2 April 1993

37. Referring to Korea's argument that the transcript was the most important document in the administrative record, and contained the precise basis for the determination, the United States asked why if that was the case, Korea had not mentioned it till a late stage in the Panel's proceedings. Furthermore, Korea was relying on the transcript to fill in deficiencies in the KTC Determination. For example, the Determination stated nothing about which of the three bases for injury had been found by which Commissioner. Regarding threat of injury, the Determination contained essentially no findings or explanation of why, in the imminent future, imports were likely to cause injury. Moreover, while the determination of threat had to be a conclusion about future injury, the discussion in the Determination had been framed entirely in the present or past tense, e.g., the KTC's conclusions on causal link was based on the finding that "the Commission finds that the import price caused the domestic price to be suppressed and depressed". ¹¹ That the transcript was offered by Korea to establish, wholly or largely, the basis for the KTC's determination, and not simply to provide an explanation or elaboration of the Determination, nor merely to clarify the Determination, was further demonstrated by Korea's own description and use of the transcript. Korea, for example, had stated before the Panel that:

Thus, it was clear that Korea offered the transcript, not the written determination, as the base document that contained the views of the KTC Commissioners; in fact, according to Korea, the Determination merely "summarized" the views set forth in the transcript. If in fact the transcript were to be used in the manner urged by Korea, i.e. as additional explanation and reasons for the determination, Korea had committed a per se violation of Article 8:5. This Article required that the notice set forth all issues of fact and law considered material by the investigating authorities, and the reasons and bases therefor. If there were other reasons or explanations, then, by necessity, all material issues had not been included in the notice. By clear implication, therefore, points that were not included in the public notice were not considered material by the investigating authorities. For all these reasons, the Panel should assess the KTC's affirmative finding's consistency with the Agreement based on the Determination itself.

38. Regarding the provision of the transcript to the interested parties, the United States asked whether the interested parties had any notice about the availability of the transcript in any form, and whether a public version of the transcript had ever been created and put on the record. Since counsel for the United States and Japanese companies subject to investigation had no access to the confidential record, presumably they had no opportunity to view the document, since Korea deemed it confidential. Moreover, there were two flaws in Korea's argument that the interested parties could have simply requested a public version of the transcript, but none had done so. First, waiting for parties to request the secret transcript was not sufficient to discharge Korea's obligations under the Agreement. Article 8:5 required public notice -- which is an affirmative act by investigating authorities -- of reasons and bases for the investigation authorities' decision, and that the reasons and bases be affirmatively forwarded to the exporting Parties and to the interested exporters. Similarly, the requirement under Article 3:4 for "demonstration" that imports were causing injury within the meaning of the Agreement implied an overt, public act by the investigating authorities, not a passive wait for someone to ask for the transcript. Second, the argument that the transcript was "publicly available" strained credulity. Korea had not asserted that the KTC had actually informed any parties that the transcript was available, or even that it had been made. Korea had not shown that its regulations provided that a public version of the transcript would be created upon request. To the contrary, Korea had strenuously argued the opposite, i.e. that it had the right to keep the transcript confidential. The way in which Korea treated the transcript in the dispute settlement proceedings also contradicted its claim that the transcript was publicly available. The fact that Korea introduced the transcript at a late stage and only after the Determination had been challenged belied the notion that the transcript would have been made available to interested parties just for the asking. In addition, a notice of the decision, with reasons therefor, had been ultimately published when anti-dumping measures were imposed. In view of that, what reason did the interested parties have to expect that the reasons for the KTC determination might, in fact, be contained in the transcript of the KTC vote?

39. The United States said that Korea was not correct in contending that the United States' position regarding the transcript would imply that the investigating authorities had to reference publicly all information, even confidential information. This was not the United States' position, and Korea's statement had confused information with reasons. Under the Agreement, confidential business information need not publicly be disclosed: Article 6:3 provided that confidential information shall not be disclosed without the permission of the person submitting it. The Agreement's treatment of confidential "information" was in stark contrast to its provisions regarding the investigating authorities' "findings", "conclusions", "reasons" and "bases". Article 8:5 specifically provided that these be made public. Furthermore, Korea had not claimed that the transcript had been withheld on grounds that it had contained confidential business information submitted by the parties. Rather, Korea had claimed that the KTC had wished to protect the identities of the individual Commissioners.

40. About not invoking Article 8:5 earlier in the proceedings, the United States said that it had not known that the transcript would be submitted by Korea; in fact, it had not even known about the existence of the transcript until after the first meeting of the Panel. The United States' raising of Article 8:5 in defence was appropriate and was done at the earliest opportunity. The United States argued that it was using Article 8:5 not as a basis for finding a violation but as a basis for directing the Panel to the relevant statement of reasons that it should consider in deciding the consistency of the KTC's determination with the Agreement. The effect of Article 8:5 was to preclude investigating authorities from justifying their actions under Article 3 on the basis of hidden or unofficial reasons. The Determination, and not the transcript, was properly the statement of reasons that the Panel had to be concerned with.

41. Korea said that the transcript had been submitted to the Panel because the United States had consistently rejected Korea's explanation of what the KTC had meant by the use of the term "import substitution". In this regard, the transcript made clear how the term was used in the Determination itself. It was evident that the Determination was a summary of the transcript, that the transcript did not contain anything new, and that the transcript merely further explained or clarified the basis for the determination as found in the Determination. The transcript was not a substitute for the Determination.

42. Korea said that the list of the record items it had provided in its first submission to the Panel had included examples of documents in the administrative record which contained the required positive evidence that supported the affirmative determination. The transcript, unlike the Determination, contained the views of Commissioners and was not a document that contained evidence. Rather, it was a discussion and evaluation of evidence contained elsewhere, and thus had not been identified in that list.

43. Korea said that the United States had not denied the fact that the parties to the investigation before the KTC had been aware that a transcript had been made. Thus, the transcript was not a secret; the contents had been kept confidential, but for entirely legitimate reasons explained earlier. The main point was that the United States was asking the Panel to ignore the most fundamental document that showed how the KTC had reached its determination. Consideration of the transcript would in no way damage the Panel's deliberative process. Moreover, Korea did not believe that the Panel had the authority to ignore a document in the administrative record that directly bore upon the issue before it. The Panel was obligated to examine all evidence in the KTC's administrative record, including the KTC's voting session transcript. If the Panel disregarded the transcript, it would be acting illegally because it could not ignore selected portions of the administrative record which were relevant and material to the basis for the KTC's determination.

III.3 Alleged Use of a Presumption of "Import Substitution"

(a) "Import substitution" and a consideration of the developments regarding import volume

44. The United States argued that the Determination failed meaningfully to examine or consider the large decline in the volume of imports, due to the KTC's reliance upon a presumption or theory of "import substitution", i.e. the KTC had presumed that it was normal or inevitable that goods produced by domestic producers would replace imports. By relying on this presumption, the KTC had not conducted an objective examination based upon positive evidence required under Article 3:1. For evidence to be "positive" in the context of Article 3:1, it must be based upon specific facts of record that tended to support the conclusion reached, rather than upon theoretical possibilities, assumptions, mere assertions, or speculation. In this sense, "positive" was similar to "real".

45. The United States said that the Determination had explicitly referenced the "import substitution" concept in two key places, namely at the beginning of the injury discussion (i.e. as a starting point of its analysis), and later when assessing a causal link. The Determination had stated that

Thus, the concept of import substitution had occupied a central place in the Determination, and the KTC had relied on the concept of "import substitution" to discount the sharp decline in import volumes. The presumption of "import substitution" used by the KTC had no factual basis in the investigation record and was therefore unsupported by positive evidence. Moreover, an objective examination cannot be squared with the biased view that it is normal or inevitable that imports will be substituted by domestic production. The reliance on the presumption of "import substitution" had meant that certain factors, such as the volume of imports, for which the Agreement mandated consideration, had not been given meaningful consideration. This was inconsistent with the Article 3:1 requirement that

46. Furthermore, the United States said that the "import substitution" theory had also formed the basis for the KTC's analysis of the volume of imports under Articles 3:2, 3:3 and 3:4 of the Agreement, and thus an objective examination based on positive evidence had not been carried out with regard to these provisions of the Agreement. The requisite consideration of whether there had been a substantial increase in dumped imports had not been carried out. Moreover, in the absence of findings based on an import substitution presumption, there was no evidence that could support an affirmative determination.

47. Korea argued that the United States had incorrectly interpreted the term "import substitution" used in the Determination. This term did not denote the use of any theory or presumption by the KTC. It was a shorthand way of expressing the unique market situation in the PAR case, i.e. if there was a new domestic firm entering a market in which there were no quality differences between its products and the dumped imports, the new entrant would necessarily acquire additional sales and market share so long as it was willing to engage in price competition with existing foreign competitors. The use of the term "import substitution" was thus merely a description of what had happened, and was not a method of analyzing or presuming anything under the Agreement.

48. Korea also said that "positive evidence" did not require some mathematical quantum of proof, but rather, required findings based on specific facts and not on theories, assumptions, or assertions. Thus, in this case, the Panel had to decide whether the evidence which the KTC had relied upon was "positive evidence", i.e. real evidence or real facts, which had supported the conclusions reached. The transcript and the other documents on record showed that the KTC determination was based on "positive evidence" and had involved an objective examination. The KTC had evidence of (1) an undeniable deterioration in the petitioner's financial condition during the period of investigation, (2) respondents' willingness to engage in fierce price competition to retain market share, (3) evidence of huge margins of dumping, (4) price underselling by imports leading to price depression and suppression, (5) continuing enormous spare capacity maintained by respondents sufficient to capture the entire Korean market, and (6) a demonstrated willingness to again capture that market. Giving some background to the competition in the PAR sector, Korea said that since the original development of PAR by DuPont in 1960, the worldwide market for PAR had been controlled by a five-company oligopoly consisting of DuPont, Celanese, Hoechst, Asahi and Mitsubishi. Korea argued that by declining to transfer their technology and by maintaining low prices in selected countries, the oligopoly was able to maintain its dominance, and that this was particularly true in Korea till Dong Yang Nylon was able to enter into a 50-50 joint venture arrangement with Mitsubishi in 1987 to form a new company, i.e. KEP, for the purpose of constructing and operating a PAR production facility in Korea; Mitsubishi transferred its technology to KEP.

49. Korea stated that the Agreement did not require a significant increase in the volume of imports in order to make an affirmative determination. The Agreement required that the volume of imports and the market share trends be considered. These factors were relevant and material to the KTC's evaluation of the condition of the domestic industry, and the Determination made clear that the KTC had considered these factors in its evaluation, but had decided that in the situation of a new entrant they would not be the basis for a negative determination. The critical factor in the KTC's evaluation of the volume effect of dumped imports was set forth on page 9 of the Determination, where the KTC had expressly recognized that "dumped imports continued to account for a substantial share of the domestic market ... [and therefore that] imports continued to have a real impact on the domestic price." These conclusions were positive evidence of the KTC's consideration of the volume of imports and subsequent conclusion that, regardless of the trend, they had a materially injurious effect on KEP's prices. The large dumping margins of the imports, the competition in the market being mainly in terms of price competition, and the intense price competition between dumped imports and domestic products which resulted in a substantial decline in prices, were seen as adequate basis for finding injury under the Agreement. Had the KEP not made the decision to compete on a price basis, the respondents in this case would have continued to enjoy complete control of the Korean market. The KTC might have evaluated the situation differently if the respondents had not themselves continued to engage in price competition with KEP. If the Panel adopted the United States' position that the decline in import volume and market share prevented consideration of all of the other factors which were deemed positive evidence, it would be doing precisely what the Agreement prohibited. Article 3:2 stated that no single factor, including the factor of decreased or increased import volume, could necessarily give decisive guidance.

50. Korea also pointed out that the USITC itself had made an affirmative finding in a case where a new domestic producer had gathered market share at the expense of dumped imports. In that case, the USITC had found that it was "expected" that a new domestic entrant would acquire market share at the expense of imports. ¹² In this case, the affirmative finding by the KTC had been made for a similar situation, and the term "import substitution" denoted the "expected" situation of a new domestic entrant having had acquired market share at the expense of imports.

51. The United States said that Korea had not denied that it would be a violation of the Agreement if the KTC had used the concept of import substitution as the United States had described. Korea had argued that the KTC had used "import substitution" to describe a fact. Thus, the Panel's task was to consider whether the Korean explanation was valid. An examination of the facts showed that it was not so. By the very terms of the Determination, the concept of import substitution had occupied a central place in the Determination.

52. The United States said that there was nothing in the Determination that supported Korea's argument that the term "import substitution" expressed nothing more than the fact that the domestic industry was entering a market that was traditionally dominated by imports and that, in such circumstances, some decrease in imports volume was expected. Korea's post hoc explanation was not plausible because reliance on "import substitution" by the KTC permitted it to give little or no weight to (1) an increase in KEP's market share from less than 1 per cent to 60 per cent, (2) corresponding increases in KEP's production, shipments, and employment, and (3) matching decreases in the volume and market share of imports, all in a little over one year. Thus, the facts of the case revealed much more than simply some decrease in import volume as a result of entry of a new producer into the market, or some decrease in domestic market share and shipments.

53. Furthermore, the United States said that "import substitution" was not a term that had arbitrarily and unexpectedly appeared in the Determination, with no particular significance attached to it. Traditionally, the theory of import substitution had been used to describe an economic strategy that envisioned systematic and intentional replacement of imported goods with domestic production, and the KTC's reference to "import substitution" had to be understood in that context. The KTC's reliance on "import substitution" was particularly significant in view of Korea's own programs for promoting domestic production of goods that were traditionally imported. The United States also mentioned that the Korean Government had an import substitution programme dating back to the 1970s. In the present time the Korean Government had prepared a "localization list" which, according to the GATT Report of the Trade Policy Review of Korea, "lends financial support for import substitution". Funds under the localization programme had been made available to domestic firms which were seeking to develop items on this list. For a description of these policies the United States referred to the Report of the Trade Policy Review of Korea. ¹³ This list had provided special emphasis to "components and electric and electronic products", and PAR fitted in that category. Similarly, the Korean delegation had explained that the unwillingness of foreign PAR producers to transfer technology to Korean interests represented a "special circumstance" relevant to the KTC's determination in this case.

54. Regarding the reference by Korea to the USITC decision which showed that the United States' authorities had recognized the possibility of an affirmative finding even when imports had declined as a result of the entry of a new domestic producer, the United States said that the decisions of the United States' authorities were not at issue in these Panel proceedings. The United States also pointed out that the facts were different in the case mentioned by Korea. ¹⁴ In that case, although the domestic producer had gained some market share during the period leading to the determination, at the time of the determination the sole domestic producer's operations had been completely shut down, due in large part to the effects of the subject imports from Japan.

55. Further, the United States clarified that it was not contending that any decline in the volume of imports automatically required a negative determination. Rather, it was emphasising that import volume occupied a central place in an analysis of injury under the Agreement: Articles 3:1 and 3:2 of the Agreement mandated an objective examination of the volume of imports and a consideration of whether there had been a significant increase in imports in absolute terms or relative to production or consumption in the importing country. To the extent that import volume had declined, and the domestic producer - whether a new entrant or not - had gained market share, these factors were relevant under the Agreement. In no case, and certainly not in a case involving the severe import decline and transfer of market share as in the PAR investigation, could such events be written off as a "normal occurrence" of "import substitution". If replacement of most imports was "a normal occurrence," why was not the replacement of all imports equally expected?

56. Korea argued that the United States wanted the Panel to give decisive weight to the decline in the volumes and market shares of imports, and to disregard the KTC's analysis of pricing trends and all of the other evidence before it upon which it had relied. However, the Agreement authorized the investigating authorities to consider both volume and price trends, and expressly stated in Article 3:2 that "[n]o one or several of these factors can necessarily give decisive guidance." Thus, the investigating authorities had ample discretion under Article 3:1 to consider the "volume of dumped imports and their effect on prices" without regard to whether or not there had been a significant increase in such imports during the period of investigation. The documents on record showed beyond any doubt that the KTC had considered the effect of import volume on the petitioner, and that it had been aware of the fact that import volume had declined. The KTC had been amply justified, under the Agreement, in concluding that in the case of a new domestic entrant in the market, focus on prices rather than volumes was the reasonable method of evaluation.

57. Korea said that it was not the task of the Panel to second guess the KTC, particularly where the KTC had relied on economic factors expressly identified in the Agreement. The affirmative finding of injury in this case was due to four KTC Commissioners voting in favour of such a finding and three KTC Commissioners voting against it. Therefore, it was evident that there would be evidence which would form the basis of both a positive and a negative determination; however, the Panel's job was not to conduct a de novo investigation nor to attach its own weights to the different factors. Its job was to consider whether, under the Agreement, there was a basis for the majority decision of the KTC in favour of an affirmative finding of injury. If the Panel, in its investigation, decided to assign greater significance to some factors rather than others, it would usurp the authority of the investigating body, and the Agreement did not permit that. The standard of review which the Panel applied in this case would be critical, particularly in view of the fact that no GATT Panel had yet articulated the requirements of the positive evidence standard of review.

58. Regarding the "localization lists" mentioned by the United States, Korea stated that though the list identified over 1700 items eligible for financial support by 1990, PAR was not on that list. There was no factual support for the claim that import substitution policy had been applied to the product subject to the KTC's investigation. Also, it was well known that for some time now, Korea had followed a policy not of import substitution but of export promotion. In addition, Korea noted that the United States' resort to information which was outside the administrative record of the KTC's investigation (i.e. from a Trade Policy Review Mechanism document) was totally irrelevant to the Panel's inquiry and may not be considered by the Panel.

59. The United States said that whether or not PAR was actually on the "localization list", it appeared to be official Korean Government policy to replace imports of this type of goods with domestic production through such a list. Thus, the phrase "import substitution" was indicative of the broader context in which the KTC viewed its injury determination.

60. The United States said that it was not asking the Panel to reweigh the evidence, to make factual findings or to otherwise act as an investigating authority. Rather, it was asking the Panel to consider whether an objective examination of the evidence had been made. The issue before the Panel was not whether there was evidence "existing" in the record that could, in the abstract, support an affirmative finding. Instead, because the Agreement stated that the determination had to be "based" on positive evidence, the issue was whether what the KTC actually did was based on positive evidence, and reflected the objective examination and consideration required by the Agreement. For this, it would be necessary to examine the reasons the KTC had actually offered in its Determination.

61. The United States said that not only did the volume of imports occupy a central place in injury determinations under the Agreement, it was one of only a few factors specified by the Agreement for determining causation of injury. This suggested that the drafters of the Agreement had intended an increase in the volume of imports to be particularly relevant to the determination of causal link. Therefore, it would be highly unusual to have an affirmative determination when the volume and market share of imports were sharply declining, as in the case before the Panel. More importantly, the Agreement did not allow evidence concerning import volume to be disregarded or accorded substantially less weight based upon an analytical approach that presumed that it was "normal" or "inevitable" that imports would be replaced by domestic production. In this case, the Determination was built upon an assumption of "import substitution", which the KTC had invoked to disregard the wealth of "positive evidence" supporting a negative finding. Whether termed a presumption, assumption, theory, or market view, "import substitution" was not "positive evidence" under the Agreement.

62. Korea said that the transcript and some other documents in the record, particularly the staff memoranda which were originally attached to the agenda provided to the KTC Commissioners in advance of the voting session, furnished complete and irrefutable proof that the KTC analysis did not use any theory of "import substitution". The staff memoranda included a detailed pricing analysis, a very detailed summary of the arguments of both the petitioner and the respondents along with staff comments on those arguments, a detailed memorandum concerning the rules of anti-dumping procedures and a list of issues for consideration at each stage of the investigation. None of these documents had mentioned the import substitution theory or its appropriateness for use by the KTC. If the import substitution theory was deemed at all relevant, or potentially relevant, to the outcome of the case, one would certainly expect to have seen it referenced in one of these three documents. Moreover, any ambiguity in this regard was laid to rest by an examination of the transcript itself.

63. Korea said that the transcript identified specifically with respect to each Commissioner voting in the affirmative the rationale for, and positive evidence, supporting their votes. In the transcript, only two Commissioners had even referred to the "substitution" of domestic products for imports, but neither had made a reference to any theory or policy of "import substitution". One of the two Commissioners (identified in the transcript as "Commissioner C"), in discussing the issue of causation had stated that

This statement appeared nearly at the end of a long analysis of the evidence and arguments submitted by the two sides, and from Commissioner C's statements in the transcript it was clear that he had considered all the relevant factors identified by the Agreement and had based his decision on his evaluation of these factors. He had not even used the term "import substitution"; rather, his statement described an event which had occurred. Likewise, the other Commissioner who had referred to substitution (identified in the transcript as "Commissioner D"), had not mentioned "import substitution" in his oral remarks. Similar to Commissioner C, his written remarks ¹⁵ revealed that by the term "substitution", he was also describing an event that had occurred and was explaining why that event, in his opinion, did not require a negative determination. Thus, from the remarks of both Commissioners C and D, there was no basis to conclude that they had employed a theory which they never articulated.

64. Regarding references to the USITC practice, Korea said that these references were not irrelevant to this Panel's deliberations insofar as those precedents and authorities assisted in understanding the basis for the KTC's determination. Moreover, the United States' hypocrisy in challenging various aspects of the KTC's determination was relevant. The issue was one of the United States' position on various matters, and credibility was subject to grave doubt where the United States had criticized Korea for actions which the USITC had itself taken in various cases in the past.

65. The United States said that the absence of the term "import substitution" in the documents prepared by the KTC staff could be interpreted in another way. The issue was not the actions of the KTC staff, but of the KTC Commissioners, who were the decision makers in the investigation. The absence of an import substitution theory in the staff documents and the presence of this in the Determination itself indicated that the Commissioners had affirmatively added it to the Determination. This itself underscored the importance of the concept in the Determination.

66. Regarding Korea's arguments pertaining to the opinions of the two Commissioners in the transcript, the United States reiterated that under the Agreement, the transcript was not relevant as an explanation of the basis of the KTC decision. If the Determination was a consolidation and summary of all the four Commissioners voting in the affirmative, then the statements in the Determination had to be attributed to all the Commissioners. If that was not the case, then Korea had to explain what the Determination was. In any event, it was not proper under the Agreement for even one Commissioner to base a determination on the import substitution rationale.

67. Further, the United States said that the transcript only confirmed that the KTC Commissioners had employed a view of import substitution. For example, Commissioner C stated that "the demands supplied by the existing companies were being substituted with the new market entrant. Therefore, it is inevitable that sales volume and market share would decline" (Transcript, page 16). This analysis parallelled closely the "normal occurrence" analysis contained in the Determination. ¹⁶ Likewise, Commissioner D had also used the concept of import substitution in a manner similar to that found in the Determination. Commissioner D had written that "the decline in import volume and market share and the fact that the market is being substituted with the domestic industry are not all that important factors in an injury determination" (Transcript, page 1 of Commissioner D's written outline, emphasis added by the United States). Thus, Commissioner D had expressed his view of the extremely limited weight he had given to the import market share and volume developments in view of the expected displacement of imports by domestic production.

68. Regarding Korea's argument that the KTC's use of import substitution was harmless because the "the two Commissioners who referred to such substitution were describing an event, not analytical theory", the United States said that this emphasized form over substance. It mattered little whether the KTC's import substitution analysis was called a presumption, assumption, market view, or even a description of an event. The point was that the KTC had indicated what it expected as a "normal occurrence" in the market. Also, of all the reasons for the affirmative finding offered in the transcript, the KTC had chosen to highlight the "normal occurrence" of import substitution prominently in the written Determination released to the public. In view of the requirements of Article 8:5 that the public notice set forth the findings and conclusions considered material by the investigating authorities, this "normal" process had to be presumed to be one of the most "material" findings or conclusions reached by the KTC.

69. Moreover, the United States said that its argument in this proceeding was not dependent on the KTC's use of the specific term "import substitution". It was the KTC's embrace of an import replacement concept, rather than its use of the specific phrase "import substitution", that concerned the United States most about the Determination. Even if the term "import substitution" was nowhere mentioned in the Determination, the Determination would still express clearly KTC's view that the domestic producer's gains in market share and sales, and the decline in import volume, were "normal occurrences". It was this clear expression of what was expected in the market that was not consistent with the Agreement's requirements under Articles 3. The KTC's use of the particular phrase "import substitution" reinforced the conclusion that the KTC had employed an impermissible analysis.

70. The United States reiterated that the USITC practice was not pertinent to the Panel review. Further, it argued that Korea was incorrect in stating that the KTC Determination in this case would pass muster under the United States' law. Korea had not cited anything in United States' law that would permit the basic violations of the Agreement committed by the KTC in this case. For example, there was nothing in the United States' law that would justify failing even to state the basis upon which the determination was rendered. ¹⁷ Nor would United States' law permit the USITC to find threat of material injury, and not discuss in any way the reasons for that finding. ¹⁸ Similarly, United States' law forbade introduction of a market view -- like Korea's import substitution theory -- that substituted for analysis of specific injury factors required by the United States statutes. ¹⁹ Furthermore, under United States law, a transcript of the USITC voting session would be considered part of the administrative record, but would in no way be part of the USITC determination. On judicial review, it was the determination itself that had to either stand or fall.

71. Korea said that the United States was wrong in contending that the Determination had to be attributed to all the Commissioners. The Determination was a consolidation of the views of all four Commissioners, and not an expression of a single viewpoint in which all concurred. If the transcript showed anything, it showed that they each had approached the case from a different perspective. N° single Commissioner should be deemed to subscribe to every opinion and conclusion expressed in the written determination. Rather, the Commissioners subscribed to the result reached.

72. Korea emphasized that the KTC, like the USITC, was an independent body which was insulated from politics. The deliberations of the KTC were not, and are not, influenced by other elements of the Korean Government. With hindsight, it was unfortunate that the KTC had used the phrase "import substitution" in the written final Determination when no KTC Commissioner had used it. The Determination should have made clear that the two Commissioners who referred to such substitution were describing an event, not analytical theory. However, the transcript laid to rest all concerns on this issue.

73. Korea argued that the cornerstone of the United States' complaint was that an import substitution theory or concept had been used by the KTC in this case. The transcript showed that this was not the case, and that the Commissioners had considered all the relevant factors. Thus, the remaining arguments of the United States constituted nothing more than a disagreement with the weights which each Commissioner had assigned to various pieces of evidence. Even the argument that the large increase in sales by the domestic producer and the corresponding decline in sales by the respondents somehow proved that the KTC had used an import substitution theory or concept was nothing more than a disguised argument that the KTC had incorrectly analyzed the significance of the sales volume data. However, the evaluation of data was a matter entrusted by the Agreement to the KTC's administrative discretion and expertise.

(b) "Import substitution", price effects, and causal link

74. The United States said that the KTC's view that "import substitution" was a "normal" process was also evident with regard to its findings on the subject import volume's causal link with price effects and injury. Hence, the Determination was inconsistent with Articles 3:2 and 3:4 of the Agreement. Article 3:2 required that the investigating authorities consider

Article 3:4 required the investigating authorities to demonstrate that the dumped imports were, through the effects of dumping, causing injury within the meaning of the Agreement.

75. The United States said that to find a causal link, the KTC had to brush aside not only the absence of an increase, but a substantial decrease in subject import volume and market share over the investigation period. The subject imports had declined from 10,243 tons in 1988 to 5,821 tons in 1989, and had continued to fall during the first-quarter 1990 to only 890 tons (corresponding to an annual rate of 3,560 tons). The market share of subject imports had dwindled from about 61 per cent in 1988 to 33 per cent in 1989, and then to about 24 per cent in first-quarter 1990. Not only had there not been a "significant increase" in import volume, as required by Article 3:2, but imports had plummeted at a break-neck pace. Nevertheless, the KTC had found this not to be remarkable or noteworthy but to be a "normal occurrence" because the domestic market was "in the process of import substitution", and that "[t]he decrease in the volume of imports is an inevitable result of the fact that a new domestic producer entered the domestic market that was dominated by imports."

76. Moreover, the United States pointed out that in response to the respondents' arguments that the domestic industry had caused the decline in price levels by pricing below the subject imports, the KTC had stated in the Determination that

This view was entirely consistent with the KTC's "import substitution" theory, i.e. if price undercutting facilitated an occurrence that was "normal" or "inevitable", it could not, in the KTC's view, be counted against the domestic industry nor be viewed as a significant factor in examining price effects. However, this was inconsistent with the requirements of the Agreement under Articles 3:2.

77. The United States said that in the KTC's view, the subject imports had continued to affect prices because "the dumped imports continued to account for a substantial share of the domestic market" (Determination, page 9, emphasis added by the United States). However, it was difficult to consider how rapidly declining imports could have adversely affected domestic prices or caused injury to domestic industry. Also, the KTC had not explained how the diminishing imports could have significantly affected prices when the imports were not undercutting domestic prices. The evidence showed that the domestic industry had been the price leader and its pricing policies had been the cause of the price depression because the import prices had only responded to the prices set by the domestic industry. This was shown by the KTC's own finding that the domestic industry had captured 60 per cent of the market for a product that Korea itself had described as price-sensitive. Only by ignoring the price leadership of the domestic industry, the domestic industry's rapid movement toward a dominant market position, and the dwindling of the subject imports, could the KTC conclude that imports were responsible for negative price effects and injury to domestic industry. Moreover, the KTC's finding that it was reasonable for KEP to undercut price was also inconsistent with another of its findings that "a substantial portion of [KEP's] market share represents customers that were delegated to the domestic industry by its investors." If the domestic industry already had a substantial portion of the market, then why did the industry need to undercut prices in order to get a foothold into the market?

78. Further, the United States said that it was logical to assume that if, as here, the absolute and relative volume of imports had declined sharply, the "positive evidence" concerning price effects of imports had to be more substantial than if there had not been such a volume decline. Instead, in this case, the KTC had specifically found an absence of price undercutting and had cited little evidence in support of its conclusion that imports had caused price suppression or depression, notwithstanding their rapidly declining volume.

79. Korea said that in an industry where the product was basically fungible (i.e. imported and domestic products competed mainly on a price basis), resolving the issue of who was the price leader was not particularly helpful in evaluating the issue of causation. More significant was the fact that imports were at their particular level due to dumping and dumping had allowed the respondents to continue to decrease their prices. Given that PAR was a fungible product, even a small amount of dumped imports could have had significant impact on prices. The Determination had expressly referenced the high dumping margins and linked the resulting prices to its finding of price suppression and depression. It had mentioned that the dumped imports, even after declining, continued to account for a significant share of the market and thus continued to have a significant effect on prices. The key sentence in the Determination regarding the dumped imports being the cause of injury was "[h]owever, the fact that the dumped imports continued to account for a substantial share of the domestic market demonstrates that notwithstanding the reduction in import volumes, imports continued to have a real impact on domestic price". Also, immediately following the reference to the high dumping margins, the KTC had noted that the "imports from the three respondent companies were competing with the domestic goods", which was a reference to price competition and furnished the basis for the KTC's decision to cumulate imports from all three respondents. It was clear under the simple laws of economics that without dumping, import prices would have been higher, and most likely significantly higher. KEP's prices and resulting profits had been dragged down by the dumped imports, and under Article 3:2 of the Agreement, the enormous dumping margins in themselves furnished a sufficient "causal link" to a finding of price suppression and depression.

TO CONTINUE WITH ANTI-DUMPING DUTIES ON IMPORTS OF POLYACETAL RESINS FROM THE UNITED STATES

¹¹ Determination, page 11, emphasis added by the United States.

¹² Benzyl Paraben from Japan, Investigation No. 731-TA-462 (Final), USITC Publication 2355, page 14.

¹³ GATT /1992), Trade Policy Review: Republic of Korea, Volume I, GATT Geneva.

¹⁴ Benzyl Paraben from Japan, op. cit.

¹⁵ On page 1 of his written remarks, Commissioner D stated that "[t]he domestic industry is not in a situation where dumped imports are entering into the domestic market and increasing their market share. Rather, it is in a situation where there were no supplies from a domestic industry and a new domestic industry is entering into a market where foreign companies had controlled 100 per cent of the market. Therefore, the decline in import volume and market share and the fact that the market is being substituted with the domestic industry are not all that important factors in an injury determination."

¹⁶ The United States also said that Commissioner C had used the concept on more than one instance. On page 1 of his written remarks attached to the transcript, Commissioner C had emphasized that "this case involves a new industry which is a new entrant in import substitution merchandise" (emphasis added by the United States); later, on page 4 of his written remarks, Commissioner C had again focused on the fact that "the import volume was in the process of substitution with the domestic products".

¹⁷ The United States said that the United States Court of International Trade had stated that the USITC must not simply state the basis for its determinations, but it must explain the basis. See, for example, SCM Corp. v. United States, 487 F. Supp. 96, 108 (CIT 1980).

¹⁸ See, for example, A. Hirsch, Inc. v. United States, 729 F. Supp. 1360, 1363 (CIT 1990).

¹⁹ See, for example, Trent Tube Div. v. Avesta Sandvik Tube AB, Appeal No. 91-1173 (Fed. Cir. 1992).

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