DISPUTE SETTLEMENT

DS: Korea — Anti-Dumping Duties on Pneumatic Valves from Japan

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: 12 April 2018

  

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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 Japan

On 15 March 2016, Japan requested consultations with Korea regarding measures imposing anti-dumping duties on valves for pneumatic transmission from Japan and the documents and factual information underlying the imposition of those duties.

Japan claims that the measures are inconsistent with:

  • Articles 1, 3.1,3.2,3.4, 3.5, 4.1, 6.5, 6.5.1, 6.9, 12.2 and 12.2.2 of the Anti-Dumping Agreement; and
     
  • Article VI of the GATT 1994.

On 9 June 2016, Japan requested the establishment of a panel. At its meeting on 22 June 2016, the DSB deferred the establishment of a panel.

 

Panel and Appellate Body proceedings

At its meeting on 4 July 2016, the DSB established a panel. Brazil, Canada, China, Ecuador, the European Union, Norway, Singapore, Turkey, the United States and Viet Nam reserved their third-party rights. On 22 August 2016, Japan requested the Director-General to compose the panel. On 29 August 2016, the Director-General composed the panel.

On 7 March 2017, the Chair of the panel informed the DSB that, after consultation with the parties, the panel expected to issue its final report to the parties in the second half of 2017.

On 12 April 2018, the panel report was circulated to Members.

This dispute concerns anti-dumping duties imposed by Korea on imports of valves for pneumatic transmissions (pneumatic valves) originating from Japan, as described in the Resolution of Final Determination on Dumping and Injury to Domestic Industry of Valves for Pneumatic Transmissions from Japan adopted by the Korea Trade Commission (KTC) (Final Resolution) and the Report by the KTC's Office of Trade Investigation (OTI) (Final Report), both dated 20 January 2015.

At issue is the Korean investigating authorities' definition of the domestic industry, the Korean's investigating authorities' analysis of a significant increase of the imports under investigation, the effect of the imports under investigation on prices in the domestic market for like products, the impact of the imports under investigation on the domestic industry, and the Korean investigating authorities' demonstration of causation. Japan also challenged certain procedural aspects of the underlying investigation concerning the confidential treatment of information, the provision of non-confidential summaries of information treated as confidential, the disclosure of essential facts, and the provision in sufficient detail of the findings and conclusions reached.

TERMS OF REFERENCE

The Panel found that the following claims were not within its terms of reference because Japan's panel request failed to provide a brief summary of the legal basis of the complaint which was sufficient to present the problem clearly:

  1. Japan's claim under Articles 3.1 and 4.1 of the Anti-Dumping Agreement, concerning the definition of the domestic industry;
  2. Japan's claim under Articles 3.1 and 3.2 of the Anti-Dumping Agreement, concerning Korea's analysis of an increase in the volume of the dumped imports;
  3. Japan's claim under Articles 3.1 and 3.2 of the Anti-Dumping Agreement, concerning the consideration of the effect of the dumped imports on prices;
  4. Japan's claim under Articles 3.1 and 3.4 of the Anti-Dumping Agreement concerning the impact of the dumped import on the state of the domestic industry, with the exception of the allegations that the Korean Investigating Authorities failed to evaluate two of the specific factors listed in Article 3.4 (the ability to raise capital or investments and the magnitude of the margin of dumping);
  5. Japan's claim under Articles 3.1 and 3.5 of the Anti-Dumping Agreement, concerning the alleged failure by the Korean Investigating Authorities to consider adequately all known factors other than the dumped imports that were injuring the domestic industry at the same time, with the exception of the allegations concerning whether the Korean Investigating Authorities considered certain known factors in isolation and dismissed them without an adequate examination;
  6. Japan's claim under Article 6.9 of the Anti-Dumping Agreement, concerning the alleged failure by the Korean Investigating Authorities to inform interested parties of essential facts which formed the basis for the decision to impose definitive anti-dumping measures;
  7. Japan's claims under Articles 12.2 and 12.2.2 of the Anti-Dumping Agreement, concerning the alleged failure by the Korean Investigating Authorities to give proper public notice of their final determination; and
  8. Japan's consequential claim under Article VI of the GATT 1994.

The Panel found that the remaining claims were properly within its terms of reference.

Key Findings

Claims concerning the state of the domestic industry

The Panel found that Japan's did not demonstrate that the Korean Investigating Authorities acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement with respect to their evaluation of the investment and funding ability of the domestic industry and of the magnitude of the margin of dumping. Concerning the ability to raise capital or investments, the Panel found that Japan did not demonstrate that the KTC's analysis was not objective and that its evaluation of the ability of the domestic industry to raise capital was not one that a reasonable and unbiased investigating authority could have done. Concerning the magnitude of the margin of dumping, the Panel found no textual basis for Japan's argument that, in order to evaluate the magnitude of the margins of dumping, an investigating authority was required to undertake some form of counterfactual analysis, specifically by adding the dumping margin to the actual prices of the dumped imports, or by comparing the magnitude of the dumping margin with the level of overselling. The Panel also found evidence that the KTC had evaluated the magnitude of the margins of dumping “as a substantive matter”.

Claims concerning causation

Volume

With respect to Japan's allegation that certain flaws in the KTC's analysis of the volume of dumped imports “independently” undermined its causation determination, the Panel found that: (1) the fact that the dumped imports decreased during the earlier part of the period of trend analysis did not, in itself, preclude the investigating authority from finding a causal link, particularly when, as in this case, the volume of the dumped imports increased sharply during the last year of the period of trend analysis, when dumping was found; and (2) the fact that the market share of dumped imports did not increase from 2010 to 2013 did not, in itself, make it unreasonable for the KTC to have concluded that the increase in the absolute volume of imports, and in particular the significant increase from 2012 to 2013, combined with the price effects of the dumped imports, caused injury to the domestic industry.

Price

With respect to Japan's allegation that the KTC failed to ensure price comparability between specific products or product segments of the dumped imports and the domestic like product, the Panel found that: (1) when an investigating authority compares the prices of the dumped imports and those of the domestic like product, it must ensure that the prices being compared are, in fact, properly comparable; (2) the KTC acted inconsistently with Articles 3.1 and 3.5 by failing to ensure price comparability in terms of the dates and sales quantities involved, when it compared the individual transaction prices of certain models of dumped imports with the average prices of corresponding models of the domestic like product.

With respect to Japan's allegation that diverging price trends showed that there was no market interaction between the dumped imports and the domestic like product, thus undermining the KTC's price suppression and depression analyses, the Panel found that:

  1. The absence of parallel price trends does not necessarily indicate a lack of competitive relationship between two products groups or that one group of products would not affect the prices of the other. Where price trends diverge, a reasonable investigating authority is expected to take this into account and explain why, nonetheless, it considers that the dumped imports affect the domestic like product prices.
    1. The different magnitude of the price decreases from 2012 to 2013 did not necessarily undermine the KTC's findings with respect to the competitive relationship between the dumped imports and the domestic like product. The KTC's explanation in this regard was reasonable and supported by the facts.
    2. The opposing price movements from 2011 to 2012 could suggest a lack of competition between the dumped imports and the domestic like product. The KTC did not disregard this possibility in its analysis. The KTC explained that the diverging trend from 2011 to 2012 was caused by a change in the product mix of the dumped imports. In certain product groups, the prices of the dumped imports stagnated or decreased, in line with the price trends of the corresponding domestic like products. The KTC's explanation was reasonable and supported by the facts.
  2. There was insufficient evidence on the record to conclude that the KTC considered whether the prices of “representative models” or resale prices of the dumped imports moved in parallel with domestic like product prices.
  3. The verified instances in which the dumped imports were sold at prices lower than those of the domestic like product supported the view that there was competition in the Korean market for valves.
  4. The KTC's price suppression and depression findings were not solely, or even principally, based on a consideration of average price trends. The KTC primarily relied upon the alleged price discrimination among different customers with respect to specific products or product ranges, and the strengthened marketing activities of one of the domestic importers.

Overall, based on the above, the Panel found that the different magnitude of the price decreases from 2012 to 2013, and the opposing price movements from 2011 to 2012, did not in themselves demonstrate that the KTC's determination of a causal relationship was inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement.

With respect to Japan's allegation that consistent overselling by the dumped imports undermined the KTC's price effects analysis, and consequently its ultimate determination under Article 3.5, the Panel found that: (1) evidence on the record did not sufficiently demonstrate whether and how the OTI conducted the simulations and analyses, and reached the relevant conclusions as argued by Korea during the proceedings; and (2) customer statements, even combined with the large number of price comparisons in the evidence, did not adequately explain the KTC's price suppression and depression findings, in light of the consistent average price overselling by the dumped imports.

Impact on the state of the domestic industry

With respect to Japan's allegation that there was no logical connection between the effects of the dumped imports and the condition of the domestic industry, the Panel found that Japan failed to demonstrate that Korea acted inconsistently with Articles 3.1 and 3.5 of the Anti-Dumping Agreement with respect to: (1) the KTC's alleged failure to establish a logical link between its evaluation of certain factors having a bearing on the state of the domestic industry and its consideration of the volume of the dumped imports and the effect of the dumped imports on prices under Article 3.2; and (2) the examination of the impact of dumped imports on the domestic industry as a consequence of the KTC's alleged flawed price effects analysis.

With respect to Japan's allegation that the KTC improperly included dumped imports held in inventory in its consideration of the market share of the dumped imports, the Panel found that the relevant imports for purposes of determining causation in this case were Japanese valves which were “introduced into the commerce” of Korea at prices below normal value.

Finally, the Panel found that Japan failed to demonstrate that the KTC failed to properly take into account “positive trends” during the period of trend analysis with respect to sales and the ability to raise capital.

Sufficient correlation

The Panel found that Japan failed to demonstrate that the Korean investigating authorities acted inconsistently with Articles 3.1 and 3.5 of the Anti‑Dumping Agreement as a result of an insufficient correlation between the volume trends, price trends and profit trends and the state of the domestic industry that would support the existence of a causal relationship between the dumped imports and the injury to the domestic industry.

Non-attribution

The Panel found that Japan failed to demonstrate that the Korean investigating authorities acted inconsistently with Articles 3.1 and 3.5 by failing to adequately examine other known factors causing injury to the domestic industry at the same time as dumped imports and the cumulative effect of such other known factors.

Confidential treatment of information

The Panel found that Korea acted inconsistently with Article 6.5 of the Anti-Dumping Agreement with respect to the KTC's treatment of information provided by the applicants as confidential without requiring that good cause be shown. The Panel also found that Korea acted inconsistently with Article 6.5.1, with respect to the KTC's failure to require that the submitting parties provide a sufficient non-confidential summary of the information for which confidential treatment was sought.

Overall Conclusions and Recommendations

With respect to those claims that were within the Panel's terms of reference, the Panel concluded as follows.

Japan did not demonstrate that the Korean Investigating Authorities acted inconsistently with:

  1. Articles 3.1 and 3.4 of the Anti-Dumping Agreement with respect to their evaluation of the investment and funding ability of the domestic industry and of the magnitude of the margin of dumping;
  2. Articles 3.1 and 3.5 of the Anti-Dumping Agreement with respect to their conclusion that the dumped imports, through the effects of dumping, were causing injury to the domestic industry; and
  3. Articles 3.1 and 3.5 of the Anti-Dumping Agreement with respect to their examination of known factors other than the dumped imports that were injuring the domestic industry at the same time.

Japan demonstrated that the Korean Investigating Authorities acted inconsistently with:

  1. Articles 3.1 and 3.5 of the Anti-Dumping Agreement in their causation analysis as a result of flaws in their analysis of the effect of the dumped imports on prices in the domestic market;
  2. Article 6.5 of the Anti-Dumping Agreement with respect to their treatment of information provided by the applicants as confidential without requiring that good cause be shown;
  3. Article 6.5.1 of the Anti-Dumping Agreement with respect to their failure to require that the submitting parties provide a sufficient non-confidential summary of the information for which confidential treatment was sought; and,
  4. As a consequence of and to the extent of these inconsistencies, Korea's anti-dumping measures on imports of pneumatic valves from Japan were also inconsistent with Article 1 of the Anti-Dumping Agreement.

On 28 May 2018, Japan notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretations in the panel report. On 4 June 2018, Korea notified the DSB of its decision to cross-appeal.

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