On 30 November 2007, Ambassador Guillermo Valles (Uruguay), Chairman of the Negotiating Group on Rules (NGR), released the Draft Consolidated Texts containing numerous proposed changes to the WTO Anti-Dumping (AD) and Subsidies and Countervailing Measures (SCM) Agreements [note 1]. The inclusion of a revision and tightening of the AD and SCM rules in the negotiations under the Doha Work Programme (DWP) had been supported by a number of WTO members, including the EU, Japan, Korea, Canada and some Latin American countries. In the transmittal message, Ambassador Valles noted that the Doha Declaration directed “negotiations aimed at clarifying and improving disciplines under the AD and SCM Agreements – and clarifying and improving WTO disciplines on fisheries subsidies – while preserving the basic concepts, principles and effectiveness of those Agreements.”[note 2] In the six succeeding years, delegations proposed many changes to these Agreements which were considered in dozens of formal and informal NGR meetings. Many of the proposals were controversial and prompted vigorous debate. The following summary of Chairman Valles does not purport to analyse each of these proposed modifications. Instead, it is intended to be a description and objective analysis of the major issues that are now on the table.

I. Introduction

1. In recent years, the number of users of anti-dumping and subsidies has been on the increase (although in the latest report of the WTO Secretariat noted a sharp decline in initiations of anti-dumping investigations) [note 3]. The trend has been a more active role of developing countries in the application of anti-dumping measures, both as initiators as well as subjects of investigations and AD measures applied to their exports; thus, the high importance assigned to these negotiations not only by developed, but also by developing countries.

2. The draft legal texts released by Ambassador Valles on 30 November 2007 were presented with the objective “of stimulating serious reflection by Participants on the broad parameters of possible outcomes to the negotiations….” There are no brackets or blanks in the draft texts because they are to be considered “bracketed in their entirey”. Accordingly, Ambassador Valles requested participants “to treat the texts as documents for intensive and detailed work in the Group”. Indeed, it is anticipated that after further work in NGR meetings in January and February 2008, revised draft texts will be circulated if Ambassador Valles has a “sufficient basis to do so”.

3. In the drafts, which are available on the WTO website, new proposals are underscored and proposed deletions in the existing Agreements are lined through.

4. The Chairman also clarifies that the draft texts do not reflect all the issues in proposals received by the NGR. These could be included in a subsequent revision. He also notes that in drafting the texts he has acted on the general principle that the text should achieve a balance between the interests of all Participants.

5. The Director-General welcomed the Chairman’s draft texts as “ambitious and balanced” however, not all members were in agreement. Reactions from members to the Chairman’s text on anti-dumping were almost unanimous in considering it unbalanced and heavily favouring the US position. In particular the text drew sharp criticisms from Japan and the “Friends of Anti-Dumping”[note 4], who oppose the controversial anti-dumping practice known as “zeroing”. These members considered the text as a radical setback for the jurisprudence of the Appellate Body, which has found zeroing violates the AD Agreement [note 5]. The US made it clear that, although disappointed with important aspects, it considered the text as a basis for further negotiations.

6. Another issue on which members had large differences is the sunset reviews. Several members insisted on introducing tighter disciplines. Japan, Norway and Singapore had argued for automatic termination of AD and countervailing orders after five years. China proposed that AD duties in force more than five years be automatically suspended (or transformed into provisional measures pending a review) and that no duty order should be in effect more than 10 years. The Chairman’s text proposes an automatic termination after 10 years. The US has opposed any automatic termination.

7. Regarding the relation of the rules negotiations to other important negotiating areas, such as agriculture and Non-Agricultural Market Access (NAMA), some members have insisted that a revised rules text is necessary before engaging in the more intense “horizontal” negotiations on NAMA and agriculture. Indeed, this position has been firmly defended by those interested in advancing on the rules negotiations, led by Japan but supported by the “Friends” and the ACP countries. The ACP group is interested in special and differential treatment for developing countries targeted by anti-dumping measures. The WTO Director-General urged members to focus on agriculture and NAMA and not to overload the agenda for a possible ministerial meeting in the spring by insisting on a revised text as a precondition for starting the horizontal process.

II. Proposed Changes to the Anti-Dumping Agreement

A. Offsets for “Undumped” Transactions: Zeroing

8. Article 2.4 of the AD Agreement requires that a “fair comparison shall be made between the export price and the normal value”. In applying this provision, certain countries have disregarded non-dumped transactions, the practice known as zeroing. Under this practice, which usually has the effect of raising margins for the product under investigation, no offset is allowed for imports that are priced higher than the home market price [note 6]. Zeroing was considered in the Uruguay Round, but proposals to curb its use were controversial and none were included in the Final Act. Notwithstanding this negotiating history, the WTO Appellate Body has found in a number of decisions that zeroing is inconsistent with Articles 2.4 and 9.3 of the AD Agreement.

9. These decisions have been forcefully denounced by the US, which “has been very troubled by the severely flawed reasoning used by the Appellate Body in the zeroing disputes”. Considerable interest in this issue has been shown by members of Congress who have declared that they cannot imagine a result in the Rules negotiations that does not address the US concerns about mandatory offsets or zeroing. On the other hand, Japan, which has taken the lead in challenging zeroing in the WTO Dispute Resolution, has urged confirmation of the Appellate Body decisions with considerable support from other delegations.

10. Currently, Article 2.4.2 provides that margin calculations shall “normally” be based on a comparison of average normal value during the period of investigation to average import prices in the same period. A new Article 2.4.3(i) in the Chairman’s text would clarify that zeroing would not be allowed in average to average comparisons: the proposed language states that a member may not disregard “the amount by which the export price exceeds normal value” when comparing “weighted average normal value with a weighted average of prices of all comparable export transactions”. However, proposed Articles 2.4.3(ii)-(iii) would permit Members to use zeroing in the following situations: when comparing “normal value and export prices on a transaction-to-transaction basis”, and when comparing “individual export transactions to a weighted average normal value”. In addition, proposed Article 2.4.3(iii) would authorise the use of zeroing in all calculations in an administrative or sunset review pursuant to Articles 9 or 11.

B. Injury Determinations: Causation

11. Article 3.5 currently requires that members demonstrate that “dumped imports are, through the effects of dumping, [...] causing injury” to the domestic industry producing the like product. Various delegations have questioned Appellate Body decisions that appear to require a quantitative assessment of the relative effect of the various causes of injury that may be present (e.g., dumped imports, recession, etc.). The proposed text states that “the authorities should seek to separate and distinguish the injurious effects of such other factors from the injurious effects of dumped imports.” However, the proposal also provides that such an analysis may be based on a qualitative analysis of the evidence, rather than a quantitative assessment. Moreover, WTO Member authorities “need not quantify the injurious effects attributable to dumped imports and to other factors, nor weigh the injurious effects of dumped imports against those of other factors.”

C. Threat of Injury Determinations: State of the Domestic Industry

12. Affirmative dumping determinations may be made where there is a threat of injury even if there is no present injury to the domestic industry. Article 3.7 currently provides that a threat determination “shall be based on facts and not merely on allegation, conjecture or remote possibility.” To aid in this analysis, Article 3.7 now provides a list of factors that are to be considered in threat of injury determinations (e.g., import trends, foreign capacity utilisation, import pricing, etc.). The proposed revision of Article 3.7 would additionally require authorities to consider the “state of the domestic industry during the period of investigation […] in order to establish a background for the evaluation of threat of material injury.”

D. Injury Based on Material Retardation of the Domestic Industry

13. In addition to present, and threat of, injury findings, Article VI of GATT 1994, provides that an injury determination may also be made where there is material retardation of the domestic industry, but there is no elaboration of this provision in the AD Agreement. Several delegations have suggested that a clarification of the meaning of “material” retardation would be useful for developing economies with emerging domestic industries. The Chairman’s proposed Article 3.9 would add a new paragraph requiring that any determination of material retardation of the establishment of a domestic industry must be based on “facts and not merely on allegation, conjecture or remote possibility.” The draft text states that an industry may be considered to be in establishment where “a genuine and substantial commitment of resources has been made.” In examining the impact of dumping, members may consider “installed capacity, investments made and financing obtained, and feasibility studies, investment plans or market studies.” Proposed footnote 15 to this provision would allow authorities to consider that an industry is in establishment even when there are established producers, provided they cannot meet local demand and their capacity is 10 per cent or less of such demand.

E. Domestic Industry Definition: Producers that are also Importers

14. Article 4.1 currently defines the domestic industry as the domestic producers as a whole of products “like” the products under investigation, but also provides that members are permitted to exclude from the “domestic industry” domestic producers that are related to the exporters or importers, or are themselves importers of the like product. This option allows the domestic industry to be defined as the “remaining producers,” an option which has implications for standing and the injury determination. For example, exclusion of highly profitable producers that are also importers from the domestic industry could make the financial profile of the “remaining producers” in the industry more consistent with an injury determination. The proposed text includes a new footnote 17 to Article 4.1, which articulates criteria that the authorities must consider when determining whether to exclude from the domestic industry any producers that also import subject merchandise. These include an assessment whether the producer’s imports of the like product are small relative to the total domestic output of the domestic producer. If the imports are “small” in relation to total output, that “would normally favour a conclusion that the producer should not be excluded from the domestic industry”. There is no definition of “small.”

F. Initiation of Investigations

15. Article 5.2 of the AD Agreement specifies the information that should be included in a petition to the authorities to initiate an anti-dumping investigation. An amendment proposed for Article 5.2(i) would add the requirement that, “to the extent reasonably available to the applicant”, information should be included in the petition specifying the producers supporting the application, the identity of all known domestic producers and the volume and value of all domestic production of the like product.

G. Single Product under Consideration

16. A new Article 5.6bis provides that an anti-dumping investigation may be initiated and conducted, and a determination of dumping, injury and causal link shall be made, only with respect to a “single product under consideration.” The “single” product is informed by the definition of “like” product. If in the course of the investigation the authorities find that products have been improperly included (e.g., products that are not “like’), the authorities must exclude such products from the scope and only make determinations with respect to the product under consideration.

H. New Petitions after a Negative Determination

17. Proposed Article 5.10bis would preclude the initiation of new investigations where a previous investigation of the same product resulted in a negative determination within a year prior to the filing of the application. The authorities could, however, waive this limitation where there are “changed circumstances”, a term that is not defined.

I. Use of Facts Available for Uncooperative Affiliated Parties

18. Article 6 of the AD Agreement lays down numerous rules concerning the collection of evidence during an investigation. When a party refuses – or otherwise does not provide, requested information – the authorities are allowed to make determinations “on the basis of the facts available”. Where an interested party is “non-cooperative,” the authorities can use adverse inferences in the consideration of the best available evidence. A number of delegations proposed clarification of the “best evidence” rule in the case of affiliated parties and there are significant changes in the proposed text on this point.

19. A new Article 6.1 would authorise authorities to request interested parties to supply information necessary for the conduct of investigations “including information in the possession of parties that are affiliated to those interested parties”. Proposed Article 6.8.1 deals with requests to affiliated parties that are non-cooperative: if an interested party demonstrates that it does not control the affiliated party, then the authorities would be expected to consider withdrawal of the request, taking into account the importance of the information demanded. When the authorities decide to insist on the request for information, they should use best efforts to support the interested party’s attempts to obtain the information. If, despite the best efforts of the interested party, the affiliated party still does not provide the information, the authorities may base their determination on the facts available. In these circumstances, however, the interested party shall not be deemed non-cooperative and the authorities may not apply adverse inferences.

20. Footnote 31 to the proposed Article 6.8.1 would add a definition of “control.” Specifically, one party shall be deemed to “control” another “when the former is legally or operationally in a position to exercise restraint or direction, or to exercise significant influence, over the other”. In making this assessment, the authorities “may” take into account “direct or indirect shareholdings and any contractual, legal or family relationship between the parties”.

21. Annex II of the current Agreement provides further guidance on the use of best information. Paragraph 2 of the Annex states that authorities “may” request that information required from an interested party be provided in a particular medium or computer language. When such a request is made, there are a number of guidelines which at present are permissive (e.g., the authorities “should” not maintain a request for a computerised response if the interested party does not maintain computerised accounts and presenting the response as requested would entail unreasonable cost). The proposed Annex would make these guidelines mandatory.

22. In the same manner, paragraph 6 of the Annex, which deals with further steps after information requested is not accepted by the authorities, would be changed by making the requirements mandatory rather than permissive.

J. Transparency: Investigation Records and Public Notices

23. Article 6 would also be amended by the proposed text to augment the requirements concerning the treatment of evidence collected in an investigation. Proposed Article 6.4bis would require authorities to maintain a file of all non-confidential documents submitted in an investigation as well as summaries of confidential information. The file would also have to include a complete index of all documents in the file. Authorities would be required to “promptly” (within two working days) allow the public access to all documents in the file and to make copies.

24. In addition, proposed Article 6.9bis requires disclosure to the importer of the calculations used in calculating the “margin of dumping.” In addition, the disclosure “shall be in sufficient detail to permit the interested party to reproduce the calculations without difficulty”.

25. Additional transparency requirements are spelled out in Proposed Article 12 which details the content that would be required in public notices of an investigation and of provisional measures.

K. Consideration of the Public Interest

26. Currently, Article 9.1 of the AD Agreement states that it “is desirable that the imposition [of anti-dumping duties] be permissive…and that the duty be less than the margin if such lesser duty would be adequate to remove the injury to the domestic industry”. A number of delegations proposed that this “lesser duty” calculation be mandatory. The opposition to this proposal pointed out that there is no way to objectively determine a lesser duty adequate to remove the injury and that in any event, the full amount of the duty is necessary to restore the competitive balance that is distorted by dumping.

27. The proposed text would amend article 9.1 by deleting the lesser duty language quoted above. In its place, a new sentence would be added which would require each member to establish procedures “to enable its authorities, in making such decisions…to take due account of representations made by domestic interested parties whose interests might be affected by the imposition of an anti-dumping duty”. Domestic interested parties would be defined in a new footnote to include industrial users of the imported and domestic product, input suppliers, and representative consumer organisations. These procedures would only be required in initial investigations, and the application of these procedures, and decisions made in accordance with them, would not be subject to WTO dispute settlement.

L. New Shipper Reviews

28. Article 9.5 provides for the determination of individual margins of dumping for exporters or producers who did not ship during the period of investigation (“new shipper reviews”). The proposed text makes extensive revisions to the new shipper review procedures in Article 9.5. First, the new shipper will be required to demonstrate that it has engaged in bona fide sales in commercial quantities. There are new timelines and notification requirements for considering and completing new shipper review requests. The authority will have three months to consider an application and a total of nine months to make a final determination. The text also revises existing deposit requirements in new shipper reviews, requiring the release of guarantees and bonds upon the collection of duties.

M. Circumvention of Orders

29. Once an anti-dumping order is in place, duties are collected only on products that are identified in the scope of the order. Noting that “circumvention” of orders was not addressed in the Uruguay Round, certain delegations proposed to the NGR that new rules be established to deal with circumstances where there are modifications of an imported product, or shipment of components for domestic or third country assembly, that result in importations that are not covered by the scope of an anti-dumping order. Article 9bis of the proposed text specifies the circumstances in which the scope of an existing anti-dumping duty order may be enlarged to include imports that circumvent the order, including imports of unfinished forms of a product for further assembly or completion, imports of products assembled or completed in a third county, and imports of slightly modified products.

30. In considering these provisions, it is important to recall that after a finding of dumping, there must be a determination that the products that are dumped are a cause of injury (or threat of injury) to the domestic industry. That analysis is based on the products that are described in the scope of the investigation. If the scope only refers to finished products, the authorities will not evaluate whether, for example, imports of parts and components are a cause of injury. Therefore, if the scope is enlarged after a final determination to include parts and components, those items will be subject to an anti-dumping duty even though there has been no finding that they are a cause of injury (or threat of injury) to the domestic industry. Since Article VI of GATT 1994 requires an injury finding before anti-dumping duties can be imposed, the opportunity to expand the scope of an investigation to prevent circumvention is limited. This constraint explains the carefully crafted circumvention proposals that are advanced in the draft texts, although there is obviously room for disagreement about the limitations that are on the table.

31. The proposed circumvention provisions can only be applied if the authorities determine that, after the imposition of anti-dumping duties, imports subject to the order have been supplanted, in whole or part, by (i) imports of parts or unfinished forms of a product for assembly; (ii) imports that have been assembled in a third country from parts or unfinished forms of a product imported from a country subject to the order; and (iii) imports of a slightly modified product. Proposed footnote 43 indicates that in evaluating whether imports subject to an order have been supplanted, pertinent factors include whether there has been a change in patterns of trade by the importers subject to the order, the timing of the change and any arrangement between the exporter and a third party. In addition, it must be shown that imports undermine the remedial effect of the duty.

32. With respect to the three situations that are covered by the new provisions, there are very detailed requirements that must be met before the order can be enlarged. For example, a slightly modified product is defined in proposed footnote 44 as a product that has the “same general characteristics as the product….” that is covered by the scope. The proposed footnote goes on to describe pertinent factors to be considered, including physical characteristics, purchaser expectations, end uses and channels of trade. The other circumvention possibilities are subject to similar constraints, all of which are informed by the injury issue described above.

N. Sunset Reviews of Anti-Dumping Duties

33. Article 11.1 of the AD Agreement provides that duties “shall remain in force only as long as and to the extent necessary to counteract dumping which is causing injury”. This provision is complemented by Article 11.3, which establishes procedures for sunset reviews of anti-dumping orders which are currently required every five years. These reviews consider whether dumping is likely to continue and, if so, whether continuation of the order is needed to prevent recurrence of the injury to the domestic industry. Proposals were presented to the NGR to modify the sunset provisions, including a proposal to automatically terminate orders after five years.

34. The proposed new Article 11.3.1 provides that, except in special circumstances, a review under Article 11 must be initiated upon a written application “by or on behalf of the domestic industry”. This standing requirement is new and may be waived in special circumstances, pursuant to proposed Article 11.3.2, if the authorities have “sufficient evidence to warrant an examination as to whether dumping and injury are likely to continue or recur should the duty expire”. The petition for review must include information on developments in the condition of the industry and the potential impact of the continuation or recurrence of dumping. Member authorities may not initiate such a review unless and until they have made a determination that there is sufficient evidence to warrant a review or at least that the application is made by or on behalf of the domestic industry.

35. Proposed Article 11.3.4 establishes guidelines for a member’s determination of the likelihood of recurrence of material injury. Such a determination must be “based on positive evidence and involve an objective examination of all relevant factors”. The authorities may not rely on presumptions to “assign decisive weight to particular factors”. The proposed rule further provides that “no one or several factors can necessarily give decisive guidance”. A footnote clarifies that the authorities shall not assign decisive weight to specific factors relying on presumptions.

36. Article 11.3.5 of the proposed text provides that if an order is extended after the first five year anniversary, it must be terminated “not later than ten years after the date of the imposition of the anti-dumping duty”.

O. Review of Members’ Anti-Dumping Policies

37. Revised Article 18.6 proposed Annex III requires that the WTO periodically review the anti-dumping policies and practices of individual member states as a means of contributing to transparency and understanding among members. In particular, Annex III provides that such reviews must be conducted on the basis of a factual report prepared by the Secretariat and an optional report from the member. Over the course of five years beginning one year after the implementation of the negotiations under the DWP, the WTO will review the twenty members with the most anti-dumping measures in force as of the beginning of the five-year period. Subsequently, the list of countries subject to review will be reformulated at the beginning of each five-year period and will include the twenty most active members, as well as any members that have initiated five investigations or more during the five year period. Proposed Annex III includes other procedural mechanisms, including a checklist of factors against which the WTO may judge a particular country’s anti-dumping policies and practices.

P. On-the-Spot Investigation (Verification)

38. The proposed revisions to Annex I of the AD Agreement remove much of a member authority’s discretion in conducting verifications of the accuracy of information provided by an interested party by changing “should” to “shall” in most instances. The revised Annex I also alters the timeline for conducting verifications, requiring 21 days notice of a planned on-the-spot investigation and ten days notice of all topics to be covered during the verification. The proposed revisions also require member authorities to provide a written report of the results of the verification.

Q. Transposition of the AD Revisions to the SCM

39. In the introduction to the draft texts, Ambassador Valles noted that “there has been broad acceptance that changes to the anti-dumping rules should, where relevant and appropriate, also be made to the rules regarding countervailing measures…” However, those changes have not at this time been transposed into the countervailing duty text, “because such a transposition would require further technical discussion.”

III. Proposed Changes to the Subsidies Agreement

40. This analysis considers specific changes proposed to the Subsidies Agreement other than the transposition issues described above; moreover, it does not analyse the proposals concerning fisheries subsidies [note 7].

A. Prohibited Subsidies

41. Article 3.1 of the SCM prohibits “subsidies contingent” in law or fact upon export performance, including those “illustrated” in Annex 1. The proposed text would delete the reference to Annex 1 and instead add a footnote that would transform Annex 1 from an illustrative list to a definitive list. Hence, Annex 1 would be binding on members rather than illustrative. Moreover, Annex 1 is not exclusive; measures can be deemed an export subsidy even if not on the list.

B. Displacing or Impeding Imports

42. Article 5 now provides that no member should, through the use of a subsidy, cause “serious prejudice” to the interests of another member. In turn, serious prejudice is considered in Article 6.4. Now serious prejudice analysis includes an evaluation of whether subsidies provided by a member displace or impede exports of a like product of a member into a third country market. Section 6.4 would extend the serious prejudice analysis to whether the subsidies paid by an importing member have benefited domestic producers to the detriment of imports; i.e., by resulting in the increased sale of domestic products that displace imports.

C. Benefits from Provision of Goods Subsidies

43. Article 14.1(d) currently provides rules for determining whether the provision of goods or services (or purchase of goods or services) by a government bestows a benefit. The proposed text would provide that where the government regulates the price level of goods or services, the adequacy of remuneration shall be determined from market prices in sales of the good or service at unregulated prices, with adjustments for quality, availability, marketability, and other conditions of sale. If there is no unregulated price in the country, prices for the good or service can be determined from prices outside the country, subject to the same adjustments.

D. Pass-Through of Subsidised Inputs

44. Proposed Article 14.2 would deal with the situation where a member subsidises production of an input product, and this input is used in production of a downstream product. If that downstream product is exported to another member, the second member can only impose countervailing duties on the downstream product if the producers of the input were related to the downstream producers, or if the downstream producers obtained the input on terms more favourable than would otherwise have been commercially available to them in the market. A new footnote 47 would allow consideration of third country or world prices in special circumstances, including circumstances where the effect of the subsidy is so substantial that relevant domestic prices are distorted.

E. Allocating or Expensing Subsidies

45. Proposed Article 14.3 would provide that “the methods used by the investigating authority to attribute subsidy benefits to particular time periods shall be consistent with the following guidelines.” It then provides criteria for deciding whether subsidy benefits should be expensed in full in the year of receipt, or allocated (and countervailed) over a period of time.

Acronyms

Note 1: TN/RL/W/213, Draft Consolidated Chair Texts of the AD and SCM Agreements, 30 November 2007. (return to text)

Note 2: Ministerial Declaration, Ministerial Conference, Doha, 14 November 2001 (WT/MIN(10)/DEC). (return to text)

Note 3: The WTO Secretariat reported a sharp decline in the number of initiations of new anti-dumping investigations in the period 1 January-30 June 2007, which dropped by 47 per cent compared with the number during the corresponding period of 2006. Similarly the number of new anti-dumping measures also saw a decline of 20 per cent. (return to text)

Note 4: This group demands greater reform on trade remedy laws so that they do not undermine competition . It is coordinated by Japan and includes Brazil, Chile, China, Chinese Taipei, Colombia, Costa Rica, Hong Kong, Israel, Korea, Mexico, Norway, Singapore, Switzerland, Thailand and Turkey. (return to text)

Note 5: This method used for the calculation of an overall dumping margin consists of assigning a vale of zero to negative dumping margins (i.e. instances when the price in the export market is higher than in the home market, thus no dumping occurs) , instead of the taking into account the actual negative amounts when comparing export prices and normal prices of a given product. (return to text)

Note 6: For example, if the normal value is USD 20, an import sale at USD 30 would be deemed to have been made at USD 20. No offset would be allowed for the amount by which the sale exceeded normal value. (return to text)

Note 7: The Fisheries Subsidies will be the subject of a separate AITIC Background Note. (return to text)