3. Third Parties: Japan

(a) Arguments of Japan in its written submission relating to the EC�s claim under Article 6.10 of the AD Agreement

4.699 In its written submission, Japan made the following arguments relating to the EC�s claim under Article 6.10 of the AD Agreement.

4.700 The EC submission claims that the Argentine authorities violated Article 6.10 of the AD Agreement by first agreeing to make a selection of exporters and then not determining individual margins of dumping for those four companies which had been selected. Article 6.10 reads as follows:

The authorities shall, as a rule, determine an individual margin of dumping for each known exporter or producer concerned of the product under investigation.

In cases where the number of exporters, producers, importers or types of products involved is so large as to make such a determination impracticable, the authorities may limit their examination either to a reasonable number of interested parties or products by using samples which are statistically valid on the basis of information available to the authorities at the time of the selection, or to the largest percentage of the volume of the exports from the country in question which can reasonably be investigated.

4.701 This provision consists of two sentences. The first sentence requires, as a rule, that the national authorities of a WTO Member calculate individual dumping margins for all producers and exporters of merchandise who are subject to an anti-dumping investigation. The second sentence provides that when there are so many exporters, producers, importers or types of product that calculation of individual margins for each known exporter or producer is impracticable, the national authorities can limit their examination to those firms that account for the largest volume of exports, or alternatively employ statistically valid sampling techniques.

4.702 If national authorities rely on the second sentence of Article 6.10, they are still required to calculate an individual dumping margin for those firms which had been selected for examination. The rate applied to the firms that were not selected for examination must conform to the requirements of Article 9.4 of the AD Agreement.

4.703 The Argentine authorities in the present case did not calculate individual margins of dumping for each of the four selected exporters. Instead, they calculated two dumping margins for each of three tile sizes, which applied to all exporters without exception. Japan agrees that if the EC�s factual allegations are correct, this action by the Argentine authorities appears to be inconsistent with Article 6.10 of the AD Agreement, for the following reasons.

4.704 First, nothing in the second sentence of Article 6.10 requires that the general rule set out in the first sentence of that provision should be disregarded. The Argentine authorities should therefore have calculated individual margins of dumping for the limited number of companies under investigation.

4.705 Second, Argentina�s interpretation would nullify the possibility explicitly created in Article 6.10.2 of the AD Agreement for those exporters that were not initially selected. This provision requires that the national authorities �shall [�] determine an individual margin of dumping for any exporter or producer not initially selected who submits the necessary information in time� (emphasis added by Japan). Like those initially selected, exporters submitting information at a later stage have the advantage � as a result of Article 6.10.2 � of also having their individual dumping margins determined. If, as Argentina assumes, national authorities would be allowed to calculate dumping margins for different sizes of a product without considering the situation of those initially or subsequently selected, the content of Article 6.10.2 would be in direct contradiction with this option.

4.706 Japan agrees with the EC that DCD, by agreeing to limit its examination to a selection of exporters, was required to determine individual dumping margins for each of the four selected exporters. By failing to do so, Argentina violated Article 6.10 of the AD Agreement.

4.707 In addition, the DCD calculated the dumping margin of the exporters which were not selected for the investigation based on the �facts available.� As was found by the recent Panel on United States � Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, Japan believes that the rate applied to the firms not selected for examination (�all others rate�) must conform to the requirements of Article 9.4, including the requirement that such a rate not be derived from any calculation in which any element was established on the basis of �facts available.�

4.708 Japan did not address in its oral statement the EC�s claim under Article 6.10 of the AD Agreement.

4. Third Parties: Turkey

4.709 Turkey did not address the EC�s claim under Article 6.10 of the AD Agreement either in its written submission nor in its oral statement.

5. Third Parties: The United States

4.710 The United States did not address the EC�s claim under Article 6.10 of the AD Agreement either in its written submission nor in its oral statement.

C. CLAIM UNDER ARTICLE 2.4 OF THE AD AGREEMENT

1. The EC

(a) Arguments of the EC in its first written submission in support of its claim under Article 2.4 of the AD Agreement

4.711 In its first written submission, the EC made the following arguments in support of its claim under Article 2.4 of the AD Agreement.

4.712 The EC submits that the DCD did not make �due allowance� for all the differences in physical characteristics between the models of porcellanato exported to Argentina and those sold in Italy, thereby violating Article 2.4 of the AD Agreement.

4.713 The EC presented first the facts relevant for its arguments concerning its claim under Article 2.4.

4.714 Porcellanato is a very heterogeneous product. Each of the exporters included in the sample produces many different models, the prices of which may vary considerably. Since the mix of models exported to Argentina is not the same as that sold domestically, the exporters requested to the DCD that the export price for each model be compared, where possible, to the normal value for the same model.

4.715 The DCD rejected that request. Instead, the DCD grouped all the models in three broad categories according to their size (20 x 20 cm, 30 x 30 cm and 40 x 40 cm) and calculated a normal value and an export price for each of those categories. The DCD made only one adjustment to the normal value in order to reflect the differences between polished and unpolished porcellanato. No further adjustments were made to take into account the other differences in physical characteristics. Thus, the DCD erroneously disregarded that the prices of porcellanato may vary considerably according to factors other than the size, or whether it is polished or unpolished.

4.716 For example, the price list of Casalgrande relied upon by the DCD shows that the list price of unpolished porcellanato of 30 cm x 30 cm may range from 25,000 Lit/m2 to more than 50,000 Lit/m2, i.e. more than a 100 per cent price difference (by way of comparison, the dumping margins determined by the DCD for this size category were 43.14 per cent and 27.43 per cent).

4.717 The DCD�s failure to make due allowance for all the differences in physical characteristics is all the more unjustifiable in view of the fact that, in its Final Dumping Determination, the DCD itself acknowledged that there were significant prices differentials between models of unpolished porcellanato of the same size:

Del an�lisis de la informaci�n de ventas en el mercado interno italiano (listado de precios) se ha observado una gran disparidad de precios del producto de iguales medidas y precios de venta inferiores en las medidas de mayor tama�o. As�, se pudo observar casos en que el �porcellanato� sin pulir de 40 cm x 40 cm presenta precios de venta inferiores a los precios de venta del �porcellanato� de 20 cm x 20 cm, o al de 30 cm x 30 cm; como tambi�n precios de venta de la medida 30 cm x 30 cm inferiores a los de la medida 20 cm x 20 cm (Final Dumping Determination, Section V.1.3, at p. 28).

4.718 The EC presented next its legal arguments concerning its claim under Article 2.4.

4.719 The EC recalls that Article 2.4 of the Anti-dumping Agreement provides in pertinent part that:

A fair comparison shall be made between the export price and the normal value [�]. Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in [�] physical characteristics [�].

4.720 The DCD acknowledged in the Final Dumping Determination that, in addition to the differences in size and the differences between polished and unpolished porcellanato, other differences in physical characteristics could have also a significant impact on the price and, consequently, �affect price comparability� in the sense of Article 2.4. Therefore, the DCD was under the obligation to make �due allowance� for such differences.

4.721 In spite of that, the DCD rejected, without advancing any justification, the exporters� request to make the comparison between normal value and export price on a model-to-model basis. Instead, the DCD lumped together very different models with very different prices, thereby grossly distorting the comparison.

4.722 Admittedly, the terms �due allowance� leave some discretion to the investigating authorities. Thus, arguably, the DCD could have chosen to make �due allowance� for the differences at issue by using a different method from that suggested by the exporters. For example, by making adjustments a posteriori to the normal value or to the export price. Nevertheless, the DCD also failed to apply any such alternative method. As explained above, the DCD limited itself to make an adjustment for the differences between polished and unpolished porcellanato.

4.723 Moreover, had the DCD considered that a different method would be more appropriate to make �due allowance� for the differences in physical characteristics than the model-to-model comparison proposed by the exporters, it should have informed the exporters thereof and indicated to them what evidence was required in accordance with the last sentence Article 2.4, which provides that:

[t]he authorities shall indicate to the parties in question what information is necessary to ensure a fair comparison and shall not impose an unreasonable burden of proof on those parties.

4.724 In conclusion, by failing to make �due allowance� for all the differences in physical characteristics affecting price comparability, the DCD violated Article 2.4, third sentence. Furthermore, as a result, the DCD also failed to make a �fair comparison� between normal value and export price, contrary to the first sentence of Article 2.4.

(b) Arguments in the EC�s first oral statement in support of its claim under Article 2.4 of the AD Agreement

4.725 In its first oral statement, the EC made the following arguments concerning its claim under Article 2.4 of the AD Agreement.

4.726 Porcellanato is a very heterogeneous product. Each of the exporters concerned produces many different models, the prices of which can vary considerably according to factors such as the size, the shape, the thickness, whether they are polished (�polito�) or unpolished, the colour of the surface, the pigmentation of the clay, the quality or choice (�scelta�), the resistance, the water absorption, etc.

4.727 Since the mix of models exported to Argentina was not the same as that sold domestically, the exporters requested to the DCD that the export price for each model be compared, where possible, to the normal value for the same model.

4.728 The DCD did not follow that method. Instead, the DCD grouped all the models in three broad categories according to their size (20 cm x 20 cm, 30 cm x 30 cm and 40 cm x 40 cm) and calculated a normal value and an export price for each of those categories.

4.729 As a result, the DCD failed to make �due allowance� for all the differences in physical characteristics affecting price comparability, thereby violating Article 2.4 of the AD Agreement.

4.730 Argentina admits, and indeed even stresses, the existence of numerous differences in physical characteristics, in addition to those relating to the size of the tiles. Nevertheless, it argues that to take them into account would have complicated �enormously� the task of the investigating authorities.

4.731 This defence is clearly without merit. Article 2.4 does not allow investigating authorities to disregard differences in physical characteristics that affect price comparability simply because it would be too complicated to take them into account. Moreover, the difficulties invoked by Argentina could have been easily avoided if the DCD had made a model-to-model comparison.

4.732 Argentina further contends that the DCD�s decision to make �due allowance� only for the differences in size is reasonable and within the limits of the �deference� accorded to the investigating authorities by Article 17.6, because size is the most �universal� characteristic of tiles.

4.733 The EC disagrees. As noted in our written submission, Article 2.4 leaves some discretion to the investigating authorities with respect to the choice of the precise method for making �due allowance� for differences in physical characteristics affecting price comparability.

4.734 In contrast, Article 2.4 leaves no discretion to the investigating authorities for choosing whether or not to make �due allowance�. The only �permissible� interpretation of Article 2.4 is that it requires to make �due allowance� for all the differences in physical characteristics that affect price comparability. The investigating authorities cannot limit themselves to make �due allowance� only for the differences concerning a certain characteristic of their choice, even if that characteristic is the most �universal�.

(c) Replies of the EC to the first set of questions by the Panel relating to the EC�s claim under Article 2.4 of the AD Agreement

4.735 The EC replied to the first set of questions by the Panel relating to the EC�s claim under Article 2.4 as follows.

4.736 The Panel asked the parties to clarify whether the exporters that replied to the questionnaire requested the DCD at some point to calculate the dumping margin on the basis of model-based comparisons. If so, the Panel further asked, what specific model-matching methodology was proposed? Could the parties provide the Panel with the relevant references either in the report or in the administrative record? The Panel also asked the EC to comment on the relevance in this respect of Exhibit EC-10.

4.737 To this question, the EC provided the following reply.

4.738 In their questionnaire responses, the exporters requested that the export price for each model exported to Argentina be compared to the normal value based on domestic prices for the same model and, where this was not possible, to the export price to third countries or the constructed value for the same model.

4.739 This request was reiterated by the representatives of the exporters at the meeting of 11 May 2001 with the case-handlers. The representatives of the exporters understood that the DCD would make a model-to-model comparison on the basis of the information provided by the exporters if the exporters supplied the requested additional non-confidential summaries and supporting invoices.

4.740 Casalgrande, Caesar and Marazzi sold their models under the same name in Italy and for export (including to Argentina). Accordingly, no model-matching methodology was necessary.

4.741 Bismantova sold the models for export to Argentina and third countries under a different name. In order to allow the DCD to make a model-to-model comparison, Bismantova provided in its response a �conversion table�. As agreed at the meeting of 11 May 1999, that table was disclosed to the other interested parties in Bismantova�s submission of 4 June 1999.

4.742 If the exporters did request the DCD to do its margin calculations on the basis of models, the Panel asked the parties to clarify what was the DCD�s response to that request.

4.743 The EC replied that the DCD did at no point during the investigation inform the exporters that it would not make a model-to-model comparison. To the contrary, the representatives of the exporters drew the conclusion from the meeting of 11 May 1999 that the DCD would make a model-to-model comparison on the basis of the information provided by the exporters if the exporters supplied the requested additional non-confidential summaries and supporting invoices.

4.744 The Panel recalled that, independently of whether the exporters asked for a model-based comparison of normal value and export prices, the record suggested that prices of tiles varied significantly, even within a single size category, on account of differences in processing (polished/unpolished), quality, and colour (for instance, Bismantova�s price list submitted as Exhibit EC-5C). The DCD itself recognized (see page 28 of its Final Dumping Determination) that the exporters� sales information revealed considerable price differences in products of equal size and lower sales prices for the larger sizes than for the smaller sizes. On account of this situation, the Panel asked the parties whether they were of the view that the requirement to adjust for physical differences affecting price comparability could be met in this investigation by comparing normal values and export prices corresponding to the same size category.

4.745 The EC replied to this question in the negative. In accordance with Article 2.4, the DCD was required to make due allowance for all the differences in physical characteristics affecting price comparability, and not only for the differences in size.

4.746 The Panel asked Argentina whether it was of the view that the infinite number of physical differences made adjustment beyond size impracticable, and that Article 2.4 would recognize an exception in this respect. Additionally, was Argentina�s view that the exporters failed to support such an adjustment by not providing sufficient data? The Panel further asked Argentina, if the data were considered inadequate, to what extent was such inadequacy based on the confidential nature of the information supplied, and were the exporters informed thereof?

4.747 To this question, the EC provided the following reply.

4.748 In theory, in an investigation involving a large number of different models with many different features, the investigating authority could ensure a �fair comparison�, as required by Article 2.4, by using two different methods.

4.749 The first method involves two steps: (1) comparing the export price for each model to the normal value for the same model (or for a similar model, after adjustments if necessary); and (2) averaging the resulting price differentials into a dumping margin for the product under investigation as a whole. This is the most accurate method and also the easiest to apply.

4.750 The second method involves also two steps: (1) making adjustments for all the differences between a �benchmark� model and all the other models; and (2) comparing the adjusted normal value and export price on a product basis. This method would be extremely cumbersome and, in any event, much less accurate in practice than a model-to-model comparison. Moreover, assuming that all the necessary adjustments could be accurately estimated, the result should not differ from that obtained by using the first method. For those reasons, in practice no investigating authority uses this method.

4.751 Since the exporters had requested, and expected, that the DCD would make a model-to-model comparison (the first method), they did not request the DCD to make adjustments for differences in physical characteristics (the second method).

4.752 Argentina argues now that the second method would have been very difficult to apply in this case. The EC would agree. However, this did not entitle the DCD to make allowance only for the differences in size. Rather, Argentina should have made a model-to-model comparison, something for which the exporters had provided all the necessary information.

4.753 The Panel recalled Argentina�s statement to the effect that the exporters did not object to the DCD�s adjusting only for size, and not for quality or other physical differences affecting price comparability. The Panel asked the EC whether it agreed with this characterization of the evidence. The Panel further asked the parties to comment on the relevance this fact could have under Article 2.4. In other words, the Panel asked, if the investigating authorities have reason to believe that certain physical differences, in fact, affect price comparability, and if the record contains evidence sufficient to make such an adjustment, would the acceptance by the exporters of the adjustments actually made relieve the authorities of the need to make further adjustments?

4.754 To this question, the EC provided the following reply.

4.755 Contrary to Argentina�s unsupported assertions, the DCD never informed the exporters that it would make allowance only for differences in size. Nor, consequently, could the exporters have acquiesced to that decision. In particular, it is not correct that the DCD�s decision to make allowance only for differences in size was reflected in the questionnaire sent to the exporters. The questionnaire required the exporters to supply normal value and export price information by �model/type/code�, and not by size category.

4.756 The Preliminary Dumping Determination was based on �facts available�, and not on the exporters� data. The facts available used by the DCD did not allow to make a model-to-model comparison. Thus, the fact that the DCD did not make such comparison in the Preliminary Dumping Determination was not interpreted by the exporters as implying a rejection of that approach.

4.757 The exporters expected that, since the issue of the non-confidential summaries had been resolved in the meantime, the DCD would make a model-to-model comparison in the Final Dumping Determination, based on the information supplied by them, which would take due account of all the differences in physical characteristics. As mentioned before, the meeting of 11 May 1999 with the case-handlers reinforced this expectation. Due to the DCD�s failure to make a disclosure of �essential facts� prior to the final determination, the EC exporters were unaware that the DCD would not make a model-to-model comparison and could not object to the DCD�s decision to make allowance only for differences in size.

4.758 The Panel recalled that the EC argued in its first written submission (at para. 77) that the DCD did adjust normal value in order to reflect the physical differences between polished and unpolished tiles. However, the DCD�s report raised this issue exclusively in the context of margin calculations for one of the exporters (Caesar), and, even in this case (see page 29 of the Final Determination Report), it suggested that the information on home prices provided by the exporter concerned was rejected by the DCD on the grounds that that home sales of polished tiles could not be compared to export sales of unpolished tiles. The Panel asked the parties to clarify whether the adjustment concerned was made.

Continuation: Section 4.759

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