

Non-comparable types

124.     In EC — Bed Linen, the Panel found that the European Communities “zeroing” practice was inconsistent with Article 2.4.2.(172) The European Communities appealed this finding on the ground that the word “comparable” in Article 2.4.2 indicates that, where the product under investigation consists of various “noncomparable” types or models, the investigating authorities should first calculate “margins of dumping” for each of the “non-comparable” types or models, and, then, at a subsequent stage, combine those “margins” in order to calculate an overall margin of dumping for the product under investigation. The Appellate Body disagreed with the European Communities:

“We see nothing in Article 2.4.2 or in any other provision of the Anti-Dumping Agreement that provides for the establishment of ‘the existence of margins of dumping’ for types or models of the product under investigation; to the contrary, all references to the establishment of ‘the existence of margins of dumping’ are references to the product that is subject of the investigation. Likewise, we see nothing in Article 2.4.2 to support the notion that, in an anti-dumping investigation, two different stages are envisaged or distinguished in any way by this provision of the Anti-Dumping Agreement, nor to justify the distinctions the European Communities contends can be made among types or models of the same product on the basis of these ‘two stages’. Whatever the method used to calculate the margins of dumping, in our view, these margins must be, and can only be, established for the product under investigation as a whole. We are unable to agree with the European Communities that Article 2.4.2 provides no guidance as to how to calculate an overall margin of dumping for the product under investigation.”(173)

125.     In US — Softwood Lumber V, the Appellate Body stated that multiple averaging, using models or types, is as such permitted under Article 2.4.2 to establish the existence of margins of dumping for the product under investigation:

“We agree with the participants in this dispute that multiple averaging is permitted under Article 2.4.2 to establish the existence of margins of dumping for the product under investigation. We disagree with those who suggest that the Appellate Body Report in EC — Bed Linen is premised on an assumption that multiple averaging is prohibited. The issue of multiple averaging was not before the Appellate Body in EC — Bed Linen and the reasoning of the Appellate Body in that case should therefore not be read as prohibiting that practice. This is not to say that EC — Bed Linen is not relevant in this appeal. Indeed, there are a number of relevant findings to which we refer below. However, the Appellate Body did not rule on multiple averaging in that case and therefore it is incorrect to argue, as the United States does, that ‘[t]he agreement of both parties to this dispute and a unanimous Panel that Article 2.4.2 permits multiple comparisons is a fundamental departure from the premise’ of the Appellate Body Report in EC — Bed Linen.”(174)

Sampling of domestic transactions

126.     The Panel in Argentina — Poultry Anti-Dumping Duties addressed the issue of whether or not a Member must include all domestic sales transactions when establishing “a weighted average normal value” for the purpose of Article 2.4.2:

“In examining what is meant by ‘a weighted average normal value’, we attach particular importance to the meaning of the term ‘normal value’. We note that Article 2.1 of the AD Agreement refers to normal value as ‘the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country’. Article 2.1 therefore defines normal value in terms of domestic sales transactions in the exporting Member (although Article 2.2 provides that alternative methods to establish normal value may be used in certain circumstances).(175) Article 2.1 does not specify, however, whether or not all domestic sales transactions need be included. This issue is addressed by Article 2.2.1, which sets out the conditions to be met before domestic sales may be treated as not in ‘the ordinary course of trade’, and therefore excluded for the purpose of establishing normal value in accordance with Article 2.1. Article 2.2.1 states that domestic sales ‘may be disregarded in determining normal value only if’ the relevant conditions are met. We understand these provisions to mean that there are only specific circumstances in which domestic sales transactions may be excluded from normal value. We consider that these provisions constitute relevant context for interpreting the phrase ‘a weighted average normal value’, since they indicate that ‘a weighted average normal value’ is a weighted average of all domestic sales other than those which may be disregarded pursuant to Article 2.2.1 of the AD Agreement.”(176)

127.     The Panel in Argentina — Poultry Anti-Dumping Duties thus came to the conclusion that “the strict rules in Article 2 regarding the determination of normal value require that, in the usual case, normal value should be established by reference to all domestic sales of the like product in the ordinary course of trade”.(177)

Multiple averages

128.     In US — Stainless Steel (Korea), the Panel examined Korea’s argument that Article 2.4.2 prohibits the following method used by the United States authorities: (i) dividing a period of investigation into two sub-periods corresponding to the pre- and post-devaluation periods; (ii) calculating a weighted average margin of dumping for each sub-period; and (iii) combining these weighted averages of margin of dumping, however, treating sub-periods where the average export price was higher than the average normal value as sub-periods of zero dumping. In this regard, the Panel rejected Korea’s claim that Article 2.4.2 prohibits the use of multiple averaging per se:

Article 2.4.2 provides that the existence of dumping shall normally be established ‘on the basis of a comparison of a weighted average normal value with a weighted average of all comparable export transactions’ (emphasis added). The inclusion of the word ‘comparable’ is in our view highly significant, as in its ordinary meaning it indicates that a weighted average normal value is not to be compared to a weighted average export price that includes non-comparable export transactions.(178) It flows from this conclusion that a Member is not required to compare a single weighted average normal value to a single weighted average export price in cases where certain export transactions are not comparable to transactions that represent the basis for the calculation of the normal value.

 

We recall Korea’s view that the reference in the singular to ‘a weighted average normal value’ means that the use of multiple averages is prohibited. In our view, however, the reference in the singular to ‘a weighted average normal value’ means simply that there must be a single weighted average normal value and export price in respect of comparable transactions. It does not mean that a Member is required to compare a single weighted average normal value to a single weighted average export price in cases where some of the export transactions are not comparable to the transactions that represent the basis for the normal value.

 

An examination of the context of the provision in question and of its object and purpose in our view provide further support for the above conclusion. The chapeau of Article 2.4 states that ‘[a] fair comparison shall be made between the export price and the normal value.’ Whatever the relationship of the fair comparison language of the chapeau to the specific requirements of Article 2.4 an issue of dispute between the parties it is evident to us that the provisions of Article 2.4.2 must be read against the background of this basic principle. In fact, the provisions of Article 2.4.2 itself are ‘subject to the provisions governing fair comparison in paragraph 4.’ An interpretation of Article 2.4.2 that required a Member to compare transactions that were not comparable would run counter to this basic principle.

 

Accordingly, we conclude and by the later phases of this dispute the parties agreed that Article 2.4.2 does not preclude the use of multiple averages per se. Rather, Article 2.4.2 requires a Member to compare a single weighted average normal value to a single weighted average export price in respect of all comparable transactions. A Member may however use multiple averages in cases where it has determined that non-comparable transactions are involved.”(179)

129.     Despite rejecting Korea’s argument in US — Stainless Steel (Korea), that Article 2.4.2 precludes the use of multiple averages per se (see paragraph 128 above), the Panel found a violation of Article 2.4.2 by the United States investigating authorities. The Panel examined whether the existence of significant differences in normal value over the course of an investigation is, in and of itself, a sufficient basis to conclude as the United States authorities had done that export and home market transactions at different points in the period of investigation are not “comparable”:

“In examining this question, we first note that the term ‘comparable’ has been defined to mean ‘able to be compared (with)’. This definition however does not cast great light on the meaning of the term as used in Article 2 of the AD Agreement. Thus, we consider it useful to turn to the context in which this term appears. In this respect, we agree with the parties that the meaning of the term ‘comparable’ as used in Article 2.4.2 can best be established by an examination of other provisions of Article 2 of the AD Agreement that address the issue of comparability. We further note that the chapeau to Article 2.4 provides that the comparison between the export price and the normal value shall be made ‘in respect of sales made at as nearly as possible the same time’. Thus, we consider it clear that the timing of sales may have implications in respect of the comparability of export and home market transactions.(180)

 

This does not mean, however, that where an average to average comparison methodology is used, individual home market and export sales that are not made at the same time necessarily are not comparable and thus cannot be included in the weighted averages. To the contrary, it is in the very nature of an average to average comparison that, for example, transactions made at the beginning of the averaging period in the export market will be made at a different moment in time than sales in the home market made at the end of the averaging period. If the drafters had considered that this situation would necessarily give rise to a problem of comparability, surely they would not have explicitly authorized the use of averaging in Article 2.4.2. Thus we consider that, in the context of weighted average to weighted average comparisons, the requirement that a comparison be made between sales made at as nearly as possible the same time requires as a general matter that the periods on the basis of which the weighted average normal value and the weighted average export price are calculated must be the same.”(181)

Length of averaging periods

130.     The Panel in US — Stainless Steel (Korea) rejected the United States’ argument that the “same time” requirement of Article 2.4 implies a preference for shorter rather than longer averaging periods, and stated:

“If the requirement to compare sales at ‘as nearly as possible the same time’ means that sales within an averaging period covering a [period of investigation (‘POI’)] are not comparable, then a Member presumably would be obligated to break a POI into as many sub-periods as possible. Yet to interpret the word ‘comparable’, when combined with the requirement that sales be compared ‘at as nearly as possible the same time’, to obligate Members to perform numerous average to average comparisons based on the shortest possible time periods would in effect read the Article 2.4.2 authorization to perform average to average comparisons out of the AD Agreement, leaving Members with only the second option, the comparison of normal values and export prices on a transaction-by-transaction basis.(182)”(183)

131.     Having found that Members are not obliged to divide a period of investigation into as many sub-periods as possible, the Panel in US — Stainless Steel (Korea) nevertheless placed the following caveat:

“We do not preclude that there may be factual circumstances where the use of multiple averaging periods could be appropriate in order to insure that comparability is not affected by differences in the timing of sales within the averaging periods in the home and export markets. We note that, where changes in normal value, export price or constructed export price during the course of the POI are combined with differences in the relative weights by volume within the POI of sales in the home market as compared to the export market, the use of weighted averages for the entire POI could indicate the existence of a margin of dumping that did not reflect the situation at any given moment within the POI.(184) In this situation a Member might in our view be justified in concluding that differences in timing of sales in the home and export markets give rise to a problem of comparability that could be addressed through multiple averaging periods.(185) We recall however that this situation only arises where two elements a change in prices and differences in the relative weights by volume within the POI of sales in the home market as compared to the export market exist. Thus, while a change in normal value, export price or constructed export price may be a necessary condition for the conclusion that the passage of time affects comparability in the case of an average-to-average comparison, the existence of such a change is not in itself a sufficient condition to conclude that the export transactions are not comparable to the normal value.”(186)

(iv) Transaction normal value / Transaction export price, the second methodology

132.     Addressing, for the first time, the issue of zeroing using the transaction-to-transaction methodology, the Appellate Body in US — Softwood Lumber V (Article 21.5 — Canada) further emphasized that the same approach needed to be followed for both the first and second methodologies to calculate a margin of dumping:

“The first sentence of Article 2.4.2 sets out the two methodologies that ‘shall normally’ be used by investigating authorities to establish ‘margins of dumping’. Although the transaction-to-transaction and weighted average to weighted-average comparison methodologies are distinct, they fulfil the same function. They are also equivalent in the sense that Article 2.4.2 does not establish a hierarchy between the two. An investigating authority may choose between the two depending on which is most suitable for the particular investigation. Given that the two methodologies are alternative means for establishing ‘margins of dumping’ and that there is no hierarchy between them, it would be illogical to interpret the transaction-to-transaction comparison methodology in a manner that would lead to results that are systematically different from those obtained under the weighted average to weighted-average methodology.

 

In sum, the results of the transaction-specific comparisons cannot be considered ‘margins of dumping’ within the meaning of Article 2.4.2. The ‘margins of dumping’ established under the transaction-to-transaction comparison methodology provided in Article 2.4.2 result from the aggregation of the transaction-specific comparisons. Article 2.4.2 does not permit an investigating authority, when aggregating the results of transaction-specific comparisons, to disregard transactions in which export price exceeds normal value.”(187)

133.     The Appellate Body in US — Softwood Lumber V (Article 21.5 — Canada) said that transaction-specific results are “mere steps in the comparison process” and that the “results of the transaction-specific comparisons are not, in themselves, ‘margins of dumping’.”(188)

134.     The Appellate Body in US — Softwood Lumber V (Article 21.5 — Canada) also drew support from other Articles of the Anti-Dumping Agreement in finding that zeroing was not permissible when calculating margins of dumping on a transaction-to-transaction basis. The de minimis provision in Article 5.8 required aggregation; Article 6.10 reinforced, for the Appellate Body, the notion that “margins of dumping” were the result of an aggregation, in this case, of transaction-specific comparisons; and in Article 9.3 the margin of dumping determined in Article 2 operated as a ceiling for the total amount of anti-dumping duty that could be imposed on individual exporters or foreign producers. Again, this suggested that the margin of dumping was the result of an overall aggregation and did not refer to the results of transaction specific comparisons.(189)

135.     The Appellate Body in US — Zeroing (Japan) stated that it saw no reason to depart from its reasoning in US — Softwood Lumber V (Article 21.5 — Canada) regarding zeroing in the use of the transaction-to transaction methodology for calculating a margin of dumping:

“We fail to see why, if, for the purpose of establishing a margin of dumping, such a product is dealt with under the T-T comparison methodology in an original investigation, zeroing would be consistent with Article 2.4.2 of the Anti-Dumping Agreement. If anything, zeroing under the T-T comparison methodology would inflate the margin of dumping to an even greater extent as compared to model zeroing under the W-W comparison methodology. This is because zeroing under the T-T comparison methodology disregards the result of each comparison involving a transaction in which the export price exceeds the normal value, whereas under the W-W comparison methodology, zeroing occurs, as noted above, only across the subgroups in the process of aggregation.

 

We do not consider that the absence of the phrase ‘all comparable export transactions’ in the context of the T-T comparison methodology suggests that zeroing should be permissible under that methodology. Because transactions may be divided into groups under the W-W comparison methodology, the phrase ‘all comparable export transactions’ requires that each group include only transactions that are comparable and that no export transaction may be left out when determining margins of dumping under that methodology. Furthermore, the WW comparison methodology involves the calculation of a weighted average export price. By contrast, under the T-T comparison methodology, all export transactions are taken into account on an individual basis and matched with the most appropriate transactions in the domestic market. Therefore, the phrase ‘all comparable export transactions’ is not pertinent to the T-T comparison methodology. Consequently, no inference may be drawn from the fact that these words do not appear in relation to this methodology.(190)”(191)

136.     The Panel in US — Orange Juice (Brazil) examined a complaint against use of “simple zeroing” in two administrative reviews, in which individual export transaction prices were compared to a weighted-average normal value for a contemporaneous month; the computer program sorted and aggregated transactions where the export price was below normal value on an importer-specific basis. The Panel concluded (following the Appellate Body) that “‘dumping’ cannot have a transaction-specific meaning”.(192) It then concluded that “the entirety of Article 2.4, including its first sentence, must apply to discipline the ‘comparison’ between export price and normal value whenever undertaken during an anti-dumping proceeding including during duty assessment.”(193) The Panel concluded that “simple zeroing” is inconsistent with the “fair comparison” requirement prescribed in Article 2.4:

“We agree with the United States and the panel in US — Softwood Lumber V (Article 21.5 — Canada) that the meaning of the notion of ‘fairness’ as it is articulated in Article 2.4 will depend upon the particular context in which it is intended to operate. In our view, the search for this context must, first and foremost, start with understanding precisely what it is that must be ‘fair’. This, of course, is the ‘comparison’ between export price and normal value. Thus … accepting that the scope of the ‘fair comparison’ requirement extends beyond the subject matter of Article 2.4, does not establish a rule governing ‘any and all anti-dumping calculations’. The very language of the first sentence of Article 2.4 explicitly limits its relevance to situations involving the ‘comparison’ between export price and normal value. For instance, the ‘fair comparison’ requirement does not extend to govern how an investigating authority establishes normal value. It is clear that this is comprehensively disciplined under Article 2.2 of the AD Agreement. Neither does the ‘fair comparison’ requirement regulate how to establish constructed export price, which is addressed in Article 2.3 of the AD Agreement. However, pursuant to the first sentence of Article 2.4, the ‘comparison’ between any export price and normal value, both individually established in accordance with the specific rules set out in Article 2, must be ‘fair’.

 

An investigating authority will compare export price with normal value for the purpose of determining the existence of dumping or the magnitude of a margin of dumping. This implies that the comparison between export price and normal value must be informed by the definition of ‘dumping’ that is contained in Article 2.1 of the AD Agreement. Above we have found that, on balance, and taking into account important systemic concerns, it is impermissible to compare export price with normal value in such a way that does not result in a determination of ‘dumping’ for the ‘product as a whole’. In this light, a comparison methodology (such as ‘simple zeroing’) that ignores transactions, which if properly taken into account, would result in a lower margin of dumping, must be considered ‘unfair’ and therefore inconsistent with Article 2.4.”(194)

(v) Weighted average normal value / individual transactions export price, the third methodology

Mathematical equivalence

137.     The second sentence of Article 2.4.2 provides for a departure from the two comparison methodologies provided for in the first sentence of that provision “if the authorities find a pattern of export prices which differ significantly among different purchasers, regions or time periods”. Before the Panel in US — Softwood Lumber V (Article 21.5 — Canada) the United States asserted that a prohibition of zeroing in the context of the W-T methodology (which, it argued, would be the case should previous Appellate Body interpretations of “dumping” and “margins of dumping” apply to the second sentence of Article 2.4.2) would mean that the margin of dumping using the W-T methodology would be mathematically equivalent to the margin of dumping established using the W-W methodology, thereby depriving the second sentence of Article 2.4.2 of effect.(195) The Panel accepted the argument. On appeal the Appellate Body rejected it:

“We disagree with the Panel’s analysis of the ‘mathematical equivalence’ argument for several reasons. First, the United States acknowledges that it has never applied the methodology provided in the second sentence of Article 2.4.2, nor has it provided examples of how other WTO Members have applied this methodology. Thus, the United States’ argument on ‘mathematical equivalence’ rests on a non-tested hypothesis. Secondly, we note that the methodology in the second sentence of Article 2.4.2 is an exception. Article 2.4.2 clearly provides that investigating authorities ‘shall normally’ use one of the two methodologies set out in the first sentence of that provision. Neither the participants, nor the third participants, disagree with this description of the relationship between the two sentences of Article 2.4.2.”(196)

138.     The Panel in US — Softwood Lumber V (Article 21.5 — Canada) was interested in exploring ways in which the second sentence of Article 2.4.2 continued to have meaning in and of itself. On appeal the Appellate Body considered the Panel’s approach to be misguided:

“One part of a provision setting forth a methodology is not rendered inutile simply because, in a specific set of circumstances, its application would produce results that are equivalent to those obtained from the application of a comparison methodology set out in another part of that provision.”(197)

139.     The Appellate Body in US — Zeroing (Japan) held the view that “an investigating authority may limit the application of the W-T comparison methodology to the prices of export transactions falling within the relevant pattern.”(198) Subsequently, the Panel in US — Stainless Steel (Mexico) thought this approach of the Appellate Body left certain questions unanswered:

“In light of the text of Article 2.4.2 it is not evident to us that dumping determinations in the third methodology could be limited to the subset of the export transactions that fall within the relevant price pattern … assuming that this proposition does in fact have a textual basis in the Agreement, the Appellate Body did not explain how the authorities would treat the remaining export transactions.”(199)

140.     The Appellate Body in US — Softwood Lumber V (Article 21.5 — Canada) dismissed the notion that a general prohibition on zeroing would render the third methodology inutile. Nor did the Appellate Body think the second sentence of Article 2.4.2 provided contextual support for a finding that zeroing was permissible under the transaction-to-transaction comparison methodology:

“[E]ven if W-W and W-T methodologies were to yield equivalent results in certain situations, this would not be sufficient to compel a finding that zeroing is permissible under the T-T comparison methodology, because the mathematical equivalence argument does not relate to this methodology.”(200)

141.     In the view of the Appellate Body in US — Stainless Steel (Mexico) the “mathematical equivalence” argument worked only under a specific set of assumptions. There was uncertainty how the W-T methodology would be applied in practice.(201) The Appellate Body noted that “it could be argued, in reverse, that permitting zeroing under the first sentence of Article 2.4.2 ‘would enable investigating authorities to capture pricing patterns constituting ‘targeted dumping, thus rendering the third methodology inutile.’”(202) The Appellate Body emphasized that it had so far not ruled on the question of whether zeroing was permissible under the W-T methodology. Its analysis was confined to addressing contextual arguments.(203)

Targeted dumping

142.     The Appellate Body in EC — Bed Linen rejected the European Communities appeal that the Panel’s interpretation would not allow Members to counter dumping “targeted” to certain types of the product under investigation. With respect to the notion of “targeted” dumping, the Appellate Body referred to Article 2.4.2, second sentence, and stated:

“This provision allows Members, in structuring their antidumping investigations, to address three kinds of ‘targeted’ dumping, namely dumping that is targeted to certain purchasers, targeted to certain regions, or targeted to certain time periods. However, neither Article 2.4.2, second sentence, nor any other provision of the Anti-Dumping Agreement refers to dumping ‘targeted’ to certain ‘models’ or ‘types’ of the same product under investigation. It seems to us that, had the drafters of the Anti-Dumping Agreement intended to authorize Members to respond to such kind of ‘targeted’ dumping, they would have done so explicitly in Article 2.4.2, second sentence. The European Communities has not demonstrated that any provision of the Agreement implies that targeted dumping may be examined in relation to specific types or models of the product under investigation. Furthermore, we are bound to add that, if the European Communities wanted to address, in particular, dumping of certain types or models of bed linen, it could have defined, or redefined, the product under investigation in a narrower way.(204)”(205)

(vi) “Zeroing procedures” as a measure that can be challenged “as such”

143.     The Panel in US — Zeroing (Japan) considered that the evidence before it was sufficient to identify the precise content of what Japan termed “zeroing procedures”, and that those procedures were a rule or norm of general and prospective application:

“We therefore consider that the evidence before us is sufficient to identify the precise content of what Japan terms ‘zeroing procedures’, that these procedures are attributable to the United States and that they are a rule or norm of general and prospective application. While we acknowledge that to establish a norm in part on the basis of inferential reasoning is highly unusual, we consider that it is justified in the circumstances of this case. In the Panel’s view, this norm can be characterized as an ‘administrative procedure’ within the meaning of Article 18.4 of the AD Agreement. Our characterization of the zeroing procedures is consistent with the conclusion reached by the Appellate Body in US — Zeroing (EC) that the zeroing methodology, as it relates to original investigations in which the average-to-average comparison method is used, can be challenged as such.

 

Since we have been able to discern with precision the specific content of a rule or norm with respect to how USDOC treats export prices higher than the normal value in calculating margins of dumping, we do not consider that it is of any relevance that the term ‘zeroing procedures’ is not used in the anti-dumping legislation or practice of the United States.”(206)

144.     The Appellate Body, in US — Zeroing (EC), concluded that “the zeroing methodology, as it relates to original investigations in which the weighted-average to- weighted-average comparison method is used to calculate margins of dumping, can be challenged, as such, in WTO dispute settlement.”(207)

145.     The Appellate Body Report in US — Continued Zeroing, examining a claim regarding the zeroing methodology, found that “the continued use of the zeroing methodology in successive proceedings in which duties resulting from the 18 anti-dumping duty orders are maintained, constitute ‘measures’ that can be challenged in WTO dispute settlement.”(208)

“[T]he measures at issue consist of neither the zeroing methodology as a rule or norm of general and prospective application, nor discrete applications of the zeroing methodology in particular determinations; rather, they are the use of the zeroing methodology in successive proceedings, in each of the 18 cases, by which duties are maintained over a period of time. We see no reason to exclude ongoing conduct that consists of the use of the zeroing methodology from challenge in WTO dispute settlement. The successive determinations by which duties are maintained are connected stages in each of the 18 cases involving imposition, assessment, and collection of duties under the same anti-dumping duty order. The use of the zeroing methodology in a string of these stages is the allegedly unchanged component of each of the 18 measures at issue.”(209)

(vii) Zeroing as an allowance or adjustment

146.     The Panel in US — Zeroing (EC) found that zeroing, as applied by the United States Department of Commerce in the administrative reviews at issue, was not inconsistent with the first sentence of Article 2.4 of the Anti-Dumping Agreement. The Appellate Body declared this finding “moot, and of no legal effect”(210), given its finding of violation of Article 9.3 and Article VI:2.

147.     The Appellate Body in US — Zeroing (EC) upheld the Panel’s finding that zeroing is not an impermissible allowance or adjustment under Article 2.4, third to fifth sentences (211) and that “conceptually, zeroing is not an adjustment or an allowance falling within the scope of Article 2.4, third to fifth sentences”, concluding that:

“[D]isregarding a result when the export price exceeds the normal value (zeroing) cannot be characterized as an allowance or an adjustment covered by the third sentence of Article 2.4, including its a contrario application. Indeed, this is not undertaken to adjust to a difference relating to a characteristic of the export transaction in comparison with a domestic transaction.”(212)

(viii) Relationship between subparagraphs of Article 2.4

148.     With respect to the relationship between Article 2.4 and Article 2.4.1, see paragraph 110 above.

149.     With respect to the relationship between Article 2.4 and Article 2.4.2, see paragraph 130 above.

(i) Relationship with other paragraphs of Article 2

150.     With respect to the relationship between Article 2.4 and Article 2.2, see paragraph 77 above.

6. Article 2.6

151.     The Panel in US — Lumber V considered that the “like product” to the product under consideration has to be determined on the basis of Article 2.6, but that this provision does not provide any guidance on the way in which the “product under investigation” is to be determined:

Article 2.6 therefore defines the basis on which the product to be compared to the ‘product under consideration’ is to be determined, that is, a product which is either identical to the product under consideration, or in the absence of such a product, another product which has characteristics closely resembling those of the product under consideration. As the definition of ‘like product’ implies a comparison with another product, it seems clear to us that the starting point can only be the ‘other product’, being the allegedly dumped product. Therefore, once the product under consideration is defined, the ‘like product’ to the product under consideration has to be determined on the basis of Article 2.6. However, in our analysis of the AD Agreement, we could not find any guidance on the way in which the ‘product under consideration’ should be determined.”(213)

152.     The Panel in EC — Salmon (Norway) rejected Norway’s argument that in defining “like product”, Article 2.6 required an assessment of “likeness” in respect of the product under consideration “as a whole” and that this required a comparison of all product categories considered as potentially “like product”:(214)

“In the context of Article 2.6, this logic could be understood to mean that where the product under consideration consists of different sub-categories, the investigating authority, in assessing the question of like product, must take into account each and every sub-category, and may not ignore any. It cannot, however, be stretched to require that an investigating authority assess whether each category or group of goods within the product under consideration is ‘like’ each other category or group of goods.”(215)

153.     In EC — Fasteners (China), the Panel also rejected an argument that Articles 2.1 and 2.6 together required the product under consideration in an investigation to be defined so as to only include products that are “like” within the meaning of Article 2.6. The Panel found:

“[T]he subject of Article 2.6 is not the scope of the product that is the subject of an anti-dumping investigation at all. Rather, the purpose of Article 2.6, apparent from its plain language, is to define the term ‘like product’ for purposes of the AD Agreement… . China’s position would, in our view, require that any difference between categories of goods, and potentially even between individual goods, within a product under consideration would require that each such category or individual good be treated individually, as a separate product under consideration. This would be problematic, as, given that a ‘domestic industry’ for purposes of the AD Agreement is defined as producers of a like product, such a fragmented product under consideration, and correspondingly fragmented like products, would result in the definition of, and determination of injury to, multiple, narrowly defined ‘industries’ which may bear little if any resemblance to the economic realities of the production of those goods in the importing country.

 

… While it seems self-evident to us that an investigating authority must, at the time it initiates an anti-dumping investigation, make a decision as to the scope of that investigation, and give notice of the ‘product involved’, we are not persuaded that either Article 2.1 or Article 2.6 of the AD Agreement establishes a requirement for making an elaborated determination in that regard.”(216)

154.     See also paragraph 40 above.

7. Article 2.7

155.     As the Appellate Body remarked in EC — Fasteners (China), “Article 2.7 of the Anti-Dumping Agreement states that Article 2 is without prejudice to the second Ad Note to Article VI:1 of the GATT 1994, and thus incorporates the second Ad Note to Article VI:1 into the Anti-Dumping Agreement.”(217) The second Ad Note to Article VI:1 of the GATT 1994 reads as follows:

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 State, special difficulties may exist in determining price comparability for the purposes of paragraph 1, and in such cases importing Members may find it necessary to take into account the possibility that a strict comparison with domestic prices in such a country may not always be appropriate.

156.     In EC — Fasteners (China), the Appellate Body suggested that this Ad Note does not apply to an economy where the State does not have a monopoly of trade and the State does not fix all domestic prices. The Appellate Body also noted that the second Ad Note provides flexibility only in respect of determination of normal value, not the rules regarding determination of export prices or calculation of dumping margins.

“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. The second Ad Note to Article VI:1 would thus not on its face be applicable to lesser forms of NMEs that do not fulfil both conditions, that is, the complete or substantially complete monopoly of trade and the fixing of all prices by the State.

 

Furthermore, the reference in the second Ad Note to Article VI:1 to a strict “comparison with domestic prices” not always being “appropriate” provides flexibility only in respect of the determination of normal value. The recognition of special difficulties in determining price comparability in the second Ad Note to Article VI:1 does not mean that importing Members may depart from the provisions regarding the determination of export prices and the calculation of dumping margins and anti-dumping duties set forth in the Anti-Dumping Agreement and in the GATT 1994. While the second Ad Note to Article VI:1 refers to difficulties in determining price comparability in general, the text of this provision clarifies that these difficulties relate exclusively to the normal value side of the comparison. This is indicated by the operative part in the third sentence of this provision, which only allows importing Members to depart from a “strict comparison with domestic prices”.”(218)

157.     See also the discussion of EC — Fasteners (China) below under Article 6.10 at paragraph 628 below, and US — Shrimp (Viet Nam) under Article 9.4 at paragraph 715 below.

8. Relationship with other Articles

(a) Relationship with Article 2.1

158.     With respect to the relationship between Article 2.1 and Article 2.6, the Panel in EC — Salmon (Norway) thought it noteworthy that, while the Anti-Dumping Agreement specifically defined “like product”, there was no specific definition of “product under consideration”.

“In our view, this consideration supports the conclusion that it would be absurd to impose the definition of like product from Article 2.6 onto the undefined term product under consideration. We simply see no basis in the text of Articles 2.1 and 2.6 for the obligations Norway seeks to impose on investigating authorities with respect to product under consideration.”(219)

159.     See also paragraphs 21 and 153 above.

(b) Relationship with Article 6

160.     With respect to the relationship between Article 2 and Articles 6.1, 6.2 and 6.9, see paragraph 641 below.

161.     With respect to the relationship between Article 6.8 and Articles 2.2 and 2.4, the Panel in US — Steel Plate, having found a violation of Article 6.8, considered it unnecessary to determine, in addition, whether the circumstances of that violation also constituted a violation of Article 2.4 (and Article 9.3, and Articles VI:1 and 2 of GATT 1994). In the Panel’s view, findings on these claims would serve no useful purpose, as they would neither assist the Member found to be in violation of its obligations to implement the ruling of the Panel, nor would they add to the overall understanding of the obligations found to have been violated. The Panel also declined to rule on India’s claim under Article 2.2.(220)

162.     With respect to the relationship between Article 2.4 and Article 6.10, see paragraph 643 below.

9. Relationship with other WTO Agreements

(a) Article VI of the GATT 1994

163.     The Panel in US — 1916 Act (EC) found that where the complainant had not established a prima facie case of violation of Article 2.1 and 2.2, “[t]he fact that we found a violation of Article VI:1 of the GATT 1994 is not as such sufficient to conclude that Articles 2.1 and 2.2 of the Anti-Dumping Agreement have been breached, in the absence of more specific arguments and evidence.”(221)

164.     The Appellate Body in EC — Tube or Pipe Fittings considered that the “precise rules relating to the determination as to whether there is dumping and, if dumping exists, how the dumping margin is to be calculated, are set out, not in Article VI:2 of the GATT 1994, but rather in Article 2 of the Anti-Dumping Agreement, which is the agreement on the implementation of Article VI of the GATT 1994.” The Appellate Body in this case rejected the argument that the opening sentence of Article VI:2 of GATT 1994, “in order to offset or prevent dumping” imposed an obligation on an investigating authority to select a particular comparison methodology under Article 2.4.2 of the Anti-Dumping Agreement:

“In our view, therefore, Article 2 is a more appropriate source than the opening phrase ‘[i]n order to offset or prevent dumping’ of Article VI:2, for ascertaining specifically what is required for the proper determination of dumping by an investigating authority. We are unable to see an obligation flowing from the opening phrase of Article VI:2 of the GATT 1994 to Article 2 of the Anti-Dumping Agreement that the determination of dumping must be based on the standard of a ‘reasonable assumption for the future’, or that this, in turn, would require that a particular methodology be chosen under Article 2.4.2.”(222)

(b) Article X of the GATT 1994

165.     The Panel in US — Stainless Steel (Korea) touched on the relationship between Article X:3(a) of the GATT 1994 and Article 2.4.1 of the Anti-Dumping Agreement. See Article X of the Chapter on the GATT 1994.

(c) Protocols of Accession

166.     In EC — Fasteners (China), the European Union argued that Section 15 of the Protocol of Accession of China allowed the European Union to treat China as a non-market economy (NME) for the purpose of applying Article 9(5) of the EU’s Basic AD Regulation and “permits a flexible application of the rules”. China responded that Section 15 was only a temporary and limited derogation from the rules.(223) The Panel and the Appellate Body agreed that Section 15 derogates only from the rules on determining normal value, not other rules under the Agreement and under GATT 1994, such as the rules on the determination of export prices or individual versus country-wide margins and duties. The Appellate Body observed as follows:

“Section 15 of China’s Accession Protocol contains a similar acknowledgment of the difficulties in determining price comparability as the one contained in the second Ad Note to Article VI:1 of the GATT 1994, in respect of imports from China. …

 … paragraph 15(a) of China’s Accession Protocol places the burden on the Chinese producers clearly to show that market economy conditions prevail in the industry producing the like product with respect to its manufacture, production, and sale. If such a showing is made, the importing Member shall use Chinese prices and costs in determining price comparability. Like the second Ad Note to Article VI:1 of the GATT 1994, paragraph 15(a) of China’s Accession Protocol permits importing Members to derogate from a strict comparison with domestic prices or costs in China, that is, in respect of the determination of the normal value. This is indicated by the text of paragraph 15(a), which, in respect of the determination of price comparability, refers to ‘Chinese prices or costs’ or ‘a methodology that is not based on a strict comparison with domestic prices or costs in China’.

 

We do not consider that the references in paragraph 15(a)(i) and (ii) to producers having to show that ‘market economy conditions prevail … with regard to the manufacture, production and sale’ of a product means that paragraph 15(a) permits any derogations also with respect to the determination of export prices. We reach this conclusion because, when producers are not able to show that market economy conditions prevail (including with regard to the sale of the product), paragraph 15(a) makes it clear that all an importing WTO Member is allowed to do as a consequence is to ‘use a methodology that is not based on a strict comparison with domestic prices or costs in China’.(224)

 

Paragraph 15(d) of China’s Accession Protocol establishes that the provisions of paragraph 15(a) expire 15 years after the date of China’s accession (that is, 11 December 2016). It also provides that other WTO Members shall grant before that date the early termination of paragraph 15(a) with respect to China’s entire economy or specific sectors or industries if China demonstrates under the law of the importing WTO Member ‘that it is a market economy’ or that ‘market economy conditions prevail in a particular industry or sector’. Since paragraph 15(d) provides for rules on the termination of paragraph 15(a), its scope of application cannot be wider than that of paragraph 15(a). Both paragraphs concern exclusively the determination of normal value. In other words, paragraph 15(a) contains special rules for the determination of normal value in anti-dumping investigations involving China. Paragraph 15(d) in turn establishes that these special rules will expire in 2016 and sets out certain conditions that may lead to the early termination of these special rules before 2016.

 

In our view, therefore, Section 15 of China’s Accession Protocol does not authorize WTO Members to treat China differently from other Members except for the determination of price comparability in respect of domestic prices and costs in China, which relates to the determination of normal value. We consider that, while Section 15 of China’s Accession Protocol establishes special rules regarding the domestic price aspect of price comparability, it does not contain an open-ended exception that allows WTO Members to treat China differently for other purposes under the Anti-Dumping Agreement and the GATT 1994, such as the determination of export prices or individual versus country-wide margins and duties.”

167.     Similarly, in US — Shrimp (Viet Nam), in connection with a claim by Viet Nam regarding the application of the “all others” rate in an anti-dumping proceeding, the United States argued that paragraphs 254 and 255 of Vietnam’s Accession Working Party Report recognized that in the case of imports of Vietnamese origin into a WTO Member, “special difficulties” could exist in determining cost and price comparability” in antidumping investigations, and therefore the importing Member may use a methodology that is not based on a strict comparison with prices or costs in Viet Nam under certain circumstances. The Panel noted the relevant provisions in the Working Party Report, and found that these provisions only affect calculation of normal value, but do not modify any other provisions from the Agreement, such as Article 9.4:

“[B]ecause of difficulties resulting from the fact that Viet Nam was still continuing the process of transition towards a full market economy, Members agreed that investigating authorities need not necessarily calculate normal value on the basis of domestic prices in Viet Nam, as would otherwise be required by Article 2 of the Anti-Dumping Agreement. However, we see nothing in paragraphs 254 and 255 of the Working Party Report, or any other provision thereof, indicating that the interpretation and/or application of any other provision of the Anti-Dumping Agreement, including Article 9.4, should be modified to accommodate any special difficulties that might arise in a proceeding involving imports from Viet Nam. In particular, there is nothing in the Working Party Report indicating that an investigating authority is entitled to render application of an ‘all others’ rate subject to some additional requirement not provided for in Article 9.4. Furthermore, whereas sub-paragraphs (i) and (ii) of paragraph 255 allow an investigating authority to modify its investigation depending on whether ‘producers under investigation’ can or cannot ‘clearly show that market economy conditions prevail’ in the relevant industry, the investigating authority may only do so in respect of price comparability. Sub-paragraphs (i) and (ii) of paragraph 255 do not allow an investigating authority to assign ‘all others’ rates to non selected respondents on the basis of whether or not market conditions prevail.”(225)

See also the discussion above under Article 2.7, and the discussion of EC — Fasteners (China) under Article 6.10 at paragraph 628 below, and US — Shrimp (Viet Nam) under Article 9.4 at paragraph 715 below.

 

Footnotes:

1. Panel Report, US — 1916 Act (Japan), para. 6.223. back to text
2.Panel Report, US — Corrosion-Resistant Steel Sunset Review, para. 7.44. back to text
3. Appellate Body Report, US — Softwood Lumber V (Article 21.5 —Canada), para. 118. back to text
4. Panel Report, US — Zeroing (EC), footnote 292. back to text
5. In Marrakesh, the Ministers adopted the Decision on Anti-Circumvention, see Section XXV below. back to text
6. Appellate Body Report, US — 1916 Act, para. 119. back to text
7. Appellate Body Report, US — 1916 Act, para. 119. back to text
8. Panel Report, US — 1916 Act  (EC), para. 6.208. back to text
9. Panel Report, EC — Tube or Pipe Fittings, para. 7.107. back to text
10.  Panel Report, Guatemala — Cement II, para. 8.296. back to text
11. Panel Report, US — Stainless Steel (Korea), para. 6.138. back to text
12. Panel Report, US — Stainless Steel (Korea),  para. 6.138. back to text
13. G/ADP/M/16, para. 84; text of Recommendation, G/ADP/6. back to text
14. Appellate Body Report, EC — Tube or Pipe Fittings, para. 78. back to text
15. Appellate Body Report, EC — Tube or Pipe Fittings, para. 80. back to text
16. Appellate Body Report, EC — Tube or Pipe Fittings, para. 81. back to text
17. Appellate Body Report, US — Stainless Steel (Mexico), para. 96. back to text
18. Appellate Body Report, EC — Bed Linen, para. 51. back to text
19. Panel Report, US — Zeroing (Japan), paras. 7.103–7.108. back to text
20. Appellate Body Report, US — Zeroing (Japan), para. 140. back to text
21. Panel Report, US — Orange Juice (Brazil), para. 7.135. back to text
22. Panel Report, EC — Salmon (Norway), para. 7.47. back to text
23. Panel Report, EC — Salmon (Norway), para. 7.48. back to text
24. Panel Report, EC — Salmon (Norway), para. 7.49. back to text
25. Panel Report, EC — Salmon (Norway), para. 7.68. back to text
26. (footnote original) We do not exclude the possibility that there may be a group of goods whose range is so broad as to preclude their being considered “a product”, for instance, a product denominated “transportation equipment” that includes bicycles and jet aircraft. But we do reject the view that the concept of likeness as set out in the Article 2.6 definition of “like product” is the appropriate basis for evaluating whether any particular group of goods comprises such a broad range of goods as to preclude being treated as a product under consideration. back to text
27. Panel Report, EC — Fasteners (China), para. 7.263. back to text
28. Panel Report, EC — Fasteners (China), para. 7.265. back to text
29. Appellate Body Report, US — Hot-Rolled Steel, para. 165. back to text
30. Panel Report, US — Oil Country Tubular Goods Sunset Reviews (Article 21.5 — Argentina), para. 7.76. back to text
31. Appellate Body Report, US — Hot-Rolled Steel, paras. 166, 167 and 169. The Appellate Body could not, however, continue the analysis of whether the United States authorities had made any specific allowances in this case so as to make a fair comparison under Article 2.4 because it found that there was not an adequate factual record for it to complete the analysis. Para. 180. back to text
32. Appellate Body Report, US — Hot-Rolled Steel, para. 139. back to text
33. Appellate Body Report, US — Hot-Rolled Steel, para. 139. back to text
34. Appellate Body Report, US — Hot-Rolled Steel, para. 139. back to text
35. Appellate Body Report, US — Hot-Rolled Steel, para. 147. back to text
36. Appellate Body Report, US — Hot-Rolled Steel, para. 148 back to text
37. Appellate Body Report, US — Hot-Rolled Steel, para. 140, also providing examples of sales not in the ordinary course of trade: “We can envisage many reasons for which transactions might not be ‘in the ordinary course of trade’. For instance, where the parties to a transaction have common ownership, although they are legally distinct persons, usual commercial principles might not be respected between them. Instead of a sale between these parties being a transfer of goods between two enterprises which are economically independent, transacted at market prices, the sale effectively involves a transfer of goods within a single economic enterprise. In that situation, there is reason to suppose that the sales price might be fixed according to criteria which are not those of the marketplace. The sales transaction might be used as a vehicle for transferring resources within the single economic enterprise. Thus, the sales price may be lower than the ‘ordinary course’ price, if the purpose is to shift resources to the buyer, who then receives goods worth more than the actual sales price. Or, conversely, the sales price may be higher than the ‘ordinary course’ price, if the purpose is to shift resources to the seller, who receives higher revenues for the sale than would be the case in the marketplace. There are many reasons relating to corporate law and strategy, and to fiscal law, which may lead to resources being allocated, in these ways, within a single economic enterprise.” Para. 141. back to text
38.  Panel Report, US — Hot-Rolled Steel, para. 7.112. back to text
39. Appellate Body Report, US — Hot-Rolled Steel, paras. 137–158. back to text
40. Appellate Body Report, US — Hot-Rolled Steel, para. 142. back to text
41. (footnote original) One example of such a transaction is a liquidation sale by an enterprise to an independent buyer, which may not reflect “normal” commercial principles. back to text
42. Appellate Body Report, US — Hot-Rolled Steel, para. 143. back to text
43. Appellate Body Report, US — Hot-Rolled Steel, paras. 145–146. back to text
44. Panel Report, Guatemala — Cement II, para. 8.183. back to text
45. (footnote original) The United States’ perception seems to be based on the assumption that there is a watertight separation between the provision relating to construction of the export price (Article 2.3) and that relating to comparison between export price/constructed export price and normal value (Article 2.4). It is evident from the face of the text, however, that the rules regarding allowances related to construction of the export price are found in the paragraph relating to comparison. back to text
46. Panel Report, US — Stainless Steel (Korea), paras. 6.90–6.91. back to text
47. Panel Report, EC — Salmon (Norway), para 7.64. back to text
48. Panel Report, EC — Salmon (Norway), para. 7.312. back to text
49. Panel Report, EC — Salmon (Norway), para. 7.274. back to text
50. Panel Report, EC — Salmon (Norway), para. 7.276. back to text
51. Panel Report, EC — Salmon (Norway), para. 7.275. back to text
52. Panel Report, EC — Salmon (Norway), para. 7.277. back to text
53. Panel Report, EC — Salmon (Norway), para. 7.277. back to text
54. Panel Report, EC — Salmon (Norway), para. 7.277. back to text
55. Panel Report, US — DRAMS, para. 6.66. back to text
56. Panel Report, Egypt — Steel Rebar, para. 7.393. back to text
57. Panel Report, US — Lumber V, para. 7.237. back to text
58. Appellate Body Report, US — Softwood Lumber V, para. 138. back to text
59. Appellate Body Report, EC — Hormones, para. 98. back to text
60. Panel Report, US — DRAMS, paras. 6.68–6.69. back to text
61. Panel Report, EC — Salmon (Norway), para. 7.487. back to text
62. Panel Report, EC — Salmon (Norway), para. 7.488. back to text
63. Panel Report, EC — Salmon (Norway), para. 7.488. back to text
64. Panel Report, EC — Salmon (Norway), para. 7.488. back to text
65. Panel Report, EC — Salmon (Norway), para. 7.507. back to text
66. Panel Report, EC — Salmon (Norway), para. 7.509. back to text
67. Panel Report, US — Softwood Lumber V, para. 7.267. back to text
68. (footnote original) The Concise Oxford Dictionary of Current English (Clarendon Press, 1995), p. 1021. back to text
69. Panel Report, US — Softwood Lumber V, para. 7.265. back to text
70. Appellate Body Report, EC — Tube or Pipe Fittings, paras. 97–98. back to text
71. Appellate Body Report, EC — Tube or Pipe Fittings, para. 101. back to text
72. (footnote original) We note that Indonesia also alleged a violation of Article 6.8 of the Agreement in connection with this claim. However, it also stated that the Article 6.8 aspect of its claim was “somewhat dependent” on the Article 2.2 aspect. See, Response of Indonesia to Question 19 from the Panel Following the First Meeting. We therefore need not, and do not, make a finding under Article 6.8. back to text
73. Panel Report, Korea — Certain Paper, para. 7.94. back to text
74. Panel Report, EC — Salmon (Norway), para. 7.303. back to text
75. Panel Report, EC — Salmon (Norway), para. 7.304. back to text
76. Panel Report, EC — Salmon (Norway), para. 7.308. back to text
77. Panel Report, EC — Salmon (Norway), para. 7.317. back to text
78. Panel Report, EC — Bed Linen, para. 6.62. back to text
79. Panel Report, EC — Bed Linen, paras. 6.59–6.61. back to text
80. Panel Report, Thailand — H-Beams, para. 7.111. back to text
81. Panel Report, Thailand — H-Beams, paras. 7.112–7.113. back to text
82. Panel Report, Thailand — H-Beams, paras. 7.114–7.115. back to text
83. (footnote original) We note that in a case where there is data relating to only one other exporter or producer, a Member may have recourse to the calculation method set forth in Article 2.2.2(iii), provided, of course, that the specific requirements for the use of this calculation method are met. We recall that Article 2.2.2(iii) states that amounts for SG&A and profits may be calculated on the basis of : “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.” back to text
84. Appellate Body Report, EC — Bed Linen, paras. 74–75. back to text
85. (footnote original) Panel Report, EC — Bed Linen, para. 6.87. back to text
86. (footnote original) It is worthwhile noting that “realized” is a word used with respect to both gains (profits) and losses. See Black’s Law Dictionary (West Group, 1999), p. 1271, which speaks of both “realized gain” and “realized loss”. back to text
87. Appellate Body Report, EC — Bed Linen, para. 80. back to text
88. Appellate Body Report, EC — Bed Linen, paras. 82–83. Following the excerpted paragraphs, the Appellate Body cited its Report, India — Patents, para. 45. back to text
89. Panel Report, EC — Bed Linen (Article 21.5 — India), para. 6.81. back to text
90. Panel Report, EC — Bed Linen (Article 21.5 — India), para. 6.84. back to text
91. Panel Report, EC — Bed Linen (Article 21.5 — India), para. 6.84. back to text
92. Panel Report, EC — Bed Linen, para. 6.94. back to text
93. Panel Report, EC — Bed Linen, paras. 6.96–6.98. back to text
94. Panel Report, Thailand — H-Beams, paras. 7.122–7.123. back to text
95. Panel Report, Thailand — H-Beams, para. 7.124. back to text
96. Panel Report, Thailand — H-Beams, paras. 7.122–7.125. back to text
97. Panel Report, EC — Salmon (Norway), para. 7.605. back to text
98. Panel Report, Egypt — Steel Rebar, para. 7.388. back to text
99. Panel Report, EC — Tube or Pipe Fittings, para. 7.150. back to text
100. Panel Report, Egypt — Steel Rebar, para. 7.335. back to text
101. (footnote original) In this regard, we note that earlier provisions in Article 2, namely Article 2.2 including all of its sub-paragraphs, and Article 2.3, have to do exclusively and in some detail with the establishment of normal value and export price, and in addition that Article 2.1 has to do in part with the establishment of the export price. back to text
102. Panel Report, Egypt — Steel Rebar, paras. 7.333–7.334. back to text
103. (footnote original) Panel Report, para. 7.253. back to text
104. Appellate Body Report, US — Zeroing (EC), para. 139. back to text
105. Appellate Body Report, US — Zeroing (EC), para. 146. back to text
106.  Appellate Body Report, US — Softwood Lumber V (Article 21.5 — Canada), para 136. back to text
107. Appellate Body Report, US — Softwood Lumber V (Article 21.5 — Canada), para 142. Adopted and followed e.g. in Panel Report, US — Shrimp (Viet Nam), para. 7.93. back to text
108. (footnote original) Infra, paras. 7.196–7.209. back to text
109. US — Zeroing (Japan), para 7.159. back to text
110. US — Zeroing (Japan), para 7.161. back to text
111. Appellate Body Report, US — Zeroing (Japan), para. 168. back to text
112. Panel Report, US — Stainless Steel (Korea), para. 6.104. back to text
113. Panel Report, Argentina — Ceramic Tiles, paras. 6.113 and 6.116. A similar view was expressed by the Panel on EC — Tube or Pipe Fittings which considered that “the requirement to make due allowance for such differences, in each case on its merits, means that the authority must at least evaluate identified differences in taxation with a view to determining whether or not an adjustment is required to ensure a fair comparison between normal value and export price under Article 2.4 of the Anti-Dumping Agreement, and then to make an adjustment where it determines this to be necessary on the basis of this evaluation”. Panel Report, EC — Tube or Pipe Fittings, para. 7.157. See also Panel Report, US — Softwood Lumber V, paras. 7.165–7.167. back to text
114. Panel Report, Egypt — Steel Rebar, para. 7.352. back to text
115. Panel Report, EC — Tube or Pipe Fittings, para. 7.178. back to text
116. Appellate Body Report, US — Hot-Rolled Steel, para. 177. back to text
117. Panel Report, US — Softwood Lumber V, para. 7.165. back to text
118. Panel Report, US — Softwood Lumber V, para. 7.357. back to text
119. Panel Report, Korea — Certain Paper, para. 7.147. back to text
120. Appellate Body Report, US — Zeroing (EC), para. 156. back to text
121. Panel Report, EC — Fasteners (China), para. 7.297. back to text
122. (footnote original) Panel Report, Korea — Certain Paper, para. 7.147. back to text
123. (footnote original) Panel Report, EC — Tube or Pipe Fittings, para. 7.158 (emphasis added). back to text
124. Panel Report, EC — Fasteners (China), para. 7.298. back to text
125. Panel Report, EC — Fasteners (China), paras. 7.303, 7.306, 7.311. back to text
126. (footnote original) Panel Report [EC — Fasteners (China)], para. 7.298 (quoting Panel Report, EC — Tube or Pipe Fittings, para. 7.158). back to text
127. Appellate Body Report, EC — Fasteners (China), para. 517. back to text
128. Panel Report, US — Stainless Steel (Korea), para. 6.75. back to text
129. (footnote original) We note however that such a situation might more properly be considered to be an “other difference … affecting price comparability”. back to text
130. Panel Report, US — Stainless Steel (Korea), paras. 6.76–6.77. back to text
131. (footnote original) Although in our view the existence of different levels of non-payment during prior periods would appear to be much more relevant. back to text
132. (footnote original) The United States contends that, “during the period of investigation, POSCO actually recognized greater bad debt expenses, as a proportion of sales, in the US market than in the Korean market. This evidence would indicate that POSCO should be charging higher prices in the US market than in the Korean market.” In the absence of any evidence in the record that the level of non-payment in the US market was foreseeable or that the historical risk of non-payment was higher in the US than the Korean market, the conclusion that POSCO should have been charging higher prices in the US than in the Korean market seems unwarranted. back to text
133. Panel Report, US — Stainless Steel (Korea), para. 6.78. back to text
134. (footnote original) But see Appellate Body Report on US — FSC, fn. 124. back to text
135. (footnote original) It can be assumed that a Member will use this authorization where appropriate without being legally constrained to do so. By contrast, the AD Agreement provides that due allowance “shall” be made for differences affecting price comparability. Mandatory language is used here because the failure to make such allowances could generate or inflate dumping margins to the detriment of the interests of other Members. back to text
136. (footnote original) That the use of the non-mandatory phrase “should” does not support the conclusion advanced by the United States can be confirmed by replacing “should” with another non-mandatory term, “may”. That a Member “may” make certain allowances would indicate that the Member was authorized but not required to make those allowances. It does not follow, however, that the Member was free also to make any other allowances not within the scope of the authorization. Cf. Appellate Body Report, US 1916 Act, paras. 112–117 (that Article VI:2 of GATT 1994 makes imposition of anti-dumping duties permissive does not mean that a Member may impose measures other than anti-dumping duties to counteract dumping). back to text
137. Panel Report, US — Stainless Steel (Korea), paras. 6.93–6.95. back to text
138. (footnote original) As the Appellate Body has noted, “dictionary meanings leave many interpretive questions open.” Appellate Body Report, Canada — Aircraft, para. 153. back to text
139. Panel Report, US — Stainless Steel (Korea), paras. 6.98–6.100. back to text
140. Appellate Body Report, US — Hot-Rolled Steel, para. 178. back to text
141. Appellate Body Report, EC — Fasteners (China), para. 513. back to text
142. Appellate Body Report, EC — Fasteners (China), para. 515. back to text
143. (footnote original) The provision relied upon by Korea is the language in Article 2.4.1 stating that, “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”. Korea is in effect asking us to read this provision to further say that “in an investigation the authorities shall take no actions to address currency depreciations”. We can perceive no textual basis to imply such an additional rule into Article 2.4.1. back to text
144. Panel Report, US — Stainless Steel (Korea), paras. 6.129–6.130. back to text
145. Panel Report, US — Stainless Steel (Korea), paras. 6.11–6.12. back to text
146. Panel Report, US — Stainless Steel (Korea), para. 6.25. However, pursuant to Article 17.6(i), the Panel did not find one factual determination of the US authority on this issue in violation of Article 2.4.1. See para. 921 of this Chapter. back to text
147. Panel Report, US — Stainless Steel (Korea), para. 6.44. back to text
148. Panel Report, US — Stainless Steel (Korea), para. 6.45. back to text
149. Panel Report, EC — Tube or Pipe Fittings, para. 7.198. back to text
150. Panel Report, EC — Tube or Pipe Fittings, para. 7.199. back to text
151. (footnote original) Under both the model zeroing method and the simple zeroing method, the denominator of the weighted average overall margin of dumping calculated by USDOC always includes the total value of all export sales, including export sales at prices above the normal value. back to text
152. Panel Report, US — Zeroing (Japan), paras. 7.2–7.3. back to text
153. Panel Report, EC — Bed Linen, para. 6.118. back to text
154. Appellate Body Report, EC — Bed Linen, para. 51. back to text
155. Appellate Body Report, US — Softwood Lumber V, para. 96. back to text
156. Appellate Body Report, US — Softwood Lumber V, paras. 97–98. back to text
157. Panel Report, US — Zeroing (Japan), para. 7.82. back to text
158. Panel Report, US — Zeroing (Japan), para. 7.85. back to text
159. The Panel in EC — Bed Linen summarized the EC practice of “zeroing” at that time as follows: First, the EC authorities identified with respect to the product under investigation — cotton-type bed linen — a certain number of different “models” or “types” of that product. Second, they calculated, for each such model, a weighted average normal value and a weighted average export price. Third, they compared the weighted average normal value with the weighted average export price for each model. For each model, the EC authorities subtracted export price from normal value to produce a positive or negative dumping margin, depending on whether the result was above or below zero. They then calculated the overall dumping margin by averaging the results for each model, counting “negative dumping margins” as zero in the process. The Panel found that this practice was inconsistent with Article 2.4.2. Panel Report, EC Bed Linen, para. 7.1(g). back to text
160. (footnote original) Panel Report on EC — Bed Linen, para. 6.115. back to text
161. Appellate Body Report, EC — Bed Linen, paras. 54–55. back to text
162. Appellate Body Report, US — Softwood Lumber V, para. 101. back to text
163. Appellate Body Report, EC — Bed Linen, paras. 56–58. back to text
164. Appellate Body Report, EC — Bed Linen, paras. 59–60. back to text
165. (footnote original) Appellate Body Report, EC — Bed Linen, para. 53 (emphasis original), quoted in Appellate Body Report, US — Softwood Lumber V, para. 96. back to text
166. (footnote original) Appellate Body Report, US — Softwood Lumber V, paras. 97–98. back to text
167. (footnote original) Ibid, para. 102. back to text
168. Panel Report, US — Shrimp (Ecuador), paras. 7.38–7.39, also quoted in Panel Report,  US — Shrimp (Thailand), para. 7.33. back to text
169. Panel Report, US — Shrimp (Thailand), para. 7.35. back to text
170. Panel Report, US — Anti-Dumping Measures on PET Bags, paras. 7.18–7.25. back to text
171. Panel Report, US — Zeroing (Korea), paras. 7.27–7.34. back to text
172. Panel Report, EC — Bed Linen, para. 7.1(g). For the description of the zeroing practice, see footnote 160. back to text
173. Appellate Body Report, EC — Bed Linen, para. 53. back to text
174. Appellate Body Report, US — Softwood Lumber V, para. 81. back to text
175. (footnote original) These methods are not relevant in the present proceedings, since the DCD established normal value on the basis of domestic sales transactions. back to text
176. Panel Report, Argentina — Poultry Anti-Dumping Duties, para. 7.272. back to text
177. Panel Report, Argentina — Poultry Anti-Dumping Duties, para. 7.274. back to text
178. (footnote original) We note that insertion of the word “comparable” into Article 2.4.2 represented the only modification to that Article between the date of the Draft Final Act and the text as adopted. See Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, MTN.TNC/ W/FA, 20 December 1991. This suggests that its inclusion was not merely incidental but reflected careful consideration by the drafters. back to text
179. Panel Report, US — Stainless Steel (Korea), paras. 6.111–6.114. back to text
180. (footnote original) As an additional contextual argument, Korea argues that devaluation cannot be considered to affect comparability because there is no provision in the AD Agreement specifying that sales made at one exchange rate cannot be compared with sales at another exchange rate. Rather, the only provision of the AD Agreement that addresses exchange rates is Article 2.4.1, which the United States concedes does not establish a limit on what sales may be considered comparable. We do not however place any weight on Korea’s argument in this respect. In our view — and absent the unusual situation of multiple exchange rates — there will at any given moment in time be only one exchange rate. Thus, any problem of comparability does not relate to exchange rates per se, but rather to differences in timing of sales. Thus it is on this issue that we focus. back to text
181. Panel Report, US — Stainless Steel (Korea), paras. 6.120–6.121. back to text
182. (footnote original) The United States’ argument seems to be posited on its view that the best comparison for measuring dumping is a transaction-to-transaction comparison, and that average-to-average comparisons are a second-best approach allowed because of practical problems with the transaction-to transaction methodology. See US answer to question 2 from the Panel posed at the second meeting of the Panel with the parties. We perceive no valid textual basis for such a conclusion, however. To the contrary, the AD Agreement sets forth two options for a comparison methodology — average-to-average and transaction-to transaction — and expresses no preference between them. back to text
183. Panel Report, US — Stainless Steel (Korea), para. 6.122. back to text
184. (footnote original) A particularly dramatic example of this situation would arise where, during a substantial portion of the POI, there were no sales in one of the two markets. back to text
185. (footnote original) The combination of these two factors could even result in a situation where, although at any given moment in time throughout the POI, the exporter was charging an identical price (after all appropriate allowances had been made), a margin of dumping could nevertheless be found to exist. For example, imagine that there were two home market sales (HM-1 and HM-2) and two export sales (EX-1 and EX-2) during the POI. HM-1 and EX-1 occurred on day 1 and were both at a price of $10. HM-2 and EX-2 occurred on day 90 and were both at a price of $15. Thus, neither of the individual export transactions was dumped when compared to the simultaneous home market transactions. If all these sales were in the same volumes, then a weighted average to weighted average would also show no dumping. Assume however that HM-1 and EX-2 involved a volume of ten units, while HM-2 and EX-1 involved a volume of twenty units. In this case, the weighted average normal value would be (10 units × $10/ unit) + (20 units × $15/unit) = $400/30 units = $13.33/unit. The weighted average export price would be (20 units × $10/unit) + (10 units × $15/unit) = $350/30 units = $11.27/unit. Thus, the weighted average margin of dumping would be 18 per cent. back to text
186. Panel Report, US — Stainless Steel (Korea), para. 6.123. back to text
187. Appellate Body Report, US — Softwood Lumber V (Article 21.5 — Canada), paras. 93–94. back to text
188. Appellate Body Report, US — Softwood Lumber V (Article 21.5 — Canada), para. 87. back to text
189. Appellate Body Report, US — Softwood Lumber V (Article 21.5 — Canada), paras. 105–108. back to text
190. (footnote original) See Appellate Body Report on US — Softwood Lumber V (Article 21.5 — Canada), para. 91. back to text
191. Appellate Body Report, US — Zeroing (Japan), paras. 123–124. back to text
192. Panel Report, US — Orange Juice (Brazil), para. 7.136. back to text
193. Panel Report, US — Orange Juice (Brazil), para. 7.142. back to text
194. Panel Report, US — Orange Juice (Brazil), paras. 7.152–153. back to text
195. Panel Report, US — Softwood Lumber V (Article 21.5 — Canada), para. 5.33. back to text
196. Panel Report, US — Softwood Lumber V (Article 21.5 — Canada), para. 97. back to text
197. Appellate Body Report, US — Softwood Lumber V (Article 21.5 — Canada), para 99. back to text
198. Appellate Body Report, US — Zeroing (Japan), para. 135. back to text
199. Panel Report, US — Stainless Steel (Mexico), para. 7.139. back to text
200. Appellate Body Report, US — Zeroing (Japan), para. 1.33. back to text
201. Appellate Body Report, US — Stainless Steel (Mexico), para. 126. back to text
202. Appellate Body Report, US — Stainless Steel (Mexico), quoting also US — Zeroing (Japan), para. 127. back to text
203. Appellate Body Report, US — Stainless Steel (Mexico), para. 127. back to text
204. (footnote original) The European Communities also argues in its appellant’s submission, paras. 42–45, that the Panel’s interpretation of Article 2.4.2 would disadvantage those importing Members which collect anti-dumping duties on a “prospective” basis when compared to those importing Members which collect anti-dumping duties on a “retrospective” basis. We note, though, that Article 2.4.2 is not concerned with the collection of antidumping duties, but rather with the determination of “the existence of margins of dumping”. Rules relating to the “prospective” and “retrospective” collection of anti-dumping duties are set forth in Article 9 of the Anti-Dumping Agreement. The European Communities has not shown how and to what extent these rules on the “prospective” and “retrospective” collection of anti-dumping duties bear on the issue of the establishment of “the existence of dumping margins” under Article 2.4.2. back to text
205. Appellate Body Report, EC — Bed Linen, para. 62. back to text
206. Panel Report, US — Zeroing (Japan), paras 7.55–7.56; the Appellate Body upheld this finding (Appellate Body Report, US — Zeroing (Japan), paras. 78–88, 96). back to text
207. Appellate Body Report, US — Zeroing (EC), para. 205. back to text
208. Appellate Body Report, US — Continued Zeroing, para. 185. back to text
209.  Appellate Body Report, US — Continued Zeroing, para. 181. back to text
210. Appellate Body Report, US — Zeroing (EC), para. 147. back to text
211. Appellate Body Report, US — Zeroing (EC), para. 159. back to text
212. Appellate Body Report, US — Zeroing (EC), para. 158. back to text
213. Panel Report, US — Softwood Lumber V, para. 7.153. back to text
214. Panel Report, EC — Salmon (Norway), para. 7.52. back to text
215. Panel Report, EC — Salmon (Norway), para. 7.55. See also paragraph 21 above. back to text
216. Panel Report, EC — Fasteners (China), paras. 7.267–7.268. back to text
217. Appellate Body Report, EC — Fasteners (China), para. 285. back to text
218. Appellate Body Report, EC — Fasteners (China), footnote 459 to para. 285. back to text
219. Panel Report, EC — Salmon (Norway), para. 7.59. back to text
220.  Panel Report, US — Steel Plate, para. 7.103. back to text
221. Panel Report, US — 1916 Act  (EC), para. 6.209. back to text
222. Appellate Body Report, EC — Tube or Pipe Fittings, para. 76. back to text
223. Appellate Body Report, EC — Fasteners (China), para. 284. back to text
224. (footnote original) Emphasis added. back to text
225.  Panel Report, US — Shrimp (Viet Nam), para. 7.251. See also under Article 9.4. back to text

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