ARTICLE 1904
BINATIONAL PANEL REVIEW PURSUANT TO THE
NORTH AMERICAN FREE TRADE AGREEMENT

DECISION OF THE PANEL

(JULY 19, 2000)

3)THE POTENTIAL EFFECT OF INCREASED PRODUCTION CAPACITY  index

The Complainants challenge the CITT’s finding with respect to the effect that planned additions to production capacity for subject goods to be sold for the merchant market could have on the U.S. market for such goods.  The Complainants quote the first paragraph of the CITT’s “Analysis”:   

There are over a dozen producers of the subject goods in the United States.  Six integrated mills participated in this review.  In 1997, these mills accounted for approximately 80 percent of the total US cold-rolled steel sheet production capacity.  The U.S. integrated mills’ cold-rolling facilities were operating at approximately 87 percent of capacity in 1997.  The Tribunal notes that, based on planned additions to capacity in the United States to be completed by mid-1999, the six integrated mills will account for somewhat less than 80 percent of total U.S. cold-rolled steel sheet production capacity, depending upon the capacity reductions which may occur during the intervening period and on which U.S. producers make these reductions.[89] 

The Complainants contend that this very first paragraph of the CITT`s analysis with respect to the United States contains a number of significant factual errors and unsubstantiated assumptions. These factual errors and unsubstantiated assumptions “permeate” and “infect” much of the subsequent four pages of analysis with respect to the United States,[90] such that ‘the entire decision of the CITT can be regarded as fundamentally flawed, and properly subject to remand”[91].  

The Complainants allege four essential errors contained in the paragraph quoted above:  

1.         That the CITT erroneously used the overly broad term “cold-rolled steel sheet” in lieu of the more precisely defined subject goods;

2.         That the CITT stated that there were over a dozen producers of the subject goods in the United States where there were in fact twenty-one;

3.         That the CITT’s statement that the U.S. Mills accounted for 80 percent of total U.S. production capacity was unsupported by evidence and that the CITT should have focused on the impact of additions to capacity planned by the non-participating producers; and

4.         That the CITT erred in discounting the impact of the portion of the new production capacity that had already been introduced into the U.S. market.

In response, the U.S. Mills argue that there is evidence on the record to support the CITT`s finding with respect to capacity utilization and that the Complainants improperly invite this Panel to reweigh the evidence and substitute its judgment for that of the CITT.[92]  

i) Alleged Failure to Distinguish the Subject Goods 

The Complainants argue that the CITT failed to distinguish “cold-rolled steel sheet” from the “subject goods,” alleging the former term is over-inclusive because it refers to goods destined for further processing in addition to the annealed goods that are destined for the merchant market.  Counsel for the CITT responds that the term “cold-rolled steel sheet” was used to mean the goods subject to review, which are described fully in the Statement of Reasons.[93]  In their Reply Brief, however, the Complainants deny that they had alleged that the Tribunal had improperly used the expression  “cold-rolled steel sheet” instead of “subject goods”[94].  Rather, the Complainants were “attempting to deduce from the record the source of the 80 percent figure”[95].  

Although it appears to this Panel that the term “cold-rolled steel sheet” is nothing more than a kind of shorthand for the subject goods, used throughout the industry[96], because the Complainants either did not make or have withdrawn the allegation, this Panel need not address it.  

ii) Twenty-One Producers of the Subject Goods           

The Complainants next take issue with the first sentence in the CITT’s United States analysis, “there are over a dozen producers of the subject goods in the United States”[97].  The Complainants maintain that, because there were twenty-one producers of the subject goods in the U.S. at the time of the review, the CITT erred by understating the number, indicating that there were “over a dozen” instead of “close to two dozen”[98].  In response, the U.S. Mills argue that the evidence supports the number of producers of subject goods in the United States.[99]  In their Reply Brief, the Complainants emphasize that the point is that the CITT “grossly understated, and thereby necessarily over-emphasized the role of the U.S. Mills in the U.S. market”[100].  

This Panel finds that the CITT did not err, in part because it is technically correct to say that twenty-one is “over a dozen” and it is less than two dozen.  Moreover, the CITT explicitly referred to the U.S. Mills and the fifteen non-participating U.S. producers, so that there is no ground for any inference that the CITT sought to conceal the ratio of the U.S.Mills to all U.S. producers.[101]  

iii) The U.S. Mills as Representative of U.S. Production Capacity; the Impact of New Subject Goods Capacity

The Complainants challenge the CITT’s notion that the U.S. Mills are representative of the entire U.S. industry.  The Complainants argue that, “there is no evidence in the record that the six participating U.S. producers’ cold-rolled steel sheet production capacity represented approximately 80 percent of total U.S. cold-rolled steel sheet production capacity”[102].  According to the Complainants, the CITT erred in referencing all cold-rolled steel sheet production when it should have considered capacity for subject goods production and the consequential impact of adding 3.8 million net tons of new capacity by the non-participating U.S. producers.[103]  The Complainants question the source of the 80 percent figure and argue that the number both refers to production rather than capacity to produce the subject goods[104], and also includes further processed cold-rolled steel sheet (i.e., not limited to the goods destined for the merchant market).[105] The Complainants add that there is no way to determine either the capacity utilization of the non-participating U.S. producers[106] or the level of unused capacity of any U.S. producers.[107]

The U.S. Mills respond with an analysis intended to show that they are more representative than the Complainants acknowledge.  They note that not all of the fifteen non-participating mills export to Canada and that one of the fifteen is a wholly-owned subsidiary of Inland, one of the U.S. Mills.[108]  Relying on “Cold Mill Capacities” data that the Complainants submitted to the CITT during the review[109] and other statistics compiled by the CITT’s staff and submitted by the U.S. Mills, the U.S. Mills show that they do represent a high percentage of capacity of those producers that export to Canada.[110]   The U.S. Mills also criticize the Complainants allegation that the CITT should have focused on subject goods capacity rather than production, remarking that the evidence of production is relevant and that, by trying to shift the focus, the Complainants are asking this Panel impermissibly to reweigh the evidence.[111]  To refute the implication that there was plenty of unused capacity, the U.S. Mills quote extensively from their own hearing witnesses who testified that their mills were very busy and had no excess capacity.[112]  

Quoting extensively from the Statement of Reasons, the CITT maintains that it carefully considered the question of additions to capacity, including capacity added by non-participating producers.[113]

The Complainants, in reply, argue that neither the U.S. Mills nor the CITT has provided or cited to evidence on the record to support the position that the U.S. Mills do represent 80 percent of U.S. production capacity[114].  Yet the Complainants contend that all U.S. producers combined (including non-participating mills) hold 80 percent of the U.S. market, the rest having been captured by foreign exporters.  The core of the Complainants’ allegation is that, without the participation of the fifteen U.S. producers that planned to introduce most of the additions to capacity, the CITT could not properly analyze the effect of the increased capacity on the U.S. market.  

The Complainants further criticized the CITT for failing to conduct a “qualitative review” of the planned increases to capacity.[115]  The U.S. Mills reply that there is no statutory requirement that the CITT conduct a “qualitative review” of the additions to capacity “by examining the timing of the new additions, whether the additions were being made by “new entrants”, and the fact that 3.8 million net tons were being added by producers not represented at the hearing [116].   

This Panel scrutinized the CITT’s discussion of additions to capacity:  

Counsel for the domestic producers argued that most of the new cold-rolling capacity would be added by mills that did not participate in the review.  The Tribunal notes that the mills that participated in the hearing account for about 80 percent of the current capacity in the United States.  The evidence indicates that some of the forecasted additional capacity is already in place and has been absorbed by the U.S. market.  There is no information on the record to lead the Tribunal to conclude that any of the additional production capacity introduced by producers, other than those that attended the hearing, will have an impact different from that demonstrated during the Tribunal proceedings.[117]                       

Although the CITT did not have written submissions or oral testimony provided directly by the fifteen non-participating producers, and although much of the information pertains to cold-rolled steel sheet generally, it did have information with respect to total U.S. production, how much capacity was coming on line, and most importantly, the effect of the increased capacity on the U.S. market.[118]  

As to the question of whether or not the U.S. Mills represent about 80 percent of current capacity and a somewhat lower percent of all capacity once the additions were in place, there does appear to be support in the record for that estimate, as well, but the more significant question is whether the CITT had sufficient information to gauge the effect of increased capacity on the market and the behavior of the U.S. producers that export to Canada.  As stated, it appears that the record does contain sufficient information on which the CITT could make a finding.[119]  Furthermore, there is no evidence that the market conditions observed by the U.S. Mills were different from those experienced by the non-participating producers.  

Finally, concerning whether the CITT should have conducted a “qualitative review”, although the CITT could certainly have conducted its analysis more thoughtfully and thoroughly, there is no standard compelling greater rigor.  Therefore, this Panel agrees with the U.S. Mills on this point.  

iv) The Impact of the Portion of New Capacity that had been “Absorbed” into the U.S. Market

The essence of the Complainants’ issue is that new capacity would have a “staggering”[120] impact on supply and the CITT did not analyze its impact. Complainants state that the CITT seems to suggest that the effect of the added capacity would be “neutral or positive”, because at least some of it had been “absorbed”[121].  The Complainants maintain that the CITT provided no support for that statement.  It is the Complainants’ position that there was stiff competition in the U.S. market and that additional capacity would ultimately drive down prices.[122]  

The U.S. Mills counter that the CITT did examine and reach conclusions regarding the impact of the new additions to capacity, albeit conclusions that did not satisfy the Complainants.  The U.S. Mills describe the CITT’s discussion, particularly noting that the CITT did not say that the impact of the additional capacity would be neutral; rather, the CITT stated that there was no evidence on the record  (i.e., that the Complainants had not produced any such evidence) demonstrating that the impact of the additional capacity newly introduced by non-participating U.S. producers would differ from that which the CITT had observed during its hearings (i.e., that the new capacity was not problematic).  The U.S. Mills conclude that the CITT considered and rejected the Complainants’ arguments.[123]  

The CITT’s Brief quotes extensively from the Statement of Reasons to show that the CITT indeed considered the issue of the additions to capacity.[124]  

In their Reply Brief, the Complainants reiterate that over 90 percent of the additional capacity for subject goods was being introduced by companies other than the U.S. Mills and that the CITT should have concluded that this additional capacity, accounting for 25 percent of U.S. demand, along with increased imports into the United States, would create pressure on U.S. prices and heighten the propensity of U.S. producers and exporters to dump the subject goods.[125]  

The CITT did consider the impact of the increased capacity.  The CITT was fully aware of the Complainants’ concerns:  “[t]hese additions to capacity and the presence of low-priced imports into the United States from Asia and elsewhere are central to the Canadian mills’ argument that there is a likelihood of resumed dumping from the United States”[126].  The CITT concluded, however, that “[t]he planned additions to capacity are a response to increased demand by users of cold-rolled steel products in general and a shift in product mix toward producing more higher value-added products to meet the changing requirements of the market”[127], and that “there is abundant evidence on the record that demonstrates that capacity in the United States has been unable to keep pace with the rising demand for cold-rolled steel sheet”[128].  Therefore, the CITT found the Complainants’ concerns to be unwarranted.  

The CITT’s conclusions that additional capacity was a response to demand is based on extensive testimony from representatives of the U.S. Mills.  Not only did they testify that they could not meet demand, at least one witness expressed the view that in general the environment was favourable for the U.S. market.[129]  On cross-examination, the Complainants’ counsel did not impeach that testimony.  

On the other hand, there is a significant amount of evidence that qualifies the rosy picture that the U.S. Mills presented at the hearing.  Included in the record are the 10-K reports that the U.S. companies must file with the United States Securities and Exchange Commission.  The filers must certify to their accuracy.  The 1997 10-K’s for National Steel, USX (United States Steel), Rouge, AK, Inland, LTV and Wheeling-Pittsburgh, as well as the 1996 10-K for Bethlehem, are strikingly consistent in describing the market as highly competitive, pointing particularly to the pressures they anticipated from the mini-mills, which were increasing capacity, and the impact of low-priced imports.  Several of them cited worldwide over-capacity as a cause for concern.  Nevertheless, much of the anxiety apparent in the 10-K forms is future-oriented and marked by anticipation of the next downturn.  Typical of a cyclical industry like steel, many of the firms declared that they felt threatened despite strong demand and high prices for the industry as a whole.[130]   Of course, the10-K’s refer to the entire steel market, while the oral testimony was specifically limited to the market for the cold-rolled goods the U.S. producers export to Canada for the merchant market.  This evidence, therefore, is not determinative as to the negative effect of the additional capacity.  

The Complainants presented evidence in the form of trade analysts’ predictions in industry publications that the additional capacity could fuel the global oversupply of cold-rolled steel sheet, all tending toward a gloomy outlook for the U.S. producers.[131]  When confronted with pessimistic prognostications during the CITT’s hearing, one U.S. Mills’ witness sought to qualify and limit the significance of the forecasts.[132]  

None of the evidence is absolute, nor could it be considering that the CITT was attempting a certain amount of crystal ball-gazing to determine the likelihood of resumed dumping.  Although the weight of the evidence suggests that the increased production capacity had or was likely to have an adverse impact on subject goods prices, the correct standard is whether there is any evidence, viewed reasonably, that supports the CITT’s finding.  This Panel finds that there was evidence before the CITT that reasonably supports its finding that the planned increases in capacity were in response to high demand, such that they would not exacerbate global oversupply and exert downward pressure on prices.  Therefore, this Panel cannot remand on this issue.

4) UPWARD PRICE TRENDS   index

The Complainants argue that the CITT made an:  

[e]rroneous finding of fact that ‘there has been a steady upward trend in 1997 and into early 1998 of subject goods pricing in the United States in the face of unequivocal evidence to the contrary including evidence of a precipitous drop in the mid-west U.S. transaction prices for subject goods which had fallen 13 percent in less than 1 ½ years.[133]  

It is argued this erroneous finding of fact was in part the basis for the CITT’s conclusion “that there is no economic incentive for U.S. producers to export the subject goods at reduced prices”[134].  In support of their contention that there was no increasing price trend in 1997 and in early 1998, the Complainants cite evidence of U.S. pricing trends to show that, in fact, prices dropped throughout 1997 and the first quarter of 1998.[135]    The Complainants contend the U.S. Mills did not file any evidence in response to the evidence on pricing trends cited by them.  They note that British Steel Canada Inc. filed evidence which stated that “[t]he U.S. market is soft and prices have weakened in the last few weeks” and “[a]lthough the major mills are proposing a US$15 per ton price increase, from April onwards, it is unlikely that customers will accept it”[136].

The Complainants also point to confidential evidence obtained by them through interrogatories of the U.S. Mills and on cross examination of witnesses for the U.S. Mills.  

The Complainants argue that the CITT made an erroneous finding of fact by concluding that “there has...been a steady upward trend in 1997 and into 1998" for subject good prices and that this erroneous finding of fact was fundamental to the CITT’s conclusion that:  

The evidence demonstrates that the prevailing conditions in the U.S. market for cold-rolled steel sheet are highly favourable...the evidence and testimony citing the high demand and prices coupled with near full capacity utilization levels and recent price increases, support the conclusion that there is no economic incentive for U.S. producers to export the subject goods at reduced prices.[137]  

They argue that the CITT could not have come to these conclusions without having ignored the evidence that “indicated a precipitous drop in prices starting at the end of 1996 continuing into 1997 and then into early 1998”.  Further they state that the CITT’s conclusions concerning demand and capacity utilization levels are erroneous and that they were “no doubt influenced by its factually incorrect finding of high and increasing prices”.[138]  

The U.S. Mills argue that the CITT’s finding as to price trends was fully supported by evidence on the record.  They emphasize that the CITT’s conclusion as to price trends was in relation only to the Complainants’ allegations that cold-rolled steel sheet prices “were lagging behind” the price for all of the other flat-rolled products and that price increases attempted by the U.S. Mills are not being accepted by customers.[139]  The U.S. Mills also point to evidence from the Pre-hearing Staff Report that indicates that prices for subject goods did increase through 1997.[140]   In response to the contention that the only evidence on U.S. pricing trends was filed by British Steel Canada Inc., they cite various U.S. Mills’ responses to a Foreign Manufacturers’ Review Questionnaire.  The U.S. Mills contend that this evidence, along with the evidence of Mr. Hudson of Inland supports the finding of the CITT.[141]  Based on this, the U.S. Mills argue that there is evidence supporting the CITT’s finding and that this Panel should not engage in re-weighing the evidence.  In any event, it is argued that even if there is no evidence supporting the CITT’s findings of price trends in the U.S., the general finding that there is no likelihood of resumed dumping was itself supported by other evidence and therefore should not be remanded.[142]  

In response, the Complainants argue that the U.S. Mills failed to point to “any independent evidence of general price trends for subject goods in the U.S. market to support the CITT’s conclusion that “there has been a steady upward trend in 1997 and into early 1998" of subject goods pricing in the United States” [italics emphasis added only].[143]  They state the only “independent” evidence cited by the U.S. Mills is evidence from the CITT’s Pre-hearing Staff Report that relates to Canadian and not U.S. prices. [144]  

The Complainants argue that the independent evidence, i.e. the evidence not presented by the U.S. producers, does not in any way support the CITT’s conclusion that the price of subject goods increased during 1997 and into 1998. The Complainants argue that the evidence of Inland relied on by the U.S. Mills is not representative of all the producers of subject goods in the United States.  Even if it is, this evidence does not support the CITT’s conclusion about price trends.  

In relation to the evidence from the Foreign Manufacturers’ Review Questionnaire, the Complainants dispute that the evidence cited by the U.S. Mills in relation to average transaction prices and list prices is capable of supporting the conclusion that “there has been a steady upward trend in 1997 and into early 1998”.  

A determination of this issue requires a close review of the Statement of Reasons of the CITT.  It states:

In determining whether there is a likelihood of resumed dumping, the Tribunal considered factors relating to market conditions in Canada, the named countries and other markets for the subject goods.  Such factors included: (1) the volume of imports of the subject goods from each named country into Canada and their exports to other countries; (2) developments in the demand and supply of the subject goods from each named country and other markets; (3) the capacity to produce cold-rolled steel sheet by domestic mills and a selection of foreign mills from the named countries; (4) the economic situation in the domestic markets of the named exporting countries; and (5) the existence of anti-dumping actions concerning the subject goods in other countries.[145]

This Panel notes that though the CITT did mention that it specifically considered the economic situation of the domestic market of the named exporting countries in its determination of a likelihood of resumed dumping, it did not say that price trends in those markets were a key consideration or even a consideration when examining that market.

In fact, the only mention by the CITT of price trends in its Statement of Reasons is as follows:

It was argued by the domestic producers that average prices for cold-rolled steel sheet are lagging behind the prices for all of the other flat-rolled steel products and that price increases attempted by the US mills are not being accepted in the market, indicating a softening of demand.  The Tribunal finds that the evidence does not support this conclusion.  First, although cold-rolled steel sheet prices have been increasing at a slower rate than those for other flat-rolled products, there has still been a steady upward trend in 1997 and into early 1998.  The Tribunal notes that, while not all U.S. mills have attempted price increases, the evidence indicates that there has been at least partial acceptance of those that were initiated.  The Tribunal also notes that the evidence demonstrates that, since the finding, U.S. mills have invested in upgrades that have reduced their costs and/or improved quality.[146]

This Panel notes that the CITT’s consideration of price trends is in the context of dealing with the argument of the Complainants that lagging prices for cold-rolled steel and unaccepted price increases by some of the U.S. Mills indicated a softening of demand.  In finding that the evidence did not support the Complainants’ assertion of a softening of demand, the CITT cited other factors in addition to price trends.

The CITT summarizes its decision as follows:

The evidence demonstrates that the prevailing conditions in the US market for cold-rolled steel sheet are highly favourable.  In the Tribunal’s view, the evidence and testimony citing the high demand and prices, coupled with near full capacity utilization levels and recent price increases, support the conclusion that there is no economic incentive for US producers to export the subject goods at reduced prices.[147]

This Panel does not believe that the statement regarding a “steady upward trend in 1997 and into early 1998" was a key consideration in the CITT’s ultimate determination of there being no likelihood of resumed dumping.  The single statement relating to price trends was in response to a claimed “softening of demand”.

In any event, this Panel has reviewed the evidence cited by the parties and is of the view that there is some evidence to support the finding of the CITT in relation to price trends.[148]

However, rather than focusing on price trends per se, the CITT considered that there was “high demand and prices” for subject goods in the U.S. market.  We have previously dealt with the issue of demand.  Presuming the CITT’s reference was to “high...prices”, there was evidence before it that would allow it to make this finding as part of its determination that there was no likelihood of resumed dumping. [149]

In summary, the Panel is of the view that the CITT’s determination as to price trends was not material to its determination that there was no likelihood of resumed dumping.  Instead, the CITT purported to rely on “high...prices” in its determination and it had evidence before it to do so.  In any event, the Panel is of the view that there was sufficient evidence before the CITT to support its finding as to price trends, such that the finding is not reviewable.

The Complainants in their Brief and Reply Brief put emphasis on what they refer to as “independent evidence” contained in industry reports prepared by PaineWebber and Merrill Lynch, CRU Monitors and the Pre-Hearing Staff Report, which it claims do not support the finding of an upward price trend.  The Complainants discount evidence provided by the U.S. Mills in the form of questionnaire responses and oral testimony.  At paragraph 170 of their Reply Brief they state that the CITT should have been guided by “the obligations contained in Articles 6 and 11 [of the WTO Anti-Dumping Agreement], that oral evidence may only be taken into account in so far as it is reproduced in writing and made available to all parties to the proceedings”.   A similar complaint is made at paragraphs 38 through 41 of their Brief.  The Complainants appear to want this Panel to discount the weight of evidence given by the U.S. producers and particularly the oral evidence provided.

This Panel does not agree with this position.  First, it should be noted that CITT has the statutory authority to determine what evidence it will accept and what weight to give to it.  This Panel notes that, unlike what the Complainants call “independent evidence”, the impugned evidence was provided by witnesses whose testimony was subject to testing by cross-examination.  It is also of note that the testimony objected to by the Complainants was elicited under cross-examination and was not evidence- in- chief.   The CITT is entitled to accept oral evidence given by sworn witnesses.

Second, the CITT applies the obligations under the WTO Anti-Dumping Agreement to the extent they are incorporated in SIMA and its regulations.  Though Articles 6 and 11.4 are not specifically incorporated in SIMA, to the extent the CITT should be guided by them, the Panel is of the view that the CITT was in compliance with those obligations.  All oral evidence before the CITT was recorded in transcripts and subsequently provided to the parties.