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

Report of the Panel

(Continued)

12. Issue 13: no proper consideration of price undercutting

(a) Arguments of the parties

7.268 Brazil argues that the European Communities violated Articles 3.1 and 3.2 of the Anti-Dumping Agreement as it failed properly to consider, on the basis of positive evidence, whether Brazilian imports had significantly undercut the prices of the like product in the European Communities. Brazil submits that the European Communities' consideration of price undercutting did not relate to the "dumped imports", in terms of Article 3.2, as the European Communities calculated the undercutting margin only in respect of "an unwarranted selection" of transactions where it found undercutting (and disregarding or "zeroing" negative undercutting margins) and where there was a corresponding product type produced in the European Communities. Moreover, Brazil asserts that as the "manipulative" EC methodology increases not only the likelihood of a determination of price undercutting, but also its magnitude, it is inherently unfair and does not constitute an "objective examination" under Article 3.1.²³⁶

7.269 The European Communities argues that Brazil's allegations would call for a mechanical application to Article 3.2 of the Anti-Dumping Agreement of the interpretation of Article 2.4.2 made in EC - Bed Linen. However, in the EC view, there are significant differences in these provisions which militate against such a mechanical application. In any event, according to the European Communities, the practical result of "zeroing" in the price undercutting analysis in this case was de minimis (0.01%). The European Communities also submits that Brazil's allegation concerning the limitation of the calculation of undercutting to directly comparable types is groundless and was not made during the course of the investigation. Article 3 contains no precise obligations relating to how an investigating authority is to conduct a price undercutting analysis, and the EC analysis took into account over 60% of Tupy's exports to the European Communities by volume and over 70% by value.

(b) Arguments of the third parties

7.270 The United States agrees with the European Communities that the Anti-Dumping Agreement does not prescribe any particular methodology for addressing whether "there has been a significant price undercutting by the dumped imports as compared with the price of a like product of the importing Member." In the absence of any such prescription, the investigating authorities may make price comparisons by any methodology that assures an unbiased and objective examination. In particular, nothing in Article 3.2 requires investigating authorities, in considering the significance of undercutting, to apply the methodology set out in Article 2 for determining dumping and dumping margins. The purposes and obligations addressed in each of these provisions are distinct and there is no basis in the text of the Agreement to treat them interchangeably.

(c) Evaluation by the Panel

7.271 Brazil bases its claim on Article 3.2 of the Anti-Dumping Agreement and the requirements of "objective examination" and "positive evidence" in Article 3.1. Our analysis of this claim begins with the text of Article 3.2. It states:

"3.2 With regard to the volume of the dumped imports, the investigating authorities shall consider whether there has been a significant increase in dumped imports, either in absolute terms or relative to production or consumption in the importing Member. With regard to the effect of the dumped imports on prices, the investigating authorities shall consider whether there has been a significant price undercutting by the dumped imports as compared with the price of a like product of the importing Member, or whether the effect of such imports is otherwise to depress prices to a significant degree or prevent price increases, which otherwise would have occurred, to a significant degree. No one or several of these factors can necessarily give decisive guidance."

7.272 It is clear to us that the European Communities has considered price undercutting by dumped imports from Brazil, in that it has examined the existence and extent of such price undercutting. It is apparent from the Provisional and Definitive Regulations that the EC investigating authority has given attention to and taken into account whether there has been significant price undercutting by the dumped imports.

7.273 Brazil's allegations, however, concern the manner in which the European Communities considered price undercutting, and the methodology applied. We therefore examine Brazil's allegation that the EC's consideration of price undercutting, applying a methodology involving a "zeroing" of sales at "non-undercutting" prices was not based on "positive evidence" and did not constitute an "objective examination" within the meaning of Article 3.1. We recall the text and our discussion of that provision, supra .

7.274 With respect to the requirement of positive evidence, the EC undercutting methodology compared, for each type of malleable fittings, the weighted average ex-works prices of the Community producers to the weighted average export prices of each exporting producer concerned. On this basis, "the undercutting margins found per country, expressed as a percentage of the Community industry prices, are all significantly above 20%".²³⁷ With respect to the nature of the facts underpinning the undercutting analysis, the European Communities examined actual data concerning pricing, which by its nature was objective and verifiable character.

7.275 We understand Brazil to assert, with respect to "zeroing", that the EC methodology did not take into account the effect of the "dumped imports" as a whole and will more likely lead to a determination of price undercutting and increase the extent of injury determined to exist. In Brazil's view, the EC methodology is inherently prejudicial and unfair. Brazil asserts that "a generalised obligation of fairness is a logical benchmark for the injury determination under Article 3"²³⁸ and that "all of the particular methodologies applied by the investigating authorities which operate against the basic principles of good faith and fairness are in violation of Article 3.1".²³⁹

7.276 The text of Article 3.2 refers to domestic "prices" (in the plural rather than singular). This textual element supports our view that there is no requirement under Article 3.2 to establish one single margin of undercutting on the basis of an examination of every transaction involving the product concerned and the like product. In addition, the text of Article 3.2 refers to the "dumped imports", that is, the imports of the product concerned from an exporting producer that has been determined to be dumping.²⁴⁰ Thus, investigating authorities may treat any imports from producers/exporters for which an affirmative determination of dumping is made as "dumped imports" for purposes of injury analysis under Article 3. There is, however, no requirement to take each and every transaction involving the "dumped imports" into account, nor that the "dumped imports" examined under Article 3.2 are limited to those precise transactions subject to the dumping determination. This view is supported by the absence of a specific provision concerning time periods in the Agreement; an importing Member may investigate price effects of imports in an injury investigation period which may be different than the IP for dumping. These considerations do not, of course, diminish the obligation of an investigating authority to conduct an unbiased and even-handed price undercutting analysis.

7.277 We take note of the shared view of the parties that "the Panel should accord a considerable discretion to the investigating authorities to choose a methodology which produces a meaningful result while avoiding unfairness".²⁴¹ One purpose of a price undercutting analysis is to assist an investigating authority in determining whether dumped imports have, through the effects of dumping, caused material injury to a domestic industry. In this part of an anti-dumping investigation, an investigating authority is trying to discern whether the prices of dumped imports have had an impact on the domestic industry. The interaction of two variables would essentially determine the extent of impact of price undercutting on the domestic industry: the quantity of sales at undercutting prices; and the margin of undercutting of such sales. Sales at undercutting prices could have an impact on the domestic industry (for example, in terms of lost sales) irrespective of whether other sales might be made at prices above those charged by the domestic industry. The fact that certain sales may have occurred at "non-underselling prices" does not eradicate the effects in the importing market of sales that were made at underselling prices. Thus, a requirement that an investigating authority must base its price undercutting analysis on a methodology that offset undercutting prices with "overcutting" prices would have the result of requiring the investigating authority to conclude that no price undercutting existed when, in fact, there might be a considerable number of sales at undercutting prices which might have had an adverse effect on the domestic industry.

7.278 We recall Brazil's rejection of the EC statement that "the examination of price undercutting is not an end in itself",²⁴² recalling that in order to determine the level of anti-dumping measures to be imposed, the European Communities calculates two margins - one for dumping (in this case, 34.80%), and one for injury (an undercutting margin (39.78%), and an underselling margin (82.08%)). In this respect, we observe that whereas the dumping margin is alone determinative in a dumping determination, price undercutting is not alone determinative in an injury determination; rather, it forms part of the overall assessment of injury to the domestic industry and is conducted so as to provide guidance to the investigating authorities in the context of this assessment of injury and causation. While this certainly gives no basis or justification for an arbitrary or non-even-handed examination,²⁴³ particularly in light of the fact that the Agreement contains no specific conditions or criteria or methodology, it permits an investigating authority a degree of discretion in carrying out the price undercutting assessment.

7.279 In our view, the application of a methodology that reflects the full impact of price undercutting on the domestic industry does not contravene Articles 3.1 or 3.2. Brazil asserts that the European Communities methodology will inevitably increase the likelihood of a price undercutting finding of a higher level of injury determination. We disagree. The EC methodology will not create undercutting where there is no single incidence of undercutting: rather, it will reflect the undercutting that occurs and the frequency and magnitude of that undercutting.

7.280 We find relevant in this context the analysis of a previous (unadopted) panel report²⁴⁴, under similar provisions of the Tokyo Round Anti-Dumping Agreement, which states:

"�The Panel therefore considered whether as a result of the averaging methodology contested by Japan the EC had failed to conduct an objective examination with respect to price undercutting.

The Panel observed that the consideration of the existence of significant price undercutting as envisioned by Articles 3:1 and 3:2 was not an abstract exercise, but rather related to the process of determining whether dumped imports had, through the effects of dumping, caused material injury to a domestic industry. In the view of the Panel, the extent to which price undercutting would have an impact on a domestic industry would be a function of two variables, the number of sales at undercutting prices, and the extent of the undercutting of such sales. The number of sales at undercutting prices was particularly important, because it would provide an indicator of the likely number of sales lost by the domestic industry. The margin of undercutting of such sales was relevant to the extent that in non-price sensitive products a small margin of undercutting might not play a decisive role in purchasers' decision-making. The Panel further observed that the calculation of an average margin of undercutting for all sales, whether or not at undercutting prices, might not be the most effective manner to assess the impact of price undercutting on a domestic industry, as it limited the ability of the investigating authority independently to examine these two variables. Nevertheless, average margins of undercutting could provide data of utility in considering the existence of significant price undercutting.

Japan had not claimed that the calculation of average margins of undercutting was inconsistent with the Agreement. Rather, Japan's claim �was that the EC in this case should have used a weighted average to weighted average methodology, which did not "zero" sales at overcutting prices, for determining an average margin of undercutting. Put in the context of Japan's claim regarding the failure of the EC to conduct an "objective examination," Japan's argument could be that the EC failed to consider relevant evidence by disregarding the extent to which some sales were at prices in excess of those charged by the domestic industry. However, the Panel did not find this argument convincing. Specifically, the Panel considered that in the event that certain sales were at undercutting prices, such sales could have an impact on the domestic industry (for example, in terms of lost sales) irrespective of whether other sales might be made at prices above those charged by the domestic industry. Thus, to require an investigating authority to base its analysis of undercutting on weighted average margins of undercutting which offset undercutting prices with "overcutting" prices would require the investigating authority to conclude that no undercutting existed when in fact there might be substantial volumes of sales at undercutting prices which might contribute toward material injury suffered by a domestic industry�."

For the reasons stated above, the Panel concluded that the EC's affirmative injury determination was not inconsistent with Articles 3:1 and 3:2 of the Agreement by reason of the methodology used by the EC to calculate an average margin of price undercutting".²⁴⁵

7.281 We disagree with Brazil's assertion that this unadopted panel report can provide no useful guidance because it preceded the Panel and Appellate Body reports in EC-Bed Linen . We note that the provision under consideration by the Panel and the Appellate Body in the EC - Bed Linen dispute was Article 2.4.2 of the Anti-Dumping Agreement , and that the part of the particular anti-dumping investigation in question was the calculation of the dumping margin. Therefore, those reports do not relate specifically to the matter before us here. By contrast, we deal here with a price undercutting analysis under Article 3.2 and 3.1 in the context of the "injury" stage of this anti-dumping investigation. Unlike Article 2 (in particular Article 2.4.2) of the Anti-Dumping Agreement , which contains specific requirements relating to the calculation of the dumping margin, Article 3.2 requires the investigating authorities to consider whether price undercutting is "significant" but does not set out any specific requirement relating to the calculation of a margin of undercutting, or provide a particular methodology to be followed in this consideration. In view of the stark contrast in the text, context, legal nature and rationale of the provisions, we are firmly of the view that the Panel and Appellate Body's reasoning in the EC-Bed Linen dispute cannot be directly transposed here.

7.282 We therefore find that the European Communities has not violated its obligations in Article 3.2 of the Anti-Dumping Agreement with respect to this aspect of its price undercutting methodology.

7.283 It remains for us to address Brazil's observation that if the European Communities' method violates Article 3.1, the European Communities' allegation of insignificance is meaningless. As we have found that the European Communities has not violated its obligations under Articles 3.1 and 3.2, we do not consider the EC assertion that the practical result of "zeroing" in its price undercutting analysis in this case was de minimis (0.01%) and that "the use of a methodology which did not affect the outcome of the examination under Article 3.2 in this investigation cannot be considered incompatible with that provision simply because the use of that methodology might affect the outcome in other investigations".

7.284 Our findings above are also relevant for Brazil's allegation that the European Communities violated Article 3.2 by limiting its price undercutting examination to "matching" models. Article 3.2 contains no explicit required methodology for a price undercutting examination. Moreover, there is no obligation to establish one single margin of undercutting nor to examine each and every transaction involving the like product. The European Communities based its price undercutting analysis on certain transactions involving the like product. We do not find a breach with respect to this aspect of the EC price undercutting analysis. In light of our finding, we do not consider the relevance of Tupy allegedly not having raised this issue in the underlying anti-dumping investigation.

7.285 For these reasons, we find that the European Communities has not acted inconsistently with its obligations under Article 3.2 and 3.1 in its price undercutting examination.

13. Issue 14: no proper calculation of alleged undercutting margins

(a) Arguments of the parties

7.286 According to Brazil, the European Communities refused, in the context of price comparison under Article 3.2, an adjustment for differences in production methods between "white-" vs. "black-"heart varieties of the product at issue. Brazil argues that the finding by the European Communities of significant price undercutting is therefore inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement to make an "objective examination" on the basis of "positive evidence" of the price effect as: by manipulating product control numbers it "compelled" the product concerned and the like product to be comparable; by refusing to neutralise differences between the product concerned and the like product it did not ensure that the products were comparable; and because its conclusions with regard to cost of production and market perception are not supported by the facts.

7.287 The European Communities submits that the EC authorities acknowledged that the production costs of white and black heart fittings were not identical but nevertheless compared such products' prices. The European Communities submits that cost-of-production differences do not themselves prejudice price comparisons; interchangeability as evidenced by consumer perception is the deciding factor. The European Communities examined the cost differences and found that they are due only to higher energy use and that this was not significant. The European Communities found no significant difference in market perception.

(b) Arguments of the third parties

7.288 The United States submits that there is no legal requirement under the Anti-Dumping Agreement for an authority to adjust prices before comparing them for the purposes of addressing injury. On the contrary, Article 3.1 refers to the examination of prices in the domestic market. Thus, the Agreement instructs authorities to examine and compare the actual prices that the products sold for in the investigating Member's market; it does not permit a comparison of fictitious prices. A comparison as advocated by Brazil (of the prices of the imports from Brazil, which were all black heart fittings, with those of exported black heart fittings produced by the EC producers) would not have met the requirements of Article 3.

(c) Evaluation by the Panel

7.289 The Panel examines Brazil's allegation that the investigation and finding by the European Communities of significant price undercutting is inconsistent with Articles 3.2 and 3.1 of the Anti-Dumping Agreement as no adjustment was made for differences in production methods between "white-" vs. "black-" heart varieties of malleable fittings.

7.290 Brazil has clarified that this claim relating to alleged differences in production method/cost of production/selling price, market perception and physical characteristics of "black heart" and "white heart" grades of the product concerned is based on its view that, although Article 3 does not contain explicit provision for adjustment or allowances, "the basic principles of good faith and fundamental fairness mean that adjustments or allowances should be made if they are necessary to ensure price comparability.²⁴⁶ Brazil refers to the context for Article 3.2 provided by Article 2.6 which obliges investigating authorities to compare products that are identical and asserts that, only in the absence of identical products, should authorities resort to a comparison of similar products. Brazil asserts that the comparison between the actual import price of a black heart fitting and the actual domestic industry price of a white heart fitting without any adjustments or allowances would not constitute an "objective examination" under Articles 3.2 and 3.1.

7.291 Article 3.1 requires the competent authorities to conduct an objective examination, of, inter alia , "the effect of the dumped imports on prices in the domestic market for like products." The Agreement thus directs the investigating authority to conduct a price comparison of the prices of sales of the like product and the imported product in the investigating Member's domestic market. This necessarily requires that the like products actually sold in the domestic market be compared.

7.292 Moreover, as we have observed, the Agreement contains no explicit legal requirement or required methodology for an Article 3.2 analysis. Unlike Article 2, in relation to dumping, Article 3 contains no specific guidance as to the methodology an investigating authority may use to consider price undercutting. We are conscious that the requirement in Article 3.1 to conduct an "objective examination" on the basis of "positive evidence" is that the investigating authorities examination conform to the dictates of the basic principles of good faith and fundamental fairness. The investigating authority must therefore ensure an even-handed treatment of the information and data on the record of the investigation. However, in view of the stark contrast in the text, context, legal nature and rationale of the provisions in Article 2 of the Anti-Dumping Agreement relating to the calculation of the dumping margin and Article 3 relating to the injury analysis, we decline to transpose wholesale the more detailed methodological obligations of Article 2 concerning dumping into the provisions of Article 3 concerning injury analysis.

7.293 Furthermore, because in the price undercutting analysis, the investigating authority is examining injury caused by dumped imports, to the extent a product competes with another product and affects domestic sales of that product, there might well be different bases for deciding whether or not to make an adjustment in the context of the dumping and price undercutting analyses. In a dumping determination, one focus of adjustments may be on differences in costs that a producer/exporter might reasonably be expected to reflect in his prices; by contrast, the focus in a price undercutting analysis may be on differences between the imported and domestic like product that have a perceived importance to customers.

7.294 The Definitive Regulation indicates that the EC investigating authority considered the arguments of Tupy that "adjustments should be made in the price comparison between imported products (black heart fittings) and the Community produced product (in general white heart fittings) on the grounds of different perception of the market and of the difference in the production process (in particular in the annealing process, since white heart malleable fittings have a higher cost of production because of the greater energy consumption than black heart malleable fittings), which was reflected in selling prices".²⁴⁷ The Definitive Regulation further indicates that the European Communities rejected both of these arguments. The EC investigating authority found that no difference in market perception was discernible, in any event not in terms of pricing differences.²⁴⁸

7.295 The European Communities cites evidence in support of its statements in the Definitive Regulation that average energy costs as a percentage of total manufacturing costs for the black heart and white heart products are very low and differ very little.²⁴⁹ The European Communities found no difference, or at least no significant difference, in market perception on the basis of its evaluation of the facts of record, which largely bear out its statements.

7.296 Thus, the European Communities gathered and evaluated facts in respect of the alleged differences in cost of production and market perception between black and white heart variants of the products concerned, and came to the conclusion that differences in cost of production were not significant and that there was no significant difference in consumer perception. A reasonable and objective authority could have reached this determination on the basis of the record of this investigation. It is not our task to substitute our judgement for that of the investigating authority.

7.297 Conscious of our standard of review and given the EC investigating authority's establishment of the relevant facts and consideration of the issue on the basis of these facts leading to its finding that the market did not differentiate between black heart and white heart fittings and differences in cost of manufacture reflected in the evidence on the record of the investigation pertaining to relative proportion of energy cost in total production costs, we find that the European Communities did not violate Articles 3.2 and 3.1 in not granting an adjustment for price comparability in its comparison of prices of sales of black heart and white heart fittings in the context of its consideration of price undercutting.

14. Issue 16: injury

(a) Arguments of the parties

7.298 Brazil initially argued that the European Communities failed to evaluate all of the listed Article 3.4 factors; and only partially evaluated nine of the fifteen factors (which disclosed an insufficient basis for a positive finding of injury). Brazil also asserted that the European Communities failed to examine independently "growth", as this examination is only implicitly deductible from other injury factors. Following the submission by the European Communities of Exhibit EC-12 as part of the EC first written submission, Brazil alleged that the published or disclosed record of the investigation contained no evaluation of productivity; return on investments; cash flow; wages; margin of dumping; and ability to raise capital and that the European Communities' purported evaluation of these factors, as contained in Exhibit EC-12 was either inadmissible in these Panel proceedings, or, if admissible, then nevertheless inadequate for the purposes of Article 3.4. Brazil also submits that the European Communities failed to evaluate certain other relevant, non-listed factors having a bearing upon the state of the industry within the meaning of Article 3.4. Brazil disagrees with the EC analysis and conclusions concerning price sensitivity; profitability; investments; and inventories. Brazil also alleges that the European Communities failed to provide a "persuasive explanation" as to whether and how positive movements in certain injury factors were outweighed by negative movements in others. Moreover, the EC finding was not based on positive evidence, as the European Communities considered only the end points -- rather than the trends -- of those factors examined.

7.299 The European Communities argues that the outcome of the EC authorities' investigation of individual factors -- insofar as they produced significant results -- is recorded in the Provisional and Definitive Regulations. The European Communities submits Exhibit EC-12 -- an internal Commission "file note" -- that, it argues, explicitly demonstrates the European Communities also considered other Article 3.4 factors that Brazil alleges were ignored except for one: "actual and potential negative effects on � growth". The European Communities argues that while no separate record was made of its evaluation of "growth", its consideration of this factor is implicit in its analysis of the other factors. With respect to Brazil's allegations concerning other non-listed factors, the European Communities asserts that Brazil blurs the distinction between the obligations under Article 3.4 (injury factors) and 3.5 (causation), and that "outsourcing" has no relevance under Article 3.4.²⁵⁰ The European Communities submits that its injury determination was made following an objective examination on the basis of positive evidence and that it satisfies the requirements of Article 3.4 and 3.1.

(b) Arguments of third parties

7.300 Chile endorses Brazil's argument that, as panels and the Appellate Body have found on several occasions, most recently in Thailand - H-Beams, Article 3.4 requires an investigating authority to consider and evaluate all listed factors as well as other relevant factors, and requested clarification of Brazil's arguments with respect to "trends" in import volume.

7.301 Japan submits that the European Communities violated its obligations under Articles 3.1 and 3.4 as it failed to address all relevant injury factors and failed to fully evaluate those it did address. Further, these factors failed to provide a sufficient basis for a positive injury finding. Japan submits that the European Communities has accordingly also violated Article VI of the GATT 1994 and Article 1 of the Anti-Dumping Agreement .

(c) Evaluation by the Panel

(i) Basis of Panel examination

7.302 The Panel begins its examination of Brazil's claims regarding the EC injury determination n with the text of the relevant treaty provisions. Article 3.4 provides:

"The examination of the impact of the dumped imports on the domestic industry concerned shall include an evaluation of all relevant economic factors and indices having a bearing on the state of the industry, including actual and potential decline in sales, profits, output, market share, productivity, return on investments, or utilisation of capacity; factors affecting domestic prices; the magnitude of the margin of dumping; actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments. This list is not exhaustive, nor can one or several of these factors necessarily give decisive guidance."

7.303 The overarching obligations in Article 3.1 also apply. We recall the text and our discussion of that provision, supra .

7.304 We first recall and agree with the findings of previous panels²⁵¹ and the Appellate Body²⁵² that Article 3.4 contains a mandatory - rather than illustrative -- list of factors and that all of the factors explicitly listed in Article 3.4 must be addressed in every investigation. Neither party questions this understanding.²⁵³

7.305 Rather, the parties differ on the nature of the examination that is required in relation to each individual factor, and the exigencies of the obligation to conduct an "objective examination" on the basis of "positive evidence".

(ii) Did the European Communities address each listed Article 3.4 factor?

7.306 We examine whether the EC investigating authority addressed each listed Article 3.4 factor in the record of the investigation. In so doing, we wish to recall our understanding, addressed earlier, that we are required by the Agreement to take into account confidential or non-disclosed information that an investigating authority relies upon in order to reach its final determination in assessing the European Communities' compliance with Article 3.4, including, in particular, the information submitted exclusively in these Panel proceedings in Exhibit EC-12. However, we would be remiss not to emphasise that we deplore the fact that this information, or an accurate non-confidential summary of any confidential information contained therein, was not disclosed to interested parties during the investigation. Most fundamentally, we find it extremely troubling that it is not discernible from the published Provisional and Definitive Regulations that the European Communities considered this information at the time it made its determination.²⁵⁴

7.307 We also wish to emphasise the difficulties for a WTO panel of having to review a Member's anti-dumping determination on the basis inter alia of a document for which there is no contemporaneous and verifiable written indication that it actually existed during the time of the investigation. We took steps to assure ourselves of the validity of this document and of the fact that it forms part of the contemporaneous written record of the EC investigation. We enquired as to the manner in which the statements in Exhibit EC-12 were derived from the information sources identified in Exhibit EC-12. The European Communities gave an account of the methodology and the sources of information on the basis of which the statements in Exhibit EC-12 were made.²⁵⁵ We further asked the European Communities to confirm and substantiate to us that Exhibit EC-12 was written within the time period of the investigation.²⁵⁶ The European Communities confirmed that this was the case. We also asked the European Communities whether there were any worksheets or investigation notes which formed the basis for Exhibit EC-12 and asked the European Communities to provide them or to explain why these were not provided. The European Communities replied that: "The conclusions recorded in Exhibit EC-12 are based on worksheets, but these contain highly confidential business information relating to the performance of individual EC producers and the EC would prefer not to release them."²⁵⁷ In this respect, Article 18.2 of the DSU contains rules protecting the confidentiality of written submissions and information submitted to the Panel. These rules oblige Members to maintain the confidentiality of any submissions or information submitted, or received, in Panel proceedings. We therefore do not consider the stated confidentiality of any such worksheets would have been undermined had the European Communities submitted them in these Panel proceedings.²⁵⁸ Nevertheless, the European Communities assures us that these worksheets exist. In this respect, we presume that WTO Members participate in good faith in dispute settlement proceedings.

7.308 Having carefully considered all of these factors, we are compelled to include Exhibit EC-12 in our examination of Brazil's claims under Article 3.4. We wish to emphasise, however, that in our view, Members should make every effort to ensure that it can be discerned from their published notices or separate public reports that all required elements of analysis required under the Anti-Dumping Agreement were in fact considered. In this way, not only are the obligations of public notice more likely to be fulfilled, but the task of a reviewing panel, which, pursuant to Article 17.5 and 17.6, is limited to determining, based on the facts before the investigating authority at the time, whether its establishment of facts was proper and its evaluation of those facts was unbiased and objective, is facilitated.

7.309 The only listed Article 3.4 factor that Brazil alleges was not explicitly addressed at all by the European Communities during the investigation was "growth". We therefore consider whether the European Communities failed to abide by its Article 3.4 obligation by failing to include a separate and independent treatment of "growth" in the record of the investigation.

7.310 The Agreement requires that each listed Article 3.4 factor be addressed. As to the manner in which each factor must be addressed, it is clear that a formalistic "checklist" approach - which would require that each factor be explicitly and independently addressed in each determination on the basis of the precise terms used in the relevant provision -- would be highly desirable in that it would increase an investigating authority's (and a panel's) confidence that all factors were considered. However, we find no such obligation in text of the provision and consequently do not believe that this is a required approach to analysis under Article 3.4. The provision requires substantive, rather than purely formal, compliance. The requirements of this provision will be satisfied where it is at least apparent that a factor has been addressed, if only implicitly. No separate record was made of the "evaluation of actual and potential negative effects on � growth". The European Communities itself does not contest this.²⁵⁹ However, the European Communities did address, in the course of the investigation, certain other listed factors, including sales, profits, output, market share, productivity, return on investment and capacity utilisation. For each of these factors, the European Communities traced developments from 1995 through the end of the IP. This examination touched upon the performance and relative diminution or expansion of the domestic industry. For example, the Provisional Regulation (recital 150) indicates that there was a decrease in EC production in 1995 and 1996, and an increase between 1996 and the IP, while EC production capacity, sales volume, profitability and market share decreased. The facts on the record of the investigation and taken into account in the EC injury analysis indicate to us that, in its examination of other injury factors-- in particular, sales, profits, output, market share, productivity and capacity utilisation - satisfy us that, in addressing developments in relation to these other factors in the manner that it did in this particular investigation, the European Communities implicitly addressed the factor of "growth".

7.311 We therefore find that the European Communities did not violate its obligations under Article 3.4 in its treatment of "growth" and that it at least addressed each of the listed Article 3.4 factors.

(iii) Did the European Communities adequately evaluate the listed Article 3.4 factors?

a. approach to assessment of adequacy of the European Communities' evaluation

7.312 We examine next the adequacy of the analysis conducted by the European Communities of each of the listed factors. Brazil argues that the EC analysis of the Article 3.4 factors is partial and inadequate and that, in particular with regard to the factors addressed exclusively in Exhibit-EC-12, the examination is not a well-reasoned and meaningful analysis of the state of the industry and therefore fails to satisfy Article 3.4. The European Communities submits that its evaluation of the factors is sufficient to comply with the requirements of Article 3.4.

7.313 The focus of this part of our examination is therefore whether the treatment of the listed Article 3.4 factors in the EC investigation and determination is sufficient to satisfy the requirements of Article 3.4 concerning the "evaluation" of the listed factors having a bearing on the state of the industry. Our starting point, is, as always, the relevant treaty text. Article 3.4 states, in pertinent part:

"The examination of the impact of the dumped imports on the domestic industry concerned shall include an evaluation of all relevant economic factors and indices having a bearing on the state of the industry� (emphasis added).

7.314 The term "evaluate" is defined as: "To work out the value of �; To reckon up, ascertain the amount of; to express in terms of the known;"²⁶⁰ "To determine or fix the value of; To determine the significance, worth of condition of usually by careful appraisal or study."²⁶¹ These definitions reveal that an "evaluation" is a process of analysis and assessment requiring the exercise of judgement on the part of the investigating authority.²⁶² It is not simply a matter of form, and the list of relevant factors to be evaluated is not a mere checklist.²⁶³ As the relative weight or significance of a given factor may naturally vary from investigation to investigation, the investigating authority must therefore assess the role, relevance and relative weight of each factor in the particular investigation. Where the authority determines that certain factors are not relevant or do not weigh significantly in the determination, the authority may not simply disregard such factors, but must explain their conclusion as to the lack of relevance or significance of such factors.²⁶⁴ The assessment of the relevance or materiality of certain factors, including those factors that are judged to be not central to the decision, must therefore be at least implicitly apparent from the determination. Silence on the relevance or irrelevance of a given factor would not suffice.²⁶⁵ Moreover, an evaluation of a factor, in our view, is not limited to a mere characterisation of its relevance or irrelevance.²⁶⁶ Rather, we believe that an "evaluation" also implies the analysis of data through placing it in context in terms of the particular evolution of the data pertaining to each factor individually, as well as in relation to other factors examined.^{267 268}

7.315 We examine whether the European Communities' determination is consistent with the requirements of Article 3.4 to evaluate all listed factors and with Article 3.1.

b. time periods and "trend" analysis

7.316 We first recall the importance in the process of this evaluation of placing data relating to developments with respect to each injury factor in context, both in terms of their own individual development and vis-�-vis developments in other factors examined.²⁶⁹ Thus, a meaningful investigation must also take into account the actual intervening trends in each of the injury factors and indices -- rather than just a comparison of "end-points". There must a streamlined, genuine and undistorted picture drawn from the facts before the investigating authority. Only on the basis of such a thorough and dynamic evaluation of data capturing the current state of the industry in the determination would a reviewing panel be able to assess whether the conclusions drawn from the examination are those of an unbiased and objective authority.

7.317 Brazil alleges that the European Communities failed to conduct an analysis of the intervening trends of certain injury factors (production capacity, capacity utilisation, sales volume, market share, inventory, profitability and employment), and instead merely analysed the "end-points" of these injury factors. Brazil observes that, in particular with respect to profitability, but also with respect to certain other factors, developments in 1996 and 1997 do not sustain the observation that there was a decline in the condition of the domestic industry.

7.318 The European Communities states that the "injury investigation period" was 1 January 1995- to the end of the IP, and that this period was devoted to "the examination of trends in the context of the injury analysis" and that it had made clear that developments and trends preceding the IP were used only "in order to have a better understanding of findings relating to the IP". Further, the European Communities submits that it is not limited to its own summary of its own data set out in the Provisional and Definitive Regulations, that the relevant year-by-year data had been disclosed to interested parties and that in all cases the mid-year figures showed a more or less steady movement from one end point to the other.

7.319 The IP established by the European Communities ran from April 1998 to March 1999. In the context of its injury analysis, the European Communities gathered and analysed data for the period 1995 through the end of the IP (this is referred to by the European Communities as the "Injury Investigation Period" or "IIP". We understand Brazil to allege variously that the European Communities concentrated its analysis of certain factors (for example, profitability) on the period beginning in 1996 (rather than 1995) and that, in some cases, placed excessive emphasis on developments in the period coinciding with the IP thereby providing a misleading picture of the state of the industry. Brazil also alleges that the EC evaluation of individual injury factors does not constitute positive evidence supporting an objective examination leading to an affirmative injury finding as they do not reveal a declining trend.

7.320 We have discussed above the use of the investigation period in an anti-dumping investigation.²⁷⁰ We find reference in the text of the Agreement to the concept of an investigation period. However, we note that neither Article 3, nor any other provision of the Anti-Dumping Agreement , contains any specific rule as to the time periods to be covered by the injury or dumping investigations, nor any relationship between or overlap of those time periods. The only provisions we can discern that provide guidance as to how the effects on the domestic industry of the dumped imports are to be gauged are (as cross-referenced in Article 3.5), Articles 3.2 (volume and price effects of dumped imports), and Article 3.4 (impact of the dumped imports on the domestic industry). Neither of these provisions specifies particular time periods for these analyses.²⁷¹

7.321 The Recommendation Concerning the Periods of Data Collection for Anti-Dumping Investigations²⁷² 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. From this, we take it that it is desirable that there be a substantial coincidence in the period of investigation for dumping and the period during which injury was found.

7.322 Given these considerations about time periods, we take note of the following statement in the Definitive Regulation:

"(98) �it should be noted firstly, that dumping and the injury suffered by the Community industry must be found during the IP. In order to establish whether such injury exists, inter alia , the developments and trends found in the years preceding the IP are only used in order to have a better understanding of findings relating to the IP. In this current case, since the investigation period started in April 1998, it has been deemed appropriate, in order to obtain a meaningful picture of the evolution of the injury indicators, to take into account at least three calendar years (1995-1997) prior to the IP. Secondly, even if 1996 were taken as reference year, the result of the injury analysis would not change. On the contrary, the injury suffered by the Community industry would be even more evident in the development of certain injury indicators as profitability and stocks. The other injury indicators would have followed the same negative trend, with the exception of the investments, and of the production volume, the increase of which however resulted in higher stocks�.

(102) As a general remark it must be underlined that the injury suffered by the Community industry must be assessed by reference to the IP. As to the earlier years and the trends established over these years, they explain the background underlining the injury established."

7.323 In this case, the European Communities examined the situation of the domestic industry during the IP, as well as data for the years 1995-1998. There was thus a substantial coincidence in the period of investigation for dumping and the period during which injury was found. In particular, whether the European Communities refers to events at the outset of the IP by referring to either 1995 or 1996, the European Communities consistently appraises the interrelation of factors during the IP.

7.324 Moreover, we have examined the record data and the EC evaluation thereof on the record of the investigation in relation to the injury factors deemed relevant by the European Communities and therefore evaluated more comprehensively in their determination: production; production capacity; capacity utilisation; sales volume; market share; sales prices; stocks; profitability; employment; and investments. The European Communities has gathered data from 1995 through the end of the IP for all of these factors. We do not find that the EC approach of focusing its injury examination on the IP and emphasising that the injury suffered by the domestic industry had to be found during the IP provided a misleading "snapshot" of the EC producers' economic situation at the end of the Investigation Period that failed to place the IP situation in its temporal context. We also do not find that the EC evaluation of the developments with respect to certain injury factors is generally biased or not objective and not on the basis of positive evidence. We also do not believe that the European Communities did not pay attention to trends in its injury analysis. For example, data on the record of the investigation show that market share went from 70% in 1995 to 71% in 1996 and then to 62% in the IP.²⁷³ The European Communities evaluation in the Provisional Regulation (recital 154) is as follows: "The Community industry's share on the Community market decreased from 70% in 1995 to around 62% in the IP, i.e. by around 8 percentage points. This downward trend started after 1996, in which year the Community industry's market shares had reached a peak of around 71%." The European Communities therefore explicitly acknowledged the upward trend from 1995 to 1996 and then traced the downward trend of the data pertaining to this factor through the IP. We hold a similar view with respect to the other factors referred to by Brazil in this context.

c. certain data on which the European Communities based its injury evaluation

7.325 With respect to the factors examined in Exhibit EC-12, Brazil alleges that the factual basis for the injury determination is flawed. In particular, Brazil argues that the European Communities did not request the domestic industry to provide detailed "like product specific" information regarding return on investment, wages, cash flow and ability to raise capital and this precluded the European Communities from making an "objective examination" based on "positive evidence". Brazil also alleges that the European Communities' "simulations" in Exhibit EC-12 regarding, in particular, return on investments, cash flow and ability to raise capital, are "of no value" in analysing the EC producers' performance, "not because the issues of return on investments, cash flow and ability to raise capital were not relevant but because of the EC's oversimplified methodology".²⁷⁴ The European Communities responds that the nature of the evidence used in Exhibit EC-12 was "no different in character" from that used in regard to the other Article 3.4 factors that the EC authorities carried out",²⁷⁵ in that it consisted primarily of information obtained directly from EC producers, including their audited accounts.

7.326 We recall that an injury assessment under Article 3.4 deals with the state of the domestic industry as a whole. The Anti-Dumping Agreement provides that "injury" means "material injury to a domestic industry, threat of material injury to a domestic industry or material retardation of the establishment of such an industry ".²⁷⁶ (emphasis added) The focus of an injury determination is therefore the state of the "domestic industry".²⁷⁷ The domestic industry consists of the producers of the "like product". Article 3.6 states:

"The effect of the dumped imports shall be assessed in relation to the domestic production of the like product when available data permit the separate identification of that production on the basis of such criteria as the production process, producers' sales and profits. If such separate identification of that production is not possible, the effects of the dumped imports shall be assessed by the examination of the production of the narrowest group or range of products, which includes the like product, for which the necessary information can be provided."

7.327 Brazil submits that Article 3.6 provides that the effect of the dumped imports 'shall be assessed in relation to the domestic production of the like product'. According to Brazil, the European Communities has never claimed that 'separate identification of that production was not possible' and, in view of the other injury factors specifically pertaining to the like product, was not able to do so. It is clear that, while data and information pertaining specifically to the "like product" is to be used to the extent possible, the Agreement also envisages resort to a broader spectrum of data where separate identification of like product specific data is not possible. It is therefore permissible for an investigating authority to assess the effects of the dumped imports by the examination of the production of a broader range of products, which includes the like product, for which the necessary information can be provided if like-product-specific information is not available. This is clear from the text of Article 3.6. Brazil observes that the European Communities states that Exhibit EC-12 asset data was "allocated on the basis of the turnover" from annual accounts, but that that the audited accounts are used to provide the financial picture of a company on the final day of its financial year, which does not necessarily correspond with the end of the investigation period on 31 March 1999. Despite the lack of perfect coincidence, this would result in at least a 9-month overlap which would allow for simultaneity of analysis and the time periods used would largely coincide and give an indication of the state of the industry during the period.

7.328 In addition, while the investigating authority must consider all information submitted to it by interested parties in an investigation, it may also supplement such information, where necessary, in order to ensure that its investigation is comprehensive. While the questionnaire did not expressly identify the Article 3.4 factors in the precise terms used in the Agreement and did not request the submission of information from EC producers on these factors specifically, we understand the European Communities to have based its appraisal of the factors concerned largely on audited annual accounts of the EC producers. In the absence of "like product specific data" on the record of the investigation, we do not consider that the use by the European Communities of data derived from audited annual accounts of companies on the basis of turnover contaminates the factual basis on which the injury analysis is based. In light of these considerations, we do not consider that the European Communities has breached its obligations under Articles 3.1 and 3.4 to conduct an objective examination on the basis of positive evidence in this regard.

d. adequacy of EC evaluation of injury factors

7.329 We do not find in Article 3.4 a requirement that each and every injury factor, in isolation, must necessarily be indicative of injury. Rather, an examination of the impact of the dumped imports on the domestic industry under Article 3.4 includes an evaluation of all relevant economic factors having a bearing on the state of the industry to produce an overall impression of the state of the domestic industry. We therefore examine whether, in light of the overall development and interaction among injury indicators collectively, the record data overall would preclude a finding by an unbiased and objective investigating authority that the domestic industry was injured.

7.330 The European Communities found material injury during the period of investigation on the basis, in particular, of declines in production, production capacity, sales and market share.²⁷⁸ Brazil asserts that capacity utilisation, which increased from 64% in 1995 to 67% in the IP does not indicate injury. Taken in isolation, we agree that this might not indicate injury. However, the European Communities conclusion on injury refers to the dependent relationship between the increase in capacity utilisation and the reduction in production capacity, which decreased by 14% between 1995 and the IP, from 85,000 to 73,000 tonnes. The European Communities pointed out that: "This development should be seen in the light of the fact that in 1996 a production plant in Germany ceased its activity." We disagree with Brazil's argument, made inter alia in connection with production and stocks, that once an investigating authority has evaluated actual injurious trends in these factors and this is sufficient for the purposes of reaching a finding of injury there would also be an obligation also to evaluate potential injurious trends.

7.331 The European Communities also stated that the Community industry suffered a "significant loss" of employment. The underlying data on the record of the investigation largely support the EC statements.²⁷⁹ The lack of an explicit reference in this context to the 6% decline in consumption does not undermine this finding.

7.332 The European Communities also found a decline in investments, as well as an increase of stocks. Brazil criticises the EC treatment of investment - including the observation that "the Community industry suffered ... a decline in investments" -- as being biased and not based on positive evidence and suggests that the European Communities should have placed its analysis in a broader context, by associating it with turnover. Brazil submits that no matter how the issue of investments is measured, even the absolute figures indicated that the EC producers' investments increased from 1996 onwards. Brazil posits that normally an increase in investments indicates merely a commercial strategy of allocation of financial resources to the business.²⁸⁰ Brazil also observes that the absolute value of the EC producers' investments decreased by 7% between 1995 and the IP.²⁸¹ The European Communities explained that this was caused by the restructuring of the industry in 1995. The European Communities identified certain benefits that flowed from this restructuring in 1996. A 37% increase in investment as a percentage of turnover between 1998 and the IP is not irreconcilable with this.²⁸² The European Communities addressed in its determination the reasons for this. With respect to the EC finding on an "increase of stocks"²⁸³, on the basis of the EC producers' non-confidential responses to the questionnaire and confidential data provided in the course of these Panel proceedings, Brazil submits that the data on stocks contains discrepancies that undermine the EC claim to have made the injury determination on the basis of positive evidence.²⁸⁴ The European Communities explains that these increases in stocks amount to approximately 1% in 1996, 1.4% in 1997 and 4% in 1998, and that the European Communities believes that these amounts are due to the inclusion of scrap in the gross production reported to the European Communities. We underline the importance for an investigating authority to base its determination on accurate information. However, we do not consider that discrepancies of this magnitude erode the factual basis for the EC evaluation of stocks in this case.

7.333 The European Communities places its evaluation of each of these factors within the context of its own internal evolution and in terms of its relationship with movements in other injury factors. The overall record data with respect to those factors deemed relevant by the European Communities support the EC evaluation of these factors.

7.334 Brazil emphasises that the fact that domestic producers raised their prices over the IIP does not indicate injury. The information on the record concerning certain injury indicators, including price,²⁸⁵ in isolation, may not necessarily indicate an injurious situation. The European Communities conducted a price analysis.²⁸⁶ However, it is apparent to us that the European Communities did not conclude that its domestic industry had reduced its prices over the IP, nor that prices, in and of themselves, were indicative of injury to the domestic industry. We note in this respect the relationship referred to by the European Communities in its determination between prices and market share²⁸⁷ and sales volume.²⁸⁸ We also note the impact on profitability of the developments in price and volume referred to by the European Communities in its determination.²⁸⁹ We discern from the determination that the European Communities concluded that the price pressure of the imports concerned had an impact on the volume of the sales and on the market shares of the Community industry rather than on its price level.²⁹⁰ The European Communities reasoned that "when faced with low-priced imports originating in the countries concerned, the Community industry had the possibility of either maintaining its prices with a risk of losing market shares, or following the low prices of the dumped imports with the aim of maintaining the sales volumes. It decided to maintain its prices, but the consequence on the sales volume had an impact on the profitability, which turned negative after 1996".

7.335 With respect to Brazil's assertion that the European Communities does not evaluate, in the context of "factors affecting domestic prices" whether the EC producers were tending to sell on a long-term rather than on-spot basis, whether there were any changes in the patterns of trade (e.g. outsourcing) in this respect and/or whether there were any changes in the cost structure of the EC industry, Article 3.4 requires an evaluation of "factors affecting domestic prices" (not "all" factors affecting domestic prices). We consider that this requirement is inextricably linked to the requirements of Articles 3.1 and 3.2 to conduct an objective examination of the effects of dumped imports on prices in the domestic market for like products, which must involve a consideration of whether there has been significant price undercutting or price depression or suppression. We derive from this that an investigating authority must conduct a price analysis as required by Articles 3.1 and 3.2 (which contains no explicit requirement for an analysis of terms of sale, patterns of trade or cost structures). We see no basis in the text of the Agreement for Brazil's argument that would require an analysis of factors affecting domestic prices beyond an Article 3.2 price analysis, and observe that certain of the factors potentially affecting price may be more in the way of causal factors to be analysed under Article 3.5, rather than under 3.4. In our view, Article 3.4 focuses on factors indicative of the state of the industry, or of the effects on the industry, rather than factors having an effect thereon.²⁹¹ Thus, whether or not an evaluation of causal factors is adequate is matter to be examined under Article 3.5. We address Brazil's allegations concerning causation below.

7.336 Brazil objects to the EC finding that: "The market for malleable fittings is highly price sensitive, the price level being the crucial element of choice considered by the users, as has been confirmed by the co-operating importers and users" (emphasis added).²⁹² Brazil argues that the EC made this finding "in spite of the fact that the prices of imported fittings had not affected the prices in the EC industry".²⁹³ We recall our earlier observation that the European Communities did not conclude that its domestic industry had reduced its prices over the IP, nor that prices, in and of themselves, were indicative of injury to the domestic industry. However, the European Communities placed price developments in the context of developments in other factors, that is, market share and profitability, in order to reach its affirmative injury finding.²⁹⁴ We note that the information on the record of the underlying investigation indicates that each of the co-operating importers and one of the two co-operating users explicitly referred to "price" as a relevant determinant. The information on the record largely bears out the EC statements.

7.337 We have examined the injury indicators which the European Communities found relevant and significant for its injury determination. The European Communities found material injury during the period of investigation on the basis, in particular, of declines in production, production capacity, sales and market share.²⁹⁵ Moreover, the European Communities stated that the Community industry suffered a "significant loss" of employment and a decline in investments, as well as an increase of stocks. It also determined that the increase in capacity utilisation depended on reduced production capacity. Furthermore, it placed its evaluation of factors affecting domestic prices in the context of developments in market share and profitability. We have observed that the European Communities places its evaluation of each of these factors within the context of its own internal evolution and in terms of its relationship with movements in other injury factors and that the record data with respect to those factors deemed relevant by the European Communities overall bears out the EC evaluation of these factors.

7.338 We examine the adequacy of the EC evaluation of the remaining factors listed in Article 3.4: ability to raise capital, margin of dumping, productivity, return on investments, cash flow and wages.

7.339 Brazil alleges that the European Communities' examination of these factors reflected in Exhibit EC-12 is not "a well-reasoned and meaningful analysis" of the state of the EC industry persuasively explaining how the evaluation of certain relevant factors in Exhibit EC-12 led to the determination of injury. Brazil submits that Exhibit EC-12 informs the reader that an examination was conducted somewhere else (although where this examination was made is, according to Brazil, totally unclear) and that Exhibit EC-12 is presumably just a summary of that examination, if it did take place at all. Brazil also makes specific allegations with respect to each of the factors referred to in Exhibit EC-12.

7.340 The European Communities submits that the document explains the analysis that was carried out by the EC authorities. That explanation, in response to Brazil's questions and comments, has been "supplemented" in these proceedings. The document does not purport to be issued under Article 12, so the criteria of that Article are irrelevant. The European Communities states, in addition:

"In the case of four of these factors (productivity, return on investments, cash flow and wages) the EC authorities' conclusion was that the developments during the IIP were in line with one or more of the other factors, so that there was no point in recording them independently in the Regulation. As regards "ability to raise capital" the verdict was that the industry was not suffering problems. Finally, on the margin of dumping, the note records that "given the volume and the prices of the imports, this impact cannot be considered negligible."²⁹⁶

7.341 We recall the last sentence of Article 3.4, which provides that: the list of factors in Article 3.4 "is not exhaustive, nor can one or several of these factors necessarily give decisive guidance". We observe that Exhibit EC-12 begins with the phrase: "After having examined all the injury factors, we came to the following conclusions as concerns the particular injury factors set out below�". It then contains brief observations on the following Article 3.4 factors: return on investments; wages; productivity; cash flow, ability to raise capital and magnitude of the actual margin of dumping and presents underlying data through tables and graphs relating to the developments in each of the individual factors. The document also identifies the sources of the data. The development of each factor is traced individually as well as in terms of its relationship to other evaluated factors. There is a statement indicating the reason why the European Communities did not attribute relevance or weight to each of the factor. The European Communities did not rely on these factors as a relevant basis for its injury determination, and has indicated that this is so. The last sentence of Article 3.4 envisages such a situation.

7.342 In light of the overall development and interaction among injury indicators collectively, the record data overall would not preclude a finding by a reasonable and objective investigating authority that the domestic industry was injured. We therefore consider that the European Communities did not violate its obligations under Articles 3.4 or 3.1 in its evaluation of injury factors.

(iv) Factors not listed in Article 3.4

7.343 The Article 3.4 obligation to evaluate factors having a bearing on the state of the domestic industry "is not confined to the listed factors, but extends to "all relevant economic factors".²⁹⁷ In this context, we note that in its argumentation in support of its claim of violation of Article 3.4, Brazil has alleged that the European Communities paid inadequate attention in its injury determination to export performance and outsourcing as well as the relative cost structure of the domestic industry (including the substantial difference in cost of production between the product concerned produced and sold by the EC producers ('white heart fittings') and the product concerned imported from Brazil ('black heart fittings') being significantly higher in the manufacture of white heart fittings). ²⁹⁸.

7.344 In this respect, a firm distinction must be drawn between the causation and injury elements of an investigation. The phrase "having a bearing on" in Article 3.4 can mean "relevant to or having to do with" the state of the domestic industry.²⁹⁹ This is consistent with a view that the factors in Article 3.4 are indicative of the state of the industry, or of the effects on the industry, rather than factors having an effect thereon. Contextual considerations support this reading of the ordinary meaning of the text. In particular, the wording of the last group of factors in Article 3.4 is "actual and potential negative effects on cash flow, inventories�". In addition, Article 3.5 cross-refers to the "effects" of dumping as set forth in � [Article 3.4]". We thus disagree with Brazil's assertions³⁰⁰ that the implications of outsourcing including imports from other third countries are indicators of the state of the domestic industry, as opposed to potential causal factors influencing or having an impact upon the state of the domestic industry. Whether or not an evaluation of causal factors is adequate is a matter to be examined under Article 3.5. We address Brazil's allegations concerning causation below.

7.345 For all of these reasons, we find that the European Communities has not violated its obligations under Articles 3.4 or 3.1.

(v) Claims under Articles 6.2 and 6.4 relating to the injury analysis

7.346 We recall the distinction between the substantive obligations of Article 3 and the "framework of procedural and due process obligations" established by Article 6 and Article 12.³⁰¹ To the extent that Brazil's allegations relate to the non-disclosure of injury information during the investigation, we examine these under Article 6.³⁰² We examine Brazil's claims concerning the alleged inadequacy of the EC published determinations under Article 12 (Issue 19, infra).

7.347 We understand Brazil to assert that the EC breached Articles 6.2 and 6.4 by not providing Tupy with a full opportunity to properly defend its interests under Article 6.2 nor timely opportunities to see all relevant information in violation of Article 6.4 with respect to those injury factors referred to only in Exhibit EC-12.

7.348 We begin our examination with the text of Articles 6.2 and 6.4. Article 6.2 requires that: "Throughout an anti-dumping investigation all interested parties shall have a full opportunity for the defence of their interests�" Article 6.4 requires that: "The authorities shall whenever practicable provide timely opportunities for all interested parties to see all information that is relevant to the presentation of their cases, �, that is used by the authorities in an anti-dumping investigation". We recall that the European Communities also gathered and analysed data with respect to the injury factors referred to exclusively in Exhibit EC-12, but essentially concluded that this data was "in line" with other data (that was disclosed) and that there was no "value added" to the substance of their investigation in the analysis of these factors. Therefore, this information was considered not relevant and was not specifically relied upon by the EC in reaching the anti-dumping determination. Tupy was therefore not deprived of timely opportunities to see information relevant to its case nor of an opportunity for defence of its interests.

7.349 For these reasons, we find that the European Communities has not violated Articles 6.2 or 6.4 with respect to the information on injury factors referred to exclusively in Exhibit EC-12.

To continue with 15. Issue 17 - causation

Return to Table of Contents

236 Brazil response to Panel question 86 following the first Panel meeting, Annex E-1.

237 Provisional Regulation, Exhibit BRL-12, recital 149.

238 Brazil second written submission, para. 135.

239 Brazil response to Panel question 103 following the first Panel meeting, Annex E-1.

240 See Panel Report, EC-Bed Linen , supra , note 77, para. 6.139.

241 EC first written submission, para. 277; Brazil second written submission, para. 143.

242 Brazil second written submission, para. 149.

243 We recall in this connection the following statement made by the Appellate Body in Hot-Rolled Steel, supra , note 40 underlining the importance of an even-handed examination: "However, the investigating authorities' evaluation of the relevant factors must respect the fundamental obligation, in Article 3.1, of those authorities to conduct an "objective examination". If an examination is to be "objective", the identification, investigation and evaluation of the relevant factors must be even-handed. Thus, investigating authorities are not entitled to conduct their investigation in such a way that it becomes more likely that, as a result of the fact-finding or evaluation process, they will determine that the domestic industry is injured. "

244 We recall the following statement by the Appellate Body concerning unadopted Tokyo Round-era Panel reports: "we agree with the Panel's conclusion in that same paragraph of the Panel Report that unadopted panel reports "have no legal status in the GATT or WTO system since they have not been endorsed through decisions by the CONTRACTING PARTIES to GATT or WTO Members". Likewise, we agree that "a panel could nevertheless find useful guidance in the reasoning of an unadopted panel report that it considered to be relevant". Appellate Body Report, Appellate Body Report, Japan - Taxes on Alcoholic Beverages ("Japan - Alcoholic Beverages II "), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p. 14, DSR 1996:I, 97.

245 Panel Report, EC-Audio-Cassettes (unadopted), ADP/136, para. 436-439.

246 Brazil response to Panel question 103 following the first Panel meeting, Annex E-1.

247 Definitive Regulation, Exhibit BRL-19, recital 86.

248 Definitive Regulation, Exhibit BRL-19, recital 87, states: "�it has been found that �in those instances in which both black and white heart malleable fittings were sold by the same party, and therefore any distinction in market perception should have been observable, no such distinction was actually observed, in any event not in terms of pricing differences. As to the users of the product under consideration, the investigation has confirmed that they do not differentiate between white heart of black heart fittings�" The Definitive Regulation also states (para. 17): "�the investigation has shown that there is no difference in market perception distinguishing between white heart fittings and black heart fittings as in all respects other than carbon content they have closely resembling characteristics, the same end-uses and are thus interchangeable. This has been confirmed by the fact that the importers/traders which purchase both black heart malleable fittings from the countries concerned and white heart malleable fittings produced by the Community industry, sell them to users without making a distinction between the two grades of material. As to the users of the product under consideration, the investigation has confirmed that they do not differentiate between white heart or black heart fittings to any significant degree."

249 Exhibit EC-13. See Definitive Regulation, Exhibit BRL-19, recitals 88 and 89.

250 EC first written submission, para. 399.

251 See e.g., Panel Report, Egypt - Definitive Anti-Dumping Measures on Steel Rebar from Turkey, WT/DS211/R, para. 7.36. 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, para.6.159, and the Panel Report, Mexico - Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States ("Mexico - Corn Syrup"), WT/DS132/R and Corr.1, adopted 24 February 2000, para. 7.128.

252 See, e.g., Appellate Body Report, Thailand- H-Beams, para.128.

253 EC first written submission, para. 348. Brazil first written submission, p. 180.

254 This undermines the obligations in Article 12 concerning the published determination of an investigating authority. It further goes against the significance attached to the existence of a contemporaneous written indication of the existence of certain documents at the time of the investigation and of the final determination by the panels in Panel Report, EC- Bed Linen, supra , note 77; Panel Report, Thailand - Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland ("Thailand - H-Beams "), WT/DS122/R, adopted 5 April 2001, as modified by the Appellate Body Report, WT/DS122/AB/R, paras. 7.136 ff and Panel Report, Panel on Korea - Anti-Dumping Duties on Imports of Polyacetal Resins from the United States ("Korea - Resins "), adopted 27 April 1993, BISD 40S/205, in particular paras. 208-213 and 225-228.

255 EC response to Panel question 109 following the first Panel meeting, Annex E-3.

256 See Panel question 20 and EC response thereto following the second Panel meeting, Annex E-8. We further asked (Panel question 19 following the second Panel meeting) whether there were any worksheets or investigation notes which formed the basis for Exhibit EC-12 and asked the EC to provide them or to explain why these were not provided. The European Communities replied that: "The conclusions recorded in Exhibit EC-12 are based on worksheets, but these contain highly confidential business information relating to the performance of individual EC producers and the EC would prefer not to release them." See Annex E-8.

257 EC response to Panel question 19 following the second Panel meeting, Annex E-8.

258 See, for example, Appellate Body Report, Canada - Measures Affecting the Export of Civilian Aircraft ("Canada - Aircraft "), WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377, para. 147.

259 EC first written submission, para. 349.

260 Shorter Oxford English Dictionary.

261 Merriam-Webster's Collegiate Dictionary online: http://www.m-w.com.

262 Panel Report, Egypt - Rebar, supra note 251 .

263 We find support for our view in Appellate Body Report, US-Lamb, para. 104.

264 Panel Report, EC - Bed Linen para. 6.162.

265 Ibid., para. 6.168.

266 We find support for this view in Panel Report, Thailand-H-Beams.

267 Panel Report, US-Hot-Rolled Steel, supra , note 62, paras. 7.232, 7.233.

268 Thus, we agree with the view of the Appellate Body that �Articles 3.1 and 3.4 indicate that the investigating authorities must determine, objectively, and on the basis of positive evidence, the importance to be attached to each potentially relevant factor and the weight to be attached to it. In every investigation, this determination turns on the "bearing" that the relevant factors have "on the state of the [domestic] industry".� See Appellate Body Report, US - Hot-Rolled Steel, supra , note 40, para 197.

269 This approach is suggested by the Panel Report, US - Hot-Rolled Steel, supra , note 62.

270 supra , paras. 7.100 ff.

271 We find support for our view in Panel Report, Egypt-Rebar, supra , note 251.

272 G/ADP/6, adopted 5 May 2000 by the Committee on Anti-Dumping Practices.

273 Provisional Regulation, recital 154.

274 Brazil second written submission, para. 236.

275 EC second oral statement, para. 121.

276 Footnote 9 to the Anti-Dumping Agreement.

277 Appellate Body Report, United States - Hot-Rolled Steel, supra , note 40, paras. 189-190.

278 Provisional Regulation, Exhibit BRL-12, recital 160.

279 The information before the investigating authority regarding the numbers employed in the industry is as follows: 1995: 2,532; 1996: 2,399; 1997: 2,414; 1998: 2,393; IP 2,370. The Provisional Regulation contains the following evaluation: "Employment in the Community industry decreased from 2532 employees in 1995 to 2370 employees in the IP, a decrease of around 6%. This decline should be seen in the light of the attempts undertaken by the Community industry to restructure and reduce its costs. In fact, the investigation has shown that the production process of malleable fittings is highly labour intensive." Provisional Regulation, recital 158.

280 Brazil second written submission, para. 282.

281 Brazil first written submission, para. 713.

282 Provisional Regulation, recital 159 states: �The Community industry decreased its investment from around ECU 20.4 million in 1995 to around ECU 17 million in the IP, i.e. by around 16%. Within this period, there are important differences. For instance, between 1998 and the IP, investments increased, from ECU 12.7 million to ECU 17 million. It is worth noting that the level of investments is rather significant during the whole IIP, in particular in 1995, coinciding with the restructuring efforts realised that year, as mentioned above. This shows that the Community industry is still viable and is not ready to abandon this segment of production, in particular as these investments were mostly destined to rationalise the production process.�

283 The Provisional Regulation, recital 156 also stated: �The closing stocks of the Community industry increased from around 16,300 tonnes a in 1995 to around 17,400 tonnes in the IP, i.e. by around 6%. The rise of the stock volume has been particularly strong as from 1996, in line with the increase of the Community industry's production and decreasing sales volume.� The Provisional Disclosure indicated the following year-by-year data: 1995 16,330 tonnes ; 1996 : 14,647 tonnes : 1997 13,101 tonnes ; 1998 16,010 tonnes ; IP 17,376 tonnes.

284 According to Brazil, the discrepancies based on stock reconciliation between "input" (opening stock, production and purchases) and "output" (i.e. domestic sales, exports and closing stocks) was 653 in 1996, 687 in 1997 and 2120 tonnes in 1998.

285 The information before the investigating authority indicated that the domestic industry�s prices, in indexed form, went from 100 in 1995 to 105 (1996 & 1997) to 108 (1999 & IP), whereas prices of imports from countries concerned went from 100 (1995) to 104 (1996) to 99 (1997 &1998) to 95 (IP), Annexes III to the Disclosures Preceding the Provisional and the Definitive Regulations. With respect to this factor, the Definitive Regulation, recital 103 states: "As regards more specifically the development of the Community industry's sales prices, the investigation has shown that the rise of 5 % between 1995 and the IP of the average sales price of the Community industry occurred in two phases, one between 1995 and 1996, when the whole market experienced a general price increase, and the second one between 1997 and 1998, when only the Community industry and other third countries raised their prices, while the prices of the countries concerned decreased significantly."

286 Provisional Regulation, recitals 147 to 149, and 155; and Definitive Regulation, recitals 86 to 94.

287 Data on the record of the investigation show that market share went from 70% in 1995 to 71% in 1996 and then to 62% in the IP. Provisional Regulation, recital 154. The EC evaluation was as follows: "The Community industry's share on the Community market decreased from 70% in 1995 to around 62% in the IP, i.e. by around 8 percentage points. This downward trend started after 1996, in which year the Community industry's market shares had reached a peak of around 71%."

288 The record data indicate that between 1995 and 1996 the sales volume of the Community industry decreased by 8.7%. Between 1997 and 1998 the sales volume decreased by 7.6%. More exactly, the sales data on the record of the investigation are as follows: 1995: 45,456 tonnes; 1996: 41,486 tonnes; 1997: 41,866 tonnes; 1998: 38,670 tonnes; IP 37,722 tonnes. The Provisional Regulation, recital 153, states the following: "The sales volume of the Community industry decreased from around 45,500 tonnes in 1995 to around 37,700 tonnes in the IP, i.e. by around 17%. It should be pointed out that the Community industry's sales decreased in a time period during which the market contracted, while the countries concerned were able to expand their sales volume by around 32%."

289 In this respect, the record data indicates the following concerning profits: 1995: -2.2; 1996: 1.4; 1997; -0.9; 1998: -0.2; IP: -0.9. The European Communities stated that profitability of the domestic industry decreased from 1.4% to -0.9% between 1996 and the IP. Provisional Regulation, recital 157. The record evidence largely reflects the EC appraisal, including the increase between 1995 and 1996, and is not irreconcilable with the EC observation that demand was lowest in 1996 which was �a year in which the whole sector suffered from difficult market conditions�.

290 Definitive Regulation, Exhibit-19, recital 103.

291 We find support for our view that Article 3.4 deals with effects rather than causes in Panel Report, Egypt - Rebar, supra note 251. See our more detailed examination of this infra.

292 Provisional Regulation, recital 164.

293 Brazil second written submission, para. 273.

294 supra , para. 7.334.

295 Provisional Regulation, recital 160.

296 EC second oral statement.

297 Appellate Body Report, US - Hot-Rolled Steel, supra , note 40.

298 Brazil first written submission, paras. 727-729. We understand that despite references by Brazil in its injury argumentation to certain other elements, such as the impact on profitability of investments and depreciation charges associated with rationalization (e.g. Brazil first written submission, para. 713), Brazil's allegations with respect to these elements are limited to its Article 3.5 claim on causation.

299 See Webster�s New World Dictionary. We find support for this view in Panel Report, Egypt-Rebar, supra , note 251, paras. 7.62-7.63.

300 See, for example, Comments by Brazil on EC response to Panel Question 23 following the second Panel meeting.

301 Appellate Body Report, Thailand - H-Beams, supra , note 81, paras. 107 et seq.

302 We examine Brazil's claim with respect to non-disclosure of export performance information infra, under "Issue 17: causation".

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