OAS
NORTH AMERICAN FREE TRADE AGREEMENT CHAPTER 19 BINATIONAL PANEL DECISION


FINAL DECISION CASE: MEX-USA-98-1904-01


I. BACKGROUND

 

1. On August 3, 2001, this Binational Panel issued its Final Decision concerning the proceeding mentioned above. In this Decision, the Panel remanded the case to the Secretary of Economy (SE, Investigating Authority or IA) and ordered that because the IA has failed to prove threat of injury in its Revised Determination of September 20, 2000 (Revised Determination and/or First Revised Determination), the IA must either promptly terminate the anti-dumping duties imposed to the HFCS imports originating in the United States of America and refund the duties collected since the imposition of those duties; or should the IA wish to re-evaluate what basis and justification -if any- there is for its finding of threat of injury, consistent with the findings of this Panel, and in light of the multiple proceedings already completed, it proceed accordingly.

2. The original schedule to issue a new determination of 90 days, was finally extended to 112 days, that is to November 23, 2001, due to the fact that on October 23, 2001, the Investigating Authority requested from this Panel a time period extension of 22 days to issue its Remand Report and the Panel granted such extension in its Order issued on October 31, 2001.

3. Before and after the issuance of the Remand Report, the Corn Refiners Association (CRA) (November 15 and 21, 2001) and A.E. Staley (November 16 and 26, 2001) filed several motions in which they asked an explanation from the AI concerning the reasons why unauthorized persons from the Sugar Chamber (specifically the Accountant Bernardo Costes Rougon) had had access to confidential information. The Sugar Chamber answered these claims on November 19 and 27, 2001 stating that it had only had access to the confidential information of the Sugar Chamber according to the authorization granted by the IA. The IA did not answer the CRA and A.E. Staley motions.

4. This Panel considers that the prevention of the abuse of unauthorized access to confidential information is an essential part for the effective operation of the process of review established in the binational system of panels of NAFTA Chapter XIX. However, independently of the justification of sanctions against those who may be responsible for the unauthorized access to confidential information, it is a fact that the Claimants have not proven that such access has occurred nor have they proven that such access has caused them any damage or that such information has been misused. Therefore, this Panel considers it justifiable not to make any decision regarding this matter.

5. On November 22 and 27, 2001, CRA and ALMEX filed motions in which they requested the Panel to consider as a supervening precedent the WTO Dispute Resolution Body (DRB) adoption of the WTO Special Group Report Mexico-Antidumping Investigation of High Fructose Corn Syrup from the United States (WT/DS132/RW), as well as the report of the Appeal Body about Mexico’s motion concerning certain legal issues included in the Special Group report that examined the matter Mexico-Antidumping Investigation on High Fructose Corn Syrup from the United States, Article 21(5) United States Resource of the ESD AB-2001-5 (WT/DS132/AB/RW). This Panel accepts the information filed by CRA and ALMEX as supervening information for all legal effects that may be applicable.

6. On November 23, 2001, the SE filed before the Panel and all the interested parties the Remand Report. A.E. Staley (December 13, 2001), CRA (December 14 and 17, 2001) filed in opposition to the Remand Report. On December 17, 2001, ALMEX and ADM filed their Support and Adherence Testimony to the CRA motion mentioned above. The Claimants oppose the Remand Report due to a variety of reasons that are analyzed hereinafter.

7. On January 7, 2002, the SE responded to the motions of the Claimants opposing the Remand Report, and on that same date, the Sugar Chamber filed its answer to the motions against the Remand Report of the IA 1. On February 25, 2002, the Panel issued an Order in which it postponed its Remand Report Decision in order to have time to translate such decision and other documents into English. This decision is issued according to Rule 73(6) of NAFTA Article 1904 Rules of Procedure.
 

II. ISSUES BROUGHT BY THE CLAIMANTS


8. In its Final Decision of August 3, 2001, this Panel ordered the IA that because it has failed to prove threat of injury, the IA must either promptly terminate the anti-dumping duties imposed to the HFCS imports originating in the United States of America and refund the duties collected since the imposition of those duties; or should the IA wish to re-evaluate what basis and justification -if any- there is for its finding of threat of injury, consistent with the findings of this Panel, and in light of the multiple proceedings already completed, it proceed accordingly.

9. The IA alleges that its Remand Report complies with the Panel Order of August 3, 2001 and that it has re-evaluated the basis and justification of the threat of injury finding, and that there are evidences and proofs in the administrative record (Administrative Record and/or AR) that demonstrate threat of injury to the domestic industry. Therefore, the IA has decided to sustain the countervailing duties imposed on HFCS imports coming from the United States of America 2.

10. The Claimants filed their motions opposing the Remand Report for four essential reasons. First, they allege that the Determination issued by the IA on November 23, 2001 is not a Remand Report in conformity with the instructions of the Panel since the IA must have reviewed the Revised Determination of September 20, 2000 and not only its Original Determination of January 23, 1998 (Original Determination). Second, the Claimants allege that the IA presumes to base its conclusions in the Administrative Record 2 (AR2) that is not before the Panel. Third, the Claimants argue that the SE presumes to base its new determination on documents that do not form part of the AR, specifically references made to record 1912 (Record 1912) contained in paragraphs 31, 53 and 63, among others. Fourth, the Claimants consider that the analysis provided by the IA in the new Determination of November 23, 2001 is only a reiteration and repetition of the arguments used in the two previous Determinations (January 23, 1998 and September 20, 2000) and therefore, the arguments filed by the IA in the Determination of November 23, 2001 do not prove, as the arguments contained at the Revised Determination of September 20, 2000 did not prove, that the threat of injury is a direct consequence of imports. Thus, articles 39 and 42 of the Foreign Trade Code (FTC) are violated.

11. This Panel will examine and answer, under Article 238 of the Federal Fiscal Code (FFC) which is the standard of review that the Panel must apply, each of the issues filed by the Claimants.

II.A The Determination issued by the IA on November 23, 2001 is not the Remand Report in conformity with the Instructions of the Panel

12. The Claimants allege that the Determination issued by the IA on November 23, 2001 is not the Remand Report on which the IA must have analyzed the threat of injury in conformity with the Panel Decision of August 3, 2001 as may be demonstrated in the publication that the IA made of such Determination in which it states that a review of the Original Determination of January 23, 1998 is done and not a review of the Revised Determination of September 20, 2000. According to the Claimants the IA must review its Revised Determination and not limit itself to the revision of the Original Determination. Therefore, the IA did not comply with the Panel´s Order and again it opposes the Panel´s authority, as it had been done before, to review the Revised Determination of September 20, 2000.

13. By virtue of the foregoing, the Claimants consider that the Panel is not bound to examine the Remand Report and that the only thing this Panel needs in order to resolve this case is the analysis of the Arbitration Body, the prior writs and motions filed by the Claimants and the motion filed in opposition to the Remand Report.

14. On the other hand, the IA states that the title of the Remand Report comprehends what is set forth in the Notice regarding the first request of review before the Panel in which the only determination that is mentioned is the Final Determination of January 23, 1998. Such title does not imply that the IA did not take into consideration the Revised Determination of September 20, 2000.

15. This Panel considers that the determination of November 23, 2001 has the character of Remand Report as provided in NAFTA Articles 1904.8 and 1904.9 and Rule 73(1) of the Rules of Procedure since it was issued by the Investigating Authority in compliance with the Panel Decision's Order of August 3, 2001.

16. Likewise, this Panel considers that the Investigating Authority has reviewed the Revised Determination of September 20, 2000 since it has included in paragraph 12 of the "Resultandos" of the Remand Report that such Determination was issued in compliance with the final report of the SG-WTO. Further, in paragraph 189 of the Remand Report of November 23, 2001, the IA ratifies the sense of several determinations issued by the IA, and consequently it ratifies the countervailing duties imposed by such determinations, among which the Revised Determination published at the Federal Official Gazette (FOG) of September 20, 2000, is included.

17. By virtue of the foregoing, this Panel considers that the Claimants arguments are unpersuasive and do not prevail, and that they do not sustain the assertion of the Claimants that the IA continues opposing the authority of the Panel to review the Revised Determination of September 20, 2000.


II.B The IA presumes to base its conclusions in Administrative Record 2 that it is not before the Panel

18. The Claimants consider that the SE has not formally filed the AR2 before the responsible Secretariat, nor has it formally recognized that AR2 is part of the Administrative Record under the Remand Report of November 23, 2001, and due to the lack of administrative record the Panel must issue its final decision on behalf of the Claimants.

19. This Panel considers that the argument of the Claimants are not persuasive since as of April 10, 2001, the Panel issued an Order in which the IA must file the AR2 and that such Authority complied with that Order, as was recognized by the Panel in its Order of April 19, 2001, in which the Panel stated that such record has been filed.
Furthermore, it was upon the presentation of such record that the Panel granted the parties an additional opportunity to file briefs and oral arguments regarding the Revised Determination of September 20, 2000.

20. By virtue of the foregoing, this Panel will take into consideration the motions filed by the parties before the Panel during the review proceeding and the documents contained in AR and in AR2 that are before the Panel.


II.C The SE presumes to base its new determination in documents that do not form part of the AR: Specifically references made to Record 1912 contained in paragraphs 31, 53 and 63, among others.

21. The Claimants allege that the IA presumes to incorporate in to the Record documents that do not form part of the AR. Specifically Claimants refer to references made to Record 1912 contained in paragraphs 31, 53 and 63, among others of its new determination, that correspond to work product of the DGADS. This constitutes privileged information that the Panel returned to the IA and regarding which the Panel determined not to include within the AR. By virtue of the foregoing, the Claimants request the Panel to reject any reference made by the IA to such documents.

22. The IA alleges that it is not true that it presumes to incorporate documents that do not form part of the Administrative Record, and that it is valid that the Investigating Authority refers for its analysis to such documents, because such documents are part of the Administrative Record according to the Rules of Procedure. According to the IA, it is a very different situation when the documents are before the Panel and when those documents are not part of the Administrative Record, as the Claimants contend. If the Binational Panel has returned the privileged information that the IA filed, this is unrelated to the fact that such information is part of the Administrative Record, because this information was listed in the administrative record index.

23. This Panel considers important to state that the issue of the inclusion or non inclusion of Record 1912 within the AR was extensively analyzed by this Panel under the provisions of the Rules of Procedure and it decided to reject inclusion of this material in the AR. It is particularly important to point out that this rejection, as demonstrated in paragraphs 108 through 121 of the Final Decision of the Panel of August 3, 2001, was done after the refusal of the IA to renounce the privilege claimed relating to all the parties as set forth in Rule 41(4) of the Rules of Procedure, and that no party requested the disclosure of such privileged information.

24. The IA alleges fundamentally that one thing is that a document is before the Panel and other thing is that such document is not part of the AR and the fact that the Panel had returned the proprietary information does not mean that such information is not part of the AR. This Panel does not agree with this interpretation from the IA because misconstrue the Administrative Record concept and the meaning of “review on the record” in this proceeding. Review on the record means that the parties and Panel have before them the body of material that provided the basis for the determination of the IA. The role of the Panel is not to make new findings, but to determine if the findings of the IA are supported by the record under the relevant law, and solicit the arguments of all of the parties, grounded in the record, on that question.

25. The IA made a strategic or policy decision at the outset of this proceeding to attempt to bring before the Panel information that the IA would not make available to the Claimants. This Panel rejected that effort as indicated above (paragraph 23). This rejection means the material, for purposes of this review, legally does not exist. This review, therefore, can only be of material that is legally recognized as part of the record and available to all of the parties, regardless of its actual existence in the confidential files of the IA.

26. Therefore and by virtue of the foregoing, this Panel does not accept nor will it take into consideration any reference that the IA has made in its Remand Report to such Record 1912 as the ones found in paragraphs 31, 37, 53 and 63 as well as in paragraphs 32, 33 and 64 which relate respectively to the sources of information contained in paragraphs 31 and 63 of the same Remand Report, i.e, among others, to Record 1912. In other words, all the issues supported by such information will be considered as non demonstrable.


II.D The analysis provided by the IA in the new Determination of November 23, 2001 is a reiteration and repetition of the arguments used in the two previous Determinations (January 23, 1998 and September 20, 2000) and, therefore, the arguments filed by the IA in the Determination of November 23, 2001 do not prove, as the arguments contained in the Revised Determination of September 20, 2000 did not prove, that the threat of injury is a direct result of imports. Thus articles 39 and 42 of the FTC were violated.

27. The Claimants allege that a careful comparison of the First and Second Revised Determinations reveals that the latter is not a new analysis about the legal grounds and reasoning for its decision concluding that there exists a threat of injury to the domestic production caused by HFCS imports according to the Panel's instructions. According to the Claimants, the IA in its Second Revised Determination only includes a section of additional background in paragraphs 1-28 and some new paragraphs, i.e., paragraphs 55-57 and 163-165, that have repeated textually and with some changes in the edits, the First Revised Determination in paragraphs 29-54, 58-162 and 166-188,inclusive. According to the Claimants, the new paragraphs 55-57 and 163-165 simply repeat information and analysis that has been included in the First Revised Determination.

28. According to the Claimants, the similarities between the text of the Remand Report and the First Revised Determination clearly demonstrate that the IA continues violating the AA (Antidumping Agreement), FTC, Foreign Trade Code Regulation (FTCR) and Federal Fiscal Code (FFC) and as a consequence, the IA has newly determined a threat of injury with legal grounds and facts, conclusions and analysis that this Panel and the SG-WTO and its Appellation Body have determined constitute a violation of the international obligations of Mexico, and that this Panel in particular has found constitute a violation of its domestic legislation.

29. The IA considers that the threat of injury to domestic production was duly proven in the Remand Report of November 23, 2001, which is demonstrated by the information that forms part of this review, and that the IA timely complied with one of the two options given by the Panel in its Final Decision.

30. In order to decide the question whether the Remand Report is merely a reiteration of the arguments given by the IA in its Original and Revised Determinations and that it does not offer a new analysis, it is important to remember the insufficiencies found by this Panel in the Revised Determination, that lead the Panel to resolve that the IA had not demonstrated the threat of injury in such determination.

31. The insufficiencies that the Panel found in the Revised Determination were analyzed in detail in five sections of its Decision named:

• Imports Subject to Price Discrimination and Export Capacity, paragraphs 755-781;
• Price Analysis, paragraphs 782-794;
• Impact on the Domestic Industry, paragraphs 795-802;
• Compliance with the Antidumping Agreement, paragraphs 805-817, and
• Compliance with Mexican Law, paragraphs 818-828.

32. Following, the Panel summarizes the main deficiencies that it found in the Revised Determination in each of the following issues:


II.D.A Imports Subject to Price Discrimination and Export Capacity

33. As it was noted by this Panel in its Final Decision, paragraphs 762 and 763, the IA, in its Revised Determination, reasoned as follows in approaching the subject of future imports volumes, which is central to the question of what if any threat may have been "clearly foreseen and imminent" as of the end of 1997:

  • The alleged Restraint Agreement would permit the soda bottlers to use 350,000 tons of
    HFCS3;
  • This HFCS amount would be purchased entirely from the domestic producers4, and
  • Imported (i.e. dumped) HFCS would be purchased entirely by Mexican industries other than by the soda bottlers5.


34. This Panel found that each one of these assumptions was unsustainable by virtue of the following considerations:

35. First, the Panel found that the IA's assumption that the alleged restraint agreement would permit the soda bottlers to increase their consumption of HFCS to 350,000 tons was not sustainable6. The IA did not state in the Revised Determination where it derived the figure of 350,000 tons of HFCS that allegedly the soda bottlers would utilize7. The Panel found that total HFCS consumption in 1996 was 192,906 tons8 and the alleged restraint agreement was supposed to establish a freeze, regardless of the specific formula, that would prevent further inroads by HFCS into the soda bottling industry. The IA's assumption was directly contrary to the intent of the alleged restraint agreement, because that would allow the displacement of an additional 157,904 tons of sugar in 1997.

36. Likewise, the Panel considered that it was not reasonable for the IA to assume without further inquiry what the terms of the alleged restraint agreement were without a clear basis for doing so. Furthermore, by complying with the SG-WTO recommendation, the IA was obliged to inquire further about the existence and the terms of the alleged agreement, because the IA is, after all, an investigating agency. The IA sent out questionnaires to obtain additional facts to give basis to its Revised Determination. They could have inquired further about the restraint agreement but chose not to do so.

37. About the assumption that the 350,000 tons HFCS would be bought directly from domestic producers. This Panel found it unsustainable for the following reasons:

38. The Panel considered that the IA´s assumption that the alleged restraint agreement would permit the soda bottlers to increase their consumption of HFCS in one year from 192,906 to 350,000 tons was hard to believe. There was no basis for the IA to support what it called a "conservative scenario". Furthermore, the Panel reasoned that the purpose of the alleged restraint agreement must be understood to be protection of the sugar industry, not promotion of the domestic HFCS industry.

39. But not only that, the Panel considered that there was no reason to assume the soda bottlers could buy the amount of 350,000 tons of HFCS from domestic producers.
There was no basis to conclude that the HFCS domestic producers could produce the 350,000 tons the IA projected since domestic production of HFCS in 1996 was less than 50,000 tons, and the IA did not specify any element of the AR that allowed it to arrive at the conclusion that the production would jump seven-fold in one year9.

40. Regarding the IA's assumption that other Mexican industries, other than the soda bottlers, would buy all the HFCS imports (dumped), this Panel also considered it unsustainable because of the following reasons:

41. This Panel observed that once again without explanation and without a legal basis, the IA had assumed that Mexican industries other than the sugar bottlers would substitute imported HFCS for sugar to the maximum extent possible. These industries - candy, baked goods and others - consumed only about 77,472 tons of HFCS in 199610, but the IA had concluded that in 1997-1998 they would consume the entire volume of imported HFCS, which the IA projected to be 334,000-350,000 tons11. The Panel considered that the above estimate not only would be a startling increase in consumption of HFCS by these other industries, but it would represent a one-year increase of over 80 percent in the volume of HFCS imports - despite the loss, on the IA's assumption, of all sales to the soda bottlers, who in 1996 purchased 67 percent of the HFCS imported into Mexico12. The IA's prediction of an 80 percent increase in sales, accompanied in the same year by a loss of 67 percent of the pre-existing market, was found hard to believe.

42. The Panel also considered that the IA did not explain anywhere in its Revised Determination why these other industries would suddenly turn to HFCS in such large quantities and concluded that the absence of an explanation, of references to the AR, or even a statement of the supporting facts was not merely logically unacceptable but constituted by itself a violation of the AA's requirement of transparency in decisions. It is to be mentioned that this Panel recognized that the IA in its Revised Determination had referred to a survey it had conducted, but it was of a non-representative sample and dealt only with the maximum potential HFCS consumption, with no indication of intention to convert away from sugar. According to this Panel, the projected volume of HFCS imports were so exaggerated that the IA itself reduced the figure by an arbitrary 50%, a figure for which it furnished no factual basis.13
 

II.D.B Price Analysis

43. Regarding the impact that the volume of imports at the supposed dumped prices would have over the sugar prices, the IA's finding was derived from the assumption that the projected imports of dumped HFCS would adversely affect sugar prices.

44. During the period of investigation, although the volume of HFCS imported increased sharply, the HFCS prices increased at the same time, and sugar prices increased considerably more, both actually and relatively. Thus it could not be assumed that even a major increase in HFCS imports would necessarily depress sugar prices. Without a doubt, the Panel found that it would be surprising if a 4% factor on the market could drive the price of the remaining 96%.

45. The Panel also noted that the IA cited several tests to support its conclusion that sugar prices could be expected to decline by 9% in 1997. The "Granger causality proof" was never satisfactorily explained, nor was the data tested identified. Likewise, the IA referred to its use of simultaneous equations for a price estimate, but never explained those equations or exactly what they demonstrated.

46. Likewise, the Panel found deficiencies in the IA arguments of undervaluation and a "natural gap" between prices of sugar and HFCS and emphasized that the Mexican price data cited were admittedly "merely illustrative" and other data was from U.S. markets, where the "natural gap" ranged all the way from 11.6% to 29%, so that even if relevant to the Mexican market they conveyed no clear message. Particularly disturbing, from the Panel's viewpoint, was the fact that the IA never made it clear how it arrived at its projected 9% decline in sugar prices for 1997.

47. Finally, the Panel again reiterated the inadmissibility of the import volume projections. In particular, this Panel indicated that the IA assumption that all the HFCS imports projected increase would come from that 1.5% of the whole sweeteners market, which would amount to an exponential increase of the imports, was not explained in the Revised Determination and seemed not to be supported in the AR.


II.D.C Impact on the Domestic Industry

48. The Panel in this section analyzed the arguments of the IA contained in the Revised Determination that lead the IA to conclude that there existed a threat of injury to domestic industry and found them insufficient due to the following reasons:

49. The Panel found that the analysis of the IA that had identified the threat of injury to domestic industry was not acceptable because in such analysis the IA had clearly demonstrated that notwithstanding increased imports and increased margins of underselling, the domestic industry's overall health improved, in terms of operating margins, net operating margins, return on investment, production and capacity utilization. The IA, without taking into consideration such improvement and without an adequate explanation, determined that the projected increase on HFCS imports in dumped conditions could cause a material injury to domestic industry.

50. Likewise, the Panel pointed out the lack of an adequate explanation by the IA regarding why increased imports in 1997 would cause injury to the domestic industry health when the existing increases in the previous year, in 1996, in fact did not cause such injury. Furthermore, the Panel rejected the causal link between HFCS imports and the sugar industry conditions concluding that there were financial problems of the domestic industry not generated by import competition.


II.D.D Compliance with the Antidumping Agreement

51. In this section the Panel pointed out the requirements of the Antidumping Agreement especially in Articles 3.1, 3.4 and 3.7 of the AA and the elements that the IA must have taken into consideration to determine the impact on domestic production of dumped imports. This Panel found that the IA had not considered those elements in its Revised Determination due to the following reasons:

52. The Panel considered that even though the Revised Determination looked at more information with respect to the condition of the domestic industry as instructed by the SG-WTO, the IA's analysis remained flawed in so far as the original rationale remain unchanged. Assuming, arguendo, that an important increased projection of HFCS imports could be made, the IA did not provide an adequate explanation as to why this would then negatively impact the domestic industry. The fact that there was an increase in imports, even in the face of declining domestic market prices, did not in and of itself necessarily lead to a clearly foreseeable imminent threat to the domestic industry, as required by Article 3.7 of the AA.


II.D.E Compliance with Mexican Law

53. In this section the Panel pointed out the requirements of the Mexican Laws for the IA to determine a threat of injury, in particular Articles 39 and 42 of the FTC and Article 68 of the FTCR. After reviewing the requirements that the IA must have complied with, the Panel concluded that the IA had not met such requirements due to the following reasons:

54. After recognizing that in the Revised Determination, the IA had taken into account other elements of Article 42 of the FTC, the Panel concluded that the projection of the supposed sudden and massive HFCS imports in 1997 was not based on facts, but was instead based on allegations, conjectures and remote possibilities. It also concluded that the AR did not support a finding that the threat of injury was a direct result of the imports.

55. Finally, the Panel considered that the IA's analysis fell short of providing a meaningful or defensible explanation as to why HFCS imports would injure or threaten to cause injury when they showed at that time an improving domestic industry. Likewise, the Panel determined that the IA had failed to show a domestic industry that was susceptible to injury that may be caused by future HFCS imports.




 

1 The Sugar Chamber in its Motion in Response to the objections to the Remand Report as was done in its briefs filed defending the Revised Determination of the IA, once again defends the conclusions of the IA referred to threat of injury based in information not referred to in the AR and that the Panel could not find anywhere in the AR. Because this reason and to other considerations oferred by this Panel in paragraph 765 to 767 of its final decision of August 2001, this Panel cannot assess any of the arguments filed by the Sugar Chamber in its motion.
2 See paragraphs 186- 189 of the Remand Report.
3 See paragraph 58 of the Revised Determination.
4 See paragraph 58 of the Revised Determination.
5 See paragraphs 56, 58, 59 and 60 of the Revised Determination.
6 See paragraphs 769, 770, 772 and 773 of the Final Decision of the Panel of August 3, 2001.
7 See paragraph 58 of the Revised Determination.
8 See paragraph 38 of the Revised Determination.
9 See paragraphs 775-777 of the Final Decision of the Panel of August 3, 2001.
10 See table 1 of paragraphs 758 and 759 of the Final Decision of the Panel of August 3, 2001.
11 Ibid.
12 See paragraph 779 ibid.
13 See paragraphs 779 and following paragraphs of the final decision of the Panel of August 3, 2001.

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