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Input Cost Adjustments and WTO Anti-Dumping Law: A Closer Look at the EU Practice

  • SHERZOD SHADIKHODJAEV (a1)
Abstract

In anti-dumping procedures, the EU authorities have adjusted State-distorted input costs in the constructed normal value to market benchmarks. This methodology increases the amount of anti-dumping duties and hence import barriers to foreign goods produced with low-priced raw materials. Such cost adjustments are based on certain EU anti-dumping provisions that implement corresponding World Trade Organization (WTO) rules under which the cost of input must be derived, as a principle, from the records of target companies in the exporting country if those records, inter alia, reasonably reflect production costs of the product under investigation. But in the case of input costs distorted by the government, the EU authorities have typically deviated from this principle relying on alternative sources on the grounds of unreasonable costs. While the EU jurisprudence has so far been generally lenient towards this methodology as applied to significant distortions in the raw material (upstream) market, the recent WTO appellate ruling in EU–Biodiesel is rather negative on its use in the presence of the valid domestic records. This article examines the EU anti-dumping practice as reviewed in both EU and WTO judicial proceedings and discusses some legislative reforming options under both regimes. It concludes that the WTO anti-dumping rules should be amended to allow market-oriented cost adjustments in the normal value, on the one hand, and ensure parallel export price adjustments, on the other.

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*Email: sherzod1@kdischool.ac.kr.
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This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF–2016S1A3A2925230). Many thanks go to Professor L. Alan Winters and two anonymous reviewers for their insightful and helpful comments.

Footnotes
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1 See e.g. Tietje, Christian, Kluttig, Bernhard, and Franke, Martina, ‘Cost of Production Adjustments in Anti-Dumping Proceedings: Challenging Raw Material Inputs Dual Pricing Systems in EU Anti-Dumping Law and Practice’, 45 Journal of World Trade (2011), pp. 10981101 ; Zhou, Weihuan, ‘Australia's Anti-dumping and Countervailing Law and Practice: An Analysis of Current Issues Incompatible with Free Trade with China’, 49 Journal of World Trade (2015), pp. 980991 ; Russia's consultation request in Ukraine – Anti-Dumping Measures on Ammonium Nitrate, WT/DS493/1, T/DS493/1 G/L/1114, G/ADP/D109/1 (12 May 2015).

2 See section 2.2 of this article.

3 Zhou, Weihuan and Percival, Andrew, ‘Debunking the Myth of “Particular Market Situation” in WTO Antidumping Law’, 19 Journal of International Economic Law (2016), pp. 865, 870871 .

4 See section 2.2 of this article.

5 See China's WTO Accession Protocol, WT/L/432, 23 November 2001, section 15; Viet Nam's WTO Accession Working Party Report, WT/ACC/VNM/48, 27 October 2006, para. 255; Tajikistan's WTO Accession Working Party Report, WT/ACC/TJK/30, 6 November 2012, para. 164.

6 Between 1 January 1995 and 31 December 2016, China was the number one target of anti-dumping investigations (1,217) and measures (866) in terms of the total numbers within this time frame. See WTO, ‘Statistics on Anti-Dumping’, https://www.wto.org/english/tratop_e/adp_e/adp_e.htm (accessed 1 December 2017).

7 See section 2.2 of this article.

8 See e.g. Weihuan Zhou, ‘Appellate Body Report on EU–Biodiesel: The Future of China's State Capitalism under the WTO Anti-Dumping Agreement’, World Trade Review, forthcoming.

9 OJ L 176/21, 30 June 2016. It codifies the previous version of the Basic Regulation (Council Regulation (EC) No. 1225/2009 of 30 November 2009) and amendments thereto. The EU and WTO cases discussed in this article refer to that older version of the Basic Regulation. But the referenced provisions therein dealt with in those cases remain unchanged in the 2016 version.

10 Council Regulation (EC) No. 1972/2002 of 5 November 2002 amending Regulation (EC) No. 384/96 on the protection against dumped imports from countries not members of the European Community, OJ L 305/1, 7 November 2002.

11 See Recital 5 of Council Regulation (EC) No. 1972/2002, ibid.

12 For the NME methodology, see also section 5.2 of this article.

13 See also section 3.1 of this article.

14 Tietje et al., supra note 1, p. 1075.

15 See supra note 1.

16 Public Law 114–27, 29 June 2015.

17 See e.g. Eric Emerson and Henry Cao, ‘Impact of the Amendments to US Antidumping and Countervailing Duty Law in the Trade Preferences Extension Act of 2015’, BNA Insights, 20 August 2015; Mathew R. Nicely and Brian Gatta, ‘US Trade Preferences Extension Act (TPEA) of 2015 Could Lead to Increased Use of “Particular Market Situation” in Calculating Normal Value in Anti-Dumping Cases’, 11 Global Trade and Customs Journal (2016), p. 239.

18 US Department of Commerce, Certain Oil Country Tubular Goods from the Republic of Korea: Final Results of Antidumping Duty Administrative Review, 2014–2015 [A-580-870], 82 FR 18105, 17 April 2017, Decision Memorandum for the Final Results of the 2014–2015 Antidumping Review of the Administrative Duty Order on Certain Oil Country Tubular Goods from the Republic of Korea, 10 April 2017, pp. 40–44.

19 See e.g. Commission Implementing Regulation (EU) 2015/110 of 26 January 2015 imposing a definitive anti-dumping duty on imports of certain welded tubes and pipes of iron or non-alloy steel originating in Belarus, the People's Republic of China and Russia and terminating the proceeding for imports of certain welded tubes and pipes of iron or non-alloy steel originating in Ukraine following an expiry review pursuant to Article 11(2) of Council Regulation (EC) No. 1225/2009, OJ L 20/6, 27 January 2015, para. 69. See also Judgment of the General Court (Eighth Chamber), 7 February 2013, Case T-235/08, Acron and Dorogobuzh v. Council, paras. 11–12.

20 Judgment of the General Court, Case T-235/08, supra note 19, para. 12.

21 Shadikhodjaev, Sherzod, ‘Russia and Energy Issues under the WTO System’, 50 Journal of World Trade (2016), pp. 710 , 718.

22 Judgment of the General Court, Case T-235/08, supra note 19, paras. 44–46.

23 Ibid., paras. 81–84.

24 Ibid., para. 89.

25 Ibid., paras. 62–68.

26 See Order of the President of the Court of 31 March 2014, Acron and Dorogobuzh v. Council, Removal from the register, Joined Cases C-215/13 P and C-216/13 P.

27 In the case of Argentina, the anti-dumping investigation found that the export taxes on soya beans and soya bean oil were higher than that on biodiesel by 20.42 percentage points and 17.42 percentage points, respectively. As for Indonesia, export taxes on crude palm oil and biodiesel were 15–20% and 2–5%, respectively. See Council Implementing Regulation (EU) No. 1194/2013 of 19 November 2013 imposing a definitive anti-dumping duty and collecting definitively the provisional duty imposed on imports of biodiesel originating in Argentina and Indonesia, OJ L 315/2, 26 November 2013, paras. 35 and 69.

28 Council Implementing Regulation (EU) No. 1194/2013, supra note 27, paras. 30, 34, 37, 68.

29 See e.g. Judgment of the General Court (Ninth Chamber), 15 September 2016, Cases T-112/14 to T-116/14 and T-119/14, Molinos Río de la Plata SA and Others v. Council; Judgment of the General Court (Ninth Chamber), 15 September 2016, Case T-139/14, PT Wilmar Bioenergi Indonesia and PT Wilmar Nabati Indonesia v. Council.

30 Judgment of the General Court, Cases T-112/14 to T-116/14 and T-119/14, supra note 29, paras. 82–83, 86; Judgment of the General Court, Case T-139/14, supra note 29, paras. 82–83, 86.

31 Judgment of the General Court, Cases T-112/14 to T-116/14 and T-119/14, supra note 29, para. 87; Judgment of the General Court, Case T-139/14, supra note 29, para. 87.

32 Judgment of the General Court, Cases T-112/14 to T-116/14 and T-119/14, supra note 29, para. 88; Judgment of the General Court, Case T-139/14, supra note 29, para. 88.

33 Judgment of the General Court, Cases T-112/14 to T-116/14 and T-119/14, supra note 29, para. 90; Judgment of the General Court, Case T-139/14, supra note 29, para. 90.

34 Judgment of the General Court, Cases T-112/14 to T-116/14 and T-119/14, supra note 29, paras. 97–100; Judgment of the General Court, Case T-139/14, supra note 29, paras. 97–100.

35 See Appeal brought on 24 November 2016 by the Council of the European Union against the judgment of the General Court (Ninth Chamber) delivered on 15 September 2016 in Cases T-112/14 to T-116/14 and T-119/14: Molinos Río de la Plata and Others v. Council (Case C-607/16 P), OJ C 30/36, 30 January 2017; Appeal brought on 24 November 2016 by the Council of the European Union against the judgment of the General Court (Ninth Chamber) delivered on 15 September 2016 in Case T-139/14: PT Wilmar Bioenergi Indonesia and PT Wilmar Nabati Indonesia v. Council (Case C-603/16 P), OJ C 30/32, 30 January 2017. As of 1 December 2017, the appealed cases above were still ‘in progress’ as shown at the Court of Justice's website, https://curia.europa.eu.

36 For instance, raw materials account for 75–85% of the total production cost of Argentine biodiesel. See WTO Appellate Body Report, European Union – Anti-Dumping Measures on Biodiesel from Argentina (hereinafter ‘EU–Biodiesel’), WT/DS473/AB/R, adopted 26 October 2016, footnote 55 to para. 5.3.

37 Such a big difference between the provisional and final margins may be attributable to other factors than just the methodology in question, but the latter must still have led to this difference at least partially. The provisional anti-dumping duties were equal to the dumping margins of 6.8–10.6%, but the final dumping margins ranged from 41.9% to 49.2%, although the EU authorities eventually opted for the final anti-dumping duties based on lesser injury margins which ranged from 22% to 25.7%. See WTO Appellate Body Report, EU–Biodiesel, supra note 36, paras. 1.2, 5.2–5.10.

38 See US Department of Agriculture (USDA) Foreign Agricultural Service, ‘EU Biofuels Annual 2016’, 29 June 2016, p. 26; USDA Foreign Agricultural Service, ‘Argentina Biofuels Annual 2014’, 1 July 2014, p. 14. Both reports are available at USDA Global Agriculture Information Network, https://gain.fas.usda.gov/Pages/Default.aspx (accessed 1 December 2017).

39 WTO Appellate Body Report, EU–Biodiesel, supra note 36, paras. 6.226–6.230.

40 For the mandatory/discretionary distinction in WTO law, see e.g. Lockhart, Nicolas and Sheargold, Elizabeth, ‘In Search of Relevant Discretion: The Role of the Mandatory/Discretionary Distinction in WTO Law’, 13 Journal of International Economic Law (2010), pp. 379421 ; Bhuiyan, Sharif, ‘Mandatory and Discretionary Legislation: The Continued Relevance of the Distinction under the WTO’, 5 Journal of International Economic Law (2002), pp. 571604 .

41 WTO Appellate Body Report, EU–Biodiesel, supra note 36, paras. 6.166–6.168.

42 Ibid., paras. 6.172–6.198, 6.237.

43 Ibid., para. 6.231.

44 Ibid., para. 6.243.

45 Ibid., para. 6.251.

46 Ibid., paras. 6.282, 6.285.

47 Ibid., para. 6.3 and accompanying footnote 95.

48 Ibid., paras. 6.28, 6.35.

49 Ibid., paras. 6.18 and 6.21.

50 Ibid., paras. 6.21 and accompanying footnote 127, 6.33.

51 Ibid., para. 6.37 (footnote omitted).

52 Ibid., para. 6.30. See also para. 6.39.

53 Ibid., para. 6.41.

54 Ibid., para. 6.55.

55 This is the case when the records do not satisfy either condition of the first sentence of Article 2.1.1.1 of the Anti-Dumping Agreement.

56 WTO Appellate Body Report, EU–Biodiesel, supra note 36, paras. 6.70–6.73.

57 Ibid., paras. 6.79–6.80.

58 Ibid., para. 6.81 (emphasis in original).

59 Ibid., para. 6.84.

60 The panel previously held that such differences were a matter primarily governed by Article 2.2 of the Anti-Dumping Agreement. See ibid., paras. 6.86–6.87, 7.4.

61 Ibid., para. 6.89.

62 Ibid., paras. 6.112–6.113.

63 See supra note 5.

64 See also de Kok, Jochem, ‘The Future of EU Trade Defence Investigations against Imports from China’, 19 Journal of International Economic Law (2016), p. 517 .

65 Shadikhodjaev, supra note 21, p. 720. See also WTO Appellate Body Report, EU–Biodiesel, supra note 36, para. 6.22.

66 See also WTO Panel Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/R, adopted 12 March 2001, paras. 6.96–6.98; WTO Panel Report, Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland, WT/DS122/R, adopted 5 April 2001, paras. 7.122–7.125; WTO Panel Report, European Communities – Anti-Dumping Measure on Farmed Salmon from Norway, WT/DS337/R, adopted 15 January 2008, para. 7.605.

67 See de Kok, supra note 64, p. 536; Tietje et al., supra note 1, pp. 1090–1092; Pogoretskyy, Vitaliy, ‘The System of Energy Dual Pricing in Russia and Ukraine: The Consistency of the Energy Dual Pricing System with the WTO Agreement on Anti-Dumping’, 4 Global Trade and Customs Journal (2009), p. 321 .

68 WTO Panel Report, United States – Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/R, adopted 31 August 2004, paras. 7.306, 7.321; WTO Appellate Body Report, United States – Final Dumping Determination on Softwood Lumber from Canada, WT/DS264/AB/R, adopted 31 August 2004, para. 183(c).

69 See section 3.2 of this article.

70 WTO Appellate Body Report, EU–Biodiesel, supra note 36, footnote 120 to para. 6.18 (emphasis added).

71 See WTO Panel Report, China – Anti-Dumping and Countervailing Duty Measures on Broiler Products from the United States, WT/DS427/R, adopted 25 September 2013, para. 7.161.

72 WTO Panel Report, United States – Final Dumping Determination on Softwood Lumber from Canada, supra note 68, para. 7.237: ‘[Article 2.2.1.1] requires that costs be calculated on the basis of the exporter or producer's records, in so far as those records are in accordance with GAAP [i.e. the generally accepted accounting principles] and reasonably reflect the costs associated with the production and sale of the product under consideration’ (emphasis in original).

WTO Panel Report, China – Anti-Dumping and Countervailing Duty Measures on Broiler Products from the United States, supra note 71, para. 7.164: ‘[A]lthough Article 2.2.1.1 sets up a presumption that the books and records of the respondent shall normally be used to calculate the cost of production for constructing normal value, the investigating authority retains the right to decline to use such books if it determines that they are either (i) inconsistent with GAAP or, (ii) do not reasonably reflect the costs associated with the production and sale of the product under consideration’ (emphasis in original, underline added).

73 See e.g. Indonesia and Russia's requests for the establishment of a panel in WT/DS480/2 (8 July 2015) and WT/DS474/4 (6 June 2014) respectively.

74 Indonesia's request for the establishment of a panel, ibid.; Russia's request for consultations in WT/DS521/1, G/L/1175, G/ADP/D117/1 (2 February 2017).

75 With the Appellate Body's way of interpretation, the EU authorities can hardly be safe even under Article 2(5) of the Basic Regulation itself, as it permits referral to other reliable sources only if the relevant costs ‘are not reasonably reflected in the records'. See e.g. WTO Appellate Body Report, EU–Biodiesel, supra note 36, para. 6.172.

76 See European Commission, ‘Communication from the Commission to the Council and the European Parliament on Modernisation of Trade Defence Instruments, Adapting Trade Defence Instruments to the Current Needs of the European Economy’, COM(2013) 191 final, 10 April 2013.

77 European Commission, ‘Communication from the Commission to the European Parliament, the European Council and the Council: Towards a Robust Trade Policy for the EU in the Interest of Jobs and Growth’, COM(2016) 690 final, 18 October 2016, p. 5.

78 European Commission, ‘The EU is Changing Its Anti-Dumping and Anti-Subsidy Legislation to Address State Induced Market Distortions’, MEMO/17/3703, 4 October 2017, http://europa.eu/rapid/press-release_MEMO-17-3703_en.htm (accessed 1 December 2017); European Parliament legislative resolution of 15 November 2017 on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) 2016/1036 on protection against dumped imports from countries not members of the European Union and Regulation (EU) 2016/1037 on protection against subsidized imports from countries not members of the European Union (COM(2016)0721 – C8-0456/2016 – 2016/0351(COD)) (Ordinary legislative procedure: first reading).

79 See Position of the European Parliament adopted at first reading on 15 November 2017 with a view to the adoption of Regulation (EU) 2017/ … of the European Parliament and of the Council amending Regulation (EU) 2016/1036 on protection against dumped imports from countries not members of the European Union and Regulation (EU) 2016/1037 on protection against subsidized imports from countries not members of the European Union, P8_TC1-COD(2016)0351.

80 See section 5.2 of this article.

81 Position of the European Parliament, supra note 79, Recitals 5 and 7 of the adopted Regulation. Hereinafter, all cited parts of this document are presented without italicization of the words or phrases as in the original text.

82 Position of the European Parliament, supra note 79, paragraph 6a(a) of Article 2 of the Basic Regulation as amended.

83 Ibid., paragraph 6a(b) of Article 2 of the Basic Regulation as amended.

84 Ibid.

85 Ibid., paragraph 6a(a) of Article 2 of the Basic Regulation as amended.

86 Ibid., Recital 6 of the adopted Regulation.

87 Ibid., paragraph 6a(a) of Article 2 of the Basic Regulation as amended.

88 Ibid., paragraph 6a(c) of Article 2 of the Basic Regulation as amended.

89 As clarified by the European Commission, the amending legislation ‘ensures that there is no ambiguity: distorted costs will not be used in the new methodology’, as ‘[t]his was a primary concern in the drafting of the legislation’. See European Commission, supra note 78.

90 WTO, ‘Members Exchange Views, Concerns on Recent Anti-Dumping Actions’, 25 October 2017, https://www.wto.org/english/news_e/news17_e/anti_25oct17_e.htm (accessed 1 December 2017). See also WTO, Committee on Anti-Dumping Practices – Minutes of the Regular Meeting Held on 27 April 2017, G/ADP/M/52, 28 July 2017, paras. 7.1–7.13.

91 European Commission, supra note 78. See also Hermine Donceel and Eric Maurice, ‘EU Parliament Approves New Anti-Dumping Methodology’, 15 November 2017, https://euobserver.com/economic/139866 (accessed 1 December 2017).

92 Bengt Ljung, ‘EU Agrees to Tougher Antidumping Rules Amid China Tensions’, BNA International Trade Daily, 14 December 2016.

93 See Article 9.1 of the Anti-Dumping Agreement which says that ‘[i]t is desirable … that the duty be less than the margin if such lesser duty would be adequate to remove the injury to the domestic industry’.

94 European Commission, supra note 77, pp. 3–4, Annex.

95 Ljung, supra note 92.

96 Council of the European Union, ‘Trade Defence Instruments: Council Agrees Negotiating Position’, Press Release No. 740/16, 13 December 2016, http://www.consilium.europa.eu/press-releases-pdf/2016/12/47244651816_en.pdf (accessed 1 December 2017).

97 The second Ad Note to Article VI:1 of the GATT reads: ‘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 contracting parties 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.’ Article 2.7 of the Anti-Dumping Agreement states that Article 2 of the Anti-Dumping Agreement on determination of dumping is ‘without prejudice to’ the second Ad Note to Article VI:1 of the GATT.

98 See e.g. supra note 36.

99 For the pass-through of input subsidies, see Shadikhodjaev, Sherzod, ‘How to Pass a Pass-Through Test: The Case of Input Subsidies’, 15 Journal of International Economic Law (2012), pp. 621646 .

100 WTO Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004, paras. 77–78 and 82–122; WTO Appellate Body Report, United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R, adopted 25 March 2011, paras. 446 and 483.

101 WTO Panel Report, EU–Biodiesel, WT/DS473/R, adopted 26 October 2016, para. 7.241.

102 Zhou and Percival (supra note 3, pp. 883–885) doubt that Article 2.4 could ensure this so as to prevent ‘unjustified inflation of dumping margins’.

103 See Shadikhodjaev, supra note 99, pp. 627, 634–636.

104 Article 6.11 of the Anti-Dumping Agreement distinguishes between an exporter and a producer of the product under investigation, and treats them as separate ‘interested parties’ in the anti-dumping process. Article 6.10 sets forth a general rule entitling ‘each known exporter or producer concerned’ to ‘an individual margin of dumping’. According to one panel in a non-appealed case, ‘the ordinary meaning of the text in Article 6.10 suggests that Members may choose to focus their investigations on either all known exporters, all known producers, or all known exporters and producers’. The same panel said that where both the exporter and the producer are included in a single investigation, an individual dumping margin must be calculated for each of them even with respect to the same export transaction. See WTO Panel Report, European Communities – Anti-Dumping Measure on Farmed Salmon from Norway, supra note 66, para. 7.167.

105 Article 2.5 of the Anti-Dumping Agreement reads: ‘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.’ The second sentence of Article 2.5 provides for a methodology that ‘compares the price at which the products are sold from the country of export with the price in the country of origin, whenever any one of at least three circumstances [specified in the second sentence] arise’. WTO Panel Report, European Communities – Anti-Dumping Measure on Farmed Salmon from Norway, supra note 66, para. 7.178.

106 In Shadikhodjaev (supra note 99, p. 642), we concluded that, for downstream products benefiting from an input (here, energy) subsidy, specificity of that subsidy must be established at both upstream and downstream levels.

107 See WTO Panel Report, United States – Measures Treating Exports Restraints as Subsidies, WT/DS194/R, adopted 23 August 2001, paras. 8.20–8.22 and 8.28–8.44.

This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF–2016S1A3A2925230). Many thanks go to Professor L. Alan Winters and two anonymous reviewers for their insightful and helpful comments.

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