DISPUTE SETTLEMENT

DS: United States — Anti-Dumping and Countervailing Measures on Large Residential Washers from Korea

This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

  

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Current status

 

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Key facts

Short title:
Complainant:
Respondent:
Third Parties:
Agreements cited:
(as cited in request for consultations)
Request for Consultations received:
Panel Report circulated: 11 March 2016
Appellate Body Report circulated: 7 September 2016
Article 21.3(c) Arbitration Report circulated: 13 April 2017

  

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Latest document

  

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Summary of the dispute to date

The summary below was up-to-date at

Consultations

Complaint by Korea.

On 29 August 2013, Korea requested consultations with the United States concerning anti‑dumping and countervailing measures relating to large residential washers from Korea.

Korea claims that the measures identified in its request for consultations are inconsistent with:

  • Articles 1, 2.1, 2.4, 2.4.2, 5.8, 9.3, 9.4, 9.5, 11 and 18.4 of the Anti-Dumping Agreement;
     
  • Articles 1.1, 1.2, 2.1, 2.2, 10, 14 and 19.4 of the SCM Agreement;
     
  • Articles VI, VI:1, VI:2 and VI:3 of the GATT 1994;
     
  • Article XVI:4 of the WTO Agreement.

On 10 September 2013, China requested to join the consultations.  On 12 September 2013, Japan requested to join the consultations. On 5 December 2013, Korea requested the establishment of a panel. At its meeting on 18 December 2013, the DSB deferred the establishment of a panel.

 

Panel and Appellate Body proceedings

At its meeting on 22 January 2014, the DSB established a panel. Brazil, Canada, China, the European Union, India, Japan, Norway, Thailand and Turkey reserved their third-party rights.  Subsequently, Saudi Arabia and Viet Nam reserved their third-party rights.

On 10 June 2014, Korea requested the Director-General to compose the panel. On 20 June 2014, the Director-General composed the panel.

On 15 December 2014, the Chair of the panel informed the DSB that the beginning of the panel's work was delayed as a result of a lack of available experienced lawyers in the Secretariat. The panel expects to issue its final report to the parties by the end of 2015.

On 11 March 2016, the panel report was circulated to Members.

This dispute concerns the definitive anti-dumping and countervailing duties applied by the United States as a result of anti-dumping and countervailing duty proceedings conducted by the USDOC concerning imports of large residential washers from Korea. Korea's anti-dumping claims concern certain aspects of the USDOC's approach to the comparison methodology provided for in the second sentence of Article 2.4.2 of the AD Agreement (W-T comparison methodology). Korea challenges certain aspects of the methodologies used by the USDOC to determine whether the conditions for the application of the W-T comparison methodology are met. Korea also challenges the USDOC's use of zeroing in the context of the W-T comparison methodology. Korea's subsidies claims concern the USDOC's determinations that two tax credit subsidy programmes are specific. Korea also raises claims under the SCM Agreement and the GATT 1994 challenging the manner in which the USDOC calculated the amount of subsidy conferred on Samsung under those programmes.

Korea's anti-dumping claims concerning the W-T comparison methodology

Korea challenges the manner in which the USDOC determines whether the conditions for the application of the W-T comparison methodology are met, and the scope of its application: (i) “as applied” in the Washers investigation; (ii) under the Differential Pricing Methodology (DPM) “as such”; and (iii) the future, ongoing application of the DPM in the context of the USDOC's Washers proceeding.

Korea claimed that, contrary to the second sentence of Article 2.4.2, the USDOC applied the W-T comparison methodology to non-pattern transactions. The Panel considered that the term “individual” under the second sentence indicates that the W-T comparison will not involve all export transactions. For this reason, for contextual considerations, and for the object and purpose of the second sentence to “unmask” “targeted dumping”, the Panel upheld Korea's claim. The Panel reached the same conclusionunder the DPM, to the extent that the DPM applies the W-T comparison methodology to non-pattern transactions when the aggregated value of sales to purchasers, regions, and time periods that pass the Cohen's d test account for 66% or more of the value of total sales.

Korea claimed that the United States acted inconsistently with the pattern clause of the second sentence of Article 2.4.2 by applying fixed numerical criteria to determine the existence of a “pattern” of significant price differences, and categorically rejects the relevance to its inquiry of the commercial context in which the alleged pattern of significant pricing differences arise. The Panel considered that the text of the second sentence does not contain any requirement to consider the reasons for the price differences, and rejected Korea's argument that the United States acted inconsistently with the pattern clause by failing to conduct any qualitative assessment of the reasons for the relevant price differences. However, the Panel found the reasons behind the price differences to be relevant in the context of the explanation clause of the second sentence. The Panel considered that the explanation clause is needed because there may be factors other than targeted dumping that may cause prices to differ significantly. Such differences may “normally” be taken into account appropriately by the “normal” comparison methodologies. The Panel therefore found that, by focusing on the difference between the margin of dumping calculated with the W-W comparison methodology and the margin calculated using the W-T comparison methodology or the mixed comparison methodology, the USDOC failed to provide for any consideration of whether the factual circumstances surrounding the relevant price differences were suggestive of something other than targeted dumping, contrary to the explanation clause. The Panel reached the same conclusion under the DPM.

Korea claimed that the USDOC provides no explanation as to why the price differences it found cannot be taken into account appropriately by resort to either the weighted average-to-weighted average (W-W) or transaction-to-transaction (T-T) methodology, contrary to the second sentence of Article 2.4.2. The Panel rejected, on textual as well as contextual grounds, this argument both “as applied” in the Washers anti-dumping investigation and “as such” under the DPM.

Korea claimed that the DPM does not effectively identify or analyse a “pattern” of prices to any purchaser, or in any region or time period, by aggregating six different types of price variation pertaining to different parameters. The Panel upheld this claim because by aggregating random and unrelated price variations, the DPM does not properly establish “a pattern of export prices which differ significantly among purchasers, regions or time periods”.

Korea challenged the DPM's approach of setting to zero any negative W-W comparison result when aggregating the two intermediate dumping calculations when applying a mixed comparison methodology (systemic disregarding). The Panel considered that the second sentence of Article 2.4.2 (as an exceptional comparison methodology) allows the net amount of the dumping to be established from considering the evidence of targeted dumping in the pattern transactions, but the calculation of that dumping as a percentage of the exports of an exporter must reflect the prices of its total exports.  The Panel considered that there would be no utility in allowing an investigating authority to zoom in and have particular regard to the pattern transactions if the authority is subsequently required to zoom out and give full effect of the exporter's pricing behaviour in respect of the non-patterned transactions. Moreover, the exclusion of “systemic disregarding” will lead to mathematical equivalence with the results of applying the normal W-W comparison methodology. The Panel therefore rejected Korea's claim.

Claims concerning the use of zeroing

Korea challenged the USDOC's use of zeroing in the context of the W-T comparison methodology. The Panel considered that the second sentence of Article 2.4.2 allows an investigating authority to have particular regard to the pricing behavior of an exporter in respect of those pattern transactions in determining the margin of dumping for that exporter. However, the entirety of the pricing behavior within that pattern must be taken into account. The Panel found no basis for ignoring, or zeroing individual pattern transactions that may be priced above normal value. On the contrary, the Panel considered that the word “individual” under the second sentence suggests that each pattern transaction shall be considered in its own right and with equal weight, irrespective of whether the export price is above or below normal value. Therefore, the Panel found that the United States' use of zeroing when applying the W-T comparison methodology to be inconsistent with Article 2.4.2. The Panel also upheld Korea's claims against zeroing in the context of the W-T comparison methodology under Articles 2.4 and 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994.

Claims concerning the countervailing measures

Korea pursued a number of claims concerning the USDOC's determinations that two tax credit subsidy programmes benefiting Samsung are specific. Korea also challenged the manner in which the USDOC calculated the amount of subsidy conferred on Samsung under those programmes. 

The Panel upheld Korea's claim concerning the disproportionality finding in both the original determination and redetermination because the USDOC did not conduct the required relational analysis of the amount of subsidy received by Samsung. The Panel also upheld Korea's claim that the USDOC failed to take account of the two mandatory factors in its determination of de facto specificity. However, the Panel rejected Korea's claim concerning the USDOC's determination of regional specificity in respect of the RSTA Article 26 tax credit.

Korea challenged the USDOC's determination that the tax credit subsides are not tied to any particular product. Korea argued that the subsidies are R&D subsidies tied to Digital Appliance products. The Panel rejected this claim because Samsung was free to spend its tax credit cash as it saw fit, irrespective of the particular products for which the eligible R&D expenditure giving rise to the tax credits were undertaken.

Korea challenged the USDOC's decision to limit the denominator to the sales value of products produced by Samsung in Korea, rather than Samsung's worldwide sales when allocating the benefit conferred by RSTA Article 10(1)(3) tax credit subsidies. The Panel rejected this claim.

On 19 April 2016, the United States notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretation in the panel report. On 25 April 2016, Korea notified the DSB of its decision to cross-appeal.

On 17 June 2016, upon expiry of the 60-day period provided for in Article 17.5 of the DSU, the Appellate Body informed the DSB that the circulation date of the Appellate Body report in this appeal would be communicated to the participants and third participants shortly after the oral hearing, in the light of the scheduling of parallel appeals, the number and complexity of the issues raised in this or concurrent appellate proceedings, and the availability of translation services. On 6 July 2016, the Appellate Body informed the DSB that it expected to circulate its report in this appeal no later than 7 September 2016.

On 7 September 2016, the Appellate Body report was circulated to Members.

The United States appealed the Panel's findings that certain aspects of the anti-dumping measures, including the permissibility of zeroing under the W-T comparison methodology, were inconsistent with Articles 2.4, 2.4.2, and 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994. Korea, in turn, appealed the Panel's findings that certain aspects of the anti‑dumping measures were consistent with Article 2.4 and the second sentence of Article 2.4.2 of the Anti-Dumping Agreement. Korea also appealed the Panel's findings that certain Korean subsidies were regionally specific under Article 2.2 of the SCM Agreement. Finally, Korea appealed the Panel's findings concerning the United States Department of Commerce (USDOC)'s calculation of the ad valorem subsidization rate for Samsung under Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994.

Article 2.4 and the second sentence of Article 2.4.2 of the Anti-Dumping Agreement

The second sentence of Article 2.4.2 of the Anti-Dumping Agreement allows an investigating authority to address “targeted dumping” by applying the W-T comparison methodology to establish margins of dumping, instead of the normally applicable W-W or T-T comparison methodologies set forth in the first sentence of Article 2.4.2, provided: (i) “a pattern of export prices which differ significantly among different purchasers, regions or time periods” is identified; and (ii) “an explanation is provided as to why such differences cannot be taken into account appropriately” by the use of a W-W or T-T comparison.

The Appellate Body found that the relevant “pattern” under this provision is one of “export prices which differ significantly” from other export prices because they are significantly lower than those other prices. The Appellate Body further found that the relevant “pattern” is one of “export prices which differ significantly” either among different purchasers or among different regions, or among different time periods. Some transactions that differ among purchasers, taken together with some transactions that differ among regions, and some transactions that differ among time periods, cannot, therefore, form a single pattern. As such, a “pattern” cannot comprise all export transactions but comprises all the export prices to one or more particular purchasers (or regions or time periods) which differ significantly from the export prices to the other purchasers (or regions or time periods) because they are significantly lower than those other prices. The Appellate Body thus upheld the Panel's conclusions regarding the relevant “pattern” and its finding that, by aggregating random and unrelated price variations, the DPM does not properly establish a pattern.

The Appellate Body considered the text of the second sentence of Article 2.4.2, which refers to a weighted average normal value that may be compared to prices of “individual export transactions”, in context and in light of the function of the second sentence of Article 2.4.2 to allow investigating authorities to identify and address “targeted dumping”. On this basis, it upheld the Panel's finding that the W-T comparison methodology should only be applied to those transactions that constitute the “pattern”. Consequently, it upheld the Panel's related findings of inconsistency “as applied” in the Washers anti-dumping investigation and “as such” under the DPM.

The Appellate Body found that the requirement to identify prices which differ “significantly” under the second sentence of Article 2.4.2 means that the investigating authority is required to assess in a quantitative and qualitative manner the price differences at issue. The Appellate Body upheld the Panel's finding that an investigating authority is not required to consider the cause of (or reasons for) the price differences. However, it reversed the Panel's findings “as applied” in the Washers anti-dumping investigation and “as such” under the DPM to the extent that the Panel found that a pattern of export prices which differ significantly can be established “on the basis of purely quantitative criteria” (i.e. absent any qualitative analysis).  

The Appellate Body further considered that an investigating authority has to explain why both of the W-W and the T-T comparison methodologies that are normally to be used cannot take into account appropriately the identified differences in export prices before having recourse to the exceptional W-T comparison methodology. It thus reversed the Panel's finding “as applied” in the Washers anti-dumping investigation because the USDOC failed to explain why the relevant price differences could not be taken into account appropriately by the T-T comparison methodology. For the same reasons, the Appellate Body reversed the Panel's finding “as such” under the DPM.

The Appellate Body found that the second sentence of Article 2.4.2 allows an investigating authority to establish margins of dumping by applying the W‑T comparison methodology only to transactions that constitute the “pattern of export prices which differ significantly among different purchasers, regions or time periods” to the exclusion of “non‑pattern transactions” and by dividing the resulting amount by all the export sales of a given exporter or foreign producer. Nevertheless, with respect to the Panel's finding that Korea had failed to establish that the United States' use of “systemic disregarding” under the DPM is inconsistent “as such” with Article 2.4 and the second sentence of Article 2.4.2, the Appellate Body considered that the second sentence of Article 2.4.2 neither permits the combining of comparison methodologies (i.e. W-T for “pattern transactions” and W-W or  T-T for “non-pattern transactions”); nor does it allow “systemic disregarding”, whereby an investigating authority conducts separate comparisons for transactions within the “pattern”, under the W‑T comparison methodology, and for transactions outside the “pattern”, under the W‑W or T‑T comparison methodology, and then disregards the latter when they yield an overall negative comparison result. The Appellate Body also considered that the exclusion of “non‑pattern transactions” in establishing margins of dumping under the W‑T comparison methodology is consistent with the “fair comparison” requirement in Article 2.4. In light of the above, the Appellate Body declared moot the Panel's findings in respect of “systemic disregarding”.

Zeroing under the W-T comparison methodology

With respect to the question of whether zeroing is permitted under the W-T comparison methodology, the Appellate Body found that the exceptional W‑T comparison methodology requires a comparison between a weighted average normal value and the entire “universe of export transactions” that fall within the “pattern” as properly identified under the second sentence of Article 2.4.2, irrespective of whether the export price of individual “pattern transactions” is above or below normal value. The Appellate Body concluded that zeroing is inconsistent with the establishment of dumping and margins of dumping pertaining to the “universe of export transactions” identified under the second sentence. The Appellate Body further found that, if margins of dumping are established inconsistently with the second sentence of Article 2.4.2 by using zeroing under the W‑T comparison methodology, the corresponding anti‑dumping duties that are levied will also be inconsistent with Article 9.3 of the Anti‑Dumping Agreement and Article VI:2 of the GATT 1994, as they will exceed the margin of dumping that should have been established under Article 2. In light of the above, the Appellate Body upheld the Panel's findings that zeroing under the W-T comparison methodology is inconsistent with Articles 2.4, 2.4.2, and 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994.

Separate opinion of one Appellate Body Member on zeroing under the W-T comparison methodology

In disagreeing with the majority's findings on zeroing under Article 2.4.2, one Appellate Body Member stated that in addressing “targeted dumping” when applying the second sentence of Article 2.4.2, investigating authorities are to focus only on “pattern transactions”. However, in his view, they are permitted to zero those “pattern transactions” that are priced above normal value, and to calculate dumping and margins of dumping only on the basis of “pattern transactions” priced below normal value. Consequently, that Member also disagreed with the findings of the majority that zeroing under the W-T comparison methodology is inconsistent with Articles 2.4 and 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994.

Article 2.2 of the SCM Agreement

The Appellate Body agreed with the Panel that the term “certain enterprises” in Article 2.2 is not limited to entities with legal personality, but also encompasses sub-units or constituent parts of a company — including, but not limited to, its branch offices and the facilities in which it conducts manufacturing operations — that may or may not have distinct legal personality. The Appellate Body further confirmed that the “designation” of a region for purposes of Article 2.2 need not be affirmative or explicit, but may also be carried out by exclusion or implication, provided that the region in question is clearly discernible from the text, design, structure, and operation of the subsidy at issue. Finally, the Appellate Body confirmed that the concept of “geographical region” in Article 2.2 does not depend on the territorial size of the area covered by a subsidy. Therefore, the Appellate Body upheld the Panel's finding that certain subsidy measures of Korea were regionally specific under Article 2.2.

Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994

With respect to the issue of whether certain tax credit subsidies granted on Samsung were or not tied to particular products, the Appellate Body considered that the Panel improperly endorsed the flawed tying test applied by the USDOC, whereby a subsidy is tied to a specific product only when the intended use of the subsidy is known to the granting authority and so acknowledged prior to or concurrent with the bestowal of the subsidy. For the Appellate Body, the Panel also improperly endorsed the USDOC's dismissal of certain evidence submitted by Samsung that was potentially relevant to the inquiry into the existence of a product-specific tie. Accordingly, the Appellate Body concluded that the USDOC's calculation of the ad valorem subsidization rate for Samsung fails to ensure that countervailing duties are not imposed in excess of the amount of subsidy found to exist. The Appellate Body therefore reversed the Panel's finding that the USDOC's determination is not inconsistent with Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994; and found, instead, that the USDOC's determination is inconsistent with these provisions.

With respect to the USDOC's limitation of the denominator of Samsung's subsidization rate to Samsung's production in Korea only, the Appellate Body considered that the Panel erroneously conflated the concept of “recipient of the benefit” with the concept of “subsidized product”. The Appellate Body further ruled that the Panel improperly condoned the USDOC's failure to assess all the arguments and evidence submitted by interested parties and other relevant facts surrounding the bestowal of tax credit subsidies at issue, in order to establish whether those subsidies were bestowed solely on Samsung's domestic production or also on the production of its overseas subsidiaries. Therefore, the Appellate Body reversed the Panel's finding that the USDOC's determination is not inconsistent with Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994; and found, instead, that the USDOC's determination is inconsistent with these provisions.

At its meeting on 26 September 2016, the DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report.

 

Reasonable period of time

At the DSB meeting on 26 October 2016, the United States stated that it intended to implement the DSB's recommendations and rulings in a manner that respects its WTO obligations. The United States added that it would need a reasonable period of time for implementation. On 9 December 2016, Korea requested the reasonable period of time to be determined through binding arbitration pursuant to Article 21.3(c) of the DSU. On 12 January 2017, the Director-General appointed Ms Claudia Orozco as the Arbitrator pursuant to Article 21.3(c) of the DSU. On 16 January 2017, Ms Orozco accepted the appointment.

On 13 April 2017, the Award of the Arbitrator was circulated to Members. The Arbitrator determined the reasonable period of time to be 15 months, expiring on 26 December 2017.

 

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