4.232 Guatemala contends that it complied with Articles 3.7 and 7 of the ADP Agreement in the preliminary determination of the existence of threat of injury and that Mexico's challenge to the Ministry's determination constitutes an erroneous application of the standard of review under Article 17.6(i) of the ADP Agreement, under which the Panel is not empowered to review the factual conclusions of the Ministry. 

4.233 Guatemala argues that Article 7 of the ADP Agreement establishes only limited procedural requirements for the application of provisional measures. Article 7 contemplates only a very limited preliminary investigation in which the investigating authorities, before imposing a provisional measure, are only required to give adequate and timely notice of the initiation of the investigation, and to allow the parties concerned adequate opportunities to submit information and make comments for consideration by the authorities. Guatemala suggests that the limited nature of this investigation is further demonstrated by the fact that although Article 5.10 of the ADP Agreement stipulates that the investigation must be concluded within one year after its initiation (or 18 months in special circumstances), Article 7.3 states that "[p]rovisional measures shall not be applied sooner than 60 days from the date of the initiation of the investigation". It is therefore clearly admissible to apply provisional measures immediately upon expiry of the 60 days following the initiation of the investigation. Considering that provisional measures may be imposed so early in an investigation lasting 12 or 18 months, Guatemala argues that the ADP Agreement foresees that the investigating authorities may impose such measures based on an investigation much less exhaustive and on documentary evidence much less detailed than would be needed to justify the imposition of a final measure. ⁹⁰

4.234 Mexico asserts that such an argument by Guatemala demonstrates that, for Guatemala, the fact that the ADP Agreement provides for a minimum period to elapse before provisional measures can be applied means that the measures can be applied without adhering rigorously to the corresponding provisions or by setting a relatively low standard of proof. According to Mexico, the minimum period of 60 days is only applicable in those cases in which the existence of dumping, injury or imminent threat of injury and a causal link between the two is extraordinarily clear. 

4.235 According to Guatemala, the limited requirements for a preliminary determination are further indicated by the fact that the ADP Agreement does not impose definitive standards for the preliminary determination by the investigating authorities. Article 7.1(ii) of the ADP Agreement only requires that a preliminary affirmative determination be made of dumping and consequent injury, and Article 7.1(iii) merely requires that the authorities concerned judge such measures necessary to prevent injury being caused during the investigation, without offering any additional guidance as to the nature of the decision to be taken or the sufficiency of the quality of evidence. Guatemala argues that the absence of definitive standards in the ADP Agreement concerning preliminary affirmative determinations in anti?dumping cases should be contrasted with the standard laid down in Article 6 of the Agreement on Safeguards, whereby a Member "may [only] take a provisional safeguard measure pursuant to a preliminary determination that there is clear evidence that increased imports have caused or are threatening to cause serious injury ... ". 

4.236 Guatemala submits that the panel in Brazil - Imposition of Provisional and Definitive Countervailing Duties on Milk Powder and Certain Types of Milk from the European Economic Community ⁹¹, which dealt with similar rules concerning provisional measures contained in Article 5.1 of the Tokyo Round Subsidies Code, clarified the requirements for the imposition of provisional measures. That panel found that, consistent with the Subsidies Code, a preliminary affirmative determination must be preceded by an investigation, that is, the determination "could be made only at some point in time after the initiation of an investigation, when interested signatories and interested parties have been afforded an opportunity to submit their views to the investigating authorities and to have access to the information used by the investigating authorities". ⁹² Guatemala recalls that Brazil failed to comply with these requirements by not providing the interested parties with timely and adequate notice of the initiation of the investigation and by not sending the questionnaire before making the preliminary determinations. The parties therefore had no way of making their views known or supplying information before the imposition of provisional duties by Brazil. ⁹³ This, according to Guatemala, demonstrates the limited obligations on investigating authorities during the investigation leading up to preliminary determinations, where the focus is on the exporter's right to submit information and defend its interests. 

4.237 Guatemala argues that it is not true that the resolution imposing a provisional measure was made superficially, nor is it true that the minimum period provided for by law was interpreted by Guatemala as a licence not to observe the relevant provisions of Article 7.1 of the ADP Agreement. This reference simply supports Guatemala's position that under Article 7.1(ii), the affirmative determination of dumping and consequent injury to a domestic industry that must be made by the investigating authority is only preliminary. According to Guatemala, the standard for arriving at a preliminary determination is not as strict as the standard for arriving at a final affirmative determination for the imposition of definitive duties. 

4.238 According to Guatemala, the anti-dumping investigation in issue went beyond the requirements for a preliminary determination set out in Article 7 and in the findings of the panel in Brazil - Imposition of Provisional and Definitive Countervailing Duties on Milk Powder and Certain Types of Milk from the European Economic Community. ⁹⁴ The Ministry published the decision to initiate the investigation on 11 January 1996, and notified the Government of Mexico and supplied it with a full text of the application on 22 January 1996. Once Mexico had been notified, the Ministry sent to Cruz Azul via DHL the notice of the initiation of the investigation, the full text of the application by Cementos Progreso and the questionnaire, on 26 January 1996. Cruz Azul subsequently requested and obtained an extension of the deadline for replying to the questionnaire to 17 May 1996. According to Guatemala, Cruz Azul had adequate opportunity to defend its interests. On 9 May 1996, Cruz Azul presented a lengthy submission and a partial reply to the questionnaire. Guatemala argues that the Ministry's preliminary affirmative determination of dumping and threat of material injury was made on 16 August 1996 and was published on 28 August 1996, much later than the 60-day period allowed under Article 7.3 for the application of provisional measures. Guatemala suggests that the Ministry's preliminary determination was based on a detailed analysis which reflected the views of the parties, including Cruz Azul, and examined all the proof collected in the preliminary investigation, including the information submitted by Cruz Azul. The Ministry judged the measure necessary to prevent injury being caused during the investigation. Guatemala states that it complied with Article 7.4 by applying the provisional measure for a short period, namely four months. Guatemala applied the provisional measure from 28 August to 28 December 1996 and did not impose the final measure until 17 January 1997. 

4.239 With reference to the standard of review contained in Article 17.6(i) of the ADP Agreement, Guatemala submits that there are no adequate grounds for a panel to review Mexico's objections to the preliminary determination. Mexico's objections to the affirmative determination of injury are no more than interpretations to the effect that the Ministry did not properly evaluate the importance of various pieces of evidence and therefore established the facts inaccurately. Guatemala submits that it is not the role of the Panel to make an independent evaluation of the evidence and determine whether provisional measures are justified. On the contrary, Article 17.6(i) requires the Panel to respect the sovereignty of Guatemala and the authority of the Ministry, under Guatemalan law, as the investigator in the anti-dumping procedure responsible for evaluating the relevant facts and drawing the appropriate conclusions. Under Article 17.6(i), the Panel may only "determine whether the authorities' establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective". According to Guatemala, the text of this Article leaves no doubt that the Panel may only reject the national authority's establishment of the facts in special cases where the conclusions reached by the authorities are simply not based on the evidence or there is clear proof of bias in the authoritys' evaluation of the facts. Contrary to Mexico's endeavours to get the Panel to review the Ministry's factual conclusions, Guatemala suggests that the Panel is specifically instructed, under Article 17.6(i), to respect the Ministry's conclusion and not to overturn it, even if the Panel might have reached a different conclusion based on its own assessment of the facts. 

4.240 Guatemala argues that Mexico inappropriately suggests that the Panel should make an independent evaluation of the evidence, instead of simply determining whether the Ministry's evaluation of the facts was unbiased and objective. Guatemala asserts that Mexico is really asking the Panel to make a de novo evaluation of the evidence in regard to each of the factual elements supporting the preliminary determination of the threat of injury and of material injury. 

4.241 Mexico denies that it has requested the Panel to replace the investigating authority or make a de novo investigation. The substance of Mexico's claim is that in the preliminary determination and, moreover, in relation to the initiation of the investigation, the Ministry on several occasions: 

(a) did not properly establish the facts; 

(b) did not make an unbiased and objective assessment of the facts; and 

(c) did not make an admissible interpretation of the relevant provisions of the ADP Agreement. 

4.243 With regard to the substance of Guatemala's preliminary determination, Mexico notes that the Ministry concluded that there was threat of injury on the basis of the following factors: increased imports, accumulation of inventories and under-utilization of plant capacity, contracting sales, falling prices of the domestic product, loss of clients and excess plant capacity in export companies and the situation of demand on the Mexican market. According to Mexico, it is clear from the preliminary determination that the Ministry did not properly consider any of the factors set out in Article 3.7 of the ADP Agreement, since the factors that it considered do not lead to a positive conclusion of threat of injury. 

(a) Increased imports 

 (i) the figures used by the Ministry to determine the performance of exports from Mexico are by no means accurate, as they do not take account of the existence of at least one other exporter of the product under investigation. ⁹⁶ According to Mexico, therefore, the figures used by the Ministry as pertaining to Cruz Azul are not correct and therefore should be considered as inadmissible. Otherwise - as occurred in the investigation -Cruz Azul would be treated as though accounting for 100% of imports from Mexico; 

(ii) Mexico argues that not only should the Ministry have broken down total imports to identify those corresponding exclusively to Cruz Azul, but it should also have subtracted from the total all those imports that entered by sea rather than by land, as they were not covered by the investigation; and 

(iii) according to Mexico, Cementos Progreso alleged from the time it requested the initiation of an investigation that exports from Cruz Azul were threatening to cause it material injury. Nevertheless, in the corresponding paragraph of the preliminary determination, the Ministry does not refer to any increase in the rate of exports by the company under investigation. According to Mexico, such consideration would have indicated the likelihood, based on facts rather than simply on allegations, of a substantial increase in imports, as required by Article 3.7(i) of the ADP Agreement. 

4.246 Guatemala recalls that the Ministry found that imports from Cruz Azul had increased from 140 tonnes to 25,740 tonnes between June and November 1995. Cruz Azul's market share therefore increased from 0.15% in June to 23.54% in November. According to Guatemala, this meant that the market share of Cementos Progreso fell from 99.85% to 75.42% over the same period. Contrary to Mexico's claim, in assessing the upward trend in imports the Ministry considered only imports from Cruz Azul and did not attribute imports from any other Mexican exporter to that company. 

4.247 Guatemala states that, in order to determine Cruz Azul's market share for grey portland cement, it divided its imports by apparent consumption in Guatemala for the months in question. Apparent consumption is the total of domestic shipments from Cementos Progreso and imports from all countries. The volume of imports is based on official information compiled by the Directorate-General of Customs at the request of the Ministry. The figures for domestic shipments from Cementos Progreso are taken from the replies to the original questionnaire and the supplementary questionnaire. Guatemala states that Cruz Azul did not question the accuracy of this information during the investigation, and nor did Mexico in its first written submission to the Panel. 

4.248 Mexico suggests that the percentage increase in Cruz Azul's exports may seem very high because these exports started from zero at the beginning of 1995, which is why its exports for January 1995 were so low. According to Mexico, what is important is whether these exports really affected Guatemala's domestic industry. An unbiased and objective evaluation of the facts shows that there is no negative correlation between the increase in Cruz Azul exports and Cementos Progreso production. Taking as a basis the information in the file, Mexico argues that:

 - there was a severe shortage on the Guatemalan market, as acknowledged in a letter drafted by the Ministry. Mexico notes that, as a result, Guatemala's Government Agreement No. 708-94 of 30 November 1994 reduced the customs tariff on grey portland cement to 1%; 

- in June and July 1995, both Cementos Progreso's imports and its production increased; 

- in August 1995, imports increased by 6,601 tonnes and Cementos Progreso's production fell by 22,289 tonnes, but its sales rose to a record 104,826 tonnes; 

- in September 1995, Cementos Progreso's imports, production and sales fell; 

- from October to November 1995, imports increased by 34.90%, but without any effect on Cementos Progreso's production which was maintained at approximately 78,900 tonnes, although sales increased by 4.74%; and 

- imports did not prevent Cementos Progreso from reducing its cement inventories by 62,575 tonnes during the investigation period. 

4.249 Mexico submits that, for these reasons, Guatemala should not blame Cruz Azul's exports for Cementos Progreso's loss of domestic market share. 

4.250 Guatemala repeats that the rapid increase in dumped imports from Cruz Azul and the corresponding reduction in the market share of Cementos Progreso is an appropriate indicator for establishing threat of injury. When Mexico argues that the Guatemalan cement market shows a deficit, Guatemala asks whether this is justification for a neighbouring country to engage in dumping. Reverting to the question of the correlation between Cementos Progreso's performance and Cruz Azul's participation in the Guatemalan market, Guatemala's position is that the fall in production, sales and market share of Cementos Progreso coincides with the significant increase in imports from Cruz Azul. If Cementos Progreso cannot blame exports from Cruz Azul for its loss in Guatemalan market share, who is Cementos Progreso to blame, asks Guatemala. The fact is that Cruz Azul and Cementos Progreso were the only participants in the market. Every sale gained for Cruz Azul was a sale lost for Cementos Progreso. Moreover, the final cement inventories of Cementos Progreso increased substantially during the period from June to November 1995 as compared to the same period during the previous year. 

4.251 Guatemala states that Mexico's month-to-month comparisons are misleading, because they do not take account of seasonal factors in the demand for cement in Guatemala. To eliminate distortions caused by these seasonal factors, Guatemala states that the Ministry compared the information for each month with information for the same month during successive years, and determined that during the period from January to June 1996, cement production was 14% lower than during the same period in 1995. In order to eliminate inflation-related distortions, the Ministry evaluated the sales trends on the basis of quantity instead of value. According to Guatemala, during the period September to December 1994, the volume of Cementos Progreso's sales decreased by 17% as compared with the same period in 1995. 

(b) Accumulation of inventories and under-utilization of plant capacity 

4.252 Mexico submits that Guatemala's findings regarding the alleged increase in stocks of grey clinker ⁹⁷ and the consequent shutdown of the kilns in which this raw material is produced were recorded after the period of investigation and, indeed, almost two months following the initiation of the investigation. The period of investigation set by the investigating authority spanned June to November 1995, yet, as stated by the Ministry, the facts alleged by Cementos Progreso were ascertained only on 29 February 1996. Mexico submits that it is not possible to attribute these alleged adverse effects on the domestic industry to the imports from Cruz Azul without violating Article 3.7 of the ADP Agreement, which requires affirmative preliminary determinations of threat of injury to be based on more than mere conjecture. 

4.253 Guatemala notes that Mexico does not cite any provision in the ADP Agreement which prevents the investigating authority from considering recent information. Article 3.7 of the ADP Agreement contains no such restriction. With particular reference to the analysis of the threat of injury, Guatemala suggests that it is highly desirable for the investigating authority to use as much recent information as is available. 

4.254 Mexico asserts that, pursuant to Article 3.6 of the ADP Agreement, the effect of imports is to be evaluated in relation to national output of a like product when the available data makes it possible to pinpoint such effect, based on criteria such as the production process, producer sales and profits. Mexico notes, however, that the Ministry affirmed that total imports from Mexico (not only those of Cruz Azul) had an effect on a product other than the one under investigation. Indeed, the Ministry determined that there was an accumulation of inventories of a raw material (grey clinker) which is not necessarily used in the manufacture of the product under investigation (grey portland cement), and which can be used to manufacture other products. Because these products are not "like" within the meaning of Article 2.6 of the ADP Agreement, the analysis of the build-up of inventories of this product is inconsistent with Guatemala's obligations under the ADP Agreement, particularly with Article 3.6 thereof. 

4.255 Guatemala submits that grey portland cement is produced by grinding grey portland clinker with approximately 5% of hydrated calcium sulphate and, in some cases, with varying percentages of pozzolana and/or limestone. Grinding the clinker is a minimal finishing operation. The production of clinker, a semi?finished raw material, accounts for up to 80% of the cost of producing grey portland cement. The production of clinker involves the processing of limestone and other raw materials; the materials are crushed, ground and mixed into a "raw mixture" or "kiln feed", and the mixture is heated in a rotary kiln that produces chemical reactions which convert the mixture into clinker. The production of clinker requires a large investment of capital. Grey portland clinker has only one end use: the production of grey portland cement. Guatemala states that grey clinker cannot be used to manufacture white cement and, as recorded in the file, Cementos Progreso produced only grey portland cement. Grey portland cement is a dry powder which has to be stored in watertight silos. Clinker, on the other hand, can be stored in unlimited quantities under a cover or even in the open air with no protection against the weather. Levels of cement inventories are very restricted owing to specialized storage limitations. Clinker inventory levels are not restricted by such limitations. A plant's capacity to produce cement is usually measured in terms of its capacity to produce clinker (for example, cement capacity equals clinker capacity times 1.1). In light of the foregoing: the fact that Cementos Progreso had a surplus of clinker stocks was evidence of the adverse effect of the dumped imports. In addition, the Ministry converted the clinker inventory levels into cement equivalents. In view of the fact that grinding the clinker into cement is a minimal finishing operation, the best way of indicating the current level of cement inventories is to multiply the level of clinker inventories by a factor to convert clinker into cement. Guatemala submits that this is exactly what the Ministry did. Guatemala submits that the Ministry correctly determined that 51,875 tonnes of grey clinker were equivalent to 65,665 tonnes of finished grey portland cement.

4.256 Guatemala states that in substance, the Ministry did consider the levels of Cementos Progreso's cement stocks, but it measured them using the levels of clinker stocks as the best indicator. The Ministry also considered a chart presented to the Ministry during the inspection of Cementos Progreso's plant on 29 March 1996 as evidence of the build?up of surplus stocks of cement and clinker. The chart shows the extent to which clinker stocks vary while cement stocks remain more or less constant.  

4.257 Guatemala notes that the Ministry found that the increase in imports from Cruz Azul led to a build-up of grey clinker inventories by the domestic producer, causing the latter to suspend the operation of three clinker-producing kilns (two at the La Pedrera plant and one at the San Miguel plant). Based on an analysis of sales and production data for 1993-1995, the Ministry also observed that the shutdown of the kilns took place at a time of peak demand for cement, which is normally also the period of maximum production. Guatemala recalls that a notary certified that there were 76,252 tonnes of grey clinker in stock on the day following the closure of the kilns. The Directorate of Economic Integration verified the closure of the kilns and inventories of 51,875 tonnes of grey clinker at the San Miguel plant. The estimates regarding the volume of grey clinker accumulated in Cementos Progreso's plants were confirmed by the computerized reports prepared by the firm's Production Department. As clinker is ground together with hydraulic calcium sulphate and other additives and then milled to make cement, the Ministry found that 51,875 tonnes of clinker inventories were equivalent to 65,665 tonnes of cement. Guatemala submits that Mexico's objections to the Ministry's findings are therefore unfounded. 

4.258 Mexico notes that the Ministry made no reference to inventories of cement (the subject of the investigation), despite the fact that information on cement inventories was provided by Cementos Progreso. Mexico contends that the data on cement inventories provided by Cementos Progreso do not correspond with the Ministry's figures. According to Mexico, the Ministry did not "prove" the existence of 51,875 tonnes of grey clinker but accepted as valid the estimates given by the representative of Cementos Progreso during the inspection of the plants. Assuming that the estimates were accurate, Mexico suggests that they would represent an inventory level equivalent to only half the output in March 1995, i.e. stocks for 15 days production, which is normal in the cement industry. 

4.259 Mexico asserts that the foregoing shows that the study of the facts carried out by the Ministry concerning the accumulation of inventories was also subjective and partial, in that it referred to a product which was not the one being investigated, contrary to Article 3.7(iv) of the ADP Agreement, which refers to "inventories of the product being investigated". Mexico submits that Guatemala considered that the inventories of an input (grey clinker) into the product being investigated (grey cement) were more appropriate for a preliminary determination of threat of injury than inventories of the product specified by the ADP Agreement. 

4.260 Guatemala states that the Ministry was always clear as regards the subject of the investigation and acted in full compliance with Article 3.7 of the ADP Agreement. Under that Article, the Ministry was entitled to consider a great variety of factors and decided to use the accumulation of inventories of grey clinker as a suitable indication of the accumulation of inventories because during the investigation they had become familiar with the production process, in which grey clinker is a fundamental element in the production of the product under investigation. Since Cementos Progreso produced practically no other types of grey cement, the accumulated grey clinker was relevant to an investigation on grey portland cement. Guatemala further notes that the final average stocks of cement held by Cementos Progreso increased by 85% from September-December 1994 to September-December 1995 because the imports from Cruz Azul took up shares of the market. There is no legal basis for Mexico's argument that the inventories of the product under investigation mentioned in Article 3.7(iv) relate exclusively to the exporter's inventories of the finished product (i.e. of cement), as opposed to semi-finished materials used to make the finished product. Unlike Article 3.7(ii), which specifically mentions the exporter, in the case of inventories the drafters did not make this specification. Guatemala correctly interpreted Article 3.7(iv) to refer to the inventories of domestic producers (i.e. including inventories of clinker), importers and exporters. 

4.261 Guatemala argues that under the terms of Article 3.7 of the ADP Agreement, the Ministry could consider other factors not enumerated in subparagraphs 7(i) to (iv) of Article 3. Excess clinker inventories were a valid factor to take into account in considering all of the factors relating to the threat of injury. 

4.262 Mexico states that, as of the publication of the notice of initiation on 11 January 1996, imports from Cruz Azul remained constant, a fact which was not analyzed at any stage by the Ministry and which, from the standpoint of Mexico, calls into question the causal link between the imports and the closure of the kilns. Mexico submits that this is particularly so because the Ministry, during bilateral consultations with Mexico, itself agreed that even after the closure of the kilns, Cementos Progreso continued to manufacture the product under investigation. 

4.263 Guatemala rejects Mexico's argument that imports from Cruz Azul remained constant as from January 1996, arguing that imports continued to increase and reached 45,859 tonnes in March 1996. 

4.264 Mexico submits that the increase took place during the shut-down of the Cementos Progreso kilns, so that it was due more to a shortage of supply in the Guatemalan market than to dumping. Mexico asserts that Cruz Azul's exports dropped back to previous levels (approximately 25,000 tonnes) once those kilns went back into operation. 

4.265 According to Mexico, there is no certainty that the material accumulated at the industrial plant of Cementos Progreso actually was grey clinker, as neither the notary who certified the existence of material nor the Director of Economic Integration of the Ministry who conducted the on-the-spot investigation have the technical and scientific capacity to vouch that the material they observed was in fact grey clinker, that what they saw represented a surplus of that material, and that the product in question would be used for the manufacture of the product being investigated and not for some other type of cement. 

4.266 Guatemala notes that Mexico does not suggest what other material similar to grey clinker could be stocked at a plant producing grey portland cement. Guatemala suggests that in any case, by virtue of Article 17.6(i) of the ADP Agreement, it is not the role of the Panel to assess the validity of the evidence which the Ministry considered in determining that the material examined was grey clinker.

Continue on to IV. Main Arguments of the Parties, Section 4.267

Notes:

90. According to Guatemala, Article 7.4 of the ADP Agreement, which limits the application of provisional measures "to as short a period as possible", ordinarily not exceeding four months, also supports the conclusion that the ADP Agreement requires a less exhaustive investigation for the preliminary stage than for the final stage. This provision ensures that any provisional measure which is based on documentary evidence less complete than that for a definitive anti-dumping duty, will be of limited duration only.

91. Brazil - Imposition of Provisional and Definitive Countervailing Duties on Milk Powder and Certain Types of Milk from the European Economic Community, SCM/179, adopted on 28 April 1994.

92. Ibid, para. 223.

93. Ibid, see paras. 251-53.

94. Ibid.

95. Subparagraph 2.1, section F of the preliminary determination.

96. Mexico submits that the other Mexican company that exports the product being investigated sells it exclusively to Cementos Progreso, through the import company Matinsa (a company that is related to the national producer, whose relationship with Cementos Progreso is public knowledge, this having been mentioned from the start of the investigation by several parties involved in the investigation) and the Ministry was aware of this situation from the beginning of the investigation.

97. According to Mexico, clinker is produced by incipient fusion of limestone, bauxite, hematite and silica at 1380�C, and used in the manufacture both of the product under investigation and of any other type of cement (grey, white or any other hydraulic cement).