4.303 Guatemala notes that the Ministry found that, even though Cementos Progreso dropped its prices to compete with Cruz Azul, it lost customers to the Mexican producer. Mexico is challenging this finding on the basis that the Ministry did not verify the accuracy of the evidence submitted by Cementos Progreso to substantiate its loss of customers to Cruz Azul. Guatemala submits that there is no doubt that in just six months, Cruz Azul increased its market share from 0.15% to 23.54%, and that the market share of Cementos Progreso declined from 99.85% to 75.42% over that same period. Guatemala also recalls that Mexico admits that cement from Cruz Azul was priced lower than that of Cementos Progreso. It is therefore logical to conclude that Cementos Progreso lost customers to Cruz Azul. 

4.304 Mexico recalls that, according to Guatemala, the loss of customers determined by the Ministry was based, on the one hand, on information supplied by Cementos Progreso and, on the other, on the fact that Mexican imports had increased their share of the Guatemalan market, whence the Ministry concludes that Cementos Progreso lost customers to Cruz Azul. This confirms Mexico's argument that the Ministry did not verify the accuracy of the evidence submitted by Cementos Progreso, since otherwise the Ministry would not have found it necessary to merely conclude that customers had been lost on the basis of circumstantial evidence. 

4.305 Guatemala states that it is logical to conclude that the fact that Cementos Progreso lost almost a quarter of its market in six months supports the evidence submitted by Cementos Progreso of the loss of customers to Cruz Azul. Moreover, Cruz Azul never objected to the evidence submitted by Cementos Progreso concerning the loss of customers. 

(f) Excess plant capacity in the exporting company and the situation of demand on the Mexican market 

(i) as regards available capacity at Cruz Azul, the Ministry ignored the fact that the Mexican producer manufactures several types of cement at its plant, other than the grey portland cement under investigation, and that therefore excess cement capacity cannot be treated as adequate or accurate evidence for reaching a positive determination of the existence of the threat of material injury with regard to grey portland cement; and 

(ii) as regards the likelihood of increased exports by Cruz Azul, it is clear from the preliminary determination that the Ministry arrived at this conclusion on the basis of mere conjecture, as the text does not show that any analysis was carried out based on adequate evidence of the real possibility of increased exports from Cruz Azul in the near future. Mexico recalls that under Article 3.7 of the ADP Agreement, the "change in circumstances which would create a situation in which the dumping would cause injury must be clearly foreseen and imminent", and determinations of a threat cannot be based on "allegation, conjecture or remote possibility". Furthermore, Mexico notes that imports from Cruz Azul remained stable as from January 1996. 

4.308 Mexico alleges a lack of objectivity and impartiality of the analysis made by the Ministry since, to arrive at a preliminary affirmative determination of threat of injury, it used information from the first quarter of 1996 for the purpose of determining whether the prices of the domestic producer had decreased, whereas it used information from 1994 to determine whether the Mexican construction sector was depressed, although according to the official Mexican figures for the same year (1996) the construction sector grew by approximately 23%. ¹⁰⁵  Thus, Mexico submits that the conclusion reached by the Ministry to the effect that there was the possibility of increased imports of cement from Cruz Azul was based merely on conjecture and remote possibility resting upon erroneous premises. 

4.309 Mexico concludes from the foregoing that the determination reached by the Ministry concerning the possibility of a substantial increase in exports from Cruz Azul to the Guatemalan market represents a serious violation of Article 3.7 of the ADP Agreement, and betrays the lack of seriousness, bias and subjectivity of the Ministry's analysis. 

4.310 Guatemala recalls the Ministry's observation that, on account of the high-fixed costs involved in the production of cement, the profitability of a cement producer is contingent upon maintaining high capacity utilization. Guatemala submits that, if demand contracts, new markets must be found for the product. In this case, the Mexican economy was experiencing negative growth following the devaluation of the peso in December 1994, and expenditure in the building sector had dwindled by 22%. The consulting firm Arthur D. Little Mexicana found that Cruz Azul had an excess capacity of some 360,000 tonnes. The Ministry was of the opinion that the evidence of excess capacity and depressed domestic demand supported the conclusion that there was the possibility of increased imports of cement from Cruz Azul. 

4.311 Guatemala refers to Mexico's assertion that the finding in regard to excess capacity ignores the fact that Cruz Azul manufactures several types of cement other than grey portland cement. According to Guatemala, Mexico fails to state that the same production facilities cannot be used to produce different types of cement. Therefore, affirming that Cruz Azul can produce different types of cement does not change the fact that Cruz Azul had 360,000 tonnes of excess capacity available for the production of grey portland cement. Cruz Azul could have used all of that excess capacity to produce grey portland cement for export to Guatemala. 

4.312 Guatemala notes that Cruz Azul did not provide any evidence to dispute the estimate of Arthur D. Little, or any other information to show that Cruz Azul's capacity was actually lower. Guatemala notes Mexico's argument that Cruz Azul's excess capacity of 360,000 tonnes per year (or 30,000 tonnes per month) could also have been used for sales on the Mexican market, or for exports to at least seven markets other than Guatemala. Guatemala recalls, however, that the total excess capacity could be used to produce grey portland cement for export to Guatemala and that, as Cruz Azul had gained a market share of almost 25% within a period of six months, it was highly probable that the excess capacity would, in fact, be exported to Guatemala. Guatemala also notes that Mexico argues that the Ministry should not have used information from the first quarter of 1996 for the purpose of determining whether the prices of the domestic producer had decreased while using information from the first quarter of 1994 to determine whether the Mexican construction sector was depressed. According to Guatemala, the most recent price information was clearly the most suitable for determining whether the dumped products were threatening injury to the domestic industry as a result of depressed prices. The most recent information available regarding the Mexican construction sector was for the year ending in 1995. Information on that sector for the end of 1996 did not exist. Guatemala denies Mexico's assertion that the Ministry used data for the year ending 1994. Moreover, Cruz Azul did not provide any evidence to dispute the information regarding the construction sector in Mexico in 1995. Thus, the use of this information by the Ministry is not evidence of bias or lack of objectivity. 

2. Article 3.5 

4.313 Mexico asserts that Guatemala violated Article 3.5 of the ADP Agreement by making a preliminary affirmative determination of threat of injury without demonstrating the causal link between allegedly dumped imports and the alleged threat of injury to Guatemala's domestic industry. The first sentence of Article 3.5 provides that "[i]t must be demonstrated that the dumped imports are ... causing injury ...". Mexico asserts that, despite a passing reference to the causal link in the heading of the relevant section of the preliminary determination, there is no explicit reference to the form or procedure followed by the investigating authority to illustrate that the imports under investigation were at the root of the supposed threat of injury. Even if the investigating authority believed that a causal link could be inferred from the factors set forth in the relevant section of the preliminary determination, Mexico submits that it has demonstrated that the factors relating to the increase in imports, accumulation of inventories and under-utilization of plant capacity, contracting sales, falling domestic producer prices, loss of clients and plant capacity of the exporting company were not properly examined. Without attempting to be exhaustive, Mexico recalls in this regard that the results of the preliminary determination are either incorrect for various reasons (imports), or do not refer to the product under investigation, but to an input thereof (accumulation of inventories), or are non-existent (under-utilization of plant capacity of the claimant), or result from factors other than dumping as in the case of the fall in demand (contracting sales), or have methodological flaws and refer to regional investigations or to maximum prices set by the investigating authority which in any case are meaningless (falling prices), or are based on unsubstantiated evidence submitted by the claimant (loss of customers), or are based on mere allegation, conjecture or remote possibility which have been contradicted by the facts (threat of increased imports on account of plant capacity of the exporter). Mexico submits that the Ministry has not adequately established the facts in finding that, for Cementos Progreso, the increase in imports meant a significant loss of market share, falling sales, loss of customers, a build-up of excess inventories prompting the closure of kilns, and a drop in its prices. Mexico suggests it has already shown that, although Mexican imports certainly increased their share of the Guatemalan market, there is no correlation between the trend in imports and sales of the Guatemalan product. Furthermore, Mexico states that Cementos Progreso's sales, far from declining, actually increased, as did its prices. Mexico also states that the build-up of grey clinker inventories in the period subsequent to that investigated is offset by the increase in the production of grey portland cement during the same period, and that the supposed analysis of the increase in exports to Guatemala did not take into account the fact that the Mexican construction industry recorded considerable growth in the period subsequent to that investigated, or that there existed other export markets that could have absorbed Cruz Azul's surplus installed capacity. 

4.314 Guatemala states that Article 3.5 of the ADP Agreement deals with the causal relationship in the context of determining actual material injury. Article 3.5 sets out the factors that the investigating authorities should consider in assessing whether dumped imports are currently causing injury to the domestic industry. Guatemala suggests that, because the Ministry made a preliminary determination of threat of injury, it referred to causal link within the meaning of Article 3.7 of the ADP Agreement. Article 3.7 makes express reference to causal link in the event of threat of injury. It refers to a change in circumstances which would create a situation in which "the dumping would cause injury ...". According to Guatemala, a provisional measure may be imposed if all factors considered lead to the conclusion that further dumped imports are imminent and that unless protective measures are taken, material injury would result. That was precisely the preliminary determination made by the Ministry in this case. In its final determination, however, Guatemala recalls that the Ministry referred to causal link within the meaning of Article 3.5, having ascertained that dumped imports were causing current injury. 

4.315 Guatemala asserts that, in any event the Ministry made clear reference to the causal link in point F of Section VI of the preliminary determination entitled "Threat of Injury to the Domestic Industry and Causal Link between Dumping and Threat of Injury". The Ministry found that for the domestic producer, the increase in imports had meant a significant loss of market share, falling sales, loss of customers, a build-up of excess inventories prompting the closure of kilns, and a drop in its prices. Guatemala recalls that the Ministry also found that there was a possibility of increased imports. On the basis of those findings, the Ministry concluded that it was necessary to impose a provisional measure in order to avoid injury to the domestic industry. According to Guatemala, there is no doubt therefore that the Ministry demonstrated a causal link between the dumped imports and the threat of injury.

4.316 Mexico denies that the Ministry's preliminary determination establishes any causal link between the alleged dumping and the alleged threat of injury. Mexico suggests that, in fact, there are only two references to causal link in the preliminary determination, one in the heading of section VI, F and the other in section VI, G. In the first case Mexico suggests that the reference is merely used as a heading. In the second, Mexico recalls that it is merely stated that "the facts set out in the section on the threat of injury ... show a causal relationship between the dumped imports and the injury caused to domestic industry".

4.317 Mexico submits that Guatemala disregards the text of the ADP Agreement when it argues that in the case of an investigation of threat of injury it is not necessary to make a determination of a causal link within the meaning of Article 3.5 of the ADP Agreement, since the latter applies only to investigations for present injury. In this connection, Mexico recalls footnote 9 to the heading of Article 3 of the ADP Agreement which reads: 

"Under this Agreement the term �injury' shall, unless otherwise specified, be taken to mean material injury to a domestic industry, threat of material injury to a domestic industry or ...". 

4.318 Mexico suggests that, when the ADP Agreement refers to "injury", it is actually referring to any of the three possible types of "injury" listed in footnote 9, thus undermining Guatemala's argument. The reference to "injury" in Article 3.5 does therefore apply in cases involving threat of injury. Accordingly, Mexico argues that the Ministry should have made a specific determination of the existence of a causal link between the dumped imports and the alleged threat of injury, since several of the factors relied on by the Ministry were caused by factors other than imports from Mexico. 

4.319 Guatemala notes that although the preliminary determination did not refer explicitly to Article 3.5 of the ADP Agreement, the Ministry did comply with the criteria of that provision. For example, in accordance with Article 3.5, the Ministry demonstrated a causal relationship between the dumped imports and the threat of material injury to the domestic industry on the basis of an examination of all the relevant evidence available. The Ministry found that, during the period of investigation, the demand for grey portland cement in Guatemala increased from 92,449 tonnes in June to 109,326 tonnes in November. Then, in accordance with the criteria in Article 3.5, the Ministry considered the possibility that the injury to Cementos Progreso may have been caused by a contraction in demand rather than dumped imports, but it rejected that possibility because the demand for cement was registering substantial increases on a monthly basis, except for September 1996 when there was a drop in demand as compared to August. This is normal market behaviour given that it rains in September and construction activity is reduced. Cruz Azul did not contend that any of the other factors in Article 3.5 - such as volume and prices of imports not sold at dumped prices and export performance of the domestic industry - were a cause of injury to Cementos Progreso. The evaluation of all the facts under consideration led the Ministry to the conclusion that further dumped exports were imminent, and unless protective action was taken, material injury would occur. 

E. Violations Subsequent to the Preliminary Determination 

4.320 Mexico submits that Guatemala infringed Articles 6.1, 6.2, 6.4, 6.5, 6.7, 6.8, 6.9, and Annexes I(2), I(7), I(8), II(1) of the ADP Agreement at various stages of the investigation after the preliminary determination and the imposition of a provisional measure. 

1. Extension of period of investigation 

4.321 Mexico alleges that the Ministry violated Article 6.1 and Annex II, paragraph 1, of the ADP Agreement by extending the period of investigation by six months, some nine months after publication of the decision initiating the investigation and some two months after the preliminary determination. 

4.322 Mexico recalls that the Ministry set the period of investigation as 1 June to 30 November 1995, as stated in the decision dated 4 October 1996 and in the resolution initiating the investigation published in the Official Journal on 11 January 1996, and as notified to Cruz Azul. In the provisional determination, the Ministry imposed provisional anti-dumping duties based on the information and evidence collected over the period 1 June to 30 November 1995. Mexico notes that on 4 October 1996, the Ministry extended the period of investigation to include 1 December 1995 to 31 May 1996, and this was communicated to Cruz Azul by means of the additional questionnaire which it received on 19 October 1996. In that same questionnaire, the Ministry requested Cruz Azul to submit information corresponding to both the original and extended period of investigation. 

4.323 Mexico states that in response to the decision to extend the investigation period, Cruz Azul asked the Ministry to explain the reasons and legal basis for both its decision to extend the investigation period only at this stage of the procedure, and for the content of the additional questionnaire, considering its enormous scope and complexity. These requests were submitted orally and in writing on 30 October 1996 and 12 November 1996. As the Ministry did not respond to these inquiries, and considering that the Ministry had imposed an excessive and unreasonable burden on the exporting firm, the latter was not in a position to meet the request for data concerning the extended period of investigation. Instead, Mexico argues that Cruz Azul provided a full response to the questionnaire covering the original period under investigation, (i.e. 1 June to 30 November 1995). 

4.324 Mexico submits that the ADP Agreement does not empower investigating authorities to change the investigation period, and even less so after making a preliminary determination, as this means changing the facts that were used as the basis for deciding on the appropriateness of provisional measures. Mexico submits that such extension of the investigation period infringes Article 6.1 and paragraph 1 of Annex II of the ADP Agreement, as in the resolution initiating the investigation and in the preliminary determination the Ministry had set the investigation period as 1 June to 30 November 1995. Requesting information corresponding to the additional period of investigation undermines the rights of defence and the legal guarantees that should exist in all anti-dumping investigations by virtue of the aforementioned provisions of the ADP Agreement. 

4.325 Mexico suggests that changing the investigation period is also inconsistent with the logic of the ADP Agreement, depending upon how and when it was changed. Changing the investigation period between the preliminary and final determinations could completely distort the investigation, since the basis used for determining the existence of dumping, injury or threat of injury and the causal link between dumping and injury or threat of injury might no longer be the same. Mexico suggests that, as is the case for any statistical analysis, the investigation period is of great importance for the results of the analysis. If the authority has established a period of investigation, it is inadmissible that for no reason or without any prior notice that period should be changed. Mexico asserts that an arbitrary change in the period of investigation not only runs counter to the original period of investigation established by the Ministry itself, but also puts the exporting firm at a serious disadvantage. 

4.326 According to Mexico, in the present case the problem goes beyond a simple change in the investigation period. In this case, the Ministry made a preliminary determination using partial data that extended beyond the investigation period, without making any formal change or notifying interested parties of the situation (Mexico notes from the preliminary determination that the only party to provide information for the period following the investigation period was Cementos Progreso, again highlighting the bias displayed by the Ministry in conducting the investigation). In this case, Mexico suggests that the problem is not the change itself (though this is an unorthodox situation and is not envisaged in the ADP Agreement), but the fact that without making the change formally (as it subsequently did with the final determination), the Ministry included in the preliminary determination various data (whose reliability and accuracy are questioned by Mexico) on facts that occurred after the investigation period applicable at that time.

4.327 Mexico states that the decision published by the Ministry on 4 October 1996 never mentions the legal basis for extending the investigation period. Nor is there any mention of the reasons or motives which led it to its decision, showing that the Ministry was simply responding to a request from Cementos Progreso, with the possible objective of defending the interests of the latter. Mexico submits that the fact that the Ministry extended the period of investigation without explaining or justifying its decision suggests that when issuing its preliminary determination the Ministry lacked sufficient evidence to determine the existence of the threat of injury. It therefore found itself having to extend the period of investigation in order to justify the protection of its domestic industry, albeit at the cost of violating the principles and rules laid down in Article 6.1 and Annex II of the ADP Agreement. 

4.328 Guatemala contends that Mexico's argument is without foundation, since Guatemala did not violate Article 6.1 or Annex II of the ADP Agreement by extending the investigation period. Neither Article 6.1, nor Annex II, nor any other provision in the ADP Agreement imposes any requirement on the investigating authority regarding the period to be investigated. Guatemala asserts that the appropriate investigation period will vary according to the specific case, and the establishment of the period is left to the discretion of the investigating authority. Nor does the ADP Agreement prohibit the investigating authority from using a different investigation period for the preliminary determination and the final determination. Guatemala understands that it is common practice for investigating authorities in other countries to extend the investigation period during the final phase of the investigation, to enable the final determination to be based on more up-to-date information.  ¹⁰⁶

4.329 Guatemala recalls that, in the present case, the Ministry initially established 1 June to 30 November 1995 as the investigation period. This was the period investigated for the preliminary determination. In a submission dated 18 September 1996, Cementos Progreso requested the Ministry to extend the investigation for the final determination so as to include the period from 1 January to 30 June 1996, in order to enable the final determination to be based on more recent evidence of dumping and injury. Guatemala submits that, with regard to dumping, Cementos Progreso presented evidence that the margin of dumping had increased from the period June to November 1995 examined in the preliminary investigation. Specifically, prices in Mexico had increased substantially in 1996, while export prices to Guatemala had remained unchanged. With regard to the consequent injury, Cementos Progreso stated that the massive imports in 1996 - after the preliminary investigation period of June to November 1995 - were causing it material injury. In other words, the threat of material injury identified in the request had become present material injury in 1996. 

4.330 Guatemala states that, in reply to the application by Cementos Progreso, the Ministry requested additional information for the period from 1 December 1995 to 31 May 1996. Guatemala denies that the supplement to the questionnaire requesting information for the additional period of investigation placed an excessive and unreasonable burden on Cruz Azul. According to Guatemala, Cruz Azul made no such claim at the time and did not request any extension of the deadline for responding to the questionnaire. The Ministry granted Cruz Azul, at its request, an extended period of almost two months to reply to the original questionnaire. Far from requesting an extension to respond to the supplementary questionnaire, Cruz Azul merely objected to supplying the information requested. 

4.331 Guatemala submits that there is nothing in the ADP Agreement to prevent an investigating authority from using recent information on injury that falls outside the period of investigation. Article 3.7 of the ADP Agreement applies to the determination of threat of injury and does not contain any limitations on the period of time to be covered in the information considered when taking a decision on the determination of threat of injury. Furthermore, Mexico does not cite any provision of the ADP Agreement that imposes such a time-limit. Indeed, in view of the wording of Article 3.7, Guatemala suggests that it is highly desirable that an investigating authority should use the most recent information available. 

4.332 Mexico submits that, in response to the decision to extend the investigation period, Cruz Azul asked the Ministry for an explanation of the reasons and the legal basis for its decision and of the content of the supplementary questionnaire. In view of the fact that the investigating authority did not respond to the exporter's inquiries, Cruz Azul found it impossible to comply with the request, which is why it proceeded to answer in full the parts of the questionnaire relating to only the original investigation period. According to Mexico, this shows that Cruz Azul was ready to cooperate provided that its rights were respected. Guatemala neglects to mention that the Ministry never replied to the questions raised by the exporter in connection with the supplementary questionnaire. 

4.333 Mexico stresses that, in this type of proceeding, the periods and time-limits are fundamental to enable the parties concerned to exercise their right of defence. It is therefore paradoxical that Guatemala should attempt to justify the arbitrary extension of the investigation period on the grounds that it did so in order to enable the final determination to be based on more recent evidence of dumping and injury while, at the same time, before the Panel Guatemala strongly opposes consideration of the final determination because it is outside the Panel's terms of reference. Mexico queries why Guatemala considers that in one case it is right to bring the information up-to-date while in the other there is no need to proceed in this way. 

4.334 Guatemala notes that Mexico did not provide any legal basis for its argument that the Ministry was required to state the reasons or motives which led to its decision to extend the period of investigation. Guatemala suggests that Mexico accepts that there is no provision in the ADP Agreement that prohibits the said extension. Moreover, Guatemala rejects Mexico's argument that before taking a decision to extend the period of investigation, Guatemala should have first consulted with Cruz Azul. In Guatemala's view, the decision to extend the period of investigation is up to the investigating authorities, and the claim that prior consultation is required with the exporter under investigation is totally unfounded.

2. Non-governmental experts 

4.335 Mexico asserts that the Ministry violated Article 6.7 and subparagraph 2 of Annex I of the ADP Agreement by failing to notify Mexico of its intention to verify the information supplied by Cruz Azul with "non-governmental experts", and by not communicating the exceptional circumstances that required the advice of non-governmental experts during the verification visit. 

Continue on to IV. Main Arguments of the Parties, Section 4.336

Notes:

103. Mexico recalls that Guatemala argues that the information provided by Cementos Progreso in support of its application was all that was reasonably available to it. However, Mexico suggests that if this type of study could be commissioned by the applicant halfway through the investigation, it could also have been commissioned at the beginning, which again shows the applicant's assertion concerning reasonable availability to be untrue.

104. According to Mexico, not only should this have been known to the Ministry, but even Cementos Progreso itself was aware of this because, when it decided to start on its plans for modernization, it first approached Cruz Azul in order to profit from the latter's experience.

105. Mexico submits that this data was available to the public, since it can be consulted at the Internet site of Mexico's National Institute of Statistics, Geography and Information Technology.

106. Guatemala states that Article 76 of the Mexican regulations under the Foreign Trade Act provides that "the period of investigation to which the foregoing paragraph refers may be modified at the discretion of the Ministry to cover a period which includes imports made subsequent to the commencement of the investigation". (G/ADP/N/1/MEX/1 (18 May 1995)). Guatemala notes that Mexico subsequently confirmed that "Article 76 of the Regulations empowers the investigating authority to extend the period of time of the investigation, where deemed necessary." (G/ADP/W/66 (25 October 1995)).