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WORLD TRADE
ORGANIZATION

WT/DS219/AB/R
22 July 2003

(03-3920)

  Original: English

EUROPEAN COMMUNITIES - ANTI-DUMPING DUTIES ON MALLEABLE CAST
 IRON TUBE OR PIPE FITTINGS FROM BRAZIL

AB-2003-2

Report of the Appellate Body



  1. Introduction
     
  2. Arguments of the Participants and the Third Participants
  1. Claims of Error by Brazil - Appellant
  1. Devaluation of the Brazilian Real During the Period of Investigation: Article VI:2 of the GATT 1994 and Article 1 of the Anti-Dumping Agreement
  2. Data for SG&A and Profits: Article 2.2.2 of the Anti-Dumping Agreement  
  3. Cumulation: Articles 3.2 and 3.3 of the Anti-Dumping Agreement
  4. Exhibit EC-12: Articles 3.1, 3.4, and 17.6(i) of the Anti-Dumping Agreement
  5. Disclosure of Information: Articles 6.2 and 6.4 of the Anti-Dumping Agreement
  6. Implicit Analysis of the "Growth" Factor: Article 3.4 of the Anti-Dumping Agreement 
  7. Causality: Article 3.5 of the Anti-Dumping Agreement 
  1. Arguments of the European Communities - Appellee  
  1. Devaluation of the Brazilian Real During the Period of Investigation: Article VI:2 of the GATT 1994 and Article 1 of the Anti-Dumping Agreement
  2. Data for SG&A and Profits: Article 2.2.2 of the Anti-Dumping Agreement 
  3. Cumulation: Articles 3.2 and 3.3 of the Anti-Dumping Agreement
  4. Exhibit EC-12: Articles 3.1, 3.4, and 17.6(i) of the Anti-Dumping Agreement
  5. Disclosure of Information: Articles 6.2 and 6.4 of the Anti-Dumping Agreement: 
  6. Implicit Analysis of the "Growth" Factor: Article 3.4 of the Anti-Dumping Agreement: 
  7. Causality: Article 3.5 of the Anti-Dumping Agreement 
  1. Arguments of the Third Participants  
  1. Japan 
  2. United States
  1. Issues Raised in this Appeal
     
  2. Devaluation of the Brazilian Real During the Period of Investigation: Article VI:2 of the GATT 1994 and Article 1 of the Anti-Dumping Agreement
     
  3. Data for SG&A and Profits: Article 2.2.2 of the Anti-Dumping Agreement
     
  4. Cumulation: Articles 3.2 and 3.3 of the Anti-Dumping Agreement 
     
  5. Exhibit EC-12: Articles 3.1, 3.4, and 17.6(i) of the Anti-Dumping Agreement 
  1. Article 17.6(i) of the Anti-Dumping Agreement  
     
  2. Articles 3.1 and 3.4 of the Anti-Dumping Agreement  
  1. Disclosure of Information: Articles 6.2 and 6.4 of the Anti-Dumping Agreement 
     
  2. Implicit Analysis of the "Growth" Factor: Article 3.4 of the Anti-Dumping Agreement
     
  3. Causality: Article 3.5 of the Anti-Dumping Agreement
  1. "Known Factors Other Than the Dumped Imports Which at the Same Time are Injuring the Domestic Industry"  
     
  2. Non-Attribution  
  1. European Communities' Procedural Objection
  2. Merits of Brazil's Claim 
  1. Findings and Conclusions  

ANNEX 1: Notification of an Appeal by Brazil under paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes


 

TABLE OF CASES CITED IN THIS REPORT
 

Short Title

Full Case Title and Citation of Case

EC - Tube and Pipe
European Communities - Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil,
WT/DS219/R, 7 March 2003 (the "Panel Report")
EC - Bed Linen Appellate Body Report, European Communities - Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/AB/R, adopted 12 March 2001
EC - Bed Linen (Article 21.5 - India) Appellate Body Report, European Communities - Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India - Recourse to Article 21.5 of the DSU by India, WT/DS141/AB/RW, adopted 24 April 2003
Egypt - Steel Rebar Panel Report, Egypt - Definitive Anti-Dumping Measures on Steel Rebar from Turkey, WT/DS211/R, adopted 1 October 2002
Guatemala - Cement II Panel Report, Guatemala - Definitive Anti-Dumping Measures on Grey Portland Cement from Mexico, WT/DS156/R, adopted 17 November 2000, DSR 2000:XI, 5295
India - Patents (US) Appellate Body Report, India - Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9
India - Quantitative Restrictions Appellate Body Report, India - Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, WT/DS90/AB/R, adopted 22 September 1999, DSR 1999:IV, 1763
Korea - Alcoholic Beverages Appellate Body Report, Korea - Taxes on Alcoholic Beverages, WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I, 3
Thailand - H-Beams Appellate Body Report, Thailand - Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland, WT/DS122/AB/R, adopted 5 April 2001
US - Hot-Rolled Steel Appellate Body Report, United States - Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August 2001
US - Lamb Appellate Body Report, United States - Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia, WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001
US - Wheat Gluten Appellate Body Report, United States - Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/DS166/AB/R, adopted 19 January 2001

World Trade Organization

Appellate Body

European Communities - Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil

Brazil, Appellant
European Communities, Appellee
Chile, Third Participant
Japan, Third Participant
Mexico, Third Participant
United States, Third Participant
AB-2003-2

Present:

Ganesan, Presiding Member
Baptista, Member
Sacerdoti, Member

I. Introduction

1. Brazil appeals certain issues of law and legal interpretations in the Panel Report, European Communities - Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil (the "Panel Report").1 The Panel was established to consider a complaint by Brazil concerning the consistency with the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the "Anti-Dumping Agreement ") and the General Agreement on Tariffs and Trade 1994 (the "GATT 1994") of the imposition of anti-dumping duties by the European Communities on imports of malleable cast iron tube or pipe fittings from Brazil.

2. On 29 May 1999, the European Communities announced the initiation of an anti-dumping investigation on the imports of malleable cast iron tube or pipe fittings originating in Brazil and seven other countries. One Brazilian producer (Indústria de Fundição Tupy Ltda.) was subject to the anti-dumping investigation.2 The European Communities imposed provisional anti-dumping duties on the imports on 28 February 20003 and definitive anti-dumping duties on 11 August 2000.4 On 21 December 2000, Brazil requested consultations with the European Communities concerning the imposition of anti-dumping duties on its exports of malleable cast iron tube or pipe fittings to the European Communities.5 After consultations failed to resolve the dispute, Brazil requested the establishment of a panel on 7 June 2001 to examine the matter.6 The factual aspects of this dispute are set out in greater detail in the Panel Report.7

3. Before the Panel, Brazil claimed that the European Communities had acted inconsistently with Article VI of the GATT 1994 and with a number of provisions of the Anti-Dumping Agreement, specifically, Articles 1, 2.2, 2.4, 2.4.1, 2.4.2, 3.1, 3.2, 3.3, 3.4, 3.5, 6.2, 6.4, 6.6, 6.9, 9.3, 11.1, 11.2, 12.2, 12.2.2, and 15.8

4. In the Panel Report, circulated to Members of the World Trade Organization (the "WTO") on 7 March 2003, the Panel found that the European Communities had acted inconsistently with its obligations under:

(a) Article 2.4.2 of the Anti-Dumping Agreement in "zeroing" negative dumping margins in its dumping determination; and

(b) Articles 12.2 and 12.2.2 of the Anti-Dumping Agreement in that it is not directly discernible from the published Provisional or Definitive Regulation that the European Communities had addressed or explained the lack of significance of certain injury factors listed in Article 3.4 of the Anti-Dumping Agreement.9

The Panel rejected all other claims raised by Brazil against the anti-dumping measure.

5. The Panel accordingly recommended that "the Dispute Settlement Body request the European Communities to bring its measure into conformity with its obligations under the Anti-Dumping Agreement."10

6. On 23 April 2003, Brazil notified the Dispute Settlement Body of its intention to appeal certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel, pursuant to paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"), and filed a Notice of Appeal pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working Procedures").11 On 5 May 2003, Brazil filed an appellant's submission.12 Stated briefly, Brazil alleged on appeal that the Panel had erred in finding that the imposition of anti-dumping duties by the European Communities was not inconsistent with Article VI:2 of the GATT 1994 and Articles 1, 2.2.2, 3.1, 3.2, 3.3, 3.4, 3.5, 6.2, or 6.4 of the Anti-Dumping Agreement. Brazil additionally alleged that the Panel had acted inconsistently with Article 17.6(i) of the Anti-Dumping Agreement, with respect to the admission of Exhibit EC-12, by failing to assess whether the investigating authority's establishment of the facts was proper. On 19 May 2003, the European Communities filed an appellee's submission, requesting that the Appellate Body reject all of Brazil's claims on appeal.13 On the same day, Japan and the United States each filed a third participant's submission14, and Chile and Mexico notified their intention to appear and make statements at the oral hearing as third participants.15

7. The oral hearing in this appeal was held on 10 June 2003. The participants and third participant Japan presented oral statements. The participants and all the third participants also responded to questions put to them by the Members of the Division hearing the appeal.

II. Arguments of the Participants and the Third Participants

A. Claims of Error by Brazil - Appellant

1. Devaluation of the Brazilian Real During the Period of Investigation: Article VI:2 of the GATT 1994 and Article 1 of the Anti-Dumping Agreement

8. Brazil appeals the Panel's finding that the European Commission was neither required nor permitted by Article VI:2 of the GATT 1994 or the Anti-Dumping Agreement to base its dumping determination solely on export price data from the last quarter of the period of investigation ("POI")-that is, data subsequent to the devaluation of the Brazilian Real that occurred in January 1999.

9. Brazil maintains that the reason for using a POI in a dumping determination is to acquire a finite data set relating to a recent historical period, which can be extrapolated to make a "reasonable assumption" about the future. According to Brazil, the 42 percent devaluation of the Brazilian Real constituted a fundamental and lasting change in the trading conditions of Brazilian exports, and the magnitude of the devaluation was greater than the dumping margin of 34.8 percent. The dumping was totally eliminated by the devaluation, and if the data subsequent to devaluation had been used, no "reasonable assumption" could be made that dumping would occur in the future.

10. According to Brazil, the Panel erred in finding that Article 2.4.2 of the Anti-Dumping Agreement requires investigating authorities to use all the data from throughout the POI. Brazil explains that the first sentence of Article 2.4.2 provides that dumping margins are normally to be established using the average of prices of all export transactions. However, the second sentence of Article 2.4.2 expressly recognizes that situations may arise where this methodology would not be appropriate, for example, where a pattern of export prices differs significantly among different time periods. Data from the POI show that, although the devaluation did not affect the normal value of Brazilian exports, the patterns of export prices in Brazilian Real were completely different in the periods before and after the devaluation. Therefore, pursuant to Article 2.4.2, the European Commission was entitled to use in its dumping determination only the export price data relating to the last three months of the POI, being the period following the devaluation.

11. Moreover, Brazil argues that the European Commission had an obligation, under Article VI:2 of the GATT 1994, to make its dumping determination in accordance with the second sentence of Article 2.4.2. Article VI:2 allows a WTO Member to levy anti-dumping duties only "[i]n order to offset or prevent dumping". To satisfy this fundamental condition, Brazil argues, the European Commission was required to make a "reasonable assumption for the future" from data collected in the POI in order to "anticipate the level of anti-dumping duty that [was] strictly necessary to prevent dumping in the future."16 The European Commission was therefore required to choose the methodology under Article 2.4.2 that best fulfilled this obligation, which is the methodology prescribed in the second sentence of Article 2.4.2, in particular a comparison of the weighted average normal value (based on data from the entire POI) with the prices of individual export transactions that took place in the POI after the devaluation. According to Brazil, in failing to adopt this methodology and in imposing duties despite the impact of the devaluation, the European Communities acted inconsistently with Article VI:2 of the GATT 1994 and, consequently, Article 1 of the Anti-Dumping Agreement.

12. Brazil considers that this conclusion is not affected by the Panel's observation that the Anti-Dumping Agreement provides mechanisms to address situations where dumping decreases or terminates following an affirmative determination of dumping (through refunds under Article 9.3 and reviews under Article 11), because the availability of corrective mechanisms does not justify the imposition of anti-dumping duties in excess of what is necessary to prevent dumping. According to Brazil, corrective mechanisms are intended to take account of fundamental changes taking place after the investigation, but as the devaluation occurred during the POI, the authorities were obliged to take it into account in a proper way at the time of the initial dumping determination.

13. Brazil therefore requests the Appellate Body to reverse the Panel's findings on this issue and to find instead that the European Communities acted inconsistently with its obligations under Article VI:2 of the GATT 1994 and Article 1 of the Anti-Dumping Agreement.

2. Data for SG&A and Profits: Article 2.2.2 of the Anti-Dumping Agreement

14. Brazil appeals the Panel's finding that the chapeau of Article 2.2.2 of the Anti-Dumping Agreement compels investigating authorities to use actual administrative, selling and general costs ("SG&A") and profit data from all sales in the ordinary course of trade, including those sales found under Article 2.2 to be low-volume sales.

15. Brazil submits that the chapeau of Article 2.2.2 of the Anti-Dumping Agreement does not expressly require that all actual data be used, or that only certain data be excluded from the determination of SG&A and profits. Brazil further argues that the Panel's reading of Article 2.2.2, which allows authorities to include sales that were found to be "unrepresentative" in constructing the normal value, nullifies the purpose of Article 2.2.17 According to Brazil, interpreting one treaty provision so as to nullify the effects of another provision is inconsistent with the rules of treaty interpretation under the Vienna Convention on the Law of Treaties.18 Article 2.2 imposes on Members an obligation to construct normal value when the product concerned is sold in the domestic market in low volumes deemed not to "permit a proper comparison" with the export price. The purpose of this provision, in Brazil's view, is to avoid basing normal value on prices that may not represent normal trading conditions. Brazil submits an example seeking to demonstrate that this purpose is undermined by the Panel's interpretation of the chapeau of Article 2.2.2. Under this example, according to Brazil, if data pertaining to low-volume sales are included in the calculation of SG&A and profits under Article 2.2.2, the same result is reached as if "normal value" (that is, selling prices in the domestic market) had been used, and there was no need for "constructing" a normal value. The Panel's interpretation of the chapeau of Article 2.2.2 is thus contrary to the customary rules of treaty interpretation.

16. Brazil therefore requests the Appellate Body to reverse the Panel's finding that the chapeau of Article 2.2.2 compels investigating authorities to use actual SG&A and profit data from all sales in the ordinary course of trade, including those sales found under Article 2.2 to be of insufficient quantities to permit a proper comparison. Brazil requests that the Appellate Body find instead that the chapeau of Article 2.2.2 requires the exclusion of actual data from sales found under Article 2.2 to be of insufficient quantities to permit a proper comparison, and therefore, that the European Communities acted inconsistently with this obligation.

3. Cumulation: Articles 3.2 and 3.3 of the Anti-Dumping Agreement

17. Brazil appeals the Panel's finding that country-by-country analyses of volumes and prices under Article 3.2 of the Anti-Dumping Agreement are not pre-conditions to the cumulative assessment of the effects of dumped imports under Article 3.3.

18. In Brazil's view, Article 3.2 requires investigating authorities to consider, on a country-by-country basis, whether there has been an absolute or relative increase in dumped imports and whether the prices of those imports are lower than the actual or target prices of the domestic industry. Only where these analyses identify the imports from a particular country as a likely source of negative effects on the domestic industry is cumulation of that country's imports permitted under Article 3.3. Brazil submits that if Article 3.3 were intended to "derogate" from the obligation to analyze volumes and prices on a country-by-country basis under Article 3.2, this would have been clearly mentioned in Article 3.3.19 Moreover, according to Brazil, the requirement of a vague "conditions of competition" analysis under Article 3.3 cannot replace the precise analyses of prices and volumes required under Article 3.2.

19. Brazil argues that Article 3.2 requires an analysis of the "factors" that may be causing injury (namely, the volumes and prices of the dumped imports), whereas Article 3.3 allows cumulation of the "effects" of the dumped imports (and not the imports themselves). These "effects" are found through recourse to Article 3.4. Thus, according to Brazil, the logical order of Article 3 requires that investigating authorities first assess the factors that may cause injury (Article 3.2), then whether the conditions for cumulation are fulfilled (Article 3.3), and finally the impact of the dumped imports on the domestic industry (Article 3.4). Interpreting Article 3.3 to allow cumulation of "factors" causing injury would involve reading into the Anti-Dumping Agreement words that are not there, contrary to the rules of interpretation under public international law.

20. Brazil submits that the Panel's interpretation of Article 3 would lead to absurd results and would undermine the requirements of Article 3. In particular, the Panel's interpretation would allow injury to be attributed to sources that are not actually causing injury. For example, where imports from countries X and Y are being dumped, but the factors causing injury are the rapid increase in market share and the low price of imports from country Y, anti-dumping duties would be imposed on both countries, even though the imports from country X are not causing injury. In addition, the Panel's interpretation would undermine the requirement in Article 3.1 that the determination of injury be based on an "objective examination", because it makes a finding of injury more likely and renders a country liable to pay anti-dumping duties when its dumped imports cannot be said to be causing injury. Brazil submits that such results are contrary to "basic principles of fundamental fairness."20

21. Brazil therefore requests the Appellate Body to reverse the Panel's finding that country-specific analyses of volumes and prices under Article 3.2 are not pre-conditions to cumulation under Article 3.3, and to find that the European Communities acted inconsistently with Articles 3.2 and 3.3 of the Anti-Dumping Agreement.

4. Exhibit EC-12: Articles 3.1, 3.4, and 17.6(i) of the Anti-Dumping Agreement

22. Brazil appeals the Panel's finding that an internal note for the investigation file, containing an analysis of certain of the injury factors listed in Article 3.4 and submitted by the European Communities to the Panel as Exhibit EC-12, was properly before the Panel. First, Brazil argues that this finding is based on an erroneous legal interpretation of Articles 3.1 and 3.4. Second, Brazil argues that the Panel failed to comply with its obligations under Article 17.6(i) of the Anti-Dumping Agreement in not ensuring that Exhibit EC-12 was made during the investigation.21

23. According to Brazil, Article 3.4 requires that there be a "contemporaneous and verifiable indication that Exhibit EC-12 existed during the investigation", and this requirement was not met.22 In the absence of such a requirement, Brazil argues, Article 3.4 would be deprived of its meaning because an investigating authority could make a finding of injury on the basis of an incomplete analysis. Citing Article 3.1, Brazil submits further that the "evidence contained in Exhibit EC-12" cannot be regarded as "positive evidence" because its contemporaneous character is not established and is "questionable"23, and the evaluation in Exhibit EC-12 cannot be regarded as "objective" because it is not established that it was actually made during the investigation.24

24. In relation to the Panel's alleged failure to comply with Article 17.6(i), Brazil argues that the Panel improperly exercised its discretion in basing its findings "exclusively on a mere assertion" from the European Communities that Exhibit EC-12 was made during the investigation, and on an unsupported presumption of good faith, rather than on positive facts.25 According to Brazil, the obligation on the European Communities to present evidence could not be substituted by a presumption of good faith. The principle of good faith, as mentioned in Article 3.10 of the DSU, cannot be regarded as an evidentiary principle. Rather, it relates to due process and requires parties to cooperate in dispute settlement proceedings, including by placing material evidence before the tribunal. Finally, Brazil argues that the confidentiality of information cannot be an obstacle to a proper examination of the facts as required under Article 17.6(i), especially as Article 18.2 of the DSU provides a specific mechanism to protect such information.

25. Brazil therefore requests the Appellate Body to reverse the Panel's finding that Exhibit EC-12 was properly before it and consequently find that the European Communities acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement.

5. Disclosure of Information: Articles 6.2 and 6.4 of the Anti-Dumping Agreement

26. Brazil appeals the Panel's finding that the European Communities was not required under Articles 6.2 and 6.4 of the Anti-Dumping Agreement to disclose to the interested parties, during the anti-dumping investigation, the information on certain injury factors contained in Exhibit EC-12, because the European Commission had determined that the data contained in Exhibit EC-12 were in line with other data (which had been disclosed) and did not add any value to its analysis of the injury factors listed in Article 3.4 of the Anti-Dumping Agreement.

27. According to Brazil, when making an injury determination, investigating authorities must assess the role, relevance, and relative weight of at least those factors listed in Article 3.4. Therefore, the findings of investigating authorities on each of these factors are necessarily "relevant" within the meaning of Article 6.4. Brazil submits that it cannot be left to investigating authorities to decide, on their own, which information is "relevant" under Article 6.4 and relates to the defence of parties' interests under Article 6.2. Brazil further argues that Article 6 is a "fundamental due process provision" seeking to ensure that interested parties can defend their interests during the investigation process itself, rather than be informed of relevant information only after the investigation is completed and its result reflected in the definitive determination, as required under Article 12.2.26 In Brazil's view, the obligations set out in Articles 6.2 and 12.2 are distinct obligations relating to different periods of an anti-dumping investigation.

28. Brazil therefore requests the Appellate Body to reverse the Panel's finding that the European Communities did not have to disclose the information contained in Exhibit EC-12 relating to the evaluation of certain injury factors listed in Article 3.4, and to find that the European Communities acted inconsistently with Articles 6.2 and 6.4 of the Anti-Dumping Agreement.

6. Implicit Analysis of the "Growth" Factor: Article 3.4 of the Anti-Dumping Agreement

29. Brazil appeals the Panel's finding that, in evaluating other injury factors, the European Commission had implicitly addressed the "growth" factor, and thereby did not act inconsistently with Article 3.4 of the Anti-Dumping Agreement.

30. According to Brazil, the evaluation of each injury factor listed in Article 3.4 must be explicit and it cannot simply be deduced from or found to be implicit in the evaluation of other factors. The Panel's contrary interpretation, in Brazil's view, is inconsistent with the principle of effectiveness as recognized by the Appellate Body, because it nullifies the obligation under Article 3.4 to evaluate each of the factors listed in that provision. The interpretation is also inconsistent with the requirement that it is the investigating authority (rather than the Panel) that must evaluate each factor, because Article 17.6(i) limits the Panel's role to assessing whether the authorities properly established the facts and evaluated them in an unbiased and objective manner.

31. As a result, Brazil requests that the Appellate Body reverse the Panel's finding that the European Communities did not act inconsistently with Article 3.4 of the Anti-Dumping Agreement in its treatment of the factor of "growth".

7. Causality: Article 3.5 of the Anti-Dumping Agreement

32. Brazil claims that the Panel erred in concluding that the European Communities did not act inconsistently with Article 3.5 of the Anti-Dumping Agreement in conducting its causality analysis. First, Brazil appeals the Panel's finding that a factor "known" to the European Commission in the context of its dumping and injury analyses was not a factor "known" to it in the context of its causality analysis. Second, Brazil appeals the Panel's finding that the European Commission did not improperly attribute to the dumped imports injury to the domestic industry caused by other factors, even though it analyzed the effects of those other factors only individually and not collectively.

33. In relation to other "known" factors under Article 3.5, Brazil argues that the relatively high cost of production of the European Communities industry compared to that of the Brazilian industry was a causal factor "known" to the European Commission in its causality analysis.27 According to Brazil, this difference in cost of production is reflected in the "margins analysis"; that is, in the fact that the dumping margin found for the Brazilian exporter was 34.8 percent, whereas the underselling margin was 82.06 percent of the export price. Brazil argues that this cost disadvantage was known to the investigating authority because the European Commission itself had calculated the dumping and underselling margins and had full information on the production costs of the different producers. Furthermore, the Brazilian exporter had raised this issue in the context of the dumping and injury determinations. As the elimination of dumping by the Brazilian producer would not have substantially improved the condition of the European Communities industry, Brazil submits that a significant part, if not all, of the injury could have been caused by the domestic industry's high cost of production. The European Commission was therefore under an obligation to conduct a non-attribution analysis with respect to this factor.

34. Brazil maintains that the European Commission was obliged to examine this factor even though the Brazilian producer did not expressly raise it as a causal factor. In Brazil's view, a textual interpretation of Article 3.5 shows that an investigating authority cannot limit itself to evaluating only those factors that were specifically raised in the context of the causality analysis. Article 3.5 requires that investigating authorities examine "all relevant evidence before the authorities" and that they "also examine any known factors other than the dumped imports". Finally, Brazil argues that the Spanish version of Article 3.5 requires the authorities to examine "cualesquiera otros factores de que tengan conocimiento", making it clear that the authorities must examine any factor known to them, regardless of whether such factor was raised by an interested party.

35. In relation to the collective analysis of other known factors under Article 3.5, Brazil argues that the European Commission's methodology in this case involved an evaluation of causal factors individually, but it did not involve an evaluation of their collective impact. Brazil challenges the application of this methodology to this case on the basis that it deprives Article 3.5 of its aim to ensure that other causal factors are not themselves the cause of the injury found. Although individual factors may each have an insignificant effect on injury, multiple insignificant factors may together contribute significantly to injury. A methodology that assesses other injury factors only individually does not address the possibility that such factors may collectively "sever the causal link between the dumping and the injury."28 According to Brazil, in examining each known factor only individually, an investigating authority automatically attributes to the dumped imports the injurious effects of all the other known factors. As such, the European Commission in this investigation failed to identify, isolate, and analyze the effects of such factors as required by Article 3.5 and the Appellate Body's decision in US - Hot-Rolled Steel.29 Finally, Brazil claims that the individual factor analysis employed in this case may lead to the absurd result that the greater the number of causal factors, the less likely those factors will be found to constitute a significant cause of injury, regardless of their collective effect.

36. Brazil therefore requests the Appellate Body to reverse the Panel's findings that (a) the cost of production differential between the European Communities industry and the Brazilian exporter was not a "known" factor other than dumped imports that the European Commission was required to examine; and (b) the non-attribution obligation under Article 3.5 did not require in this case an examination of the collective effects of other causal factors. Brazil consequently requests the Appellate Body to find that the European Communities acted inconsistently with its obligations under Article 3.5 of the Anti-Dumping Agreement.

B. Arguments of the European Communities - Appellee

1. Devaluation of the Brazilian Real During the Period of Investigation: Article VI:2 of the GATT 1994 and Article 1 of the Anti-Dumping Agreement

37. The European Communities agrees with the Panel that the methodologies specified in the first sentence of Article 2.4.2 of the Anti-Dumping Agreement "would seem to require, in general, that data throughout the entire investigation period would necessarily consistently be taken into account."30 According to the European Communities, the standards of objective and unbiased action in determining the existence of dumping and the dumping margin are implicit in the specific rules of Article 2 of the Anti-Dumping Agreement, because if these standards did not exist the rules would be rendered ineffective. The European Communities maintains that its system assures objectivity by using, in the determination of injurious dumping and in the determination of the definitive dumping margin, all data pertaining to a sufficiently lengthy period, which is applied on a regular basis in anti-dumping investigations.

38. In contrast, according to the European Communities, Brazil's notion of a "reasonable assumption for the future" is inherently vague and introduces into the Anti-Dumping Agreement an element of subjectivity on the part of the investigating authority. The European Communities states, furthermore, that there was no guarantee that the Brazilian producer would maintain the same pricing policy in the immediate aftermath of the devaluation. It also points out that the Anti-Dumping Agreement has a provision for addressing exchange rate movements (Article 2.4.1), thereby suggesting that the proper response to currency devaluation is not the exclusion of certain data from the POI.

39. The European Communities, citing the Appellate Body Report in EC - Bed Linen31, argues that nothing in Article 2.4.2 indicates that an investigating authority may select among the export transactions within the POI. The second sentence of Article 2.4.2, in the European Communities' view, specifically addresses "targeted dumping", meaning dumping concentrated in sales to certain regions, customers, or time periods. The European Communities therefore submits that this sentence does not allow an investigating authority to select transactions within the POI on the basis of a "reasonable assumption for the future". Furthermore, investigating authorities are not required to adopt any particular methodology under Article 2.4.2. Rather, in the European Communities' view, investigating authorities should in principle use one of the two methodologies in the first sentence. They may resort to the methodology in the second sentence only when certain circumstances mentioned therein are present, which was not the case in this anti-dumping investigation.

40. In response to Brazil's arguments that the mechanisms provided by the Anti-Dumping Agreement for refunds and reviews operate only in relation to events occurring after the POI, the European Communities contends that the corrective mechanisms would also operate in relation to changes of an "enduring" character that occur during the POI.

2. Data for SG&A and Profits: Article 2.2.2 of the Anti-Dumping Agreement

41. The European Communities argues that Brazil's interpretation of Articles 2.2 and 2.2.2 of the Anti-Dumping Agreement is incorrect. The text of Article 2.2 separately identifies "low-volume" sales and sales not made "in the ordinary course of trade", thereby distinguishing the two types of sales. The chapeau of Article 2.2.2, however, expressly excludes data relating to sales not made "in the ordinary course of trade", but makes no mention of data relating to low-volume sales, indicating that it places no restriction on the inclusion of such sales. Similarly, the European Communities states that sub-paragraphs (i) and (ii) of Article 2.2.2, which relate to the construction of normal value, do not mention the exclusion of data relating to low-volume sales.

42. The European Communities argues that there is a rational explanation for excluding non-representative sales from a normal value based on sale prices, while at the same time including them in a normal value that is constructed. Typically, the dumping margin for a product is calculated by determining a weighted average of the dumping margins for different versions of the like product on the basis of the volume and the price of export sales. If the domestic sales volume for a particular version is small, there is a greater risk of atypical prices affecting the calculation, because prices from those low-volume sales will be weighted according to the export sales of the product rather than the domestic sales. In contrast, the relative volume of domestic sales (in the exporting country) of different versions of a like product is taken into account in the construction of normal value because SG&A and profit data from all versions of the like product are weight-averaged according to domestic sales. Thus, the fact that a small volume of one version of the product is sold at atypical prices will have a correspondingly small effect on the profit margin used in constructing normal value. The European Communities argues that this rationale for the different treatment of low-volume sales under Articles 2.2 and 2.2.2 is illustrated by the present case, where the effect of including the data in question would be to alter the profit margin, and therefore the dumping margin, by only one hundredth of one percent.

43. The European Communities concedes that, in the particular set of circumstances of Brazil's example, (involving only one product type that is sold almost entirely for export, with only a low-volume quantity being sold, profitably, in the domestic market), the price resulting from a constructed normal value, based on the Panel's interpretation, would be the same as if the price had been derived from domestic sales originally rejected as not permitting a "proper comparison". However, the European Communities submits that this example does not show that the Panel's interpretation renders Article 2.2 ineffective. According to the European Communities, the circumstances posited by Brazil are somewhat unusual. The European Communities states that, in most cases (such as the present case), the problem of arriving at the same price through constructed value as through reliance on low-volume domestic sales prices would not arise.

44. Finally, the European Communities emphasizes that the inclusion of actual data from low-volume sales entails no inherent bias either for or against the exporter. In fact, according to the European Communities, Brazil's interpretation seems to imply that an investigating authority could pick and choose among the data collected, which would introduce a subjective element into the anti-dumping procedure, contrary to the objectivity intended under the Anti-Dumping Agreement.

3. Cumulation: Articles 3.2 and 3.3 of the Anti-Dumping Agreement

45. The European Communities argues that the ordinary meaning of the terms of Article 3.3 of the Anti-Dumping Agreement in their context indicates that volumes and prices under Article 3.2 may be cumulatively assessed. The requirement under Article 3.3 of a calculation of individual countries' export volumes to establish that they are "not negligible" indicates, in the European Communities' view, that there is no requirement that investigating authorities consider whether imports have increased from each individual country before conducting a cumulative assessment. The European Communities submits that the obligation to consider prices and volume in accordance with Article 3.2 still exists, although Article 3.3 modifies this rule to permit their consideration on a cumulated, rather than on a country-by-country, basis.

46. The European Communities argues that a proper consideration of the object and purpose of Article 3.3 demonstrates that it must provide for the cumulative assessment of volume and prices because it is precisely the cumulated effects of volume and prices with which domestic producers are confronted on the domestic market. If an investigating authority had to establish that imports from each country were causing injury, cumulation under Article 3.3 would be redundant.32 In response to Brazil's example demonstrating that failure to carry out a country-by-country consideration under Article 3.2 would inappropriately attribute injury, the European Communities argues that a country (such as country X in Brazil's example) may be both a "victim" and a "cause" of injury.33

47. The European Communities challenges Brazil's notion that "effects" and "factors" are used in Article 3 of the Anti-Dumping Agreement as "terms of art", or terms having precise and different meanings.34 The European Communities notes that the last sentence of Article 3.4 refers to the "effects" also as "factors", and Articles 3.1 and 3.4 refer to these effects collectively as the "impact". Articles 3.1 and 3.2 also identify the "effect" of the dumped imports on prices as the second of two topics for investigating authorities to consider. The European Communities acknowledges that the first of these topics is described as "the volume of the dumped imports", with no explicit mention of effects. However, the European Communities argues, because Article 3.5 refers to "the effects of dumping, as set forth in paragraphs 2 and 4", it would be a "strained interpretation" of Article 3.5 to read this as referring only to the price effects under Article 3.2.35

4. Exhibit EC-12: Articles 3.1, 3.4, and 17.6(i) of the Anti-Dumping Agreement

48. The European Communities contends that no rule of evidence exists in the WTO that precludes panels from accepting as evidence a document that was produced during an anti-dumping investigation unless accompanied by a "contemporaneous and verifiable written indication" that it actually existed during the investigation. According to the European Communities, the requirement of "positive evidence" in Article 3.1 "is not a rule governing the evidence that panels may take into account."36

49. The European Communities maintains that no rule of law limits a panel's reliance on a presumption of good faith, and the extent to which a panel relies on such a presumption is a matter within the panel's discretion. Nevertheless, the European Communities disputes Brazil's suggestion that the sole justification given by the Panel for accepting the genuine nature of Exhibit EC-12 was that the European Communities had asserted that it was genuine. The European Communities notes that it provided responses to questions by the Panel regarding the sources of information and the methodology on which Exhibit EC-12 was based. The genuineness of the document was demonstrated by the consistency between the raw data that had been collected and the consideration of that data in Exhibit EC-12, as well as the similar consistency between the conclusions described in Exhibit EC-12 and those stated in the Definitive Regulation.

5. Disclosure of Information: Articles 6.2 and 6.4 of the Anti-Dumping Agreement:

50. The European Communities argues that, although the Panel was correct to reject Brazil's claim under Articles 6.2 and 6.4 of the Anti-Dumping Agreement, its reasoning was not appropriate because it implicitly presumed that these provisions required the European Commission to inform the Brazilian producer about the conclusions (as opposed to information) it had reached on the basis of the data obtained during the investigation.37

51. The European Communities contends that the term "information" used in Article 6.4 does not extend to investigating authorities' conclusions from, or reasoning applied to, data obtained in the course of their enquiries. This view, according to the European Communities, is supported by the ordinary meaning of the text of Article 6.4, in its context. The European Communities submits that where the Anti-Dumping Agreement refers to "information" with the intention of imposing an obligation to provide notification of the authorities' reasoning, it does so explicitly (as, for example, in Article 12.2.2). The European Communities claims that an examination of the object and purpose of Article 6.4 supports this interpretation, because the disclosure requirements are intended to give parties an opportunity to influence the conclusions of investigating authorities. According to the European Communities, it had no obligation to disclose Exhibit EC-12 because it contains its investigating authority's conclusions with respect to some of the injury factors listed in Article 3.4; any data published in Exhibit EC-12 had previously been disclosed to the interested parties to the extent that it was compatible with confidentiality requirements.

52. Citing the panel report in Guatemala - Cement II, the European Communities also argues that the general nature of Article 6.2 is not such as to impose a specific obligation on the European Commission to inform the Brazilian exporter in the course of the investigation about matters that are specifically required to be conveyed at the end of the investigation by virtue of Article 12.2.38

6. Implicit Analysis of the "Growth" Factor: Article 3.4 of the Anti-Dumping Agreement:

53. The European Communities argues that the obligation under Article 3.4 of the Anti-Dumping Agreement to consider each of the factors listed in that provision is distinct from other obligations under the Anti-Dumping Agreement to disclose or publish information about an investigating authority's consideration of a particular factor. In the present case, the Panel found that the examination of "growth" was "implicit" in that it was carried out in the course of examining other factors, which examination was clearly evident in the record (including in the Provisional Regulation). In the European Communities' view, allowing the implicit examination of a factor avoids a formalistic approach to Article 3.4, without rendering ineffective the substantive requirement that each factor be examined. Moreover, according to the European Communities, there is no rule in Article 17.6(i) of the Anti-Dumping Agreement or elsewhere in the covered agreements that prevents panels from determining whether a factor was properly evaluated on the basis of the evaluation of other factors. The European Communities submits that such a determination is therefore within the discretion of the Panel.

7. Causality: Article 3.5 of the Anti-Dumping Agreement

54. The European Communities argues that the high cost of production of the European Communities industry, relative to the Brazilian industry, was not raised as a causal factor before the investigating authorities, and therefore, it was not "known" to the investigating authorities in that context. The European Communities notes that the factors that the Panel described as being known to the investigating authorities in the context of the dumping and injury analyses were the alleged differences in cost of production and market perception between "white" and "black heart" variants of the product under investigation. As the Panel reported, the European Commission had determined during the investigation that the difference in cost of production was minimal and, therefore, such difference could not have been a causal factor. The European Communities submits that this determination by the European Commission is an issue of fact and, therefore, not within the Appellate Body's jurisdiction. Finally, the European Communities argues, even if the difference in cost of production as described by Brazil were known to the European Commission, the investigating authorities would not have been required to consider it in a causality determination under Article 3.5, because a difference in cost of production of the product being examined is not a factor "other than dumped imports".

55. The European Communities asserts that Brazil's arguments regarding the European Communities' methodology of analyzing each causal factor only individually are not properly before the Appellate Body because Brazil did not argue before the Panel that the European Commission failed to consider the collective effect of the "other factors". Therefore, the European Communities submits, in so far as the Panel's finding involved a legal interpretation of the obligations of investigating authorities in regard to the collective effect of "other factors", the Appellate Body should declare it to be of no effect as this was not an issue in dispute. Similarly, the European Communities argues that the Appellate Body should also declare any factual findings of the Panel on this issue irrelevant to the determination.

56. Notwithstanding its objection as to the admissibility of Brazil's claim on this issue, the European Communities agrees with the Panel's finding that the European Commission's consideration of all the possible causal factors satisfied the requirements of Article 3.5. According to the European Communities, Brazil fails to recognize that an injury can have two causes, each of which would have been sufficient to cause the injury. Therefore, the European Communities claims that the requirement of a collective examination would serve no further purpose in ensuring that a sufficient causal link existed between dumped imports and injury. The European Communities further notes that Article 3.5 specifies no methodology for an investigating authority's causality analysis, as the Appellate Body recognized in US - Hot-Rolled Steel.39 In requiring an examination of the collective impact of other factors, Brazil is extending the legal requirements of Article 3.5 beyond the limits determined by the Appellate Body, and is effectively prescribing the particular methods and approaches that investigating authorities must adopt.


To continue with C. Arguments of the Third Participants


1WT/DS219/R, 7 March 2003.

2Panel Report, para. 2.2.

3Commission Regulation (EC) No 449/2000 of 28 February 2000, imposing a provisional anti-dumping duty on imports of malleable cast iron tube or pipe fittings originating in Brazil, the Czech Republic, Japan, the People's Republic of China, the Republic of Korea and Thailand and accepting an undertaking offered by an exporting producer in the Czech Republic, published in the Official Journal of the European Communities, 29 February 2000, L-series, No. 55 ("Provisional Regulation").

4Council Regulation (EC) No 1784/2000 of 11 August 2000, imposing a definitive anti-dumping duty and collecting definitively the provisional duty imposed on imports of certain malleable cast iron tube or pipe fittings originating in Brazil, the Czech Republic, Japan, the People's Republic of China, the Republic of Korea and Thailand, published in the Official Journal of the European Communities, 18 August 2000, L-series, No. 208 ("Definitive Regulation").

5WT/DS219/1, 9 January 2001.

6WT/DS219/2, 8 June 2001.

7Panel Report, paras. 2.1-2.7.

8Ibid., para. 3.1 and footnote 15 thereto.

9Ibid., para. 8.1(a).

10Panel Report, para. 8.8.

11The issues appealed by Brazil are set forth in its Notice of Appeal, WT/DS219/7, 29 April 2003, which is attached as Annex 1 to this Report.

12Pursuant to Rule 21(1) of the Working Procedures.

13Pursuant to Rule 22(1) of the Working Procedures.

14Pursuant to Rule 24(1) of the Working Procedures.

15Pursuant to Rule 24(2) of the Working Procedures.

16Brazil's appellant's submission, para. 58. (original emphasis)

17Brazil's appellant's submission, para. 83.

18Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331; 8 International Legal Materials 679.

19Brazil's appellant's submission, para. 105.

20Ibid., para. 113.

21In its Notice of Appeal, Brazil also claimed that the Panel had breached its obligations under Article 11 of the DSU because of its reliance on the presumption of good faith. (Notice of Appeal, p. 3, attached as Annex 1 to this Report) During the oral hearing, however, Brazil clarified that it was not pursuing its claim under Article 11. (Brazil's response to questioning at the oral hearing) Brazil also states that, to the extent that the Panel failed to examine properly the contemporaneous character of Exhibit EC-12, the Panel did not examine the matter based upon "the facts made available in conformity with appropriate domestic procedures to the authorities of the importing Member", in accordance with Article 17.5(ii) of the Anti-Dumping Agreement.

22Brazil's appellant's submission, para. 124. See also, ibid., para. 125, quoting Panel Report, Egypt - Steel Rebar, para. 7.49.

23Ibid., para. 130.

24Ibid., paras. 129-130, quoting Appellate Body Report, US - Hot-Rolled Steel, paras. 192-193.

25Ibid., para. 146.

26Brazil's statement at the oral hearing.

27Brazil's response to questioning at the oral hearing. In Brazil's appellant's submission, it described the relevant "factor" in various ways, such as "margins analysis", the Brazilian exporter's "comparative advantage", and the Brazilian exporter's "cost efficiency". (Brazil's appellant's submission, paras. 181, 184, 198, 199, and 204)

28Brazil's statement at the oral hearing.

29Appellate Body Report, US - Hot-Rolled Steel, para. 228.

30Panel Report, para. 7.104. (original emphasis)

31Appellate Body Report, EC - Bed Linen, para. 55.

32European Communities' response to questioning at the oral hearing.

33European Communities' appellee's submission, para. 90.

34Ibid., paras. 81 and 83.

35European Communities' appellee's submission, para. 85.

36Ibid., para. 116.

37Although the European Communities disagrees with the reasoning relied upon by the Panel, it did not bring a cross-appeal on this point.

38Panel Report, Guatemala - Cement II, para. 8.238.

39Appellate Body Report, US - Hot-Rolled Steel, para. 224.