Annex 3-1 Third-Party Submission of Egypt
Annex 3-2 Third-Party Submission of Japan
Annex 3-3 Third-Party Submission of the United States
Annex 3-4 Oral Statement of Egypt at the First Meeting of the Panel
Annex 3-5 Oral Statement of Japan at the First Meeting of the Panel
Annex 3-6 Oral Statement of the United States at the First Meeting of the Panel
Annex 3-7 Responses of Egypt to Questions from the Panel and the European Communities
Annex 3-8 Responses of Japan to Questions from the Panel
Annex 3-9 Responses of the United States to Questions
from the Panel, India
and the European Communities
I INTRODUCTION
1.1 On 3 August 1998, India requested consultations with the
European Communities pursuant to Article 4 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes ("DSU"), Article XXIII of the
General Agreement on Tariffs and Trade 1994 ("GATT 1994") and Article 17 of the
Agreement on Implementation of Article VI of GATT 1994 ("AD Agreement")
regarding Commission Regulation No. 2398/97 of 28 November 1997, imposing final
anti-dumping duties on imports of cotton-type bed linen from India.1 On 17 August
1998, Pakistan requested to be joined in the consultations requested by India.2
India and the European Communities held consultations in Geneva on 18 September
1998 and 15 April 1999, but failed to reach a mutually satisfactory resolution
of the matter.
1.2 On 7 September 1999, pursuant to Article XXIII:2 of GATT
1994, Article 6 of the DSU and Article 17 of the AD Agreement, India requested
the establishment of a panel to examine the matter.3
1.3 At its meeting on 27 October 1999, the Dispute Settlement
Body ("DSB") established a Panel in accordance with India's request.4 At that
meeting, the parties to the dispute also agreed that the Panel should have
standard terms of reference. The terms of reference are, therefore, the
following:
"To examine, in the light of the relevant provisions of
the covered agreements cited by India in document WT/DS141/3, the matter
referred to the DSB by India in document WT/DS141/3, and to make such
findings as will assist the DSB in making the recommendations or in giving
the rulings provided for in those agreements".
1.4 On 12 January 2000, India requested the Director-General
to determine the composition of the Panel, pursuant to paragraph 7 of Article 8
of the DSU. This paragraph provides:
"If there is no agreement on the panelists within 20 days
after the date of the establishment of a panel, at the request of either
party, the Director-General, in consultation with the Chairman of the DSB
and the Chairman of the relevant Council or Committee, shall determine the
composition of the panel by appointing the panelists whom the
Director-General considers most appropriate in accordance with any relevant
special or additional rules or procedures of the covered agreement or
covered agreements which are at issue in the dispute, after consulting with
the parties to the dispute. The Chairman of the DSB shall inform the Members
of the composition of the panel thus formed no later than 10 days after the
date the Chairman receives such a request."
1.5 The Director-General composed the Panel as follows:
Chairman:
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Dr. Dariusz Rosati
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Members:
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Ms Marta Lemme
Mr. Paul O'Connor
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1.6 Egypt, Japan and the United States reserved their rights
to participate in the panel proceedings as third parties.
1.7 The Panel met with the parties on 10-11 May 2000 and on 6
June 2000. It met with the third parties on 11 May 2000.
II FACTUAL ASPECTS
2.1 This dispute concerns the imposition of definitive
anti-dumping duties by the European Communities on cotton-type bed linen from
India.
2.2 On 30 July 1996, the Committee of the Cotton and Allied
Textile Industries of the European Communities ("Eurocoton") � the EC federation
of national producers' associations of cotton textile products � filed an
application with the European Communities for the imposition of anti-dumping
duties on cotton-type bed linen from, inter alia, India.5
2.3 On 13 September 1996, the European Communities published
notice of the initiation of an anti-dumping investigation regarding imports of
cotton-type bed linen originating in, inter alia, India.6
2.4 The European Communities established 1 July 1995 to 30
June 1996 as the investigation period, and the investigation of dumping covered
this period. The examination of injury covered the period from 1992 up to the
end of the investigation period.
2.5 In view of the large number of Indian producers and
exporters, the European Communities conducted its analysis of dumping based on a
sample of Indian exporters. The European Communities also established a reserve
sample, to be used in the event companies in the main sample subsequently
refused to cooperate.
2.6 The European Communities established normal value based
on constructed value for all investigated Indian producers. One company, Bombay
Dyeing, was found to have representative domestic sales of cotton-type bed linen
taken as a whole. Five types comparable to those exported to the European
Communities were sold in representative quantities on the domestic market. Those
five types were found not to be sold in the ordinary course of trade. Therefore,
constructed values were calculated for all the types sold by Bombay Dyeing. For
the other investigated Indian producers, the information for SG&A and profit
used in the constructed normal value was that of Bombay Dyeing. Export price was
established by reference to the prices actually paid or payable in the EC
market. The weighted average constructed normal value by type was compared with
weighted average export price by type for the investigated Indian producers, and
a dumping margin was calculated for each such producer.
2.7 The complaint listed companies that produced bed linen in
the European Communities. The European Communities excluded certain complainant
companies. The 35 remaining companies were found to represent a major proportion
of total Community production of bed linen in the investigation period and were,
therefore, deemed to make up the Community industry.
2.8 Due to the number of companies in the Community industry,
the European Communities established a sample. This sample comprised 17 of the
35 companies in the Community industry, representing 20.7% of total Community
production and 61.6% of the production of the Community industry. The European
Communities found that the Community industry suffered declining and inadequate
profitability and price depression and, accordingly, reached the conclusion that
the Community industry had suffered material injury. The European Communities
found a direct causal link between the increased volume and the price effects of
the dumped imports and the material injury suffered by the Community industry,
demonstrated, according to the European Communities, by the existence of heavy
undercutting resulting in a significant increase in the market share of the
dumped imports and corresponding negative consequences on volumes and prices of
sales of Community producers.
2.9 The European Communities published notice of its
preliminary affirmative determination of dumping, injury and causal link on 12
June 1997. Provisional anti-dumping duties were imposed with effect from
14 June 1997.7
2.10 The European Communities continued its investigation,
received comments from interested parties, and provided an opportunity to be
heard. Parties were informed of the essential facts and considerations on the
basis of which it was intended to recommend the imposition of definitive
anti-dumping duties, and the definitive collection, at the level of these
duties, of amounts secured by provisional duties, on 3 October 1997.8 An
opportunity for further representations was subsequently provided.
2.11 Notice of the final affirmative determination was
published on 28 November 1997. Injury margins were determined to be above
the level of dumping margins in all cases, and therefore definitive anti-dumping
duties in the amount of the dumping margins determined, ranging from 2.6% to
24.7%, depending on the exporter in question, were imposed on imports of
cotton-type bed linen originating in India.9 Certain handloom products were
exempted from the application of the definitive duties, provided a certificate
of handloom origin in the required form was provided. Provisional duties were
not definitively collected.
III PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
A. INDIA
3.1 India requests that the Panel find that, by imposing
final anti-dumping duties on imports of cotton-type bed-linen from India, the
European Communities violated Articles 2.2, 2.2.2, 2.4.2, 3.1, 3.4, 3.5, 6,
6.10, 6.11, 5.3, 5.4, 15, and 12.2.1 and 12.2.2. India makes 31 separate claims
with respect to these asserted violations, as follows:
Claim 4: Inconsistency with Article 2.2, by applying the
profit amount determined for Bombay Dyeing in calculating constructed value
for other producers, even though that amount was clearly not "reasonable";
Claim 14: Inconsistency with Article 6, insofar as the
European Communities would argue that it did in fact consider all factors in
Article 3.4, by failing to disclose or make public findings thereon, which
violates the rights of defence contained in Article 6.
Claim 15: Inconsistency with Article 3.4, by relying in
the injury determination on companies outside the domestic industry, by not
consistently basing the injury determination on the chosen sample and by
relying on different "levels" of industry for different injury indices;
3.2 India's claims 2, 5, 9, 12, 17, 21, 24, 27, and 30 assert
inconsistency with Article 12.2.1 by failing properly to explain, in the
Provisional Regulation, the European Communities' reasoning regarding matters
raised in claims 1, 4, 8, 11, 16, 20, 23, 26, and 29, respectively.
3.3 India's claims 3, 6, 10, 13, 18, 22, 25, 28, and 31
assert inconsistency with Article 12.2.2 by failing properly to explain, in the
Definitive Regulation, the European Communities' reasoning regarding matters
raised in claims 1, 4, 8, 11, 16, 20, 23, 26, and 29, respectively.
3.4 India argues that, in so doing, the European Communities
has nullified and impaired benefits accruing to India under the WTO Agreement.
3.5 India further requests that the Panel recommend that the
European Communities bring its measures into conformity with its WTO obligations
and that the European Communities immediately repeal the Regulation imposing
definitive anti-dumping duties and refund anti-dumping duties paid thus far.
3.6 India also requests that the Panel issue the following
preliminary ruling:
With respect to certain documentary evidence provided
by the European Communities in Exhibit EC-4, India notes that this
document was never made available to it, or otherwise referred to, at
any stage prior to this point in time. India indicates that standing has
been a central issue throughout the anti-dumping investigation leading
to the imposition of anti-dumping duties on cotton-type bed linen from
India, despite which the European Communities has never before produced
Exhibit EC-4. India, therefore, requests that the exact status of
Exhibit EC-4 be established.
B. EUROPEAN COMMUNITIES
3.7 The European Communities requests the Panel to reject the
requests for recommendations made by India.
3.8 In its first submission, the European Communities
requests that the Panel issue the following preliminary rulings:
The European Communities objects to the inclusion in
India's first written submission of claims that were not mentioned in
its Panel request. These include claims that the European Communities
has acted inconsistently with the following provisions of the
AD Agreement: Article 1; Article 3.4, as regards the allegation that the
European Communities assumed that imports before the period of
investigation were dumped (claim 19); Article 3.6 (claim 8);
Articles 6.2, 6.4 and 6.9 (claim 14); and Articles 6.10 and 6.11
(claim 16).
The European Communities submits that India's claims
concerning alleged defects in the Provisional Regulation are beyond the
Panel's jurisdiction because (i) Article 17.4 defines the circumstances
in which a provisional measure may be referred to the DSB and India has
not contended that the Provisional Regulation fulfils the requirements
of that provision and (ii) India's claims regarding the Provisional
Regulation are moot as the Regulation expired in November 1997 and no
anti-dumping duties were collected under it. The European Communities
requests that the Panel exclude these claims from the scope of these
proceedings (claims 2, 5, 8 (in part), 9, 11 (in part), 12, 15 (in
part), 17, 19 (in part), 21, 24, 27, 29 (in part) and 30).
The European Communities requests the Panel to rule
that the verbatim reports of the consultations submitted as evidence by
India are inadmissible and will be disregarded.
The European Communities requests the Panel to rule
that the document submitted by India as Exhibit India-49 is not part of
these proceedings, because it is apparently a dumping calculation made
by the EC authorities in the course of another investigation. The
European Communities condemns the breach of confidentiality and
indicates that it is not prepared to comment on the substance of the
document.
3.9 In addition to its request for a preliminary ruling
regarding the Panel's terms of reference, the European Communities also argued
that claim 29 is largely outside the Panel's terms of reference because the
Panel request referred to EC behaviour before the Provisional Regulation.
IV ARGUMENTS OF THE PARTIES
4.1 With the agreement of the parties, the Panel has decided
that, in lieu of the traditional descriptive part of the Panel report setting
forth the arguments of the parties, the parties' submissions will be annexed in
full to the Panel report. Accordingly, the parties' first and second written
submissions and oral statements, along with their written responses to
questions, are attached at Annex 1 (India) and Annex 2 (the
European Communities). The written submissions, oral statements and responses to
questions of the third parties are attached at Annex 3.
V INTERIM REVIEW
5.1 On 31 July 2000, the Panel provided its interim report to
the parties. The parties submitted their comments on the interim report on 7
August 2000. Neither party requested that the Panel hold an interim review
meeting, and as a consequence no meeting was held.
5.2 Having reviewed the parties' comments, the Panel
corrected a typographical error in the heading of section VI.C.1, and made a
stylistic change to use the designation "European Communities". In addition, we
made the following clarifying changes: (i) to the heading of section VI.C.1, to
more accurately reflect the legal basis of the claim in question; (ii) to the
third sentence of paragraph 6.215, to reflect the nature of inconsistencies in
certain photocopied documents submitted to the Panel; and (iii) to footnote 90,
to reflect the basis of the European Communities' decision not to apply a lesser
duty. We did not make a requested change to the last sentence of paragraph
6.215, as the timing of the EC's offer to inspect documents is already set out
in paragraph 6.207, and need not be repeated.
VI FINDINGS
A. REQUESTS FOR PRELIMINARY RULINGS
6.1 In its first written submission, the European Communities
requested preliminary rulings with respect to (i) the scope of the claims before
us, (ii) certain evidence concerning the consultations presented by India in its
first submission, and (iii) certain evidence from a different anti-dumping
investigation presented by India in its first submission. India subsequently
made a preliminary request with respect to certain evidence presented by the
European Communities in its first submission. The parties provided written
responses to each others' requests for preliminary rulings prior to our first
meeting, and further arguments were made at that meeting. At the close of the
first meeting, we ruled orally on the European Communities' request to dismiss
India's claims under Article 6 of the AD Agreement, and transmitted a written
version of our oral ruling to the parties. We also ruled on the status of an
unsolicited amicus curiae submission10, and set forth our position regarding
certain of the requests for preliminary rulings on which we did not rule. The
discussion below sets forth our rulings, with additional clarification, on
requests for preliminary rulings disposed of at the first meeting, and disposes
of the remaining requests for preliminary rulings in this dispute.
1. EC request
(a) Scope of the claims before the Panel
(i) Parties' arguments
6.2 With regard to the scope of the claims before the Panel,
the EC requests, on two bases, a ruling that certain of India's claims are not
properly before the Panel.
6.3 First, the European Communities argues that certain of
the claims pursued by India in its first written submission were not mentioned
in the request for establishment, either because there is no reference to the
provision of the AD Agreement allegedly violated or the measure to which the
claim is addressed is not before the Panel, or because the basis for the claim
is different in the request from that presented in the first submission, and
thus is not clearly identified in the request. The European Communities asserts
that the following were not mentioned in the Panel request and are therefore not
within the scope of the Panel's terms of reference:
claims that the European Communities acted inconsistently
with the following provisions of the Anti-dumping Agreement:
Article 1 (Para. 7.3 of India's first submission);
Article 3.4, as regards the allegation that the
European Communities assumed that imports before the Investigation
Period were dumped (Claim 19);
Article 3.6 (Claim 8);
Article 6.2, 6.4 and 6.9 (Claim 14); and
Article 6.10 and 6.11 (Claim 16).
India�s contention (paras. 3.106 to 3.107 of India's
first submission) that the EC Basic Regulation (Exhibit India-1) is
inconsistent with Article 2.2.2 of the Anti-dumping Agreement.
6.4 With regard to these claims, the European Communities
argues that it is well established in the WTO that a complainant Member may not
introduce a claim during the course of panel proceedings that is not mentioned
or referred to in the terms of reference. In this case, the terms of reference
are standard terms of reference, referring to the Panel the "matter" set forth
in India's request for establishment. The European Communities asserts that the
request for establishment in this case does not contain, explicitly or by
reference, any mention of the claims set forth above. Regarding Article 1,
Article 3.6, and Article 6, the relevant provisions of the AD Agreement are not
even mentioned in the request. Regarding Article 3.4, a different claim is set
out in the request for establishment than is pursued in India's first
submission. Regarding the alleged inconsistency of the EC legislation with
Article 2.2.2 of the AD Agreement, the European Communities asserts that the
measure at issue in this dispute is the European Communities' final anti-dumping
duties, and not the EC Regulation. In addition, the European Communities
contends that it has been prejudiced by India's failure to clearly state which
of the multiple obligations set forth in the asserted provisions of the
AD Agreement have allegedly been violated.
6.5 With regard to Article 1 of the AD Agreement, India
acknowledges in its written response that it made no separate claims under that
provision. In India's view, Article 1 is a general provision, and a finding of
violation of Article 1 of the AD Agreement "automatically follows" from the
inconsistencies with the other Articles. India considers that Article 1 of the
AD Agreement need not be mentioned separately since the European Communities'
rights of defense were not prejudiced.
6.6 With regard to Article 3.6 of the AD Agreement, India
asserts that, since it included all of Article 3 of the AD Agreement in its
request for establishment, Article 3.6 of that Agreement is within the terms of
reference. However, India states that, in a spirit of co-operation, it does not
seek a ruling on Article 3.6.
6.7 With regard to the claims under Article 6 of the
AD Agreement, India objects to the request that they be dismissed. India
maintains that it was clear throughout the dispute settlement process, including
the request for consultations, the discussions, and the written questions during
the consultations, that India was concerned with the European Communities'
actions as regards Article 6 of the AD Agreement. Thus, India maintains, the
European Communities could not have been surprised by the claims in this regard
(claims 14 and 16), and had not been prejudiced in its ability to defend itself.
India also clarifies that claim 14 forms part of an argument in support of claim
13 (alleging inconsistency with Article 12.2.2 of the AD Agreement), which claim
was explicitly mentioned in the request for establishment.
6.8 With regard to claim 19, insofar as it concerns
Article 3.4 of the AD Agreement, India asserts that this claim was clearly
identified in paragraph 13 of the request for establishment, which mentions
Articles 3 and 3.4. India asserts that the reference to Article 3 of the
AD Agreement includes Article 3.5. Moreover, India maintains that the European
Communities had not been prejudiced in its rights of defence, citing in this
regard the European Communities first submission, paragraphs 343-350.
6.9 Second, the European Communities argues that India's
claims asserting violations in connection with the Provisional Regulation are
beyond the Panel's jurisdiction.11 In this regard, the European Communities argues
that India failed to comply with the requirements of Article 17.4 of the
AD Agreement to bring a provisional measure before the Panel, because it did not
contend or present evidence that the provisional measure had a significant
impact. In addition, the European Communities argues that the Provisional
Regulation is moot, that no duties were ever collected under that regulation,
and the measure is no longer in force. Consequently, the European Communities
argues, there is no meaningful remedy that India can obtain with respect to that
regulation - there is no measure to bring into conformity with the AD Agreement,
and no measure to withdraw. The European Communities argues that in these
circumstances, the Panel should decline to make a ruling on claims relating to
the Provisional Regulation.
6.10 India argues that it was clear that the final
anti-dumping measure was the measure at issue, but that this did not limit the
nature of the arguments and claims that could be made. India refers to EC law
and practice which provide that aspects of the Provisional Regulation are
adopted by reference in the Definitive Regulation, and asserts that this
automatically entails that aspects of the Provisional Regulation can be
challenged in the context of the final anti-dumping measures. However, India
clarified that, it being understood that this view was correct, it did not seek
a ruling on its claims 2, 5, 9, 12, 17, 21, 24, 27, and 30.
6.11 Egypt, as third party, submits that the European
Communities' argument that the Panel cannot entertain claims relating to the
Provisional Regulation is unfounded and should be rejected by the Panel. Egypt
posits that it is clear that, had India and the other countries affected by the
measure not thought that the measure was imposed in breach of the provisions of
Article 7.1 of the AD Agreement, they would not have found it necessary to
participate in these panel proceedings. It also follows, for Egypt, that if the
measure had not had any significant impact, India and other affected countries
would not have made a complaint. The very fact that they cooperated in the
investigation and provided evidence to refute the allegations means, according
to Egypt, that they were concerned about the significant impact the imposition
of anti-dumping duties would have on their bed linen industries.
(ii) Findings
6.12 At the end of the first meeting, we granted the European
Communities' request to dismiss claims under Article 6 of the AD Agreement, that
is, India's claims 14 and 16, having concluded that those claims were not within
our terms of reference. Our reasons for this decision are set forth below.
6.13 Article 6.2 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (hereinafter "DSU") provides that the
request for the establishment of a panel "shall provide a brief summary of the
legal basis of the complaint sufficient to present the problem clearly". In
considering what must be in a request for establishment in order to comply with
this provision, the Appellate Body has observed that:
"Identification of the treaty provisions claimed
to have been violated by the respondent is always necessary both for
purposes of defining the terms of reference of a panel and for informing the
respondent and the third parties of the claims made by the complainant; such
identification is a minimum prerequisite if the legal basis of the
complaint is to be presented at all."12
The Appellate Body went on to note that there might be
situations where a "mere listing" of treaty Articles would not satisfy the
standard of Article 6.2 of the DSU.13 In this case, we are not faced with the
question of whether a "mere listing" of the treaty Articles allegedly violated
is sufficient to "present the problem clearly" as required by Article 6.2 of the
DSU � rather, it is a case in which the treaty Articles alleged to be violated
are not even listed in the request for establishment - "Article 6" of the
AD Agreement does on appear on the face of the document at all. In this
circumstance, we consider that the legal basis of a complaint with respect to
that Article has not been presented at all.
6.14 India acknowledged, at our first meeting, that Article 6
of the AD Agreement did not appear on the face of its request for establishment,
characterizing this as an inadvertent omission. India argued, however, that its
claims under that Article should nonetheless be allowed, asserting that the
European Communities sustained no prejudice to its ability to defend its
interests as a result of the omission of Article 6 of the AD Agreement from the
request for establishment. In support of this contention, India points out that
its claims with respect to Article 6 were clearly set out in its first
submission, and that Article 6 of the AD Agreement was mentioned in the request
for consultations and was actually discussed during the consultations.
6.15 In our view, a failure to state a claim in even the most
minimal sense, by listing the treaty Articles alleged to be violated, cannot be
cured by reference to subsequent submissions. In this regard, we note the
statement of the Appellate Body in EC-Bananas:
"Article 6.2 of the DSU requires that the claims,
but not the arguments, must all be specified sufficiently in the
request for the establishment of a panel in order to allow the defending
party and any third parties to know the legal basis of the complaint. If a
claim is not specified in the request for the establishment of a
panel, then a faulty request cannot be subsequently "cured" by a complaining
party's argumentation in its first written submission to the panel or in any
other submission or statement made later in the panel proceeding".14
Thus, the fact that India may have fully elucidated its
position with respect to alleged violations of Article 6 of the AD Agreement in
its first written submission to the Panel avails it nothing as a legal matter.
Failure to even mention in the request for establishment the treaty
Article alleged to have been violated in our view constitutes failure to state a
claim at all.
6.16 In the absence of any reference in the request for
establishment to the treaty Article alleged to have been violated, the question
of possible prejudice as a result of failure to state a claim with sufficient
clarity simply does not arise. Moreover, we are of the view that the argument
that there was no prejudice to the European Communities because Article 6 of the
AD Agreement was mentioned in the request for consultations, and may even have
been discussed during the consultations is, in this case, irrelevant.
Consultations are part of the process of clarifying the matter in dispute
between the parties. It is perfectly understandable, and indeed desirable, that
issues discussed during consultations do not subsequently become claims in
dispute. Thus, the absence of a subject that was discussed in the consultations
from the request from establishment indicates that the complaining Member does
not intend to pursue that matter further. Whether inadvertent or not, as a
result of the omission of Article 6 from the request for establishment the
defending Member, the European Communities, and third countries had no notice
that India intended to pursue claims under Article 6 of the AD Agreement in this
case, and were entitled to rely on the conclusion that it would not do so.
Consequently, India would be estopped in any event from raising such claims.
6.17 We conclude that India failed to set forth claims under
Article 6 of the AD Agreement in its request for establishment of a panel in
this dispute. Therefore, those putative claims, that is, India's claims 14 and
16 as set forth in its first written submission, are beyond the scope of our
terms of reference. As we noted in issuing our ruling at the end of the first
meeting, this does not, of course preclude India from presenting arguments
referring to the provisions of Article 6 of the AD Agreement. However, we make
no findings on India's claims 14 and 16.
6.18 With respect to the European Communities' request
concerning India's claims regarding Article 1 of the Anti-Dumping Agreement,
India's claims regarding Article 3.6 of the Anti-Dumping Agreement, and India's
claims challenging the Provisional Regulation under Article 12.2.1, that is,
claims 2, 5, 9, 12, 17, 21, 24, 27, and 30, we took note at our first meeting of
the statements of India in its written response, and the statements of the
parties at the first meeting. In light of those statements, we did not consider
it necessary to rule on these aspects of the European Communities' request. We
noted at that time, and we reiterate here, our view that India has withdrawn
these claims. Again, of course, this does not preclude India from presenting
arguments referring to the provisions of these articles. However, as with
India's claims 14 and 16, we make no findings on these claims.
6.19 We did not, at out first meeting, resolve the European
Communities' assertion that India's claim 19 under Article 3.4 as set out in its
first submission is not the same as the claim under Article 3.4 set out in the
request for establishment. We turn to that question now.
6.20 India's request for establishment sets forth, as a
provision allegedly violated, "Article 3, especially, but not exclusively
Articles 3.1, 3.2, 3.4, and 3.5". With respect to India's claim number 19 under
Article 3.4, the European Communities acknowledges that Article 3.4 appears on
the face of the request for establishment, but argues that the facts and
circumstances described as constituting a violation of Article 3.4 in the
request for establishment are entirely different from those presented in support
of the claim in India's first written submission. Therefore, the European
Communities asserts that India failed to clearly identify this aspect of its
claim under Article 3.4, thus preventing the European Communities from properly
preparing its defense and denying third parties their right to be alerted to the
issues that are the subject of this dispute.
6.21 The request for establishment contains the following
statements in connection with Article 3.4 of the AD Agreement:
"14. The European Communities has chosen a sample from
the domestic industry, but did not consistently base its injury
determination on this sample, In addition, the European Communities has
explicitly determined that the domestic industry consists of 35 companies,
but relied in its injury determination on companies outside this group in
order to determine injury. In both cases, separately, the European
Communities acted inconsistently with Article 3.4. The European Communities'
failure to explain its determination properly is inconsistent with
Article 12.2.
15. The European Communities failed to consider all
injury factors mentioned in Article 3.4 of the ADA for its determination on
the state of the domestic industry, including productivity, return on
investments, utilisation of capacity, the magnitude of the margin of
dumping, cash flow, inventories, wages, growth, ability to raise capital or
investments. The European Communities thus acted inconsistently with
Article 3.4. As far as the European Communities would argue that it did in
fact consider all factors in Article 3.4, it failed to disclose or make
public its findings thereon and thus acted inconsistently with Article 12.2.
16. The European Communities failed to make an unbiased
and objective analysis of the development of market share of the domestic
industry and insufficiently explained its position, as required by
Article 3.4 of the ADA. As far as the European Communities would argue that
it did in fact make such analysis, it has insufficiently explained it, and
thus acted inconsistently with Article 12.2."15
6.22 The European Communities argues that India's Claim 19,
as set forth and argued in India's first submission, relates to a different
question than that specified in the request for establishment - the question of
whether the European Communities included in its examination of injury the
impact of imports that were not dumped. In the European Communities' view, this
claim cannot reasonably be identified from the request for establishment as a
claim under Article 3.4. Therefore, the European Communities argues, India's
request for establishment does not present the problem addressed in claim 19 as
set out in the first written submission clearly and is thus not within the
Panel's terms of reference. The European Communities raises no objections with
respect to the other Indian claims under Article 3.4 (Claims 11 and 15).
6.23 We note that in paragraph 13 of the request for
establishment, India does seem to have made a claim about the consideration of
all imports as dumped under Article 3.5 of the AD Agreement:
"13. Contrary to the wording of Article 3 and especially
Article 3.5 of the ADA, the European Communities automatically and without
any further explanation assumed that all imports of the product
concerned during the years immediately preceding the investigation period
were dumped. Consequently, the causality finding between imports from India
and the alleged injury caused to the domestic industry is tainted and
inconsistent with Article 3.5. The European Communities' failure to explain
this determination properly is inconsistent with Article 12.2."16
India has identified and argued this claim as claim 20 in the
first written submission, and the European Communities has no objection to this
claim.
6.24 However, it is not clear from the face of the request
for establishment that India made any claim with respect to the consideration of
all imports as dumped under Article 3.4 of the AD Agreement, as opposed
to Article 3.5 of that Agreement. Therefore, we must look more closely into the
matter to determine whether India's request for establishment provides "a brief
summary of the legal basis of the complaint sufficient to present the problem
clearly" in this regard, and therefore satisfies the standard set out in
Article 6.2 of the DSU.17 We note that it is important that a panel request be
sufficiently precise for two reasons: first, it often forms the basis for the
terms of reference of the panel pursuant to Article 7 of the DSU; and, second,
it informs the defending party and potential third parties of the legal basis of
the complaint.18
6.25 As noted above, Article 6.2 of the DSU provides, in
relevant part:
"The request for the establishment of a panel shall be
made in writing. It shall indicate whether consultations were held, identify
the specific measures at issue and provide a brief summary of the legal
basis of the complaint sufficient to present the problem clearly . . . "
We recall that the Appellate Body addressed this requirement
recently, in Korea � Dairy Safeguard.19 The Appellate Body's analysis in
that case offers guidance as to how a panel should address the issue of whether
a request for establishment provides "a brief summary of the legal basis of the
complaint sufficient to present the problem clearly" in accordance with
Article 6.2 of the DSU. First, the issue is to be resolved on a case-by-case
basis. Second, the panel must examine the request for the establishment of the
panel very carefully to ensure its compliance with both the letter and the
spirit of Article 6.2 of the DSU. Third, the panel should take into account the
nature of the particular provision at issue � i.e., where the
Articles listed establish not one single, distinct obligation, but rather
multiple obligations, the mere listing of treaty Articles may not satisfy the
standard of Article 6.2. Fourth, the panel should take into account whether the
ability of the respondent to defend itself was prejudiced, given the actual
course of the panel proceedings, by the fact that the panel request simply
listed the provisions claimed to have been violated. It seems that even if the
panel request is insufficient on its face, an allegation that the requirements
of Article 6.2 of the DSU are not met will not prevail where no prejudice is
established.
6.26 In essence, the Appellate Body seems to set a two-stage
test to determine the sufficiency of a panel request under Article 6.2 of the
DSU: first, examination of the text of the request for establishment itself, in
light of the nature of the legal provisions in question; second, an assessment
of whether the respondent has been prejudiced by the formulation of claims in
the request for establishment, given the actual course of the panel proceedings.
6.27 Applying this "two step" approach to the facts of this
case, we first consider the text of the request for establishment itself, to
determine the extent to which Article 3.4 is addressed. In this case,
Article 3.4 is explicitly listed in the request for establishment. However, we
recall that a "mere listing" may not necessarily be sufficient for the purposes
of Article 6.2 DSU. In this case, the explanation regarding Article 3.4 in the
request for establishment does not refer to or relate in any way to the argument
in the first submission concerning the consideration of all imports as dumped in
the injury analysis under Article 3.4. This raises an implication that the
request for establishment was not, in fact, sufficiently clear on this aspect of
India's claims under Article 3.4.
6.28 We therefore turn next to the question whether the
European Communities, or any of the third parties, has been prejudiced by this
lack of sufficient clarity, "given the actual course of the panel proceedings".
It is clear that the European Communities was able to respond to the Indian
arguments in this regard. Moreover, while it is possible that potential third
parties were not alerted to the fact that India intended to pursue the issue of
consideration of all imports as dumped under Article 3.4 of the
AD Agreement, it was clear from the face of the request for establishment that
India was pursuing this issue under Article 3.5 of that Agreement.
Moreover, all three third parties did address the issue of whether the European
Communities acted inconsistently with the AD Agreement in considering all
imports as dumped. In our view, this suggests a lack of prejudice to third
parties' interests in this dispute. While it is not clear whether potential
third parties understood the claim to be asserted under Article 3.4 or
Article 3.5, the substance of the issue was clearly apparent to them, and was
addressed by those Members that participated as third parties. The specific
provision of the AD Agreement alleged to have been violated is, in our view, of
less importance than the question whether the particular practice, consideration
of all imports as dumped, is permitted by the AD Agreement or not, and that
question has clearly been addressed by all parties and third parties in this
dispute, and was clearly put before us by the request for establishment.
6.29 Thus, we conclude that, in the particular circumstances
of this case, the lack of sufficient clarity in the request for establishment
concerning India's claim 19 that challenges the consideration of all imports as
dumped in the injury analysis under Article 3.4 was not prejudicial to either
the European Communities or third parties. We therefore deny the European
Communities' request to dismiss this aspect of claim 19. Of course, this is
without prejudice to our substantive decision on this claim, which is addressed
further below.
(b) Evidence regarding the substance of the consultations
(i) Parties' arguments
6.30 The European Communities also objects to the inclusion
by India in its submission of reports of the consultations between the parties
prior to the establishment of the Panel. The European Communities argues that
these were drafted by India, without the European Communities' endorsement, are
inaccurate and intrinsically unreliable, and are not evidence that can properly
be submitted to the Panel.
6.31 In its response on this point, India stressed the
"absolute accuracy of the verbatim reports" it had prepared and on which it
relied in its first submission. India acknowledged that it was unusual to
present such reports, but maintained that it was obliged to do so as these
reports bore witness to the European Communities' lack of respect for the basic
objective of the consultation process, to seek an amicable solution
(ii) Findings
6.32 At the outset, we note that India appears to acknowledge
that there is nothing new or substantive in the reports of the substance of the
consultations that is not otherwise before the Panel. India states that it is
relying on the reports of the consultations as bearing "witness to the lack of
respect on the part of the European Communities for the basic objective of the
consultation process, which is to seek an amicable solution." This latter
assertion is without relevance to either the issues in dispute (which do not
relate to the adequacy of the consultations) or the question whether the
evidence regarding the consultations should be considered by the Panel. Thus, it
seems that the evidence concerning the consultations is at best unnecessary, and
may be irrelevant. That said, however, merely because the evidence is
unnecessary or irrelevant does not require us to exclude it.
6.33 A panel is obligated by Article 11 of the DSU to conduct
"an objective assessment of the matter before it". The Panel in
Australia-Automotive Leather observed that:
"Any evidentiary rulings we make must, therefore, be
consistent with this obligation. In our view, a decision to limit the facts
and arguments that the United States may present during the course of this
proceeding to those set forth in the request for consultations would make it
difficult, if not impossible, for us to fulfill our obligation to conduct an
"objective assessment" of the matter before us."20
Similarly in this case, we consider that it is not necessary
to limit the facts and arguments India may present, even if we might consider
those facts or arguments to be irrelevant or not probative on the issues before
us. In our view, there is a significant and substantive difference between
questions concerning the admissibility of evidence, and the weight to be
accorded evidence in making our decisions. That is, we may choose to allow
parties to present evidence, but subsequently not consider that evidence,
because it is not relevant or necessary to our determinations or is not
probative on the issues before it. In our view, there is little to be gained by
expending our time and effort in ruling on points of "admissibility" of evidence
vel non.
6.34 In addition, we note that, under Article 13.2 of the
DSU, Panels have a general right to seek information "from any relevant source".
In this context, we consider that, as a general rule, panels have wide latitude
in admitting evidence in WTO dispute settlement. The DSU contains no rule that
might restrict the forms of evidence that panels may consider. Moreover,
international tribunals are generally free to admit and evaluate evidence of
every kind, and to ascribe to it the weight that they see fit. As one legal
scholar has noted:
"The inherent flexibility of the international procedure,
and its tendency to be free from technical rules of evidence applied in
municipal law, provide the "evidence" with a wider scope in international
proceedings . . . . Generally speaking, international tribunals have not
committed themselves to the restrictive rules of evidence in municipal law.
They have found it justified to receive every kind and form of evidence, and
have attached to them the probative value they deserve under the
circumstances of a given case".21
It has clearly been held in the WTO that information obtained
in consultations may be presented in subsequent panel proceedings.22
6.35 There is nothing to be accomplished by limiting the
evidence in this dispute by granting the European Communities' request, and we
therefore deny it. Moreover, we note that we have not relied on the evidence
concerning the consultations in making our decisions in this dispute. We
therefore consider that the accuracy of India's representations as to what
happened in the consultations is not relevant to our decision and we reach no
conclusions in that regard.
(c) Evidence containing confidential information from a
different investigation
(i) Parties' arguments
6.36 Finally, the European Communities notes that India's
Exhibit 49 to its first submission appears to contain a dumping calculation from
a different anti-dumping investigation than the one at issue in this dispute.
The European Communities asserts that if this is true, the submission of this
evidence constitutes a breach of confidentiality obligations in that other case,
and the European Communities is not prepared to comment on the substance of the
document. The European Communities does not argue that the information in the
Exhibit is untrue or irrelevant. Rather, the European Communities argues that
India has, or may have, violated an obligation of confidentiality regarding the
contents of Exhibit 49. The European Communities requests the Panel to rule that
the document is not part of these proceedings.
6.37 India stated that it was entitled to present the
information in question in support of its arguments, that the Panel's working
procedures required that all information submitted be kept confidential, and
that there was no breach of confidentiality, citing in this regard India's
Exhibit 81, setting forth the explicit written consent of the producer whose
information is at issue to its submission in this dispute settlement proceeding.
6.38 The United States, as third party, agrees with the
European Communities that if India's Exhibit 49 is in fact a confidential
document from another anti-dumping investigation, unless it is demonstrated that
the parties whose confidential information is contained in that document
consented to the release of that information, the submission of the document to
this panel represents a deplorable breach of confidentiality which should not be
encouraged by the Panel. However, the United States does not suggest any
specific ruling in this regard.
(ii) Findings
6.39 The issue we must decide is whether certain confidential
information which was before the European Communities in an anti-dumping
investigation unrelated to the anti-dumping measure in dispute before us can be
considered by this Panel. We note the view of the European Communities that the
submission of this information constitutes a breach of confidentiality. Although
the European Communities does not specifically so state, presumably the concern
is with the alleged unauthorised disclosure of confidential information in
violation of the last sentence of Article 6.5 of the AD Agreement. We recall,
however, that there is no claim before us that India has violated Article 6.5 of
the Agreement. Our task is limited to addressing those issues which are
necessary to resolve the European Communities' assertion that this information
is inadmissible.
6.40 We consider that an issue of the admissibility of
evidence might be presented if we had reason to believe that the party to whom
the confidential information belonged objected to its disclosure and
consideration in this dispute. However, in this case the party to whom the
information belongs and whose interests are protected by confidential treatment
has waived its rights and stated its consent to our consideration of the
information in question.23 Under these circumstances, we can perceive no useful
purpose to be served by excluding the information. That the document consenting
to the submission of the information in this proceeding is dated after the date
that the information was first submitted to us does not, in our view, change
that conclusion. We note that, in any event, the evidence in question purports
to demonstrate that the European Communities' practice concerning zeroing is not
consistently applied by the European Communities in all cases. Since the issue
before us is whether the European Communities' practice as applied in this case
is consistent with its obligations under the AD Agreement, we do not consider it
necessary to decide whether the European Communities applies that practice
consistently. If zeroing is prohibited, the European Communities has violated
its obligations under the AD Agreement in this case.24 If zeroing is allowed, then
it has not. Whether it has zeroed in some other anti-dumping investigation will
not affect our conclusions on this point. We therefore deny the European
Communities' request to rule that Exhibit 49 is not admissible in this
proceeding.
2. India request
(a) Parties' arguments
6.41 India submitted a letter objecting to Exhibit 4 to the
European Communities' first submission, and requesting a preliminary ruling
concerning the exact status of the document in question. While not stated
explicitly, it appears that India considers that this document was created
post hoc for the purposes of this dispute, and that it should not be
considered by the Panel.
6.42 The European Communities asserted that the document was
a recapitulative table of the declarations of support for the application
received prior to initiation, and did not constitute new evidence. On the
contrary, the European Communities maintained that the exhibit simply
systematised evidence that had always been available to India, and cited in this
regard to India's Exhibit 59, which the European Communities asserted contained
some of the same evidence.
(b) Findings
6.43 Article 17.5(ii) of the AD Agreement provides that a
panel shall consider a dispute under the AD Agreement "based upon: . . . the
facts made available in conformity with appropriate domestic procedures to the
authorities of the importing Member". It does not require, however, that a panel
consider those facts exclusively in the format in which they were originally
available to the investigating authority. Indeed, the very purpose of the
submissions of the parties to the Panel is to marshal the relevant facts in an
organized and comprehensible fashion in support of their arguments and to
elucidate the parties' positions. Based on our review of the information that
was before the European Communities at the time it made its decision, in
particular that presented by India in its Exhibits, the parties' extensive
argument regarding this evidence, and our findings with respect to India's claim
under Article 5.4, we conclude that the Exhibit in question does not contain new
evidence. Thus, we conclude that the form of the document, (i.e., a new
document) does not preclude us from considering its substance, which comprises
facts made available to the investigating authority during the investigation.
There is in our view no basis for excluding the document from consideration in
this proceeding, and we therefore deny India's request.
B. BURDEN OF PROOF AND STANDARD OF REVIEW
6.44 In reviewing the European Communities' final measure
imposing anti-dumping duties, which is the measure at issue in this dispute, we
keep in mind the applicable principles concerning the burden of proof, and the
standard of review in disputes involving anti-dumping proceedings. In WTO
dispute settlement proceedings, the burden of proof with respect to a particular
claim or defense rests with the party that asserts such claim or defence.25 The
burden of proof is "a procedural concept which speaks to the fair and orderly
management and disposition of a dispute".26 In the context of the present dispute,
which is concerned with the assessment of the WTO consistency of a definitive
anti-dumping measure imposed by the European Communities, India is obliged to
present a prima facie case of violation of the relevant Articles of the
AD Agreement. In this regard, the Appellate Body has stated that ". . . a
prima facie case is one which, in the absence of effective refutation
by the defending party, requires a panel, as a matter of law, to rule in favour
of the complaining party presenting the prima facie case".27 Thus, where
India presents a prima facie case in respect of a claim, it is for the
European Communities to provide an "effective refutation" of India's evidence
and arguments, by submitting its own evidence and arguments in support of the
assertion that the European Communities complied with its obligations under the
AD Agreement. Assuming evidence and arguments are presented on both sides, it is
then our task to weigh and assess that evidence and those arguments in order to
determine whether India has established that the European Communities acted
inconsistently with its obligations under the AD Agreement.
6.45 Article 17.6 of the AD Agreement sets out a special
standard of review for disputes arising under that Agreement. With regard to
factual issues, Article 17.6(i) provides:
"(i) in its assessment of the facts of the matter, the
panel shall determine whether the authorities' establishment of the facts
was proper and whether their evaluation of those facts was unbiased and
objective. If the establishment of the facts was proper and the evaluation
was unbiased and objective, even though the panel might have reached a
different conclusion, the evaluation shall not be overturned;"
Assuming that we conclude that the establishment of the facts
with regard to a particular claim in this case was proper, we then may consider
whether, based on the evidence before the EC investigating authorities at the
time of the determination, an unbiased and objective investigating authority
evaluating that evidence could have reached the conclusions that the EC
investigating authorities reached on the matter in question.28
6.46 With respect to questions of the interpretation of the
AD Agreement, Article 17.6(ii) provides:
"(ii) the panel shall interpret the relevant provisions
of the Agreement in accordance with customary rules of interpretation of
public international law. Where the panel finds that a relevant provision of
the Agreement admits of more than one permissible interpretation, the panel
shall find the authorities' measure to be in conformity with the Agreement
if it rests upon one of those permissible interpretations."
Thus, in considering those aspects of the European
Communities' determination which stand or fall depending on the interpretation
of the AD Agreement itself rather than or in addition to the analysis of facts,
we first interpret the provisions the AD Agreement. As the Appellate Body has
repeatedly stated, Panels are to consider the interpretation of the WTO
Agreements, including the AD Agreement, in accordance with the principles set
out in the Vienna Convention on the Law of Treaties (Vienna Convention).
Thus, we look to the ordinary meaning of the provision in question, in its
context, and in light of its object and purpose. Finally, we may consider the
preparatory work (the negotiating history) of the provision, should this be
necessary or appropriate in light of the conclusions we reach based on the text
of the provision. We then evaluate whether the European Communities'
interpretation is one that is "permissible" in light of the customary rules of
interpretation of international law. If so, we allow that interpretation to
stand, and unless there is error in the subsequent analysis of the facts under
that legal interpretation under the standard of review under Article 17.6(i),
the challenged action is upheld.
6.47 Finally, we note that, as a general matter, the object
of a panel's review of a final anti-dumping measure focuses on the final
determination of the investigating authority, in this case, the European
Communities' Definitive Regulation (Exhibit India-9). However, it is clear to
us, and the European Communities has confirmed, that in EC practice the
Definitive Regulation does not stand alone as the final determination. Rather,
the European Communities reaches many of its conclusions in the preliminary
phase of the investigative process, and announces those decisions in the
Provisional Regulation (Exhibit India-8). Unless there is a change in the
substance of such decisions during the final phase of the investigative process,
these decisions are often simply confirmed in the Definitive Regulation, without
repeating the underlying analysis and facts in detail, although there may be
additional facts or explanation given. Thus, to the extent we seek to understand
the European Communities' analysis and explanation concerning any given element
of its final determination in order to evaluate India's claims, we consider it
appropriate to look to both the Provisional Regulation and the Definitive
Regulation to inform ourselves as to the substance of the challenged decision.
C. CLAIMS UNDER ARTICLE 2
6.48 The European Communities, in its investigation, relied
on constructed normal value, i.e., it established the normal value on the
basis of the cost of production plus a reasonable amount for administrative,
selling and general costs (hereinafter "SG&A") and for profits. India does not
challenge this decision on the part of the EC authorities. India does, however,
challenge aspects of the European Communities' methodology for calculating the
constructed normal value. In addition, India argues that the �zeroing�
methodology the European Communities applied in comparing normal value and
export price to calculate the dumping margins is inconsistent with the
requirements of the AD Agreement.
1. Claim under Article 2.2.2 � determination of amount for
profit (claim number 1)
(a) Article 2.2.2 - order of options
(i) Parties' arguments
6.49 Articles 2.2.2(i)-(iii) set forth three separate bases
for deriving the amount of SG&A expenses and profit to be used in a constructed
value calculation. India argues that the European Communities applied
Article 2.2.2(ii), which was not available to the European Communities, instead
of Article 2.2.2(i), which was available, and that this action violates the
spirit and structure of Articles 2.2.2 and 2.2. India contends that the text of
the AD Agreement reveals a gradually declining scale in the order of options as
far as the relation with the producer is concerned. The first alternative, set
out in the chapeau of Article 2.2.2, is the �actual dumping situation� and the
fourth option (Article 2.2.2(iii)) is the �most alternative� method. Recourse to
the options provided for in Articles 2.2.2(ii) and (iii) would normally deprive
an exporter not only of the possibility of verifying the calculation of his own
dumping margin, at least in the EC system, but also of the possibility of
preventing dumping, because he would never know whether he is dumping in the
first place. Therefore, India argues, those provisions are ranked such that
their use is less available than Articles 2.2.2 and 2.2.2(i). It is India�s
position that, on the basis of the wording of Article 2.2.2, as well as the
concept of dumping, Article 2.2.2 establishes a preference for the use of
producer-specific data.
6.50 India points out that the EC legislation � Article 2(6)
of Regulation 384/96 � in fact lists the options for determining the amounts for
SG&A and for profit identified in Article 2.2 of the AD Agreement in a different
order than they appear in the Agreement. This would appear to suggest, according
to India, that the European Communities implicitly does not consider the order
of options to be relevant. The European Communities did not even consider which
option would be most reasonable, but simply applied Article 2(6)(a). India
believes that, in fact, Article 2(6)(c) could have been applied, pointing to the
situation of at least one company which had domestic sales of other products in
the same general category in the domestic market. In India�s view, the European
Communities apparently considers the order in which options are set out in
Article 2(6) of its Regulation as mandatory. Further, India notes that case law
from the European Court of Justice confirms that the order of the Regulation is
of a mandatory nature and recent EC literature on the subject confirms that the
order set out in the Regulation is followed in practice. India considers that
the de facto order of preference established by the European Communities
is inconsistent with the order of preference established by the AD Agreement as
applied in the bed linen proceeding.29
6.51 The European Communities disagrees with India�s
interpretation finding a priority of Article 2.2.2(i) over Article 2.2.2(ii).
The European Communities maintains that the ordinary meaning of the text of
Article 2.2.2 does not indicate any priority between the three options. The
three sub-paragraphs contain no wording indicating that one is to be applied in
preference to another, nor is any preference inherent in the nature of the three
options, or at least of the first two. Consequently, following from the correct
interpretation of Article 2.2.2, Members have complete discretion to choose
between the options. Moreover, the European Communities contends that, while the
particular exporter or producer is no doubt an important element in the
calculation of normal value, so is the particular product. In fact, from an
economic point of view, the commonality of products is more important than that
of producer, because market forces operate most strongly between products of the
same kind. Thus option (ii) is at least as economically realistic as option (i).
6.52 The European Communities notes that India draws
attention to certain disadvantages for the exporter/producer of using option
(ii) or (iii). The implication of this argument, to the European Communities, is
that the drafters would have sought to avoid such disadvantages. Protecting the
interests of the exporter/producer is arguably one of the purposes implicit in
the AD Agreement, but others are equally plausible. For instance, compared to
option (ii), the use of option (i) would involve much greater investigative
effort, with consequent inconvenience and delays for all concerned. In contrast,
the data relevant to option (ii) would already be in the hands of the
investigating authorities. The European Communities believes that it would be
more in accordance with the object and purpose of the AD Agreement to conclude
that the text leaves Members free to decide whether to give priority to option
(i) or option (ii).30
6.53 The United States, as third party to the dispute,
submits that the text of Article 2.2.2 is not hierarchical with respect to
alternative methods for computing SG&A and profit. Dumping is both a
producer-specific and product-specific determination; therefore, the chapeau of
Article 2.2.2 expresses a clear preference for the use of actual data of the
producer or exporter under investigation, for sales of the like product in the
ordinary course of trade. When the method of the chapeau of Article 2.2.2 cannot
be applied, any of the three alternatives that follow may be applied instead.
Notably, it is permissible to infer both from the presence of an explicit
hierarchy between the chapeau and the three alternatives that follow, and from
the absence of such a hierarchy among the three alternatives, that the drafters
of the Agreement intended no such hierarchy to exist among
Articles 2.2.2(i), (ii) and (iii).
(ii) Findings
6.54 We first consider India�s argument that the order of
methodological options for calculating a reasonable amount for profit set out in
Article 2.2.2 reflects a preference for one option over another, notably the
option set out in paragraph (i) over that in paragraph (ii).
6.55 Article 2.1 of the AD Agreement articulates the general
requirement for price comparison to determine the existence of dumping. It
stipulates:
�For the purpose of this Agreement, a product is to be
considered as being dumped, i.e., introduced into the commerce of
another country at less than its normal value, if the export price of the
product exported from one country to another is less than the comparable
price, in the ordinary course of trade, for the like product when destined
for consumption in the exporting country.�
6.56 Article 2.2 provides:
�When there are no sales of the like product in the
ordinary course of trade in the domestic market of the exporting country or
when, because of the particular market situation or the low volume of the
sales in the domestic market of the exporting country2, such sales do not
permit a proper comparison, the margin of dumping shall be determined by
comparison with a comparable price of the like product when exported to an
appropriate third country, provided that this price is representative, or
with the cost of production in the country of origin plus a reasonable
amount for administrative, selling and general costs and for profits.
_______________________________
2Sales of the like product destined for consumption in
the domestic market of the exporting country shall normally be considered a
sufficient quantity for the determination of the normal value if such sales
constitute 5 per cent or more of the sales of the product under
consideration to the importing Member, provided that a lower ratio should be
acceptable where the evidence demonstrates that domestic sales at such lower
ratio are nonetheless of sufficient magnitude to provide for a proper
comparison.�
6.57 Thus, Article 2.2 of the AD Agreement provides that, in
certain circumstances, the margin of dumping can be determined using a
constructed normal value, comprising �the cost of production in the country of
origin plus a reasonable amount for administrative, selling and general costs
and for profits�. Article 2.2.2 then sets forth how investigating authorities
shall arrive at the amounts for SG&A and for profits to be used in the
calculation of this constructed normal value. It states:
�For the purpose of paragraph 2, the amounts for
administrative, selling and general costs and for profits shall be based on
actual data pertaining to production and sales in the ordinary course of
trade of the like product by the exporter or producer under investigation.
When such amounts cannot be determined on this basis, the amounts may be
determined on the basis of:
(i) the actual amounts incurred and realised by the
exporter or producer in question in respect of production and sales in
the domestic market of the country of origin of the same general
category of products;
(ii) the weighted average of the actual amounts
incurred and realised by other exporters or producers subject to
investigation in respect of production and sales of the like product in
the domestic market of the country of origin;
(iii) any other reasonable method, provided that the
amount for profit so established shall not exceed the profit normally
realised by other exporters or producers on sales of products of the
same general category in the domestic market of the country of origin.�
6.58 The chapeau and paragraphs (i) and (ii) of Article 2.2.2
thus outline specific methods available to the investigating authorities to
arrive at the amounts for SG&A and for profits to be used in the calculation of
constructed normal value, and paragraph (iii) allows for the use of any other
reasonable method. The chapeau of Article 2.2.2 requires the use of the profit
margin from like product sales in the ordinary course of trade in the home
market in calculating constructed normal value. When the amount cannot be
determined on this basis, a Member may resort to an approach set out in
paragraphs (i)-(iii).
6.59 Looking first at the text of Article 2.2.2, we see
nothing that would indicate that there is a hierarchy among the methodological
options listed in subparagraphs (i) to (iii). Of course, they are listed in a
sequence, but this is an inherent characteristic of any list, and does not in
and of itself entail any preference of one option over others. Moreover, we note
that where the drafters intended an order of preference, the text clearly
specifies it. Thus, Article 2.2.2 provides "When such amounts cannot be
determined on this basis . . . ", an investigating authority may turn to
subparagraphs (i) to (iii). There is no similar language regarding the subparts
themselves. Had the drafters wished to indicate a hierarchy among the three
options, surely they would have done so in a manner that made that hierarchy
explicit. Certainly, we would have expected something more than simply a
numbered listing. Thus, in context, it seems clear to us that the mere order in
which the options appear in Article 2.2.2 has no preferential significance.
6.60 India�s argument, that subparagraph (i) must be
considered first, and that option (ii) can only be applied if option (i) cannot
be applied, rests on implicit conclusions about the relative desirability of the
three options in Article 2.2.2, and asks us to conclude that option (i) is, in
all circumstances, preferable to option (ii). Paragraphs (i)-(iii) provide three
alternative methods for calculating the profit amount, which, in our view, are
intended to constitute close approximations of the general rule set out in the
chapeau of Article 2.2.2. These approximations differ from the chapeau rule in
that they relax, respectively, the reference to the like product, the reference
to the exporter concerned, or both references, spelled out in that rule.31 Thus,
Article 2.2.2(i) allows the calculation of the profit amount on the basis of
data for the exporter concerned, corresponding to a general category of
products, including the like product. In turn, Article 2.2.2(ii) permits the
calculation of the profit rate on the basis of the weighted average profit rate
for other investigated exporters, corresponding to the like product
itself. Finally, Article 2.2.2(iii) allows the use of any other method, as long
as the resulting rate is not higher than the weighted average profit rate
realised by other investigated exporters in respect of sales in the same
general category of products.32
6.61 In our view, there is no basis on which to judge which
of these three options is �better�. Certainly, there were differing views during
the negotiations as to how this issue was to be resolved,33 and there is no
specific language in the Agreement to suggest that the drafters considered one
option preferable to the others. Given, as explained above, that each of the
three options is in some sense "imperfect" in comparison with the chapeau
methodology, there is, in our opinion, no meaningful way to judge which option
is less imperfect � or of greater authority � than another and, thus, no obvious
basis for a hierarchy. And it is, in our view, for the drafters of an Agreement
to set out a hierarchy or order of preference among admittedly imperfect
approximations of a preferred result, and not for a panel to impose such a
choice where it is not apparent from the text.
6.62 We therefore conclude that the order in which the three
options are set out in Articles 2.2.2(i)-(iii) is without any hierarchical
significance and that Members have complete discretion as to which of the three
methodologies they use in their investigations. We thus find that the European
Communities was not required by the AD Agreement to resort to option (i) before
it could resort to option (ii) and it did not act inconsistently with
Article 2.2.2 by using the latter option.
(b) Article 2.2.2(ii) � data from �other exporters or
producers�
(i) Parties' arguments
6.63 India next claims that the European Communities
misapplied Article 2.2.2(ii) of the AD Agreement by relying on data of one other
producer as the amount for profits. India argues that the calculation method
provided for in Article 2.2.2(ii) was not available to the European Communities,
because the conditions for its application had not been met, pointing to the
words �other exporters or producers� in that provision. India argues that
the production and sales amounts of other exporters or producers
are to be averaged, and that the production and sales amount of a single
"other" exporter or producer cannot be used under Article 2.2.2(ii). In this
regard, India adds that all definitions of the word �average� entail that the
group set of which the average is to be calculated should consist of more than
one unit. An average, by its very nature, cannot be inferred from a single
variable. The fact that Article 2.2.2(ii) uses the words �weighted average�,
i.e., an average that attributes statistical weight to each of the
parameters being summarised into a single value, only stresses the fact that
more than one factor needs to be taken into account. India asserts that
"amounts" in Article 2.2.2(ii) refers to �the amounts for administrative,
selling and general costs and for profits�. It is, therefore, clearly the amounts
for �administrative, selling and general costs and for profits� from �other
producers or exporters� for which a �weighted average� needs to be established.
However, the European Communities applied just one amount from one producer as
the data to be used pursuant to Article 2.2.2(ii).
6.64 India considers that the logic underlying the European
Communities' action perverts the text of Article 2.2.2(ii). The calculation of
the constructed normal values for companies without domestic sales is coloured
by factors unique to the single producer whose SG&A and profit amounts were
used, thereby artificially finding dumping for all producers, where, in reality,
none exists for most. It is precisely to avoid such extreme results, in India's
view, that the Agreement requires that the weighted average of data for at least
two exporters or producers be used. This rationale can be inferred from the
principal rule of the chapeau of Article 2.2, namely that the amount for SG&A
and profit be �reasonable�. India submits that Bombay Dyeing is a wholly
atypical company in India, and the SG&A and profit from one peculiar and
extraordinary company cannot be considered "reasonable". India submits that
another company did have sufficient representative domestic sales, was included
in the sample selection, and its data should have been taken into account by the
European Communities.
6.65 The European Communities disputes India's interpretation
of Article 2.2.2(ii). The European Communities emphasises that the approach
required by Article 31 of the Vienna Convention relies on the ordinary
meaning of the words of the treaty in their context and in light of the treaty�s
object and purpose. The European Communities notes that India alleges that the
word �average� requires consideration of more than one parameter. The European
Communities does not agree that provisions containing the word �average� (or the
words �weighted average�) become inapplicable if the circumstances are such that
the class of data that is to be "averaged" contains only one item.
Article 2.4.2, for instance, uses the notion of �a weighted average normal value
with a weighted average of prices of all comparable export transactions�. There
is no reason, for the European Communities, to think that the formula could not
be applied if either side of the comparison contained only one sale. The
European Communities further asserts that this interpretation of Article 2.2.2
entails focusing on the use of the word �amounts� rather than amount. The
European Communities submits that the use of this word is more complex. Since
the first sentence of the chapeau of Article 2.2.2 refers to an individual
�exporter or producer�, it would be surprising, in the opinion of the European
Communities, if there were more than one amount for �administrative, selling and
general costs� and one amount for �profits�. Therefore, the word �amounts� most
plausibly reflects the fact that there would be two amounts (one of each type)
for each exporter or producer.
6.66 Regarding the use of the word �amounts� in
Article 2.2.2(ii), the European Communities comments that the word is in the
plural in two senses, first, as explained above with respect to Article 2.2.2,
and, second, because in many cases there would be more than one other exporter
or producer, as is also envisaged by the reference to �other exporters or
producers�. The European Communities submits, however, that, both in ordinary
speech and in carefully drafted legal texts, a plural phrase is often used with
the intention of including the case where there is only one such person or
thing. Articles 4.1 and 17.4 of the AD Agreement use similar language. In the
European Communities' view, it would be absurd to prevent the operation of such
provisions merely because there was only one other producer or exporter. Nor
does India explain why the normal usage of the phrase should not apply in this
case. The European Communities adds that it is the phrase �other exporters or
producers� in Article 2.2.2(ii) that is the central element, and the mention of
�average� adds nothing to the use of the plural in the phrase �exporters or
producers�.
6.67 Finally, the European Communities submits that, when the
words �other exporters or producers� are considered in light of the object and
purpose of the AD Agreement, it becomes clear that the evident purpose of this
part of the agreement is to secure data that are independent of the company in
question, but are nevertheless limited to the sales of like products. There is
no intrinsic reason why the use of data from a single firm could not achieve
this goal.
6.68 The United States, as third party, argues that
Article 2.2.2(ii) does not require a minimum number of companies to be used in
calculating SG&A and profit amounts, and it neither forbids an investigating
authority from using a single company for purposes of this calculation, nor
requires it to use more than one company. The use of plural forms in this
provision, without more, is not determinative of the issue.
(ii) Findings
6.69 Having concluded that the three options in
Articles 2.2.2(i)-(iii) are not set out in preferential order, and that the
European Communities therefore was entitled to resort to the methodology in
Article 2.2.2(ii) the next issue before us is whether, as India argues, the
European Communities was precluded from applying the option set out in
Article 2.2.2(ii) because that provision may not be applied in the situation
where the data concerning amounts for profit and SG&A are available for only one
other exporter or producer, as was the situation in this case. Otherwise put, is
the existence of data for more than one other exporter or producer a necessary
prerequisite for application of the approach set out in paragraph (ii)?
6.70 We first consider the language of Article 2.2.2(ii).
India's argument has two principal elements � the use of the plural in the text
of Article 2.2.2(ii), and the phrase "weighted average". With respect to the
first element, the European Communities argues that a phrase in the plural form
is often used, in general and in the AD Agreement, with the intention of
including the case where there is only one such person or thing. We agree. The
phrase "other exporters or producers" as a general matter, admits of an
understanding where the plural form includes the singular case � the case where
there is only one other producer or exporter. In both common speech and legal
texts, it is accepted that the ordinary meaning of the plural form may include
the singular case. Moreover, the focus of the options set out in Article 2.2.2
on the use of actual data suggests to us that such an understanding is
permissible. The question we must consider is whether that is the meaning to be
given to the phrase as used in Article 2.2.2(ii). As discussed above,
Article 2.2.2(i) maintains the focus on the producer being investigated, but
allows consideration of data concerning a broader range of products, while
Article 2.2.2(ii) maintains the focus on the like product, but allows
consideration of other producers or exporters. The third option,
Article 2.2.2(iii) allows any other reasonable method, subject to a cap on the
results. In this context, we do not consider that the reference to other
producers or exporters in the plural necessarily must be understood to preclude
resort to option (ii) in the case where there is only one other producer or
exporter of the like product.
6.71 With respect to the second element, India argues that
because a weighted average must be based on more than one data point, there must
be more than one �other� producers' or exporters' data under consideration.
However, we do not consider that the phrases �weighted average� and �other
producers and exporters� constitute two separate requirements. Rather, we are of
the opinion that the concept of weighted averaging is relevant only when
there is information from more than one other producer or exporter available
to be considered. In our view, the obligation to consider a weighted average of
the information of other producers or exporters eliminates the possibility of a
result-oriented or otherwise biased or discriminatory choice among available
data. However, when the data available is from only one source, such a
possibility does not arise. The interpretation argued by India would limit the
analytical options available to investigating authorities for determination of
the profit rate and SG&A in a constructed normal value in a manner we cannot see
as mandated by the text.
6.72 In this regard, we consider informative other provisions
which use the plural form, but are applicable in the singular case. For
instance, Article 4.1 of the AD Agreement defines the domestic industry in terms
of "domestic producers" in the plural. Yet we consider it indisputable that a
single domestic producer may constitute the domestic industry under the
AD Agreement, and that the provisions concerning domestic industry under
Article 4 continue to apply in such a factual situation. Similarly, we note that
Article 9.4(i) provides that the dumping duty applied to imports from
producers/exporters not examined as part of a sample shall not exceed "the
weighted average margin of dumping established with respect to the selected
exporters or producers". We consider that this provision does not become
inoperative if there is only one selected exporter or producer � rather, the
dumping margin for that exporter or producer may be applied. In our view, these
considerations lend support to an understanding of Article 2.2.2(ii) pursuant to
which Members may apply the methodology in that provision even in a case where
data is available for only one "other" exporter or producer. Thus, we conclude,
based on our understanding of the text of the provision, that a Member is not
precluded from employing the methodology set out in Article 2.2.2(ii) in a case
where there is only one other producer or exporter.
6.73 We also consider that the negotiating history of
Article 2.2.2 confirms our view that Article 2.2.2(ii) is not limited to the
case where there is more than one "other" producer or exporter. There was no
provision in the Tokyo Round Anti-Dumping Code corresponding to
Article 2.2.2(ii). In the absence of guidance in this regard, it was the
practice of some Members, notably the United States, to calculate profit and
SG&A amounts in a constructed value on the basis of benchmarks established
without reference to specific relevant information developed in the course of
the investigation. This practice was strongly objected to by other Parties to
the Tokyo Round Anti-Dumping Code, and was the subject of negotiations in the
Uruguay Round leading to the adoption of Article 2.2.2, and its subparts, to
provide guidance for the derivation of profit and SG&A amounts in constructed
value calculations.34 In our view, this background indicates that the provision is
intended to ensure that actual data is used for determining the profit rate and
SG&A in a constructed normal value, rather than arbitrarily determined amounts.
That there is only one producer whose information is available for this use does
not undermine this purpose. The requirement of a weighted average resolves the
question of how to determine the appropriate amounts in a case where there is
more than one investigated exporter whose actual data can be used. Thus,
investigating authorities may not select a single producer as the source of the
necessary information when information is available from more than one such
producer, but must take a weighted average of the available information.
6.74 However, in this case, the European Communities did not
arbitrarily pick one producer's data to use in its calculation. Rather, it was
faced with the factual situation that there was only one producer whose data was
available for the calculation under Article 2.2.2(ii). It is true that there was
at least one other exporter which had domestic sales of the like product during
the period of investigation. However, that producer was not in the sample on
which the European Communities based its calculations in the dumping
investigation. It might, in theory at least, have been possible for the EC
investigating authorities to calculate a weighted average profit rate including
that producer�s information.35 However, India has made no persuasive argument as
to why, absent a conclusion that the sample was not properly selected36, the
European Communities should have been obligated to consider, in this
aspect of its analysis, information for a company not part of the sample, and
whose information was not considered otherwise. India argues that this producer
was in the sample, but this is not factually correct. It was considered by the
European Communities as being in the reserve sample, which is established in
case the companies selected for the sample do not cooperate or provide usable
information.37 Information was gathered from companies in the reserve sample to be
used if it became necessary, which did not happen. We therefore consider that,
as a matter of fact, there was only one producer whose data was available for
use under Article 2.2.2(ii).
6.75 As we have concluded that Article 2.2.2(ii) may be
applied in a case where there is data concerning profit and SG&A for only one
other producer or exporter, we conclude that the European Communities was not
precluded from applying the methodology set out in that provision in this case,
and therefore did not act inconsistently with Article 2.2.2(ii) in this regard.
(c) Article 2.2.2(ii) � production and sales amounts
�incurred and realised�
(i) Parties' arguments
6.76 India also asserts that the European Communities acted
inconsistently with Article 2.2.2(ii) in its application of the provision by
using the production and sales amounts "incurred and realised" on transactions
in the ordinary course of trade, instead of the production and sales amounts
�incurred and realised� on all transactions. For India, the European
Communities' approach is demonstrably inconsistent with the express wording of
Article 2.2.2(ii), which indicates that the entire purpose of the provision is
to provide for a different and alternative basis from the basis contained in the
chapeau of Article 2.2.2 upon which to establish SG&A and profits. Indeed, the
second sentence of the chapeau of Article 2.2.2 expressly states that one is
only entitled to resort to the methodology under Article 2.2.2(ii) when the
basis under the chapeau of Article 2.2.2 �cannot� be used; it is clearly an
�either-or� situation. It would, therefore, be in India's view absurd to
conclude that the limitation to sales in the ordinary course of trade under
Article 2.2.2 may be applied to calculations under Article 2.2.2(ii).
6.77 India notes that the definition of amounts for SG&A and
profits in the first sentence of the chapeau includes the words �ordinary course
of trade�. In India's view, since those words appear after the words �based on�,
that requirement was clearly intended to form part of the basis or foundation
for the specific method provided under the chapeau, but only for that method.
Consequently, the words �such amounts� in the second sentence of the chapeau
cannot logically be taken to refer back to SG&A and profits �in the ordinary
course of trade�, but instead only to SG&A and profits as a whole. India
concludes that the word �amounts� used for the purposes of Article 2.2.2(ii)
does not, therefore, include any requirement that the amounts be incurred or
realised in the ordinary course of trade.
6.78 In the European Communities' view, the issue under
Article 2.2.2(ii) is whether the EC authorities were entitled to limit the data
they would consider for purposes of constructing the normal value. The excluded
classes of data in this case were, in the case of SG&A, data from sales that
were unrepresentative, and in the case of profits, data derived from sales that
were unrepresentative and/or unprofitable. These classes, the European
Communities points out, correspond to the concepts mentioned in the opening
clauses of Article 2.2, which makes it clear that one object and purpose of this
part of the AD Agreement is to avoid reliance on sales that fall into either of
these categories. The European Communities argues that India is evidently
suggesting that the drafters did not object to normal value being based on
unprofitable or unrepresentative sales as long as that data came from other
producers or exporters, which interpretation is not, in the European
Communities' view, based on a proper application of the rules of treaty
interpretation of Article 31 of the Vienna Convention and, even if it
were, would lead to a result that was �manifestly absurd or unreasonable� and
require resort to the interpretive principles in Article 32 of the Vienna
Convention.
6.79 Finally, the European Communities asserts that the basic
principle of the �ordinary course of trade� is expressed in Article 2.2. In
fact, it is a two-part principle: data associated with sales that are
unprofitable, or are unrepresentative, are not reliable. For reasons of
consistency, the European Communities maintains that this principle applies to
all provisions falling within Article 2.2, including Article 2.2.2(ii).
6.80 Egypt, as third party, alleges that costs calculated by
the European Communities were not based on the records kept by the exporters or
producers under investigation in the case of Egypt, as required by
Article 2.2.1.1, nor were amounts for SG&A costs based on actual data submitted
by the relevant exporters or producers, as required by Article 2.2.2.
6.81 Japan, as third party, argues that Article 2.2.2(ii)
does not allow the exclusion of below-cost sales before determining the profit
amount. Article 2.2.2(ii) refers to �the actual amounts incurred and realised�
and does not include any qualifications. According to Japan, if authorities
choose this option, they must determine the weighted average of the actual
profit margins reported by the exporters or producers in their accounting
records or reflected in the price and cost of the transactions at issue.
Article 2.2.2(ii) does not allow the authorities to modify these actual profit
margins. Japan considers it improper to graft the concept of �ordinary course of
trade� onto Article 2.2.2(ii). It sees the language of the first sentence of
Article 2.2.2 as explicitly including the notion of �ordinary course of trade�
but grammatically distinct from the second sentence that serves as the chapeau
for the remainder of this provision. Japan notes the fact that the drafters were
quite careful to insert the concept �ordinary course of trade� where they
intended it to apply, and the decision not to include the concept in
Article 2.2.2(ii) must, therefore, be given meaning when interpreting this
language. Finally, Japan considers that an interpretation which allows the
exclusion of below-cost sales would give no significance to the important
distinction between the language of the option set out in Article 2.2.2 based on
�actual data� and the language of the option set out in Article 2.2.2(ii) based
on �actual amounts incurred and realised�.
6.82 The United States, as third party, asserts that it is a
permissible interpretation of Article 2.2.2(ii) to restrict consideration of
�actual amounts incurred and realised� to those attributable to sales made in
the ordinary course of trade. Such an application is not prohibited by the
Agreement and would, in fact, be a more reasonable interpretation of the
Agreement. There is no explicit requirement within Article 2.2.2(ii) determining
whether sales not in the ordinary course of trade should be included or excluded
from the calculation of SG&A and profit to be used to calculate the constructed
value for other producers or exporters. Further, although Article 2.2.2(ii) does
not explicitly provide for the exclusion of below-cost sales, Article 2.2.1
makes it clear that, when below-cost sales have been made, the authorities are
under no obligation to consider them in the determination of normal value,
provided that certain conditions have been met. Moreover, excluding sales not in
the ordinary course of trade is consistent with the overall operation of
Article 2 of the AD Agreement.
(ii) Findings
6.83 The last issue that we must address under Article 2.2.2
is whether the European Communities erred in its application of
Article 2.2.2(ii). In particular, the question before us is whether the European
Communities acted inconsistently with that provision in using production and
sales amounts incurred and realised only on transactions that were not made
below cost � that is, transactions it considered to be in the ordinary course of
trade � instead of using all production and sales amounts incurred and realised.
More specifically, may the principle, set out in Article 2.2 � that data
associated with sales that are unprofitable are not reliable38 � be applied to all
provisions falling within Article 2.2?
6.84 Looking first at the text of Article 2.2.2(ii), we note
that there is no reference to sales in the ordinary course of trade. Thus, we
would agree with the view that exclusion of sales not in the ordinary course of
trade is not mandated by that provision.39 However, we do not understand the
European Communities to be arguing that it was required to exclude those sales
in its determination of the profit rate, merely that it was permitted to do so,
based on the general principle allowing the exclusion of sales not in the
ordinary course of trade from the calculation of normal value.
6.85 We consider that this principle may be properly
understood to apply to all provisions falling within Article 2.2, including
Article 2.2.2(ii). We do not consider that a Member is obligated to
exclude sales not in the ordinary course of trade for purposes of determining
the profit rate under the subparagraphs of Article 2.2.2, merely that such
exclusion is not prohibited by the text. In our view, to read Article 2.2.2 as
prohibiting the exclusion of sales not in the ordinary course of trade might, in
some cases, yield results under the alternatives set out in paragraphs (i) and
(ii) that would be contradictory of a basic principle contained in the chapeau
methodology. Article 2 establishes as a general principle that Members may base
their calculations of normal value only on sales made in the ordinary course of
trade. We consider that in this context, absent a specific prohibition, it is
permissible to interpret the subparagraphs of Article 2.2.2 to allow application
of this general principle in the specific case of a profit rate determination
under Article 2.2.2(ii). If the alternative advocated by India were accepted, a
prohibition on the exclusion of sales not in the ordinary course of trade might
result in a constructed value being based on data concerning the very sales that
could not be considered in determining normal value. Indeed, that would be the
result in this case. Application of the methods in paragraphs (i)-(iii) might,
thus, yield results inconsistent with the basic principles of Article 2.2.
6.86 We recall that the �ordinary course of trade� limitation
forecloses the possibility of calculating profits on the basis of sales at
prices below cost.40 The profit amount on sales at prices below cost would be
negative. In our view, to require the calculation of constructed normal value
including such sales would not be in keeping with the overall object and purpose
of the provision � to establish methodologies for the determination of a
reasonable amount for profit to be used in the calculation of a constructed
normal value. If sales that are considered not in the ordinary course of trade
because they are below cost were used for the calculation of the profit rate,
the constructed value could be equal to cost and thus would not include a
reasonable amount for profit. This would render the calculation of a constructed
value meaningless, and not consistent with Article 2.2.41 In this context, we
recall that one reason an investigating authority would construct a normal value
is because the actual sales of the investigated exporter or producer are deemed
inappropriate to serve as the basis of normal value because they are made below
cost. To conclude that such sales below cost must then be taken into
account in the construction of normal value in these circumstances makes no
sense.
6.87 Thus, we consider that an interpretation of
Article 2.2.2(ii) under which sales not in the ordinary course of trade are
excluded from the determination of the profit amount to be used in the
calculation of a constructed normal value is permissible. We therefore conclude
that the European Communities did not err in its application of paragraph (ii)
by using data only on transactions in the ordinary course of trade.
1 WT/DS141/1.
2 WT/DS141/2.
3 WT/DS141/3.
4 WT/DS141/4.
5 Exhibit India-6. The other countries whose exporters of
cotton-type bed linen were subject to the application for investigation and
imposition of anti-dumping duties were Egypt and Pakistan.
6 Exhibit India-7.
7 Commission Regulation No. 1069/97, Exhibit India-8
("Provisional Regulation").
8 Exhibit India-33.
9 Council Regulation No. 2398/97, Exhibit India-9 ("Definitive
Regulation").
10 On Tuesday, 9 May 2000, the day before our first meeting with
the parties, the Panel received an unsolicited amicus curiae brief in
support of the complaint by India in this dispute, submitted on behalf of the
Foreign Trade Association by Dr. Konrad Neund�rfer. We made copies available to
the parties for comment. No party made any substantive comments regarding that
submission. We did not find it necessary to take the submission into account in
reaching our decision in this dispute.
11 India's claims 2, 5, 9, 12, 17, 21, 24, 27, and 30 generally
assert inconsistency on the part of the European Communities with Article 12.2.1
by failing properly to explain, in the Provisional Regulation, the legal and
evidentiary basis for and analysis underlying elements of the European
Communities' decision which are challenged by India.
12 Korea - Definitive Safeguard Measure on Imports of Certain
Dairy Products ("Korea - Dairy Safeguard"), Appellate Body Report,
WT/DS98/AB/R, adopted 12 January 2000, para. 124 (emphasis added).
13 Id.
14 European Communities - Regime for the Importation, Sale
and Distribution of Bananas ("EC - Bananas"), Appellate Body Report,
WT/DS27/AB/R, adopted 25 September 1997, para. 143.
15 WT/DS141/3.
16 Id.
17 The special or additional rules applicable to anti-dumping
disputes have not been raised by the European Communities in this context. The
Panel in Mexico - HFCS concluded that Article 17.4 of the AD Agreement,
which describes the matters that may be referred for dispute settlement, "does
not�set out any further or additional requirements with respect to the degree of
specificity with which claims must be set forth in a request for establishment
challenging a final anti-dumping measure.", and noted in this regard that
Article 17.4 does not refer to "claims". Mexico - Anti-Dumping Investigation
of High-Fructose Corn Syrup (HFCS) from the United States ("Mexico - HFCS"),
Panel Report, WT/DS132/R, adopted 24 February 2000, para. 7.14 and note 531.
18 EC - Bananas, para. 142; Brazil - Measures
Affecting Dessicated Coconut, Appellate Body Report, WT/DS22/AB/R, adopted
20 March 1997, p. 22.
19 Korea - Dairy Safeguard, Appellate Body Report, para.
6.
20 Australia - Subsidies Provided to Producers and Exporters
of Automotive Leather, Panel Report, WT/DS126/R, adopted 16 June 1999, para.
9.25.
21 Kazazi, Mojtaba, Burden of Proof and Related Issues � A
Study of Evidence Before International Tribunals, Malanczuk, Peter, ed.,
Kluwer Law International, The Hague, pp. 180, 184.
22 Korea - Taxes on Alcoholic Beverages, Panel Report,
WT/DS75/R�WT/DS84/R, adopted 17 February 1999, para. 10.23 (issue not raised on
appeal). This is unlike the situation before many international tribunals, which
often refuse to admit evidence obtained during settlement negotiations between
the parties to a dispute. The circumstances of such settlement negotiations are
clearly different from WTO dispute settlement consultations, which are, as the
Appellate Body has noted, part of the means by which facts are clarified before
a panel proceeding.
23 Exhibit India-81.
24 India has made no claims concerning alleged inconsistent
application of EC law.
25 United States � Measure Affecting Imports of Woven Wool
Shirts and Blouses from India, Appellate Body Report, WT/DS33/AB/R, adopted
23 May 1997, p. 14.
26 Canada - Measures Affecting the Export of Civilian Aircraft, Appellate
Body Report, WT/DS70/AB/R, adopted 20 August 1999, para. 198.
27 European Communities � Measures Concerning Meat and Meat
Products ("EC � Hormones"), Appellate Body Report,
WT/DS26/AB/R�WT/DS48/AB/R, adopted 13 February 1998, para. 104.
28 We note that this is the same standard as that applied by the
Panel in Mexico - HFCS, which, in considering whether the Mexican
investigating authorities had acted consistently with Article 5.3 in determining
that there was sufficient evidence to justify inititaion, stated: "Our approach
in this dispute will � be to examine whether the evidence before SECOFI at the
time it initiated the investigation was such that an unbiased and objective
investigating authority evaluating that evidence could properly have determined
that sufficient evidence of dumping, injury and causal link existed to justify
initiation." Mexico - HFCS, Panel Report, para. 7.95.
29 India has not made a claim regarding the Regulation itself,
only its application in this case.
30 In this regard, the European Communities notes that India
addresses the drafting of Article 2(6) of the European Communities� Basic
Regulation, in particular, the fact that options (i) and (ii) are set out in the
opposite order as that in the AD Agreement. As noted above, India has not made a
claim regarding the Regulation itself, and we make no ruling on its consistency
with the AD Agreement.
31 There is a question as to whether the methods outlined in
Articles 2.2.2(i)-(iii) also relax the �ordinary course of trade� requirement
present in Article 2.2.2. In fact, this is one of the questions at issue in this
dispute (See section VI.C.1.(c)).
32 In fact, in order to come up with a benchmark, this method
requires calculation of the weighted average profit rate for other investigated
exporters, corresponding to the same general category of products.
33 See Stewart, Terence P., ed., The GATT Uruguay
Round: A Negotiating History (1986-1992), Kluwer Law International, The
Hague, pp. 171‑190.
34 See Stewart, Terence P., ed., The GATT
Uruguay Round: A Negotiating History (1986-1992), Kluwer Law International,
The Hague, pp. 171-190.
35 We note in this regard that the European Communities argues
that the information for the producer in question would not have been considered
in any event, as it had insufficient sales in the ordinary course of trade to
allow its information to be used. Moreover, the European Communities suggests
that the inclusion of data for that producer would have had little effect on the
outcome.
36 We note that India has made no claim concerning the sample
relied upon by the European Communities.
37 Provisional Regulation, Exhibit India-8, para. 21; Exhibit
India-22.
38 Article 2.2 sets out the rule that data associated with
unrepresentative sales are not reliable. A question similar to the one raised by
India would be whether this principle carries to Article 2.2.2, given that only
the "ordinary course of trade" rule is mentioned in Article 2.2.2. India does
not, however, raise this issue, and we, therefore, need not and do not consider
the question.
39 Indeed, we note that although the chapeau of Article 2.2.2
indicates that such sales must not be considered in calculating profit under
that provision, Article 2.2 merely provides that sales below the cost of
production may be treated as not being in the ordinary course of trade.
That is to say, even if the relevant criteria for consideration of sales below
cost as sales not in the ordinary course of trade are satisfied, an
investigating authority is not obligated to exclude those sales from its
calculation of normal value except, apparently, in determining the amounts for
profit and SG&A under the chapeau of Article 2.2.2.
40 It may also foreclose the possibility of calculating profits
on the basis of sales between related parties (albeit possibly made at cost).
However, this is not an issue in this dispute.
41 With regard to the comments made by Egypt, we note that India
has not brought a claim of violation of Article 2.2.1.1 or the chapeau of
Article 2.2.2. "Claims" brought by third parties are clearly not within the
terms of reference of, and, therefore, not properly before, the Panel.