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WORLD TRADE
ORGANIZATION

WT/DS219/R
7 March 2003

(03-1137)

  Original: English

EUROPEAN COMMUNITIES - ANTI-DUMPING DUTIES ON
MALLEABLE CAST IRON TUBE OR PIPE FITTINGS
FROM BRAZIL

Report of the Panel

(Continued)


C. ISSUES RAISED IN THIS DISPUTE

  1. Issue 1: "constructive remedies"

(a) Arguments of the parties

7.56 Brazil argues that both the first and second sentences of Article 15 impose legal obligations by which the European Communities failed to abide. In the alternative, Brazil asserts that if the European Communities did explore constructive remedies under Article 15, this was never communicated to representatives of the Government of Brazil or to company officials of Tupy.

7.57 Brazil argues that the first sentence of Article 15 refers to a general obligation to pay particular attention to the special situation of developing Members, while the second sentence concerns one possible way of fulfilling this obligation. Brazil submits that the European Communities failed to give special regard to the special situation of Brazil as a developing Member and conducted itself (in respect of the imposition of a "lesser duty") as it would have done when dealing with a developed Member. Brazil further asserts that the European Communities failed to give "special regard" as it did not take into account certain factors that were linked to Brazil's status as a developing Member, that is, the specificity of the Brazilian tax rebate system ("which cannot be compared to the sophisticated VAT systems that exist in the EC and in other developed countries")75, and the devaluation of the Brazilian currency.

7.58 With respect to the second sentence of Article 15, Brazil "agrees with the EC that the obligation arising out of this sentence is an obligation to "explore" possibilities of constructive remedies rather than an obligation to enter into constructive remedies",76 and further concurs with the European Communities that the EC-Bed Linen panel77 properly analyzed the concept of "exploring the possibilities of constructive remedies". Brazil asserts that it was Brazil that raised the matter in bilateral government contacts, but that should the Panel consider that the European Communities actually raised the matter, the issue of which side raised it is irrelevant. Brazil argues that the obligation to explore the possibilities of constructive remedies --such as price undertakings -- is an obligation directed towards exporters rather than WTO Members, and that (regardless of any contact with the Brazilian government) the European Communities violated its obligation by failing to suggest or communicate the possibility of an undertaking to the Brazilian exporter directly. Brazil disagrees with the view of the EC - Bed Linen panel that Article 15 applies only to the imposition of definitive anti-dumping measures, arguing that the obligation to explore possibilities of constructive remedies also applies to the period preceding the imposition of provisional measures. According to Brazil, the European Communities breached the second sentence of Article 15 by failing to raise the possibility of an undertaking with the Brazilian exporter before the imposition of provisional measures.

7.59 Brazil disagrees with the EC assertion that the Article 15 is an exception to other obligations in the Anti-Dumping Agreement and that the burden of proof is on the Member invoking the exception.

7.60 The European Communities asserts that the first sentence of Article 15 imposes no legal obligation on Members, but submits that even if the first sentence did impose an obligation, this obligation would be fulfilled upon compliance with the obligation in the second sentence. The European Communities endorses the EC-Bed Linen panel's approach concerning the second sentence of Article 15. The European Communities argues that it complied with Article 15. Price undertakings are a "constructive remedy" and the European Communities raised with Brazil the possibility of a price undertaking on three separate occasions (including at a high political level). The European Communities argues that "one of the unusual features about this investigation was the obvious close involvement of the Brazilian government on Tupy's behalf" and asserts that the European Communities "had every reason to believe that in speaking to government officials, the EC was speaking to Tupy".78

7.61 The European Communities does not dispute that Brazil is a developing Member, but does dispute that the imposition of anti-dumping duties on pipe fittings affects the "essential interests" of Brazil within the meaning of Article 15. The European Communities submits that since Article 15 is an exception to the rules of the Anti-Dumping Agreement, the onus lies on the developing Member concerned to prove that its invocation of the exception is justified.

7.62 The European Communities invokes the EC-Bed Linen panel report in support of the proposition that the provision applies only to the application of definitive anti-dumping measures.

(b) Arguments of third parties

7.63 The United States asserts that Article 15 of the Anti-Dumping Agreement addresses procedural issues and does not require a particular outcome. it argues that the first sentence of Article 15 does not contain a substantive obligation with respect to any particular outcome. There is no basis in the text of the first sentence on which to conclude that developed Members are required to apply distinct practices with respect to the methodologies used to determine whether dumping exists. The United States further argues that nothing in the second sentence of Article 15 requires that a developed Member "propose" constructive remedies, nor requires any particular outcome. Furthermore, the obligation to "explore" constructive remedies arises only when the application of antidumping duties would affect the "essential interests" of the developing Member. Accordingly, when a developing Member seeks the application of Article 15, it must demonstrate to the investigating authority that there are "essential interests" implicated in the case and that they would be affected by the application of anti-dumping duties. A panel, in turn, must first determine whether the developing Member has made these demonstrations. Any reading of the "essential interests" clause that does not reflect its limiting nature cannot be a permissible reading.

(c) Evaluation by the Panel

7.64 Article 15 of the Anti-Dumping Agreement, entitled "Developing Country Members", provides:

It is recognized that special regard must be given by developed country Members to the special situation of developing country Members when considering the application of anti dumping measures under this Agreement. Possibilities of constructive remedies provided for by this Agreement shall be explored before applying anti dumping duties where they would affect the essential interests of developing country Members.

7.65 The divergences between the parties centre on the nature of the legal obligation(s) imposed by the two sentences of Article 15 of the Anti-Dumping Agreement, and the timing and scope of application of the obligation(s).

7.66 Accordingly, the Panel first examines the text of the first sentence of Article 15, followed by the text of the second sentence, in order to discern the nature of the legal obligation(s) imposed, as well as the timing and scope of application of the provision.

7.67 We address first the nature of the legal obligation, if any, imposed by the first sentence of Article 15. Brazil asserts that, while the first sentence does not create a substantive obligation with respect to any particular outcome, it refers to a general obligation to pay particular attention to the special situation of developing country Members, and the second sentence indicates one possible way of fulfilling this obligation.79 For its part, the European Communities disagrees that the first sentence contains any obligation.80  

7.68 We agree with Brazil that there is no requirement for any specific outcome set out in the first sentence of Article 15. We are furthermore of the view that, even assuming that the first sentence of Article 15 imposes a general obligation on Members, it clearly contains no operational language delineating the precise extent or nature of that obligation or requiring a developed country Member to undertake any specific action. The second sentence serves to provide operational indications as to the nature of the specific action required.81 Fulfilment of the obligations in the second sentence of Article 15 would therefore necessarily, in our view, constitute fulfilment of any general obligation that might arguably be contained in the first sentence. We do not see this as a "reduction" of the first sentence into the second sentence, as suggested to us by Brazil. Rather the second sentence articulates certain operational modalities of the first sentence.

7.69 We next consider the obligations imposed by the second sentence of Article 15. Our starting point is naturally the text of that sentence:

"Possibilities of constructive remedies provided for by this Agreement shall be explored before applying anti dumping duties where they would affect the essential interests of developing country Members."

7.70 With respect to the second sentence, while there is no dispute between the parties as to certain core aspects of the nature of the obligation to "explore" "possibilities of" constructive remedies, the parties' views diverge on the timing and scope of application of the provision as well as the nature of possible "constructive remedies" (including with whom and how such possibilities must be explored), and the meaning and role of the phrase "shall affect the essential interests" of Brazil as the developing Member country in question in this dispute.

7.71 We examine the requirement in the second sentence of Article 15 to explore possibilities of "constructive remedies" provided for by the Anti-Dumping Agreement.82 The term "remedy" can be defined as,inter alia , "a means of counteracting or removing something undesirable; redress, relief".83 "Constructive" is defined as "tending to construct or build up something non-material; contributing helpfully, not destructive".84 We thus understand the term "constructive remedies" as referring to helpful means of counteracting the effect of injurious dumping. The text of Article 15 explicitly limits the types of constructive remedies involved to constructive remedies "provided for [by] this Agreement". We find support for our approach in the panel reports in EC-Bed Linen85 and US-Steel Plate.86

7.72 At this point in our analysis, it is sufficient for us to endorse the shared view of both parties that the imposition of a "lesser duty" or a price undertaking would constitute "constructive remedies" within the meaning of Article 15.87 As to the meaning of the requirement to "explore" possibilities of constructive remedies, we also support the shared view of the parties that this obligation is affirmatively to "explore" the possibility of -- rather than affirmatively to "propose" - constructive remedies. We believe that the concept of "explore" cannot be understood to require any particular outcome with respect to the substantive decision that results from the exploration. We draw support for this point of view from the EC-Bed Linen panel report, which stated that:

Article 15 does not require that "constructive remedies" must be explored, but rather that the "possibilities" of such remedies must be explored, which further suggests that the exploration may conclude that no possibilities exist, or that no constructive remedies are possible, in the particular circumstances of a given case. Taken in its context, however, and in light of the object and purpose of Article 15, we do consider that the "exploration" of possibilities must be actively undertaken by the developed country authorities with a willingness to reach a positive outcome. Thus, in our view, Article 15 imposes no obligation to actually provide or accept any constructive remedy that may be identified and/or offered.92 It does, however, impose an obligation to actively consider, with an open mind, the possibility of such a remedy prior to imposition of an anti-dumping measure that would affect the essential interests of a developing country.

_______________________

92 We note that our interpretation of Article 15 in this regard is consistent with that of a GATT Panel which considered the predecessor of that provision, Article 13 of the Tokyo Round Anti-Dumping Code, which provision is substantively identical to present Article 15. That Panel found:

"The Panel noted that if the application of anti-dumping measures "would affect the essential interests of developing countries", the obligation that then arose was to explore the "possibilities" of "constructive remedies". It was clear from the words "[p]ossibilities" and "explored" that the investigating authorities were not required to adopt constructive remedies merely because they were proposed." EC - Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil, Panel Report, ADP/137, adopted 30 October 1995, para. 584 (emphasis added)."

7.73 We must therefore examine whether the EC authorities actively considered with an open mind the possibility of constructive remedies - that is, a price undertaking or the imposition of a lesser duty --88 prior to the imposition of final anti-dumping measures in this investigation.

7.74 Brazil confirms that neither Tupy nor Brazil actively communicated to the European Communities a desire to offer undertakings or to pursue any other kind of "constructive remedy", while asserting that the burden of actively undertaking the exploration -- proposal -- of constructive remedies lies on the developed Member.89 The European Communities states that it raised the possibility of a price undertaking in bilateral government contacts between the European Communities and Brazil and submitted evidence in support.90 According to the European Communities, Brazil did not show interest in this possibility. While the parties differ in their assertions as to who took the initiative to raise "the matter" and whether "the matter" referred to was the pipe fittings investigation in general or the possibility of a price undertaking in particular, we do not believe that these distinctions are relevant in this context. This flows from our understanding that there is no disagreement between the parties that the issue of a price undertaking was discussed in exchanges between EC and Brazilian officials.

7.75 We consider that Brazil's suggestion that the exploration of possibilities of constructive remedies must be conducted directly with a developing country exporter and Brazil's related assertions do not sit easily with the textual obligation in Article 15 to give special regard to the special situation of developing country Members, not individual companies. The reference in Article 15 is that special regard must be given "to the special situation of developing country Members". Moreover, particularly in the context of an investigation like this one, where Brazilian government officials were frequently involved - including attending bilateral meetings where issues relating to the investigation arose and communicating with EC officials in respect of issues in the investigation indicating a familiarity with certain details of the case,91 it seems to us that discussing the possibility of price undertakings with such government officials would be an entirely reasonable way in which to explore the possibility of a constructive remedy in the form of a price undertaking with respect to the particular company involved.92

7.76 As we have found that the European Communities adequately explored possibilities of constructive remedies in the form of a price undertaking, it is not necessary for us to consider also whether the European Communities adequately explored constructive remedies in the form of the imposition of a "lesser duty".

7.77 We next examine Brazil's argument that there may be constructive remedies within the meaning of Article 15 other than "lesser duty" and price undertakings. Brazil submits that the term "constructive remedies" embraces undertakings other than price undertakings (for example, undertakings limiting the quantities to be exported to the European Communities, which Brazil asserts that the European Communities in practice accepts). Brazil therefore asserts that the European Communities failed to explore all the possibilities of constructive remedies by not considering undertakings other than price commitments.93 In the EC view, there is no need for the Panel to reach the issue of whether or not there may be other constructive remedies in addition to price undertakings or the application of the lesser duty rule. The European Communities asserts that exploring other types of undertakings (other than price undertakings) is not a "remedy" envisaged under the Anti-Dumping Agreement.

7.78 We do not agree with Brazil's assertion that the term "constructive remedies" also embraces undertakings other than price undertakings (for example, undertakings limiting the quantities to be exported to the European Communities, which Brazil asserts that the European Communities in practice accepts) nor that "any measure which would have a less restrictive impact than an anti-dumping duty should be allowed under Article 8".94 In this context, we note that Article 8.1 also envisages the possibility that an exporter may undertake to "cease exports to the area in question at dumped prices". This provision refers specifically to an undertaking not to sell at dumped prices. It does not envisage a restraint on the quantity of the product exported. Furthermore, the title of Article 8 is "Price Undertakings", rather than "Undertakings", or "Price or Other Undertakings". These factors support our view that quantitative "undertakings" are not a remedy foreseen in the Anti-Dumping Agreement, and that Article 15 therefore does not impose any obligation to explore undertakings other than price undertakings in the case of developing country Members. Thus, we disagree with Brazil's argument that the Anti-Dumping Agreement "does not prevent" WTO Members from accepting quantitative undertakings, tariff quotas or price quotas.95 We do not see such undertakings as remedies provided for by the Agreement and therefore do not consider that Article 15 imposes an obligation upon developed country Members to consider undertakings other than price undertakings.

7.79 Consequently, we are of the view that the European Communities did not fail to abide by its obligations under Article 15 by not exploring possibilities of undertakings other than price undertakings. We wish to make it clear that we reach no conclusions as to what other actions might be considered to constitute "constructive remedies" under the second sentence of Article 15, as the parties have not specifically pursued other possible such remedies before us.96 It should also be noted that Brazil confirms that neither it nor Tupy proposed any alternatives to a price undertaking (or any other kind of constructive remedy) during the investigation.97

7.80 Turning to the question of the timing and scope of application of Article 15, we recall Brazil's argument that the European Communities breached the second sentence of Article 15 by failing to raise the possibility of an undertaking to the Brazilian exporter before the imposition of provisional measures. Brazil disagrees with the view of the EC - Bed Linen panel that Article 15 applies only to the imposition of definitive anti-dumping measures, arguing that the obligation to explore possibilities of constructive remedies also applies to the period preceding the imposition of provisional measures. Brazil asserts that, were the EC - Bed Linen panel's reasoning to prevail, there would be no need to qualify the term 'duty' in the Agreement. Arguing that this is not what happens in the Agreement, however, Brazil draws our attention to Articles 12.2 and 12.2.2 which respectively read, in relevant part: '...and of the termination of a definitive anti-dumping duty", and "...the imposition of a definitive duty...". On the other hand, Brazil asserts, if the intention of the drafters were to give a uniform meaning to the term 'duty' throughout the text, they would have used, for instance, a footnote, as is the case for the term 'injury' (footnote 9 to Article 3)."98 Brazil contends that the imposition of a provisional measure, irrespective of the form it takes, adversely affects the interests of the developing country Member concerned, for it restricts, since its very beginning, the access to the developed country market for the product concerned.99

7.81 For its part, the European Communities invokes the EC-Bed Linen panel report in support of the proposition that the provision applies only to the application of definitive anti-dumping measures.

7.82 We understand the phrase "before applying anti-dumping duties" in Article 15 to refer to the period preceding the application of definitive anti-dumping duties, and not the period preceding the imposition of any provisional measures. It is clear that the Anti-Dumping Agreement consistently uses the term "provisional measures" to refer to measures imposed prior to the completion of the investigation.100 There is a distinction drawn in the text of the Agreement between provisional measures (which may take the form of a provisional duty or a security by cash deposit or bond) and anti-dumping duties, with the latter term referring consistently to definitive measures. Therefore, the ordinary meaning of the term "anti-dumping duties" in Article 15, particularly read in the context of the other provisions of the Agreement, refers to the imposition of definitive anti-dumping duties following the completion of the investigation process.101 Read in this light, the term "before" in Article 15 refers to the period prior to the imposition of definitive duties (in any event, price undertakings cannot be sought or accepted prior to a preliminary affirmative determination (see Article 8.2)). This is entirely consistent with the statement in the first sentence of Article 15 that special regard must be given "when considering the application of anti-dumping measures".102 Accordingly, we find that the European Communities did not fail to abide by its obligation under Article 15 by not exploring possibilities of constructive remedies before the imposition of the provisional measure.

7.83 Since we have found that the European Communities has explored possibilities of constructive remedies within the meaning of Article 15, we need not address the issues of whether the anti-dumping duties would "affect" the "essential interests" of Brazil in this case, within the meaning of the second sentence of Article 15. To the extent Brazil's allegations relate to the contents of the Provisional and Definitive Regulations under Article 12, we examine these infra.

7.84 In light of all of these considerations, we find that the European Communities did not act inconsistently with Article 15 of the Anti-Dumping Agreement.

7.85 We note, in passing, that, at the Doha Ministerial Conference in November 2001, WTO Members adopted the Ministerial Decision on Implementation-Related Issues and Concerns, which states that Ministers recognize103:

"that, while Article 15 of the Agreement on the Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 is a mandatory provision, the modalities for its application would benefit from clarification. Accordingly, the Committee on Anti-Dumping Practices is instructed, through its working group on Implementation, to examine this issue and to draw up appropriate recommendations within twelve months on how to operationalize this provision."

WTO Members are currently engaged in a process of discussions in response to this Ministerial Decision. It is not our task to presuppose the outcome of those discussions.

  1. Issue 2: application and initiation of the investigation (claims withdrawn)

7.86 Brazil withdraws its claims regarding the application under Issue 2.104 We therefore do not examine these claims.

  1. Issue 3: currency devaluation

(a) Arguments of the parties

7.87 Brazil alleges that the European Communities acted inconsistently with Article 1 of the Anti-Dumping Agreement and Article VI of the GATT 1994 in imposing an anti-dumping measure where no dumping existed due to the effects of the devaluation of the Brazilian currency on the prices of the Brazilian products exported to the European Communities. In Brazil's view, Article VI of the GATT 1994 -- as reflected in Article 1 of the Anti-Dumping Agreement, and in the context of Articles 7 and 11 of the Anti-Dumping Agreement -- allows "counter-measures only against and in order to offset present dumping".105

7.88 In the alternative, Brazil alleges that the European Communities violated Article 11.1 of the Anti-Dumping Agreement by maintaining the measure to the extent it was not necessary to counteract dumping; and Article 11.2 by failing, simultaneously with the imposition of the measure, to self-initiate a review of the need for the continued imposition of the duty in view of the currency devaluation. Brazil asserts that it was unable to request a review as EC law provides that a review may be initiated "provided a reasonable period of time of at least one year has elapsed since the imposition of the definitive measure". The European Communities had an obligation to self-initiate a review "where warranted". The data made available to the European Communities with regard to the fourth quarter of the POI "should have provided it with a sufficient indication that the dumping margins it had found for the Brazilian exporter in the beginning of the IP has totally disappeared" at the end of the last quarter of the IP and "should have at least led the EC to initiate an immediate review to assess whether the phenomenon had continued".106 Brazil asserts that: Tupy was "time-barred"107 by the EC legislation from requesting a review within the year following the imposition of the definitive anti-dumping duties; Tupy has not requested any review at any time108; and the "review" initiated by the European Communities in December 2001 was limited to the issue of "zeroing" and is not part of the Panel's terms of reference.

7.89 The European Communities argues that, consistent with the Anti-Dumping Agreement and the practice of most Members, it calculated dumping margins for a period of twelve months ending prior to the date of initiation of the investigation. According to the European Communities, there is no legal obligation in the Agreement for a Member to consider whether the circumstances following the end of the investigation period but prior to the imposition of the measure still necessitate the imposition. For the European Communities, there is no evidence in this case that dumping ceased during the course of the investigation period. In any event, the devaluation of Brazil's currency occurred during the IP and its effects were reflected in the data used by the EC authorities.

7.90 With respect to Brazil's claims alternative claims under Articles 11.1 and 11.2, the European Communities submits that the implications of the devaluation for Tupy's dumping margin would depend on pricing decisions made by Tupy, and that it was "by no means a foregone conclusion" that the devaluation would result in a reduction of the dumping margin".109 The EC authorities did not believe that the devaluation that occurred during the IP was an event warranting a review. For the European Communities, self-initiation is a residual category, appropriate for extreme or unusual circumstances. The European Communities also states that, at the request of another exporter, it has since initiated (in December 2001) a review of the duties that are the subject of this dispute,110 covering the period 1 January to 30 September 2001, but that Tupy has not cooperated in this review.

(b) Arguments of third parties

7.91 Chile submits that Article VI.1 of the GATT 1994 and Article 11.1 of the Anti-Dumping Agreement require that an antidumping duty must not exceed the margin of dumping and that the duty may remain in place only to the extent and for as long as necessary to counteract dumping. In establishing the dumping margin in this case, the European Communities failed to take into account a series of important factors, including the devaluation. The investigating authority must re-evaluate whether dumping still exists if the circumstances change so that the dumping margin as calculated no longer reflects the situation. The concepts of conditionality and proportionality referred to by the panel and Appellate Body in Korea-Dairy Safeguards are implicit in Article VI:1 of the GATT 1994 and Article 11.1 of the Anti-Dumping Agreement.

7.92 The United States notes that the Anti-Dumping Agreement constitutes the agreed rules for determining how to implement Article VI:2 of the GATT 1994 by identifying and countering injurious dumping. Article VI and the Anti-Dumping Agreement are meant to be read together. The US further argues that the Anti-Dumping Agreement provides for reviews under Article 11. Footnote 22 to Article 11 confirms that even a finding that no dumping occurred in a period subsequent to that examined in the original investigation does not by itself require authorities to terminate the definitive duty order. Furthermore, as the panel recognized in US - DRAMS.111 Article 11.2 does not require the revocation of an order upon the finding of no dumping in a review on the grounds that duties are no longer "necessary." There is no basis for Brazil's argument in the text of the Anti-Dumping Agreement or in Article VI:2.

(c) Evaluation by the Panel

(i) Brazil's claim under Article 1 of the Anti-Dumping Agreement and Article VI of the GATT 1994

7.93 We begin our examination of Brazil's claim under Article VI of the GATT 1994 and Article 1 of the Anti-Dumping Agreement by recalling the text of these treaty provisions.

7.94 Article VI:2 of the GATT 1994 provides that a Member may levy an anti-dumping duty "[i]n order to offset or prevent dumping".

7.95 Article 1 of the Anti-Dumping Agreement provides:

"An anti dumping measure shall be applied only under the circumstances provided for in Article VI of GATT 1994 and pursuant to investigations initiated and conducted in accordance with the provisions of this Agreement. The following provisions govern the application of Article VI of GATT 1994 in so far as action is taken under anti dumping legislation or regulations." (footnote omitted)

7.96 The specific relevant chronology of this case is as follows: The date of initiation of the investigation was 29 May 1999. The dumping IP in this investigation was from 1 April 1998 through 31 March 1999. The "injury investigation period" was from 1 January 1995 through 31 March 1999. A 42% devaluation of the Brazilian currency occurred in January 1999 (that is, at the beginning of the last quarter of IP). The date of the Provisional Regulation was 28 February 2000 and the date of the Definitive Regulation was 11 August 2000.

7.97 We understand the issue here to be whether an investigating authority, having established the existence of dumping on the basis of the period of investigation, is obligated, under Article 1 of the Anti-Dumping Agreement and Article VI of the GATT 1994, to re-assess this determination immediately prior to imposing definitive anti-dumping duties.

7.98 We understand that Brazil does not specifically contest, in this context, the findings of the EC investigating authorities during the IP112 with respect to the margin of dumping. Rather, Brazil has clarified before us that its contention is that following the devaluation of the Brazilian currency, the EC's findings and determinations for the IP became "obsolete".113

7.99 In considering the issue before us, we believe that it is important to keep firmly in mind two elements: first, the temporal distinction between the "investigation period" and the subsequent periods before and after the imposition of the anti-dumping measure; and second, the nature of the methodology used with respect to the determination of dumping over the course of this investigation period. We examine Brazil's arguments in the light of these two elements.

7.100 With respect to the temporal distinction between the investigation period and the subsequent periods before and after the imposition of the measure, the Anti-Dumping Agreement refers to the concept of a "period of investigation".114 The use of an investigation period is therefore contemplated in several provisions of the Anti-Dumping Agreement. Moreover, the ADP Committee has adopted a "Recommendation Concerning the Periods of Data Collection for Anti-Dumping Investigations"115, which states,inter alia , that the period of data collection for dumping investigations normally should be twelve months, and in any case no less than six months, ending as close to the date of initiation as is practicable; and that the period of data collection for injury investigations normally should be at least three years, unless a party from whom data is being gathered has existed for a lesser period, and should include the entirety of the period of data collection for the dumping investigation.116

7.101 There are practical reasons for using an investigation period, the termination date of which precedes the date of initiation of the investigation. This ensures that the data that will form the basis for the eventual determination are not affected in any way by the initiation of the investigation and any subsequent actions of exporters/importers. The rationale is thus to acquire a finite data set unaffected by the process of the investigation. This can form the basis for an objective and unbiased determination by the investigating authority. The period of investigation terminates as close as possible to the date of initiation of the investigation in order to ensure that the data pertaining to the investigation period, while historical, nevertheless refers to the recent past. The use of a sufficiently long period of investigation is critical in order to ensure that any dumping identified is sustained rather than sporadic.

7.102 Brazil notes that Article VI of the GATT 1994 addresses the phenomenon of dumping and authorizes the imposition of countermeasures "in the present tense".117 Brazil supports its argument that the Agreement permits "counter-measures only against and in order to offset present dumping" with reference to the contextual elements of Articles 7 and 11 of the Anti-Dumping Agreement. However, we do not view these contextual elements as supporting Brazil's position. Article 7.1(iii) permits the application of provisional measures only if "the authorities concerned judge such measures necessary to prevent injury being caused during the investigation". Article 11.1 states: "[a]n anti dumping duty shall remain in force only as long as and to the extent necessary to counteract dumping which is causing injury." We agree with Brazil that, like Article VI of the GATT 1994, both of these provisions are in the present tense, and that the point is to offset present dumping. The issue is, however, how best to follow a consistent and reasonable methodology for determining present dumping. Read in the context of the provisions we have already cited, and on the basis of the necessity to follow a consistent and reasonable methodology, we are of the view that a finding that dumping exists during a recent past IP is a finding of "present" dumping for the purposes of the Agreement. This flows from our observation that the only mechanisms provided for in the Agreement for determining the necessity or propriety of anti-dumping measures are those concerning dumping, injury and causation. There are no additional mandatory procedures envisaged to establish, over and above this, the propriety of, or necessity for, the initial imposition of anti-dumping measures.

7.103 Brazil itself states that "it is in the very nature of anti-dumping investigations to assess a practice which has taken place in the past in order to determine whether to remedy the consequences of that past practice in the future."118 However, Brazil continues, the basic rationale behind this approach - that the same or closely resembling circumstances as in the IP will, or are at least likely to, continue so that remedies would still play their predefined role once they are imposed -- is absent in circumstances as in this case, where the circumstances prior to the imposition of anti-dumping measures change dramatically. Brazil alleges that the EC's "mechanical approach"119 failed to take adequate note of the lasting effect of the currency devaluation that occurred in the last quarter of the investigation period.

7.104 In addressing these arguments by Brazil, we turn to the requirements of the Agreement with respect to the methodology used in the determination of dumping over the investigation period. Article 2.4.2 generally calls for "a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-by transaction basis". Either of these methodologies would seem to require, in general, that data throughout the entire investigation period would necessarily consistently be taken into account. That is, an investigating authority would generally be precluded from limiting its dumping analysis to a selective subset of that data from only a temporal sub-segment of the IP. To the extent that Brazil is suggesting that the EC authorities should have focused exclusively or particularly on data from the end of the investigation period (following the devaluation), we therefore reject Brazil's argument. We observe that the application of such a selective temporal methodology could indeed risk undermining the consistent and impartial application of the Agreement. The data taken into account pertaining to the entire investigation period will produce a margin of dumping for that period. That margin of dumping will reflect developments that occurred within the period of investigation. In this way, the effects of the currency devaluation for the three last three months of the IP in this case were already taken into account and reflected in the margin of dumping calculated by the EC investigating authority.

7.105 We find further contextual support for this view in the provision of the Agreement that explicitly addresses sustained movements in exchange rates during the IP, Article 2.4.1. This confirms to us that the Agreement contemplates the presence of a sustained movement of exchange rates and that the information pertaining to the entire IP continues to be relevant in determining whether a basis exists for the imposition of anti-dumping measures.

7.106 Brazil's argument seems to centre on the proposition that "[a]ny calculation or methodology, however compatible with the technical requirements of the Anti-Dumping Agreement, which would ultimately defeat the object and purpose of the Anti-Dumping Agreement, constitutes a violation of these rules".120 Brazil refers to a "general obligation" under which the European Communities was bound not to impose, or at least to withhold, anti-dumping measures.121 As we are bound to apply the "customary rules of interpretation of public international law"122 to the provisions of the Agreement, it would be essential to have a textual basis that imposes an obligation of the kind suggested by Brazil.123 Any departure from the requirement to apply the provisions of the Agreement in a precise and methodical way would have to be explicitly provided for. However, we see no foundation in the text of the Agreement for Brazil's argument that this provision does not apply "in the same way" in this case,124 nor for a requirement that an investigating authority re-assess its own determination made on the basis of an examination of data pertaining to the IP prior to the imposition of an anti-dumping measure in the light of an event which occurred during the IP.125 We decline to read such a provision into the text. Moreover, the Agreement provides mechanisms to address situations where dumping decreases or terminates following an affirmative determination of dumping on the basis of historical data from a recent past IP, for example, in Articles 9.3 (full or partial refund of duties paid) and 11 (review).

7.107 Thus, absent any such explicit caveat or conditionality, Article 1 of the Anti-Dumping Agreement does not require an investigating authority to re-assess its own determination made on the basis of an examination of data pertaining to the IP prior to the imposition of an anti-dumping measure in the light of an event that occurred during the IP.

7.108 We therefore find that Brazil has not established that the European Communities violated its obligations under Article 1 of the Anti-Dumping Agreement or under Article VI:2 of the GATT 1994 in imposing an anti-dumping measure in this case following the devaluation of the Brazilian currency at the beginning of the fourth quarter of the IP.

(ii) Brazil's alternative claims under Article 11.1 and 11.2 of the Anti-Dumping Agreement

7.109 Brazil submits that the European Communities violated Article 11.1 by maintaining the imposition of the anti-dumping duty to the extent it was not necessary to counteract dumping, and that the European Communities violated Article 11.2 by not simultaneously reviewing, on its own initiative, the need for the continued imposition of the duty in view of the currency devaluation.

7.110 As always, we begin our examination of Brazil's claims by recalling the relevant text of the Agreement. Pursuant to Article 11.1,

"[a]n anti dumping duty shall remain in force only as long as and to the extent necessary to counteract dumping which is causing injury".

7.111 Article 11.2 of the Anti-Dumping Agreement provides:

"The authorities shall review the need for the continued imposition of the duty, where warranted, on their own initiative or, provided that a reasonable period of time has elapsed since the imposition of the definitive anti dumping duty, upon request by any interested party which submits positive information substantiating the need for a review. Interested parties shall have the right to request the authorities to examine whether the continued imposition of the duty is necessary to offset dumping, whether the injury would be likely to continue or recur if the duty were removed or varied, or both. If, as a result of the review under this paragraph, the authorities determine that the anti dumping duty is no longer warranted, it shall be terminated immediately." (footnote omitted)

7.112 Pursuant to Article 11.2, an investigating authority is therefore required, where "warranted", to review the need for the continued imposition of the duty. The ordinary dictionary meaning of the verb "warrant" is: "To furnish good and sufficient grounds for (a course of action);126 to render allowable, justify. b. To justify (a person in or to a course of action)." We therefore understand the phrase "where warranted" in Article 11.2 to denote circumstances furnishing good and sufficient grounds for, or justifying, the self-initiation of a review. Where an investigating authority determines such circumstances to exist, an investigating authority must self-initiate a review. Such a review, once initiated, will examine whether continued imposition of the duty is necessary to offset dumping, whether the dumping would be likely to continue or recur, or both. Article 11.2 therefore provides a review mechanism to ensure that Members comply with the rule contained in Article 11.1.127

7.113 In respect of Brazil's alternative claims concerning the obligation to assess the need to impose anti-dumping measures prior to their imposition or immediately to self-initiate a review, we consider that Article 11.1 does not set out an independent or additional obligation for Members. By virtue of Article 11.1 of the Anti-Dumping Agreement , an anti-dumping duty may only continue to be imposed if it remains "necessary" to counteract injurious dumping. Article 11.1 contains a general, unambiguous and mandatory requirement that anti-dumping duties "shall remain in force only as long as and to the extent necessary" to counteract injurious dumping.128 It furnishes the basis for the review procedures contained in Article 11.2 (and 11.3) by stating a general and overarching principle, the modalities of which are set forth in paragraph 2 (and 3) of that Article. On this basis, we examine Brazil's claims under Articles 11.1 and 11.2.

7.114 We understand Brazil to allege that the European Communities violated Article 11.1 by maintaining the imposition of the anti-dumping duty to the extent it was not necessary to counteract dumping, and that the European Communities violated Article 11.2 by not, simultaneously with the imposition of the measure, reviewing, on its own initiative, the need for the continued imposition of the duty in view of the currency devaluation. We further understand that the focus of Brazil's argument is upon the lasting effect of the currency devaluation, an event which occurred at the beginning of the last quarter of the IP. According to Brazil, the effects of the devaluation, which were known and verified by the European Communities, warranted an immediate self-initiated review and "there was no need for the Brazilian exporter to provide any additional information to the European Communities to trigger the review".129 This was particularly so, in Brazil's view, as the EC's internal legislation provides for requested reviews after "a reasonable period of time of at least one year has elapsed since the imposition of the definitive measures".130

7.115 We disagree. The devaluation occurred in January 1999, three quarters of the way through the period of investigation, and Brazil does not contest the finding of dumping during the IP in this context.131 While we cannot exclude the possibility that circumstances may warrant the simultaneous self-initiation of a review in certain circumstances, we find no basis in the Agreement for an obligation that the self-initiation of a review simultaneous with the imposition of the measure is necessarily warranted or that an authority must self-initiate a review immediately upon the imposition of measures on the basis of an affirmative dumping determination in respect of a recent past IP.132 The determination of whether or not good and sufficient grounds exist for the self-initiation of a review necessarily depends upon the factual situation in a given case and will necessarily vary from case to case.

7.116 It is therefore necessary for us to examine the surrounding relevant facts. In so doing, we consider that while the European Communities was by no means precluded from immediately initiating a review upon its own initiative under Article 11.2, we are of the view that, even assuming arguendo that the devaluation had resulted in a convergence of the normal value and the export price at the time of the imposition of the measures, it was not necessarily clear whether and to what extent such a situation would continue. This is particularly the case given that there was no clarity concerning the magnitude and direction of any subsequent movements in Brazil's currency nor concerning the pricing decisions that Tupy might take in the face of any such developments. It was therefore not clear that, even assuming arguendo a convergence of export price and normal value by the time of the imposition of the measures -- an issue that was not considered by the EC authorities and that we need not and do not consider here for the purposes of resolving the issue before us -- any "lasting effect" of the devaluation would be a convergence of normal value and export price.

7.117 To the extent that Brazil's argument is that the continued effect of the devaluation between the end of the IP and the imposition of the measure was such as to eliminate any dumping that was established to exist during the IP, we recall that the existence of a duty assessment mechanism under Article 9.3 is intended to address precisely a situation of that kind. This mechanism (which, in the case of the European Communities is a refund system) aims to ensure that the amount of anti-dumping duty actually collected does not exceed the actual margin of dumping, and refunds are to be granted in order to attain this objective. In light of the fact that the Anti-Dumping Agreement contemplates, inter alia, prospective duty collection, and that Article 9.3 contemplates a mechanism to refund duties in the event the actual margin of dumping is less than duties actually collected, it appears inherent in the structure of the Agreement that the data and calculations pertaining to the investigation period legitimately form the basis for the imposition of the measure.

7.118 The findings of the panel in US - DRAMS133 are relevant here. In examining the nature of a review conducted under Article 11.2 AD, that panel rejected the view that Article 11.2 "requires revocation as soon as an exporter is found to have ceased dumping, and that the continuation of an anti-dumping duty is precluded a priori in any circumstances other than where there is present dumping." This reasoning would suggest to us that the Anti-Dumping Agreement does not require a decision to be made by the investigating authorities after the end of the IP not to impose duties, nor to review the imposition of a duty immediately after it is imposed based on events between the end of the IP and the time of imposition, much less on the basis of events occurring before the end of the IP.

7.119 We therefore find that Brazil has not established that the European Communities violated Article 11.1 or Article 11.2 of the Anti-Dumping Agreement by imposing definitive anti-dumping measures in this case or by not, simultaneously with that imposition, self-initiating a review following the devaluation of Brazil's currency that occurred at the beginning of the fourth quarter of the IP.

7.120 We understand Brazil's allegations of violation by the European Communities focus upon the failure to self-initiate a review, and not on any other aspect of Article 11.2 of the Anti-Dumping Agreement. In particular, pursuant to Article 11.2 a review may also be initiated at the request of a party "provided that a reasonable period of time has elapsed" since the imposition of definitive AD duties. The EC Basic Regulation provides that a review may be initiated upon request of an interested party provided that a reasonable period of time of at least one year has elapsed since the imposition of the AD measure. However, as Brazil has argued that Tupy was legally precluded from requesting a review before the year lapsed, and Brazil has not argued that it ever requested such a review, and we note that Tupy declined to participate in a subsequent review of the measure, Exhibits BRL-55 and 56, including a review initiated in December 2001,134 we do not examine this element of Article 11.2 here.


To continue with 4. Issue 4: constructed normal value amounts used for profit and SG&A

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75 Brazil second written submission, para. 11; also, Brazil first written submission, para. 101.

76 Brazil second written submission, para. 7 referring to EC first written submission, para. 35 and US third party submission, Annex B-2, para. 9.

77 Panel Report, European Communities - Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India ("EC - Bed Linen "), WT/DS141/R, adopted 12 March 2001, as modified by the Appellate Body Report, WT/DS141/AB/R.

78 EC second written submission, para. 6.

79 Brazil second written submission, para. 8.

80 EC second oral statement, para. 14.

81 In this regard, a previous panel found that "the first sentence of Article 15 imposes no specific or general obligation on Members to undertake any particular action." Panel Report, United States - Anti-Dumping and Countervailing Measures on Steel Plate from India ("US - Steel Plate "), WT/DS206/R and Corr.1, adopted 29 July 2002., para. 7.110. We further recall that the EEC-Cotton Yarn GATT Panel, considering similar arguments in respect of Article 13 of the Tokyo Round Agreement (which is substantively identical to Article 15 of the Anti-dumping Agreement), stated:

"582. � The Panel was of the view that Article 13 should be interpreted as a whole. In the view of the Panel, assuming arguendo that an obligation was imposed by the first sentence of Article 13, its wording contained no operative language delineating the extent of the obligation. Such language was only to be found in the second sentence of Article 13 whereby it is stipulated that "possibilities of constructive remedies provided for by this Code shall be explored before applying anti-dumping duties where they would affect the essential interests of developing countries"."

Panel Report, European Economic Community - Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil ("EEC - Cotton Yarn "), adopted 30 October 1995, BISD 42S/17, para. 582 (emphasis added).

82 While the first sentence of Article 15 imposes an obligation on developed countries to give "special regard" to the situation of developing country Members, the second sentence of Article 15 is not so limited.

83The New Shorter Oxford English Dictionary, Clarendon Press, Oxford, 1993.

84 Ibid.

85 Panel Report, EC - Bed Linen, supra, note 77, para. 6.228.

86 Panel Report, US-Steel Plate, supra, note 81, para. 7.112.

87 Panel Report, EC - Bed Linen, supra, note 77, para. 6.229. The EC - Bed Linen panel was of the view that the imposition of a "lesser duty" or a price undertaking would constitute "constructive remedies" within the meaning of Article 15 and came to no conclusions as to what other actions might in addition be considered to constitute "constructive remedies" under Article 15, as none had been proposed to it.

88 While the parties agree that the imposition of a "lesser duty" might constitute a constructive remedy under Article 15, we do not understand Brazil to contest that the EC did impose a lesser duty. Rather, Brazil asserts that the choice by the EC to impose a lesser duty is mandated by Article 7(2) and 9(4) of the Basic Regulation and is not a consequence of the obligations set out in Article 15 of the Anti-Dumping Agreement; the EC applies this rule regardless of whether the Member in which the exporter is located is a developing or developed Member. See Brazil response to Panel question 7 following the first Panel meeting, Annex E-1.

89 Brazil response to Panel question 3 following the first Panel meeting, Annex E- 1.

90 These included: meetings between EC and Brazilian officials that occurred on: 23 March 2000 (including the EC Trade Commissioner, Mr. Lamy, and a Brazilian delegation that included Brazil's Minister of Development, Industry and Trade and the Executive Secretary of the Brazilian Foreign Trade Chamber, reflected in Exhibit EC-6); 9 May 2000 (preparatory meeting, reflected in Exhibit EC - 2); and 25-26 May 2000 (the European Community-Brazil Joint Committee, reflected in Exhibit EC - 4).

91 For example, written communications from Brazil's Ambassador in Brussels to EC officials dated 10 December 1999, 29 January 2000 and 23 February 2000 (Exhibits EC-27-29).

92 In response to Panel questioning as to whether the Brazilian government transmitted to Tupy the possibility of pursuing a price undertaking to the European Communities as a result of the meetings between Brazilian and EC government officials, Brazil responded that "The Government of Brazil has no record of any contacts maintained with the Brazilian exporter regarding the issue of undertakings. In fact, there was no need at all for Brazil to inform the Brazilian exporter of the possibility of a price undertaking�.". Brazil response to Panel question 1 following the second Panel meeting, Annex E - 7.

93 Brazil response to Panel question 4 following the second Panel meeting, Annex E - 7.

94 See Brazil response to Panel questions 4 and 5 following the second Panel meeting, Annex E - 7.

95 Ibid.

96 Although Brazil stated that tariff quotas or price quotas might possibly constitute other kinds of constructive remedies, we do not understand Brazil to have made specific assertions concerning such instruments. Rather it asserted that it was up to the European Communities to devise and propose a constructive remedy. See Brazil response to Panel question 5 following the second Panel meeting, Annex E-7.

97 Brazil response to Panel question 3 following the first Panel meeting, Annex E- 1.

98 Brazil second written submission, paragraph 18.

99 Brazil second written submission, paragraph 17.

100 Article 1 of the Anti-Dumping Agreement specifies that: "An anti-dumping measure shall be applied only under the circumstances provided for in Article VI of GATT 1994 and pursuant to investigations initiated and conducted in accordance with the provisions of this Agreement." (footnote omitted) Articles 8.1 and 10.1 refer to: "provisional measures" and "anti-dumping duties �". See also Articles 7, 9 and 17.4.

101 We find support for our view in Panel Report, EC-Bed Linen , supra, note 77, paras. 6.231-6.232.

102 In this regard, we note the Panel Report, US-Steel Plate, supra, note 81, para. 7.111.

103 WT/MIN(01)/17, 20 November 2001, paragraph 7.2.

104 Brazil's second written submission, para. 24.

105 Brazil's second written submission, para. 27.

106 Brazil's second written submission, para. 39.

107 See, for example, Brazil response to EC question 7 following the first Panel meeting, Annex E - 2.

108 Brazil response to Panel question 6 following the first Panel meeting, Annex E-1.

109 EC second written submission, para. 9.

110 EC second written submission, para. 10. EC Official Journal, C/342/5, 5 December 2001, Exhibit EC-26.

111 Panel Report, United States - Anti-Dumping Duty on Dynamic Random Access Memory Semiconductors (DRAMS) of One Megabit or Above from Korea ("US - DRAMS "), WT/DS99/R, adopted 19 March 1999, DSR 1999:II, 521, paras. 6.26- 6.29.

112 Brazil response to Panel question 22 following the first Panel meeting, Annex E-1.

113 Ibid.

114 See for example, Article 2.2.1, 2.2.1..1, 2.4.1 and 9.5.

115 G/ADP/6, adopted by the Committee on 5 May 2000.

116 The concept of a set period of investigation to examine the existence of dumping has been present in the GATT system for over 40 years. Indeed, a 1960 Report by a Group of Exports concerning anti - dumping and countervailing duties considered the use of a "pre - selection system". See Group of Experts, Second Report on Anti-dumping and Countervailing Duties, adopted on 27 May 1960 (L/1141) BISD 9S, 194.

117 Brazil second written submission, para. 27.

118 Brazil second written submission, para. 29.

119 Brazil second written submission, para. 31.

120 Brazil second written submission, para. 33.

121 Brazil response to Panel question 23 following the first Panel meeting, Annex E-1.

122 DSU, Article 3.2.

123 With our finding, we do not mean to entirely rule out the possibility that a currency devaluation that occurs during the course of an investigation period could eliminate any margin of dumping that might be found to exist at some point during that investigation period. In any event, we are of the view that the effects of any currency devaluation during an investigation period would ordinarily be reflected in the data used in properly conducted calculations comparing the normal value and the export price.

124 Brazil second written submission, para. 32.

125 We take note of Brazil�s argumentation that the European Communities has a number of cases in its internal law that address circumstances arising following the IP (see, for example, Brazil first written submission, para. 168; Brazil response to Panel question 35 following the first Panel meeting, Annex E-1). Our task is to examine the matter on the basis of the covered agreements. We therefore make no pronouncement on the WTO-consistency of the EC�s non-application of this EC methodology in this particular case.

126 Oxford English Dictionary Online: http://dictionary.oed.com.

127 The Appellate Body has examined the obligation contained in Article 21.1 and 21.2 of the SCM Agreement in Appellate Body Report, United States - Imposition of Countervailing Duties on Certain Hot - Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom ("US - Lead and Bismuth II "), WT/DS138/AB/R, adopted 7 June 2000, DSR 2000:V, 2601 concerning a Member�s obligations once a review has been initiated. That decision does not deal with the issue of when the self-initiation of a review is �warranted�. We nevertheless think that it is relevant with respect to the relationship between Articles 11.1 and 11.2.

128 We find support for this approach in Panel Report, US-DRAMS, supra, note 111.

129 Brazil response to Panel question 27 following the first Panel meeting, Annex E-1.

130 Brazil cites Article 11.3 of the EC Basic Regulation, Exhibit BRL-24.

131 Brazil response to Panel question 22 following the first Panel meeting, Annex E-1.

132 The argument that Articles 11.1 and 11.2 necessarily require the withholding of imposition of measures and/or the self-initiation of an immediate review is irreconcilable with note 22 of the Anti-dumping Agreement. Note 22 states that, in cases where anti-dumping duties are levied on a retrospective basis, "a finding in the most recent assessment proceeding � that no duty is to be levied shall not by itself require the authorities to terminate the definitive duty". If this view of Article 11.2 were to prevail, an investigating authority would be obligated under Article 11.2 perpetually to withhold the imposition of measures and/or to continuously assess the situation by repeatedly self-initiating a review, and note 22 would be rendered meaningless as there would never be duties imposed on which to conduct a re-assessment. This confirms our view that, once an investigating authority has established the existence of dumping during a recent past IP, an absence of dumping (assuming arguendo that there is such an absence, however its existence is established) at the time of the imposition does not, in and of itself -- and in the absence of a new or changed circumstance not present during the IP -- preclude the imposition of a measure or necessarily render a review "warranted" so as to require the self-initiation of a review pursuant to Article 11.2. Brazil does not argue that such a new or changed circumstance arose following the IP, but only that the devaluation had lasting effects.

133 Supra, note 111.

134 O.J. C 342 5, 2 December 2001, Exhibit EC-26.