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10 September 2015

Enhancing effectiveness of enforcement – Retreading trade remedy law

by Manoj Gupta


As a top merchandise trader, just behind China [see end note1], the USA is a huge import destination and a frequent user of the Anti-dumping instrument, USA is not new to innovations in AD laws and has already been through the Bryd Amendment which sought to distribute the revenue from AD levies among petitioners alone and was termed as not compatible with the WTO agreement. Recently USA’s trade remedy laws have been relaxed in favour of its domestic industry with significant changes both in anti-dumping and countervailing measures. Substantial changes have been made in this regard in the Tariff Act of 1930 by the American Trade Enforcement Effectiveness Act which was part of the larger Trade Preferences Extension Act of 2015. The Act was made into law after the same was signed by the US President on 29th of June. Let us analyse some of the major changes.

 

Material injury – Effect of profits of domestic industry

Section 771(7) of the Tariff Act [19 USC 1677(7)] relating to analysis of ‘material injury’, has been amended to provide for consideration of not only ‘profits’ but specifically ‘gross profits’, ‘operating profits’ and ‘net profits’, when the International Trade Commission (ITC, Commission)  evaluates the impact of dumped goods on the domestic industry. Further, while determining ‘material injury’, the ITC would have to specifically consider ‘ability to service debt’ and ‘return on assets’, and see whether the imports cause injury to the domestic industry. It is noteworthy that even the un-amended provisions made it mandatory for the Commission to evaluate all relevant economic factors which have a bearing on the state of the industry in the USA, including but not limited to what was stated.

Article 3.4 of the WTO’s Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-dumping Agreement, ADA) also states that the list, as specified there, is not exhaustive and that various factors have to be considered for the purpose of determination of material injury. It may be noted that the preposition that in a particular case, the examination of relevant economic factors other than those listed in Article 3.4 could also be required, was further reiterated in DSB’s panel/Appellate Body report in Mexico – Corn Syrup, US – Hot rolled Steel, and Korea – Certain paper. Therefore, ‘gross profits’, ‘operating profits’, ‘net profits’, ability to service debt’, and ‘return on assets’, could be considered even before this amendment to conclude ‘material injury’ or absence of the same.

Further, another amendment has been made in the provisions which prohibit the Commission from finding absence of material injury, merely because the domestic industry is profitable or because the performance of that industry has recently improved. It is already known that just on the basis of profits the ITC cannot conclude absence of material injury, and that other factors have also to be considered [refer, WTO’s report in EC – Bed linen, US – Hot rolled Steel, etc.]. This specific prohibition further highlights the same, and addresses the apprehension of the domestic industry that Commission may find absence of material injury just because the domestic industry is showing profits.

 

Adverse facts available – No need to corroborate data

Section 776 of the Tariff Act (19 USC 1677e) has been amended to state that the administrative authority and the Commission shall not be required to corroborate any dumping margin or countervailing duty applied in a separate segment of the same proceeding, when the administering authority relies on secondary information, in case of uncooperative exporter. Further, specific provisions have been made to provide for more discretion to the authorities in determination of subsidy rates and dumping margins. The authority may now use a countervailing subsidy rate applied for the same or similar program in a countervailing duty proceeding involving the same country or in absence of same, use a countervailing subsidy rate for a subsidy program from a proceeding that the authority considers reasonable to use. In case of anti-dumping proceeding, the authorities have been given discretion to use any dumping margin from any segment of the proceeding under the applicable anti-dumping order.

It is further elaborated that the US authorities are not required to determine or make any adjustment to a countervailing subsidy rate or weighted average dumping margin based on any assumptions about the information the interested party would have provided if they had complied with the request for information. The authorities are further under no obligation to demonstrate that the countervailing subsidy rate or the dumping margin used reflects the alleged commercial reality of the interested party.

It may be noted that US Court of International Trade has been always of the view that corroboration of the data is required when secondary information is used by the department [refer, Slip Opinion dated 15-10-2012 by the US Court, in the case of Essar Steel Ltd.]. Further, recently the DSB’s Appellate Body, in a dispute between USA and India (DS36), has also held that Article 12.7 of the SCM Agreement places an obligation of conduct on investigating authorities to provide reasoning and evaluation to justify the selection of a given ‘fact’, on par with the standard applicable under Article 6.8 read with Annex-II of the ADA. The Appellate Body specifically found that “Article 12.7 requires an investigating authority to use facts available that reasonably replace the missing necessary information with a view to arriving at an accurate determination, and that this also includes an evaluation of available evidence”[emphasis ours].

While both the ADA and SCM provide that ‘investigation, preliminary and final determinations, affirmative or negative, may be made on the basis of the facts available’ if the interested member or parties refuses to provide information, leaving the matter entirely to the discretion of the ITC may not be what is envisaged by the WTO agreements. It is often said that imposition of AD is more a subjective exercise though efforts are taken to make it as objective (fair) as possible relying on data and providing an opportunity to the foreign exporters to establish that there is no dumping etc.   The amendments seem to make the exercise more subjective.

 

Other notable changes

In respect of computation of cost of production in the exporting country, Section 771(15) of the Tariff Act (19 USC 1677(15)) and Section 773(e) (19 USC 1677b(e)) have been amended to specifically provide that if a particular market situation exists such that cost of material, fabrication or processing do not reflect the cost of production accurately, the authority may use another calculation methodology. There is no clear definition as to what is a ‘particular market situation’.

Discretion has also been given to the authorities to disregard certain price or cost values, in case of computation of normal value of exports from a non-market economy. The authority can now disregard price or cost without further investigation if it has determined that broadly available export subsidies existed or particular instances of subsidization occurred with respect to those price/costs or if the same were subject to anti-dumping order.

Lastly, Article 6.10.2 of the ADA places an obligation on the authorities to determine individual margin of dumping for any exporter or producer not initially selected, except where the number of exporters or producers is so large that individual examination would be ‘unduly burdensome’ to the authorities. This process of selection, also known as ‘sampling’ is prevalent in various jurisdictions, particularly in EU, though it is used only sparingly in India. Now, specific provisions have been made for the purpose of determination of ‘unduly burdensome’. The authorities in this regard may consider complexity of the issues, any prior experience, total number of investigations, and such other factors relating to timely completion of each such investigation/review as the authority considers appropriate.

Therefore, what we see is another discretion given to the authorities in respect of the trade remedy measures.

 

Conclusion

While the measures may not be immediately subject to challenges in the WTO, they have not been welcomed alike by all sections even in the US. For instance a former chairman of the ITC [see end note 2] has voiced concern over the increased litigations which the amendments may bring about.  It remains to be seen whether other member countries will allow the same level of discretion for their agencies.
   
[The authors are Manager and Principal Associate, respectively, Lakshmikumaran & Sridharan, New Delhi]

 

End Notes:

  1. International Trade Statistics 2014 , https://www.wto.org/english/res_e/statis_e/its2014_e/its2014_e.pdf
  2. http://www.cato.org/publications/commentary/leveling-playing-field-us-manufacturers

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