DR.
RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW
SESSION 2019-20
SUBJECT- INTERNATIONAL TRADE LAW
FINAL DRAFT
ON
PANEL REPORT: CHINA - ANTI-DUMPING AND COUNTERVAILING DUTIES
ON CERTAIN AUTOMOBILES FROM THE UNITED STATES
Submitted to: Submitted by:
Ms. Priya Anuragini Sankalp Patel
Assistant Professor (Law) [Link](Hons) 7th Sem
Enrollment No. - 160101131
ACKNOWLEDGMENT
I would like to express my gratitude to all those who gave me the possibility to complete this
project. This project is the result of extensive hard work and labour put in to it to make it
worth reading. I extend my heartily thank to Ms. Priya Anuragini who inspired me to do this
project. I am deeply indebted to him.
FACTS:
In December 2011, the Chinese investigating authority, China’s Ministry of
Commerce (“MOFCOM”), imposed duties on American-made cars and SUVs. China
asserted that it did so to counteract harmful dumping and subsidization. The
antidumping duties (AD) ranged from 2.0 percent to 21.5 percent. The countervailing
duties ranged from 6.2 percent to 12.9 percent.
The products affected by China’s AD/CVD measures are U.S.-produced cars and
SUVs with an engine capacity of 2.5 liters or larger.
In July 2012, the United States initiated a WTO challenge to the AD/CVD duties
imposed by China. A WTO dispute settlement panel issued its report on May 23,
2014, finding in favour of the United States on nearly all U.S. claims.
ISSUE 1: Whether MOFCOM's causation determination was consistent with Articles 3.1 and
3.5 of the Anti-Dumping Agreement and Articles 15.1 and 15.5 of the SCM Agreement.
ARGUMENTS OF THE PARTIES
USA- The United States contends that MOFCOM's causation analysis in the investigations at
issue failed to conform to the requirements of Articles 3.1 and 3.5 of the Anti-Dumping
Agreement and Articles 15.1 and 15.5 of the SCM Agreement.
Complainant argues that MOFCOM's finding of parallel pricing is invalidated by the record.
As it is to be noted that the prices of the subject import and domestic like product were
moving in opposite direction during the concerned period and at some point of time when
they both were parallel even then also MOFCOM should show such parallel pricing caused
depression in the market which it failed to do so.
The United States argues that MOFCOM failed to take into account evidence on the record
that subject imports took market share away from a combination of Chinese producers not
part of the domestic industry and third country imports, as opposed to the domestic industry.
They contends particularly in the interim 2009 period the market share of the domestic
industry increased nearly as sharply as that of subject imports and also points out that prior to
this period, the market share of subject imports remained relatively stable. After analysis
some statics of the period 2006-09 it clearly indicates that the market share of subject imports
did not explain the injury experienced by the domestic industry.
The United States argues that MOFCOM failed to address the role of a sharp decline in
industry productivity due to an increase in labor costs throughout the period. In this regard,
the United States submits that productivity fell by 25% in the 2006-2008 period, and by
33.24% in the interim 2008-interim 2009 period which MOFCOM has failed to inquire.
The United States submits that subject imports and the domestic like product generally
occupied different segments of the Chinese automobile market. So, there is a lack of
competition between subject imports and the domestic like product which MOFCOM was
failed to address and thus the lack of competitive overlap between these two baskets of goods
undermines its causation analysis.
The United States contends that the decline in productivity towards the end of the period was
not because of the subject import but it was because average wages in the domestic industry
increased during that time. The United States notes that "productivity of the domestic
industry" is expressly listed as a possible "other factor" causing injury to the domestic
industry in Articles 3.5 and 15.5 which MOFCOM failed to address.
The United States argues that MOFCOM failed to ensure that injury to the domestic industry
caused by the changing consumption patterns prompted by the tax measure was not attributed
to subject imports but it was because as there was an increased sales tax on larger engine
vehicles on the domestic industry and this increased sales tax likely caused the decline in
apparent consumption for the domestic like product, given that the tax measure also reduced
taxes for automobiles with smaller engines.
CHINA
China argues that the provisions Article 3.5 of the Anti-Dumping Agreement and Article 15.5
of the SCM Agreement require MOFCOM only to establish that subject imports were "a
cause", as opposed to "the cause" of material injury to the domestic industry. Pursuant to this
standard, MOFCOM was obligated to show that subject imports "contributed" to such
material injury, which it did. Replying to the arguments raised by the United States, China
submits that MOFCOM's domestic industry definition and price effects analysis were
consistent with Articles 3.1, 3.2 and 4.1 of the Anti-Dumping Agreement, and Articles 15.1,
15.2 and 16.1 of the SCM Agreement and it is for the United States to make a prima facie
case that China breached Articles 3.5 and 15.5.
China contends that MOFCOM considered the market share developments of Chinese
producers not part of the domestic industry and third country imports, and determined that
they did not affect its finding of a causal relationship between subject imports and injury to
the domestic industry. As there is increase by only 1.3 percentage points from 2006 to the
interim 2009 period. With respect to the market share of third country imports it have
remained "relatively stable", decreasing by less than 1 percentage point in that period. So, it
is the market share of subject imports, which increased by 3.5 percentage points from 2006 to
the interim 2009 period and is responsible.
China submits that MOFCOM evaluated labour productivity alongside 15 other industry
indicators and determined that low labour costs in China were such that a decline in labour
productivity could not have played a key role in the industry's declining performance during
the said period. Further, labour costs only accounted for between 4% and 9% of total costs
throughout the period.
China contends that MOFCOM evaluated the degree of competitive overlap between subject
imports and the domestic like product. It is done by comprehensive investigation into both
the subject imports and the domestic product and then the conclusion is drawn that the
products at issue were similar, comparable and substitutable.
China submits that an Investigating Agency need not examine every possible factor that may
cause injury to the domestic industry, particularly those factors that interested parties fail to
raise in the underlying investigations. China notes in this regard that the list of "other known
factors" contained in Articles 3.5 and 15.5 is indicative. Moreover, MOFCOM concluded that
labour costs in the Chinese automobile market reflected a relatively small portion of total
costs; it correctly exercised its discretion not to address this particular factor as they were not
significant to its analysis of causation.
China contends that the USA found a decline in production and sales of the domestic like
product after introduction of the tax
2. China argues that MOFCOM correctly determined that, as production and sales increased
after the tax increase came into effect, the tax did not cause injury to the domestic industry.
ARGUMENTS OF THIRD PARTY
The European Union contends that MOFCOM's determination that subject imports and the
domestic like product were in competition consists of "broad and abstract statements", and
does not reflect an objective examination based on positive evidence. Second, the European
Union questions the relevance of the US assertion that subject imports took market share
from non subject imports and not from the domestic producers. Third, the European Union
contends that MOFCOM should have attributed more weight to the non-attribution factors of
declining domestic productivity and the decline in apparent consumption, particularly as the
injury suffered by the domestic industry took the form of decreasing prices and profitability,
as opposed to lost sales.
Japan submits that causation within the meaning of Article 3.5 of the Anti-Dumping
Agreement must be demonstrated through the effects of dumping as set forth in Article 3.2 of
the Anti-Dumping Agreement. Japan submits that where an IA relies upon a flawed price
effects analysis in its causation analysis, such flaws will necessarily undermine that IA's
causation analysis. With respect to the non-attribution component of Article 3.5, Japan
submits that an IA must pay particular attention to separating and distinguishing the effects of
other factors from the effects of dumped or subsidized imports.
Saudi Arabia argues that an IA's obligation to "demonstrate" causation calls upon the IA to
conduct a causation analysis for each factor discussed in the injury analysis. In so doing, the
IA must pay particular attention to separating and distinguishing the effects of other factors
from the effects of dumped or subsidized imports and the IA must issue a satisfactory
explanation of the nature and extent of the injurious effects of such other factors which were
raised by interested parties in the course of the underlying investigations.
FINDINGS OF THE PANEL
Panel has concluded that MOFCOM's price effects analysis was inconsistent with Articles
3.1 and 3.2 of the Anti-Dumping Agreement and Articles 15.1 and 15.2 of the SCM
Agreement. The price effects analysis represents an important element of the injury
determination in this case. It would be difficult to make a determination of causation
consistent with the requirements of the Articles 3 and 15 of the Anti Dumping and SCM
Agreements, respectively, in a situation where an important element of that determination,
the underlying price effects analysis, is itself inconsistent with the provisions of those
Agreements.
According to the Panel while considering the US price effects claim, it found that the
MOFCOM's finding of the causal relationship between subject imports and injury to the
domestic industry was not reasoned and adequate. According to the Panel an analysis of
market share limited to consideration of starting and ending levels, would not, constitute an
objective examination of the evidence. While MOFCOM concluded that the changes in the
market share of third country imports had no bearing on its finding of causation, this
conclusion reflects only consideration of the starting and ending figures, as third country
imports accounted for 57.15% of the Chinese automobile market in 2006 and 57.40% in the
interim 2009 period.
On the contention of increase cost of labour the Panel after analyzing several data observed
that under circumstances where productivity declines sharply at the same time as labour costs
almost double, an objective and unbiased IA should have inquired further into the extent to
which the decline in productivity throughout the period affected the domestic industry's
financial indicators. Therefore, MOFCOM should have assessed the impact of the decline in
labour productivity on the state of the domestic industry.
On the contention of lack of competitive overlap between domestic and imported
automobiles, the panel observed that MOFCOM's assessment does not reflect an objective
examination of the evidence. Domestic and imported US automobiles occupied largely
different market segments, and thus that it was unlikely that subject imports had "a material
effect" on the state of the domestic industry. Therefore, MOFCOM's dismissal of the
evidence presented by Chrysler in finding a causal relationship between subject imports and
injury to the domestic industry was not reasoned and adequate.
On the contention of other factors such as increase in labour wages, the Panel observed that
United States has not demonstrated that any party made arguments before MOFCOM in this
respect, or shown any other basis on which could conclude that this was a factor known to
MOFCOM which should have been addressed in this context. Therefore, the United States
has not shown that MOFCOM failed to properly examine whether the increase in labour costs
coupled with the decline in industry productivity was causing injury to the domestic industry
and to ensure that any injury caused by that decline was not attributed to subject imports.
On the contention of increase in sales tax the Panel observed that MOFCOM seems to have
construed USA’s argument as contingent on a factual finding that production and sales
declined following the introduction of the tax measure at the beginning of 2009. Since
MOFCOM did not find declines in domestic production and sales in interim 2009. Thus, it is
clear that MOFCOM did address the argument raised by USA in relation to the increased
sales tax. On this basis, Panel found that United States has not shown that MOFCOM failed
to properly examine whether the increased sales tax was causing injury to the domestic
industry.
ANALYSIS AND CONCLUSION
It is clear after reading the arguments of both the parties, third parties and the observation of
the Panel that China was not able to defend its stand of imposing anti dumping and
countervailing duties as there has to be a casual relationship between the subject import and
domestic like product which is mandated by Article 3.5 of Anti-Dumping Agreement and
15.5 of SCM Agreement. Moreover the examination done by the Investigation was not based
on objective and positive evidence as mandated by Article 3.1 of Anti-Dumping Agreement
and 15.1 of SCM. The Panel has given attention to each and every arguments which was put
before it and in some claims it also observed failure of complaining party i.e. USA to prove
their claims such as the claims related to increase in sales tax being one of the reason
affecting the domestic market and the claim of counting increase labour cost as one of the
reason for the downfall of the domestic market. Talking as a whole it can be clearly seen that
China was not correct in determining the injury as mentioned in Article 3.1 and 3.5 of of
Anti-Dumping Agreement and Article 15.1 and 15.5 of SCM.
ISSUE 2: WHETHER MOFCOM DISCLOSED THE "ESSENTIAL FACTS" AS
REQUIRED BY ARTICLE 6.9 OF THE ANTI-DUMPING AGREEMENT
ARGUMENTS OF THE PARTIES:
USA- The United States contends that MOFCOM should have disclosed data and
calculations to US respondents, including details of any data adjustments or manipulations,
bearing upon determinations of: (i) normal values, (ii) export prices, and (iii) costs of
production and without the data underlying MOFCOM's calculations, the US respondents
were deprived of an understanding of basic information relating to how dumping margins
were determined. Moreover without the actual calculations used by MOFCOM, these
respondents could not verify the completeness and accuracy of MOFCOM's calculations.
The United States asserts that it does not have copies of the final disclosure letters sent to the
US respondents in its possession, and contends that it is for China to submit these letters to
the Panel. The United States notes in this regard that these documents are necessarily within
China's possession. Noting China's concern that submitting these letters to the Panel would
result in the unauthorized release of BCI, the United States argues that the Panel's BCI
procedures adequately address such concerns. The United States asks the Panel to infer from
China's failure to submit the letters in this dispute that these letters contain information
unfavourable to China's position.
At the second Panel meeting, the United States submitted into evidence a letter from
Mercedes-Benz USA to MOFCOM which demonstrates that MOFCOM failed to disclose the
essential facts to the US respondents. The United States draws the Panel's attention to
paragraph 8 of the Panel's working procedures, which allows for the submission of evidence
after the first Panel meeting for the purposes of rebuttal. Therefore, the United States
contends that the Mercedes Benz USA letter rebuts China's assertion that MOFCOM's final
disclosures to the US respondents disclosed essential facts within the meaning of Article 6.9.
CHINA
China argues that as the United States claims that the final disclosures given by MOFCOM to
the US respondents were inconsistent with Article 6.9 of the Anti-Dumping Agreement, it is
for the United States, as complainant, to provide proof of these allegedly flawed disclosures
to the Panel. China submits that the United States has not adduced any evidence showing the
alleged deficiencies in the final disclosures sent by MOFCOM to the US respondents.
China asserts that the record contains evidence that MOFCOM did make such disclosures of
essential facts, drawing the Panel's attention to a statement to this effect in the final
determination.
China objects to the US submission into evidence of the letter from Mercedes-Benz USA to
MOFCOM at the second Panel meeting. China points to paragraphs 6 and 8 of the Panel's
working procedures, which China asserts establish the rule that each party must submit
factual evidence to the Panel no later than during the first Panel meeting. China contends that
the United States cannot submit this letter as a rebuttal to the contention that MOFCOM's
final disclosures to the US respondents contained the essential facts, as China never argued
before the Panel that the substance of those final disclosures satisfied Article 6.9. Therefore,
the burden of proof never shifted so as to require it to make such a substantive argument.
THIRD PARTIES
The European Union contends that the actual data and calculations used to establish dumping
margins constitute "essential facts" within the meaning of Article 6.9 of the Anti-Dumping
Agreement and such data and calculations are both material to an IA's final decision and form
an important component of any final determination. Further, without access to such data,
affected exporters cannot check an IA's methodology and calculations for errors.
Japan argues that Article 6.9 disclosure obligation applies to facts "related to" the existence of
the dumping margin, and includes transaction-specific price and adjustment data developed
and used by an IA to establish a dumping margin. So, disclosure of the finally-calculated
normal value and export price would be insufficient to allow an interested party a fair
opportunity to prepare and present their defence.
Saudi Arabia observes that "essential facts", must in all cases include facts relating to the
requisite elements for the imposition of definitive measures, which necessarily include facts
relating to the existence of dumping, injury and causation. Saudi Arabia submits that essential
facts should encompass not only the facts that support the final decision reached by the IA
but also the facts necessary to ascertain "the process of analysis and decision-making" by an
IA in reaching that decision.
Turkey submits that the actual data and calculations used to establish dumping margins, in
addition to those facts related to injury to the domestic industry and the causal link between
subject imports and such injury, constitute "essential facts" within the meaning of Article 6.9
of the Anti-Dumping Agreement and should only be made to the company whose
confidential data forms the subject of the disclosure.
FINDINGS OF THE PANEL
The question before the Panel was whether China disclosed “essential facts” within the
meaning of Article 6.9 which also says that it has to be given before final determination,
China has satisfied this requirement but the question is whether it disclosed essential fact. In
knowing the meaning and extent of “essential facts” Panel relied on prior panel reports which
say an IA must find three key elements: (i) dumping; (ii) injury; and (iii) a causal link.
Therefore, the "essential facts" underlying the findings and conclusions relating to these
elements form the basis for the decision to apply definitive measures, and must be disclosed.
The Panel accepted the letter submitted by Mercedes-Benz USA to MOFCOM into evidence
at the second Panel meeting, which the United States characterises as rebuttal evidence to
China's assertion that MOFCOM's final disclosures to the US respondents contained the
essential facts within the meaning of Article 6.9. China contends that, the United States
having failed to make a prima facie case of violation, letter cannot be characterized as
rebuttal evidence, and may not be taken into consideration by the Panel. In Panel’s view
indeed, factual evidence should be submitted no later than during the first meeting but
exceptions shall be granted upon a showing of good cause, in which case the other party must
be given an opportunity for comment and this situation is considered as exception by them.
After considering letter of Mercedes-Benz USA which was of the view that MOFCOM's final
disclosure of essential facts with respect to it was inadequate, and objected to the final
disclosure on that basis, which objection MOFCOM dismissed lend support to the US claim,
and is unrebutted by any evidence put forward by China.
Therefore, Panel find that the United States has made a prima facie case that MOFCOM
failed to disclose the essential facts to the US respondents. China has made no argument and
provided no evidence, other than the reference to the final determination that would suggest
that MOFCOM's disclosures to the US respondents were, in fact, consistent with the
requirements of Article 6.9. In light of this, and in addition, taking account of the Mercedes-
Benz USA letter, panel concluded that China has failed to rebut the US prima facie case and
China acted inconsistently with Article 6.9.
ANALYSIS AND CONCLUSION
It is clear from the findings of the Panel that China acted inconsistently with Article 6.9 of
the Anti-Dumping Agreement, in that MOFCOM failed to disclose essential facts to US
respondents prior to making its final determination in the AD investigation at issue. The point
which is to be noted here is that the Panel considering the good cause taken the situation as
exception has taken the Mercedes-Benz USA letter and considered it as a rebuttal which
China failed to answer and not complying with Article 6.9 of disclosing essential facts.
