|
|
|
espa�ol - fran�ais - portugu�s |
Search
|
|
|
|
espa�ol - fran�ais - portugu�s |
|
Search
|
UNITED
STATES � ANTI-DUMPING MEASURES ON
Report of the Panel (Continued)
ORAL STATEMENT OF THE UNITED STATES
(13 June 2000)
CONTENTS
I. INTRODUCTION
1. The United States welcomes the opportunity to appear before you today to present its views on the matters raised in this proceeding. Although our arguments are presented fully in its submission, we wish to highlight some key points. I would like to state at the outset that I will largely follow the statement before you. However, I will briefly add some points in response to Korea's statement. In the interest of time, I will address only a few of the issues raised by Korea's statement today; we will respond more fully in our future submissions.
2. It is now well settled that it is the complainant's burden to establish a prima facie case of a WTO violation. From that perspective, this case is simple. Korea has failed to meet its burden. That is not to say that this case does not involve complex methodological issues arising out of the particular facts gathered during these investigations. Nevertheless, the complexity of those issues cannot obscure the simple fact that Korea has failed to make its case.
3. It is obvious that Korea believes the United States should have weighed the evidence differently and taken different approaches to certain issues in the underlying investigations. It has simply failed to demonstrate that the United States was required by the Anti-dumping Agreement to do so. There is much rhetoric in Korea's submission about the United States "penalizing" POSCO, underscored by the insinuation that the United States ignored its own legal precedent to do so. But legally and factually there is no case.
4. Trying to make Korea's claim fit into the Agreement is somewhat like trying to put a square peg in a round hole. To do so, it is necessary to ignore relevant provisions of the Agreement and misinterpret the meaning and purpose of others. At times, Korea argues more about whether the United States acted consistently with its own law and practice than whether its actions were consistent with the Anti-dumping Agreement. Of course, the panel is charged with deciding the latter, not the former.
5. With respect to each of the issues challenged in this case, the actions of the United States are in fact based on an objective assessment of the information presented by the exporter and are well grounded in the rules of the Agreement. I would like now to summarize a few points with respect to each issue.
II. BAD DEBT
6. POSCO incurred a bad debt expense on US sales of the subject merchandise during the period of investigation. We identified the expense because POSCO itself had recognized it in its accounting records for the period. I would like to note that Korea made the claim this morning that POSCO had no other experience with bad debt on sales to the United States. That is inconsistent with what POSCO reported in these cases. While POSCO claimed that its US affiliate, POSAM, had never before incurred a bad debt, POSCO reported US bad debt expense with respect to its sales to the United States.
7. POSCO sought to have those sales excluded from the determination of export price, not because there was anything unusual about the prices, terms of sale, or products, but simply because the sales resulted in a bad debt expense. Bad debt is a normal selling expense that is routinely accounted for as part of normal business practice - and, as I mentioned, POSCO accounts for bad debt in its normal accounting records - and is accounted for as part of a normal, Agreement-consistent dumping analysis.
8. Korea argues that, effectively, the United States took account of bad debt by simply lowering all export prices. We would like to take a brief moment to clarify what adjustments were actually made and the basis for them.
9. Korea has suggested that all adjustments are accounted for in Article 2.4. However, a dumping analysis involves a two-step process: first, it is necessary to determine the export price and the normal value. It is only after they have been determined that the comparison required by Article 2.4 is made. Article 2.3 addresses certain situations in which an export price is not available or, as in the present case, is unreliable because of an affiliation between the exporter and the importer. In effect, Article 2.3 allows you to ignore the unreliable export price and construct the export price between the exporter and the affiliated importer. Article 2.3 provides that, in such cases, export price may be constructed on the basis of the price to the first unaffiliated party. The export price must be constructed before the Article 2.4 comparison can be made. It is only after determining export price and normal value that one reaches the step of comparing prices. Then we turn to Article 2.4 to ensure a fair comparison through the adjustments provided for there.
10. POSCO made sales during the period of investigation both through a US affiliate, POSAM, and directly to unrelated customers in the United States. For the sales through POSAM, the United States constructed the export price, consistent with Article 2.3. I would note here that Korea has not raised any claim under Article 2.3. In constructing export price, the United States started with the price at which POSCO's US affiliate sold merchandise to the first unaffiliated customer, then we deducted all expenses associated with that sale, including an allocated portion of the US bad debt expense. That was the method used to determine the constructed export price prior to the comparison under Article 2.4.
11. For the remaining sales made directly to unaffiliated customers in the United States, the United States based export price on the invoice price from POSCO to the unaffiliated US customer. There was no deduction from that export price for any selling expenses, including bad debt.
12. Once the export price and constructed export price had been determined, the United States made an adjustment to normal value to eliminate any differences in the conditions and terms of sale in the United States and Korea, consistent with Article 2.4. That adjustment - which the United States refers to as a circumstance of sale adjustment - is achieved by first deducting from normal value all expenses associated with conditions and terms of sale in Korea and then adding to normal value the expenses associated with conditions and terms of the export or constructed export sales. In these investigations, for comparison to constructed export price sales, the Korean expenses were deducted from normal value, but there was no upward adjustment to normal value. Because all expenses associated with conditions and terms of sale in the United States had been deducted in order to construct the export price, there were no US expenses to add to normal value.
13. Did those adjustments affect POSCO's dumping margin? Yes. Were they unfair? No. Why does Korea think they were unfair? Korea argues that they were unfair because the bad debt was unprecedented and unpredictable, but as I noted earlier, the record established that POSCO has, in fact, incurred bad debts and accounts for bad debt in its normal accounting records. Therefore, POSCO is no stranger to bad debt. Korea also argues that it is unfair to assume that differences in bad debt expense affect price comparability because, for example, POSCO might have elected to cover the US expense by raising prices in Korea. Under that reasoning, POSCO could exploit the Korean market in order to finance low prices in the United States. But, if POSCO made such a choice, that is dumping as defined in the Agreement, and the United States is entitled to grant its domestic industry relief when, as in this case, it is injured by the dumped imports.
14. Judging from the submission of the European Union (EU) and Korea's statement today, there also appears to be a misunderstanding of our interpretation of the phrase "conditions and terms of sale" in Article 2.4. The United States agrees with the EU and Korea that not every SG&A expense represents a condition of sale within the meaning of Article 2.4. We stated in our submission that, based on an ordinary meaning, it is permissible to interpret "conditions" of sale to include the "circumstances under which the sales are made." By that we mean the circumstances directly connected to the sales under investigation, not general conditions. The United States also agrees that there is a close relationship between the word "conditions" and the word "terms." But, it would be contrary to customary rules of treaty interpretation to render one or the other redundant. Although both relate to the contract between the parties, it is the view of the United States that together they encompass the terms of the contract and all expenses that are incurred as a direct result of the sales transactions under investigation - including bad debt.
15. Where the United States disagrees with Korea and the EU is when they attempt to distinguish bad debt from other conditions and terms of sale, such as credit and warranty expenses. The EU appears to concede that credit and warranty expenses represent "conditions and terms of sale" within the meaning of Article 2.4. The EU also acknowledges that, like bad debt, the eventual cost of extending a warranty is not known at the time of sale. However, the EU would distinguish warranty expense on the grounds that the warranty is part of the contract and influences the purchaser's decision.
16. It is equally true, however, that payment terms are part of the contract and can influence the purchaser 's decision. Therefore, a seller's agreement to sell on credit is no different from an agreement to provide a warranty. In one case, the seller agrees to provide a warranty and accepts the risk of having to repair or replace the merchandise under that warranty. In the other case, rather than demanding payment on delivery, the seller agrees to sell on credit - for example, agreeing to accept payment in 30 days - and the seller accepts a credit expense, including the risk of non-payment. In the case of both selling under warranty and selling on credit, the seller accepts the risk of incurring the expense as part of the bargain.
17. Also, Korea makes a point of saying that bad debt is outside the exporter's control and, therefore, is not a proper adjustment under Article 2.4. Bad debt expense is not entirely outside the seller's control. The seller can decline to sell on credit and establish sound credit practices. This is analogous to the seller's control over what, if any, warranty is offered and establishing sound quality control measures to minimize warranty claims. In both cases - selling on credit and selling under warranty - there is some control, and some inherent risk. This type of contingency expense is routinely accounted for in company books and records - including bad debt expense.
18. Japan also concedes that anticipated expenses affect price and, therefore, can affect price comparability within the meaning of Article 2.4. Japan even acknowledges that bad debt expense may be reflected in POSCO's future US prices. In its view, however, there is no evidence that POSCO should have anticipated the bad debt expense at issue here. That is not the case.
19. POSCO agreed to sell to its US customer on credit and in doing so accepted the risk of non-payment as a condition of sale. As I stated previously, that in itself is sufficient to warrant including bad debt in an Article 2.4 adjustment. In addition, the evidence before the United States showed that POSCO has previously incurred bad debts and maintains bad debt accounts. In fact, POSCO reported bad debt expense for US sales through its Korean affiliate, POSTEEL, as well as the bad debt incurred by its US affiliate, POSAM. Therefore, even under Japan's analysis, the evidence is more than adequate to provide a reasonable basis to conclude that POSCO should anticipate bad debt expense as a condition of sale and to take that expense into account in the price comparison.
20. Korea, and Japan as well, also argues that the United States was required to establish a "difference" in bad debt expense in the US and Korean markets in order to justify the adjustment. That argument simply makes no sense given the manner in which the adjustment is made. As I explained previously, all expenses related to the conditions and terms of sale in the home market are deducted from normal value, then the expenses related to conditions and terms of sale in the United States are added to normal value. There is no need to compare each individual expense before making the adjustment. If there is no difference between the two markets with respect to a particular expense, the adjustment has no effect because the deduction and the addition attributable to that expense are identical. Mathematically, an aggregate adjustment and an expense-by-expense adjustment are identical; in either case only differences in conditions and terms of sale in the two markets are eliminated.
21. In sum, although reasonable minds may differ on what constitutes "conditions and terms of sale " within the meaning of Article 2.4, there is no rational basis for finding that the interpretation of the United States is not permissible. The evidence provides more than adequate support for including bad debt in the adjustment for differences in conditions and terms of sale, and the adjustment was performed in a manner consistent with Article 2.4. Therefore, in accordance with Article 17.6, the panel must find the United States' treatment of bad debt to be in conformity with the Agreement.
22. I would also like to address briefly Japan's argument that the United States' deduction of the allocated portion of the bad debt expense in constructing export price was inconsistent with Article 2.3. I believe that argument was echoed by Korea today. Because Korea has not made a claim under Article 2.3, Japan's argument is obviously irrelevant. It is notable, however, that it also has absolutely no basis in the text of Article 2.3.
23. As I have explained here this morning, and we explained in our submission, the United States constructed export price by starting with the price to the first unaffiliated purchaser and deducting all of the expenses incurred in connection with the resale by POSCO's US affiliate, POSAM, including an allocated portion of POSAM's bad debt expense, and an amount for profit. The result is a constructed price between the exporter and the affiliated importer. That methodology is reasonable and consistent with the object and purpose of Article 2.3.
24. In explaining this methodology the United States also noted that the fourth sentence of Article 2.4 envisions such a methodology, although the language of Article 2.4 is neither mandatory nor exclusive, as Japan suggests. Nevertheless, the methodology used by the United States is consistent with the guidance provided in Article 2.4.
25. Finally, the United States would like to respond to Japan's allegation of bias in the US methodology, which is also implied, perhaps more gently, in Korea's argument that the United States departed from its prior practice . Aside from the fact that Japan's allegation is baseless, it is also underscores the irony of this case.
26. The basis for Japan's allegation is a distorted reading of a US decision in a case concerning imports of Brazilian steel. In the Brazilian case, the exporter claimed that an interest expense should not be imputed on certain unpaid sales because there was no basis to assume that the exporter would ever be paid. The burden was on the exporter to prove its claim that the sales were uncollectible. The exporter's claim was contradicted by evidence that it continued to sell to this customer on credit, unlike the present cases where the evidence established that POSCO had ceased selling to the bankrupt customer on credit. In the Brazilian case there was also no accounting evidence of a bad debt, such as we have in the present cases. I would like to make a point about Korea's repeated reference to these as "unpaid sales." The evidence shows that POSCO took a direct write-off for these sales. Assuming that POSCO keeps its accounting records in accordance with generally accepted accounting principles, it could not write off the debt unless it deemed it to be uncollectible. In the Brazilian case, the United States ultimately determined that, absent additional evidence to support the exporter's claim that this was an uncollectible debt, we had no basis to conclude that these were bad debts. A fair and objective reading of that case, therefore, demonstrates that the result was based on the facts, not a biased methodology, and that the facts differed significantly from the cases at issue here.
27. The irony in the present case is the fact that the United States' current methodology for treating bad debt expense dates back to a 1989 decision by the US Court of International Trade in which the court agreed with Korean producers of color television receivers that bad debt was a direct selling expense for which a circumstance of sale adjustment must be made. It is now standard practice to include US and home market bad debt in the circumstance of sale adjustment. In many cases, some of which are cited in our submission, that adjustment has benefitted the exporter. One cannot fail to see the irony in the fact that Korea is now asking this panel to invalidate the very practice its exporters fought for and won in US court.
III. WEIGHTED AVERAGES
28. I would like now to turn to the issue of multiple averaging periods. This issue concerns how the United States addressed the free fall of the Korean won in late 1997. The guiding principle underlying the United States' ultimate decision was that, consistent with the Agreement, the dumping analysis should not be distorted by exchange rate volatility. That principle led to two separate and distinct methodological decisions.
29. The first methodological decision concerned the selection of exchange rates consistent with Article 2.4.1. It was apparent that the United States' normal currency conversion methodology, which tests daily exchange rates against a rolling average benchmark to detect - and ignore - fluctuations, would have misread the precipitous devaluation as a fluctuation, resulting in the use of the higher, pre-devaluation benchmark rate. Thus, the United States agreed with POSCO that the normal exchange rate methodology could have an unintended effect on the dumping analysis that would have overstated POSCO's dumping margin.
30. To eliminate that unintended effect, the United States altered its normal methodology so that daily rates were used until rates stabilized, at which point testing for fluctuations was resumed, although this testing used a benchmark comprised only of post-devaluation rates. That methodology for determining exchange rates is entirely consistent with Article 2.4.1, and was very favorable to POSCO.
31. The second methodological issue concerned what transactions were comparable for purposes of performing a comparison of weighted-average export price and normal value, consistent with Articles 2.4 and 2.4.2. Article 2.4 recognizes that numerous factors such as physical characteristics of the merchandise, levels of trade and time can affect the comparability of export price and normal value. Thus, taking these factors into account in defining and comparing groups of comparable transactions is consistent with the object and purpose of Article 2.4.
32. Korea, this morning, has clarified that it agrees that multiple averages are permissible. Korea, however, has suggested that multiple averages are only permissible for level of trade and physical differences, consistent with Article 2.4. But Korea ignores the fact that Article 2.4 also recognizes that time is a factor that affects price comparability. Like physical differences and level of trade, time can be a factor in constructing weighted average groups.
33. Normally it is reasonable to conclude that the timing of sales transactions during the period of investigation does not affect their comparability. However, in certain situations market conditions may differ so dramatically at different times within the period of investigation that it is necessary -- and certainly reasonable -- to divide the period and compare averages for each sub-period to avoid creating a distortion in the dumping analysis. The most common example of such a situation is where the exporting country is experiencing extremely high rates of inflation. Creating monthly or quarterly averaging periods eliminates any distortion in the dumping analysis as a result of high inflation over time.
34. The precipitous devaluation of the Korean won presented an analogous situation. The United States determined that the devaluation was a dramatic change that rendered pre- and post-devaluation transactions incomparable. Accordingly, separate weighted-averages were warranted. That decision ensured that the dumping analysis would accurately reflect whether and to what extent dumping had occurred during the period of investigation, both before and after the devaluation. In contrast, comparing pre- and post-devaluation sales would have presented a picture distorted by exchange rate volatility.
35. Despite the logic of that decision, Korea argues that it was inconsistent with prior US administrative decisions. As noted previously, the purpose of this panel is to address consistency of the US measures with the Agreement, rather than with domestic law or practice. Nevertheless, a reading of the case relied on by Korea as evidence of this inconsistency reveals that the United States explicitly declined to address the issue of separate averaging periods in that case because it had no effect on the dumping analysis given the facts.
36. In sum, as the result of a thoughtful, logical analysis, the United States established a reasonable methodology, consistent with Articles 2.4, 2.4.1, and 2.4.2, which prevented the devaluation of the Korean won from distorting the dumping analysis. The results of that methodology do not overstate the margin; they accurately reflect the substantial dumping that actually occurred during the period of investigation.
IV. LOCAL LETTER OF CREDIT SALES
37. The final issue that we are addressing relates to the local sales. Korea went on at length this morning on the facts of this issue. Those facts differ from what POSCO presented during the investigation.
38. The issue of local letter of credit sales is a question of fact. Because the facts supported a reasonable conclusion that these sales are in won, it is beyond question that the United States' decision to convert the won price to dollars on the exchange rate in effect on the date of sale is consistent with Article 2.4.1. I would like to review the facts and the evidence that was before us, particularly how the facts unfolded in the investigation.
39. In plate in coil, which was the earlier of the two cases, the United States originally excluded these sales from normal value because it was unclear whether they were, in fact, domestic sales. We subsequently included them in normal value because POSCO reported that they were, in fact, sales between POSCO and customers in Korea, for consumption in Korea. POSCO also stated that the sales were paid in won and reported the won price on the invoice in its listing of home market sales.
40. Later in the plate in coil investigation, POSCO submitted dollar prices for these sales and argued that we should use the dollar prices instead of the won prices originally reported. They provided no explanation or evidence other than an assertion that the prices were set in dollars.
41. At the plate in coil verification, the United States confirmed that, although the dollar amounts POSCO had reported were on the invoices, the won amounts which are also on the invoices matched what was reported in POSCO's original sales listing and what was recorded in the company's accounts receivable. In short, POSCO failed to substantiate its claim that the prices for these sales were set in dollars rather than won. The United States, therefore, took the verified won price reported by POSCO and converted it to dollars in accordance with Article 2.4.1.
42. Similarly, in the later investigation on sheet and strip, POSCO reported the local letter of credit transactions as sales between POSCO and customers in Korea, for consumption in Korea. POSCO also stated again that the sales were paid in won and reported the won price, which is on the invoice, in their listing of home market sales. Again, it was later that POSCO provided dollar prices for these sales, as it had in SSPC, but it was not until verification that POSCO attempted to substantiate its claim that the prices for these sales were set in dollars, not won.
43. At verification - which I will point out is fairly late in the investigation process - the United States confirmed that the won amounts on the invoices for these sales matched what was reported in POSCO's original sales listing and what was recorded in the company's accounts receivable. In addition, POSCO presented for the first time some evidence that the won amounts reflected on the invoices and accounts receivable entries did not reflect the actual amount of won received. The United States was able to trace a few transactions and confirm separate accounting entries for exchange rate gains and losses that indicated that POSCO received an amount of won other than the amount reflected on the invoice. However, POSCO had not provided any won values other than those on the invoices.
44. Moreover, it is important to note that the evidence that the won amount received differed from the won amount on the invoice was never provided at all in the plate in coil investigation.
45. The United States weighed all of the evidence presented and concluded that the limited information POSCO provided at verification did not constitute a sufficient basis to determine that these sales were made in dollars. Therefore, the United States used the verified won prices reported by POSCO as the basis for normal value. That decision was based on an objective assessment of properly established facts and the conversion of those won prices to dollars was consistent with Article 2.4.1.
46. In contrast, Korea's arguments are inconsistent with both the facts and the Agreement. Factually, Korea argues -- repeatedly I might add -- that the United States made a double conversion. There was no double conversion. There were home market sales for which won prices were reported and verified. The United States simply converted the reported won prices into dollars when comparing export price and normal value, consistent with Article 2.4.1. 47. Korea also argues that Article 2.4.1 required the United States to avoid the currency conversion because a "reasonable alternative" was available. There is no support in the text of Article 2.4.1 for that proposition. Article 2.4.1 presupposes that a conversion is necessary and sets forth rules for how that conversion is to be accomplished.
48. The evidence in these investigations supported the United States conclusion that these sales were in won and, therefore, a conversion was necessary. The United States made the necessary conversion consistent with Article 2.4.1. Therefore, there is no basis for Korea's claim of a violation.
V. PROCEDURE
49. I would also like to address briefly Korea's claims of procedural violations. Any objective review of the record and procedural history of these investigations must lead to the conclusion that the United States fully complied with its procedural obligations under the Agreement.
50. The parties had timely access to all information, including confidential information provided under an Administrative Protective Order. They commented on, briefed and argued all of these issues during the course of the investigations and the United States addressed those arguments in the notice of its final determination, providing the rationale for its decision.
51. The fact that the United States changed its preliminary determination in certain respects does not indicate a lack of process, but rather that the process works. It demonstrates that the parties have a meaningful opportunity to defend their interests and influence the outcome. On some issues, the United States agreed with POSCO -- a fair number of issues I might add. On these particular issues, the United States simply found POSCO's arguments unpersuasive.
VI. ARTICLE X:3 AND STANDARD OF REVIEW
52. Finally, with respect to Korea's argument on Article X:3 and standard of review -- Korea also asserts a number of its claims under Article X:3 of GATT 1994, as well as under provisions of the Agreement. The Appellate body has recognized, however, that where a covered agreement specifically addresses matters covered by a claim under Article X:3, the panel should consider the more specific agreement first. The panel should not presume that the antidumping agreement authorizes unreasonable actions. Thus, where a measure is found to be reasonable under the Antidumping Agreement, the panel should find it to be reasonable also for purposes of Article X:3.
53. Throughout its submission, Korea strays from the language of the Agreement to discuss consistency with US law, regulations, administrative practice and decisions by domestic courts. Korea uses Article X:3 of GATT 1994 to justify these forays into domestic law. To the extent Korea desired rulings on the consistency of the decisions in these cases with US law, it was free to pursue those claims in the US judicial system. It is inappropriate to attempt to circumvent domestic review through the WTO dispute settlement process.
54. Finally, Korea alludes to, and Japan ponders at length the now familiar arguments about whether Article VI of GATT 1994 constitutes a derogation of other provisions of the GATT. It is the view of the United States that Article VI is an integral part of the rights and obligations embodied in the GATT, and not an exception. However, this argument is one which produces more heat than light. As the Appellate Body noted in the EC Hormones case: "merely characterizing a treaty provision as an 'exception' does not by itself justify a 'stricter' or 'narrower' interpretation of that provision than would be warranted by examination of the ordinary meaning of the actual treaty words, viewed in context and in the light of the treaty's object and purpose, or, in other words, by applying the normal rules of treaty interpretation." Moreover, one cannot brush aside the standard of review mandated by Article 17.6 simply by characterizing Article VI as an exception.
55. If the United States' establishment of the facts was proper, and their evaluation unbiased and objective, then the evaluation shall not be overturned. Further, to the extent there is any ambiguity in a provision of the Agreement, that is, if the language of the Agreement could be read in more than one way, the panel shall find a measure to be in conformity with the Agreement if it rests on any one of the permissible interpretations.
56. I would like to clear up one point of confusion caused by our reference to a "correct" interpretation. A "correct" interpretation is a permissible interpretation. The point we were attempting to make - perhaps inartfully - is that if a determination is based on a permissible interpretation, it must be sustained.
VII. SUMMARY
57. In summary, Korea has failed to meet its burden to make a prima facie case of a violation. The United States' final decisions on these issues were based on objective assessments of the facts and permissible interpretations of the Agreement. Therefore, there is no basis for the panel to find the measures at issue inconsistent with the Agreement.
VIII. CONCLUSION
58. We look forward to answering any questions the panel may have.
QUESTIONS FROM THE UNITED STATES TO KOREA
FIRST MEETING OF THE PANEL
(13 June 2000)
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.
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.
|
|
