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

Report of the Panel

(Continued)

(iii) Did the United States perform unnecessary currency conversions in violation of Article 2.4.1 of the AD Agreement?

6.40. As discussed above, we have concluded that the DOC did not err in considering that the local sales in question in the Plate case were denominated in won rather than in dollars. Therefore the factual predicate underlying Korea's claim under Article 2.4.1 � that the DOC performed an unnecessary "double conversion" in respect of those sales � is without foundation. To the contrary, having properly treated the sales in question as having been made in won, the DOC made only a single conversion, from won to dollars. Accordingly, we conclude that, in the Plate investigation, the United States did not act inconsistently with Article 2.4.1.

6.41. With respect to the Sheet investigation, we have concluded that the DOC's factual determination that the local sales in question were won-denominated sales was in error. In our view, the DOC improperly treated sales that were denominated in dollars as won sales. We have further concluded that it would be inconsistent with Article 2.4.1 to undertake currency conversions in instances where the prices being compared were in the same currency. It being undisputed that in this case the export prices in question were also in dollars, we conclude that, in the Sheet investigation, the United States acted inconsistently with Article 2.4.1.

3. Claims under Article 2.4 of the AD Agreement ("fair comparison")

(a) Arguments of the parties

6.42. Korea asserts that the "double conversion" of local sales from dollars to won and back to dollars was inconsistent with a "fair comparison" requirement in the chapeau of Article 2.4. In Korea's view, the conversion of these sales from dollars to won at the exchange rate prevailing as of the date of the home market sale, and their re-conversion from won to dollars at a different exchange rate prevailing as of the date of a corresponding US sale, unfairly penalised POSCO for changes in the exchange rate between these two dates that were beyond its control. Korea further contends that as a result of this double conversion at different rates, the United States compared the export price to an inflated normal value.

6.43. The United States contends that it made a proper factual determination that the local sales were made in won, and that it made a single conversion of those won sales to dollars.

(b) Evaluation by the Panel

6.44. Although Korea expresses its fair comparison claim in slightly different ways at different points in its submissions, it is clear that this claim, like Korea's claim under Article 2.4.1, relies upon the existence of a "double conversion" � i.e., the conversion of dollar-denominated prices into won at one exchange rate and the conversion back into dollars at a different exchange rate. We have concluded that, in the Plate investigation, no such "double conversion" occurred, because the DOC properly determined that the sales in question were denominated in won. Accordingly, we find that the United States did not act inconsistently with any "fair comparison" requirement under Article 2.4 in the Plate investigation.

6.45. In respect of the Sheet investigation, we note that this Panel "need only address those claims which must be addressed in order to resolve the matter in issue in this dispute⁶⁰". Having concluded that the United States acted inconsistently with its specific obligations with respect to currency conversion under Article 2.4.1 in the Sheet investigation by performing unnecessary currency conversions in respect of local sales, we do not consider it necessary to examine Korea's claim that those double conversions breached a more general "fair comparison" requirement under Article 2.4 of the AD Agreement.

4. Claims under Article X:3(a) of GATT 1994 and Article 12 of the AD Agreement

(a) Arguments of the parties

6.46. Korea contends that the double conversion methodology employed by the DOC was unreasonable and departs from established practice without adequate explanation, and is thus inconsistent with the uniform and reasonable administration of the anti-dumping laws required by Article X:3(a) of GATT 1994. Korea argues that the double conversion of local sales in these investigations was an unprecedented departure from the established policy of the DOC � as reflected in various investigations including Roses from Colombia � to accept charges in the currency in which they are made. In particular, the factual distinctions made by the DOC between the investigations at issue in this dispute and Roses do not withstand scrutiny. In addition, the United States acted unreasonably by penalizing exporters for differences between official Korean and US exchange rates that existed because of a time difference between Korea and New York. Korea further argues that, by providing incorrect and irrelevant arguments to justify its departure from the standard methodology, the United States failed to provide the statement of reasons required by Article 12.2 of the AD Agreement⁶¹.

6.47. In the view of the United States, Korea in effect argues that Article X provides for panel review of the consistency of any action by a Member with its own domestic law, regulation or practice. However, the task of a panel under the DSU is to review the consistency of a Member's actions with a covered agreement. Further, as observed by the Appellate Body in EC - Bananas, Article X:3 does not address the consistency of particular administrative rulings, but rather the administration of such rulings. In this dispute, Korea's complaint focuses on the anti-dumping rulings in the Plate and Sheet investigations themselves, and not on the administration of those rulings. In any event, the United States disputes that Roses from Colombia reflects US practice. Roses was a single case exception to US practice, not the rule. The facts in these investigations differ significantly from those in Roses, and no subsequent case has followed the position taken in Roses.

(b) Evaluation by the Panel

(i) The Plate investigation

6.48. Article X:3(a) of the GATT 1994 provides as follows:

"Each contracting party shall administer in a uniform, impartial and reasonable manner all its laws, regulations, decisions and rulings of the kind described in paragraph 1 of this Article."

6.49. In considering Korea's claim under Article X:3(a), we first note the contention of the United States that Korea is challenging the DOC's anti-dumping rulings in these investigations while Article X:3(a) permits challenges only to the administration of those rulings. It is of course clear from the text of Article X:3(a) that that provision relates to the administration of laws, regulations, decisions and rulings, and not to the laws, regulations, decisions and rulings themselves. Korea's claim however is not that the DOC's anti-dumping determinations were rulings which the United States administered in a manner inconsistent with Article X:3(a), but rather that the United States administered its anti-dumping laws and regulations in a manner inconsistent with that Article⁶². Thus, we must consider whether the alleged departure of the United States from alleged established policy in these investigations represents a breach of the United States' obligation to administer those laws and regulations in a uniform and reasonable manner.

6.50. We note at the outset of our examination that we have grave doubts as to whether Article X:3(a) can or should be used in the manner advocated by Korea. As the United States correctly points out, the WTO dispute settlement system "serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements⁶³". It was not in our view intended to function as a mechanism to test the consistency of a Member's particular decisions or rulings with the Member's own domestic law and practice; that is a function reserved for each Member's domestic judicial system⁶⁴, and a function WTO panels would be particularly ill-suited to perform. An incautious adoption of the approach advocated by Korea could however effectively convert every claim that an action is inconsistent with domestic law or practice into a claim under the WTO Agreement.

6.51. In any event, we do not consider that the DOC in this investigation committed the "unprecedented departure" from "established policy" alleged by Korea such that its behaviour was either non-uniform or unreasonable. In our view, the requirement of uniform administration of laws and regulations must be understood to mean uniformity of treatment in respect of persons similarly situated; it cannot be understood to require identical results where relevant facts differ. Nor do we consider that the requirement of reasonable administration of laws and regulations is violated merely because, in the administration of those laws and regulations, different conclusions were reached based upon differences in the relevant facts.

6.52. Applying these considerations to the case at hand, we recall that the core issue in the Plate investigation was the factual question whether local sales were denominated in dollars or in won. The resolution of this issue obviously depended heavily on the facts as determined by the DOC. Thus, assuming that Roses from Colombia reflected an "established policy" by the United States, we consider that the United States properly distinguished the Plate investigation from Roses as a factual matter. Our reasons for this conclusion are stated in detail in paragraphs 6.21 - 6.31 of this Report. Finally, while we recognize that the exchange rates used by POSCO as of date of sale differed from those used by the DOC for the date of sale both as a result of a difference in time zones and as a result of errors in the selection of a comparable exchange rate by the DOC, the DOC understood on the basis of the record before it that the amount of payment was determined on the basis of the exchange rate on the date of sale. This difference would have existed even if the DOC had used the same Korean Exchange Bank rates as those relied upon by POSCO.

6.53. Finally, we note Korea's view that the United States failed to provide a statement of reasons for its departure from Roses as required by Article 12.2 of the AD Agreement. We recall in this respect that Article 12.2 requires a Member in its preliminary and final determinations to set forth "in sufficient detail the findings and conclusions reached on all issues of fact and law considered material by the investigating authorities" and to "refer to the matters of fact and law which have led to arguments being accepted or rejected", including a "full explanation of the reasons for the methodology used in the establishment and comparison of the export price and the normal value under Article 2." In our view, Korea has not asserted or established that the United States failed to provide the statement of reasons for its actions required by Article 12.2. Rather, Korea challenges the substantive adequacy of that statement of reasons. We have however already addressed this substantive issue at length above.

6.54. For the foregoing reasons, we conclude that the United States did not act inconsistently with Article X:3(a) of GATT 1994 and Article 12.2 of the AD Agreement in respect of its treatment of "local sales".

(ii) The Sheet investigation

6.55. In respect of the Sheet investigation, we note that this Panel "need only address those claims which must be addressed in order to resolve the matter in issue in this dispute⁶⁵". Having concluded that the United States acted inconsistently with its specific obligations with respect to currency conversion under Article 2.4.1 in the Sheet investigation by performing unnecessary currency conversions in respect of local sales, we do not consider it necessary to examine Korea's claim that those double conversions breached the requirements of Article X:3(a) of GATT 1994 and Article 12 of the AD Agreement.

C. TREATMENT OF UNPAID SALES

1. Factual background

6.56. The claims addressed in this section of our report relate to the treatment by the DOC of sales to a company that subsequently declared bankruptcy. During the period of investigation in both the Plate and Sheet investigations, POSCO made a significant number of sales to a US customer which, for purposes of confidentiality, we will refer to as the ABC Company. All such sales were made on credit through Pohang Steel America Corporation ("POSAM"), a POSCO subsidiary located in the United States. The ABC Company subsequently declared bankruptcy, and did not pay for those sales. POSAM issued negative invoices with respect to these sales, and reflected the non-payment in its accounting records by showing a credit to accounts receivable and a debit to sales, thereby reversing the entries that recorded the sales. There was no evidence in the record that POSCO had any knowledge at the time of sale that ABC Company was in a precarious financial situation⁶⁶.

6.57. In the preliminary determination in the Plate investigation, the DOC excluded these sales from its margin analysis, because it determined that the sales were "atypical and not part of POSCO's normal business practice⁶⁷". In the final determinations in both investigations, however, the DOC included the sales in question in its margin analysis and treated the unpaid amounts as "direct selling expenses". The DOC allocated these direct selling expenses over all US sales. In respect of sales made directly to unaffiliated purchasers in the United States, the DOC added the allocated amount of these direct selling expenses to the normal value. In respect of US sales made through POSAM, the DOC subtracted the allocated amount of these direct selling expenses from the price charged by POSAM to unaffiliated customers in the United States.

2. Claims under Article 2.4 ("allowances")

(a) Arguments of the parties

6.58. Korea claims that the DOC's treatment of the amounts unpaid by ABC Company as "direct selling expenses" is an adjustment not permitted by Article 2.4 of the AD Agreement. In Korea's view, Article 2.4 permits adjustments only to account for differences that affect prices. The cost of unpaid sales is not one of the five factors deemed by Article 2.4 to affect price comparability. In particular, the term "conditions and terms of sale" refers to the agreed-upon bundle of rights and obligations under a sales agreement, and failure to pay amounts due is not a "condition" or "term" of a contract but is rather a breach of a contract. Nor do the unpaid amounts represent an "other difference . . . demonstrated to affect price comparability" within the meaning of Article 2.4. Because POSCO did not know that a particular customer would fail to pay at the time it set its prices, the subsequent failure to pay did not affect the prices that POSCO set. In any event, the allocation by the DOC of the cost of unpaid sales of ABC Company over all US sales to all customers is inconsistent with Article 2.4 because the failure of one company to pay did not affect the price comparability of sales to other customers who did pay for their purchases.

6.59. The United States considers that its treatment of the cost of unpaid sales was consistent with Article 2.4. The United States first notes that certain US sales were made through the associated importer POSAM. For these sales it constructed an export price by deducting from the price charged to the first independent buyer in the United States the expenses and profits associated with the transaction between that buyer and the associated importer, including an allocated portion of the bad debt expense. In respect of these sales, therefore, the bad debt expense was not an adjustment to export price under the "due allowance" provision of Article 2.4, but rather a deduction made to construct an export price under Article 2.3. The United States maintains that, because Korea has made no claim under Article 2.3, the methodology used by the DOC to construct an export price is not before the Panel. In any event, the United States acted consistently with Article 2.3 in deducting an allocated portion of the bad debt expense when constructing the export price because the bad debt expense was a "cost[] . . . incurred between importation and resale".

6.60. In respect of those sales for which it did make adjustments, the United States contends that bad debt represents a "difference in conditions and terms of sale" for which due allowance shall be made pursuant to Article 2.4. In the United States' view, the term "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 considers that whenever a seller sells on credit, it accepts a credit expense, including any bad debt that may result from the sale. As in the case of a warranty, the expense is part of the bargain and but for the sale the expense would not be incurred. As for the amount of the bad debt allowance, the United States considers that the only practicable method for making such allowances is based on the exporter's actual expense during the period of investigation. The United States does not rely on the reference in Article 2.4 to "other differences" demonstrated to affect price comparability as a basis for its adjustment, but neither does it concede that bad debt could not be treated as such an "other difference".

6.61. Korea disputes the United States' view that, in respect of sales made through the associated importer POSAM, the bad debt expense was not an adjustment to export price but was rather a deduction made to construct an export price. In Korea's view, it is clear that the adjustment was not made to construct the export price because the DOC made the same adjustment to all US sales, whether or not they were made through an associated importer. Further, the DOC's determinations refer to the adjustment as one for "direct selling expenses", which under US law signifies that the DOC determined that a "circumstance of sale" adjustment � equivalent in US law to an adjustment under Article 2.4 � was appropriate. In any event, Korea considers that an adjustment for non-payment is not a permissible adjustment for purposes of constructing an export price because it is not a cost incurred "between importation and resale" and because an item may properly be included as an adjustment for purposes of constructing an export price only if it is the type of item that might reasonably be included in an unaffiliated importer's mark-up.

(b) Evaluation by the Panel

(i) Was the DOC's treatment of unpaid sales in respect of POSAM part of the construction of the export price?

6.62. As discussed above, Korea claims that the DOC's treatment of unpaid sales was an adjustment for differences affecting price comparability pursuant to the third sentence of Article 2.4 which was inconsistent with the requirements of that provision. The United States has responded that, in respect of those sales made through POSAM, its treatment of unpaid sales did not represent an adjustment to export price pursuant to the third sentence of Article 2.4 but was rather one aspect of the construction of an export price pursuant to Article 2.3.

6.63. This issue is important for two reasons. First, if the United States' treatment of unpaid sales in respect of POSAM was one aspect of the construction of the export price, we must consider whether claims relating to construction of the export price are within the Panel's terms of reference. Second, it is clear that a Member's actions regarding the construction of an export price are subject to different rules than a Member's actions with respect to the making of allowances for differences affecting price comparability. Thus, we must as a threshold matter determine whether the DOC's treatment of unpaid debt in respect of sales through POSAM was one aspect of the construction of the export price.

6.64. In addressing this issue, we must of course look to what the DOC actually did during these investigations. This is a factual issue that we must resolve on the basis of the DOC's final determinations and on the publicly available final analysis memoranda which are cross-referenced in those determinations.

6.65. Turning first to the Plate investigation, the DOC stated the following in its Final Determination:

"For US sales made through POSAM, we calculated CEP [constructed export price] based on packed prices to unaffiliated customers in the United States . . . . In accordance with section 772(d)(1) of the Act, we deducted those selling expenses associated with economic activity occurring in the United States, including direct selling expenses (credit costs, bank charges, and US commissions) and indirect selling expenses. Also, we made an adjustment for CEP profit in accordance with section 772(d)(3) of the Act." (emphasis added⁶⁸).

Although the Final Determination does not specifically mention the unpaid sales, it is clear from the final analysis memorandum that the amount for unpaid sales was included in the "direct selling expenses" which were deducted in order to calculate the constructed export price⁶⁹.

6.66. The Final Determination in the Sheet investigation is more explicit. It states that:

"For US sales made through POSAM, we calculated CEP based on packed prices to unaffiliated customers in the United States . . . . In accordance with section 772(d)(1) of the Act, we deducted those selling expenses associated with economic activity occurring in the United States. In addition, we deducted a per unit direct selling expense to account for bad debt losses incurred by POSAM for sales made to a bankrupt customer. . . . Also, we made an adjustment for CEP profit in accordance with section 772(d)(3) of the Act⁷⁰.

Once again, the final analysis memorandum confirms that the amount for unpaid sales was deducted from the price charged to the first unaffiliated purchaser as part of the construction of the export price⁷¹.

6.67. These determinations and underlying memoranda demonstrate that, in the case of sales through POSAM, the DOC deducted an allocated portion of the unpaid sales as part of its construction of the export price. We note in this respect that the provision of US law on the basis of which the DOC made these deductions, section 772(d) of the Act⁷², is entitled "Additional Adjustments to Constructed Export Price", applies exclusively in the CEP context, and, as made clear by implementing regulations, only for adjustments for expenses associated with commercial activities occurring in the United States⁷³. By contrast, adjustments for differences between the normal value and the export price or constructed export price in respect of, inter alia, taxation, physical characteristics, quantities, level of trade and "other differences in the circumstances of sale" are made to the normal value pursuant to section 773 of the Act⁷⁴.

6.68. Korea contends that the DOC's reference to "direct selling expenses" was a "signal" that the DOC had decided to make a circumstances of sale adjustment, which Korea equates to an allowance for differences affecting price comparability under the third sentence of Article 2.4. We note however that Section 772(d) of the Act identifies "expenses that result from, and bear a direct relationship to the sale", i.e., direct selling expenses, as one category of expense for which adjustment shall be made in the construction of an export price⁷⁵. Thus, we cannot agree that the DOC's reference to "direct selling expenses" means that the allowances for unpaid sales in respect of sales through POSAM must be deemed to be adjustments for circumstances of sale.

6.69. Our conclusion on this point is a limited one, relating to a specific factual question: was the DOC's deduction of an amount for unpaid sales in respect of sales through POSAM performed as an element in the construction of an export price? Having answered this question in the affirmative, we agree with the United States that the DOC's actions in respect of those sales must be measured against the provisions of the AD Agreement relating to the construction of the export price, or not at all⁷⁶.

6.70. The foregoing conclusion does not of course imply a view about whether the DOC's actions were consistent with the provisions of the AD Agreement regarding construction of an export price. That is an issue to be taken up only after a consideration as to whether such claims are within the Panel's terms of reference. Nor does it mean that the DOC's adjustments for unpaid sales in respect of sales through unaffiliated importers should be measured against the provisions relating to construction of the export price. As discussed below, the WTO-consistency of these adjustments must be measured against the provisions of the AD Agreement governing adjustments for differences affecting price comparability. It is to the latter issue that we now turn.

60. United States � Shirts and Blouses, supra, p. 19.

61. Korea also suggests in its first submission (para. 4.70) that the United States acted inconsistently with Articles 6.1, 6.2 and 6.9 of the AD Agreement in its treatment of local sales. It does not however identify any specific basis for these claims. In its second submission, Korea indicates in general terms that the United States' alleged Article 6 violations in this dispute arise where the DOC agreed with respondents on key issues in the preliminary determination but reversed position in the final determination. In respect of the local sales issue, however, this factual situation did not exist, as local sales were erroneously excluded from the preliminary determination altogether. Thus, we do not consider that Korea has made a prima facie case of violation of Article 6 in respect of local sales.

62. There can be no doubt that the US anti-dumping laws and regulations are "laws" and "regulations" of general application "pertaining to . . . rates of duty, taxes or other charges, or to other requirements, restrictions or other prohibitions on imports or exports" within the meaning of Article X:1 of GATT 1994.

63. DSU Article 3.2.

64. It is for this reason that both Article X:3(b) of GATT 1994 and Article 13 of the AD Agreement require Members to maintain appropriate judicial, arbitral or administrative tribunals or procedures.

65. United States - Shirts and Blouses, supra, p. 19.

66. Responses of the United States to Questions Posed by the Panel at the First Meeting of the Panel, question 2 on treatment of unpaid sales, Annex 2-4.

67. See Plate Preliminary Analysis Memorandum, Korea Exhibit 5, p.3.

68. Final Determination on Plate, p. 15445, at Korea Exhibit 11.

69. Plate Final Analysis Memorandum, pp. 8-9, Korea Exhibit 12. The memorandum indicates that an "amount associated with unpaid bankrupt sales" was included in the direct selling expenses ("DIREXPU"). A formula under the title "Constructed Export Price ("CEP") Calculation" indicates that the amount for direct selling expenses was deducted from the gross unit price ("GRSUPRU") in order to derive a net price ("NETPRIU").

70. Final Determination on Sheet, p. 30668, Korea Exhibit 24 (emphasis added).

71. Sheet Final Analysis Memorandum, p. 9, Korea Exhibit 25.

72. Korea Exhibit 1, p. 469.

73. 19 C.F.R. Section 351.402(b), Korea Exhibit 2.

74. Korea Exhibit 1, p. 470.

75. Compare 19 C.F.R. Section 351.410(c)(defining "direct selling expenses" for purposes of circumstance of sale adjustments to mean "expenses that result from, and bear a direct relationship to, the particular sale in question"). Thus, while the DOC made adjustments in identical amounts for unpaid sales when calculating the margin of dumping in respect of export price and constructed export price sales, this does not mean, as argued by Korea, that these adjustments had the same legal basis.

76. It is clear to us that, if the DOC's actions in constructing an export price were consistent with WTO requirements regarding such construction, then the DOC's actions would be WTO-consistent whether or not those actions could also have been justified as adjustments for differences affecting price comparability.

To continue with (ii) Was the DOC's adjustment for unpaid sales in respect of sales through unaffiliated importers a permissible allowance for a difference affecting price comparability?

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