United
states – final dumping determination
on
softwood lumber from canada.
recourse to article
21.5 of the dsu by canada
ab-2006-3
Report of the Appellate
Body
Introduction.
Canada appeals certain issues of law and legal interpretations developed
in the Panel Report, United States – Final Dumping Determination on Softwood
Lumber from Canada – Recourse to Article 21.5 of the DSU by Canada (the
"Panel Report"). The Panel was
established to consider a complaint by Canada regarding the consistency with
the Agreement on Implementation of Article VI of the General Agreement on
Tariffs and Trade 1994 (the "Anti-Dumping Agreement") of a
measure taken by the United States to comply with the recommendations and
rulings of the Dispute Settlement Body (the "DSB") in the US –
Softwood Lumber V proceedings.
The original dispute concerned an anti-dumping investigation by the
United States Department of Commerce (the "USDOC") that led to the
imposition, in May 2002, of anti-dumping duties on imports of softwood lumber
from Canada.
Before the panel in US – Softwood Lumber V (the
"original panel"), Canada claimed that, in imposing anti-dumping
duties on imports of softwood lumber from Canada, the United States had acted
inconsistently with several provisions of the Anti-Dumping Agreement, as well
as with Articles VI:1 and VI:2 of the General Agreement on Tariffs and
Trade 1994 (the "GATT 1994"). The original panel found, inter alia, that the United States had acted
inconsistently with Article 2.4.2 of the Anti-Dumping Agreement in
determining the existence of margins of dumping on the basis of a methodology
incorporating the practice of "zeroing". In the light of its finding on Article 2.4.2,
the original panel applied judicial economy and declined to rule on Canada's
claims under Article 2.4 of the Anti-Dumping Agreement ("fair
comparison") in respect of zeroing. The original panel's finding of
inconsistency with Article 2.4.2 was upheld by the Appellate Body.
The original panel and Appellate Body
reports were adopted by the DSB on 31 August 2004. On 6 December 2004, Canada
and the United States jointly informed the DSB, pursuant to
Article 21.3(b) of the Understanding on Rules and Procedures Governing the
Settlement of Disputes (the "DSU"), that they had mutually agreed
that the reasonable period of time to implement the recommendations and rulings
of the DSB would be seven and one-half months, that is, from 31 August 2004 to
15 April 2005. The reasonable period of
time was later extended to 2 May 2005 by agreement between the parties.
On 2 May 2005, the USDOC issued a new final determination pursuant to
Section 129 of the Uruguay
Round Agreement Act (the "Section 129 Determination"). In the original determination, the USDOC had
calculated the margins of dumping by comparing weighted-average normal value to
the weighted average of export prices.
By contrast, in the Section 129 Determination, the USDOC established the
margins of dumping on the basis of a comparison of normal value and export
prices on a transaction-to-transaction basis. On 19 May 2005, the United States
notified the DSB that, with the Section 129 Determination, it had implemented
the DSB's recommendations and rulings. Canada, however, considered that the United States
had failed to bring its measure into conformity with its obligations under
the Anti-Dumping Agreement. Canada
therefore requested that the matter of compliance be referred to a panel
pursuant to Article 21.5 of the DSU. On
1 June 2005, the DSB referred the matter to the original panel. In the Article
21.5 proceedings, Canada
claimed that the use of zeroing by the USDOC in the Section 129 Determination
is inconsistent with the United
States' obligations under Articles 2.4 and
2.4.2 of the Anti-Dumping Agreement.
Canada, however, considered that the United States had failed to bring
its measure into conformity with its obligations under the Anti-Dumping
Agreement. Canada therefore requested
that the matter of compliance be referred to a panel pursuant to Article 21.5
of the DSU. On 1 June 2005, the DSB
referred the matter to the original panel.
In the Article 21.5 proceedings, Canada
claimed that the use of zeroing by the USDOC in the Section 129 Determination
is inconsistent with the United
States' obligations under Articles 2.4 and
2.4.2 of the Anti-Dumping Agreement.
The Panel Report was circulated to the Members of the World Trade
Organization (the "WTO") on 3 April 2006. The Article 21.5 Panel (the
"Panel") found that "the [US] DOC was entitled not to offset
the non-dumped transactions against the dumped transactions when calculating
the margin of dumping for each respondent foreign producer or
exporter." Consequently, the Panel
rejected Canada's claim that
"the [US]
DOC's use of zeroing in the [transaction-to-transaction] comparison methodology
at issue is inconsistent with Article 2.4.2 of the [Anti-Dumping]
Agreement." In addition, the Panel rejected Canada's
claim that "the United
States has violated the fair comparison
obligation provided for in the first sentence of Article 2.4 of the
[Anti-Dumping] Agreement."
The Panel concluded that:
... the determination of the [US]DOC in the section 129
proceeding investigation is not inconsistent with the asserted provisions of
Articles 2.4 and 2.4.2 of the [Anti-Dumping] Agreement.
We therefore consider that the United States
has implemented the recommendations and rulings of the DSB in US –
Softwood Lumber V, to bring its measure into conformity with its obligations
under the [Anti-Dumping] Agreement.
Having found that the United
States did not act inconsistently with its
obligations under the Anti-Dumping Agreement, the Panel did not make any
recommendation under Article 19.1 of the DSU. On 17 May 2006, Canada
notified the DSB, pursuant to Article 16.4 of the DSU, of its intention to
appeal certain issues of law and legal interpretations developed in the Panel
Report, and filed a Notice of Appeal pursuant to Rule 20 of the Working
Procedures for Appellate Review (the "Working
Procedures"). On 24 May 2006, Canada filed an
appellant's submission. On 12 June 2006, the United States filed an appellee's
submission. On the same day, the
European Communities, Japan,
New Zealand, and Thailand each filed a third participant's
submission, and China and India each
notified the Appellate Body
Secretariat of its intention to appear at the oral hearing and make an oral
statement.
The following issues are raised in this
appeal:
(a)
whether the Panel erred in finding that the use of zeroing
when margins of dumping are established by comparing normal value and export
prices on a transaction-to-transaction basis is not inconsistent with Article
2.4.2 of the Anti-Dumping Agreement;
and
(b)
whether the Panel erred in finding that the use of zeroing
when margins of dumping are established by comparing normal value and export
prices on a transaction-to-transaction basis is not inconsistent with the
requirement of "fair comparison" in Article 2.4 of the
Anti-Dumping Agreement.
We do not agree with the conclusions that the United States and the Panel draw
from the phrase "all comparable export transactions". The Appellate Body
has recognized that Article 2.4.2 allows investigating authorities to use
"multiple averaging" under the weighted average-to-weighted average
comparison methodology. In the case of
that methodology, transactions may be divided into groups, for instance,
according to model or product type.
Because of this possibility, the phrase "all comparable export
transactions" implies that two requirements must be met when investigating
authorities make the comparison by grouping transactions and averaging
them. First, they must include in each
group only those export transactions that are "comparable". Secondly, they must include "all"
comparable export transactions corresponding to that group, and none of these
export transactions may be left out arbitrarily. Such a scenario does not arise in the same way
when comparisons are made under the transaction-to-transaction comparison
methodology. As transactions are not
divided into groups under the transaction-to-transaction comparison
methodology, the phrase "all comparable export transactions" is not
pertinent to that methodology and, consequently, no inference may be drawn from
the fact that this phrase does not appear in relation to the
transaction-to-transaction methodology.
Accordingly, we disagree with the United States' and the Panel's view
that the phrase "all comparable export transactions" would be
deprived of effect and meaning if zeroing were prohibited under the
transaction-to-transaction comparison methodology.
In sum, the results of the transaction-specific comparisons cannot be
considered "margins of dumping" within the meaning of Article
2.4.2. The "margins of
dumping" established under the transaction-to-transaction comparison
methodology provided in Article 2.4.2 result from the aggregation of the transaction-specific comparisons. Article 2.4.2 does not permit an
investigating authority, when aggregating the results of transaction-specific
comparisons, to disregard transactions in which export price exceeds normal
value.
We disagree with the Panel's analysis of the "mathematical
equivalence" argument for several reasons.
First, the United
States acknowledges that it has never
applied the methodology provided in the second sentence of Article 2.4.2, nor
has it provided examples of how other WTO Members have applied this
methodology. Thus, the United States'
argument on "mathematical equivalence" rests on a non-tested
hypothesis. Secondly, we note that the
methodology in the second sentence of Article 2.4.2 is an exception. Article 2.4.2 clearly provides that
investigating authorities "shall normally" use one of the two methodologies
set out in the first sentence of that provision. Neither the participants, nor the third
participants, disagree with this description of the relationship between the
two sentences of Article 2.4.2. Being an
exception, the comparison methodology in the second sentence of Article 2.4.2
(weighted average-to-transaction) alone cannot determine the interpretation of
the two methodologies provided in the first sentence, that is,
transaction-to-transaction and weighted average-to-weighted average.
In sum, we find the concerns of the Panel and
the United States over the third comparison methodology (weighted
average-to-transaction) being rendered inutile by a prohibition of
zeroing under the transaction-to-transaction methodology to be overstated. It could be argued, on the contrary, that the
use of zeroing under the two comparison methodologies set out in the first
sentence of Article 2.4.2 would enable investigating authorities to capture
pricing patterns constituting "targeted dumping", thus rendering the
third methodology inutile.
Thus, our examination of the relevant context in the Anti-Dumping
Agreement and the GATT 1994 does not support the United States'
interpretation that the use of zeroing is permissible under the transaction-to-transaction
comparison methodology in Article 2.4.2 of the Anti-Dumping Agreement.
Conclusion on Canada's Claim under Article 2.4.2
…………..
On the basis of the above analysis, we conclude that zeroing is not
permitted under the transaction-to-transaction methodology set out in the first
sentence of that provision. The
"margins of dumping" established under this methodology are the
results of the aggregation of the transaction-specific comparisons of export
prices and normal value. In aggregating
these results, an investigating authority must consider the results of all of
the comparisons and may not disregard the results of comparisons in which
export prices are above normal value.
We have found that Article 2.4.2 does not admit an interpretation that
would allow the use of zeroing under the transaction-to-transaction comparison
methodology. Therefore, the contrary
view is not a permissible interpretation of Article 2.4.2 within the meaning of
Article 17.6(ii) of the Anti-Dumping Agreement.
For these reasons, we reverse the Panel's finding, in
paragraph 5.66 of the Panel Report, that "the [US]DOC was entitled not to offset
the non-dumped transactions against the dumped transactions when calculating
the margin of dumping for each respondent foreign producer or
exporter." We reverse also the
Panel's conclusion, in paragraph 6.1 of the Panel Report, that "the
determination of the [US]DOC
in the section 129 proceeding investigation is not inconsistent with ...
Article[] 2.4.2 of the [Anti-Dumping] Agreement." We find, instead, that the use of
zeroing by the USDOC in the Section 129 Determination is inconsistent with the United States'
obligations under Article 2.4.2 of the Anti-Dumping Agreement.
We turn next to Canada's
claim under Article 2.4 of the Anti-Dumping Agreement. Before examining Article 2.4, we provide a
brief summary of the Panel's findings and the arguments of the participants and
the third participants.
Article 2.4 of the Anti-Dumping Agreement provides:
A fair comparison shall be made between the
export price and the normal value. This
comparison shall be made at the same level of trade, normally at the ex‑factory
level, and in respect of sales made at as nearly as possible the same
time. Due allowance shall be made in
each case, on its merits, for differences which affect price comparability,
including differences in conditions and terms of sale, taxation, levels of
trade, quantities, physical characteristics, and any other differences which
are also demonstrated to affect price comparability. In the cases referred to in paragraph 3,
allowances for costs, including duties and taxes, incurred between importation
and resale, and for profits accruing, should also be made. If in these cases price comparability has
been affected, the authorities shall establish the normal value at a level of
trade equivalent to the level of trade of the constructed export price, or
shall make due allowance as warranted under this paragraph. The authorities shall indicate to the parties
in question what information is necessary to ensure a fair comparison and shall
not impose an unreasonable burden of proof on those parties. (footnote omitted)
We recall that Article 2.4.2 begins with the phrase "[s]ubject to
the provisions governing fair comparison in paragraph 4". Thus, the application of the comparison
methodologies set out in Article 2.4.2 of the Anti-Dumping Agreement,
including the transaction-to-transaction methodology applied in the
investigation underlying this dispute, is expressly made subject to the
"fair comparison" requirement set out in Article 2.4.
For the reasons set out in this Report, the Appellate
Body:
(c)
reverses the Panel's finding, in paragraphs 5.66 and 6.1 of
the Panel Report, that the USDOC's Section 129 Determination is not
inconsistent with Article 2.4.2 of the
Anti-Dumping Agreement and finds, instead, that the use of zeroing
by the USDOC in the Section 129 Determination is inconsistent with the
United States' obligations under Article 2.4.2 of the Anti-Dumping
Agreement;
(d)
reverses the Panel's finding, in paragraphs 5.78 and 6.1 of
the Panel Report, that the USDOC's Section 129 Determination is not
inconsistent with Article 2.4 of the Anti-Dumping Agreement and finds,
instead, that the use of zeroing in the Section 129 Determination is
inconsistent with the "fair comparison" requirement in Article
2.4; and
(e)
consequently, reverses the Panel's conclusion, in paragraph
6.2 of the Panel Report, that "the United States has implemented the
recommendations and rulings of the DSB in US – Softwood Lumber V, to
bring its measure into conformity with its obligations under the [Anti-Dumping]
Agreement".
The Appellate Body recommends
that the Dispute Settlement Body request the United States to bring its measure
into conformity with its obligations under the Anti-Dumping Agreement.