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

Report of the Panel

(Continued)

15. Issue 17 - causation

(a) Arguments of the parties

7.350 Brazil submits that the European Communities violated Articles 3.1 and 3.5 of the Anti-Dumping Agreement establishing causation of injury where no injury existed, by not adequately examining known factors other than dumped imports which were at the same time causing injury to the domestic industry and by not establishing whether injury caused by known factors other than allegedly dumped imports was not attributed to allegedly dumped imports. In addition to challenging the European Communities' causation methodology (the "significant contribution test"), Brazil also objects to the adequacy of the EC examination of certain specific factors, in particular, Brazil focuses in this regard on seven other "known" factors that it argues were raised in the investigation³⁰³: (i) margins analysis (relationship between dumping and undercutting margins, including Tupy's "competitive advantage" over EC producers which enabled it to sell at lower prices (as it produced "black heart fittings" with a different cost of production than the "white heart fittings" produced by EC producers); (ii) EC producers' poor export performance; (iii) imports from the countries not subject to the investigation; (iv) outsourcing; (v) rationalisation efforts; (vi) substitution of the product concerned; and (vii) the difference in the cost of production and the market perception between the two variants of the product concerned.

7.351 The European Communities stresses that it is not the Panel's task to conduct a de novo examination. The European Communities defends the consistency of its causation methodology with Article 3.5, asserting that the process of allocating injuries to causes need not be embarked upon in the case of a factor which made no significant contribution to injury.³⁰⁴ The European Communities states that factors (i) and (vii) referred to by Brazil were not "known" factors as they were not raised by interested parties in the course of the underlying investigation. Further, the remaining factors referred to by Brazil were properly and adequately evaluated under Article 3.5 through an objective examination based on positive evidence under Article 3.1.

(b) Arguments of third parties

7.352 Chile endorses the view of the Appellate Body in US-Hot-Rolled Steel,³⁰⁵ which Chile takes to mean that the obligation in Article 3.5 of the Anti-Dumping Agreement is for an investigating authority to evaluate the subject imports and any other factor causing injury to the domestic industry at the same time, distinguish among these effects and attribute to each factor its effects.

7.353 Japan submits that the European Communities violated Articles 3.1 and 3.5 because it failed to ensure that injury from factors other than imports was not attributed to imports. 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

7.354 As always, the Panel begins its analysis of Brazil's claims with the text of the relevant treaty provisions. Article 3.5 provides:

"3.5 It must be demonstrated that the dumped imports are, through the effects of dumping, as set forth in paragraphs 2 and 4, causing injury within the meaning of this Agreement. The demonstration of a causal relationship between the dumped imports and the injury to the domestic industry shall be based on an examination of all relevant evidence before the authorities. The authorities shall also examine any known factors other than the dumped imports which at the same time are injuring the domestic industry, and the injuries caused by these other factors must not be attributed to the dumped imports. Factors which may be relevant in this respect include, inter alia , the volume and prices of imports not sold at dumping prices, contraction in demand or changes in the patterns of consumption, trade restrictive practices of and competition between the foreign and domestic producers, developments in technology and the export performance and productivity of the domestic industry."

7.355 The obligations of Article 3.1 also inform the requirements for the Article 3.5 evaluation. We recall the text of that provision and our understanding of the obligations imposed thereby, discussed above.³⁰⁶

7.356 Article 3.5 requires investigating authorities, as part of their causation analysis, first, to examine all "known factors", "other than dumped imports", which are causing injury to the domestic industry "at the same time" as dumped imports. Second, investigating authorities must ensure that injuries which are caused to the domestic industry by known factors, other than dumped imports, are not attributed to the dumped imports.

7.357 We first consider whether the European Communities failed to consider "known" factors, other than imports, that were causing injury to the domestic industry at the same time. There is no difference of views between the parties that factors (ii) through (vi) above were "known". However, the EC argues that the onus under Article 3.5 lies on interested parties to raise issues during the course of the investigation. The EC thus asserts that "known" factors encompass those factors raised by interested parties in the course of the investigation and, contrary to Brazil's assertions, submits that Tupy did not raise certain of these factors in the investigation: "margins analysis" and "differences in the cost of production and market perception between white- and black-heart variants of the product concerned".

7.358 We therefore examine the nature of the Article 3.5 obligation in terms of the range of factors an investigating authority must examine under Article 3.5, and in particular, what constitutes a "known" factor within the meaning of this provision.

7.359 Article 3.5 requires that the demonstration of the causal relationship between the dumped imports and the injury to the domestic industry "shall be based on an examination of all relevant evidence before the authorities", and that the authorities must also examine other "known" factors. The obligation imposed by Article 3.5 is therefore to examine any other known factors which at the same time are injuring the domestic industry. This provision makes clear that it is mandatory to consider "known" factors other than the dumped imports which at the same time are injuring the domestic industry and to ensure that any such injury is not attributed to those imports. The phrase "factors which may be relevant in this respect include, inter alia �" (emphasis added) further makes it clear that the list contained in the provision is indicative.³⁰⁷ We understand that "known" factors under Article 3.5 include those causal factors that are clearly raised before the investigating authorities by interested parties in the course of an anti-dumping investigation.³⁰⁸

7.360 In the light of these considerations, we consider whether the "margins analysis" and the differences in cost of production and market perception between black- and white-heart variants were "known" factors within the meaning of Article 3.5.

7.361 We understand Brazil to argue before us that Tupy had raised in the investigation the arguments that Tupy had a comparative advantage over EC producers in that the cost of production of "black heart" fittings (imported from Brazil) was less than that of "white heart " fittings (sold in the European Communities by EC producers) that this cost difference between these two variants of the product concerned was reflected in the subsequent selling prices due to the differing market perception. For Brazil, these elements form the basis for two allegedly "known" causal factors: first, the "margins analysis" relating to the relative competitiveness (cost efficiency) and comparative advantage of the Brazilian exporter over the EC producers based on a comparison of the injury and dumping margins; and second, the cost difference between the Brazilian exporter and the EC industry based on the comparison of prices.³⁰⁹

7.362 We asked Brazil to identify where in the record of the investigation - in the context of causation - Tupy had raised these arguments before the EC investigating authority. The portions of the record of the investigation cited by Brazil in response³¹⁰ to our questioning indicate that Tupy raised the differences between black heart and white heart variants of the product concerned in terms of the cost of production and in market perception in the course of the investigation in the context of injury (and dumping) - and, in particular, with respect to non-comparability or claimed adjustments for price comparability in the price undercutting analysis. The European Communities did investigate the alleged differences in cost of production and market perception between white and black heart variants of the product concerned and made factual findings that the difference in cost of production was minimal and that there was no significant difference in market perception. In light of these findings, these factors, although "known" to them in the context of the dumping and injury analysis, would not be a "known" causal factor, that is, a factor that the European Communities was aware would possibly be causing injury to the domestic industry. We therefore find that the European Communities did examine these factors, and, in light of its findings, did not perceive of them as "known" causal factors.

7.363 We next examine whether the European Communities has ensured that injuries which are caused to the domestic industry by known factors other than dumped imports, are not attributed to the dumped imports. Brazil's allegations raise two general issues: first, Brazil alleges that the European Communities' causation methodology (which Brazil refers to as the "significant contribution test") is per se inconsistent with Article 3.5; second, Brazil alleges that the EC's specific examination of each of the other known factors is inadequate to fulfil the requirements of Article 3.5. We consider each of these in turn.

7.364 Brazil submits that irrespective of the other existing causes of injury, the European Communities determines the injury margin as a total difference between the price of the dumped imports and the EC producers' actual or target price without eliminating the injurious effects of other known factors. Brazil alleges that the European Communities is not methodologically able to ensure that the injuries caused by those other known factors are not attributed to the dumped imports. The European Communities states that it adequately separated and distinguished between the effects of known causal factors.

7.365 We therefore examine the nature of the non-attribution requirement in Article 3.5, which applies in situations where dumped imports and other known factors are causing injury to the domestic industry "at the same time".

7.366 Under Article 3.5, an investigating authority must examine whether a causal relationship exists between the dumped imports and the injury to the domestic industry, and, in so doing, the investigating authority must appropriately separate and distinguish the injurious effects of the other factors from the injurious effects of the dumped imports so as not to attribute the effects of the other factors to the dumped imports.³¹¹ However, the Agreement sets out no particular required nor preferred methodology as to how such a causation analysis must be conducted. Therefore, WTO Members may apply any causation methodology, provided that it appropriately separates and distinguishes the injurious effects of dumped imports from the injurious effects of the other known causal factors and therefore satisfies the obligations in Article 3.³¹²

7.367 In its determination, the European Communities identified certain factors, other than dumped imports, that were potentially causing injury to the domestic industry including imports from third countries not subject the investigation; decline in consumption and substitution. With respect to each of these factors individually, the European Communities conducted a separate examination and found either that it "is not such as to have contributed in any significant way to the material injury suffered by the Community industry"(decline in consumption);³¹³ that it made "no significant contribution" (export performance) or that "no significant influence" could have resulted (own imports of the product concerned),³¹⁴ that it cannot have significantly contributed to injury (substitution),³¹⁵ or (in the case of imports from the countries not subject to the investigation) "even if imports from other third countries may have contributed to the material injury suffered by the Community industry, it is hereby confirmed that they are not such to have broken the causal link between the dumping and the injury found").³¹⁶ The European Communities concluded that any other factors that may have contributed to the injury to the domestic industry were "not such as to have broken the casual link" between dumped imports and injury.³¹⁷

7.368 These aspects of the EC determination indicate to us that the European Communities analysed individually the causal factors concerned and identified the individual effects of each of these causal factors. With respect to each of the factors, the European Communities concluded that the extent of the contribution to injury was not significant, or, in one case, extrapolated that, even if the effect were significant, it would not be such as to "break the causal link" between dumped imports and material injury. The European Communities' overall conclusion was that none of these factors had an effect that was such to have broken the causal link between dumped imports and material injury.

7.369 We are certainly aware of the theoretical possibility that a causation methodology which separates and distinguishes between individual injury factors may not accommodate the possibility that multiple "insignificant factors" might collectively constitute a significant cause of injury such as to sever the link between dumped imports and injury.³¹⁸ However, the EC methodology -- which we understand to separate and distinguish between the effects of each of these causal factors and the dumped imports including through an examination as to whether the extent of the effects of each causal factor are such that it is necessary to separate and distinguish its effects -- does not leave the effects of those factors entirely lumped together and indistinguishable.

7.370 For these reasons, and given that Article 3.5 requires no particular methodology, we find that Brazil has not established that the causation methodology applied by the European Communities in this investigation constitutes, in and of itself, a violation of Article 3.5.

7.371 It remains for us to examine whether the European Communities met its obligations with respect to each of the "known" factors in the investigation in its causation determination identified by Brazil: export performance; imports from third countries and outsourcing; substitution and rationalisation.

(i) export performance

7.372 Brazil asserts that the European Communities violated Article 3.5 and 3.1 by failing to separate and distinguish the effects of EC producers' export performance and by failing to conduct an objective examination of this factor on the basis of positive evidence.^{319 320}

7.373 The European Communities denies both of these allegations. The European Communities submits in these Panel proceedings the confidential export-volume data for the years 1995 through 1998 and the IP that were before the EC investigating authority.

7.374 The Panel observes that Tupy brought to the attention of the EC investigating authority the impact that it perceived of the EC producers' decreased exports on inventories in the course of the investigation on the basis of Eurostat data (which Brazil argues showed, inter alia , that exports fell by 22% from 1995 to 1998).³²¹

7.375 In the investigation, the European Communities addressed the arguments made by Tupy with respect to the export volume trends, including the divergences between Eurostat data (submitted by Tupy) and the data collected and verified by the European Communities in the course of the investigation.³²²

7.376 The confidential export volume data that formed part of the record of the underlying investigation and that were submitted by the European Communities in these Panel proceedings support the cited statements made by the European Communities in the investigation, including with respect to its relationship with Eurostat data. The European Communities identified the injury indicator most affected by export performance (stock levels) and reasoned that on the basis that of the proportion of sales outside the Community as compared to the sales on the EC market it could not be concluded that the decrease of sales outside the Community significantly contributed to increased stocks.

7.377 Concerning Brazil's allegation that the EC's conclusion regarding export performance is not based on positive evidence since the data supplied by EC producers, and verified by the EC authorities, show variances from Eurostat data, the European Communities reflected its preference to use verified data, where possible, in the Definitive Disclosure.³²³

7.378 In light of the confidential export performance data on the record of the investigation and the assessment based thereon as reflected in these statements, we do not find that the European Communities has violated its obligations to conduct an objective examination on the basis of positive evidence with respect to export performance as a causal factor, nor that the EC failed to separate and distinguish the effects of this causal factor.

7.379 Brazil has also made an allegation concerning non-disclosure of EC producers' exports and purchases of the product concerned over the Injury Investigation Period, which precluded Tupy from being able to properly defend its interests, in violation of Article 6.2 and from having timely opportunities to see all relevant information in violation of Article 6.4. The EC states that this information was confidential and therefore not disclosed to interested parties.

7.380 We begin with the text of the relevant legal provisions. Article 6.2 requires that: "Throughout the anti-dumping investigation all interested parties shall have a full opportunity for defence of their interests". The text of that provision also makes clear that this general obligation in Article 6.2 "must take account of the need to preserve confidentiality". Similarly, the text of Article 6.4 states that: "The authorities shall whenever practicable provide timely opportunities to see all information � that is not confidential as defined in paragraph 5�" (emphasis added). We note that this information had been considered as confidential within the meaning of Article 6.5 and, on the basis of Brazil's Panel request and argumentation in these Panel proceedings, we do not understand that Brazil has invoked Article 6.5 of the Agreement in this connection. We therefore do not find that the European Communities has breached Article 6.2 or 6.4 in this respect.

(ii) imports from third countries and "outsourcing"

7.381 Brazil submits that Tupy consistently argued during the investigation that there were exports from certain other third countries entering the EC in volumes no less than those of some of the Countries Concerned - in particular, Bulgaria, Poland and Turkey -- and at prices, which seemed to significantly undercut the prices of the EC producers (as well as Brazilian prices).³²⁴ Brazil also argues that, in parallel with, and as a reason for, the increased imports from the other third countries, Tupy raised in the investigation that certain EC producers were in a process of outsourcing their production of the product concerned to other countries and then importing into the EC market from those countries. The domestic industry thereby caused injury to itself by giving away market share. In the opinion of Brazil, it was incumbent upon the EC further to its obligations under Article 6.6 to satisfy itself as to the accuracy of the information submitted to it by Tupy with regard the extent to which the EC producers were outsourcing their production of the like product to non-EC countries and therefore contributing to the declining sales and market share of the EC industry.

7.382 The European Communities contends that it appropriately examined imports from these countries and concluded that they were not a significant causal factor. The European Communities concluded that, although imports from third countries (including Turkey, Bulgaria and Poland) may have contributed to the material injury suffered by the EC industry, they were not such to have broken the causal link between the dumping and the injury found.³²⁵

7.383 The Panel notes that the Provisional Regulation³²⁶ and the Definitive Regulation both contain statements in respect of volume and price of imports from other third countries not subject to the investigation. The Definitive Regulation states:³²⁷

"According to Eurostat, during the IIP, imports from other third countries decreased in volume by around 14% while market shares decreased by around one percentage point. As to the prices, they increased on average by around 15% and were 17% higher than the average prices of the imports from the countries concerned."

7.384 The Provisional and Definitive Regulations also address individual developments pertaining to imports from Turkey, Bulgaria and Poland.

7.385 With respect to imports from Poland, Brazil observes that the volume of imports from Poland increased by 23% over the Injury Investigation Period and that its market share went from 3.8% to 5%, and that unit prices, although increasing by 11% over the same period, were significantly lower (42%) than the EC producers' prices. Brazil objects to the EC's characterisation of these trends. In particular, Brazil objects to the EC statement in these Panel proceedings that the EC investigating authority "has not attributed any injury to these imports (since there was none)".³²⁸ In view of the EC conclusion on price sensitivity³²⁹ (which Brazil however contests), Brazil submits that the EC's conclusion that the imports from Poland had not caused any injury could not have been based on an objective examination of positive evidence.³³⁰

7.386 Brazil also recalls that Tupy had emphasised:³³¹

"�that the Commission fails to note that most of the Polish imports comprise of galvanised fittings whereas most of the Brazil's imports do not. Galvanised fittings are more expensive to produce and are priced at considerable different levels, with galvanised fittings fetching much higher prices. Moreover, exporters sell to all levels of trade and especially lower levels whereas Tupy only sells to the highest level. When the impact of these differences is calculated, there can be no escape from concluding that the Polish imports are significantly cheaper than those of Brazil�"

7.387 The European Communities' evaluation of the developments relating to imports from Poland³³², as well as its evaluation of imports from third countries as a whole, were set out in the Provisional Regulation³³³ and the Definitive Regulation. It is clear to us from the determination that the EC examined imports from Poland and considered the arguments made by Tupy in the course of the investigation. While the record evidence indicates an increase in imports from Poland from 1995 through the IP of 23%, it also indicates that they peaked in 1997 and then declined somewhat in 1998 and the IP. The unit price rose by 11% from 1995-IP.

7.388 An analysis of injury and causation does not necessarily concentrate on developments of factors in isolation. Rather, a factor is to be assessed in terms of its own evolution as well as placed in the context of developments in other factors, in order to produce an integrated evaluation of the state of the domestic industry as a whole and the causes of this state. Seen in their context, this data largely supports the EC statement that "market share remained relatively stable during the IIP at around 4-5%, although increasing in absolute terms from around 2,500 tonnes in 1995 to around 3,000 tonnes in the IP". Similarly, the record evidence confirms the EC statement concerning the price of imports from Poland (that is, in the IP, the unit price was significantly higher than the weighted average prices of the countries concerned). We recall that Poland was not under investigation for selling the product at dumped prices in the EC market. We further recall our discussion of the EC's finding of "high price sensitivity (supra. para. 7.336).

7.389 The EC authorities also took account of the alleged variance with respect to the product under examination, and explained to Tupy that "the allegation concerning the mix of malleable fittings originating in Poland is in fact not substantiated and not susceptible to be verified since Eurostat data do not have such a level of detail".³³⁴ Under Article 6.6, the EC investigating authority is obligated during the course of the investigation to satisfy itself as to the accuracy of the information supplied by interested parties upon which their findings are based. The European Communities indicated that it had considered the allegation by Tupy, which the European Communities observed had not been substantiated, and that it relied on Eurostat data that its level of specificity also did not reflect Tupy's allegation. The European Communities' reliance on Eurostat data with respect to imports from Poland, a country not subject to the investigation for dumped imports, does not, in our view, constitute a violation of Article 3.5 or 3.1 nor 6.6 of the Agreement.

7.390 With respect to imports from Bulgaria, the Provisional³³⁵ and Definitive³³⁶ Regulations address developments in import volume and price. The Provisional Regulation also indicates that the European Communities examined evidence concerning imports from Bulgaria "in the framework of the analysis of the complaint prior to the Initiation of the proceeding". On the basis of this evidence, the European Communities found that "no dumping appeared to exist" with the consequence that no investigation concerning Bulgaria could be initiated.³³⁷ While it is clear from the record evidence that there was a substantial increase in imports from Bulgaria in absolute terms (from 43 to 1109 tonnes, 1995-IP), the European Communities specifically referred to this and also placed this factor in context by noting the market share was 1.8% in the IP. The European Communities also evaluated the price developments, noting inter alia that the during the IIP their price increased by around 11% and, in the IP, price was 5% higher than the weighted average price of the imports concerned.^{338 339}

7.391 It was first and foremost for the EC authority to appraise and evaluate the evidence before it. Tupy had made available to the EC factual information in support of its allegations that certain Applicants (Georg Fischer, Atusa and Woeste) were "outsourcing" certain product types or segments of the product concerned from certain countries, including Bulgaria, in its submissions throughout the investigation, including after the Provisional Regulation The EC assessment was that it provided no significantly new evidence to cause it to revisit its initial assessment. This much is discernible from the determination.

7.392 There is no indication on the record of the EC investigation as cited to us by Brazil³⁴⁰ that Tupy raised imports specifically from Egypt in relation to imports of the product concerned. The record of indicates that Tupy raised the issue of imports from Egypt in connection with its opposition to the exclusion of unthreaded products from the definition of "like product" and thus from the scope of the investigation. In addition, the EC Provisional Regulation indicates that the EC investigated volumes and prices of imports from "all other third countries" not subject to the investigation.³⁴¹ None of them was found to have been a significant cause of injury.

7.393 As concerns imports from Turkey, the Provisional Regulation states:."� imports from Turkey were stable at almost negligible levels during the entire IIP. As regards import volumes, they were 553 tonnes in 1995 and 632 tonnes in the IP, while market shares were stable at around 1% during the whole IIP. Concerning the unit price, according to Eurostat it was higher than the imports concerned throughout the whole IIP".³⁴² The Definitive Regulation also addresses developments in import volume and price indicating that during the IP, the weighted average price of imports was around 10% higher than the weighted average price of the imports concerned and market share remained stable at around 1% of Community consumption. Moreover, the Definitive Regulation notes that the investigation confirmed that imports by certain Community producers had occurred, these were minimal by comparison with EC-produced sales of the EC producers concerned, and did not affect the status of such EC producers as part of the domestic industry. The Notice of Initiation indicates that, while Turkey was listed in the application, the EC decided to exclude it at the outset from the investigation as its market share was de minimis .³⁴³ The record also indicates that Tupy raised the issue of imports from Turkey in connection with inter alia its opposition to the exclusion of unthreaded products from the definition of "like product" and thus from the scope of the investigation.

7.394 Brazil also argues that the European Communities' alleged non-reaction to the request made by Tupy that the EC request the Turkish authorities to confirm information relating to outsourcing arrangements between a Community producer (Georg Fischer) and a Turkish producer. is a failure to abide by the obligations of an objective and unbiased authority. We find no basis in the Agreement for Brazil's argument that the EC was required to pursue the issue of imports from Turkey (a country not subject to the investigation) in the particular manner requested by an interested party.³⁴⁴

7.395 The EC evaluation of the injurious effects of other factors, including imports from third countries, is in its general conclusion on causation.³⁴⁵ In the Definitive Regulation, the European Communities made a finding specifically in respect of imports from third countries, concluding that such imports did not sever the causal link between dumped imports and injury.³⁴⁶ We discern from the determination that the European Communities has considered this factor and its effects and concluded that it did not make a significant contribution to injury. Our view is not that the EC did not "investigate" the issue, but rather that it evaluated the evidence in light of the volume and price effects of these imports in the context of other developments affecting the domestic industry, in order to make its determination.

7.396 Brazil underlines that certain Community producers had a "controlling influence" over certain producers in other countries and therefore could dictate their commercial decisions. According to Brazil, the EC industry outsourced production and then inflicted injury upon itself.

7.397 Article 4 of the Anti-Dumping Agreement , which governs the concept of "domestic industry" for the purposes of an anti-dumping investigation, calls for an examination of ownership and control relationships among companies, including relationships between producers and exporters or importers located in the territories of other countries, as well as an examination of producers who are also importers of the allegedly dumped product. The definition of "domestic industry" is a keystone of the anti-dumping investigation. In this case, the European Communities examined whether or not it was required or appropriate under Article 4(1) to exclude certain producers from the definition of domestic industry. The EC concluded that it was not.³⁴⁷

7.398 The consequence of outsourcing would be an increase in the volume of imports from third countries, and any loss of market share would flow from imports from the companies to whom production had been outsourced. The imports from the third countries in which these companies were located would include the production resulting from any "outsourcing". An examination of the effects of those imports would take into account any effects of elements subsumed within those imports. In any event, the EC also examined claims by interested parties of imports made by domestic producers themselves and came to the conclusion that, in light of their relatively small magnitude, these imports did not affect the status of EC producers, nor did they constitute a significant cause of injury.

7.399 In light of the data on the record of the investigation, in particular relating to the price and volume of imports from third countries not subject to the investigation - in particular Poland, Turkey and Bulgaria -- and the EC assessment based thereon, we do not find that the European Communities has violated its obligations to conduct an objective examination on the basis of positive evidence with respect to imports from other countries not subject to the investigation or "outsourcing" as a causal factor, nor that the European Communities failed to separate and distinguish the effects of this causal factor.

(iii) rationalisation

7.400 Brazil argues that the EC causation assessment was flawed as the evolution of production and production capacity, as well as the decrease of employment and the lack of profitability, were caused by the EC industry's "voluntary" decision to rationalise production at the beginning of and during the IP. Brazil asserts that the EC did not base its determination on positive evidence and failed to appropriately separate and distinguish the effects of this causal factor.

7.401 The European Communities contends that the investigating authority investigated and distinguished the effect of the rationalisation on the basis of an objective examination of positive evidence.

7.402 The Panel recalls that under Article 3.5, injury must not be attributed to other known factors causing injury to the domestic industry at the same time as dumped imports. We therefore examine Brazil's allegation about rationalisation in light of this obligation.

7.403 The European Communities expressly acknowledged in its determination the restructuring efforts of the industry in 1995 and, in response to Tupy's arguments made before it, also indicated its appraisal that this had a negative impact on production, employment and profitability and required significant investments in 1995.³⁴⁸ The EC also indicated that the record data reflected rising production and profitability flowing from the restructuring in the following year, 1996. The determination then indicates that this positive trend, which the EC would have expected to continue in view of the rationalisation efforts, did not in fact continue. We understand Brazil to question numerous aspects of this evaluation, including: that although the EC stated that the "contraction of the sales of the Community industry entailed a rise of its stocks and a decline of its profitability, which, although rising between 1995 and 1996, then decreased by 2.3 percentage points between 1996 and the IP to [0.9%]" it did not draw the "obvious" causal connection with the price rises by the EC producers and their declining market share; that the EC made no attempt to ascertain why the EC producers' prices were increasing and whether or not those increases were related to costs associated with the rationalisation; and the alleged failure by the European Communities to discuss and identify what were the "further benefits which could reasonably have been expected to accrue to the Community industry" as a result of its rationalisation efforts to which the European Communities refers in the Definitive Regulation. In this latter respect, Brazil points out that the Community producers increased their prices over the IIP and submits that it is inappropriate "that anti-dumping duties be levied on exports to the EC originating in Brazil if they are to be used to protect a market from bearing the losses and costs associated with voluntary restructuring�" which are then transferred on to end users through escalating sales prices, in a market which by the EC's own analysis is "highly price sensitive".³⁴⁹ We examine these allegations seriatim.

7.404 First, with respect to the alleged failure by the European Communities to acknowledge a causal link between rationalisation and the price increases and declining market share, we note that the European Communities stated that the "decrease of the production was particularly strong from 1995 to 1996".³⁵⁰ It then mentions: "a plant manufacturing malleable fittings in Germany had to be closed", and that the development in production capacity "should be seen in the light of the fact that in 1996 a production plant in Germany ceased its activity"; and that the development of employment "should be seen in the light of the attempts undertaken by the Community industry to restructure and reduce its costs". We discern from the determination that the European Communities did evaluate the relationship between restructuring and production, production capacity and employment during the injury investigation period, and placed the developments in the IP within this context.

7.405 Brazil seems to argue that, in its causation analysis, the European Communities underplays or omits to state that the impact of rationalisation efforts. Provided that it is clear that a determination takes a given factor into account, it is immaterial where in the determination such attention is indicated. Where it is clear that an investigating authority evaluates a given causal factor in substance, it is not essential that this evaluation must, in form, appear in a section entitled "causation" in the determination. Provided that it is clear that there has been consideration of whether or not a decline in certain injury factors was attributable to a given causal factor rather than to dumped imports, an appropriate analysis separating and distinguishing between and among the effects of causal factors may still occur. In this case, the use by the European Communities of the terms "the effects of" and the "results of these restructuring efforts" (emphases added) indicates to us that the EC did consider this to be a factor influencing the state of the domestic industry, rather than solely a factor indicative of the state of the domestic industry. That the European Communities did not identify effects of rationalisation in the latter part of the IP is reconcilable with the view that the European Communities thought that this factor was not causing injury to the domestic industry at the same time as the dumped imports.

7.406 Second, with respect to alleged failure by the European Communities to ascertain the reason for the EC producers' price increases, the determination examines the rationale underlying the price increases, which occurred in conjunction with a loss in sales volume and market share.³⁵¹ We discern from the determination that the European Communities addressed the price increases made by the EC producers and offered its evaluation of the salient facts in this regard.

7.407 With respect to Brazil's allegation that the Definitive Regulation was misleading and not based on positive evidence in stating "as from 1996 � the Community industry began to suffer a continuous decline of its sales volume � throughout the rest of the IIP",³⁵² the record data show a drop in sales volume level from 1995 to 1996 and from 1997 through the IP.³⁵³ We consider that the underlying data, overall, bear out the EC evaluation of this factor. We do not consider that the fact that there was a small increase in sales volume from 1996 to 1997 renders the EC evaluation of this factor as reflected in the statement in the Definitive Regulation misleading, particularly as the phrase "the rest of the IIP" appears to indicate a reference to the subsequent or later part of the IIP and thus particularly when considered in an evaluation of the declining trend in the part of the IIP most closely associated with the dumping IP.

7.408 Given these considerations, we do not consider that Brazil has established that the European Communities acted inconsistently with its obligations under Articles 3.5 and 3.1 in respect of its findings concerning rationalisation.

(iv) substitution

7.409 Brazil argues that Tupy consistently asserted in the underlying investigation that the main cause of any injury suffered by the Community industry was the substitution of fittings made of materials such as copper and plastic for those made of malleable cast iron and included substantiating evidence that even the EC industry considered this to be the case. However, Brazil alleges, by not properly examining the issue of substitution and by assuming that the decrease in consumption did not cause significant injury to the EC industry, the EC's examination was not "objective and not based on "positive evidence". Although it was demonstrated to the European Communities that even the EC industry itself considered substitution to be a major cause of their difficulties during the Injury Investigation Period, and has thus caused or contributed to the fall in consumption of 6% between 1995 and the IP, the EC took an opposite view and concluded in the Definitive Regulation that (i) consumption had not decreased (as it had been "relatively stable"), and (ii) being so, it "cannot have significantly contributed to the injury suffered by the Community industry". Accordingly, Brazil argues that the conclusion made by the European Communities regarding substitution was unreliable, erroneous and contradictory.

7.410 The European Communities responds that the EC authorities enquired into these issues and reported their findings in both the Provisional and the Definitive Regulations. The fact that the substitution of malleable fittings by copper or plastic fittings mainly took place in the 1980s (a fact generally known in the market) was communicated repeatedly, not only by producers, but also by certain users and importers, during the verification visits. In any case, the issue of substitution is of relevance only as a factor affecting demand, and the European Communities made an unchallenged factual finding, reflected in the Provisional Regulation that consumption decreased by 6% over the IIP and judged that this was not a significant cause of injury.

7.411 The Panel recalls that the non-attribution requirement of Article 3.5 applies only when another known factor is impacting upon the Community industry "at the same time" as the dumped imports. Tupy raised the issue of substitution as a cause of injury to the domestic industry on several occasions during the underlying investigation. The European Communities considered these submissions and addressed them in detail in its Provisional³⁵⁴ and Definitive³⁵⁵ Regulations, concluding that, inter alia , any injury caused by substitution had occurred previous to the IIP and that this factor was not injuring the domestic industry at the same time as the dumped imports.

7.412 These EC statements concerning the temporal non-coincidence of any injury caused by substitution and by the dumped imports were based on the EC investigating authority's assessment of the evidence before it. Furthermore, and in any event, any substitution would be reflected in developments in demand for/consumption of the product concerned. In this regard, we note the factual finding made by the European Communities that consumption decreased by 6% over the IIP³⁵⁶, and its assessment that this was not such as to have contributed significantly to the injury sustained by the domestic industry.³⁵⁷ We do not understand Brazil to dispute the linkage between the effects of any substitution and trends in consumption. Indeed, Brazil itself emphasises this linkage.³⁵⁸ We recall our examination of the EC causation methodology itself supra.

7.413 Given these considerations, we do not consider that Brazil has established that the European Communities acted inconsistently with its obligations under Articles 3.5 and 3.1 in respect of its findings concerning substitution.

(d) Conclusion on non-attribution to other "known" factors under Article 3.5

7.414 We have taken careful note of the factors raised by Brazil as "other known factors" within the meaning of Article 3.5. We have also reviewed the analysis of these factors undertaken by the EC investigating authority, in the light of the relevant underlying record data. In this respect, we recall, in particular, the importance of the distinction between substantive obligations under Article 3.5 of the Agreement and the transparency obligations relating to the disclosure and publication of data and information under Articles 6 and 12 of the Agreement.³⁵⁹

7.415 As we indicate above, we have made factual findings that the European Communities did explicitly address in its determination the "other factors" identified by Brazil which had been raised by Tupy in the underlying investigation. Having examined the data on the record of the underlying investigation, and the EC's evaluation of this data, in light of the text of the provisions of the Agreement, we do not find that the European Communities' consideration of those factors, including its conclusions about them, were biased or not objective.

7.416 As we stated earlier,³⁶⁰ we are bound by Articles 17.5 and 17.6 of the Anti-Dumping Agreement to consider, on the basis of the evidence that was before the investigating authority during the investigation, whether the establishment of the facts in respect of any factor was improper, and whether the evaluation of any factor was biased or non-objective. We are thus precluded from conducting our own de novo review of the record evidence, and from reaching our own conclusions about each factor and the existence of injury and causation overall and substituting those for the conclusions of the EC. We are, rather, to consider whether the conclusions reached in the investigation could have been reached by an objective and unbiased investigating authority on the basis of its analysis of the evidence of record at the time of the determination. For the reasons discussed above, we find that this standard has been met, and thus that Brazil has not established that the EC's evaluation of injuries caused by factors other than the dumped imports was inconsistent with Article 3.5.

To continue with 16. Issue 19 -Information on matters of fact and law

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303 See Brazil's response to Question 125 of the Panel following the first meeting, Annex E-1.

304 EC response to Panel question 129 following the first Panel meeting, Annex E-3, para. 177, referring to recital 113 in the Definitive Regulation, which states: "any substitution effect cannot have significantly contributed to the injury suffered by the Community industry as evidenced by the relatively stable consumption established in the course of the present investigation."

305 Supra, note 40, para. 228.

306 Supra, paras. 7.225 ff.

307 See also Panel Report, US - Hot-Rolled Steel, supra, note 62.

308 We find support for this approach in previous panel reports, in particular, Panel Report, Thailand - H-Beams.

309 We sought clarification on these points from Brazil in Panel question 124 following the first Panel meeting. See Annex E-1.

310 Brazil's response to Panel Question 125 following the first Panel meeting, Annex E-1.

311 We find support for our view in Appellate Body Report, United States - Hot-Rolled Steel, supra, note 40.

312 We recall, in this respect, the statement of the Appellate Body in para. 224 of its Report in United States - Hot-Rolled Steel, supra, note 40: "We emphasize that the particular methods and approaches by which WTO Members choose to carry out the process of separating and distinguishing the injurious effects of dumped imports from the injurious effects of the other known causal factors are not prescribed by the Anti-Dumping Agreement . What the Agreement requires is simply that the obligations in Article 3.5 be respected when a determination of injury is made."

313 Provisional Regulation, Exhibit BRL-12, recital 176.

314 Provisional Regulation, Exhibit BRL-12, recital 174.

315 Provisional Regulation, Exhibit BRL-12, recitals 175-176.

316 Definitive Regulation, Exhibit BRL-19, recital 111

317 Provisional Regulation, Exhibit BRL-12, recital 177.

318 The panel in Panel Report, United States - Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities ("US - Wheat Gluten "), WT/DS166/R, paras. 8.136- 8.153, adopted 19 January 2001, as modified by the Appellate Body Report, WT/DS166/AB/R, found that a similar causation methodology that focused upon whether increased imports were a "substantial cause" was inconsistent with the requirements under Article 4.2 of the Safeguards Agreement with respect to causation. That panel reasoned that such a methodology weighed each other factor individually against imports to determine whether such factor was "a more important cause of injury" and then excluded that factor as a "cause of injury" when that factor did not alone satisfy that standard. For that panel, a demonstration that a given causal factor did not make an equal or greater contribution to serious injury than imports did not demonstrate that such factor made no contribution at all to serious injury. The Appellate Body overturned this finding, but did not squarely address the consistency of the causation methodology at issue in that case. Rather it found that the United States had failed adequately to evaluate the complexities of a particular causal factor (Appellate Body Report, United States - Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities ("US - Wheat Gluten "), WT/DS166/AB/R, adopted 19 January 2001, paras. 60-92). Similarly, in Appellate Body Report, United States - Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia ("US - Lamb "), WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001; Appellate Body Report, United States - Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea ("US - Line Pipe "), WT/DS202/AB/R, adopted 8 March 2002; and Appellate Body Report, US-Hot-Rolled Steel, supra, note 40 (dealing with a the consistency of a similar causation under Article 3.5 of the Anti-Dumping Agreement ) the Appellate Body either did not squarely address the consistency of the causation methodology at issue, or apparently implicitly condoned it by rather focusing on the adequacy of particular aspects of the investigating authority's causation analysis. The Appellate Body has observed that dispute settlement reports dealing with causation under the Safeguards Agreement can provide guidance with respect to causation under the Anti-Dumping Agreement and vice versa (Appellate Body Report, US - Line Pipe , para. 214).

319 Before the European Communities submitted the EC producers' export figures in these Panel proceedings, Brazil initially asserted that given that the European Communities did not disclose the EC producers export figures and that the verified export volume of the EC industry deviates from the Eurostat, Brazil assumed that the European Communities' determination in this respect was not sufficiently based on positive evidence for the European Communities to have discharged its obligations further to Article 3.5. However, following submission by the European Communities in these Panel proceedings of the confidential export data, Brazil observed that the EC producers� export volume decreased by 17% between 1995 and the IP. Brazil also notes this decrease represents an absolute volume of 1,283 tonnes, i.e. around 3% of the EC producers� production, around 7% of the EC producers� stocks and around 6% of the imports from the countries concerned in the IP (Brazil second written submission, para. 320)

320 Brazil recalls (in paragraphs 316 and 317 of its second written submission) that Tupy had argued that poor export performance had contributed to the increase in stock levels. In response, the European Communities had replied as follows in the Transparency Letter (Exhibit BRL-18 at 6.4): "...firstly, the data on the sales outside the Community included in the questionnaire replies of the Community industry and verified by the Commission services, do not confirm the figures provided by Tupy, the decrease of those sales being lower and regarding lower volumes. Secondly, on the basis of the proportion of the sales outside the Community as compared to the sales on the Community market, it cannot be concluded that the decrease of the sales outside [t]he Community significantly contributed to the increase of stock levels." Brazil argues that the stock data used by the European Communities was inaccurate and thus the facts concerning the consequential effects of dumped imports on the EC domestic industry were not properly established on the basis of positive evidence. We recall our finding supra, that the EC stock data did not undermine the factual basis for the EC evaluation under Article 3.4. Our finding necessarily also holds for the purposes of our analysis here.

321 See Fifth Submission of Tupy in the EC investigation, Exhibit BRL-17, para. 3.8.3.

322 The relevant passage from the EC transparency letter reads as follows: "�reference is made to the trends of the export volumes of the Community industry between 1995 and 1998 in connection with the evolution of stocks. In this respect it has to be noted that, firstly, the data on the sales outside the Community included in the questionnaire replies of the Community industry and verified by the Commission services, do not confirm the figures provided by Tupy, the decrease of those sales being lower and regarding lower volumes. Secondly, on the basis of the proportion of sales outside the Community as compared to the sales on the Community market, it cannot be concluded that the decrease of the sales outside [t]he Community significantly contributed to the increase of the stock levels.�

323 Disclosure preceding the Provisional Regulation, Exhibit BRL-16.

324 E.g. First and Third submissions of Tupy in the EC investigation.

325 Definitive Regulation, Exhibit BRL-19, recital 111.