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

Report of the Panel

(Continued)

ANNEX 2-5

SECOND SUBMISSION OF THE UNITED STATES

(29 June 2000)

TABLE OF CONTENTS

1. INTRODUCTION 
    
2. PRELIMINARY ISSUES

1. ARTICLE X:3 OF GATT 1994 IS NOT RELEVANT TO THE DISPUTE BEFORE THE PANEL 
    
2. THE FINDINGS BY THE UNITED STATES WERE NOT "RESULTS ORIENTED"

3. THE DETERMINATION OF THE UNITED STATES WITH RESPECT TO POSCO'S BAD DEBT WAS PROPER

1. KOREA HAS FAILED TO STATE A CLAIM WITH RESPECT TO THE UNITED STATES TREATMENT OF BAD DEBT EXPENSE IN THE CONSTRUCTION OF EXPORT PRICE 
    
2. THE UNITED STATES' TREATMENT OF BAD DEBT EXPENSE IN COMPARING EXPORT PRICE AND NORMAL VALUE WAS CONSISTENT WITH ARTICLE 2.4 

4. THE UNITED STATES PROPERLY CREATED MULTIPLE AVERAGES IN LIGHT OF THE 50 PER CENT DEVALUATION OF THE KOREAN WON 
    
5. THE UNITED STATES PROPERLY DETERMINED THAT THE "LOCAL SALES" WERE TRANSACTED IN WON 
    
6. THE REMEDY REQUESTED BY KOREA IS INAPPROPRIATE 
    
7. CONCLUSION 

LIST OF EXHIBITS 

I. INTRODUCTION

1. The United States will devote the majority of this second submission to rebutting Korea's arguments regarding the primary issues involved in this dispute - whether the United States properly adjusted for certain bad debt expenses recognized by POSCO in its accounting records for the period of investigation, whether the United States properly determined that sales before and after a 50 per cent devaluation of the Korean won should not be averaged together, and whether the United States properly treated sales invoiced and paid in Korean won as won transactions.

2. Before addressing the substantive issues before the Panel, the United States must correct certain misstatements contained in Korea's oral statement at the first meeting of the Panel.¹ Specifically, the United States will address the issues of the applicability of Article X:3 of the General Agreement on Tariffs and Trade 1994 ("GATT 1994"), and the allegation, made repeatedly by Korea, that the determinations in question were "result oriented".

3. Next, the United States will address the issue of its treatment of bad debt expenses recognized by POSCO during the period of investigation. The United States will demonstrate that those expenses were deducted in the construction of the export price for sales through POSAM, which is governed by Article 2.3 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the "AD Agreement"). Korea has not asserted any claim under Article 2.3. The United States will further establish that its treatment of the bad debt expense in the comparison of export price and normal value was consistent with the obligation under Article 2.4 to make allowance for differences in conditions and terms of sale. Finally, we will demonstrate that the allowance for bad debt expense was based on an objective assessment of the facts presented by POSCO, as reflected in its normal accounting records for the period of investigation.

4. The United States will also address the issue of use of two averaging periods within the period of investigation to account for the 50 percent devaluation of the Korean won. The United States will demonstrate that the language of Article 2.4.2 clearly limits averaging to transactions which are "comparable," an undefined term with a broad range of permissible interpretations. The United States will show that Article 2.4 establishes that time is a factor to be considered in determining comparability in that it requires that comparisons be made at as nearly as possible the same time. Consequently, in light of the 50 percent devaluation in the home market currency, the United States reasonably concluded that sales before and after such a depreciation should not be considered to have been made at the "same time" within the meaning of Article 2.4, nor to have been "comparable" within the meaning of Article 2.4.2. Finally, the United States will show that Korea has presented a highly selective picture of the past practice of the United States on this issue, and that the position of the United States in the cases before the Panel is consistent with its position in similar cases.

5. The United States will also show that its determination that "local sales," which were invoiced in Korean won, paid in Korean won, recorded in POSCO's internal records in Korean won, and reported in POSCO's questionnaire response in Korean won, were won transactions is based on an objective assessment of the information provided by POSCO, including limited information concerning dollar values reflected on the invoices.

6. This second written submission concludes by refuting Korea's peculiar assertion that, if the Panel finds any error in the determinations by the United States, regardless of how small the effect of such error on the ultimate margin of dumping may be, Article 1 of the AD Agreement requires the panel to suggest that the entire antidumping measure be revoked, rather than merely that the measure be brought into conformity with the AD Agreement.

7. Together with this second written submission, the United States is submitting its responses to the questions presented to the United States by the Panel and by Korea on 13 June 2000. To the maximum extent possible, the United States has sought to provide complete answers that do not repeat statements in this submission or depend on this submission for support. Nonetheless, the Panel may find certain aspects of the present submission to be germane to the matters covered in the responses, and vice a versa.

II. PRELIMINARY ISSUES

A. ARTICLE X:3 OF GATT 1994 IS NOT RELEVANT TO THE DISPUTE BEFORE THE PANEL

8. Korea continues to assert its expansive reading of Article X:3 which threatens to swallow the entire DSU, as well as Article 17 of the AD Agreement. According to Korea's reading, Article X:3 authorizes a panel to look into domestic precedent regardless of whether an action is otherwise consistent with the covered agreements, and strike down that action if it has not followed the panel's determination of what that precedent is.² This expansive reading is without foundation.

9. As pointed out in the first submission of the United States, Article X:3 addresses overall administration of the law, rather than specific administrative rulings. The Appellate Body in Bananas recognized that Article X:3(a) does not apply to "laws, regulations, decisions and rulings," but only to the administration of such matters.³ Thus, if Korea were asserting that the United States had issued an administrative ruling in which it found dumping for several countries, but was only collecting duties for some of them, then it might be able to raise a claim under Article X:3 that the administration of the ruling was inconsistent. However, as the Appellate Body recognized in Bananas, to the extent a party is complaining about the ruling itself, a panel can address that claim under the covered agreement.

10. This understanding of Article X:3 is further reinforced by the finding of the Appellate Body in Shrimp.⁴ In that case, the Appellate body applied Article X:3 not because one particular decision was inconsistent with a prior decision, but rather because it had been alleged that the entire procedure under review was "non-transparent and ex-parte," that there was no formal notice of or reasons provided for actions, and that there was no opportunity for review of or appeal from an action. In the present case, although Korea has complained about two particular rulings, it has not argued that some aspect of the system of enforcement of anti-dumping decisions in the United States is arbitrary. In light of this, Korea's reliance on Article X:3 is misplaced.

11. The use to which Korea is putting Article X:3 is as transparent as it is improper. Lacking persuasive arguments that the actions of the United States are inconsistent with the AD Agreement, Korea has attempted to bolster its claim by alleging that the United States' actions were inconsistent with its domestic precedent.⁵ As has been shown, this is simply not the case. More significantly, however, the Panel should make clear that this attempt to expand the WTO dispute resolution process into the role of a reviewing court for domestic law is inappropriate.

B. THE FINDINGS BY THE UNITED STATES WERE NOT "RESULTS ORIENTED"

12. In its statements to the Panel, Korea has gone beyond its earlier allegations that the United States took actions inconsistent with a proper reading of the AD Agreement. Korea has now alleged that this misapplication of the AD Agreement was a deliberate and intentional effort to reach a certain result - in Korea's words, the determinations at issue were "results oriented."

13. Korea has failed to support this allegation with a single piece of evidence. Moreover, a simple review of the facts of the cases before the Panel demonstrates that the United States sided with the Korean producers on numerous controversial issues.

14. For example, in the preliminary determinations, the United States included sales of non-prime merchandise in its analysis. Subsequent to the preliminary determinations POSCO argued that this action distorted the test for whether sales have been made below the cost of production.⁶ In accordance with POSCO's arguments, and over the objections of the domestic industry, the United States altered its methodology for purposes of the final determinations.⁷ Thus, changes made in the final determination did not solely serve to raise POSCO's margin of dumping.

15. More significant than the issues on which the United States changed its policy between the preliminary and final determinations are the number of issues on which the United States sided with POSCO from the beginning. For example, as discussed in the first submission of the United States, the United States agreed with POSCO in the preliminary and final determinations, over the opposition of domestic producers, that the United States should alter its normal currency conversion methodology so that daily exchange rates were used throughout the period of severe devaluation.⁸ Indeed, a review of the final determinations reveals that there are many more issues on which the United States agreed with POSCO than on which it disagreed. POSCO has taken three issues out of context, and attempted to portray the entire procedure as "results oriented." The facts reveal otherwise.

16. Finally, in the SSSS determination, the United States found that another Korean producer, Inchon, was not dumping at all.⁹ Consequently, the United States excluded Inchon from coverage under the anti-dumping duty order entirely. Thus, the facts demonstrate that the United States' determinations were not "results oriented," but, in fact, were the product of a transparent proceeding in which the United States accorded producers a meaningful opportunity to participate and made an objective assessment of the facts and argument presented by the parties in that proceeding. The fact that POSCO's records and responses indicated that it had been dumping in the United States does not mean that the proceeding was "unfair" or "results oriented."

III. THE DETERMINATION OF THE UNITED STATES WITH RESPECT TO POSCO'S BAD DEBT WAS PROPER

17. Throughout this proceeding, Korea has attempted to blur the distinction between deductions made to construct an export price consistent with Article 2.3 of the AD Agreement, and adjustments to account for differences between export price (constructed or otherwise) and normal value that affect price comparability, as required by Article 2.4 of the AD Agreement. It is, of course, in Korea's interest to do so because it has not brought a claim under Article 2.3.

18. Understanding the distinction between Articles 2.3 and 2.4 is essential to understanding the United States' treatment of the bad debt expense incurred in connection with the sales to ABC company. We will demonstrate below that, for sales through POSAM, this bad debt expense was part of the construction of export price, which is governed by Article 2.3. Further, although Korea has not made a claim under Article 2.3, the United States will show that the deduction of the bad debt expense in constructing export price was consistent with Article 2.3. In contrast, for the remainder of POSCO's sales, this bad debt expense was part of an adjustment to neutralize differences in conditions and terms of sale, which is governed by Article 2.4. The United States will also demonstrate below that this adjustment was consistent with Article 2.4.

19. In sum, the United States will show that Korea has failed to establish a prima facie case that the treatment of this bad debt expense was in violation of the AD Agreement.

A. KOREA HAS FAILED TO STATE A CLAIM WITH RESPECT TO THE UNITED STATES TREATMENT OF BAD DEBT EXPENSE IN THE CONSTRUCTION OF EXPORT PRICE

20. As noted above, Articles 2.3 and 2.4 deal with separate and distinct aspects of a dumping analysis. There is nothing "novel" about this argument, as Korea asserts.¹⁰ To the contrary, it is well-grounded in the AD Agreement, which reflects the fact that, methodologically, export price must be established before it can be compared to normal value or the amount of any due allowance for differences that affect price comparability can be determined. Article 2.3 addresses how export price may be established in certain situations. In particular, Article 2.3 provides that when the export price is unreliable because of an association between the exporter and the importer, rather than use the unreliable export price, the export price may be constructed based on the price to the independent buyer.

21. During the period of these investigations, POSCO made sales to the United States through its US affiliate, POSAM. For those sales, consistent with Article 2.3, the United States constructed the export price between POSCO and POSAM. The United States constructed the export price by deducting from POSAM's price to independent buyers all expenses incurred in connection with POSAM's sales to independent buyers, including an allocated portion of the bad debt expense incurred in connection with the sales to ABC company.

22. Because Korea has made no claim under Article 2.3, the United States' decision to construct export price and the methodology it employed to do so are not issues before this Panel. Nevertheless, it is the United States' view that its construction of the export price for sales through POSAM was entirely consistent with Article 2.3.

23. Article 2.3 provides generally that export price may be constructed on the basis of the price at which the merchandise is first sold to an independent buyer, but provides no other methodological detail. Additional guidance on the construction of export price is found in Article 2.4,¹¹ which states that "in the cases referred to in paragraph 3, allowances for costs, including duties and taxes, incurred between importation and resale, and for profits accruing, should also be made."¹² The United States interprets the reference to costs "incurred between importation and resale" as distinguishing between costs incurred in connection with the import transaction and those incurred in connection with the resale.¹³ Only the latter are deducted in constructing export price.

24. The United States deduction from POSAM's price to the independent buyer of all expenses related to that resale was consistent with the guidance in Article 2.4, and with the object and purpose of Article 2.3, which is to construct a price between the exporter and affiliated importer. Therefore, even if Korea had made a proper claim under Article 2.3, that claim would fail.

B. THE UNITED STATES' TREATMENT OF BAD DEBT EXPENSE IN COMPARING EXPORT PRICE AND NORMAL VALUE WAS CONSISTENT WITH ARTICLE 2.4

25. The claims by Korea relate solely to the consistency of the United States' treatment of ABC Company's bad debt with Article 2.4. Article 2.4 governs the comparison of export price and normal value. Therefore, the issue before the Panel is limited to whether, in comparing export price - not constructing it - and normal value, the United States accounted for POSCO's bad debt expense in a manner consistent with the AD Agreement.

26. Article 2.4 requires a "fair comparison" - it also defines it. The predecessor to Article 2.4, Article 2.6 of the Anti-dumping Code, also defined the allowances necessary "[i]n order to effect a fair comparison" (emphasis added). Therefore, how to make a fair comparison was clear. What was ambiguous was whether Members were required to make the fair comparison described in Article 2.6. That ambiguity was eliminated in the current AD Agreement. The first sentence of Article 2.4 makes explicit the requirement to make a fair comparison. The remainder of Article 2.4, like its predecessor, defines how "this comparison" is made.¹⁴

27. In light of the object and purpose of the AD Agreement, there is no basis for an interpretation of Article 2.4 that divorces the obligation to make a fair comparison from the allowances required to establish price comparability. In accordance with Article 2.1, a dumping analysis is based on a comparison of prices for sales in the export market to prices for sales in the home market. By requiring due allowance for all factors affecting price comparability, Article 2.4 assures that the prices used to establish dumping in accordance with Article 2.1 are "comparable," i.e. a comparison of such prices is fair. There is simply no logic in asserting that even where transactions in the two markets are rendered comparable in all respects affecting price, comparing the prices in a dumping analysis could be unfair. The concept of fairness and the concept of comparability are inseparable.

28. As explained in our first submission,¹⁵ POSCO's sales to ABC company were comparable to the normal value transactions, as adjusted in accordance with Article 2.4. There was nothing unusual about the merchandise, terms of the contract, distribution channel or any other aspect of the transactions. Nevertheless, Korea asserts that it was unfair to include these sales in the dumping analysis because they resulted in a bad debt, even though bad debt is a normal selling expense. Although differences in selling expenses such as bad debt may affect the comparability of export price and normal value, allowance for such differences can be made, and such allowance is all that Article 2.4 requires.

29. The United States' comparison of export price and normal value in the cases at issue was consistent with the requirements of Article 2.4 and, therefore, was fair. To establish a fair comparison, Article 2.4 requires that due allowance shall be made for differences affecting price comparability including, inter alia, differences in the "conditions and terms of sale." A permissible interpretation of differences in "conditions and terms of sale" encompasses differences in costs associated with the terms of the sales contract and other expenses that are directly related to the sale, i.e, but for the sale the expense would not be incurred. The United States refers to such expenses as "direct selling expenses" and bad debt is such an expense.

30. As discussed in the United States' first submission and its oral statement before this Panel, bad debt is an expense that is directly related to the payment terms in the sales contract.¹⁶ Whenever a seller sells on credit, rather than demanding immediate payment, the seller accepts a credit expense, including any bad debt that may result from the sale. There is no meaningful distinction between bad debt and other selling expenses, such as warranty, which Korea concedes constitute conditions and terms of sale within the meaning of Article 2.4. Selling under warranty directly generates warranty expense and selling on credit directly generates credit expenses, including bad debt. In both cases, the expense is part of the bargain and but for the sale the expense would not be incurred. Therefore, like warranty, it is reasonable to treat bad debt as a condition or term of sale within the meaning of Article 2.4.¹⁷

31. As explained previously, the United States made allowance for differences in direct selling expenses, including bad debt, through its normal methodology, which is known as the "circumstance of sale" adjustment.¹⁸ This adjustment was made by deducting direct selling expenses on Korean sales from normal value and adding to normal value the US direct selling expenses.¹⁹ As a result, the effect on the dumping analysis of any differences in direct selling expenses in the United States and Korea was neutralized.²⁰

32. The allowances required under Article 2.4 must be determined on a case-by-case basis. Thus, the only remaining issue is whether the United States' determination of the allowance for differences in bad debt expenses in this case was based on an objective assessment of the facts.²¹

33. Korea concedes that whether the unpaid sales are bad debts is not really an issue. That concession is not surprising in light of the evidence, discussed below. Nevertheless, Korea contends that an adjustment for bad debt is unfair because it is unpredictable and occurs after the price is set. This argument is difficult to reconcile with the fact that bad debt is, in fact, a normal business expense that is routinely accounted for in accordance with generally accepted accounting principles (GAAP). Moreover, as discussed below, POSCO has recognized other bad debts, and accounts for this expense in its normal accounting records.²²

34. In the present cases, the United States based the circumstance of sale adjustment for bad debt on POSCO's questionnaire response and its accounting records, as verified, for the period of investigation.²³ In a dumping analysis, it is not possible or practicable to match all expenses with particular sales because of the nature of the expense and the available information. The only practicable method for making allowance for such expenses is based on the exporter's actual expenses during the period of investigation. In the case of certain contingent expenses, such as warranty,²⁴ the United States will also confirm that the expenses recognized during the period of investigation are consistent with the company's recent experience. This is not necessary in the case of bad debt because, in accordance with GAAP, companies normally account for bad debt using a reserve accounting method that is based on the company's experience. In such cases, the bad debt expense recognized in a given period reflects that experience.

35. As noted above, in the present cases, the United States based the circumstance of sale adjustment for bad debt on POSCO's questionnaire response and its accounting records. POSCO reported the sales to ABC Company and originally stated that they had been "written-off" during the period of investigation.²⁵ Although POSCO later stated that the sales were simply "unpaid", POSAM's accounting records examined at verification were consistent with POSCO's original statement that the receivables had been written off. POSAM did not maintain a bad debt reserve account,²⁶ but its records showed a credit to accounts receivable and a debit to sales, which reversed the entries that recorded the sales.²⁷ POSAM would only make such entries if it deemed the receivables to be uncollectable. Furthermore, there was evidence that POSCO claimed the bad debt expense as a direct write-off for tax purposes. To do so, POSCO must have deemed the debt worthless.²⁸ The United States merely relied on POSCO's determination, as reflected in the evidence, that these receivables were uncollectible.²⁹ Furthermore, although POSAM did not use a reserve accounting method for bad debt, the United States based the adjustment for bad debt on the accounting method used by POSAM. While POSAM's accounting methodology was not based on experience, it provided the only reasonable means of calculating the bad debt expense.³⁰

36. Finally, the United States included bad debt expense in the circumstance of sale adjustment only where there was sufficient evidence to demonstrate that the expense was directly related to sales of the subject merchandise. The evidence concerning the bad debt incurred on sales to ABC company demonstrated that the expense was directly related to US sales of the subject merchandise. Therefore, consistent with Article 2.4, the expense was allocated to all US sales and the allocated amount was included in the circumstance of sale adjustment.

37. In contrast, other bad debt expense recognized by POSCO during the period of investigation was not included in the circumstance of sale adjustment because the available evidence was insufficient to treat the bad debt as a selling expense directly related to US sales of the subject merchandise. POSCO and its Korean affiliate, POSTEEL, which is responsible for all export sales, maintain bad debt accounts. However, POSCO did not have the ability to tie specific bad debt expense recognized during the period of investigation to particular products or export markets. As a result, it was not possible to determine precisely what portion of the expense was associated with US sales of subject merchandise. Therefore, although POSCO allocated a portion of the bad debt expense to its sales to the United States, it reported the bad debt expense as an indirect selling expense and the United States treated it as such, i.e., the United States did not include this additional bad debt expense in the circumstance of sale adjustment.³¹

38. The foregoing demonstrates that the United States' treatment of POSCO's bad debt expense in the comparison of export price and normal value was based on a permissible interpretation of Article 2.4 and an objective assessment of the facts. Therefore, when rhetoric is put aside in favor of a legal analysis, it is evident that there is no basis on which to find a violation of the AD Agreement.

IV. THE UNITED STATES PROPERLY CREATED MULTIPLE AVERAGES IN LIGHT OF THE 50 PER CENT DEVALUATION OF THE KOREAN WON

39. In its first submission, the United States explained that, due to the unprecedented fifty percent devaluation of the Korean won during the periods of investigation of the cases before the Panel, the United States properly determined, under Article 2.4.2 of the AD Agreement, that separate pre-and post-devaluation averages should be created in order to avoid comparing prices established prior to the devaluation with prices established after.³² Korea continues to argue that Article 2.4.2 permits only a single average of all normal values and export prices. Korea also argues that the fundamental collapse of the currency in which normal values were denominated was not an event of sufficient significance to warrant finding sales before and after the devaluation not "comparable" within the meaning of Article 2.4.2. As will be shown below, these arguments are without foundation.

40. Korea's primary argument is that the text of Article 2.4.2 is "unambiguous."³³ Korea relies on what it refers to as the "distinctly singular phrase 'a weighted average'" contained in Article 2.4.2.³⁴ According to Korea, this language requires in all cases that, in calculating dumping margins, Members only create "one average - not two averages".³⁵

41. The United States agrees that, with respect to the number of averages which may be created, the text of Article 2.4.2 is unambiguous, although its clear meaning is not that asserted by Korea. Rather, Article 2.4.2 clearly states that averages must be limited to "comparable" transactions. In other words, in conducting an anti-dumping investigation, where an investigating authority identifies two transactions which are not comparable, and are not made so, for example, through an adjustment pursuant to Article 2.4, then under Article 2.4.2 they must not be included in a single average. Thus, the assumption underlying Article 2.4.2 is that most investigations will involve multiple average-to-average comparisons. Indeed, it will only be in the rare case in which every transaction is comparable to every other transaction, that the investigating authority will be permitted to construct a single average normal value and a single average export price.

42. Korea's focus on the use of the singular in the first sentence of Article 2.4.2 (e.g. "a weighted-average of prices of all comparable export transaction") misapprehends the meaning of that provision. The sentence presumes that comparability has already been determined prior to construction of the average. Thus, to the extent that the investigating authority has identified a group of comparable transactions, the use of the singular in Article 2.4.2 requires the investigating authority to calculate only one average of those comparable transactions. However, it does not require the investigating authority to average together transactions which it has found not to be comparable to begin with.

43. As discussed above, Article 2.4.2 clearly permits creation of multiple averages where transactions are not comparable. Thus, the only issue before the Panel is whether the United States' determination that a collapse of the currency of 50 per cent in two months rendered transactions before and after the devaluation not "comparable" was a permissible interpretation of that term as used in Article 2.4.2. In light of this unprecedented situation, the United States acted in accordance with the Article 2.4.2 in determining that sales prior to the devaluation should not be compared with sales after the devaluation.

44. The term "comparable" is not itself defined in the AD Agreement. Indeed, the WTO panel in United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco³⁶ explicitly found that the word comparable is inherently ambiguous. As stated in the panel report, "it appeared to the Panel that the term 'comparable', including the ordinary meaning thereof, was susceptible of a range of meanings."³⁷ Although the panel in US - Tobacco was looking at the word in a different context, the fundamental finding is no less relevant in the present case: the ordinary meaning of the word "comparable" is subject to a range of permissible interpretations.

45. In light of this range of permissible interpretations of the term "comparable," Article 17.6 squarely governs the Panel's examination of this issue: "Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations." Given these circumstances, Korea's burden before the Panel is a heavy one, for it must establish that the interpretation adopted by the United States is effectively precluded by the AD Agreement. This Korea has failed to do.

46. Although Article 2.4.2 does not define the term comparable, leaving the term subject to a range of permissible interpretations, Article 2.4 does address the issue of comparability.³⁸ Article 2.4 supports the conclusion that sales before and after a 50 percent devaluation of the currency should not be considered "comparable," is a permissible interpretation.

47. Article 2.4 expressly states that comparisons should be "in respect of sales made at as nearly as possible the same time." Thus, Article 2.4 recognizes that time is a fundamental aspect of comparability. In light of this requirement, far from the year-long average proposed by Korea, the AD Agreement presumes that multiple averages of shorter periods typically result in a preferable comparison. Indeed, one could view the cited language of Article 2.4 as expressing a preference for daily averages (i.e. average normal values or export prices made up solely of sales made on the same day), because sales made on the same day are "made at as nearly as possible the same time." Further support for such a methodology is found in the fact that comparisons of daily averages would be very similar to the transaction-to-transaction methodology, which is expressly approved by Article 2.4.2.

48. In most cases, absent any allegation or evidence to the contrary, the United States considers sales made within a one-year period to be sufficiently close in time to satisfy the "same time" requirement of Article 2.4. However, where facts indicate that changes within the year have the potential to affect comparability of the transactions, for example high inflation in the exporting country in question,³⁹ the United States will divide the period of investigation into shorter periods.⁴⁰ Indeed, the "same time" requirement of Article 2.4 should lead Members to create multiple averaging periods whenever time may have affected the comparability of prices. In other words, Members should not presume that a year-long average is necessarily preferable, as urged by Korea.

49. The above indicates that a Member could interpret the "same time" requirement of Article 2.4 and the "comparable" requirement of Article 2.4.2 as authorizing an interpretation that two groups of transactions are not comparable (i.e. not made at as nearly as possible the same time) merely because they were made on different days (when same-day comparisons can be made). In light of this permissible interpretation, it is clearly permissible for the United States to conclude that periods distinguished from each other by a much greater difference, i.e. a 50 percent devaluation, should also not be considered comparable.

50. It is also significant to note that POSCO is no worse off under the methodology adopted by the United States than it would have been had the United States used the transaction-to-transaction methodology (or a comparison of daily averages). Under Article 2.4.2, the United States is free to employ a transaction-to-transaction comparison methodology, although it does not do so in most cases for practical reasons.⁴¹ Had the United States adopted a transaction-to-transaction comparison methodology there would have been few, if any, comparisons of transactions prior to the devaluation with transactions after the devaluation. Consequently, the permissible outcome of a transaction-to-transaction analysis would have been the same as the multiple averaging periods used in the cases before the Panel. An outcome which is permissible under the transaction-to-transaction methodology should not be deemed unreasonable when reached through an average-to-average methodology.

51. Korea has argued that sudden dramatic shifts in exchange rates cannot affect the comparability of transactions in the home market and the United States.⁴² According to Korea, differences in levels of trade and differences in physical characteristics of the products sold may result in transactions which are not comparable, but dramatic differences in the value of the home market currency in which transactions are denominated do not.⁴³ Korea offers no argument to support this assertion.⁴⁴ As discussed previously, the term "comparable" in Article 2.4.2 is subject to a range of permissible interpretations. Further, Article 2.4 contemplates that time, no less than levels of trade and physical characteristics, should be taken into account when making comparisons.

52. Moreover, Korea's argument that physical characteristics and levels of trade may make transactions not comparable within the meaning of Article 2.4.2 appears to conflict with the argument that Article 2.4.2 is clear on its face in only allowing "one average - not two averages."⁴⁵ While Korea has described it as "obfuscation,"⁴⁶ the confusion of the United States on this point is genuine: If the "unambiguous" language of Article 2.4.2 only permits "one average," how can it also permit multiple averages by level of trade and product? The United States agrees with Korea that transactions may be considered "not comparable" based on differences in their levels of trade or physical characteristics. Similarly, transactions can be considered not comparable based on differences in the time at which the sales are made.

53. Moreover, contrary to Korea's assertion, the value of the currency in which a transaction is conducted is a fundamental characteristic of a transaction. For example, a person who is asked how many units of an unidentified currency ("currency X") they would be willing to pay for a automobile would be unable to answer the question until they had some information about the value of currency X in the economy and, in the final analysis, relative to other currencies. Thus, a 50 percent depreciation of the currency in which a transaction is denominated represents a fundamental change in the comparability of that transaction with transaction prior to the devaluation.

54. Korea has also asserted that the United States action was inconsistent with its prior practice with respect to rapidly declining exchange rates.⁴⁷ According to Korea, the United States, in Certain Preserved Mushrooms from Indonesia⁴⁸ found that it would be improper to create two averages in response to a currency devaluation.⁴⁹ However, as pointed out in the First Submission of the United States, the Mushrooms decision was based on a finding that the ultimate dumping margin in that case would not change regardless of whether the United States used a single period-long average, or created two averages.⁵⁰ In light of this fact, the United States declined to address the issue.

55. Moreover, Korea overlooks the fact that in the very next investigation to address the devaluation of the Indonesian rupiah, the United States did create two averaging periods. Three months after the Preserved Mushrooms determination cited by Korea, in the same month in which the SSPC final determination was issued, the United States was again faced an investigation in which the devaluation of the Indonesian rupiah was an issue. In Extruded Rubber Thread from Indonesia⁵¹ the United States concluded, as it did in the cases before the Panel, that a severe devaluation could create a situation in which multiple averaging periods would be warranted. The final determination in Extruded Rubber Thread states:

We agree with petitioners that separate averaging periods should be used. Under section 777A(d)(1)(A) of the Act , the Department has wide latitude in calculating the average prices used to determine whether sales at less than fair value exist. More specifically, under 19 C.F.R. 351.414(d)(3), the Department may use shorter averaging periods where normal value varies significantly over the POI. In this case, such a change is evidenced by the steady, significant decline in the rupiah's value that began about August 1997 and continued through the end of the POI. From August through December, the end of the POI, the rupiah's value decreased by more than 50 per cent in relation to the dollar. Consequently, it is appropriate to use two averaging periods to avoid the possibility of a distortion in the dumping calculation. We disagree with Globe's claim that the use of averaging periods is not warranted because the POI is the same as the POI in Preserved Mushrooms . Whereas we declined to use two averaging periods in that case because doing so would have had no effect, thus rendering the issue moot, in this case the use of two averaging periods would affect our determination. As noted above, in our view, using a single averaging period would result in a distortion of the dumping calculation.⁵²

56. Thus, on the one hand Korea has represented as a substantive decision a prior determination (Preserved Mushrooms ) in which the United States explicitly declined to address multiple averages. On the other hand, Korea has ignored a prior decision (Extruded Rubber Thread) in which the United States reached a decision on the multiple averages issue which is fully consistent with the cases before this Panel. This selective use of prior determinations demonstrates a fundamental problem with Korea's approach: absent a showing that the entire anti-dumping regime in the United States is pervasively arbitrary, the Panel's attention should be focused on consistency with the AD Agreement, rather than on consistency with this or that prior administrative determination. POSCO is free to refer the issue of consistency with domestic law to a domestic court which is well-suited to determining what the prior practice is, and whether a given action is consistent with that practice, or the reasons for departure sufficient.⁵³

57. In sum, the language of Article 2.4.2 clearly limits averaging to transactions which are "comparable," an undefined term with a broad range of permissible interpretations. Article 2.4.2 is specifically made subject to the fair comparison provisions of Article 2.4. Article 2.4 states that comparisons should be made at as nearly as possible the same time. Consequently, in light of the 50 per cent devaluation in the home market currency, the United States reasonably concluded that sales before and after such a depreciation should not be considered to have been made at the "same time" within the meaning of Article 2.4, and therefore not "comparable" within the meaning of Article 2.4.2. Finally, the position of the United States in the cases before the Panel is consistent with similar cases, notwithstanding Korea's claims to the contrary.⁵⁴

58. In light of the foregoing, the Panel should find that the United States' use of multiple averaging periods is in conformity with the AD Agreement.

V. THE UNITED STATES PROPERLY DETERMINED THAT THE "LOCAL SALES" WERE TRANSACTED IN WON

59. With respect to the issue of "local sales," Korea has failed to prove its claim that the United States' establishment of the facts was improper, and its evaluation of the facts was biased and not objective.

60. The United States and Korea agree that when the sales used to establish normal value and export price are in different currencies, a conversion of currencies is required, consistent with Article 2.4.1. With respect to POSCO's "local sales", Korea claims that no conversion was necessary because the sales were made in dollars. On the other hand, the United States determined, based on an assessment of all the information provided by POSCO, that the sales were made in won and, therefore, converted the won prices reported by POSCO to dollars, consistent with Article 2.4.1. In short, the central issue in dispute is a question of fact, i.e., whether these local sales were in won or dollars.

61. Over the course of these anti-dumping investigations the facts asserted by POSCO concerning the local sales issue changed.⁵⁵ The information was, at times, contradictory or vague, and some was provided late in the proceeding. Further, some was provided in one proceeding, but not the other. Nevertheless, the United States evaluated the facts in the SSPC and SSSS investigations objectively and without bias. The facts established on the record of these investigations support the United States' conclusion that the currency of "local" sales was Korean won. Nothing Korea has presented to this Panel in its attempt to retry the facts substantiates its claim that the establishment of the facts was improper, or that the United States' evaluation of the facts was biased and not objective. Therefore, the Panel must uphold the United States' determination, even though the Panel may have reached a different conclusion.

62. In these investigations, the United States confirmed that the won amounts originally reported by POSCO in its response were on the invoices and matched the won amounts recorded in the company's accounts receivable, although the dollar amounts later reported by POSCO also were listed on the invoices. Further, it is beyond dispute in both SSPC and SSSS that POSCO received payment in Korean won for all local sales.

63. In its oral statement to the Panel, Korea boldly asserted that "the United States converted the dollar value into won at one exchange rate, calculated normal value in won, and then converted the won normal value into dollars at a different exchange rate."⁵⁶ That statement is a literal half-truth. It is well-established on the record of both investigations that in its final determination the United States made a single conversion of won to dollars for all sales that were transacted in won currency.⁵⁷ The United States converted the actual won amount on POSCO's invoices to its customers, the same won amount that POSCO reported in its home market sales listing in both investigations, and the same won amount recorded in the company's accounts receivable.

64. Korea's claim of a double conversion is not based on the actual methodology used by the United States, but rather on the premise that the currency of the transaction was actually dollars, not won. However, as discussed above, the properly established facts surrounding these sales do not support that premise. The facts showed that no dollars change hands, the customer is charged (invoiced) in won, pays in won, and POSCO enters the won amount into its accounts receivable. Given those facts, the United States' determination that these are won-sales cannot be found to be anything but unbiased and objective.

65. Korea also reiterates its argument that use of the dollar amount is necessary to avoid distortions caused by currency conversions. Once again, the premise of the argument is that the parties locked in a dollar price, and therefore, any differences due to currency conversion constitute a "distortion." As discussed in the United States' first submission, this argument is simply another way of saying that the transactions were in dollars, and the appropriate conversion formula is the one established by the POSCO, rather than the method established under Article 2.4.1. The conversion formula used by POSCO does not satisfy the rules set forth in Article 2.4.1.

66. Finally, Korea claims that the United States admits error in "its stated rationale for making the double conversion."⁵⁸ Korea claims that hidden in footnote 161 of the US submission is an admission in which the United States "concedes" that the anti-dumping measures are based upon a faulty rationale. Although the error occurred only with respect to the SSPC investigation, Korea has misinterpreted the United States' statement contained in the footnote.

67. In the First Submission of the United States, at footnote 161, the United States stated that it inadvertently used "adjusted exchange rates" in the SSPC case solely for purposes of determining, pursuant to Roses from Colombia , whether POSCO's exchange rate for converting won prices to dollars mirrored the rate the United States would use. These were not the rates used to convert POSCO's won sales to dollars. The "adjusted exchange rates" referred-to are the rates produced by the United States' normal currency conversion methodology, which did not take into account the devaluation during November and December, 1997, i.e. which used benchmark rates rather than daily rates during this period. The table in that footnote demonstrates that use of the daily rates for this comparison still reveals that POSCO's rates differed substantially from the rates being used by the United States. Thus, the error did not erode in any way the United States' rationale for declining to apply the Roses exception.

68. Moreover, Korea's continued reliance upon Roses from Colombia as a reflection of the United States' practice is flawed. As the United States has stated, Roses is a single-case exception to the United States' practice, not the rule. The facts of the cases before the Panel differ significantly from Roses, and no subsequent case has followed the position taken in Roses. Moreover, it is important to recognize that Roses pre-dates the Uruguay Round Agreements Act of the United States and thus none of the requirements of Article 2.4.1 were considered in that case. By contrast, in SSPC and SSSS, the exchange rates applied by the United States satisfied the requirements of Article 2.4.1.

69. The foregoing demonstrates that the United States establishment of the facts concerning POSCO's local sales was proper, and its evaluation unbiased and objective. These were local won transactions that were converted to dollars in accordance with Article 2.4.1. Accordingly, there is no basis upon which to find a violation of the AD Agreement.

VI. THE REMEDY REQUESTED BY KOREA IS INAPPROPRIATE

70. Korea continues to argue that, should the Panel agree with it on the merits, the Panel may suggest revocation of the anti-dumping measures.⁵⁹ Korea relies upon Article 1 of the AD Agreement, which it claims, plainly dictates that anti-dumping measures may be applied only pursuant to investigations initiated and conducted in accordance with the provisions of the AD Agreement. Korea claims that if the investigations were not conducted in accordance with the AD Agreement, then the Member does not have authority to maintain the anti-dumping measures.

71. Korea's broad interpretation of Article 1 of the AD Agreement cannot withstand scrutiny. Under that reading, the only permissible remedy available, regardless of the nature or magnitude of the violation, would be to eliminate the measure in its entirety. Such an interpretation would render meaningless the provision under Article 19.1 of the DSU that a panel recommend that the Member "bring the measure into conformity with that agreement."⁶⁰ If the drafters had intended that a measure be eliminated based upon any violation, the drafters could have so stated. They did not. Further, there would be no need to provide panels with the discretion to make suggestions if the intent were simply to eliminate the measure upon a finding of a violation. Therefore, even if the Panel were to agree with Korea on the merits, Article 19.1 mandates the recommendation that the Panel is to make.

VII. CONCLUSION

72. In light of the foregoing, the Panel should conclude that the measures undertaken by the United States are consistent with the AD Agreement in all respect.

LIST OF EXHIBITS

Exhibit	Description
US Ex. 30	SSSS - POSCO Response to Supplemental Questionnaire dated Dec. 4, 1998 (excerpts)
US Ex. 31	US Internal Revenue Service Publication 535 (excerpts)
US Ex. 32	Federal Reserve Daily Won/US$ Exchange Rates 1990 - 2000
US Ex. 33	Pacific Exchange Rate Service Daily Won/US$ Exchange Rates 1981 - 1990
US Ex. 34	Notice of Final Determination of Sales at Less Than Fair Value: Extruded Rubber Thread from Indonesia, 64 Fed. Reg. 14690 (March 26, 1999)
US Ex. 35	SSPC - Final Analysis Memorandum for POSCO
US Ex. 36	SSSS - Final Analysis Memorandum for POSCO
US Ex. 37	SSPC - POSCO Response to Section A of Initial Questionnaire, dated July 1, 1998 (excerpt from POSCO Chart of Accounts and Narrative)
US Ex. 38	SSPC - POSCO Response to Supplemental Section B & C Questionnaire, dated August 26, 1998 (excerpts)
US Ex. 39	SSPC - Verification Exhibit 41: Breakdown of POSCO's Reported Indirect Selling Expense Figures for POSCO and POSTEEL
US Ex. 40	SSPC - Exhibit B-16 and Narrative from POSCO's Response to Section B of Initial Questionnaire, dated July 20, 1998 (excerpt)
US Ex. 41	SSSS - POSCO Response to Sections B & C of Initial Questionnaire, dated September 23, 1998 (excerpts)
US Ex. 42	SSSS - POSCO Response to Supplemental Section B & C Questionnaire, dated November 23, 1998 (excerpts)
US Ex. 43	SSPC - POSCO Response to Supplemental Section D Questionnaire, dated October 16, 1998 (excerpts)
US Ex. 44	SSPC - Ministerial Error Allegation Memorandum, dated November 23, 1998
US Ex. 45	SSPC - Verification Outline, dated November 2, 1998 (excerpts)
US Ex. 46	SSSS - POSCO Response to Section A Questionnaire, dated September 2, 1998 (excerpts)
US Ex. 47	SSSS - Department Supplemental Questionnaire, dated October 23, 1998 (excerpt)
US Ex. 48	SSSS - Preliminary Analysis Memorandum, dated December 17, 1998 (excerpt)
US Ex. 49	SSPC - Exhibit 39 from Sales Verification Report for POSCO, dated January 5, 1999
US Ex. 50	SSPC - Exhibit 23 from Sales Verification Report for POSCO, dated January 5, 1999

1 Oral Statement of the Republic of Korea, made at the First meeting of the Panel on 13-14 June 2000 (hereinafter ROK First Oral Statement).

2 ROK First Oral Statement, at para. 80.

3 See the discussion of the Bananas decision in the First Submission of the United States of America, dated 26 May 2000, (hereinafter US First Submission), at para. 43.

4 See the discussion of the Shrimp decision in the US First Submission, at para. 45.

5 Indeed, Korea goes so far as to assert that the opinions issued by a US Federal Court which refer solely to US law, and contain no mention of the AD Agreement, provide �interpretive guidance� to the Panel regarding provisions of the AD Agreement. ROK First Oral Statement at para. 36.

6 ROK Ex. 7, at 7-8; ROK Ex. 20, at 6-7.

7 See Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Plate in Coils (�SSPC�) from the Republic of Korea, 64 Fed. Reg. 15444, 15455 (31 March 1999) (hereinafter SSPC Final Determination) (ROK Ex. 11); and Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils From the Republic of Korea, 64 Fed. Reg. 30664, 30679 (8 June 1999) (hereinafter SSSS Final Determination) (ROK Ex. 24).

8 US First Submission, at para. 114 - 117.

9 SSSS Final Determination, at 30688.

10 ROK First Oral Statement, at para. 29.

11 As noted in the United States oral statement, the language in Article 2.4 on construction of export price is neither mandatory nor exclusive. Oral Statement of the United States, made at the First meeting of the Panel on June 13-14, 2000 (hereinafter US First Oral Statement), at para. 24.

12 This reference in Article 2.4 to allowances made pursuant to Article 2.3 also provides context for the sentence that follows, which addresses the comparison of constructed export price and normal value. That sentence states that, if the Article 2.3 allowances affect price comparability, normal value shall be established at a level of trade equivalent to the constructed export price or due allowance shall be made as warranted.

13 Price is equal to cost plus profit. After deducting from the resale price all costs and profit associated with the resale transaction, the remaining costs and profit represent a construction of the price between the exporter and the associated importer. The suggestion that �incurred between importation and resale� should be interpreted as a temporal limitation is inconsistent with the object and purpose of Article 2.3 and elevates form over substance. Under such an interpretation, whether a cost is accounted for would depend on when the cost is �incurred,� which is ambiguous. Moreover, whether a cost was accounted for would be based solely on timing; for one transaction the cost would be deducted because the merchandise happened to arrive the day before the cost was deemed to have been �incurred�, and for another transaction the identical cost would not be deducted because the merchandise happened to arrive the day after the cost was incurred. In contrast, the US interpretation, which focuses on the transactions - the sale between the exporter and associated importer and the resale - is consistent with the object and purpose of Article 2.3, which is to construct a price for the former transaction based on the price for the latter.

14 For a further discussion of the history and interpretation of Article 2.4, see Response to Panel Question 1 (General).

15 US First Submission, para. 65-71.

16 US First Submission, at para. 83-86; US First Oral Statement, at para. 14-16.

17 Because bad debt falls within the meaning of �conditions and terms of sale�, we have not relied on the reference in Article 2.4 to �any other differences� demonstrated to affect price comparability. That does not constitute a concession that bad debt could not fall within "other differences." See also, Response to Panel Question 5 (Treatment of Unpaid Sales).

18 US First Submission, at para. 87; US First Oral Statement, at para. 12.

19 As the United States noted in its oral statement, for comparison to constructed export price sales there was no increase to normal value because there were no direct selling expenses related to the sale between POSCO and POSAM and all selling expenses related to the resale by POSAM were deducted in constructing the export price. US First Oral Statement at para. 12.

20 See also, US First Oral Statement, at para. 20.

21 Article 2.4 states 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 phrase �on its merits� does not suggest that differences in conditions and terms of sale may have no effect on price comparability in a given case. The phrase �differences which affect price comparability� is defined to �include� those in the illustrative list that follows. Thus, the differences expressly listed - such as differences in conditions and terms of sale - are differences which affect price comparability. What must be determined on the merits of each case are what allowances are necessary and how they should be quantified, not whether the differences affect price comparability. See also, Response to Panel Question 6 (Treatment of Unpaid Sales).

22 See also, Response to Panel Question 3 (Treatment of Unpaid Sales).

23 Although not controlling in this case, the United States notes that Article 2.2.1.1 states that costs shall "normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with generally accepted accounting principles...."

24 This type of "snap shot" analysis is also used for expenses that cannot be specifically determined for the sales during the period of investigation because of the nature and timing of the expense, e.g., research and development.

25 SSPC POSCO Response to Section A of Initial Questionnaire dated 2 July 1998, at A-3, (US Ex. 7); SSSS POSCO Response to Section A of Initial Questionnaire dated September 3, 1998, at A-3, (US Ex. 8)

26 In contrast, POSCO and its Korean affiliate, POSTEEL, do maintain bad debt accounts. See Response to Panel Question 3 (Treatment of Unpaid Sales).

27 SSPC POSAM Verification Report, at 8-9 and Exhibit 5 (US Ex. 9); SSSS POSAM Verification Report, at 8, (US Ex. 10).

28 SSSS Response to Supplemental Questionnaire (4 December 1998) at 3 (US Ex. 30). POSCO stated that POSAM was required under US tax law to cancel the unpaid sales. POSAM would only be required by US tax law to recognize the bad debt expense if it was taking the expense as a tax deduction. To take the deduction, US tax law requires that the debt be worthless. Bankruptcy of the debtor is generally considered good evidence that an unsecured debt is worthless. Publication 535, US Department of Treasury, Internal Revenue Service at 52-53 (US Ex. 31). Therefore, POSAM must have deemed the debt to be worthless.

29 We note that, although POSAM used negative invoices as the accounting mechanism, this does not constitute �cancellation� of the sales. Generally, cancellation of a sale occurs before the transaction has been completed. Once delivery has been made, as in the present cases, the obligation to pay arises, creating a debt. Thus, by reversing the accounting entries after the debt was established, POSAM was writing off a bad debt, not cancelling the sales.

30 Neither POSCO nor Korea has ever contested the calculation of the bad debt expense, only how that expense was accounted for in the dumping analysis.

31 Where the evidence is insufficient to tie a direct selling expense such as bad debt to the sales under investigation it is standard practice to treat the expense as indirect and, therefore, exclude the expense from the circumstance of sale adjustment. For this reason, POSCO also reported its home market bad debt expense as indirect, and the United States treated it as such. Nevertheless, the evidence reported by POSCO confirms that POSCO, in fact, has had experience with bad debt, other than the sales to ABC Company, and that POSCO accounts for such expense in its normal records. Furthermore, POSCO deemed a portion of that expense to be associated with sales to the United States. See Response to Panel Question 3 (Treatment of Unpaid Sales). Finally, POSCO never claimed that it had no other bad debt related to US sales. See e.g., Supplemental Questionnaire Response (US Ex. 30), at 2 (stating only that POSCO had never had a customer go bankrupt).

32 US First Submission, at para. 107 - 168.

33 ROK First Oral Statement, at para. 46.

34 Id. at para. 45

35 Id.

36 Panel Report on United States -- Measures Affecting the Importation, Internal Sale and Use of Tobacco, adopted 4 October 1994, BISD 41S/131 (�US -- Tobacco�).

37 Id., 41S/176, para. 123.

38 Article 2.4.2 is expressly made subject to �the provisions governing fair comparisons in paragraph 4 of this Article .�

39 See, US First Submission, at para. 154, and cases cited therein.

40 The United States has long contemplated the possibility that facts may arise which would call for averaging periods of less than the full period of investigation when it adopted section 351.414(d)(3) of its regulations, 19 C.F.R. � 351.414(d)(3), which reads as follows:

Time period over which weighted average is calculated. When applying the average-to-average method, the Secretary normally will calculate weighted averages for the entire period of investigation or review, as the case may be. However, when normal values, export prices, or constructed export prices differ significantly over the course of the period of investigation or review, the Secretary may calculate weighted averages for such shorter period as the Secretary deems appropriate.

60 Article 19.1 of the DSU (emphasis added).

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