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WORLD TRADE
ORGANIZATION

WT/DS179/R
22 December 2000

(00-5484)

Original: English

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 3-3

ORAL STATEMENT OF THE EUROPEAN COMMUNITIES
FIRST MEETING OF THE PANEL

(14 June 2000)

CONTENTS

  1. BURDEN OF PROOF
     
  2. ARTICLE 2.3 ADA: CONSTRUCTED EXPORT PRICES
     
  3. ARTICLE 2.4.2 ADA: MULTIPLE AVERAGES

The EC would like to thank the Panel for the opportunity to submit orally its views in this dispute.

1. In our oral statement today, we will not repeat the points already made in our written submission. In stead, we will address briefly some of the arguments submitted by Japan, the only other Third Party in this case.

I. BURDEN OF PROOF

1. Japan attempts to distinguish GATT Article VI and the ADA from other GATT provisions such as Articles I and II. According to Japan, those provisions contain "positive rules", whereas GATT Article VI and the ADA would "carve out a limited exception"29.

2. Yet, Japan shrinks from stating what would be the logical consequence of that premise, namely that the burden of proof in this case lies with United States. Instead, Japan enunciates the principle that "whether the defending member met the burden of justifying a measure under GATT Article VI and the ADA after the complaining member has established a prima facie case should be subjected to careful scrutiny"30. Japan seems to be suggesting that such scrutiny should be more "careful" than in cases involving the violation of a "positive rule".

3. The EC disagrees with that proposition. GATT Article VI and the ADA are not a mere "exception". They recognise the right of Members to impose anti-dumping measures, subject to certain requirements. Those requirements constitute "positive" rules which, unlike true exceptions such as GATT Article XX, establish obligations in themselves. Indeed, if Article VI and the ADA were but an "exception", the Panel would have to dismiss Korea's complaint ad limine, since Korea has not invoked the violation of any of the "positive" rules to which GATT Article VI and the ADA are supposedly an exception.

4. Since GATT Article VI and the ADA are not exceptions, the burden of proof in this case lies with Korea, the complaining party, and not with the United States, as indeed has been acknowledged by Japan itself. For the same reason, the Panel should reject Japan's suggestion to the effect that in disputes involving GATT Article VI and the ADA the complainant's burden of proof should be somehow "mitigated" or, conversely, that the defendant should bear a heavier burden of proof than in "ordinary" disputes in order to refute the complainant's prima facie case.

II. ARTICLE 2.3 ADA: CONSTRUCTED EXPORT PRICES

5. Japan has expressed the view31 that when constructing the export price in accordance with Article 2.3, the investigative authorities may deduct only those costs that are "incurred exclusively because the export was made through an affiliated importer, and not sold directly to an export customer"32. Thus, according to Japan, since "bad debt" expenses are incurred also in sales to independent export customers, it would follow that they cannot be deducted from the resale price charged by the related importer in constructing the export price to that importer.

6. The distinction drawn by Japan between different types of costs incurred by the related importer has no basis whatsoever in the wording of the fourth sentence of Article 2.4, which provides 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". In the EC's view, that wording allows the deduction of all the costs incurred by the related importer.

7. Japan's view is based on a misconception of the purpose of Article 2.3. Contrary to Japan's assertions, the purpose of Article 2.3 is not "to enable an authority to eliminate elements of export price that are attributable to the fact that the sale was made through an affiliated importer"33. The relevant "export sale" is not the re-sale by the related importer, as wrongly assumed by Japan, but instead the sale by the exporter to the related importer. Article 2.3 allows to work back the price for that export sale from the first re-sale price to an independent customer. The purpose of that exercise is to arrive at the price that would have been paid by the related importer, had the transaction been made on a commercial basis, and not at the price that would have been charged by the exporter to an independent importer. This is confirmed by the fact that Article 2.3 does not require to disregard the prices between the exporter and the related importer. Rather, it allows for the possibility to construct that price where the invoiced price is not considered to be at arm's length.

8. The EC disagrees also with Japan's contention that "bad debts" expenses cannot be deducted from the re-sale price because they are incurred after the re-sale34. The formula "between importation and resale" does not refer to a certain period of time. If so, it would be very easy for related importers to circumvent the rules on the construction of the export price by either advancing or delaying the payment of expenses. Rather, that formula purports to define the scope of the expenses that are attributable to the functions performed by a typical related importer. "Bad debt" expenses would not be incurred if the imported goods were not re-sold and therefore belong to that function.

III. ARTICLE 2.4.2 ADA: MULTIPLE AVERAGES

9. Japan contends that Article 2.4.2 allows Members to depart from the preferred comparison methodologies in the first sentence only in the circumstances provided for in the second sentence and, therefore, does not authorise Members to create other "exceptions" .35 The EC agrees. From that obvious proposition, however, it does not follow that the method applied by the United States in this case is in violation of Article 2.4.2. By characterising the US method as an "exception", Japan assumes what it purports to prove. The US method is not an exception. The use of multiple averages has been expressly contemplated in the first sentence of Article 2.4.2 by inserting the term "comparable" before "all export transactions".

10. Japan also asserts that comparability must be determined before the conversion of currencies36. The ADA, however, contains no rule to that effect. Exchange rate movements may affect comparability in ways that are not taken into account by the rules on currency conversion contained in Article 2.4.1. By definition, those effects on comparability may be assessed only after the currency conversion has taken place and not before.

ANNEX 3-4

ORAL STATEMENT OF JAPAN
FIRST MEETING OF THE PANEL

(14 June 2000)

CONTENTS

  1. BURDEN OF PROOF
     
  2. ARTICLE 2.3 - CONSTRUCTION OF EXPORT PRICE
     
  3. ARTICLE 2.4 - "DIFFERENCES IN CONDITION AND TERMS OF SALE" 
     
  4. ARTICLE 2.4.2 - AVERAGE-TO-AVERAGE COMPARISONS 
     
  5. ZEROING 
     
  6. GATT ARTICLE X:3(A) 

1. In our presentation today, we wish to focus on four issues set out in our written submission. In addition, we would like to address two issues raised by the European Community in its third party submission.

I. BURDEN OF PROOF

2. Our first issue relates to the "Burden of Proof"

3. Even before the panel considers the merits of this proceeding, Japan believes it will be important for the panel to clarify the respective burdens of proof in this proceeding. The fact that this proceeding involves an allegation that the US violated its obligations under GATT Article VI, and the Anti-dumping Agreement is highly relevant in clarifying the duties and burdens on the US in this proceeding.

4. The parties seem to agree that the initial burden to present a prima facie case is on the complaining party in a WTO dispute. In this proceeding, the Korean submission provides the information and argument necessary to establish its prima facie case against the US In particular, Korea has met this burden by carefully and comprehensively addressing US actions in this proceedings, and explained how these actions were inconsistent with individual provisions of the Anti-dumping Agreement and Article VI of the GATT.

5. It is also well-established that once the complaining party has established its prima facie case, as Korea has done in this proceeding, the burden then shifts to the responding party. Thus, the panel must consider the nature of the burden on the US in its examination of the US justifications for their actions in the underlying investigations.

6. The nature of this burden is directly related to the type of defense advanced by the US. In particular, the US has argued that it is entitled to the application of discriminatory duties on exports from Korea based on GATT Article VI and the Antidumping Agreement. It is therefore critical to acknowledge that the US is invoking a limited exception to its basic obligations under the WTO. This distinction between basic obligations and limited exceptions in the Articles of the GATT was embraced by the Appellate Body' in its Wool Shirts from India decision.

7. Japan notes that the US, in its submission, overlooks this important distinction. Of greater concern is the US mischaracterization of the holding in Wool Shirts. In that decision, the Appellate Body stated plainly that it was addressing the relationship between provisions within the Agreement on Textiles and Clothing. The Appellate Body expressly noted that, in that dispute, it was not focused on the relationship between Articles in the GATT. Notwithstanding this explicit qualification by the Appellate Body, the US attempts to take the Appellate Body's observations about provisions within the Agreement on Textiles and Clothing and transform them into conclusions about the relationship between GATT Articles . The panel should note that the US position on the burden of proof is based entirely on this misinterpretation.

8. Japan believes that the US must prove and demonstrate that its actions were in accordance with the strict procedures and requirements associated with the Anti-dumping Agreement after Korea has established a prima facie case. To the extent the US is unable to persuade the panel that its establishment of facts was proper and that its evaluation of facts was unbiased and objective, the panel must find that the US actions do not meet the requirements necessary to justify discriminatory duties.

9. In assessing whether the US has met this burden, the panel should recall that the Anti-dumping Agreement reflects a consensus among the WTO members to enhance and clarify the disciplines that govern the application of antidumping duties. The panel should ensure that the US measures are consistent with the Anti-dumping Agreement which imposes strict disciplines on Members that seek to impose antidumping duties. The objective of these disciplines is to prevent antidumping duties based on result-oriented methodological decisions that generate or overstate actual anti-dumping margins.

10. Taking into consideration the nature of Article VI and the Anti-dumping Agreement described above, careful scrutiny should be undertaken for determining whether the defending Member met the burden of justifying a measure under Article VI and the Anti-dumping Agreement after the complaining Member has established a prima facie case.

II. ARTICLE 2.3 - CONSTRUCTION OF EXPORT PRICE

11. Our second issue relates to the downward adjustment made by the US for bad debt expenses to export price in the underlying proceedings for sales made through the affiliated US subsidiary of the Korean exporter. Japan believes this decision violated US obligations under the Anti-dumping Agreement.

12. The US appears to believe that Article 2.3 does not define any limitations for adjustments, and this downward adjustment was thus allowable. However, the US never acknowledges any limitations as to when such downward adjustments are appropriate and permissible. Thus, the overbroad interpretation of Article 2.3by the US would effectively allow investigating Members to make any adjustment deemed necessary.

13. The US position is contrary to the plain language of Article 2. As acknowledged by the US, the fourth sentence in Article 2.4 governs the circumstances in which an Article 2.3 adjustment is permitted. The US completely ignores the plain language of that provision. The fourth sentence of Article 2.4 allows a downward adjustment or "allowance" for costs (such as bad debt costs) only if the costs are "incurred between importation and resale."

14. Based on the US and Korean submissions, it is apparent that the US never established, or attempted to establish, that the bad debt costs associated with the sales in the US were "incurred between importation and resale." As a result, the US explanation for its Article 2.3 downward adjustment for bad debt expenses does not withstand scrutiny.

III. ARTICLE 2.4 - "DIFFERENCES IN CONDITION AND TERMS OF SALE"

15. Our third issue relates to the bad debt adjustment made by the US for all of POSCO's sales made directly to US customers. Japan believes the adjustment made by the US was not authorized by that clause in Article 2.4.

16. The "terms and conditions" clause in Article 2.4 refers to factors and commercial circumstances known or anticipated by the seller. Unless a seller knew or anticipated a factor at the time of sale, it is inconceivable that the factor or costs could be an element of price. As the US correctly points out in its submission, in order for something to affect price comparability, it must be an element of price. That is, it must have been involved in the composition of price at the time the price was negotiated for any given sale. Yet the US fails to demonstrate or establish that the bad debt expense was known or anticipated by the POSCO at the time it made any of its sales into the US market.

17. Secondly, another requirement of Article 2.4, second sentence, is that there must be a "difference" to permit a due allowance adjustment. However, the US never demonstrated that there was in fact a difference in the composition of prices between the Korean market and the US market anticipating a higher level of bad debt expenses in the US than it anticipated in the home market.

18. Instead, the US decision seems to be based on the unsupported presumption that since bad debt expenses were actually incurred for one customer in the US (but not with respect to any customers in the Korean market), there were necessarily differences in the composition of price between the two markets at the time of sale. However, there is no provision in the Agreement that allows an investigating authority to make such a presumption. A "due allowance" adjustment pursuant to Article 2.4, second sentence, must be based on a finding of an actual difference in terms and circumstances at the time of sale. In this case, the US failed to establish this difference.

IV. ARTICLE 2.4.2 - AVERAGE-TO-AVERAGE COMPARISONS

19. With respect to the last issue raised in its written submission, Japan believes that the decision by the US to split the underlying period of investigation into two sub-periods was not in accordance with Article 2.4.2. Article 2.4.2 identifies two categories of comparison methodologies. The first category addresses the preferred methodologies of average-to-average or transaction-to-transaction comparisons. The second category is the alternative methodology that may be invoked only in certain circumstances, and if certain conditions are met.

20. Importantly, Article 2.4.2 identifies variations in pricing over the period as relevant only to the determination of which methodology is appropriate. Variations in pricing over the period is relevant only to the extent it justifies the use of the alternative methodology in Article 2.4.2. Article 2.4.2 does not authorize an investigating Member to consider variations in home market pricing (after the prices are converted into another currency) as a justification to modify one of the preferred methodologies. Yet this is precisely what the US did in the underlying proceedings. In this case, the US modified the average-to-average methodology to compare averages over sub-periods, instead of averages over the entire period of investigation.

21. Given the explicit reference in Article 2.4.2 to export pricing variations as relevant factor in determining whether to use either the preferred or alternative methodologies, the panel should conclude that variations in normal value were purposefully excluded as a criterion for selecting which type of comparisons methodology is appropriate. This explicit reference to variations in export pricing in Article 2.4.2 demonstrates that Article 2.4.2 did not contemplate variations in normal value (after conversion into a foreign currency) to be justification for modifying the average-to-average comparison methodology identified in Article 2.4.2, first sentence. Thus, the US actions were inconsistent with the language and structure of Article 2.4.2.

22. Secondly, the US contends that variations in pricing after conversion into a common currency are relevant to a determination of whether sales are "comparable" as that phrase is used in Article 2.4.2. However, currency conversion has nothing to do with the question of comparability. As we have mentioned in our written submission, the normal US investigation follows a series of steps where the step for determining comparability is clearly separate from the step for currency conversion.

23. In addition, the US reasoning to justify its decision to create two averages for pre-devaluation period and post-devaluation period is flawed. It maintains in its submission that

� the United States reasonably determined that this characteristic had as much of an effect on comparability of transactions as did physical characteristics, levels of trade or high inflation. This is because comparison of a given amount of dollars received for an export transaction with a given amount of won on a normal value transaction produces a dramatically different margin of dumping depending on whether the sales occurred before or during the devaluation period. (para. 155)

24. This statement is inexact, if not wrong, because price comparability is not affected by a change in exchange rate. Whether there is actually a different margin of dumping before and after devaluation depends on the pricing policy of exporters.1

25. Against this background, the question the panel might want to ask is why the US used the two average method when this method is not justified by the change in exchange rate.

26. Because a different method leads to a different dumping margin, Japan believes that there should be a clear guideline for the selection of method, in order to avoid result-oriented selection. The Anti-dumping Agreement does provide this guideline: the basic rule of single average for the investigation period.

27. The AD Agreement also provides an exception in the second sentence of Article 2.4.2. But the application of this exceptional method is allowed only when the authorities find a pattern of export prices which differ significantly among different time periods, and if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of the preferred methods.

28. The US did not satisfy either of these conditions. The panel should find that the US decision to split the period of investigation is not authorized by the relevant provision of the Anti-dumping Agreement.

V. ZEROING

29. In response to the EC third party submission, first, Japan notes that Korea has not directly raised the issue of zeroing in this dispute. This issue was not identified in Korea's request for a panel. As a result, it would be inappropriate and unnecessary for the panel to address zeroing in this dispute. As a result, the panel need not consider the arguments in the EC third party submission that the act of "combining" and weight averaging margins is not subject to Article 2.4.2. The EC contention that the requirement of an average-to-average comparison only applies to the first stage of the dumping margin calculation is not relevant to the issues before the panel.

VI. GATT ARTICLE X:3(A)

30. Secondly, Japan would like also to address a comment raised by the EC in its third party submission with respect to Korea's GATT Article X:3(a) claim. Japan, the US and Korea all appear to agree that the actions of an investigating Member are subject to the requirements of GATT Article X:3. In its third party submission, however, the EC argues that if a panel finds the US actions were consistent with the relevant provisions of the Anti-dumping Agreement, then the panel should automatically determine the actions were also "reasonable" under GATT Article X:3(a).

31. Japan believes the EC position is based on a misreading of the EC - Bananas decision. In EC - Bananas, the Appellate Body indicated that if there is a specific WTO agreement that addresses the conduct in dispute, the provisions of that agreement and Article X:3(a) both apply. The Appellate Body's finding in EC- Bananas was simply that procedurally, a panel should first consider whether a Member's conduct was inconsistent with the specific agreement. The implication of this finding, therefore, is that whether a panel finds a Member's actions were consistent with the specific agreement or not, it still must examine whether the actions were inconsistent with GATT Article X:3(a).

32. Based on EC- Bananas, this panel should first consider Korea's claims relevant to the Anti-dumping Agreement. Even if the panel finds a particular action by the US is consistent with the Agreement, then it still must consider whether the action was consistent with GATT Article X:3(a).

33. This concludes our statement.

__________



29 Japan�s Third Party Submission, para. 4.

30 Ibid., para. 8

31 Ibid., paras. 11-15.

32 Ibid., para. 12

33 Ibid., para. 14.

34 Ibid, paras. 16-18.

35 Ibid., paras. 37-41.

36 Ibid., paras. 42-46.


1 If exporters maintain the export price at a level where they can keep income in Korean won terms, the dumping margin will be the same. If exporters maintain the export price in US dollar, the dumping margin will decrease, or the negative dumping margin will increase, after the devaluation.

 

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