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

Report of the Panel

(Continued)

1. RESPONSES OF KOREA TO QUESTIONS POSED BY THE PANEL 

1. GENERAL
    
2. MULTIPLE AVERAGING
    
3. TREATMENT OF UNPAID SALES 
    
4. CURRENCY CONVERSION

2. RESPONSES OF KOREA TO QUESTIONS POSED BY THE UNITED STATES 

NOTE: In this submission, including the exhibits, Korea has placed information which POSCO has previously designated as business proprietary information in brackets ("{ }"). This information has been omitted and the brackets left in the text."{ }"

This submission sets forth the responses of the Republic of Korea to the questions posed by the Panel during the First Meeting of the Panel. For the convenience of the Panel and the Parties, each of the questions is reproduced below, followed by Korea's response.

As an initial matter, Korea notes that several of the Panel's questions inquire about facts on the record of the SSPC and SSSS investigations. Korea respectfully submits that, if the US anti-dumping measures are to be upheld, they must be upheld on the basis of the reasons articulated in the final determinations and the final analysis memoranda. The United States may not introduce post hoc arguments to support its actions. Nor may it now rely on facts in the record that it did not rely upon in the final determinations and the final analysis memoranda.

In the recent High Fructose Corn Syrup case under the Anti-Dumping Agreement, the Panel noted that "the only discussion concerning the retroactive application of anti-dumping duties is contained in" one paragraph of the final determination, which had "no analysis" of the relevant facts. On this basis, the HFCS Panel found that the Mexican investigating authority (SECOFI) had failed to provide adequate support for its ruling, and the Panel expressly declined to look at other parts of the record for possible support.¹ The HFCS Panel also cited the Tokyo Round anti-dumping decision in Polyacetal Resins for the proposition that allowing post hoc arguments would undermine the goals of "transparency" and "orderly dispute settlement."²

Accordingly, Korea respectfully submits that this Panel should not allow the United States to defend its measures by pointing to any facts or reasons not mentioned in its final determinations or analysis memoranda - although the Panel may consider other facts in the record as necessary to evaluate whether the United States properly established and evaluated the facts within the meaning of Article 17.6(i). For that reason, Korea will answer questions about the record principally with respect to the facts relied upon in the US final determinations and analysis memoranda, and will also provide additional information about other record evidence as appropriate.

I. RESPONSES OF KOREA TO QUESTIONS POSED BY THE PANEL

A. GENERAL

Q.1. (For the United States) Does the United States agree with Korea that the first sentence of Article 2.4 represents a "free standing and substantial" rule? If not, please explain your view, taking into account the differences between the Tokyo Round AD Code and the WTO AD Agreement in this respect.

The contrast between the current first sentence of Article 2.4 and the predecessor provision in the Tokyo Round Anti-Dumping Code is striking. The Tokyo Round Code did not contain a separate sentence commanding that "[a] fair comparison shall be made between the export price and the normal value," as the current Anti-Dumping Agreement provides. Instead, the Tokyo Round Code provided only that,

In order to effect a fair comparison ... the two prices shall be compared at the same level of trade ... and in respect of sales made at as nearly as possible the same time.³

The language of the Tokyo Round Code thus explicitly linked the "fair comparison" requirement to the requirements that the comparison be made between sales at the same level of trade and at the same time. In other words, before the Uruguay Round, a comparison that complied with the other requirements of the Anti-Dumping Code was deemed to be "fair."⁴

There is no such linkage in the current Anti-Dumping Agreement. Instead, the "fair comparison" requirement is stated in a sentence that is independent of the other requirements of Article 2.4. It follows, then, that the "fair comparison" requirement of the first sentence of Article 2.4 must be construed as imposing disciplines other than those required by the other provisions of Article 2.4. Any other interpretation would render the first sentence of Article 2.4 "inutile."⁵

B. MULTIPLE AVERAGING

Q.1. (For Korea) In its first submission (para. 4.46), Korea argues that Article 2.4.2 "does not allow for the comparison of 'multiple averages' to 'multiple averages'." In its oral statement at the first meeting, however, Korea states (para. 54) that it does not argue that Article 2.4.2 precludes Members from calculating separate averages for different products. In light of the nature of Korea's arguments (focus on the singular "a weighted average" and use of the word "all") please explain how Article 2.4.2 can be interpreted to permit "multiple averaging" based on product type while not permitting multiple averaging based on sub periods. Please explain in addition Korea's view about the consistency with Article 2.4.2 of multiple averaging in the context of level of trade and quantities.

There is nothing in the Anti-Dumping Agreement that permits the investigating authority to divide the investigation period into separate sub-periods to account for currency movements. There are provisions that permit separate dumping calculations for different products and for different levels of trade.

Article 2.4.2 provides that the average normal value must be compared to the average price for "comparable export transactions." The word "comparable" means, in essence, "capable of being compared."⁶ The determination of whether sales should be included in the average export price and normal value (for any product comparison) must, therefore, be based on an analysis of the limitations on comparisons imposed by the Anti-Dumping Agreement. Transactions that can be compared under the provisions of the Anti-Dumping Agreement are "comparable" transactions. Transactions that cannot be compared under the provisions of the Anti-Dumping Agreement are not "comparable" transactions.

There are, of course, a number of substantive limitations on the transactions that may be included in comparisons under the Anti-Dumping Agreement:

First, Article 2.1 of the Anti-Dumping Agreement only permits comparisons of products with identical (or, in the absence of identical, the most similar) physical characteristics.⁷ Sales of products with less similar physical characteristics are, therefore, not "comparable transactions."

Second, the second sentence of the chapeau of Article 2.4 only permits comparisons at the same level of trade. This means that sales at different levels of trade are not "comparable transactions."

Third, the second sentence of the chapeau of Article 2.4 also requires that comparisons be made "in respect of sales at as nearly as possibly the same time." This means that when the transaction-to-transaction methodology is used, sales in different parts of the investigation period may not be "comparable transactions." Similarly, when the average-to-average methodology is used, the sales in each market must, on average, have been made at the same time in order to be considered "comparable transactions."

Fourth, the first sentence of the chapeau of Article 2.4 - which requires that a "fair comparison" be made - only permits comparisons of transactions that may fairly be compared. This mean that transactions whose comparison would lead to unfair results are not "comparable transactions."

These substantive limitations define the transactions that are "comparable" within the meaning of the Anti-Dumping Agreement. If transactions may be included in the comparisons under these rules, then they are "comparable" (i.e., "capable of being compared") under the Agreement.

On the other hand, there are no provisions in the Anti-Dumping Agreement that limit, due to movements in exchange rates, the transactions that may be included in comparisons. Article 2.4.1 is the only provision of the Anti-Dumping Agreement addressing exchange rates. That provision does require investigating authorities to adjust the dumping calculation methodology to ensure that currency fluctuations are ignored and that exporters are "allowed" 60 days to adjust export prices in response to a sustained movement in the exchange rate. However, the provisions of Article 2.4.1 do not in any way limit the ability of the investigating authority to compare transactions before and after the currency fluctuation or sustained movement. They do not indicate that sales before the fluctuation or sustained movement cannot be compared to sales during or after the fluctuation or sustained movement.

Indeed, the United States has specifically recognized this fact. In its first submission, it specifically rejected the argument that the Article 2.4.1 "establishes a limit on which transactions may be considered 'comparable' within the meaning of ... Article 2.4.2."⁸

Q.2. (For Korea) Is it the view of Korea that Article 2.4.2 prohibits multiple averaging based on sub periods in all cases, or only in cases where such averaging is asserted to be justified as a result of a devaluation? What is Korea's view about the consistency with Article 2.4.2 of multiple averaging based on sub periods in the context of (a) high inflation in the exporting country; (b) differing proportional volumes of sales in the home and export markets combined with consistent upward or downward trends in global prices of a product during the POI?

The issue of the permissibility of a "multiple-averaging" methodology in situations involving high inflation or consistent upward or downward trends in global prices is not presented in this case. Nevertheless, Korea would note that those situations present different issues than the depreciation of a currency.

Most importantly, in circumstances where there is high inflation or consistent trends in global prices, there are discernible differences in the conditions and terms of sale - especially in the prices charged by a seller within a particular market. By contrast, a currency depreciation does not require a seller to change the prices it charges within a market. Instead, it simply involves a change in the tool that is used by investigating authorities to facilitate the comparison of export price and normal value by putting both numbers in the same currency.

The evidence in these cases demonstrates that POSCO's prices (and other sales terms) in Korea and in the United States changed little throughout the investigation periods - despite the depreciation of the Korean won. In other words, there was no evidence of a change in POSCO's selling practices due to the currency depreciation. Consequently, the analogy the United States has attempted to draw to situations involving high inflation or consistent price trends is not persuasive.

Q.3. (For Korea) In respect to Korea's claim that the use of multiple averages based on sub periods is inconsistent with Article 2.4.2 of the ADP Agreement, is it Korea's view that it is always inconsistent with Article 2.4.2 to calculate weighted averages for sub periods within the period of investigation? Or does Korea consider that the use of multiple averages is only prohibited by Article 2.4.2 where the methodology that is then used to combine those weighted averages to arrive at an overall margin of dumping involves "zeroing"? If the latter is the case, please explain how the issue of "zeroing" is within the Panel's terms of reference.

As explained in Korea's First Submission, the Anti-Dumping Agreement does not permit the practice of splitting the investigation period into separate sub-periods for purposes of calculating the average normal value and export price. As a practical matter, however, the splitting of the period would have had little significance if the United States had not combined the margins for each sub-period by "zeroing" any negative margins. The adverse effect of the "multiple-averaging" methodology was, therefore, a direct result of the practice of "zeroing."

In this connection, it may be useful to clarify what Korea does and does not claim with respect to "zeroing." Korea has not claimed in this proceeding that "zeroing" per se violates the Anti-Dumping Agreement. That would be outside the Panel's terms of reference.

On the other hand, Korea does claim that the "multiple averaging" methodology used by the United States violates the Anti-Dumping Agreement. To the extent that "zeroing" was an integral part of the "multiple averaging" methodology, it is properly within the Panel's terms of reference, and it is properly the subject of Korea's arguments.

It clearly is possible for the Panel to address the issue of "multiple averaging" without addressing the issue of "zeroing" per se .⁹ For example, "zeroing" may be permitted in the special circumstances where an average-to-transaction methodology is permitted. Or, "zeroing" may be permitted where separate dumping margins are calculated for different "like products" or for different "levels of trade." However, those issues are not presented here. Instead, the issue presented here is whether the United States was permitted to inflate the dumping margins by splitting the investigation period, when the Anti-Dumping Agreement does not permit such a calculation.

Q.4. (For the United States) Please explain how, in the view of the United States, exchange rates can affect the comparability of export prices and prices in the market of the exporting country.

Under the Anti-Dumping Agreement, the exchange rate is simply a tool that is used to convert an amount in one currency into another when required for a price comparison.¹⁰ As discussed above, in the response to question B.1, nothing in the Agreement suggests that movements in exchange rates are to affect the choice of transactions to be included in the comparison. As the Cotton Yarn panel observed, "The exchange rate in itself is not a difference affecting price comparability."¹¹

In short, the structure of the Agreement indicates that the exchange rate is to be considered only after the investigating authority has identified the "comparable transactions" - that is, the transactions that may be included in the comparison under the relevant provisions of the Anti-Dumping Agreement. Thus, the exchange rates cannot affect the "comparability" of export and home-market prices.

Q.5. (For Korea) The United States contends that Korea's fair comparison claim with respect to multiple averaging is in fact a claim under Article 3 of the AD Agreement which is outside the Panel's terms of reference. Please respond.

There is no basis for the US attempt to recast Korea's Article 2.4 "fair comparison" claim as belonging under Article 3.

Korea is not currently challenging the injury determinations made by the United States in the Sheet and Plate cases. Korea is challenging the methodology by which the United States determined the dumping margins that were, inter alia, used in the injury analysis. The calculation of those dumping margins is, of course, subject to the disciplines of Article 2 of the Anti-Dumping Agreement - including the "fair comparison" requirement of Article 2.4.

In this regard, it must be noted that the argument made by the United States invites inconsistency. If Korea were to challenge the US reliance in its injury analysis on improperly calculated dumping margins under Article 3, the US response would undoubtedly be that such issues must be addressed under Article 2. Or, to put it in more concrete terms, the US International Trade Commission (which is responsible for the injury analysis under US law) would undoubtedly argue that it simply takes the dumping margins announced by the Department of Commerce ("DOC") as a given, and it is not permitted to conduct its own separate dumping analysis. The United States should not be allowed to evade international scrutiny of its anti-dumping measures simply because it has bifurcated responsibility for administering its anti-dumping laws.

C. TREATMENT OF UNPAID SALES

Q.1. (For both parties) Were all of the sales to ABC Company in the plate and sheet investigations made through POSAM? If not, please provide details.

All of POSCO's sales to the ABC Company in the Plate and Sheet investigations were made through POSAM.

Q.2. (For both parties) Was there any evidence/argument in the record of the plate and/or sheet investigations relating to whether POSCO had any knowledge of ABC company's precarious financial condition at the time it made the sales in question? If so, please specify.

As noted in Korea's First Submission, the DOC specifically found that "at the time the [sales] were made, POSCO was not aware that the customer would declare bankruptcy."¹² The United States appears to concede this point.¹³ All of the relevant evidence in the record of the Plate and Sheet investigations supports the conclusion that POSCO had no knowledge of the ABC Company's precarious financial condition at the time it made its sales.¹⁴

Q.3. (For both parties) Does the record in the plate and/or sheet investigations contain any information regarding non payment by either US or Korean customers other than ABC company? If so, please specify.

Significantly, there is no indication in the discussion of the "bankrupt sales" issue in either the final determinations or final analysis memoranda for SSPC or SSSS that the DOC considered evidence of other non-payments, in Korea or the United States, in deciding whether to make an adjustment for the unpaid sales to the ABC Company. The United States did not identify any evidence indicating that sales to US customers were inherently more risky than sales to home-market customers. The United States did not request or examine data concerning POSCO's historical bad debt experience in the two markets, from which an analysis of the risk of non-payment might be discerned.¹⁵

In both the Plate and Sheet investigations, the record clearly shows that POSCO had no prior non-payments on sales to the United States through its affiliated distributor, POSAM. This is true for all products, and not only for Plate and Sheet. POSAM did not even have a "bad debt" account.¹⁶

Korea is not aware of any record evidence as to whether POSCO ever had any non-payments on any sales to the United States through other channels. Korea observes that the mere existence of bad debt accounts in Korea covering worldwide exports would not in itself show that there had ever been any non-payments in the United States.

Q.4. (For the United States) The United States contends that, in respect of sales through POSAM, the United States deducted an allocated portion of the US bad debt expenses as part of the construction of the export price. Please indicate where in the record of the investigations this statement can be verified.

The record demonstrates that the United States deducted an allocated portion of the costs of the unpaid US sales from the sales prices to unaffiliated US customers for the sales made through POSAM. However, there is no indication in the final determinations or analysis memoranda that this adjustment was intended to "construct" the export price under Article 2.3, and not as an adjustment for "differences affecting price comparability" under Article 2.4.

It is significant that the DOC's final determinations indicated that the unpaid sales were being classified as a "direct" selling expense, and not as an "indirect" selling expense. Under US law, this was a signal that the DOC had determined that it would be appropriate to make a "circumstance of sale" adjustment for those expenses.¹⁷ In its oral statement, the United States conceded that "circumstance of sale" adjustments under US law correspond to an adjustment under Article 2.4.¹⁸ Consequently, a finding by the DOC that unpaid sales were "direct" selling expenses was necessarily a finding that an adjustment under Article 2.4 would be appropriate for them.

It is also significant that the United States conceded during the Panel's first meeting that the DOC made the adjustment for the cost of non-payment both to the indirect "constructed export price" sales and to the direct "export price" sales. The adjustment made to comparisons involving direct "export price" sales for the cost of non-payment cannot be justified under Article 2.3, because Article 2.3 only applies to indirect "constructed export price" sales through an affiliated importer. Consequently, the adjustment to the comparisons involving direct "export price sales" must be justified, if at all, under Article 2.4.

The most charitable interpretation, then, is that the United States now intends to argue that the adjustment to the indirect "constructed export price" sales was made under Article 2.3, while the adjustment to the comparisons involving direct "export price" sales (which was calculated in the same manner based on the same factual situation as the adjustment to indirect sales) was made under Article 2.4. Such an argument is, however, untenable.

The language of Article 2.4 addressing the adjustments for "differences affecting price comparability" does not make any distinction between direct "export price" sales and indirect "constructed export price" sales. The adjustment are, in both circumstances, the same. Consequently, the special adjustments required to "construct" the export price do not replace the normal adjustments. Instead, they are made in addition to the normal adjustments.

This conclusion is reinforced by a close analysis of the language of the third and fourth sentences of Article 2.4. The adjustments for "differences affecting price comparability" are described in the third sentence of Article 2.4. The fourth sentence of Article 2.4 then describes additional adjustments that are made only when constructing an export price (i.e., for comparisons involving the indirect "constructed export price" sales). Significantly, the fourth sentence does not state that the special constructed export-price adjustments are to be made in lieu of the normal adjustments described in the third sentence. Instead, the fourth sentence states that, for comparisons involving the indirect "constructed export price" sales, the special adjustments are "also" to be made.¹⁹ In other words, the normal adjustments described in the third sentence of Article 2.4 are made for all comparisons (including both direct "export price" sales and indirect "constructed export price" sales), and then, for the indirect "constructed export price" sales, the special adjustments described in the fourth sentence are "also" made. Consequently, the adjustments made to construct the export price are in addition to, and not a replacement for, the adjustments made for "differences affecting price comparability."

Because the United States made the adjustment for the actual costs of non-payment to the direct sales by POSCO, it has effectively taken the position that this adjustment was intended as a normal adjustment under the third sentence of Article 2.4 for "differences affecting price comparability." It cannot, therefore, also assert that the same costs are an appropriate adjustment to construct the export price, because the fourth sentence of Article 2.4 explicitly states that the adjustments to construct the export price are made in addition to, and not in lieu of, the normal adjustments under the third sentence of Article 2.4 for "differences affecting price comparability."

The United States must, therefore, defend its adjustment under the third sentence of Article 2.4. In these circumstances, its arguments concerning the permissible adjustments to construct an export price under Article 2.3 are irrelevant.

Q.5. (For the United States) Korea states (oral statement at the first meeting, para. 25) that the United States does not argue in its first submission that unpaid sales were an "other difference []. . . demonstrated to affect price comparability". Is Korea correct that the United States does not advance such an argument?

The United States did not proffer any argument, in its First Submission or Oral Statement, that the non-payments by the ABC Company were an "other difference []. . . demonstrated to affect price comparability" within the meaning of Article 2.4. Any attempt by the United States now to make such an argument would have to fail on both procedural and substantive grounds.

As a procedural matter, Article 2.4 permits adjustments only for differences that are demonstrated to affect price comparability. The determinations (and the underlying records of the Plate and Sheet cases) did not contain any "demonstration" that the non-payment had affected price comparability. Thus, the procedural requirements of Article 2.4 were not met.

As a substantive matter, the customer's failure to pay could not have affected price comparability. POSCO did not know, and could not have known, that a particular US customer would fail to pay at the time POSCO set its prices, so the non-payment did not affect POSCO's pricing policies. Thus, for the reasons set forth in paragraphs 4.17 to 4.23 of Korea's First Submission, there simply is no basis for any claim that the actual cost of non-payment was an "other difference ... demonstrated to affect price comparability."

Q.6. (For both parties) Article 2.4 provides that "[d]ue allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale . . . ." The use of the term "on its merits" could be taken to suggest that differences in conditions and terms of sale will not always affect price comparability. Do you agree? Please explain your answer.

Korea believes that it is incumbent on the investigating authorities to determine whether an adjustment is warranted. The phrase "on its merits" reinforces the obligation of the investigating authorities to ensure that the adjustments are warranted and the resulting comparisons are "fair." Of course, an adjustment for a difference in "conditions and terms of sale" that did not affect price comparability would not be warranted and would not result in a fair comparison, and thus should be rejected "on its merits."

Q.7. (For the United States) The United States states in its first submission (para. 84) that "[s]elling expenses such as warranty costs and bad debt not only reflect conditions of sale in the market, they are also an element of price. Therefore, differences in such selling expenses affect price comparability." Please provide further elaboration of the US view regarding when differences "affect price comparability".

It is clear that the price for a transaction is inextricably bound with the terms of the transaction. The price for a transaction is, of course, the outcome of a negotiation between buyer and seller. In that negotiation, the seller offers a bundle of goods and ancillary items (such as warranty coverage or delayed payment options). Any changes in that bundle necessarily affects the outcome of the negotiations. Thus, the price cannot be analyzed apart from the bundle being sold.

Warranty coverage and delayed payment options are clearly a part of the bundle of items being sold in a negotiation. The investigating authorities may, therefore, properly adjust for the expected value of those items at the time the sale was made.

By the same token, the risk of default that arises when the seller agrees to delayed payment may also be part of the bundle being sold. And, where evidence supports such a conclusion, the investigating authorities may properly adjust for the risk of default. However, such an adjustment must be based on analysis of the risk that could be foreseen at the time of the negotiation. It cannot be based on an "ex-post" event (such as the fortuity that a particular customer happened to default after the sale was made), because that ex-post occurrence by itself provides no indication of the anticipated risk of default that might have been considered when the prices were set.

In its First Submission, the United States contended that the adjustment it made for the costs of non-payment was analogous to the adjustments it routinely makes for warranty expenses. It also asserted that the adjustment for warranty expenses is based on an "ex-post" event (i.e., an actual warranty claim for damaged or defective merchandise) that could not have been considered when the prices were set.²⁰ This analogy, however, demonstrates the flaw in the US treatment of the costs of non-payment in the SSPC and SSSS cases.

Under its normal practice, the DOC does not simply allocate current warranty expenses over current sales to determine the amount of the warranty adjustment for the sales under investigation. Instead, the DOC has explained that:

The Department's normal practice in computing warranty expenses is to use historical data over a four- or five-year period preceding the filing of the petition to estimate the likely warranty expenses on POI [i.e., period of investigation] sales.²¹

In short, the DOC's methodology for calculating the warranty adjustment includes safeguards to ensure that the adjustment reflects the exporter's historical experience, and not just the aberrant data for a single year. Such safeguards are essential to the calculation of an adjustment for the risk of warranty expenses that the seller accepted when it agreed to the warranty terms of the sale.

The DOC failed to employ such safeguards, however, when calculating the adjustment for non-payment costs in the SSPC and SSSS cases. As a result, the United States cannot argue that those adjustments provided a proper measure of the risk of non-payment in the US and Korean markets.

Q.8. (For the United States) Article 2.4 of the ADP Agreement requires that a Member make due allowances for "differences which affect price comparability". It could be argued that this means that, where there are differences that should affect the relative prices charged by an exporter in his home market and export market, the Member should make appropriate adjustments. Applying this approach to the case at hand, the logic of the United States' adjustments in respect of unpaid sales is that POSCO should be charging higher prices in the US market than in the Korean market because defaults are more likely for US purchasers than for Korean purchasers. Please comment.

The "logic" of the US position is that (1) the actual non-payment by the ABC Company during the investigation period demonstrates that the risk of non-payment was higher in the US market than in Korea and, (2) given this supposed greater risk, POSCO's export price should have been higher than its home-market price by the full costs of the actual non-payment. However, this "logic" is not correct.

First, an actual one-time occurrence of an event is not a reliable indicator of the risk of that event. It is true that, during the relevant period, POSCO experienced a single large default by one US customer. But that does not mean that defaults are more likely for US customers than for Korean customers. Probabilities simply cannot be determined by a single event - no matter how large that event may be - because there is no way of telling whether that single event is part of a common pattern or a once-in-a-lifetime occurrence. The probabilities can only be determined by considering a pattern of occurrences over a sufficiently lengthy period of time.

Second, the more reliable, longer term evidence on record actually showed that the risk was higher in Korea than in the United States. This evidence showed that POSCO had never previously suffered a non-payment by a US customer, while it has had multiple experiences of non-payment by Korean customers. There is no evidence in either the Plate or Sheet cases that defaults are more likely for US purchasers than for Korean purchasers.

Third, even if one accepts arguendo that the risk of non-payment is greater in the United States than in Korea (and that the US final determinations had adequately demonstrated that to be so), the adjustment made by the DOC would still be improper. By adjusting for the full cost of the actual non-payment, the DOC did not adjust for difference in risk at all. Rather, the adjustment for the actual event grossly exceeded a proper adjustment for any difference in risk between the two markets. The United States is confusing the small risk of being hit with lightning with the large damage that is caused if one happens to be one of the few people so hit.

The DOC noted that "POSAM could have chosen to insure itself against the risk that this (or any) customer would not pay, as do other companies which sell on a credit basis."²³ Such insurance goes to the heart of the US error: The true measure of the difference in risk of non-payment between the two markets would be the (small) difference in the premiums on identical policies in the two markets, and not the (uncertain and potentially very large) difference in the actual amount of non-payment in a single year.

Q.9. (For both parties) In its first submission (para. 65), the United States asserts that it is Article 2.1 of the ADP Agreement, and not Article 2.4, that addresses what sales may be used to establish the export price and normal value. The United States further notes Article 2.1 expressly limits the determination of normal value to sales in the ordinary course of trade, that there is no such limitation in respect of the export price, and that this absence of a limitation must be interpreted as intentional. It could be argued that it follows that Article 2.1 precludes a Member from excluding any export sales. The United States however contends (para. 70) that it may exclude export sales in certain circumstances. Please comment.

It is true that Article 2.1 places some limitations on the transactions that may be included in the comparison of normal value and export price. However, those clearly are not the only limitations imposed by the Anti-Dumping Agreement. For example, the chapeau of Article 2.4 also indicates that comparisons should be made between sales at the same level of trade and at the same time, and it further provides that the comparison must be "fair." These provisions thus provide additional limitations on the transactions that may be included in the comparisons.

In any event, to the extent that the United States argues that Article 2.1 precludes investigating authorities from excluding atypical export sales, that argument is obviously undone by the US concession that it has the discretion to exclude such sales. Indeed, a US judicial decision has held that such exclusions are warranted where the inclusion of atypical sales would lead to an "unfair" result.

In short, Article 2.1 and the first sentence of Article 2.4 are complementary: Even if the inclusion of a sale would conform to Article 2.1, it must be excluded where necessary to ensure a "fair comparison" under Article 2.4.

Q.10. (For Korea) Korea argues that the "fair comparison" requirement of Article 2.4 of the AD Agreement requires a Member to exclude "atypical sales" where the inclusion of those sales would "distort the results" by increasing the margin. In Korea's view, would a Member also be entitled to exclude "atypical" export sales where those sales would "distort the results" by decreasing the margin?

Korea believes that atypical export sales should be excluded from the dumping calculations whenever the inclusion of those sales would "distort the results." It should not matter whether the distortions involve aberrational increases or decreases in the dumping margins - the goal should be to avoid distortions.

Q.11. (For Korea) In the context of its "multiple averaging" claims, Korea emphasizes that the language "all comparable export prices" precludes "multiple averaging". Can this view be reconciled with Korea's position that the US DOC was required to exclude certain "atypical" export prices from its dumping margin calculations altogether?

There is no conflict between Korea's argument that atypical export sales should be excluded from the calculation of the export price when necessary to ensure a "fair comparison" under Article 2.4 and its argument that Article 2.4.2 precludes splitting the investigation period into sub-periods. In fact, Korea's arguments highlight the way that Article 2.4 (including its chapeau and its sub-paragraphs) is intended to work together as a unitary whole.

The chapeau of Article 2.4 requires, inter alia, a "fair comparison." It follows that any sale that cannot be included in a "fair comparison" must be excluded.

Article 2.4.2 must be read in context, as part of Article 2.4. Thus, it cannot be read to require the inclusion of atypical sales that would distort the calculation of the dumping margin and lead to an "unfair comparison." Indeed, this is made explicit in the text of Article 2.4.2 itself: The opening clause of Article 2.4.2 makes that provision "subject to the provisions governing fair comparison" in the chapeau.

It is clear, therefore, that the function of Article 2.4.2 is not to determine which sales should be included in the analysis (an issue that is governed by other provisions of the Anti-Dumping Agreement). Instead, its purpose is to determine the means of comparing those sales that are to be included pursuant to other provisions of the Anti-Dumping Agreement. This context indicates that Article 2.4.2 should not be construed to require the inclusion of sales that are otherwise required to be excluded. Rather, the obligation to compare an average normal value to an average of "all comparable export transactions" should be read as an obligation to compare the average normal value to "all export transactions that are required to be included in the comparison under the applicable rules of the Agreement." In this way, the phrase "all comparable export transactions" in Article 2.4.2 can be read consistently with the requirement of the chapeau to exclude atypical, distortive sales. In other words, an "atypical" sale that must be excluded from the comparison to achieve the "fair comparison" required by the chapeau of Article 2.4 is not a "comparable" transaction within the meaning of Article 2.4.2.

Q.12. (For the United States) The United States observes (first submission, para. 71) that companies, including POSCO, routinely establish reserve accounts for bad debt. Did the United States have before it in the record of the plate or sheet investigations any information regarding precisely how POSCO and/or POSAM treated bad debt for accounting purposes? Specifically, did POSCO and/or POSAM establish a reserve for bad debt? If so, how was that reserve calculated? Did any such reserve distinguish between anticipated levels of unpaid sales in different markets?

The DOC explicitly stated in the final determinations in both SSPC and SSSS that "POSAM does not maintain separate bad debt accounts."²⁴

In addition, Korea understands that the DOC verified precisely how POSCO and POSAM treated the non-payments by the ABC Company: (1) POSAM had no "bad debt" account or "bad debt" reserves; (2) POSAM issued negative invoices for the { } invoices that were unpaid; (3) POSAM had already paid POSTEEL and POSTEEL had paid POSCO before the ABC Company's bankruptcy; (4) POSAM was not reimbursed by POSCO or POSTEEL for the non-payments; and (5) POSAM issued no other negative invoices during 1997 or 1998.²⁵ The DOC also generally verified the accounting systems for POSCO, POSTEEL, and POSAM.²⁶

POSCO does have bad debt accounts and reserves. Korea notes that POSCO's bad debt accounts and reserves were not implicated by the ABC Company's non-payments, because POSCO was paid by POSAM.²⁷ Therefore, there is very little information about these accounts on the record. Korea understands that these accounts do not distinguish between anticipated levels of unpaid sales in different markets, and observes that the mere existence of bad debt accounts in Korea covering worldwide exports would not in itself show that there had ever been any non-payments in the United States.

Q.13. In its oral statement, the United States argued that POSCO effectively wrote off the unpaid sales. Is the US referring to the issuing of negative invoices by POSAM (thereby cancelling the sales made to the company that went bankrupt) or does the US have in mind another event? In the view of the US, does the cancellation of the sales concerned preclude the possibility that repayment of the amounts outstanding is obtained by POSCO through bankruptcy proceedings?

In Korea's view, this question is uniquely directed to the United States.

D. CURRENCY CONVERSION

Paragraph 3.52 of Korea's First Submission was not intended to suggest that none of the invoices used by POSCO for "local sales" referred to an amount in won. Rather, Paragraph 3.52 was intended to emphasize that the value of the "local sales" was fixed in dollars and not in won. That point is not affected by whether some (or even all) of the invoices referred to an amount in won in addition to the amount in dollars. Rather, the fact that the "local sales" are fixed in dollars is ascertained by the fact that the dollar value remained constant from invoice to payment, while the won value did not.

Paragraph 3.52 of Korea's First Submission did not address whether or not the invoices also referred to an amount in won, because Korea did not (and does not) consider that to be material to the issue at hand. The won value listed on the "local sales" invoice was an accounting convenience (because POSCO must record the invoice amount in its accounting records in won using the exchange rate on the date of invoice); it was not a binding amount; and it had no effect on the amount due (which was determined by converting the dollar amount from the invoice into won using the exchange rate on the date of payment).

In this regard, it should be noted that the invoice was not the only document the DOC reviewed for the local sales that recorded the agreed-upon sales price. For example, the DOC also verified that the initial orders for the local sales were denominated in dollars, and not in won.²⁸ In addition, the DOC also verified that the "shipping lists" sent to the customer listed the agreed-upon dollar prices (but not any won amounts, except for a separate charge for freight in won).²⁹

Q.2. (For both parties) To the extent that the some or all of the invoices reflected won as well as dollar amounts, was the amount actually paid in won the same as the amount reflected in the invoice? Please provide details.

There is no evidence in the Plate or Sheet investigations of any local sales transactions where the non-binding won amount listed on the invoice was identical to the amount actually paid in won. If there had been any such instances, it would have been pure happenstance. The economic value of the "local sales" was fixed in dollars and the amount paid in won varied with the dollar-won exchange rate. The won amount paid would only be the same as the won amount listed on the invoice in those rare circumstances where the exchange rate on the date of payment happened to be the same as the exchange rate on the date of invoice. In all other cases, POSCO would reflect an exchange gain or an exchange loss in its accounting records.

In fact, the DOC verified that the won amount shown on the invoice for local sales was not the same as the won amount actually paid by the customer. Thus, the Verification Report in the SSSS case reported that:

Observation { } (HM#1): This observation represented a local sale from POSCO to { }, which involved a recognized loss on foreign currency exchange. We tied the individual sale from POSCO's order sheet to a cumulative shipping list/invoice and tax invoice. As local sales are dollar denominated, and paid in won equivalents, POSCO records the sale in its won equivalent, reflected in the tax invoice to the customer. On payment, the exchange rate is determined based on the rates given to POSCO by the Korean Exchange Bank for Inward Remittance. For this sale, POSCO recognized an exchange rate loss of { }. This difference between the recorded sales amount and payment amount is reflected in the "Foreign Exchange Currency Loss of Transaction for Local Sales" account. We examined all journal entries, ledgers, bank documents, and publicly available information (re: Korea Exchange Bank, Foreign Exchange rates), and found no discrepancies.³⁰

Korea notes that the DOC verification report found local sales to be "dollar denominated" notwithstanding its examination of the three factors that the DOC now claims to prove the opposite: POSCO kept its books in won, POSCO was paid in won equivalents of the dollar price, and POSCO relied on the Korean Exchange Bank's exchange rates.³¹

Q.3. (For both parties) Please provide a comprehensive statement, supported by citations to relevant portions of the record, as to exactly what evidence and arguments were put before the USDOC and at what time in each investigation in respect of the issue whether the "local sales" were dollar or won sales. Please address, inter alia, what evidence was placed before the USDOC in each investigation regarding the receipt by POSCO of won amounts that differed from any won amounts reflected in the invoices.

The United States has belatedly made in its Oral Statement the argument that POSCO did not provide sufficient, timely evidence to the DOC demonstrating that the economic value of the "local sales" was fixed in US dollars and not in won. Korea believes that this US argument is untimely and meritless.

As discussed in the introduction to these answers, and in response to Question 15 below, the United States cannot raise post hoc arguments to defend its anti-dumping measures. There is absolutely no suggestion in the final determination or final analysis memorandum for either SSPC or SSSS that the US decision was based on a failure by POSCO to provide sufficient and timely information. This new argument should be rejected outright.

In any event, the US argument is meritless. There is no question that the DOC had adequate evidence in both investigations to conclude that the local sales were dollar denominated.³²

The United States has admitted that POSCO told it during the course of both the Plate and Sheet investigations that the prices for its "local sales" were fixed in dollars and not in won.³³ The United States has also admitted that, in the verification in the Sheet case, the DOC obtained evidence confirming that the amount the customer actually paid for these "local sales" was based on the dollar prices shown on the invoices, and not on the won amounts shown on the invoices.³⁴ Thus, there was evidence (in the form of POSCO's written testimony and verification documents) that the prices were fixed in dollars.³⁵

On the other hand, there was no evidence at all to contradict POSCO's statements. Indeed, there was no evidence that any Korean customer who purchased Plate or Sheet in a "local sale" actually paid the won amount shown on the invoice.

The United States has contended that Korea is improperly asking the Panel to re-weigh the evidence in a de novo review. But the truth is that there is nothing to weigh. All of the evidence was on POSCO's side, and there was no evidence at all to contradict it.

Q.4. (For both parties) Is there anything in the record of the investigations indicating why these sales were paid in won if, as argued by Korea, they were in fact denominated in dollars?

The final determinations and final analysis memoranda do not explain why local sales are paid in won. Korea is not aware of any other relevant evidence in the record. There is no indication that the DOC ever requested such an explanation.

The DOC's failure to request this information precludes it now from relying on the absence of information to justify its failure to make a "fair comparison." The final sentence of the chapeau of Article 2.4 is explicit: "The authorities shall indicate to the parties in question what information is necessary to ensure a fair comparison."

Q.5. (For Korea) The United States considers that whether the "dollar priced local sales" were in fact dollar sales or won sales was an issue of fact to which the standard of review in Article 17.6(i) of the AD Agreement applies. Do you agree? If not, why not?

Korea does not agree that there is a factual issue. Article 17.6(i) does not apply to the issue of local sales.

To begin with, there are no relevant facts in dispute. The United States has admitted that POSCO told it during the course of both the Plate and Sheet investigations that the prices for its "local sales" were fixed in dollars and not in won.³⁶ The United States has also admitted that, in the verification in the Sheet case, the DOC obtained evidence confirming that the amount the customer actually paid for these "local sales" was based on the dollar prices shown on the invoices, and not on the won amounts shown on the invoices.³⁷ Thus, there was evidence (in the form of POSCO's written testimony and verification documents) that the prices were fixed in dollars. And there was no evidence at all contradicting POSCO's position.

The United States has never disputed these essential facts. Instead, the United States has essentially taken the position that, under these facts, the Anti-Dumping Agreement permits the United States to effectively convert the dollar value of the sales into won using the exchange rate on the date of invoice (and then back to dollars at a different rate). That is not a factual issue. It is a methodological choice defended by a legal argument.

The question for this Panel is whether the methodological choice made by the United States was consistent with the WTO Agreements. Specifically, the questions are whether the United States made an unnecessary currency conversion, conducted an "unfair comparison" of normal value and export price, and administered its anti-dumping laws in an unreasonable manner.

Q.6. (For Korea) Korea states (first submission, para. 4.64) that the amount of the Korean won payment for local sales was not fixed at the time of the sales negotiation or invoice, but rather "was determined by applying the market exchange rate . . . for the date of sale to the US dollar amount shown on the invoice." In that same submission (para. 3.52), Korea states that the conversion is performed "on the date on which the customer pays". Please clarify.

Korea's view of the facts concerning the "local sales" issue are described in detail in Paragraphs 3.49 to 3.55 of its First Submission, including Paragraph 3.52 and the sample accounting entries of Paragraph 3.54 (as corrected by Korea's corrigendum). It has been Korea's consistent position that the amount paid in won was determined by the market dollar won exchange rate on the "date of payment," as opposed to the "date of invoice." Nevertheless, it seems that when these facts were summarized in Paragraph 4.64, a typographical error was made and the phrase "date of sale" was used inadvertently. Korea meant to say "date of payment" and regrets any confusion caused.

Q.7. (For the United States) Do you agree that the exchange rates that you refer to as POSCO's "internal exchange rates" are the market exchange rates announced by the Korean Exchange Bank'?

As noted in Korea's First Submission, the DOC verified that POSCO's "internal exchange rates" were, in fact, the same as the market exchange rates announced by the Korean Exchange Bank.³⁸

Q.8. (For the United States) The United States asserts (first submission, para. 192) that, "[c]ontrary to Korea's claim, a comparison of the exchange rates demonstrates that during the month of November 1997, the rates varied by as much as { } percent." Please state the source for this statement. Is the United States here comparing POSCO's "internal" exchange rate to the US Federal Reserve's daily exchange rate or to the USDOC's "official exchange rate"?

Korea is not aware of the source of the statements by the United States concerning the differences between the Korean Exchange Bank rates and the exchange rates used by the DOC. It should be noted that the DOC's analysis memoranda found differences of less than 1 percent when it compared the Korean Exchange Bank rates to the Federal Reserve rates.³⁹ The DOC found larger differences only when it incorrectly compared the Korean Exchange Bank rates to the modified rates calculated by the DOC to implement the special exchange rate provisions of US law.⁴⁰

Korea believes that the differences between the exchange rates of the Korean Exchange Bank and of the New York Federal Reserve (or the DOC itself) are completely irrelevant to the question whether POSCO's local sales were denominated in won or in dollars. Korea is not aware of any attempt by the United States to justify the relevance of the exchange differences to the issue at hand. Nevertheless, Korea notes that nothing about an exchange rate difference that never exceeded { }% - even at the most turbulent time for the won - could possibly justify the double-conversion methodology's distortion of { } in the calculation of normal value.

Finally, as explained in Korea's Second Submission, the comparisons offered by the United States in its first submission are flawed, because they ignore the significant time differences between the United States and Korea. The Federal Reserve rates are based on a survey of New York banks at 12:00 noon on each date. But 12:00 noon in New York on any given day is 2:00 in the morning the next day in Korea. Or, to put it the other way, 12:00 noon in Korea on any date is 10:00 at night the previous day in New York. Thus, a comparison that matches exchange rates on the "same" date actually compares exchange rates determined 14 hours apart.

When exchange rates are shifting rapidly, as they were in November 1997, this 14-hour difference can be critical. Indeed, if one compares the exchange rates at the same time (rather than on the same calendar date), the differences identified in the US brief simply disappear. The following table illustrates this point:

Date of Sale In Korea	Date in  New York at Time of Sale in Korea	Korean Exchange Bank Rate on Date of Sale	Federal Reserve Bank Rate at Time of Sale in Korea	Percentage Difference
10 Nov. 1997	9 Nov. 1997	975.5	985	0.97%
18 Nov. 1997	17 Nov. 1997	986.7	992	0.54%
20 Nov. 1997	19 Nov. 1997	1031.4	1040	0.83%
21 Nov. 1997	20 Nov. 1997	1134.5	1139	0.40%

Q.9. (For the United States) The United States asserts (first submission, para. 177) that "Article 2.4.1 cannot be read to require that currency conversions be avoided in any particular circumstances." In the view of the United States, would a Member be permitted by the AD Agreement to engage in currency conversion in a case where all the sales in both markets were indisputably both invoiced and paid in the same currency? If not, what provision of the AD Agreement would regulate such behaviour?

Korea's views on this issue have been set forth in detail in its First Submission. Korea reserves the right to comment on any responses provided by the United States to this question. Korea also respectfully submits that the task before the United States is not simply to explain why the Anti-Dumping Agreement permits a currency conversion when a conversion is not required. Instead, the United States must explain why two conversions at different exchange rates are permitted.

Q.10. (For the United States) Assume that the United States had determined that the sales in question were dollars sales, not won sales, and that there was no dispute among the parties on this point. Would it in the view of the United States have been consistent with Article 2.4.1 of the AD Agreement to nevertheless convert those sales into won and then back into dollars? Would any other provision of the AD Agreement be implicated?

As explained above, in the response to question 9, Korea's views on this issue have been set forth in detail in its First Submission. Korea reserves the right to comment on any responses provided by the United States to this question.

Q.11. (For the United States) Please clarify how USDOC established the exchange rate applied to the sales which it found were won denominated. Did it use the "official exchange rate" or daily exchange rates? Did it convert as of the date of sale of the "local sales" or as of some other date? Please address specifically Korea's statements in footnote 142 to its first submission and para. 58 of its oral statement, referring to the exchange rate on the date of the US sale.

The Panel should be aware that the DOC has interpreted the US anti-dumping statute as requiring that currency conversions be made using the exchange rate on the date of the US sale.⁴¹

Q.12. (For Korea) Article 2.4.1 provides that currency conversions "should" be made using the rate of exchange on the date of sale. This would appear to be non mandatory language. Please comment.

The term "should" is sometimes hortatory and sometimes mandatory. Whether any particular use of the word is hortatory or mandatory must be determined in accordance with the customary rules of treaty interpretation (Articles 31 and 32 of the Vienna Convention on the Law of Treaties).

Korea does not believe it is necessary for this Panel to address the meaning of the word "should" in Article 2.4.1. That word would be relevant if Korea argued that the United States was required to use one exchange rate and erred by using a different exchange rate, and the United States responded by denying that it was required to use a particular exchange rate. But that is not the situation here. Rather, Korea's argument is as follows: (1) Article 2.4.1 is the only provision in the Anti-Dumping Agreement that addresses the use of exchange rates in calculating dumping margin; (2) Article 2.4.1 specifies the exchange rates to be used "when the comparison under paragraph 4 requires a conversion of currencies"; and (3) by implication, the Anti-Dumping Agreement does not allow investigating authorities to make currency conversions (regardless of the exchange rate selected) when such conversions are not "require[d]."

Q.13. (For the United States) In respect of the differences between POSCO's "internal" exchange rate and that of the NY Federal Reserve, Korea notes (first submission, para. 4.74) the existence of a time lag between Korea and New York which it considers explain those differences. Please comment.

Korea's First Submission noted that there is a time-lag between Korea and New York which may explain some of the differences between the exchange rates announced by the Korean Exchange Bank (which are used by POSCO for internal purposes) and the rates announced by the Federal Reserve. However, that time-lag is not the only possible source of the differences in the two rates. It should also be noted that the Federal Reserve rate is not an exact calculation. Instead, it is based on an unscientific telephone poll of a few banks in New York City, and thus is subject to errors. Moreover, because the Federal Reserve rate reflects only the local market conditions in New York City,⁴² it may not reflect conditions in other markets where the Korean won may be more (or less) heavily traded.

The time-lag between the Korean Exchange Bank's rates and the Federal Reserve rates also raises a separate issue. As discussed in Korea's First Submission, the DOC justified its use of the double-conversion methodology that inflated POSCO's dumping margins because POSCO's internal rates did not match the Federal Reserve rates. The DOC failed to recognize, however, that POSCO could not have used the Federal Reserve rates in its accounting records in "real time," because the Federal Reserve rates were not announced each day until long after the close of business in Korea.⁴³ Thus, the DOC improperly held POSCO to a standard that could never have been met.

Q.14. (For the United States) In its oral statement (para. 41), the US asserts that the USDOC did not engage in a "double conversion" because it took directly the won amounts reported by POSCO for the so called "local" sales. However, in the "preliminary analysis memorandum" for sheet & strip, the USDOC recognized that "for all sales in the home market involving dollar denominated transactions, we have applied a currency conversion to Korean won on the date of the home market sale" (item L., at page 9). Is this not an indication that the USDOC converted the "local" dollar sales into won prior to converting them into dollars and that in so doing the USDOC did undertake a "double conversion"?

Korea believes that the claim by the United States that it did not engage in a double conversion is untenable. It does not matter whether the United States actually made the initial conversion from dollars to won itself, or whether it simply used information reported to it by POSCO (which had already been subject to that conversion). The point is that the United States chose to use the calculated won amounts rather than the actual dollar amounts. The United States then chose to convert those won amounts back into dollars using the exchange rate on the date of the US sale - which was not the same as the exchange rate that had been used previously to convert the dollar amounts into won. The overall methodology therefore involved a double-conversion of the dollar amounts using inconsistent exchange rates. This double-conversion methodology is improper - regardless of whether the initial conversion was made by the United States or simply adopted by the United States from the figures in POSCO's accounting records.

Q.15. For the United States. In its oral statement (para. 39), the US explains that the USDOC was not provided enough evidence by POSCO attesting the fact that POSCO received won amounts other than the amounts reflected in the invoices. The US seems to suggest that this is one of the reasons why the USDOC refused to consider the "local" sales as dollar sales. Could the US explain why this important argument appears to be omitted from the determinations and memoranda relevant to the case?

There is absolutely no suggestion in the final determinations or analysis memoranda in either the SSPC or SSSS cases that the US decision was based upon a failure by POSCO to provide sufficient and timely information. Instead, this argument was made by the United States for the first time in its Oral Statement during the Panel's first meeting.

This new argument by the United States should be rejected. As discussed in the introduction to these answers, the United States is precluded from raising post hoc justifications for its anti-dumping determinations. This Panel should determine the conformity of the US anti-dumping determinations with the WTO Agreements solely on the basis of the justifications provided in the final determinations themselves.⁴⁴

II. RESPONSES OF KOREA TO QUESTIONS POSED BY THE UNITED STATES

This submission sets forth the responses of the Republic of Korea to the questions posed by the United States during the First Meeting of the Panel. For the convenience of the Panel and the Parties, each of the questions is reproduced below, followed by Korea's response.

Q.1. In paragraph 26, Korea states that the words "conditions" and "terms" are largely synonymous, implying that there are some distinctions. Please confirm whether, in Korea's view, there is a difference in meaning between the word "conditions" and the word "terms" as used in Article 2.4.

Article 2.4 of the Anti-Dumping Agreement does not use the words "conditions" and "terms" independently. Rather, Article 2.4 uses the phrase "conditions and terms of sale." This is a well-known phrase. The focus of the Panel's interpretive inquiry should, therefore, be on the meaning of the phrase as a whole, without attempting to parse its meaning through a tortured construction of the individual words.

Nevertheless, if a word-by-word construction is necessary, we offer the following observations: The words "conditions" and "terms" do not stand alone in Article 2.4. Instead, they are modified by the words "of sale" - in the phrase "conditions and terms of sale." The meaning of the individual words "conditions" and "terms" must, therefore, be considered in that context.

A "sale" is, of course, a form of contract or agreement. Thus, the meaning of the words "conditions" and "terms" would have to be ascertained based on their normal usage in the context of contracts and agreements. In this regard, the word "condition" (in the context of contracts and agreements) is generally understood to refer to a prerequisite that must be met before a contingent contractual provision comes into force (as in the phrase "condition of closing" that often appears in, for example, real estate contracts).⁴⁵ The word "term" is generally understood (in the context of contracts and agreements) to refer either to specific provisions of an agreement⁴⁶ or to the duration of the agreement.⁴⁷

The words "condition" and "term" do not have precisely the same meaning in the context of sales agreements. One might ordinarily think of the word "term" as describing the contract provisions, while the word "condition" describes the prerequisites that must be met before contractual obligations take force. Thus, a sale agreement may have numerous "terms" - including "price terms" that determine how much must be paid, "payment terms" that determine when payment is due, "delivery terms" (or "terms of sale") that determine how delivery must be made and when title will transfer, or "warranty terms" that determine what obligations the seller has if the goods are damaged or prove defective. One would not ordinarily refer to any of those "terms" as "conditions" of the sale. However, one would refer to the prerequisites described by those terms as creating "conditions" - for example, compliance with delivery terms may be a "condition" of receiving payment, or filling out and mailing in a warranty card may be a "condition" of receiving warranty coverage.

As this discussion shows, the words "conditions" and "terms" are not ordinarily used interchangeably. However, both words are used to describe aspects of the obligations created in a sale agreement. The "conditions and terms of sale" are, therefore, the agreed-upon bundle of rights and obligations created by the sale agreement.

In any event, failure to pay amounts due under a contract is plainly not a "condition" or "term" of the contract. It is a breach of the contract.

Q.2. In its oral statement, in reference to the second table on page 27 of Korea's First Submission, Korea stated that the United States calculated "invoice price in won" (i.e., column D of the table). Please confirm whether the United States calculated this figure, or whether this figure was reported to the United States by POSCO in its questionnaire response, and recorded in POSCO's books and records.

As Korea has explained previously, the amount in won used by the DOC to calculate the normal value for local sales was based on the figures recorded by POSCO in its normal accounting records. These won amounts were calculated by POSCO by multiplying the dollar prices for the sales by the exchange rate on the date of the invoice. As discussed above, these won amounts did not correspond to the prices actually paid by POSCO's Korean customers.

It appears that the United States believes that, because it did not itself actively convert the dollar prices into won, it is not "guilty" of a double-conversion. That position is, however, untenable.

As discussed in Korea's Responses to the Panel's Questions, the United States chose to use the converted won amounts (which did not represent the fixed prices for the sales) rather than the actual dollar amounts (which did represent the fixed prices for the sales). The United States then chose to convert those won amounts back into dollars using the exchange rate on the date of the US sale - which was not the same as the exchange rate that had been used previously to convert the dollar amounts into won. The overall methodology therefore involved a double-conversion of the dollar amounts using inconsistent exchange rates. This double-conversion methodology is improper - regardless of whether the initial conversion was made by the United States or simply adopted by the United States from the figures in POSCO's accounting records.

11 Cotton Yarn, para. 494 (construing the Tokyo Round Code�s predecessor provision of Article 2.4).

12 See Korea�s First Submission, para. 4.18 and n.101.

13 See US First Submission, paras. 102-04.

14 { }

15 If the United States had intended to make an adjustment for the differences in the costs of credit insurance (or for some other measure of the differences in risk of non-payment) in the two markets, it was required by the last sentence of Article 2.4 of the Anti-Dumping Agreement to "indicate to the parties in question what information [was] required." The record of the SSPC and SSSS cases does not contain any request from the DOC for information regarding either the differences in the costs of credit insurance or any other measures of the differences in the risks of non-payment in the two markets.

16 See POSAM Verification Report (SSSS), at 7 (ROK Ex. 61) ("We also examined the accounts where other such negative invoices would have been recorded for both 1997 and 1998, and found no indication that POSAM had negated other sales invoices or recorded bad debt in these accounts. We also spoke with the accounting staff and reviewed the accounts on POSAM�s computer system. We found no indication of the existence of a bad debt account, and no discrepancies with POSAM�s response.").

17 Thus, Section 351.410 of the DOC�s regulations provides that:

(a) Introduction. In calculating normal value the Secre�tary may make adjustments to account for certain differences in the circumstances of sales in the United States and foreign markets. (See section 773(a)(6)(C)(iii) of the Act.) This section clarifies certain terms used in the statute regarding circumstances of sale adjustments and describes the adjustment when commissions are paid only in one market.

(b) In general. With the exception of the allowance de�scribed in paragraph (e) of this section concerning commissions paid in only one market, the Secretary will make circumstances of sale adjustments under section 773(a)(6)(C)(iii) of the Act only for direct selling expenses and assumed expenses.

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