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China – Anti-Dumping and Countervailing Duty Measures on Broiler Products from the United States: How the chickens came home to roost

  • THOMAS J. PRUSA (a1) and EDWIN VERMULST (a2)
Abstract
Abstract

The WTO Panel report on China – Anti-dumping and Countervailing Duty Measures on Broiler Products from the United States was circulated to Members on 2 August 2013. In the report, the Panel examined a variety of issues challenged by the United States under various provisions of the General Agreement on Tariffs and Trade 1994, the Anti-dumping Agreement and the Agreement on Subsidies and Countervailing Measures. The Panel upheld the United States' claims on the majority of the issues, which covered certain procedural aspects of the anti-dumping and countervailing investigations such as the right to disclosure of ‘essential facts', as well as the substantive determinations including costing issues, the imposition of the ‘all others' rate on the basis of ‘facts available’, the price effects' analyses, the sufficiency of the public notices, and others. Notably the costing issues that came up in the case, although decided mostly on procedural grounds, provide food for thought, and are likely to feature again in future disputes.

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Corresponding author
*E-mail: prusa@econ.rutgers.edu.
**E-mail: edwin.vermulst@vvgb-law.com.
References
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1 The preliminary AD determination and preliminary CVD determination are together called ‘preliminary determinations' in this paper. Similarly, the final AD determination and final CVD determination are together termed as ‘final determinations'.

2 China – Anti-Dumping and Countervailing Duty Measures on Broiler Products from the United States. Panel Report, WT/DS427/R, adopted 25 September 2013, WT/DS/427/R/Add.1, adopted 25 September 2013 [hereinafter China–Broiler Products]. The consultations requested by the US with China on 20 September 2011 did not resolve the dispute.

3 On 23 November 2012, the Chairman of the Panel informed the DSB that its work could not be completed within six months. After consultations with the parties to the dispute, the deadline for the Panel was changed to the end of June 2013.

4 Appellate Body Report, China – Countervailing and Anti-Dumping Duties on Grain Oriented Flat-Rolled Electrical Steel from the United States, WT/DS414/AB/R, adopted 16 November 2012.

5 See Prusa Thomas J. and Vermulst Edwin, ‘China – Countervailing and Anti-dumping Duties on Grain Oriented Flat-rolled Electrical Steel from the United States: Exporting US AD/CVD methodologies through WTO dispute settlement?’, 13:2World Trade Review, 229266 (2014).

6 The period of investigation (POI) is 1 July 2008 to 30 June 2009 for the AD and CVD investigations; and 1 January 2006 to 30 June 2009 for the injury to the domestic industry in the two investigations.

7 Third parties to the Panel proceedings were Chile, the European Union, Japan, Mexico, Norway, the Kingdom of Saudi Arabia, and Thailand.

8 Two of the claims were consequential claims raised separately under Article 1 of the ADA and Article 10 of the SCM Agreement.

9 Panel Report, China–Broiler Products, para. 7.10, citing the MOFCOM Reply to the Hearing Request, Exhibit USA-24.

10 Panel report, China–Broiler Products, paras. 7.20–7.24.

11 Ibid., at para. 7.29.

12 China – Countervailing and Anti-dumping Duties on Grain Oriented Flat-rolled Electrical Steel from the United States, Panel Report, WT/DS414/R, adopted 16 November 2012, upheld by the Appellate Body Report, WT/DS414/AB/R.

13 European Communities – Definitive Anti-dumping Measures on Certain Iron or Steel Fasteners from China, Panel Report, WT/DS397/R, adopted 28 July 2011, modified by the Appellate Body Report, WT/DS397/AB/R.

14 Panel Report, China–Broiler Products, para. 7.50, citing to Appellate Body Report, EC–Fasteners (China), paras. 541–542.

15 Panel Report, China–Broiler Products, para. 7.53.

16 Ibid., at para. 7.54.

17 Ibid., at para. 7.56.

18 Ibid., at para. 7.57.

19 Ibid.

20 Graphs and written explanations were provided for each of the four indicators except for labor productivity.

21 Panel Report, China–Broiler Products, para. 7.63–7.64.

22 Ibid., at para. 7.70.

23 Ibid., at para. 7.77.

24 European Communities– Anti-dumping Measure on Farmed Salmon from Norway, WT/DS337/R, adopted 15 January 2008.

25 Panel Report, China–Broiler Products, paras. 7.89–7.90.

26 Ibid., at para. 7.91.

27 Ibid.

28 China – Definitive Anti-dumping Duties on X-Ray Security Inspection Equipment from the European Union, WT/DS425/R, adopted 24 April 2013.

29 Panel Report, China–Broiler Products, para. 7.92.

30 Ibid., at para. 7.92.

31 Ibid., at para. 7.93.

32 Panel Report, China–Broiler Products, paras. 7.97–7.100.

33 Ibid., at paras. 7.101–7.104.

34 MOFCOM did indicate in the final disclosure that an adjustment was made to raw material prices and adjustments were also made to the export price with respect to the alleged errors in the reporting of freezer expenses. Panel Report, China–Broiler Products, para. 7.105.

35 The two consequential claims raised by the US under Article 1 of the ADA and Article 10 of the SCM Agreement are counted in the 14 total alleged violations but were not included as procedural or substantive issues in this paper.

36 Panel Report, China–Broiler Products, para. 7.109.

37 United States – Final Dumping Determination on Softwood Lumber from Canada, Panel Report, WT/DS/264/R, adopted 1 September 2006, reversed by the Appellate Body Report, WT/DS264/AB/R.

38 Panel Report, China–Broiler Products, para. 7.160.

39 Ibid., at para. 7.161.

40 Ibid., at para. 7.164.

41 Ibid., at para. 7.163.

42 Ibid., footnotes omitted.

43 Panel Report, China–Broiler Products, para. 7.166.

44 Ibid., at para. 7.169, including footnote 294.

45 Ibid., at para. 7.171.

46 Ibid., at paras. 7.173–7.174. MOFCOM's treatment for Pilgrim's Pride was remarkably different from those of Tyson and Keystone. The other two simply received a one-line conclusion that their costs were unreasonable without any explanation, but MOFCOM explained in detail that it rejected Pilgrim's Pride's data as they were incomplete and the efforts to correct them were untimely.

47 Panel Report, China–Broiler Products, para. 7.192.

48 Ibid.

49 Ibid., at para. 7.194.

50 As the Panel stated in footnote 338, some products have higher processing costs than others, e.g., the processing of breast meat involves procedures such as skinning, deboning, and deveining, which are more labor-intensive and costly than the production of other chicken parts. Panel Report, China–Broiler Products, para. 7.196.

51 Panel Report, China–Broiler Products, para. 7.197. China argued that it used Tyson's own data and submitted a table (Exhibit CHN-64) that summarized the data provided by Tyson. Upon examination, the Panel found that the non-subject products were not listed in the breakdown, so that the table did not show that the costs assigned to individual products excluded the costs of non-subject products from the total cost. It concluded that the US made a prima facie case based on the evidence.

52 Panel Report, China–Broiler Products, para. 7.222, citing to Appellate Body Report, Mexico – Definitive Anti-Dumping Measures on Beef and Rice, Complaint with Respect to Rice, WT/DS295/AB/R, adopted 20 December 2005, para. 138; also citing to Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/R, adopted 20 August 1999, para. 91.2, upheld by the Appellate Body Report, WT/DS70/AB/R; Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998, para. 94; Appellate Body Report, Brazil – Export Financing Programme for Aircraft, WT/DS46/DS/R, adopted 20 August 1999, para. 132; Appellate Body Report, United States–Subsidies on Upland Cotton, WT/DS267/AB/R, adopted 21 March 2005, para. 293.

53 Panel Report, China–Broiler Products, paras. 7.224–7.225.

54 Ibid., at paras. 7.226–7.229.

55 Ibid., at paras. 7.230–7.231.

56 The ‘all others' rate was 105.4% in both the preliminary and final determinations.

57 Panel Report, China–Broiler Products, para. 7.301.

58 Ibid., at para. 7.302.

59 Ibid., at para. 7.300.

60 Ibid., at para. 7.304.

61 Ibid.

62 Ibid.

63 Ibid., at paras. 7.306–7.307.

64 Panel Report, China–Broiler Products, paras. 7.310–7.312, footnotes omitted, citing to the Panel Report, China–GOES, para. 7.302.

65 Panel Report, China–Broiler Products, para. 7.312.

66 We note that the text of Article 6.9 of the ADA has been provided in Section 3.1.3 of this paper.

67 Panel Report, China–Broiler Products, paras. 7.316–7.317.

68 Ibid., at paras. 7.318–7.319.

69 Ibid., at para. 7.324.

70 Ibid., at para. 7.326.

71 Panel Report, China–Broiler Products, paras. 7.327–7.328, footnotes omitted, citing to the Appellate Body Report, China–GOES, para. 256.

72 Panel Report, China–Broiler Products, at para. 7.329.

73 The ‘all others' CVD rate is 30.3% in the final CVD determination.

74 Panel Report, China–Broiler Products, para. 7.332.

75 Ibid., at paras. 7.354–7.360.

76 Ibid.

77 Ibid., at para. 7.359.

78 Ibid., at paras. 7.361–7.363.

79 Panel Report, China–Broiler Products, para. 7.366. Similar to the analysis for the AD claim regarding Articles 12.2, 12.2.1, and 12.2.2 of the ADA, the Panel did not consider it necessary to make a finding regarding the preliminary CVD determination. Thus, the alleged violation under Article 22.4 was not considered.

80 Panel Report, China–Broiler Products, para. 7.234.

81 Ibid.

82 Ibid., at para. 7.258.

83 Ibid., at para. 7.258.

84 Ibid., at para. 7.260.

85 Ibid., at paras. 7.260–7.261.

86 Ibid., at para. 7.261.

87 United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, Panel Report, WT/DS166/R, adopted 19 January 2001, modified by the Appellate Body Report, WT/DS166/AB/R.

88 Panel Report, China–Broiler Products, paras. 7.261–7.262.

89 Ibid., at paras. 7.370–7.372.

90 Ibid.

91 Article 16.1 of the SCM Agreement is substantially similar to Article 4.1 of the ADA. Articles 3.1 of the ADA and 15.1 of the SCM Agreement were not examined in-depth by the Panel for this issue. The text of these two articles are the same: ‘A determination of injury for purpose of Article VI of GATT 1994 shall be based on positive evidence and involve an objective examination of both (a) the volume of the dumped [subsidized] imports and the effect of the dumped [subsidized] imports on prices in the domestic market for like products, and (b) the consequent impact of these imports on domestic producers of such products' [Footnotes omitted].

92 Panel Report, China–Broiler Products, paras. 7.416–7.419.

93 Ibid., at para. 7.422.

94 Ibid., at paras. 7.422–7.423.

95 Ibid., at para. 7.430.

96 The US noted three other sources: (1) the consultant's report in Exhibit 6 to the petition, (2) the Chinese Ministry of Agriculture, and (3) the domestic producers mentioned by USAPEEC.

97 The Panel found the consultant's report in Exhibit 6 to be lacking in terms of identification and contact information for the producers. China argued that its Ministry of Agriculture had no data on all producers in China and the Panel accepted this explanation. With regard to the four producers identified by USAPEEC, China demonstrated that three of them responded on either an individual or a consolidated basis. The last one was not contacted by MOFCOM, but USAPEEC's information on this producer was received after MOFCOM had obtained information from producers accounting for more than 50% of the total domestic production. The Panel reasoned that MOFCOM's less-than-ideal actions were not enough to give rise to a material risk of distortion. Panel Report, China–Broiler Products, paras. 7.431–7.434.

98 Article 15.2 of the SCM Agreement is identical to Article 3.2 of the ADA except the words ‘dumped imports' are replaced with ‘subsidized imports'. We also note that the texts of Articles 3.1 of the ADA and 15.1 of the SCM Agreement have been provided in Section 3.2.3 above.

99 Panel Report, China–Broiler Products, para. 7.476.

100 Panel Report, China–Broiler Products, para. 7.475.

101 Panel Report, China–Broiler Products, para. 7.477, citing to the Appellate Body Report, China–GOES, para. 200, footnote omitted.

102 Panel Report, China–Broiler Products, para. 7.486.

103 Ibid.

104 Paws were the largest volume broiler part exported to China.

105 Ibid., at para. 7.490.

106 Panel Report, China–Broiler Products, para. 7.494.

107 Ibid., at paras. 7.508–7.509.

108 Panel Report, China–Broiler Products, para. 7.510, citing to the Appellate Body Report, China–GOES, paras. 220–221.

109 Panel Report, China–Broiler Products, para. 7.511.

110 Ibid., at para. 7.522.

111 The text of Article 12.2.2 has been provided in the Section 3.2.1 above.

112 Article 3.4 of the ADA provides:‘The examination of the impact of the dumped imports on the domestic industry concerned shall include an evaluation of all relevant economic factors and indices having a bearing on the state of the industry, including actual and potential decline in sales, profits, output, market share, productivity, return on investments, or utilization of capacity; factors affecting domestic prices; the magnitude of the margin of dumping; actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments. This list is not exhaustive, nor can one or several of these factors necessarily give decisive guidance’. Article 15.4 of the SCM Agreement is largely similar to Article 3.4 of the ADA, except that it uses ‘subsidized imports' instead of ‘dumped imports' and contains the following additional sentence after listing the factors in the first sentence: ‘ability to raise capital or investments and, in the case of agriculture, whether there has been an increased burden on government support programmes'. It is noted that the texts of Articles 3.1 and 15.1 are provided in the earlier Section 3.2.3 of this paper.

113 Panel Report, China–Broiler Products, para. 7.554.

114 Ibid., at para. 7.555.

115 Ibid., at paras. 7.558–7.559.

116 Ibid., at para. 7.601.

117 Ibid., at para. 7.602.

118 Ibid., at para. 7.604.

119 Ibid., at para. 7.605.

120 Ibid., at paras. 7.608–7.613.

121 Appellate Body Report, China – Countervailing and Anti-Dumping Duties on Grain Oriented Flat-Rolled Electrical Steel from the United States, WT/DS414/AB/R, adopted 16 November 2012.

122 See Prusa Thomas J. and Vermulst Edwin, ‘China – Countervailing and Anti-dumping Duties on Grain Oriented Flat-rolled Electrical Steel from the United States: Exporting US AD/CVD methodologies through WTO dispute settlement?’, 13:2World Trade Review, 229266 (2014).

123 If sales channels are more complicated, for example, because the product concerned is imported through a related importer, the process of construction of the export price will involve cost calculations and allocations as well as attribution of a reasonable profit to the related importer's activities which may give rise to arbitrary decisions.

124 PCNs are sub-divisions of the product concerned established by the importing country administering authorities in the context of a trade remedies' proceeding for the purpose of making more precise calculations. In many countries, however, foreign exporters and importers are not consulted on the establishment of the PCNs (although the complainant producers normally are), which may give rise to result-oriented PCN classifications.

125 Domestic sales should normally represent at least 5% of export sales. This 5% test tends to be applied both on a producer-specific basis and on a PCN-by-PCN basis. Notably because of the latter, it often happens that certain exported PCNs are found not to have been sold in sufficient quantities in the domestic market, for example, because of differences in consumer tastes, as seems to have been the case here.

126 A better term would probably be ‘cost of manufacture’ as it typically relates to costs incurred in the factory where the product is made.

127 It is not completely clear whether the cost calculation and allocation rules of Article 2.2.1.1 apply only to the first bullet point (‘cost of production’) or also to the establishment of SGA in light of the fact that Article 2.2.2 contains special provisions with regard to the establishment of the SGA. Yet SGA normally will also need to be allocated.

128 Live chicken, chicken products in a can or other kind of package or preservative, the chicken sausage and like products, and cooked chicken products were excluded from the scope. See Panel Report, China–Broiler Products, footnote 8.

129 The Panel found that MOFCOM had adequately explained on the record why it decided not to use the cost calculations of Pilgrim's Pride.

130 Panel Report, China–Broiler Products, para. 7.194.

131 Panel Report, China–Broiler Products, para. 7.196 and footnote 338.

132 Panel Report, China–Broiler Products, para. 7.197.

133 Other industries where similar issues might arise according to Tyson include poultry more in general, beef, ham, citrus fruits, and petrochemicals, see Panel Report, China–Broiler Products, footnote 197.

134 Panel Report, China–Broiler Products, para. 7.167.

135 Panel Report, China–Broiler Products, para. 7.151–7.152, 7.168–7.169, and footnote 294.

136 US first written submission in China–Broiler Products, paras. 110–112 The US noted, ‘the importance of the decision to apply the methodology MOFCOM arrived at cannot be overstated. Its application was potentially dispositive in determining the existence of dumping’. (http://www.ustr.gov/webfm_send/3490).

137 Panel Report, China–Broiler Products, para. 7.167.

138 Panel Report, China–Broiler Products, para. 7.114.

139 We note that US producers utilized a somewhat more sophisticated value method wherein they made adjustments to the observed market prices before computing the cost shares; in addition, in the case of Tyson the price of offal was used instead of an actual price for paws. Consequently, for US producers cost shares were not exactly the same as shares based on observed prices. We abstract from this extra level of complication as it serves to obfuscate the main idea.

140 Panel Report, China–Broiler Products, para. 7.115.

141 Panel Report, China–Broiler Products, para. 7.117. The cost calculations and allocations of Keystone were treated as BCI by the Panel.

142 Panel Report, China–Broiler Products, footnote 294.

143 Panel Report, China–Broiler Products, para. 7.168 and footnote 294.

144 MOFCOM rejected Pilgrim's cost not simply because of the allocation methodology but also because Pilgrim's cost records were irreconcilable. The United States did not challenged MOFCOM's decision to reject Pilgrim's Pride cost data based on the irregularities found in that data.

145 Stephen J. Dubner, ‘Weird Recycling’, National Public Radio Freakonomics Radio Podcast, 5 December 2011, at http://freakonomics.com/2011/12/05/weird-recycling-a-new-freakonomics-radio-podcast/.

146 Notice of Final Results of Anti-dumping Duty Administrative Review and Notice of Final Results of Anti-dumping Duty Changed Circumstances Review: Certain Softwood Lumber Products from Canada, 69 Fed. Reg. 75921 (20 December 2004).

147 See Results of Redetermination Pursuant to Remand, PSC VSMPO – Avisma Corp. v. United States, Consol. Court No. 08–00321 (CIT 20 October 2009).

148 IPSCO, Inc. v. United States, 965 F.2d 1056, 1061 (Fed. Cir. 1992).

149 Panel Report, China–Broiler Products, para. 7.137.

150 Based on US export data, HS code 020714, ‘Cuts & edible offal of chicken’ (US International Trade Commission Dataweb). This is the 6-digit HS code containing chicken paws.

151 As we will discuss below, evidence shows that US producers responded to the Chinese duties by dramatically increasing their exports of chicken parts (including paws) to other markets.

152 We assume offal is not exported.

153 ($1-$0.90)/$0.90 = 0.1111.

154 ($1.45–$0.90)/$0.90 = 0.6111.

155 ($1.13–$0.90)/$0.90 = 0.2556.

156 As we have seen above, the weight-based allocation method used by China also covered post-split-off costs, but this will not be discussed further as it seems clearly wrong in that it attributes product-specific processing costs to products that do not benefit from the processing.

157 Panel Report, China–Broiler Products, para. 7.167.

158 This safeguard was the subject of an earlier WTO dispute, United States – Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China, WT/DS399/AB/R, adopted 5 October 2011.

159 Caitlin Kenney, ‘Revenge of the Tariffs', National Public Radio Planet Money, 18 September 2009 at http://www.npr.org/blogs/money/2009/09/podcast_1.html.

160 Kenneth Rapoza, ‘Obama's Half-Truth On China Tire Tariffs', 25 January 2012 at http://www.forbes.com/sites/kenrapoza/2012/01/25/obamas-half-truth-on-china-tire-tariffs/print/.

161 Gary C. Hufbauer and Sean Lowry, ‘US Tire Tariffs: Saving Few Jobs at High Cost’, Peterson Institute for International Economics Policy Brief No. PB12–9, April 2012.

162 US politicians explicitly noted the impact of China's trade restraints as the reason for the trade deflection into Mexico. See, ‘Senators Urge Dismissal of Mexican Antidumping Charges against US Chicken; NCC Lauds Latest Action’, National Chicken Council, 2 April 2012, at http://www.nationalchickencouncil.org/senators-urge-dismissal-of-mexican-antidumping-charges-against-us-chicken-ncc-lauds-latest-action/.

163 This AD induced change in trade pattern is referred to as ‘trade deflection’, See Bown Chad P. and Crowley Meredith A., ‘Trade Deflection and Trade Depression’, Journal of International Economics v72, n1 (May 2007): 176201.

164 ‘Mexico puts duties on US chicken’, World Poultry, 9 August 2012, at http://www.worldpoultry.net/Broilers/Markets-Trade/2012/8/Mexico-puts-duties-on-US-chicken-WP010737W/; ‘WTO rejects China's duties on imports of U.S. chicken’, Agri-Pulse, 2 August 2013, at http://www.agri-pulse.com/WTO-rejects-Chinas-duties-on-imports-of-US-Chicken-08022013.asp.

165 ‘Mexico postpones chicken-leg import duties', 8 September 2012, at http://antidumping.vn/news/2012-08-09/mexico-postpones-chicken-leg-import-duties.

The views expressed in this paper are those of the authors and all omissions and errors are also of the authors. The authors would like to thank Juhi Sud and Madison Meng for their helpful assistance in the preparation of this paper.

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