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UNITED
STATES � ANTI-DUMPING MEASURES ON
Report of the Panel (Continued)
RESPONSES OF THE UNITED STATES TO QUESTIONS POSED BY THE PANEL
SECOND MEETING OF THE PANEL
(28 July 2000)
CONTENTS
Q.1. For the United States. In the Plate case, did you verify any "dollar-denominated" local sales? If so, did you verify the amount actually paid in respect of those sales? 1. In the Plate case, the United States examined documentation pertaining to local sales during its verification in Korea.1 In its examination, the United States verified that the won amount listed on the invoice was the same amount recorded in the company's sales ledger, as reported by POSCO in its questionnaire response.2 As discussed below, POSCO did not inform the United States, during the verification or at any time during the Plate investigation, that the invoiced amount that was recorded in the company's accounts and reported to the United States differed from the amount actually paid for the sales at issue.3 In particular, during the verification POSCO did not direct the United States to any records that would indicate a difference between the invoice amount and the payment amount. Indeed, all of the information examined at verification was consistent with the United States' understanding that the invoice and payment amounts were the same. Finally, we note that POSCO's home market sales were paid on a revolving account basis.4 The United States, therefore, was unable to tie payments directly to a particular sale. Accordingly, it was not possible to verify the actual payment for a particular invoice.5 Q.2. For Korea. It is the understanding of the Panel that the initial questionnaire responses in both the Plate and Sheet cases reported the "local dollar-denominated sales" at issue at the invoiced price in won, rather than the amount of won actually paid. In the Plate case, the Panel is unaware that POSCO at any point informed the USDOC that the amount paid in won differed from the amount invoiced in won, nor that any evidence in the record so indicates. If Korea considers that the Panel's understanding is incorrect, please provide relevant evidence from the record in support of Korea's view.
2. The evidence indicates that the Panel's understanding is correct. In both cases, POSCO reported only the invoice price for the local sales at issue. In neither case did POSCO report the actual won amount paid by POSCO's customer.6 In the Plate case, POSCO did not inform the United States at any time during the proceeding that the amount paid differed from the amount invoiced and reported by POSCO in its response. Moreover, no other information on the record indicates the existence of a difference between the invoiced amount and payment amount.7 3. In the Sheet case, the only suggestion that these amounts differed came late in the proceeding amid conflicting information. In that case, once again POSCO only reported the invoice price and never reported that the won amount actually paid by the customer differed. Further, POSCO neither informed the United States nor claimed in any of its responses in the Sheet case that the amount paid and amount invoiced were different. US verifiers only uncovered this information during the verification. Similarly, in its arguments to the United States in the Sheet case, POSCO never indicated nor argued that the won amount paid differed from the amount invoiced. Q.3. For Korea. Please identify where, in the course of your argumentation in the Plate and Sheet investigations regarding whether "dollar denominated" local sales were in fact dollar or won sales, you drew the attention of the USDOC to the fact that the order sheets indicated "D" for dollar sales.
4. In its arguments made to the United States during the course of both the Plate and Sheet investigations, neither POSCO nor Korea ever raised, argued, nor drew attention to the letter "D" on the order sheets.8 Indeed, in all of its arguments concerning local sales, neither POSCO nor Korea ever referred to, or relied upon, the order sheets as relevant to establish that the sales were dollar-denominated sales.9 5. Korea appears to assume that all POSCO had to do was claim that these sales were denominated in dollars and the United States would have to accept that claim unless it could sift through the voluminous record and disprove it. To the contrary, the party asserting a claim must support it. All of the relevant information was known to and in the control of POSCO. It is evident from the records of these investigations that POSCO did not view the order sheets as relevant to its claim that these sales were made in dollars or won. This underscores the fact that, in this proceeding, Korea has presented a different view of the facts than was presented to the United States by POSCO in the underlying investigations. II. UNPAID SALES
Q.1. For Korea. Korea characterizes the United States' "constructed export price defense" as a post hoc argument. The United States has however indicated places in the record that it considers to indicate that, in respect of sales through POSAM, the United States deducted an allocated portion of the US bad debt expenses as part of the construction of the export price (US answer to question 4 from the Panel regarding unpaid sales). The portions of the record cited by the United States seem to suggest that the adjustments in respect of POSAM sales were conducted under a legal provision applicable only to adjustments relating to a constructed export price and using a different methodology than is used for circumstance of sale adjustments. If you disagree, please explain, citing to the relevant portions of the record.
6. Korea's suggestion that, under US law, any adjustment for direct selling expenses must be a circumstance of sale adjustment is simply inaccurate. The United States' arguments to the contrary are not post hoc as Korea claims. As stated in the final determinations in both cases, for POSCO's sales through POSAM, the United States constructed export price based on POSAM's prices to unaffiliated customers in the United States. With respect to the construction of export price (CEP), the notices specifically state that "[i]n accordance with section 772(d)(1) of the Act, we deducted those selling expenses associated with economic activity in the United States, including direct selling expenses (credit costs, bank charges and US commissions) and indirect selling expenses."10 (Emphasis added). As we have explained previously, under US law, CEP is calculated by deducting all expenses (direct and indirect selling expenses; further manufacturing costs) related to the resale by the associated importer, plus an amount for profit. Those deductions are required by section 772(d)(1) of the US antidumping law, which is applicable only to CEP transactions.11 7. The deductions made to calculate CEP are separate and distinct from the adjustment made to normal value to account for differences in the circumstances of sale (i.e., conditions and terms of sale). Although the circumstance of sale (COS) adjustment is calculated based on direct selling expenses, it is governed by a separate provision of US law, section 773(a)(6)(C)(iii) of the Act.12 The COS adjustment is made for the purpose of comparing export price and normal value, not constructing export price. The COS adjustment is performed by deducting home market direct selling expenses from normal value and adding US direct selling expenses (excluding direct selling expenses that were deducted in calculating the CEP). Thus, while both the CEP and COS provisions deal with the treatment of direct selling expenses, such as bad debt, the adjustments are distinct and serve different purposes. 8. As discussed in our prior submissions, the bad debt expense at issue here was allocated across all US sales of the subject merchandise during the period of investigation. How the allocated portion of the bad debt expense was then treated depended on whether the transactions were sales through POSAM (i.e., CEP sales) or sales direct to independent US customers. As noted by the Panel in its question, the United States' response to the Panel's first set of questions (question 4, Unpaid Sales) explains where the CEP adjustments, including an allocated portion of bad debt, are reflected in the record. 9. The COS adjustments to normal value are also reflected in the analysis memoranda. For the Plate case, the analysis memorandum at page 8 shows that the allocated portion of bad debt expense was included in the US direct selling expenses (DIREXPU). At page 13, the memorandum shows that for EP sales the home market direct selling expenses were deducted from normal value and, at page 14, shows that the US direct selling expenses shown on page 8 were added to normal value. In contrast, the CEP calculation on page 15 of the memorandum shows that US direct selling expenses were deducted from CEP, but there was no addition to NV for US direct selling expenses (i.e., the direct selling expenses were not part of a COS adjustment).13 10. In the Sheet case, the final analysis memorandum at page 9 shows that the allocated amount of the bad debt expense was included in the US direct selling expenses. At page 13, the memorandum shows that for EP sales the home market direct selling expenses were deducted from normal value and, at page 15, shows that the US direct selling expenses shown on page 9 were added to normal value. In contrast, the CEP calculation on page 10 of the memorandum shows that there was no addition to NV for US direct selling expenses (i.e., the direct selling expenses were not part of a COS adjustment).14 Q.2. For the United States. The United States argues that, "[b]ecause 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." US rebuttal submission, para. 22. Article 2.4 provides that ""[I]n the cases referred to in paragraph 3, allowances for costs incurred between importation and resale, and of profits occurring, should also be made." Thus, it could be argued that the guidelines governing the construction of an export price pursuant to Article 2.3 may be found in Article 2.4. Please comment.
11. Article 2.3 provides for the construction of export price when the export price appears unreliable because the exporter and importer are associated. Article 2.3 also contains the only mandatory provisions with respect to the methodology that may be employed to construct export price. Specifically, in accordance with Article 2.3, export price must be constructed on the basis of the price at which the merchandise is first sold to an independent buyer or, in certain situations, on such other reasonable basis as the authorities may determine. 12. Although Article 2.3 provides only general requirements for the construction of export price, any methodology used must be reasonable and consistent with the object and purpose of Article 2.3. Moreover, as we have stated previously, the United States agrees that the third sentence of Article 2.4 provides guidance on how to construct export price. However, that sentence refers to what adjustments "should" be made in constructing export price pursuant to Article 2.3; the language is not mandatory. Thus, while the third sentence of Article 2.4 would be relevant in considering whether a methodology employed to construct export price was reasonable and consistent with the object and purpose of Article 2.3, it does not provide a basis for a claim of a violation. A claim that the construction of export price was in violation of the Agreement must be based on Article 2.3. Therefore, because Korea's claim with respect to the treatment of bad debt expense is based on Article 2.4, that claim does not encompass the adjustment for selling expenses, including the allocated portion of bad debt, made to construct the export price for sales through POSAM. 13. The United States also notes that Korea's reliance on the Appellate Body's decision in Argentine Footwear15 is misplaced. Korea argues, based on a misreading of that case, that the reference to Article 2.3 in the third sentence of Article 2.4 brings Article 2.3 within the Panel's terms of reference. 14. Argentine Footwear involved a claim that Argentina failed to comply with its obligations of Article 4.2(c) of the Agreement on Safeguards. Article 4.2(c) of the Agreement on Safeguards provides that:
Article 3 of the Agreement on Safeguards provides that:
The panel's decision that it had not exceeded its terms of reference in considering provisions of Article 3 was based on the fact that Article 4.2(c) of the Agreement on Safeguards expressly incorporated the requirements of Article 3 in a manner that mandated compliance with Article 3 as a requirement of Article 4.2(c). The Articles at issue here are not so related.
15. Article 2.4 of the Antidumping Agreement merely contains a reference back to "cases referred to in paragraph 3" followed by a description of allowances that "should" be made in such cases. The language of Article 2.4 does not require allowances "in accordance with" Article 2.3. In fact, as noted above, the allowances themselves are not mandated by Article 2.4. Therefore, there is no basis for sweeping the constructed export price methodology employed by the United States into Korea's claim under Article 2.4. 16. Moreover, as discussed below in response to question 5, even if the Panel were to conclude that it was appropriate to consider whether the CEP methodology employed by the United States is consistent with the guidance provided in Article 2.4, it must answer that inquiry in the affirmative. Q.3. For the United States. Is there anything in the record of the investigations indicating whether POSAM extended the credit in respect of the unpaid sales and thus bore the risk of non-payment, or whether, to the contrary, the risk of loss was borne by the exporter? Where in the record does the USDOC make such a determination in respect of its treatment of unpaid sales as a cost incurred by POSAM between importation and resale?
17. The questionnaire responses and verification reports in both cases indicate that POSAM sold to ABC Company on credit. Although POSAM did not receive payment for the transactions at issue, POSAM had paid its Korean affiliate, POSTEEL, for the merchandise. Thus, the bad debt was recognized in POSAM's accounting records. 18. Specifically, in the Plate case, Exhibit 5 to the POSAM verification report includes a copy of POSAM's invoice to ABC company, which shows the future date on which payment is due.16 In addition, the POSAM verification report states that when POSAM purchases from POSTEEL, it pays POSTEEL immediately and records the transaction as a pre-paid purchase. As a result, when POSAM wrote-off the sales to ABC Company, the amount paid to POSTEEL for that merchandise remained in POSAM's "cost of goods sold" account.17 19. Similarly, in the Sheet case, the record contains a copy of POSAM's invoice to ABC Company, which requires payment on a specified future date.18 The record also indicates that, prior to ABC Company's bankruptcy, POSAM had paid POSTEEL, which in turn paid POSCO, for the merchandise. Therefore, the loss was recognized in POSAM's accounting records.19 20. With respect to the second part of the Panel's question, the phrase "incurred between importation and resale" is ambiguous and susceptible of more than one reasonable interpretation. As explained previously, the United States interprets that phrase to include all costs incurred in connection with the transaction between the affiliated importer and the independent buyer. 21. 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 was accounted for in constructing export price would be determined solely by timing, rather than the nature of the expense and the object and purpose of Article 2.3. For example, Korea concedes that the cost of salaries for the affiliated importer's sales force is a legitimate Article 2.3 deduction.20 However, some salary expense may be incurred after importation (e.g., sales from inventory) and some may be incurred before importation (e.g., drop shipments). There is no rational reason to deduct the salary expense in one case but not the other. In fact, under a temporal interpretation, even though estimated expenses, such as bad debt or warranty, are recognized by the associated importer, no such expenses could not be taken into account in constructing export price because by their nature they arise after resale.21 22. In contrast, the US interpretation of the third sentence of Article 2.4, 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. Accordingly, for CEP transactions, section 772(d)(1) of the US anti-dumping law requires the deduction of all selling expenses related to the US affiliate's sales to independent US buyers. Because the United States interpretation of "between importation and resale" is incorporated into the statutory requirements for the construction of export price, the only determination required in each case is the identification of the expenses related to the transaction between the US affiliate and the independent US buyer. 23. As discussed further below, in the cases at issue, the United States allocated the bad debt expense for the sales to ABC Company across all US sales of the subject merchandise. In accordance with US law, the portion of the expense allocated to the sales through POSAM became part of the pool of expenses deducted to construct export price. The citations to the record that demonstrate the allocation of the bad debt expense, the inclusion of an allocated portion of that expense in the pool of US direct selling expenses, and the deduction of those expenses in the construction of export price, were provided in response to question 4 (Unpaid Sales) of the Panel's first set of questions. Q.4. For the United States. If unpaid sales were a cost incurred by POSAM between importation and resale in respect of those sales handled by POSAM, why did the USDOC consider that those sales should be allocated over all sales of the subject merchandise in the United States, irrespective of whether or not those sales were handled by POSAM?
24. What constitutes a reasonable allocation may depend on the nature of the expense or the particular facts of the case. For example, it may be reasonable to allocate transportation costs on a transaction-specific or customer-specific basis because there are known variances in distance. In contrast, while bad debt is a normal, anticipated expense, specifically what transactions, or even what customer, will generate a bad debt is not known in advance. All transactions made on credit in a particular market are a potential source of bad debt, regardless of the channel of trade or customer. Therefore, it is reasonable to allocate a portion of that expense to all transactions in that market.22 25. Accordingly, because the record demonstrated that the bad debt expense at issue was tied to US sales of the subject merchandise, the United States determined that it was appropriate to allocate the expense to all of POSCO's US sales of the subject merchandise.23 All of POSCO's US customers that buy subject merchandise on credit, regardless of whether POSCO sells to them directly or through POSAM, are a potential source of bad debt expense in the US market. Therefore, it was reasonable to allocate the bad debt expense across all US sales of the subject merchandise. Q.5. For the United States. Without prejudice to your position that the construction of the export price is not within the Panel's terms of reference, please respond to Korea's argument in paragraphs 56-59 of Korea's rebuttal submission.
26. The United States does not share Korea's view of the object and purpose of Article 2.3. Korea asserts that the purpose of Article 2.3 is the construction of a "hypothetical" price the exporter would have charged a hypothetical independent importer.24 Korea argues further that Article 2.3 "instructs" investigating authorities to construct export price by deducting that hypothetic mark-up from the resale price.25 However, there is no basis in the language of Article 2.3 for Korea's assertion, and Korea does not support its argument with any analysis of the text of Article 2.3. 27. 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. Thus, the purpose of Article 2.3 is to construct a reliable export price to the associated importer to use in lieu of the unreliable price. Moreover, Article 2.3 explicitly provides that export price is to be constructed based on the price to the independent buyer. If the object were to construct a hypothetical price to a hypothetical independent importer, as Korea suggests, there would be no need to start with the price to the independent buyer (e.g., constructed export price could be based on prices to independent importers). 28. In contrast, a methodology that is based on the price to the independent buyer is consistent with the purpose of constructing an export price for the actual transactions at issue, rather than some hypothetical transaction. In short, the price to the independent buyer is to be converted to an export price through appropriate adjustments. 29. Price is equal to cost plus profit. Thus, by starting with the price to the independent buyer and deducting all costs and profit associated with that transaction, the remaining costs and profit represent a construction of the price for the actual export transactions at issue, i.e., the transaction between the exporter and the associated importer. In essence, this represents the effective price between the exporter and the importer for those transactions, based on the actual data concerning those transactions.26 30. Even if the Panel were to agree with Korea's assertion that the purpose of Article 2.3 is to calculate a hypothetical mark-up by the US importer, the United States' methodology is not inconsistent with such a theory. 31. A mark-up is the difference between the reseller's price and its acquisition cost. Korea asserts that this hypothetical mark-up should include duties, freight, salaries and overhead. While Korea agrees that price adjustments for expenses such as warranty and bad debt are reasonable, if based on the seller's expectations or experience at the time of sale,27 it apparently would not include any direct selling expenses (e.g., warranty, credit/bad debt, technical assistance) in the hypothetical mark-up. Korea simply asserts, without explanation, that it is "clear" that such expenses would not be included in a reseller's mark-up.28 We disagree. 32. In order to stay in business, any rational seller, including resellers, should set its prices to cover its costs plus profit. Therefore, a rational hypothetical mark-up should include all the reseller's costs. When selling on credit or under warranty, resellers - like exporters - account for anticipated warranty and bad debt expenses. Thus, it is reasonable to conclude that a reseller would establish a mark-up that would cover those anticipated expenses. 33. Because the US CEP deductions were comprised of the reseller's expenses, including an allocated portion of bad debt - plus profit - they represent a reasonable hypothetical mark-up. Therefore, even under Korea's hypothetical mark-up theory, the methodology employed by the United States to construct export price is consistent with Article 2.3. Q.6. For both parties. It is a generally accepted principle that certain costs are to be expensed while others are to be allocated over time or over product. See, e.g., ADP Agreement, Article 2.2.1.1. In respect of the treatment of unpaid sales, for example, the United States allocated the "cost" of unpaid sales incurred by POSAM over all subject merchandise. Assuming for the sake of argument that the unpaid sales were "costs . . . incurred between importation and resale", it could be argued that those costs should be allocated over a period of time longer than the POI. Please comment.
34. Allocating bad debt expense over a period of time longer than the POI would be inconsistent with Generally Accepted Accounting Principles (GAAP). Under GAAP, expenses such as bad debt are not amortized over time. GAAP requires that the expenses be matched with revenues, i.e., the expense must be recognized in the same period as the revenues to which they are related.29 35. Because the amount of bad debt expense normally is not known with certainty during the period in which the revenues are earned, an estimate is made. The estimated amount is then placed in a reserve account for uncollectible receivables. When a specific receivable is subsequently deemed uncollectible, it is written off against the reserve account. 36. Normally, the bad debt expense reported by exporters in a dumping investigation is based on the estimated expense recognized during the period, but - as explained previously - POSAM did not have a bad debt reserve. It wrote off the receivables and effectively recognized the expense during the period of investigation. Therefore, the United States based the adjustments for bad debt expense on the amount reflected in POSAM's accounting records. Although the direct write-off method used by POSAM is normally not sufficient under GAAP because it results in mismatching of expenses and revenues, in the case of the bad debt at issue here, there was no mismatching of expenses and revenues because both the revenue and the expense were realized in the same period. By recognizing the expense in this period, POSAM itself determined that the expense was appropriately matched to revenues during the period. Therefore, using either the direct write-off or a reserve method would be GAAP consistent. 37. As noted above, Korea appears to agree that an adjustment for bad debt expense, like warranty expense, is reasonable, if it is based on risk, i.e., it must reflect the exporter's experience. However, Korea asserts that the burden was on United States to request historical data on bad debt, as it did on warranty expense.30 38. The United States requested that POSCO report its direct selling expenses.31 With respect to bad debt expense, the United States' standard questionnaire does not request historical data on bad debt because, as discussed above, GAAP normally requires that bad debt expense be accounted for using a methodology that reflects bad debt experience. 39. POSCO knew that POSAM had written off these receivables and knew that POSAM did not use a reserve accounting methodology for bad debt.32 In contrast, the United States did not know and cannot reasonably be expected to know the specific details of POSAM's accounting practices. Therefore, if POSCO believed that any adjustment for bad debt should be determined based on its experience rather than its accounting records, the burden was on POSCO to make that claim and provide the necessary information to support it. POSCO never made such a claim. III. MULTIPLE AVERAGING
Q.1. Korea acknowledges that "zeroing" per se is outside this Panel's terms of reference. It argues however that it does claim that the "multiple averaging" methodology used by the United States violates the AD Agreement, and that, to the extent that "zeroing" is an integral part of that methodology, it is properly within the Panel' terms of reference. Korea's request for establishment (WT/DS179/2), however, states that
It could be argued that "zeroing" is not part of the "methodology" regarding which Korea complains in its request for establishment of a panel. Please comment.
40. Korea has complained about a very specific action: "[division of] the period of investigation into two sub periods and [calculation of] separate weighted average normal values for each sub period." According to Korea's request for establishment (WT/DS179/2), this action alone was inconsistent with Article 2.4.2. This limitation on Korea's complaint is made clear by the phrase "that methodology," cited in the question. The Panel can address the issue of whether "that methodology," i.e. creation of multiple averages, is consistent with Article 2.4.2 without addressing whether zeroing is consistent with the Agreement. 41. As the United States noted in its response to questions posed by Korea, zeroing occurs at a separate stage, after the averaging and comparisons under Article 2.4 and 2.4.2 are completed.33 This was explicitly recognized by the Panel in Cotton Yarn.34 Thus, zeroing is not an integral part of the averaging methodology; indeed, it is not a part of the methodology addressed by Articles 2.4 and 2.4.2 at all. Thus, the zeroing practice is simply not a part of the methodology regarding which Korea requested establishment of a panel. Q.2. For the United States. Do you agree that multiple averaging is permitted by Article 2.4.2 only to the extent it enhances the comparability of the normal value and export prices being compared?
42. The question appears to proceed from a presumption that is the opposite of that contained in the Agreement. The Agreement presumes that most anti-dumping proceedings will require multiple averages to account for variations in physical characteristics, levels of trade, and changes over time. Thus, an investigating authority need not establish that multiple averages enhance comparability, but rather that use of a single average has not detracted from comparability. 43. The best comparison for measuring dumping is a transaction-to-transaction comparison of identical merchandise at the same level of trade and sold at exactly the same time. However, because of practical problems with such an approach, the Agreement also permits average-to-average comparisons. However, with each additional sale which is added to the average on either side, the risk that comparability will be impaired increases to the extent that the additional sale differs in respect of merchandise characteristics, level of trade or time of sale. Consequently, averages should be constructed as narrowly as possible. 44. The Agreement reflects this view. Article 2.1 and 2.6 establish that a product should only be compared to an identical or most similar product. The only way to accomplish this is to create separate averages for each combination of physical characteristics. The Agreement recognizes that comparisons between identical products are the most appropriate comparisons and that including similar products in broader averages, where possible, is not necessary or desirable. Comparisons between identical products "enhance comparability" only in the sense that they ensure the best possible comparisons. Thus, investigating authorities need not establish that comparability will be enhanced before creating multiple averages to account for different physical characteristics. 45. The second sentence of Article 2.4 also states that products should be compared at the same level of trade. Thus, in every case in which there are several levels of trade, investigating authorities must create multiple averages by level of trade. The Agreement presumes that averaging together sales at different levels of trade detracts from comparability. 46. The same sentence of Article 2.4 states that transactions should be compared at as nearly as possible the same time. Thus, investigating authorities should only create a single average where there is no evidence of a change over time which may have affected comparability. Although in most cases the United States is not presented with any evidence to suggest that changes within the one year period of investigation may have affected comparability, it does create multiple averages for subperiods in appropriate circumstances. Moreover, the language of the Agreement could be read to support a Member which created, for example, monthly averages in every case. 47. Throughout this proceeding, Korea has argued that the Agreement presumes that averaging will normally encompass the full period of investigation. However, there is nothing in the Agreement to support such a view. Indeed, the Agreement places a burden on the investigating authority which creates a single period-long average in the face of facts demonstrating a change over time, to establish that comparability has not been impaired by use of the single average.
1 SSPC Sales Verification Report (5 Jan. 1999) at 4 and 10 (ROK Ex.
6).
2 See, e.g., id. at Exh. 6 (ROK Ex. 6) and Exh. 23 (US Ex. 50) (where
the amount listed on the tax invoice and shipping invoice is the same amount
entered into the company�s sales ledger).
3 See Responses of the United States to Questions from the Panel (29
June 2000), paras. 36-49.
4 Section B-D Response (20 July 1998), at B-17, and B-19 (US Ex. 40) (stating
that "POSCO�s home market customers pay on an open (i.e., revolving)
account basis that is the normal method of payment in the Korean domestic
market.").
5 See Responses of the United States to Questions from the Panel (29
June 2000), para. 105.
6 See Responses of the United States to Questions from the Panel (29
June 2000), paras. 36-42 and 50-54.
7 See generally, SSPC Sales Verification Report (5 Jan. 1999), at Exh. 6
(ROK Ex.6) and 23 (US Ex. 50). The United States examined the order sheet, the
mill certificate, the shipping invoice, the monthly shipping list by customer,
the tax invoice, the freight expense ledger, the sales ledger, the summary of
accounts payable, the tax invoice for freight and the application for duty
drawback. None of these documents indicate that the won amount paid by POSCO�s
customers differed from the invoiced amount recorded in the company�s sales
ledger.
8 See generally, POSCO SSPC Case Brief (26 Jan. 1999) at 3-6 (ROK Ex.
7); POSCO SSSS Case Brief (15 April 1999) at 3-6. (ROK Ex. 20). Indeed, this
fact was raised for the first time in Korea�s Second Submission to the Panel, 29
June 2000, at n. 35; and in its Oral Statement of 13 July 2000 at para. 78.
9 See generally, POSCO SSPC Case Brief (26 Jan. 1999) at 3-6 (ROK Ex.
7); POSCO SSSS Case Brief (15 April 1999) at 3-6. (ROK Ex. 20).
See also POSCO SSPC Rebuttal Brief (2 Feb. 1999) at 28 (ROK Ex. 9); and
see generally POSCO SSSS Rebuttal Brief (21 Apr. 1999). (ROK Ex. 22).
10 SSPC Final Determination, 64 Fed. Reg. 15444, 15445 (ROK Ex. 11); SSSS Final
Determination, 64 Fed. Reg. 30664, 30668 (ROK Ex. 24). The phrase "expenses
associated with economic activity in the United States" is used to distinguish
expenses associated with the transaction between the associated importer and the
independent buyer from the expenses associated with the transaction between the
exporter and the associated importer.
11 The Tariff Act of 1930, as amended (the Act) (ROK Ex.1), 19 USC. � 1677a(d).
12 Id. 19 USC. � 1677b(a)(6)(C).
13 SSPC Final Analysis Memorandum (19 March 1999) (US Ex. 35); see also SSPC
Model Match Program Log at line 4059 and SSPC Margin Program Log at lines, 5246
and 5669-74 (US Ex. 54); see also Responses of the United States to Questions
from the Panel (29 June 2000), paras. 16-19.
14 SSSS Final Analysis Memorandum (19 May 1999) (ROK Ex. 25); see also SSSS
Model Match Program Log at line 1122 and SSSS Margin Log Program at lines 2565
and 3002-4 (US Ex. 55); see also Responses of the United States to Questions
from the Panel (29 June 2000), paras. 16-19.
15 Argentina - Safeguard Measures on Imports of Footwear, WT/DS121/AB/R,
Report of the Appellate Body adopted 12 January 2000.
16 SSPC POSAM Verification Report (14 Jan. 1999), Exhibit 5 (excerpt) (US Ex.
52) (see "Due Date" at bottom of the invoice).
17 SSPC POSAM Verification Report at 9 (US Ex. 52); see also, SSPC POSCO
Verification Report at 20 (ROK Ex. 6) (POSCO stated that, although POSAM did not
receive payment, POSAM paid POSTEEL).
18 SSSS POSAM Verification Report (2 April 1999), Exhibit 6 (excerpts) (US Ex.
53). In addition to the invoice, this exhibit includes copies of accounting
records showing how the sales were entered and then written off by POSAM. The
same documents are on the SSPC record.
19 SSSS POSAM Verification Report at 7 (US Ex. 10); POSCO Supplemental
Questionnaire Response (4 Dec. 1998) at 2-3 (US Exhibit 30).
20 See Korea�s Second Submission at para. 58.
21 The term "incurred" is itself ambiguous. Even under a temporal analysis, it
would be consistent with the object and purpose of Article 2.3 to treat
contingent expenses, such as bad debt and warranty, as "incurred" at the time
the terms of sale are established.
22 US First Submission at para. 89.
23 See SSSS Final Determination, 64 Fed. Reg. at 30674 (ROK Ex. 24) (this issue
was not argued in the parties SSPC case briefs).
24 Korea�s Second Submission at para. 56-59.
25 Korea�s Second Submission at para. 57.
26 The United States sometimes refers to the construction of export price as,
essentially, constructing what is the functional equivalent of an arm�s-length
price between the exporter and associated importer, i.e., what, based on
the resale price, the export price to the associated importer would be if the
importer were independent.
27 Korea�s Response to Questions Posed by the Panel at the First Meeting,
question 7 regarding unpaid sales.
28 Korea�s Second Submission at para. 58.
29 Wiley�s Interpretation and Application of Generally Accepted Accounting
Principles 1998 at 106 (US Ex. 51). The two most common estimation techniques
are the "percentage of sales" method and the "aging the accounts" method, both
of which reflect the seller�s bad debt experience. Id. at 106-7.
30 Oral Statement of the Republic of Korea (12-13 July 2000), paras. 31-34.
31 See, e.g., SSSS Questionnaire (3 August 1998), page C-34 (Other Direct
Selling Expenses) ("Report the unit cost of other direct selling expenses you
incurred on sales of the subject merchandise which are not reported in other
fields."). Appendix I-5 of the Questionnaire (Direct vs. Indirect Expenses) also
states that "Direct expenses generally must be (1) variable and (2) traceable in
a company�s financial records to sales of the subject merchandise . . . . Direct
expenses are typically variable expenses that are incurred as a direct and
unavoidable consequence of the sale (i.e., in the absence of the sale
these expenses would not be incurred. (US Ex. 56). As explained previously, US
administrative and judicial precedents establish that, under US law, bad debt,
like warranty, is a direct selling expense. See First Submission of the United
States, para. 58, n. 58.
32 POSCO knew from the beginning of these cases that these sales would be an
issue and, in fact, noted the issue in their first questionnaire response. See
First Submission of the United States, para. 54.
33 See, Responses of the United States to Questions from the Panel and Korea,
dated 29 June 2000, at para. 92.
34 See e.g., EC - Imposition of Anti-dumping Duties on Imports of Cotton Yarn
from Brazil, ADP/137, (4 July 1995) paras. 500-501 (finding the practice of
"zeroing" not to be inconsistent with the Anti-dumping Code).
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