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EUROPEAN COMMUNITIES - ANTI-DUMPING DUTIES ON Report of the Panel
7.194 Brazil alleges that the European Communities, in violation of Article 2.4.1 of the Anti-Dumping Agreement ,, did not convert currencies using the rate of exchange on the date of sale in all cases. In particular, the European Communities used the exchange rates on the date of sale for the export invoice value but not for the allowances deducted from this value (for which monthly and daily rates were used). Brazil also alleges that the European Communities violated Article 2.4 by using the exchange rates selectively and increasing the nominal value of allowances deducted from export transactions. In response to questioning, Brazil subsequently clarified that its claim is limited to the exchange rates used in the currency conversions relating to adjustments.196 7.195 The European Communities responds that Brazil provides no evidence in support of its claim of violation of Article 2.4.1, but that Brazil instead argues that it never received an adequate explanation of the exchange rates used in the currency conversions. The European Communities states that, although it used monthly rates in the Provisional Regulation, in the Definitive Regulation it mainly used daily exchange rates supplied by Tupy itself. In response to Panel questioning, the European Communities clarifies that for the purpose of calculating most allowances (inland transport, freight, insurance, charges, packing and other (publicity expenses), the European Communities used the daily exchange rates used by Tupy for currency conversion. For three other allowances (credit costs, warranty and commission), the European Communities used monthly rates as had been suggested in the questionnaire.197 According to the European Communities, the use of monthly conversion rates led to smaller adjustments to the export price than the conversion at Tupy's exchange rates, to Tupy's benefit.198 The European Communities asserts that the obligation in Article 2.4.1 to perform currency conversions using the rate of exchange on the date of sale refers to export sales prices and not to conversions made for the purpose of adjustments.
7.196 On the basis of the evolution in the parties' argumentation over the course of these proceedings and the evidence submitted in support, the Panel understands Brazil to claim a violation of Article 2.4.1 by the European Communities through the "selective" use of daily and monthly exchange rates in making adjustments. Brazil states that although the conversion of the export invoice values was based on daily exchange rates disclosed to Tupy, the conversion of allowances was not.199 7.197 We first consider whether Brazil has established that its claim falls within the scope of Article 2.4.1, that is, whether Article 2.4.1 necessarily applies to the calculation of adjustments to normal value and export price for the purposes of Article 2.4. Article 2.4.1 reads:
7.198 The reference in Article 2.4.1 that the currency conversion rules therein apply only "when the comparison under paragraph 4 requires a conversion of currencies" (emphasis added) is to the comparison between the normal value and the export price is conducted under paragraph 4. The references to "sale", "export sale" and "export prices" are a clear textual indication that the provision refers to currency conversion in connection with the prices of export sales, rather than to any conversion that may occur in the calculation of specific adjustments to either the normal value or the export price. 7.199 Looking to the context of the provision, there is an explicit textual link to Article 2.4, which imposes the general obligation that a "fair comparison" be made between export price and normal value. This general obligation informs the other obligations in Article 2.200 This supports our view that the obligations concerning currency conversions in Article 2.4.1 do not apply to all conversions made in order to calculate adjustments under Article 2.4.1-we can conceive of certain situations in which differences affecting price comparability that might lead to an adjustment under Article 2.4 might not correspond precisely with the date of the export sale (e.g. credit and warranty expenses), and where conversion of all currency data as at the date of export sale might therefore distort a fair comparison. It is only once an investigating authority has made all necessary adjustments that it progresses as necessary toward the "comparison" referred to in Article 2.4.1. 7.200 For these reasons, we find that Brazil has failed to establish that Article 2.4.1 provides a legal basis for its claim concerning the currency conversions for adjustments.201 We therefore do not consider the merits of Brazil's claim under Article 2.4.1.
7.201 Brazil argues that the European Communities violated Article 6.4 by not providing, in the course of the investigation, all of the exchange rates used in the currency conversions used in the Definitive Regulation.202 The exchange rate tables disclosed by the European Communities203 did not provide a conversion rate for the precise date, and the currency conversion rates used by the European Communities insofar as they concerned conversions on certain pertinent dates as disclosed to Tupy did not enable Tupy to determine the methodology applied. Consequently the European Communities did not provide Tupy with timely opportunities to see all information that was relevant to the presentation of its case, in violation of Article 6.4. Brazil indicates that it would withdraw this claim if the European Communities admitted that all allowances were converted on the basis of monthly rates (as the European Communities would presumably have used the monthly rates indicated in the questionnaire). 7.202 The European Communities argues that it never received a request from Tupy for the monthly rates used in the Provisional Regulation, nor did Tupy object to the accuracy of the monthly rates used. The table of daily exchange rates used in the Definitive Regulation was submitted by Tupy, so it was perplexing for the European Communities to be accused of not having provided it.
7.203 Article 6.4 of the Anti-Dumping Agreement reads:
7.204 Article 6.4 therefore requires, whenever practicable, that investigating authorities provide timely opportunities for all interested parties to see all (non-confidential) information that is relevant to the presentation of their cases. 7.205 The European Communities used average monthly currency exchange rates in the Provisional Regulation.204 Tupy objected to the EC approach as being "misleading and inaccurate".205 For the Definitive Regulation, the European Communities revised its approach, indicating that it had, "�in view of the devaluation of the Brazilian real in January 1999, and in view of the alleged impact on the dumping margin, now used the daily exchange rates as collected during the on-the-spot verification".206 Following Tupy's expression that it would have appreciated it "had the Commission provided it, in the context of the definitive disclosure, with a table of the daily exchange rates that it had 'collected during the on-the-spot verification'",207 the European Communities attached to the transparency letter a copy of the daily exchange rate table used for currency conversions. 7.206 Brazil argued before us that there were certain discrepancies in the exchange rate tables disclosed by the European Communities, in particular concerning certain dates, and that the disclosed information did not permit Tupy to determine the methodology applied with respect to exchange rate conversion for those dates. In response to Panel questioning, the European Communities now clarifies that for the purpose of calculating most allowances (inland transport, freight, insurance, charges, packing and other (publicity expenses)), the European Communities used the daily exchange rates used by Tupy as collected during the on-the-spot verification. However, for three other allowances (credit costs, warranty and commission), the European Communities used monthly rates "as had been suggested in the [q]uestionnaire".208 7.207 The Panel understands Brazil's allegation of inconsistency with Article 6.4 is that the European Communities did not disclose, in connection with the conversion of currencies for adjustments in the Definitive Regulation, the "daily exchange rates as collected during the on-the-spot verification". As a result, Tupy apparently experienced confusion as to the exchange rates applied in the conversions for allowances, in part because at the stage of the Provisional Regulation, the European Communities applied average monthly exchange rates, did not disclose consistent information as to the currency conversions and did not provide the rates used nor the data source for the information. 7.208 It is incumbent upon an investigating authority, in line with its obligations under the Agreement, to achieve a certain required degree of transparency and certainty in an anti-dumping investigation. However, we do not view information that is already in the possession of an interested party and that has been submitted by an interested party to an investigating authority in the course of an anti-dumping proceeding as information that an investigating authority must provide opportunities for that same interested parties to see within the meaning of Article 6.4. This provision relates to information that would not initially be in the possession of an interested party and would therefore be unknown or unfamiliar to an interested party if it were not disclosed to that party in the course of an investigation. We therefore do not find that the European Communities has violated Article 6.4 by failing to provide timely opportunities for Tupy to see information relevant to the presentation of its case with respect to exchange rate conversion for adjustments.
7.209 Brazil alleges that the European Communities acted inconsistently with Articles 2.4 and 2.4.2 of the Anti-Dumping Agreement by "zeroing" negative dumping margins calculated for some product types of Brazilian origin exported to the European Communities. Brazil invokes the panel and Appellate Body reports in EC-Bed Linen in support of its claim. Brazil disagrees with, and considers irrelevant, the EC assertion that "zeroing" had a limited impact and is not significant in this case. For Brazil, this practice resulted in an increase not only of the likelihood of a dumping determination but also the magnitude of the margin of dumping. This application of an inherently unfair comparison methodology was a violation of Article 2.4. 7.210 The European Communities asserts that the Definitive Regulation was adopted prior to the adoption of the Appellate Body Report in EC-Bed Linen that upheld the panel's finding in that case that the practice of "zeroing" constitutes a breach of Article 2.4.2. The European Communities admits that it applied the practice of "zeroing" in the calculation of the dumping margin in this case. However, it states that this practice had a relatively limited impact on the result (a dumping margin of 34.82% as opposed to 32.09%).
7.211 Chile asserts that the European Communities violated Article 2.4.2 of the Anti-Dumping Agreement by zeroing negative dumping margins. Chile invokes the panel and Appellate Body reports in EC-Bed Linen in support. 7.212 Japan submits that the European Communities violated Articles 2.4 and 2.4.2 of the Anti-Dumping Agreement by zeroing negative dumping margins for certain products. Japan invokes the panel and Appellate Body reports in EC-Bed Linen in support. Japan submits that the European Communities has accordingly violated Article VI of the GATT 1994 and Article 1 of the Anti-Dumping Agreement.
7.213 The Panel examines Brazil's claim that the practice of zeroing applied by the European Communities in the investigation constitutes a violation of Article 2.4.2. Article 2.4.2 provides:
7.214 The European Communities has admitted that it applied "zeroing"209 in this case and, while it submits that the practice had an insignificant impact on the dumping margin, it does not contest Brazil's assertion that this practice has been found in other WTO dispute settlement cases to be a violation of Article 2.4.2.210 7.215 In this investigation, the European Communities defined the product under consideration as: "threaded malleable cast-iron tube or pipe fittings, which are joined by a screwing joining system, falling within CN code ex 7307 19 10".211 The European Communities also found that "malleable fittings produced by the Community industry and sold on the Community market as well as malleable fittings produced in the countries concerned and exported to the Community were like products, since there were no differences in the basic physical and technical characteristics and uses of the existing different types of malleable fittings. 7.216 The European Communities did not fully take into account the actual values pertaining to certain export transactions in establishing the margin of dumping. We therefore find that the European Communities violated Article 2.4.2 of the Anti-Dumping Agreement by failing to consider the weighted average of "all comparable export transactions". 7.217 We find support for this finding in the EC-Bed Linen dispute, where the Appellate Body upheld the panel's finding in that case that the practice of "zeroing" does not fully take into account the prices of "all comparable transactions" as required by Article 2.4.2.212 7.218 We do not find relevant, for the purposes of examining whether a violation of Articles 2.4 and 2.4.2 occurred, the EC assertion that the practice of "zeroing" had limited impact on the dumping margin (2.73%) and is therefore of little significance. Regardless of the magnitude of its effects, "zeroing" constitutes a violation of the obligations imposed by Article 2.4.2 of the Agreement per se. To the extent that this EC argument relates to the issue of "nullification and impairment of benefits" we examine it infra. 7.219 Having made this finding, we do not believe it is necessary to consider whether this also constitutes a breach of the obligation to ensure a "fair comparison" under Article 2.4.
7.220 Brazil argues that the European Communities violated Articles 3.1 and 3.2 of the Anti-Dumping Agreement by failing to consider properly on the basis of "positive evidence" and after an "objective examination" whether there had been a significant increase in dumped imports from Brazil before proceeding to a cumulative analysis under Article 3.3. For Brazil, a positive injury determination requires that there is either a volume or price effect, or both.213 Brazil submits that the volume analysis requires a consideration whether there has been an increase in the volume of imports and a consideration whether the increase is "significant". Brazil submits that the data before the EC authorities demonstrated that the volume of imports from Brazil actually decreased during the POI. For Brazil, as the European Communities did not satisfy the requirements of Article 3.2, it was prevented from making any findings under the subsequent paragraphs of Article 3. 7.221 With respect to the EC cumulative analysis, Brazil alleges that the European Communities acted inconsistently with its obligations under: "Articles 3.1 and 3.3 to determine, on the basis of "positive evidence" and after an "objective examination" that the cumulative assessment of the effects of the dumped imports was appropriate, as it reversed the burden of proof and assumed in favour of cumulative assessment; Articles 3.1 and 3.3 by not identifying, on the basis of "positive evidence" and after an "objective examination", that the dumped imports per each Member had the effects which it then may assess cumulatively; Articles 3.1 and 3.3 by reducing the conditions of competition determination to the like product determination under Article 2.6; Articles 3.1 and 3.3 by failing to address, on the basis of "positive evidence" and after an "objective examination", dissimilarities in the conditions of competition such as the differences in the product concerned, the trends of import volumes and prices, the level of trade and the segmentation of the market; and Articles 3.1 and 3.3 by failing to determine, on the basis of "positive evidence" and after an "objective examination" that the channels of distribution were "the same or similar."214 7.222 The European Communities argues that Article 3.2 does not require positive findings on both (or either) of the factors mentioned in Article 3.2 of the Anti-Dumping Agreement (significant volume increase and significant price undercutting, depression or suppression) before an injury determination can be made. Nor does it require that the investigating authorities actually record the results of their consideration as to whether there had been a significant increase. In the EC view, when the rules on cumulation in Article 3.3 have been properly invoked, the obligations in Article 3.2 apply to all cumulated imports taken together and there is no need to consider volume and price effects under Article 3.2 on a country-by-country basis. In any event, the European Communities submits that the EC authorities did effectively consider the issue of significant volume increase of imports from Brazil in isolation. The European Communities argues that the investigating authorities may cumulate imports when considering whether there has been significant price undercutting under Article 3.2, but that, in any event, the European Communities also considered whether there had been a significant increase in imports from Brazil in isolation. Moreover, the EC decision to cumulate was consistent with Article 3.3 in light of the "comparable" conditions of competition present between imports from Brazil and other third countries, as well as between imports from Brazil and the product concerned.
7.223 The United States agrees with the European Communities that it is not necessary for an individual authority to consider the significance of the volume and price effects of imports from each individual subject country before it may cumulate imports under Article 3.3.215 The plain language of Article 3.3, which sets out specific criteria for conducting a cumulative analysis, contradicts Brazil's argument. Given the specific textual prerequisites for cumulation, there is no basis for Brazil's argument that Article 3.3 imposes other unmentioned prerequisites for cumulation. The United States agrees with the European Communities that Article 3.2 requires only that the investigating authorities consider the volume and price effects of the dumped imports. Since it is not even necessary to find significant volume and price effects in order to reach an overall affirmative injury determination, there is no basis in the Agreement for Brazil to argue that these findings are somehow necessary where an investigating authority is considering whether to undertake a cumulative assessment. 7.224 The United States disagrees with Brazil that the "conditions of competition" provision requires a similarity in significant import volume and price effects trends over the IP. Members have discretion under Article 3.3 to develop appropriate criteria and analytical frameworks for assessing whether cumulation is appropriate in light of the conditions of competition among imports and between imports and the domestic like product. However, those criteria and analyses must bear a reasonable relationship to the inquiry into whether the various products compete in the domestic market of the importing Member. Isolating one's focus on a comparison or identification of similarities in import and price trends falls short of addressing the competition inquiry.
7.225 The Panel first recalls that Article 3.1 sets forth an overarching obligation that informs the other paragraphs of Article 3 of the Anti-Dumping Agreement. Article 3.1 states:
7.226 The term "positive evidence" relates to the quality of the evidence upon which the authorities may rely in making a determination. The word "positive" may be understood as meaning that the evidence must be of an affirmative, objective and verifiable character, and that it must be credible. While the term "positive evidence" focuses on the facts underpinning and justifying the injury determination, the term "objective examination" is concerned with the investigative process itself. We see the term "examination" as relating to the way in which the evidence is gathered, inquired into and, subsequently, evaluated. Thus, this term relates to the conduct of the investigation generally. The qualifying term, "objective", indicates that the "examination" process must conform to the dictates of the basic principles of good faith and fundamental fairness. We understand that an "objective examination" requires that the domestic industry, and the effects of dumped imports, be investigated in an unbiased manner, without favouring the interests of any interested party, or group of interested parties, in the investigation. The duty of the investigating authorities to conduct an "objective examination" recognises that the determination will be influenced by the objectivity, or any lack thereof, of the investigative process.216
7.227 We examine Brazil's claims with respect to "cumulation". In the underlying investigation, Tupy contested "cumulation" on the basis of differences in import pricing and import volume (both absolute and relative to domestic market share) between Brazilian imports and imports from other countries concerned, as well as between Brazilian imports and the EC product. The European Communities nevertheless cumulated the effect of imports from multiple countries (in particular, those from Brazil, Czech Republic, Japan, China, Korea and Thailand) in its injury analysis.217 7.228 We understand Brazil to argue that the requirements of Article 3.2 must be satisfied on a country-by-country basis as a precondition for cumulation. Brazil denies the propriety of "cumulation" in this case, arguing that an analysis of trends in the imports from Brazil in isolation shows that, in fact, imports from Brazil decreased during the IP. For Brazil, there was no "significant increase" in volume of imports from Brazil within the meaning of Article 3.2 and this precludes the possibility to cumulate under Article 3.3. 7.229 The European Communities, by contrast, stresses that provided the conditions of Article 3.3 are fulfilled, the investigating authority may conduct a cumulative analysis of volume and price effects under Article 3.2, and is not first required to conduct a country-by-country assessment under Article 3.2. 7.230 The parties therefore differ in their interpretation of the legal obligations in Article 3.2 (in particular, the interpretation of the obligation to "consider whether there has been a significant increase in dumped imports") and in their views of the legal relationship between this obligation under Article 3.2 and the possibility of conducting a cumulative assessment of the effects of imports of a product from more than one country that are simultaneously subject to anti dumping investigations under Article 3.3.218 7.231 The threshold issue that we must address is how the obligations in Article 3.2 and 3.3 interrelate, and in particular, whether an investigating authority is permitted to conduct a cumulative assessment relating to the effect of dumped imports from different sources if it concludes that the requirements of Article 3.3 are fulfilled or must first conduct an assessment of imports from each individual source under Article 3.2 in order to determine whether it may conduct a cumulative assessment at all. Here, we observe that, if the requirements concerning the decision whether or not cumulate are contained exclusively in Article 3.3 (and Article 3.1), the European Communities would be under no obligation to consider individual countries' volume and price trends with respect to imports from Brazil in isolation prior to or in conjunction with its cumulative analysis. Rather, a cumulative analysis allows the consideration under Article 3.2 of the volume of cumulated imports under investigation, as opposed to individual countries' imports. Brazil's arguments concerning the need to examine trends of imports from individual countries would therefore have no legal relevance. Under this approach, the Article 3.2 analysis of price undercutting and price effects would effectively occur subsequently to the Article 3.3 cumulation determination. If the European Communities' finding that cumulation was appropriate and met the standards of Article 3.3, then it was consistent for the European Communities to consider the significance of price undercutting and other price effects for imports from all cumulated countries. This, of course, depends upon the interpretation of the criteria in Article 3.3. We must, therefore conduct an analysis of the elements in Article 3.3, recalling that Article 3.3 permits cumulation only under certain enumerated circumstances. 7.232 Our analysis of this issue begins with the language of the provision itself. Article 3.3. states:
7.233 Article 3.3 provides for cumulative assessment of the effects of the dumped imports of a product from different sources and explicitly identifies the criteria that must be fulfilled in order to do so. Under this provision, an investigating authority may proceed to a cumulative analysis only if: 1. Dumping margins for each individual country are more than de minimis; 2. the volume of imports from each country is not negligible; and 3. a cumulative assessment of the effects of the imports is appropriate in light of the conditions of competition between the imported products and the conditions of competition between the imported products and the like domestic product. 7.234 Brazil argues that the price and volume considerations under Article 3.2 are essential to inform an investigating authority of the underlying conditions of competition under which the dumped imports are competing with each other and with the like domestic product.219 We therefore understand Brazil to argue that Article 3.3 requires an investigating authority to conduct the Article 3.2 analysis on an individual country-by-country basis in considering whether cumulation is justified under Article 3.3. We disagree. Article 3.3 indeed contains a condition requiring attention to the "volume" of imports. The obligatory condition contained in Article 3.3 with respect to the volume of imports from individual countries is that the volume of such imports must not be negligible. Thus, an investigating authority may not cumulate imports that are individually found to be of negligible volume (and, indeed, the provisions of Article 5.8 concerning termination would presumably apply). This is the only explicit reference to "volume" in the text of Article 3.3. We find no other express references relating to volume in Article 3.3 and decline to read into the treaty text terms that are not there. In particular, the text of this provision contains no additional requirement that authorities shall also consider whether there has been a significant increase in imports country-by-country before progressing to a cumulative assessment. Indeed, such a requirement would undermine the very concept of a cumulative analysis. We therefore consider that there are no other, additional, mandatory obligations relating to the assessment of import volumes in Article 3.3 flowing from the text of the provision. 7.235 We find contextual support for our view that, contrary to Brazil's argument, an Article 3.2 analysis of individual countries' volume and price is not necessary as a pre-condition for cumulation in other provisions of Article 3, and that the "effects" that may be considered cumulatively post-cumulation include the volume and price effects referred to in Article 3.2. Article 3.3 refers to circumstances under which an investigating authority may "cumulatively assess the effects of such imports�" (emphasis added) The provision therefore focuses upon the assessment of effects of imports. Article 3.2 refers to "the effect of the dumped imports on prices" (emphasis added). Article 3.2 does not utilise the term "effects" with regard to volume, nor does Article 3.1, which refers in paragraph (a) to volume and price effects of imports and, in paragraph (b), to the "consequent impact" of the volume and price effects of imports. However, Article 3.4 calls for an examination of "the impact of the dumped imports on the domestic industry". Read in the context of Article 3 as a whole, it is clear that the term "effects" as used in Article 3.3 refers to volume and price effects, as well as the impact of imports on the domestic industry. This interpretation is confirmed by reference to Article 3.5, which refers to the "effects of dumping, as set forth in paragraphs 2 and 4". (emphasis added) These considerations support our view that both the volume and price analyses required under Article 3.2 constitute consideration of the effects of dumped imports which could qualify under Article 3.3 for cumulative assessment. 7.236 Brazil's claim that the European Communities acted inconsistently with Article 3.3 by improperly cumulating the effects of dumped imports and its claim that the European Communities failed to consider under Article 3.2 whether there had been a significant increase in the volume of dumped imports from Brazil are inextricably linked. In particular, Brazil's claim under Article 3.2 is predicated on the assumption that the European Communities was obligated to examine the volume of dumped imports on a country-by-country basis. However, we have found that Brazil's claim with respect to cumulation of the effects of dumped imports did not prevail. Given our disposition of Brazil's claim concerning cumulation, we therefore do not consider it necessary to address Brazil's claim that the European Communities had failed to establish that there had been a significant increase in the volume of dumped imports from Brazil alone.
7.237 We examine the nature and scope of the requirement in Article 3.3(b) that a cumulative assessment of the effects of the imports is appropriate in light of the conditions of competition between the imported products and the conditions of competition between the imported products and the like domestic product. 7.238 One of the conditions in Article 3.3 is that an investigating authority may only conduct a cumulative assessment of the effects of imports if it "determine[s]" that such a cumulative assessment is "appropriate" in light of the "conditions of competition". We examine each of these textual elements in turn. 7.239 The ordinary meaning of the word "determine" is to "find out or establish precisely" or to "decide or settle".220 We agree with Brazil that the requirement to make a "determination" that cumulation is appropriate precludes an investigating authority from simply assuming that the cumulative assessment is appropriate.221 Rather, an investigating authority must consider the facts before it and make a reasoned finding that cumulation is appropriate on the basis of the particular circumstances. In this regard, we do not accept the argument of Brazil that the European Communities has simply presumed that cumulation is appropriate. We discern from the Provisional and Definitive Regulations that the European Communities has considered that facts before it and determined that cumulation is appropriate.222 7.240 The ordinary meaning of the term "appropriate" refers to something which is "especially suitable or fitting".223 "Suitable", in turn, is defined as "fitted for or appropriate to a purpose, occasion�"224 or "adapted to a use or purpose".225 "Fitting" is defined as "of a kind appropriate to the situation".226 Based on the plain meaning of the term, cumulation must be fitting in the particular case. While the term "appropriate" therefore requires that a decision be made that is adapted to -- and is indeed made in light of -- the precise situation in question and the facts on the record of the investigation before the investigating authority, it does not in and of itself say anything specifically about the exact conditions of competition that must exist in order to justify a decision to cumulate. Rather, the concept of "appropriateness" is used. The term is consistent with an intent not to prejudge what the circumstances might be in the context of a given case. It is necessary for such appropriateness to be judged on a case by case basis, particularly as the number of countries' imports subject to investigation may vary. There is an element of flexibility, in that there are no predetermined rigid factors, indices, levels or requirements. 7.241 Moreover, the language of the provision makes it clear to us that it is for the investigating authority to determine whether cumulation is "appropriate". In light of the general wording of the provision and the nature of the term "appropriate", an investigating authority enjoys a certain degree of discretion in making that determination on the basis of the record before it. However, it is clear to us that cumulation must be suitable or fitting in the particular circumstances of a given case in light of the particular conditions of competition extant in the marketplace. 7.242 We understand the phrase "conditions of competition" to refer to the dynamic relationship between products in the marketplace.227 The phrase "conditions of competition" in Article 3.3 is not accompanied by any sort of qualifier (for example, "identical" or "similar"). The term is unqualified. While we note that a broadly parallel evolution and a broadly similar volume and price trend might well indicate that imports may appropriately be cumulated, we find no basis in the text of the Agreement for Brazil's assertion that "only a comparable evolution and a similarity of the significantly increased import volumes and/or the significant price effects�would indicate that these imports might have a joint impact on the situation of the domestic industry and may be assessed cumulatively". Moreover, the provision contains no express indicators by which to assess the "conditions of competition", much less any fixed rules dictating precisely and exhaustively the relative percentages or levels of such indicators that must be present. Unlike the lists of factors that guide an authority's examination under, for example, Articles 3.2, 3.4 and 3.5, Article 3.3 does not provide even an indicative list of factors that might be relevant in the assessment called for under that provision, in particular, the assessment of "conditions of competition".228 We note that Article 3.2 explicitly concentrates on volume and price trends, and that Article 3.3 is neither specific nor limited in this way. Thus, while price and volume considerations may well be relevant in this context, we find no explicit reference thereto in Article 3.3(b). We further examine price and volume considerations in this specific case below. 7.243 The overarching obligation in Article 3.1 applies also to the determination made in Article 3.3, requiring an investigating authority to base its determination of appropriateness to cumulate on an "objective examination" of "positive evidence". On this basis, we proceed to our analysis of Brazil's claims with respect to the cumulative assessment conducted by the European Communities. 7.244 Brazil has focused its challenge concerning the "conditions of competition" in this dispute on four elements in the EC cumulation determination-the consideration of the imported and domestic product, volume, price and channels of distribution. In particular, Brazil alleges breaches by the European Communities of Articles 3.1 and 3.3 by reducing the conditions of competition determination to the like product determination under Article 2.6; Articles 3.1 and 3.3 by failing to address, on the basis of "positive evidence" and after an "objective examination", dissimilarities in the conditions of competition like the differences in the product concerned, the trends of import volumes and prices, the level of trade and the segmentation of the market; and Articles 3.1 and 3.3 by failing to determine, on the basis of "positive evidence" and after an "objective examination" that the channels of distribution were the same or similar."
7.245 Brazil asserts that the EC analysis of conditions of competition is a "tautology" and no more than a repetition of the EC "like product" analysis. For Brazil, the European Communities approach leads to the conclusion that Article 3.3(b) has no effect as the test required under the said article is only a repetition of the test under Article 2.6, and that this is against the principle of effective treaty interpretation. Brazil argues that the European Communities did not conduct an objective examination of the conditions of competition (such as the issues of different products (black heart vs. white heart), different pricing strategies and market segmentation). 7.246 Article 2.6 sets out the definition of "like product" for the purposes of the Agreement, as follows:
7.247 We emphasise that Article 2.6 establishes the like product for the purposes of the entire investigation. Thus, an investigating authority is required to keep the like product consistent in its dumping and injury determinations. 7.248 Article 3.3(b) explicitly requires an examination of the conditions of competition not only between the imported products from different sources but also between the imported products and the like domestic products. We understand that the reference in Article 2.6 to "the product under investigation" parallels the reference in Article 3.3(b) to "the imported products". It is therefore natural that an injury investigation would focus upon the like product and the relationship in the domestic marketplace between the like product and the imported product concerned. We therefore examine whether the European Communities maintained this consistency in its investigation. 7.249 In its assessment of the conditions of competition in the context of its cumulation determination, the European Communities submits to us that its practice, which it asserts it applied also in this case, is to examine the following criteria: like product finding; the significance of the import volume level; the development and level of the prices of imports and their undercutting or not of the Community industry; and similarity of sales channels.229 The Definitive Regulation specifically addresses arguments made by Tupy in the investigation with respect to the "conditions of competition",230 which refer to volume and price trends as well as channels of distribution and market perception. In confirming the provisional decision on cumulation, the general conclusion on cumulation in the Definitive Regulation, in the context of conditions of competition, states that the imported products and those of the Community industry have "the same physical and technical characteristics" that the pricing trends are "similar, significantly undercutting the Community industry's prices, and that all imported products as well as the Community-produced products are sold through the same or similar channels of distribution�.". These passages indicate to us that the European Communities examined the relationship in the marketplace between the product produced by the Community industry and the imported product under consideration. This formed the basis of its investigation of conditions of competition. 7.250 Having defined the like product and the product concerned as it did for the purposes of this investigation, the European Communities was bound to conduct its injury investigation on this basis. This is not a question of redundancy or "tautology", as suggested to us by Brazil, but rather one of required consistency for the purposes of the dumping and injury determination. In addition, the European Communities specifically examined Brazil's allegations with respect to the "variants of the product concerned", price and market considerations, and reached specific determinations on each of these factors. 7.251 On the basis of these considerations, we consider that Brazil has not established that the European Communities violated its obligations in relation to cumulation under Articles 3.3 and 3.1 in this manner.
7.252 Brazil's allegation with respect to import volume and cumulation focuses on dissimilarities in import volume trends, in both absolute and relative terms, between imports from Brazil and other countries concerned. Brazil asserts that the requirements of Article 3.2 must be satisfied on a country-by-country basis for the exporting countries as a pre-condition for cumulation, as Article 3.2 considerations are essential to inform an investigating authority of the manner in which dumped imports compete with each other and with the like domestic product. According to Brazil, the differing import volumes and market shares indicate that the imports concerned were not competing on the same or at least very similar terms. The European Communities contends that there is no requirement in the Agreement to give close attention to import volume trends when considering cumulation, and that its examination of import volumes was, in any case, sufficient to meet the requirements of Articles 3.3 and 3.1. 7.253 As we observed earlier, the text of Article 3.3 contains no specific mandatory factors that are required elements in the "conditions of competition" analysis. Given that the text of Article 3.3(b) contains no explicit reference to any particular factors or indicators by which to assess the conditions of competition, including, in particular, no explicit reference to import volume trends - let alone identical or similar import volume trends - we find no basis in the text for Brazil's argument and do not consider that an investigating authority is required to conduct a country-by-country import volume examination as a precondition for deciding whether or not a cumulative assessment is appropriate within the meaning of the "conditions of competition" element of Article 3.3(b). While a parallel increase or decrease in volume of imports from various sources may well indicate competition among these imports, it will not necessarily do so: products with non-parallel volume trends may also be competing in certain circumstances. 7.254 The facts on the record of the investigation indicate that the volume of imports from Brazil was 4,188 tonnes in the IP, corresponding to a 6.9% share of the market. The EC investigating authority qualified this as "substantial" and "far from negligible". Brazil argues that the European Communities based its decision with respect to volume on the appraisal that this was "far from being negligible". 7.255 This statement was not the only one pertaining to import volumes made by the EC investigating authority in the context of determining that cumulation was "appropriate". In examining the conditions of competition between Brazilian imports and imports from other countries concerned, the European Communities also examined the relative trends in the development and level of the volume of imports.231 We discern from the determination that the EC investigating authority collected and examined import volume data in the context of its Article 3.3 determination and that it examined the trend of Brazilian imports relative to those of other countries, and observed certain divergences in those relative trends. However, as we have already stated, the Agreement does not impose a requirement of identity or similarity in import volume trends as a pre-condition for cumulation. 7.256 In light of the EC examination of import trends on the basis of the information on the record of the investigation, we do not find that the EC treatment of import volumes as part of its cumulation determination violates Article 3.3 or Article 3.1.
7.257 Brazil's allegation with respect to pricing and cumulation focuses on dissimilarities in trends of import prices, in particular, from the Czech Republic and China, in relation to those of Brazil. Brazil submits that the European Communities improperly cumulated and that this was not on the basis of an objective examination of positive evidence. 7.258 We take note of Brazil's arguments that a cumulative assessment of price effects cannot reasonably be supposed to be appropriate where the price of imports from Brazil is 44% higher than from China and 22% higher than from the Czech Republic, particularly in light of the increase in the volume of imports from these countries over the IIP and the "aggressive" competition between these imports and the EC product. We further note Brazil's arguments that the European Communities failed to comply with the requirement of an objective examination by refraining from applying its finding of "price sensitivity" in the context of its cumulation determination; that the European Communities failed to conduct an objective examination as it only dealt with pricing trends in its disclosures in relation to the extent of price increases and decreases year on year and at no stage does it consider the "fundamental and highly significant" differences in pricing structure as between each of the countries concerned over the course of the IIP other than to say that "Brazilian prices, throughout the IIP, were above the prices of the Czech Republic, China, Korea and Thailand and below the prices found for Japan"; and that the European Communities has failed to examine the implications of Tupy's membership in EMAFIDA, the European malleable fittings association. 7.259 We recall our earlier statement that Article 3.3 contains no express indicators by which to assess the "conditions of competition", much less any fixed rules dictating precisely the relative percentages or levels of such indicators that must be present. The provision does not contain any guidance concerning whether or how pricing should or must be examined as part of the conditions of competition element of a cumulation determination, and does not set out any requirement that "price sensitivity" and differences in pricing structure are a required component of a conditions of competition analysis under Article 3.3. While a parallel increase or decrease in price of imports from various sources may well indicate competition among these imports, it will not necessarily do so: products with non-parallel price trends may also be competing in certain circumstances. 7.260 The European Communities addressed pricing in the Disclosure preceding the Definitive Regulation, finding that Brazilian prices, throughout the IIP, were above the prices of the Czech Republic, China, Korea and Thailand and below the prices found for Japan. The European Communities stated that the evolution of prices showed that between 1995 and 1996 all prices of imports from the countries concerned went up (except for Japan and China with a slight decline), that they slightly increased between 1996 and 1997 (except for the Czech Republic and Brazil which decreased), all prices again going down between 1997 and 1998, (except for China which remained stable) whereas between 1998 and the IP in some cases they increased (Brazil, Japan, and more considerably, Thailand), in one case slightly decreased (China) and in one case remained stable (Czech Republic). The European Communities found that Brazilian prices had, on the basis of the export transactions made during the IP, considerably undercut the prices of the Community industry during the IP by around 40%, whereas the undercutting found for the other countries concerned ranges from between around 16% (Japan) to 68% (China). On this basis, the European Communities concluded that, "although the prices of the Brazilian imports and of the imports from the other countries concerned were not in all cases identical during the IIP, which is not required by the Basic Regulation, the difference among them was not such as to justify a non cumulative assessment." 7.261 The data on the record of the investigation largely bears out the EC statement that between 1996 and the IP the prices of exports originating in Brazil "almost continually decreased". A 2% increase between 1998 and the IP, nor that average prices of imports from Brazil were 6% higher from 1996 to the IP than in 1995, renders the EC examination as reflected in this statement not objective and not based on positive evidence. An unbiased and objective authority could have made this finding on the basis of the evidence on the record. 7.262 On the basis of the above considerations, and in light of the explanations offered by the European Communities in its determination, we do not find that the European Communities violated its obligations under Article 3.3 or 3.1 in respect of its treatment of pricing or of price sensitivity in its conditions of competition determination.
7.263 Brazil alleges that the European Communities violated Article 3.3 and 3.1 in its treatment of channels of distribution in the context of its cumulation determination because its statement that all of the countries concerned operate within the same or similar channels of distribution is not based on an objective examination of positive evidence. Brazil observes that the record as disclosed to date does not demonstrate that the European Communities found what it alleges to have found concerning similarity in channels of distribution, in particular, in light of the fact that the European Communities granted, in the context of the dumping determination, an adjustment to normal value because OEM exports were made at a different level of trade. 7.264 The Definitive Regulation states:
7.265 Article 3.3 does not expressly require that "levels of trade" are a component of a conditions of competition analysis. Nor does it contain any guidance concerning how levels of trade should be examined as part of the conditions of competition element of a cumulation determination. This is in stark contrast to the provisions of Article 2 concerning the dumping determination and, in particular, to Article 2.4, which requires due allowance to be made for differences in level of trade in order to ensure a fair comparison between the normal value and export price. Furthermore, unlike a dumping determination that compares prices in the markets of the exporting and importing Member, an injury analysis focuses rather on how the importing and domestic products compete in the importing Member's market. Thus, the fact that the European Communities granted an allowance in the dumping determination would not necessarily mean that levels of trade need be taken into account in the same way in the conditions of competition aspect of a cumulation analysis.233 An unbiased and objective authority could have made this finding on the basis of the evidence on the record. 7.266 In light of these considerations, we do not find that the European Communities violated its obligations under Article 3.3 or 3.1 in respect of its treatment of channels of distribution in its cumulation determination.
7.267 We have found that the phrase "conditions of competition" in Article 3.3 contains no express indicators by which to assess the "conditions of competition", much less any fixed rules dictating the relative percentages or levels of such indicators that must be present, or even any indicative guidelines.234 Thus, there is, at a minimum, no express requirement in the phrase "conditions of competition" to examine volume and price effects. We have examined each of the four elements forming the foundation for the EC determination that a cumulative assessment was appropriate in this case and challenged by Brazil (like product definition; volume; price; channels of distribution).235 While Brazil has clearly come to a different conclusion, we recall our standard of review and consider that an unbiased and reasonable authority could have determined that cumulation was appropriate in the circumstances of this case. We therefore conclude that the European Communities has not violated its obligations under Article 3.3 with respect to cumulation.
197
EC response to Panel question 88 following the first Panel
meeting, Annex E-3.
198 EC response to Panel question 88 following the first Panel
meeting, Annex E-3; and Exhibit EC-25.
199 Brazil second written submission, para. 89.
200
Appellate Body Report, EC - Bed
Linen , supra, note 148, para. 59.
201 To the extent that Brazil's allegations
with respect to currency conversions have more to do with allegedly inadequate
disclosure by the European Communities of the basis of its
currency conversion calculations in the course of the investigation, we examine
this issue under Article 6.4, infra, Issue 18.
202 Brazil clarified that its allegations relate only to the EC
definitive measure. Thus, Article 17.4, which relates to provisional measures,
is not relevant. See Brazil�s responses to Panel questions 132 and 136 following
the first Panel meeting, Annex E-1.
203 Disclosure preceding the Definitive Regulation, Exhibit
BRL-16.
204 The Disclosure preceding the Provisional Regulation, Exhibit
BRL-11, Annex II, page 4, states "Tupy had used the exchange rates at the day of
settlement to convert the currencies used for conversion into Brazilian Real. In
accordance with Article 2(10)(j) and corresponding to its normal practice, the
Commission Services re-converted the currencies used for export by using the
exchange rates at the date of invoice (for practical reasons, average monthly
rates were used)�"
205 Fourth submission of Tupy in the EC investigation, Exhibit
BRL- 13.
206 Disclosure preceding the Definitive Regulation, Exhibit
BRL-16, Annex II, p. 5.
207 Fifth submission of Tupy in the EC investigation, Exhibit
BRL- 17, p. 6, para. 2.5.6.
208 EC response to Panel question 88 following the first Panel
meeting, Annex E-3 and EC response to Panel question 13 following the second
Panel meeting, Annex E-8. The European Communities explains that it resorted to
monthly rates in the case of adjusting for credit costs, warranties and
commissions inter alia as Tupy's accounts did not contain
transaction-specific data on these costs, Tupy had made no requests concerning
conversion rates for adjustments, the adjustments were relatively small and the
use of monthly rates resulted a slightly more favourable outcome for Tupy.
209 The practice of zeroing has been described as follows (see,
e.g. Appellate Body Report, EC- Bed Linen, supra, note 148):
first, the European Communities identified with respect to the product under
investigation, a certain number of different "models" or "types" of that
product. Next, the European Communities calculated, for each of these models, a
weighted average normal value and a weighted average export price.
Then, the European Communities compared the weighted average normal value with
the weighted average export price for each model. For some models, normal value
was higher than export price; by subtracting export price from normal
value for these models, the European Communities established a "positive
dumping margin" for each model. For other models, normal value was lower
than export price; by subtracting export price from normal value for these other
models, the European Communities established a "negative dumping margin"
for each model. Having made this calculation, the European Communities then
added up the amounts it had calculated as "dumping margins" for each model of
the product in order to determine an overall dumping margin for the
product as a whole. However, in doing so, the European Communities
treated any "negative dumping margin" as zero - hence the use of the word
"zeroing". Then, having added up the "positive dumping margins" and the zeroes,
the European Communities divided this sum by the cumulative total value of all
the export transactions involving all types and models of that product. In this
way, the European Communities obtained an overall margin of dumping for the
product under investigation.
210
Provisional Regulation, Exhibit BRL-12, recital 31, indicates
that: "According to Article 2(11) of the basic Regulation, for each exporting
producer, the weighted average normal value by type was compared with the
weighted average export price". The European Communities therefore conducted a
model-by-model analysis in its dumping calculation. We do not understand Brazil
to be contesting the consistency of such an analysis per se.
211 Definitive Regulation, Exhibit BRL-19, recital 9.
212 Appellate Body Report, EC - Bed Linen, supra,
note 148, para. 55.
213 Brazil second written submission, para. 117.
214 Brazil second written submission, para. 219.
215 US oral statement, Annex D-6, para. 12.
216 We refer to Appellate Body Report, US - Hot-Rolled Steel,
supra, note 40, paras. 192-193.
217 The relevant part of the Definitive Regulation reads: "�the
investigation has confirmed that the conditions of cumulation, as set out in
Article 3(4) of the basic Regulation, are met since for all the countries
concerned dumping margins above the de minimis level and volume of the
imports negligible have been found. Furthermore, as concerns the conditions of
competition between, on the one hand, the imported products and, on the other
hand, the imported products and the like Community product, these were found to
be comparable. Indeed, the investigation showed that, in all cases, the imported
products and those of the Community industry have the same physical and
technical characteristics, that the pricing trends are similar, significantly
undercutting the Community industry's prices, and that all imported products as
well as the Community-produced products are sold through the same or similar
channels of distribution. �"
218 We do not understand Brazil to contest
that the conditions of 3.3(a) are fulfilled -- i.e. the margin of dumping
established in relation to the imports from each country is more than de
minimis as defined in paragraph 8 of Article 5 and the volume of imports
from each country is not negligible.
219 Brazil second written submission, paragraph 190.
220 Oxford English Encyclopaedic Dictionary (1991).
221 Brazil second written submission, para. 182.
222 Provisional Regulation, Exhibit BRL-12, para. 144; Definitive
Regulation, Exhibit BRL-19, para. 72.
223
Webster's New Encyclopaedic
Dictionary (1994). See e.g. Decision by the Arbitrator, United
States - Tax Treatment for "Foreign Sales Corporations" - Recourse to
Arbitration by the United States under Article 22.6 of the DSU and Article 4.11
of the SCM Agreement ("US - FSC (Article 22.6 - US) "), WT/DS108/ARB,
30 August 2002, paras. 5.9 ff.
224
The New Shorter Oxford English Dictionary (1993).
225
Webster's New Encyclopaedic Dictionary (1994).
226
Webster's New Encyclopaedic Dictionary (1994).
227 See, for example, Appellate Body
Report, Korea - Taxes on Alcoholic Beverages ("Korea - Alcoholic
Beverages "), WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, DSR
1999:1, 3, para. 114.
228 In this regard, we take note of Exhibits EC-8 through 11
containing submissions made by certain Members as part of discussions in the Ad
Hoc Group on Implementation within the ADP Committee, which we observe reflect
somewhat divergent practices of Members. These discussions show, at a minimum,
that price and volume are not accepted by all Members as appropriate indicators
of the �conditions of competition� (as they arguably reflect the outcome of
competition and not whether competition is occurring). It appears, therefore,
that Members themselves have not yet arrived at a common understanding of the
content of these terms. Indeed, we note that this is a topic which has been
proposed for negotiations and it is not our task to presuppose the outcome of
those negotiations.
229 EC first written submission, para. 314.
230
Definitive Regulation, paras 72-75.
231 Provisional Regulation, Exhibit BRL-12, recitals 140-144;
Definitive Regulation, Exhibit BRL-19, recitals 70-75, 85.
232 Definitive Regulation, BRL-19, recital 73.
233 The Disclosure preceding the Definitive
Regulation indicates that the European Communities granted an adjustment to
normal value for differences in levels of trade with regard to sales made to an
OEM EC purchaser, on the basis that "the company did not sell on its domestic
market to OEM customers". Exhibit BRL-16, p. 7.
234 We recall again that Members have not arrived at a common
understanding of, and indeed are currently discussing, the nature of the
obligations in Article 3.3(b). See supra, note 228.
235 We refer to our findings supra, paras. 7.251, 7.256,
7.262 and 7.266.
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