UNITED STATES � ANTI-DUMPING MEASURES ON
STAINLESS STEEL PLATE IN COILS AND STAINLESS
STEEL SHEET AND STRIP
FROM KOREA

Report of the Panel

(Continued)

3. The Failure of the United States to Follow Its Established Practice and Exclude these Atypical US Sales from Its Analysis, and the Failure to Provide a Coherent Rationale for Its Treatment of these Sales, Were Inconsistent with Article X:3(a) of GATT 1994 and Article 12.2 of the Anti-Dumping Agreement

(a) Article X:3(a) of GATT 1994 Establishes "Minimum Standards of Transparency and Procedural Fairness" that Are Amplified by the Specific Procedural Requirements of the Anti-Dumping Agreement

4.35 Article X:3(a) of GATT 1994 requires each WTO Member to "administer � its laws, regulations, decisions and rulings" relating to duties and other restrictions on imports (such as anti-dumping measures) "in a uniform, impartial and reasonable manner." Unlike most GATT provisions, which are concerned with the content of a government's laws, regulations, decisions, and rulings, Article X focuses on the administration of those laws, regulations, decisions, and rulings.

4.36 The decisions of the Appellate Body show that Article X:3(a) establishes "certain minimum standards for transparency and procedural fairness" in the administration of trade laws.¹¹³ These minimum standards apply to "all trade laws within the scope of Article X:1,"¹¹⁴ regardless of whether or not other WTO Agreements also apply to the administration of particular trade laws.¹¹⁵ Because anti-dumping laws clearly fall within the scope of Article X:1, their administration must comport with the "minimum standards" of fairness established by Article X:3(a).¹¹⁶

4.37 The requirements of procedural fairness in anti-dumping investigations are further amplified by the explicit requirements of the Anti-Dumping Agreement. Thus, Articles 6.1, 6.2, and 6.9 of the Anti-Dumping Agreement establish a broad requirement that the administering authorities inform the parties of the "essential facts" of the case in a manner that allows them a "full" and "ample opportunity" to defend their interests. In the same vein, Article 12.2 of the Anti-Dumping Agreement requires publication of "the findings and conclusions reached on all issues of fact and law considered material by the investigating authorities" in both preliminary and final determinations, including: (1) "a full explanation of the reasons for the methodology used in the establishment and comparison of the export price and the normal value," (2) "all relevant information on the matters of fact and law and reasons which have led to the imposition of final measures," and (3) "the reasons for the acceptance or rejection of relevant arguments or claims made by the exporters and importers �."

(b) The DOC's Treatment of the Atypical US Sales Failed to Meet the "Minimum Standards" of Procedural Fairness Set by Article X:3(a) of GATT 1994 and Article 12.2 of the Anti-Dumping Agreement

4.38 As discussed in the Statement of Facts, in the preliminary determinations for both SSPC and SSSS, the United States concluded that the sales for which POSCO was not paid by the ABC Company were "atypical and not part of POSCO's normal business practice." Accordingly, the United States excluded these sales from its calculation of export price. This was consistent with the prior practice of the United States.¹¹⁷

4.39 In the final determinations, however, the United States abruptly reversed its position.¹¹⁸ Its final price comparisons included the atypical sales on which the customer did not pay, and therefore yielded distorted results that overstated the dumping margins. The explanations offered by the United States for its change in policy are inconsistent and arbitrary on their face:

• Regarding SSPC, the United States explained that: "Although we disregarded the sales [to the ABC Company] in the preliminary determination, we find that the sales account for such a large percentage of POSCO's US sales that they cannot be dismissed as abnormalities."¹¹⁹
   
• Regarding SSSS, where the sales to ABC Company were relatively small, the United States explained that: "[R]espondent's arguments regarding the relative significance of these sales [to the ABC Company] compared to POSAM's total sales is [sic] inapposite. Although the Department employs a 5 per cent threshold in regard to other issues in investigations � none � apply to this case."¹²⁰

As the first of these passages indicates, the United States expressly based its decision regarding SSPC on the "large percentage" of the atypical sales compared to the total sales being investigated. But, when faced with a much smaller percentage of atypical sales in SSSS, the United States held that the percentage of atypical sales was irrelevant. In other words, the United States took the position that the percentage of atypical sales is only relevant when that percentage would support its decision to include the atypical sales in the dumping analysis. This was clearly arbitrary.

4.40 The inclusion of POSCO's unpaid sales to the ABC Company in the calculation of export price violated Article X:3(a) of GATT 1994 in at least four respects:

• First, as recognized by executive, legislative, and judicial branches of the United States, it is "irrational" and "unreasonable" to include such atypical sales in the calculation of the prices to be compared.¹²¹
   
• Second, it was neither "uniform" nor "reasonable" for the United States to fail to follow its precedents on the exclusion of atypical data from dumping calculations.
   
• Third, as discussed above, the explanations the United States offered to justify its departure from its established practice were internally inconsistent and thus inherently unreasonable.
   
• Finally, having found that the unpaid sales were "atypical and not p art of POSCO's normal business practice" and that their inclusion would distort the calculation of the dumping margin, it was unreasonable for the United States to reverse that decision when there was no new evidence or argument to justify such a change.
   
• The inclusion in the dumping calculations of the atypical US sales on which the customer did not pay was, therefore, inconsistent with Article X:3(a) of GATT 1994, which requires each WTO Member to "administer � its laws, regulations, decisions and rulings" relating to duties and other restrictions on imports (such as anti-dumping measures) "in a uniform, impartial and reasonable manner."¹²²

4.41 In addition, by offering inherently contradictory statements about the relevance of the percentage of unpaid sales to its final decisions that such sales were not atypical, the United States failed to provide an adequate statement of reasons for its decisions, in violation of Article 12.2 of the Anti-Dumping Agreement.¹²³

4.42 As a result, the anti-dumping measures imposed by the United States violate Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.

B. THE UNITED STATES UNFAIRLY CHANGED ITS METHODOLOGY FOR CALCULATING DUMPING MARGINS, ALLEGEDLY TO ACCOUNT FOR THE DEPRECIATION OF THE KOREAN WON, IN VIOLATION OF ARTICLES 2.4, 2.4.1, AND 2.4.2 OF THE ANTI-DUMPING AGREEMENT

4.43 As discussed in the Statement of Facts, in each of the investigations at issue the United States divided the period of investigation into sub-periods, and then calculated separate average prices and separate dumping margins for each sub-period (based on the amount by which the average normal value exceeded the average export price for that sub-period). For any sub-period where the DOC found "sales at more than fair value" (i.e., "negative dumping"), the DOC treated this as a sub-period of "zero dumping." It then calculated an overall average dumping margin based on the average of the "positive" dumping margins found in certain sub-periods and the "zero" dumping margins assigned to the sub-periods in which there had been "negative dumping." As a result, the United States calculated a dumping margin that overstated POSCO's true average dumping margin (if any).¹²⁴

4.44 As discussed further below, such a methodology is inconsistent with the requirements governing dumping calculations under the WTO Agreements and it is unfair.

1. The "Multiple Averaging" Methodology Used by the United States Is Inconsistent with Article 2.4.2 of the Anti-Dumping Agreement

4.45 Article 2.4.2 of the Anti-Dumping Agreement establishes the following standard methodology for dumping calculations:

Subject to the provisions governing fair comparison in paragraph 4, the existence of margins of dumping during the investigation phase shall normally be established on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-to-transaction basis. (emphasis added).

4.46 Article 2.4.2 thus obligates a WTO Member conducting an anti-dumping investigation to compare either (i) a single "weighted average normal value" with a single weighted average export price for the full period of investigation or (ii) individual home-market transactions to individual export transactions.¹²⁵ A simple textual analysis of Article 2.4.2 reveals that it does not allow for the comparison of "multiple averages" with "multiple averages."

• Article 2.4.2 repeatedly uses the distinctly singular phrase "a weighted average" - which is to say, one average, not two averages.
   
• This requirement is confirmed by the reference in Article 2.4.2 to "a weighted average of prices of all comparable export transactions." Clearly, there can only be one average if it takes into account all data.

4.47 The United States failed to follow the methodology required by Article 2.4.2 in the final dumping determinations at issue. It did not compare a single weighted-average normal value with a single weighted-average export price for the full period of investigation. Rather, it divided the period of investigation into sub-periods. Then, the United States used "multiple averages," one for each sub-period, to calculate a separate dumping margin for each sub-period. These separate sub-period dumping margins were then combined using a methodology that resulted in a distorted overall dumping margin.¹²⁶

4.48 The use of "multiple averages" by the United States therefore failed to comply with the requirement of Article 2.4.2 that export price must be compared to normal value on the basis of either "a weighted average" to "a weighted average" or individual transactions to individual transactions. The US practice of comparing "multiple averages" to "multiple averages" finds no support in Article 2.4.2. As a result, the anti-dumping measures against SSPC and SSSS from Korea violate Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.

2. The Change in the Price Comparison Methodology Adopted by the United States to Account for the Devaluation of the Korean Won Is Inconsistent with the Requirements of Article 2.4.1 of the Anti-Dumping Agreement, Which Permits Departures from the Normal Comparison Methodology Only for an Appreciation of the Exporting Country's Currency

4.49 The United States claimed that this departure from the requirements of Article 2.4.2 was necessary to account for the devaluation of the Korean won against the US dollar during the period of investigation. As discussed further below, however, under the Anti-Dumping Agreement, departures from the normal price comparisons to account for changes in exchange rates are permitted only when the currency of the exporting country was appreciating in relation to the currency of the importing country - and not when, as in these cases, the currency of the exporting country was depreciating.

4.50 Article 2.4.1 of the Anti-Dumping Agreement sets forth the basic rule for conversion of currencies in the price comparisons used to calculate dumping margins, as follows:

When the comparison under paragraph 4 requires a conversion of currencies, such conversion shall be made using the rate of exchange on the date of sale, provided that when a sale of foreign currency on forward markets is directly linked to the export sale involved, the rate of exchange in the forward sale shall be used. Fluctuations in exchange rates shall be ignored and in an investigation the authorities shall allow exporters at least 60 days to have adjusted their ex port prices to reflect sustained movements in exchange rates during the period of investigation. (internal footnote omitted, emphasis added).

The basic rule established by Article 2.4.1, then, is that currency conversions are to be made using the exchange rate on the date of sale. Article 2.4.1 provides one exception to this rule: It "allows" an exporter time to adjust when its currency is appreciating against the currency of the Member conducting an anti-dumping investigation. On the other hand, a similar exception to the basic rule is not provided for situations in which the exporting country's currency is depreciating.¹²⁷

4.51 The rationale for this difference in treatment between currency appreciation and currency depreciation is clear: An exporter must be allowed time to adjust its prices to a currency appreciation or it would be unfairly found to be dumping as a result of an event beyond its control. By contrast, no such difficulties arise from a currency devaluation, because currency devaluations do not create or inflate dumping margins.¹²⁸

4.52 All this indicates that the normal price comparison methodology may be modified to account for changes in exchange rates only when the exporting country's currency is appreciating. No such departures are permitted to account for other changes in the exchange rate (such as devaluation of the exporting country's currency).

4.53 By adopting a new price comparison methodology (using multiple averages) to account for the devaluation of the Korean won, the United States departed from the requirement in Article 2.4.1 that the price comparisons not be modified to account for devaluations in the exporting country's currency. As a result, the anti-dumping measures against SSPC and SSSS from Korea violate Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.

3. The Use of the "Multiple Averaging" Methodology Was Inconsistent with the Procedural Requirements of GATT 1994 and the Anti-Dumping Agreement

4.54 As discussed in Part IV.A.3 supra, Article X:3(a) of GATT 1994 requires each WTO Member to "administer ... its laws, regulations, decisions and rulings" relating to duties and other restrictions on imports (such as anti-dumping measures) "in a uniform, impartial and reasonable manner." This provision establishes "certain minimum standards for transparency and procedural fairness" in all trade-related actions by WTO Members." The requirements of procedural fairness in anti-dumping investigations are further amplified by the explicit requirements of the Anti-Dumping Agreement, particularly the requirements of Article 6.1, 6.2, 6.9, and 12.2 of the Anti-Dumping Agreement.¹²⁹

4.55 Taken as a whole, these provisions establish a broad requirement that the investigating authorities interpret the relevant laws in a reasonable and consistent manner - and that they provide private parties with an explanation of their proposed interpretation of the relevant laws in a manner that will allow the private parties a "full" and "ample opportunity" to defend their interests. Unfortunately, the actions by the United States in adopting the "multiple averaging" methodology in the SSPC and SSSS investigations did not comply with this requirement.

4.56 As discussed in the Statement of Facts, the United States originally maintained a policy against using "multiple averaging" to respond to currency depreciations before abruptly abandoning that position during the course of the SSPC and SSSS investigations.¹³⁰

• In the preliminary determinations for both SSPC and SSSS, the United States declined to use "multiple averaging."¹³¹ In SSSS, the United States distinguished as inapplicable "the one case cited by petitioners in support of averaging multiple periods" and "preliminarily determine[d] that the modification of currency conversion reasonably accounts for the devaluation of the won, and that the use of multiple periods for averaging is unwarranted."¹³²
   
• Moreover, in the preliminary determination in Preserved Mushrooms from Indonesia (which was proceeding approximately three months before the SSPC investigation and which raised a similar issue of currency devaluation under similar circumstances), the United States expressly found "no basis to depart from our practice of calculating the weighted-average EPs [i.e., export prices] for the entire POI [i.e., period of investigation]" merely because of a currency devaluation without "evidence that there has been a significant change in the respondents' pricing or marketing during the POI."¹³³
   
• The final determination in Preserved Mushrooms from Indonesia reached the same conclusion. In that determination, the United States rejected the petitioners' request for "multiple averaging," saying "we have declined to alter our methodology in this case."¹³⁴

4.57 The investigations at issue here were the first where the United States departed from its established policy of using a single weighted average for the full period of investigation without any evidence of a change in the respondent's "pricing or marketing" policies. Indeed, in taking this unprecedented action in the SSPC case, the United States failed to even articulate a reason for its departure from its then three-month-old precedent in Preserved Mushrooms , when the similarities between the devaluations of the won and the Indonesian rupiah clearly demanded the same treatment. The DOC's failure to explain the departure from the Preserved Mushrooms decision was especially glaring in light of the fact that the DOC had previously indicated that the issue in the SSPC case was the same as the issue in Preserved Mushrooms.¹³⁵

4.58 Therefore, there is no basis for the United States' departure in the investigations at issue from its well-established standard methodology. To the contrary, the unprecedented resort to "multiple averaging" by the United States in the circumstances of this case violates numerous obligations of the United States under GATT 1994 and the Anti-Dumping Agreement:

• By failing to follow its established methodology, the United States violated Article X:3(a) of GATT 1994, which requires WTO Members to "administer � its laws, regulations, decisions and rulings" in a "uniform, impartial and reasonable manner."
   
• By failing to provide POSCO with notice of the "essential fact " of a change in US policy from the preliminary determination in a manner that would have allowed POSCO a "full" and "ample opportunity" to defend its interests, the United States acted in violation of Article 6.1, 6.2, and 6.9 of the Anti-Dumping Agreement.¹³⁶
   
• Finally, by failing to provide an adequate explanation of its departure from the standard methodology (and particularly of its departure from the recent, factually similar decision in Preserved Mushrooms ), the United States acted in violation of Article 12.2 of the Anti-Dumping Agreement.

As a result of these procedural errors, the imposition of anti-dumping measures against SSPC and SSSS from Korea violated Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.

4. The "Multiple Averaging" Methodology Is Inconsistent with the Underlying Basis for the Anti-Dumping Measures against SSPC and SSSS, and Thus Deprived POSCO of the "Fair Comparison" Required by Article 2.4 of the Anti-Dumping Agreement

4.59 In addition to the substantive and procedural errors demonstrated above, the "multiple averaging" methodology also suffered from a larger problem: The fundamental inconsistency between the effect of "multiple averaging" and the underlying basis of the anti-dumping orders on SSPC and SSSS meant that, in the circumstances of these cases, the use of "multiple averaging" was unfair.

4.60 As discussed in Part IV.A.2 supra, the "most fundamental" responsibility of this Panel is to ascertain whether or not the United States afforded POSCO the "fair comparison" mandated by Article 2.4 of the Anti-Dumping Agreement.

4.61 As discussed in the Statement of Facts, throughout the proceedings in the investigations at issue, the US petitioners predicated their requests for anti-dumping orders on the claim that such relief was needed to protect the US industry from the adverse consequences of the so-called Asian economic crisis that accompanied the devaluation of the Korean won.¹³⁷ In essence, petitioners claimed that the anti-dumping orders were needed to protect them from an increase in imports after the devaluation.

4.62 In these circumstances, a fair analysis of whether POSCO was truly engaged in injurious dumping must necessarily focus on - or, at an absolute minimum, include - pricing data after the devaluation of the won. Yet, that is the very pricing data which was effectively excluded (or "walled off," in the petitioners' words) from the DOC's price comparisons by the "multiple averaging" methodology.

4.63 In other words, the "multiple averaging" methodology resulted in a finding of dumping based solely on pre-devaluation sales. That methodology was, therefore, flatly inconsistent with the injury analysis, which found injury based primarily on post-devaluation imports. The "multiple averaging" methodology was, therefore, particularly distortive in this case, and thus cannot be reconciled with the fair comparison requirement of Article 2.4 of the Anti-Dumping Agreement. The resulting anti-dumping measures are thus inconsistent with Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.

C. THE COMPARISON OF NORMAL VALUE TO EXPORT PRICE WAS UNFAIR AND CONTRARY TO THE REQUIREMENTS OF THE ANTI-DUMPING AGREEMENT, BECAUSE THE UNITED STATES INFLATED THE NORMAL VALUE BY "DOUBLE CONVERTING" DOLLAR-PRICED SALES IN KOREA INTO WON AND THEN BACK INTO DOLLARS USING DIFFERENT EXCHANGE RATES

4.64 As discussed in the Statement of Facts, POSCO had a significant quantity of "local sales" of both SSPC and SSSS during the investigation periods. These "local sales" were negotiated and invoiced in US dollars, but the payments were made in Korean won. Significantly, to ensure that payment accurately reflected the actual dollar value of the sales, the amount of the Korean won payment for these "local sales" was not fixed at the time of the sales negotiation or at the time of invoice. Instead, the payment in Korean won was determined by applying the market exchange rate (as announced by the official Korean Exchange Bank) for the date of payment to the US dollar amount shown on the invoice. Thus, the economic reality is that the final payment for these sales is determined by the US dollar amount shown on the invoice, and not by the Korean won amount recorded in POSCO's accounting records at the time of invoice. In economic terms, these "local sales" are equivalent to sales that are invoiced and paid in US dollars.¹³⁸

4.65 Nevertheless, in its final determinations, the United States chose to analyze these local sales based not on the US dollar price from the invoice, but on the Korean won amounts recorded in POSCO's accounting records at the time of invoice. This entailed a two-step process.

• First, the United States included the Korean won amounts from POSCO's accounting records in its calculation of the average price, in Korean won, for home-market sales. Since the won amounts in the accounting records were converted from the invoice prices in dollars (so that the books would be kept in a single currency, in accordance with normal accounting practices) at the market exchange rate announced by the official Korean Exchange Bank for the date of invoice, this meant that the US methodology effectively first converted the US dollar prices of the "local sales" from dollars into won at that rate.
   
• Then, the average home-market price in won was converted into US dollars using a weighted average exchange rate, based on the exchange rates announced by the New York Federal Reserve, for the dates of the US sales during the relevant period.¹³⁹

Thus, the dollar-denominated prices for "local sales" were converted into Korean won using one exchange rate and then converted back into US dollars using a different exchange rate. Not surprisingly, this "double conversion" using different exchange rates distorted the price comparisons and inflated the dumping margins found by the United States.¹⁴⁰

1. The "Double Conversion" of the Dollar-Denominated Home-Market Sales Prices Violated Article 2.4.1 of the Anti-Dumping Agreement, Which Permits Currency Conversions Only When Such Conversions Are Required

4.66 As discussed in Part IV.B.2 supra, Article 2.4.1 of the Anti-Dumping Agreement establishes the methodology for converting currencies in anti-dumping investigations. The introductory clause of Article 2.4.1 makes clear, however, that resort to this methodology is limited to those circumstances "[w]hen the comparison under paragraph 4 requires a conversion of currencies."

4.67 Past decisions by WTO panels indicate that an action may be considered to be "required" when there "is no other reasonable alternative."¹⁴¹ If there is a "reasonable alternative," then the action is not "required" within the meaning of the WTO Agreements.

4.68 In this case, the United States clearly had a reasonable alternative to the double-conversion of currencies: It could simply have used the original dollar prices on POSCO's invoices. Needless to say, a home-market sale priced in dollars may be readily compared to an export sale priced in dollars without any need for currency conversion. Nevertheless, the United States passed over the obvious choice in favour of a more complex (and less accurate) methodology. This "double conversion" was unnecessary.¹⁴²

4.69 By double-converting the dollar-denominated home-market prices of POSCO's local sales, the United States departed from the requirement in Article 2.4.1 that currency conversions be employed only when "required." As a result, the anti-dumping measures against SSPC and SSSS from Korea violate Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.

2. The "Double Conversion" Methodology Employed by the United States Is Unreasonable and Departs from Established Practice Without Adequate Explanation, and Thus Is Inconsistent with the "Uniform" and "Reasonable" Administration of the Anti-Dumping Laws Required by GATT Article X:3(a) and Article 12 of the Anti-Dumping Agreement

4.70 As discussed in Parts IV.A.3 and IV.B.3 supra, Article X:3(a) of GATT 1994 obligates Members to administer their anti-dumping laws in a "uniform, impartial, and reasonable manner." Article X:3(a) establishes "certain minimum standards for transparency and procedural fairness" that are amplified by the procedural requirements of Article 6.1, 6.2, 6.9, and 12.2 of the Anti-Dumping Agreement. Together, these provisions establish a broad requirement that the investigating authorities interpret the relevant laws in a reasonable and consistent manner - and that they provide private parties with an explanation of their proposed interpretation of the relevant laws in a manner that will allow the private parties a "full" and "ample opportunity" to defend their interests.

4.71 In "double converting" the prices of the "local sales," the United States acted "unreasonably" and failed to comply with its procedural obligations in several respects. In addition, the "double conversion" caused a distortion in the calculation of POSCO's home-market price, which denied POSCO the benefits of the "fair comparison" between export price and home-market price to which it is entitled under Article 2.4 of the Anti-Dumping Agreement.

(a) The "Double Conversion" Methodology Employed by the United States Constituted a Departure from Its Previous Practice that Was Unwarranted, Contrary to the Evidence, and Inadequately Explained

4.72 As discussed in the Statement of Facts,¹⁴³ the "double conversion" of the prices of the "local sales" from dollars to won to dollars (at different exchange rates) was an unprecedented departure from the established policy of the DOC of "accept[ing] charges in the currency in which the charges are made."¹⁴⁴ In fact, neither the United States nor the petitioners in the investigations cited a single case before the investigations at issue where the United States treated a home-market sale priced in dollars as if it had been priced in the local currency.

4.73 By contrast, there are several cases - most notably Fresh Cut Roses from Colombia - in which the United States properly declined to "double convert" home-market sales that were priced in dollars.¹⁴⁵ The United States claimed that the factual situation in Fresh Cut Roses from Colombia differed from the factual situation presented in the SSPC and SSSS cases. However, as discussed below, the purported distinctions offered by the United States made no sense.

4.74 The United States claimed that the SSPC and SSSS cases could be distinguished from the Colombian Roses case because "a comparison of the internal exchange rate used by POSCO to the market exchange rate used by the Department shows that the two exchange rates are quite dissimilar."¹⁴⁶ The United States claimed that this difference was "in contrast to Fresh Cut Roses from Colombia in which the Department verified that the payment in pesos reflected the market exchange rate at the time of payment."¹⁴⁷ This proposed distinction does not withstand scrutiny.

• First, the verification in the SSPC and SSSS case confirmed that the internal exchange rates used by POSCO were the market exchange rates announced by the official Korean Exchange Bank for the date of the home-market sale.¹⁴⁸ Thus, the "internal" rates used by POSCO were not arbitrarily selected figures. To the contrary, they were the actual market rates for conversions of Korean won into US dollars in the Korean exchange market.
   
• Second, because exchange rates fluctuate within the course of the day and in different markets, there is no reason to expect the exchange rates published by the Korean Exchange Bank to match exactly the exchange rates published by the New York Federal Reserve Bank some hours later. However, the actual differences between the rates were, in fact, quite small. For example, in the SSSS case, the United States indicated that the difference between the Korean Exchange Bank rates used by POSCO and the New York Federal Reserve Bank rates was, for all comparisons, less than one per cent.¹⁴⁹
   
• Finally, it should be noted that the evidence indicates that, at least in the SSPC case, the United States made a clear error in its exchange rate comparison. The purported "market" exchange rates used in this comparison were not, as the United States claimed, the "Federal Reserve" rates. Instead, the purported "market" rates were, in fact, adjusted exchange rates calculated by the US Department of Commerce to implement provisions of US law that require a 60 day lag in exchange rates when a foreign currency has a "sustained movement" against the US dollar.¹⁵⁰ Moreover, these adjusted Commerce Department exchange rates were, for the relevant dates, quite different from the Federal Reserve rates.¹⁵¹ In fact, the actual Federal Reserve rate was much closer to POSCO's "internal" rate than it was to the adjusted Commerce Department rate that the United States relied upon in its analysis. Compounding the error is the fact that the DOC lag rate has no bearing on cases where a foreign currency is depreciating against the dollar, as its role is strictly limited to cases of appreciation. Thus, the exchange rate comparison that the United States relied upon was deeply flawed.

4.75 In the SSSS decision, the United States offered an alternative basis for distinguishing the Fresh Cut Roses decision. It claimed that, in the Fresh Cut Roses case, "all prices and costs, both in the home market and in the US, were dollar denominated�." while in the case of SSSS "the vast majority of the costs incurred for home market and US sales are denominated and paid by POSCO in won."¹⁵² Once more, however, the proposed distinction is unpersuasive.

• First, the proposed distinction has no bearing on t he issue before the Panel. POSCO has not asserted that the home-market sales or costs that were denominated in Korean won should not have been converted into US dollars using an appropriate exchange rate. Instead, it has asserted only that the US dollar-denominated home-market sales should not have been double-converted. The fact that there were other won-denominated sales and costs of SSSS, which obviously had to be converted into dollars, does not affect in any way the appropriateness of "double converting" the prices that already were in dollars.
   
• Second, the distinction proposed by the United States is contrary to its established practice in virtually all cases. According to the United States, the double-conversion was necessary to treat the dollar-denominated home-market prices consistently with the foreign-currency-denominated costs. In virtually every US anti-dumping investigation, however, some of the costs incurred in connection with sales to the United States (such as production costs, freight from the factory to the port, and brokerage and handling fees in the exporting country) are incurred and denominated in the foreign currency, while the sales prices are denominated in US dollars. The United States does not "double convert" the dollar-denominated US sales prices (first into the foreign currency at one exchange rate, and then back into dollars at another exchange rate) to be consistent with the treatment of the foreign-currency-denominated costs. It is inconsistent, then, to insist that such double-conversion is necessary for dollar-denominated home-market sales.
   
• Finally, the factual basis for the distinction proposed by the United States is suspect: The decision in Fresh Cut Roses makes no mention whatsoever of the currency of the exporter's costs.¹⁵³ Thus, this factor does not appear to have been of any significance to that decision.

4.76 Therefore, the unprecedented "double conversion" of dollar-denominated home-market sales prices by the United States in the circumstances of this case violates obligations of the United States under GATT 1994 and the Anti-Dumping Agreement. In particular, by failing to follow its established methodology and by providing incorrect and incoherent justifications for this failure, the United States acted in a manner that was neither "uniform" nor "reasonable," in violation of Article X:3(a) of GATT 1994. In addition, by providing incorrect and irrelevant arguments to justify its departure from the standard methodology, the United States failed to provide the statement of reasons required by Article 12.2 of the Anti-Dumping Agreement. As a result, the US anti-dumping measures against SSPC and SSSS from Korea violate Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.

(b) The "Double Conversion" Methodology Adopted by the United States Unreasonably Penalizes Exporters for Differences Between Official Korean and US Exchange Rates, and Is Otherwise Unreasonable

4.77 As discussed in the Statement of Facts, the United States disregarded the economic reality of the "local sales" - i.e., that the ultimate payment was dictated by the dollar price from the invoice and not by the Korean won amount recorded in POSCO's accounting records at the time of invoice. Instead, the United States applied a "double conversion" methodology that penalized POSCO by converting the prices of the "local sales" from dollars to won to dollars in a manner that artificially inflated the normal value and hence the dumping margin.¹⁵⁴

4.78 The United States claimed that its "double conversion" of the prices of the "local sales" was necessary, primarily because the exchange rates used by POSCO did not match the exchange rates published by the Federal Reserve Bank of New York - which are based on the exchange rates at 12:00 noon in New York on the relevant dates.¹⁵⁵ In other words, the United States took the position that POSCO acted unreasonably by making currency conversions for accounting purposes using the market exchange rates announced by the official Korean Exchange Bank, and not the exchange rates set by a New York bank eight or nine hours after the close of business in Korea.¹⁵⁶ Significantly, the United States never even attempted to explain why the New York Federal Reserve exchange rates should be considered more accurate than the Korean Exchange Bank rates, or why a Korean company should be expected to use New York exchange rates with respect to its accounting in Korea of domestic transactions within Korea.

4.79 Moreover, in applying this rule in the SSPC case, the United States compared the exchange rate used by POSCO to the wrong exchange rate. While the stated justification for the "double conversion" was the alleged discrepancy between POSCO's "internal rate" (i.e., the rate of the Korean Exchange Bank) and the Federal Reserve rate, the United States failed to use the Federal Reserve rate for that comparison.¹⁵⁷

4.80 The consequence of the double-conversion methodology applied by the United States in this case was to increase the dumping margins found. As a practical matter, then, the United States ruled that a Korean company that made dollar-denominated "local sales" to Korean customers would be penalized (through the application of a distortive double-conversion methodology) whenever the exporter relied on the market exchange rates published by an official Korean bank and failed accurately to predict (1) the New York Federal Reserve rates announced some eight or nine hours after the close of business in Korea, or (2) the adjusted rates calculated some time afterwards by the DOC from the Federal Reserve rates.

4.81 Such a result cannot be consistent with the object and purpose of either Article VI of GATT 1994 or the Anti-Dumping Agreement. It is patently unreasonable for the United States to expect that a Korean company will use New York exchange rates rather than official Korean exchange rates to record Korean domestic sales in its accounting books. It is even more unreasonable for the United States to expect that a Korean company will use exchange rates in its accounting records exchange rates that are not actual market rates, but instead reflect after-the-fact calculations by the DOC.

4.82 Thus, the "double conversion" methodology and the rationale provided therefor are not "reasonable" and the United States failed to administer its anti-dumping laws in the manner required by Article X:3(a) of GATT 1994. The resulting anti-dumping measures accordingly violate Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.

3. The Double-Conversion Methodology Adopted by the United States Unfairly Penalizes Exporters for Differences between Official Korean and US Exchange Rates, Even Though Such Differences Cannot Be Anticipated and Are Beyond the Exporters' Control

4.83 In addition to the substantive and procedural errors demonstrated above, the "double conversion" methodology also suffered from a larger problem: By penalizing POSCO for differences between the Korean and US exchange rates, which is clearly a factor beyond POSCO's control, the United States calculated the normal value in a manner that was unfair.

4.84 As discussed in Part IV.A.2 supra, the "most fundamental" responsibility of this Panel is to ascertain whether or not the United States afforded POSCO the "fair comparison" mandated by Article 2.4 of the Anti-Dumping Agreement. As discussed in the Statement of Facts, the "double conversion" methodology distorted the calculation of the normal value. By converting the prices of the "local sales," which constituted a significant percentage of POSCO's total sales, from dollars to won to dollars at different exchange rates, the United States distorted the calculation of normal value. Indeed, in the example provided above, the "double conversion" increased the normal value of the "local sale" by an astounding { }.¹⁵⁸

4.85 This distortion in the calculation of the normal value inevitably denied POSCO a "fair comparison" between export price and normal value: The United States did not compare the export price to the true normal value, but to an inflated normal value. An overstated dumping margin resulted from this unfair comparison.

4.86 The "double conversion" methodology also led to an "unfair comparison" in another respect. As demonstrated in Part IV.C.2 supra, this methodology "unreasonably" penalized POSCO for the differences between the exchange rates of the Federal Reserve and the Korean Exchange Bank. It was likewise "unfair" to penalize POSCO for these differences.

4.87 There can be no doubt that the differences in exchange rates were beyond POSCO's control. In particular, POSCO could not have predicted how exchange rates might change between the time they were fixed by the Korean Exchange Bank (during business hours in Korea) and the time they were fixed by the Federal Reserve (eight or nine hours later) or by the DOC (even later). And, as the judicial decisions of the United States have recognized, it is "unreal, unreasonable and unfair" for a finding of dumping to be based on "a factor beyond the control of the exporter."¹⁵⁹

4.88 Consequently, the treatment of these "local sales" by the United States was inconsistent with the "fair comparison" requirement of Article 2.4 of the Anti-Dumping Agreement, and the resulting anti-dumping measures therefore violated Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.

V. CONCLUSION

5.1 Anti-dumping investigations are, by their very nature, complex proceedings requiring detailed analysis of highly technical data and issues. The rules governing such investigations are, therefore, also complex and technical. The provisions of Article VI of GATT 1994 and the Anti-Dumping Agreement establish highly technical substantive and procedural rules that Members must follow before they may impose anti-dumping duties.

5.2 These technical rules are critical. Because dumping calculations are so detailed, decisions on what might appear to be minor technical or procedural issues may create dumping margins, or inflate small dumping margins enormously. Without close scrutiny of these technical issues, importing countries will invariably be tempted to use technicalities to impose unwarranted anti-dumping measures to satisfy the demands of politically important domestic industries.

5.3 As discussed above, it is clear that the United States failed to comply in the SSPC and SSSS investigations with the technical rules established by Article VI of GATT 1994 and the Anti-Dumping Agreement. As a substantive matter, the United States failed to comply with the substantive rules that, inter alia: (1) limit the permissible adjustments to export price and normal value to "differences which are demonstrated to affect price comparability;" (2) require that dumping margins be calculated by comparing a single average export price to a single average normal value; and (3) permit currency conversions only when they are required. As a procedural matter, the United States failed to conform to the standards that require Members, inter alia, to: (1) administer their laws in a "uniform, impartial and reasonable manner;" (2) give an exporter notice of all "essential facts" needed to allow a "full" and "ample opportunity" to defend its interests; and (3) provide a full explanation of the reasons for their decisions. As a technical matter, then, the anti-dumping measures imposed by the United States cannot be sustained.

5.4 The flaws in the methodologies employed by the United States were not, however, minor technicalities. Instead, they went to the very heart of the limitations imposed by GATT 1994 and the Anti-Dumping Agreement. The inflated duties imposed in these cases demonstrate how such technicalities can, if left unchallenged, eviscerate the disciplines on the abuse of anti-dumping measures that the WTO Members had sought to impose. Without close scrutiny and effective oversight by Panels such as this one, importing countries will invariably be tempted to use technicalities just as they were used in this case, to impose unwarranted anti-dumping measures when convenient for domestic political purposes. This Panel now has the opportunity and the obligation to uphold the principle that methodologies that depart from the strict requirements of GATT 1994 and the Anti-Dumping Agreement, and result in inflated anti-dumping measures, will not be allowed to pass uncontested.

5.5 But the technical violations of the requirements of GATT 1994 and the Anti-Dumping Agreement are only one part of the error in the US methodologies. More fundamentally, the US methodologies were unfair. Each of the challenged methodologies placed POSCO, and all other exporters, in a situation where their exposure to anti-dumping measures was based not on their own sales practices, but on the whims of the investigating authorities and on unpredictable forces beyond their control. Thus, under the US methodology,

• An exporter that sold its products at exactly the same prices in both the United States and its home-market might be found to have dumping margins on all of its US sales if, after it made its sales, it turned out that one of its US customers went bankrupt and failed to pay.
   
• An exporter that sold its products for the same average prices in the United States and the home-market, might be found to have dumping margins on its sales, if the investigating authority decides to depart from its established precedents and chop up the investigation period into shorter "averaging periods" that distort the calculations.
   
• And, finally, an exporter that sold its products at the same price in US dollars in both the United States and the home market, might be found to have dumping margins on its sales if the investigating authority chooses to convert the dollar-denominated prices of some home-market sales into the foreign currency using one exchange rate, and then convert that foreign currency amount back into dollars using another exchange rate.

5.6 Obviously, these results cannot be consistent with the object and purpose of Article VI of GATT 1994 or the Anti-Dumping Agreement. Indeed, the "fair comparison" requirement of Article 2.4 of the Anti-Dumping Agreement provides this Panel with an independent justification for reviewing whether the challenged methodologies are unbiased and objective. And, under such a review, these methodologies cannot be sustained.

5.7 For the reasons presented in this Submission, particularly with regard to (1) the treatment of POSCO's sales to an unaffiliated US customer that later went bankrupt without paying POSCO, (2) the division of the investigation period into "multiple averaging periods," and (3) the treatment of POSCO's dollar-denominated home-market sales, Korea respectfully requests the Panel to find that the US anti-dumping measures at issue, including actions preceding those measures, are inconsistent with the following provisions of the Anti-Dumping Agreement and GATT 1994:

• Article VI:1 of GATT 1994 and Article 2.4 of the Anti-Dumping Agreement, which permit adjustments to be made only for differences that are demonstrated to affect price comparability;
   
• Article 2.4 of the Anti-Dumping Agreement, which also requires the investigating authorities to make a fair comparison of the export price and the normal value;
   
• Article 2.4.1 of the Anti-Dumping Agreement, which permits alterations to the standard price comparison methodology to account for currency movements only when the exporting country's currency is appreciating against the importing country's currency;
   
• Article 2.4.1 of the Anti-Dumping Agreement, which also permits currency conversions only when such conversions are required;
   
• Article 2.4.2 of the Anti-Dumping Agreement, which requires that the calculation of dumping margins be based on a comparison of a single average normal value to a single average of prices of all comparable export transactions;
   
• Articles 6.1, 6.2, and 6.9 of the Anti-Dumping Agreement, which require the investigating authorities to give exporters notice of all essential facts in order to provide them with a full and ample opportunity to defend their interests;
   
• Article 12.2 of the Anti-Dumping Agreement, which requires the investigating authorities to provide a full explanation of the reasons for their determinations;
   
• Article X:3(a) of GATT 1994, which requires each WTO Member to administer its laws, regulations, decisions, and rulings in a uniform, impartial, and reasonable manner; and
   
• Article VI of GATT 1994 and Article 1 of the Anti-Dumping Agreement, whichonly permit anti-dumping measures to be imposed in the circumstances provided for in Article VI and pursuant to investigations conducted in accordance with the Anti-Dumping Agreement.

5.8 Therefore, Korea requests that the Panel find that: (i) the United States has nullified or impaired a benefit accruing to Korea, directly or indirectly, under the WTO Agreements; and (ii) the United States is impeding the achievement of the objectives of the WTO Agreements.

5.9 Korea further requests that the Panel recommend that the United States bring its anti-dumping measures against SSPC and SSSS from Korea into conformity with the WTO Anti-Dumping Agreement and GATT 1994. And, specifically, Korea requests that the Panel suggest that the United States revoke the anti-dumping duty orders concerning SSPC and SSSS from Korea.

113 United States - Import Prohibition of Certain Shrimp and Shrimp Products, Report of the Appellate Body, WT/DS58/AB/R, adopted on 6 Nov. 1998, at para. 183 (holding that the "minimum standards" established by Article X:3(a) were not satisfied by the United States� administration of its restrictions on certain shrimp imports).

Cf. United States - Restrictions on Imports of Cotton and Man-made Fibre Underwear, Report of the Appellate Body, WT/DS24/AB/R, adopted on 25 February 1997, at 21 ("Article X:2, General Agreement, may be seen to embody a principle of fundamental importance�. The relevant policy principle is widely known as the principle of transparency and has obviously due process dimensions.") (emphasis added). We note that, while the Appellate Body was addressing Article X:2, the "due process dimensions" it observed are even greater in the context of Article X:3(a).

114 Article X:1 of GATT 1994 provides for the prompt and effective publication, inter alia, of "[l]aws, regulations, judicial decisions and administrative rulings of general application, made effective by any [Member], pertaining to � rates of duty, taxes or other charges, or to requirements, restrictions or prohibitions on imports � or affecting their sale [or] distribution.�"

115 European Communities - Regime for the Importation, Sale and Distribution of Bananas, Report of the Appellate Body, WT/DS27/AB/R, AB-1997-3, at para. 203-204 (9 Sept. 1997) ("Bananas III" ) (holding that Article X:3(a) applies to the administration of import licensing measures notwithstanding the existence of the WTO Agreement on Import Licensing, although the panel should have considered the more specific agreement first) (emphasis added).

116 Cf. id. (finding "for all practical purposes, interchangeable" the requirements of GATT Article X:3(a) with the requirements of Article 1.3 of the Import Licensing Agreement that measures be "neutral in application and administered in a fair and equitable manner") (emphasis added).

117 See paras. 3.35 - 3.36 supra.

118 SSPC Final Determination, ROK Ex. 11, at 15447-49; SSSS Final Determination, ROK Ex. 24, at 30671-74.

119 SSPC Final Determination, ROK Ex. 11, at 15449.

120 SSSS Final Determination, ROK Ex. 24, at 30674.

121 See para. 3.36 supra.

122 GATT 1994, art. X:3(a). It should be noted that the DOC�s failure to provide a reasoned explanation for its departure from its own precedents is also inconsistent with fundamental principles of US administrative law. See Kenneth C. Davis and Richard J. Pierce, Jr., 2 Administrative Law Treatise, at 206 (3rd ed. 1994) (ROK Ex. 57).

123 Cf. Korea - Anti-Dumping Duties on Imports of Polyacetal Resins from the United States, Report of the Panel, ADP/92, adopted on 27 Apr. 1993, paras. 222-224 (finding that the investigating authorities did not provide an "adequate statement of reasons" under Article 8:5 of the Tokyo Round Anti-Dumping Code [the predecessor of Article 12.2 of the Anti-Dumping Agreement] where the statement was "internally contradictory").

124 See para. 3.39 supra.

125 Article 2.4.2 contains an exception to its rule that either an average must be compared to an average or individual transactions must be compared to individual transactions. The second sentence of that provision provides that:

A normal value established on a weighted average basis may be compared to prices of individual export transactions if the authorities find a pattern of export prices which differ significantly among different purchasers, regions or time periods, and if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average-to-weighted average or transaction-to-transaction comparison.

159 Melamine Chemicals v. United States, ROK Ex. 56, at 933.

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