European Union Anti-Dumping Measures on Biodiesel from Argentina

European Union –Anti-Dumping Measures on Biodiesel from Argentina

(WT/DS473)

Third Participant Written Submission of Australia to the Appellate Body

10 June 2016

TABLE OF CONTENTS

TABLE OF WTO dispute settlement CASES

I.INTRODUCTION

II.Standard of review

III.interpretation of The Anti-Dumping agreement

A.meaning of Article 2.2.1.1

B.meaning of Article 2.2.1.1 - how records reasonably reflect costs

C.meaning of Article 2.2.1.1 - when circumstances are not normal

IV.Maintaining an appropriate degree of flexibility in the Anti-Dumping Agreement

V.CONCLUSION

TABLE OF WTO dispute settlement CASES

I.INTRODUCTION

1. Australia considers that the appeals lodged by Argentina and the EU raise significant issues of legal interpretation of the Agreement on the Implementation of Article VI of the General Agreement on Tariffs and Trade (the Anti-Dumping Agreement).

1. In this submission, Australia addresses the standard of review for a dispute under the Anti-Dumping Agreement, the correct interpretation of Article 2.2.1.1 of the Anti-Dumping Agreement, and the need to give due regard to the flexibility drafted into the Anti-Dumping Agreement.

II.Standard of review

1. The appropriate standard of review taken by a panel in reviewing matters in the context of the Anti-Dumping Agreement is explicitly set out in Article 17.6 of that Agreement.[1] Together with Article 11 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), a panel is required to make"an objective assessment of the matter before it,"[2] determine "whether [the investigating authorities] evaluation of those facts was unbiased and objective,"[3]and "interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law."[4]

1. Article 17.6 of the DSU gives the Appellate Body the mandate to consider "issues of law covered in the panel report, and legal interpretations developed by the panel." Australia submits that this requires the Appellate Body to ensure that interpretations of the Anti-Dumping Agreement are in accordance with "customary rules of interpretation of public international law" as provided under Articles 17.6(ii) of the Anti-Dumping Agreement and 3.2 of the DSU.[5] Australia recalls that the Appellate Body has ruled that the Vienna Convention on the Law of Treaties can serve as a point of reference for discerning the applicable customary rules.[6]In particular, we would note that Article 31.1 of the Vienna Convention on the Law of Treaties requires that a "treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose."

1. Australia’s submission rests on these core principles of interpretation.

III.interpretation of The Anti-Dumping agreement

A.meaning of Article 2.2.1.1

1. A material issue in this dispute is the interpretation of the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement, which reads:

For the purpose of paragraph 2, costs shall normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration.

1. Two questions are of critical importance to this analysis: what it means for records to reasonably reflect the costs associated with production and sale of the product under consideration; and, whether records that accurately detail the actual expenses of the exporter or producer automatically constitute records that must be used in the calculation of costs (provided they also accord with generally accepted accounting principles).

B.meaning of Article 2.2.1.1 - how records reasonably reflect costs

1. Argentina argued before the Panel that the actual expenses of the exporter or producer would always reasonably reflect the costs associated with production in the country of origin. Argentina also argued that the reasonableness of the costs themselves was not something for the investigating authority to question. The Panel agreed:

In sum, we consider that the proper interpretation of "provided such records … reasonably reflect the costs associated with the production and sale of the product under consideration" under Article 2.2.1.1 calls for an assessment of whether the costs set out in a producer's records correspond – within acceptable limits – in an accurate and reliable manner, to all the actual costs incurred by the particular producer or exporter for the product under consideration.[7]

1. However, in Australia’s view, certain situations might compel an investigating authority to look beyond "actual costs" incurred by the particular exporter or producer under investigation. We note that the phrase "reasonably reflects the costs" does not have to require only a reasonable reflection, or reasonable costs. The word "reasonable" relates to both the reasonableness of the reflection, as well as the reasonableness of the costs, depending on the circumstances.

1. In this respect, Australia recalls the Panel’s approach to analysing the calculation of the cost of production in Egypt – Rebar (Turkey),[8] where the Panel considered that it must:

…reach a conclusion as to whether…there was evidence in the record that the short-term interest income was “reasonably” related to the cost of producing and selling rebar, and that the investigating authorities thus should have included it in the cost of production calculation.

1. This supports a reading of Article 2.2.1.1 whereby any element that "reasonably" relates to the cost associated with production and sale should be taken into account, including in relation to inputs or raw materials, and might lead to the adjustment or replacement of certain costs. Australia maintains that Article 2.2.1.1 would be inutile if a country could not look beyond the "actual costs"incurred by exporters and producers under investigation, in determining whether the costs set out in the relevant records "reasonably reflect the costs" for the purposes of the Agreement.

1. Australia recalls that the purpose of costs constructed under Article 2.2.1.1 is to provide a point of comparison for determining a dumping margin where there are no sales of the like product in the ordinary course of trade or where such sales do not permit a proper comparison.[9]In such situations, a holistic analysis of costs is warranted in order to arrive at a proper cost calculation that provides a point of comparison that is closest to a "normal" value.[10] All costs that would be reasonably related to the production of the goods, or at least those that are significant enough to affect the overall production costs, are relevant to such an analysis.

1. The second sentence of Article 2.2.1.1 lends support to this argument, requiring that:

Authorities shall consider all available evidence on the proper allocation of costs, including that which is made available by the exporter or producer in the course of the investigation…

The use of the word "including"suggests that the records of the exporter or producer under investigation may make up only a part of the potentially relevant evidence. So in Australia’s view, to make a proper calculation of costs under Article 2.2, guided by Article 2.2.1.1, an investigating authority must consider all available evidence, not just that made available by the exporter or producer. What evidence is available to an investigating authority will depend on the facts and circumstances of the case.

1. In considering this issue, we highlight the importance of the principles of treaty interpretation under public international law, raised earlier in our submission, and submit that the Appellate Body consider the ordinary meaning of Article 2.2.1.1 in light of the object and purpose of the Anti-Dumping Agreement. While we note that the object and purpose is not explicit in the Anti-Dumping Agreement, we consider that the Panel’s finding in paragraph 7.238 of its report that arguments about the object and purpose did not play any role in interpreting Article 2.2.1.1 of the Anti-Dumping Agreement is erroneous. This is contrary to the position taken by the Appellate Body in U.S. – Continued Zeroing:

a treaty interpreter is required to have recourse to context and object and purpose to elucidate the relevant meaning of the word or term. This logical progression provides a framework for proper interpretative analysis.[11]

1. If the Panel’s approach were upheld, it would be a dismissal of the relevance of Article 31 of the Vienna Convention on the Law of Treaties, contrary to the explicit requirements of both Article 3.2 DSU and Article 17.6(ii) of the Anti-Dumping Agreement.

C.meaning of Article 2.2.1.1 - when circumstances are not normal

1. The first sentence of Article 2.2.1.1 establishes, in Australia’s view, a rule which "shall normally" be followed in constructing the costs of production referred to in Article 2.2. The meaning of this was considered by the Panel, and Australia agrees with some parts of that analysis. In particular, the Panel found in paragraph 7.227 that:

The opening phrase "[f]or the purpose of paragraph 2" makes clear that Article 2.2.1.1 elaborates on how the "cost of production in the country of origin" in Article 2.2 is to be determined in constructing the normal value in the circumstances mentioned above. The first sentence of Article 2.2.1.1 also establishes the records of the investigated producer as the preferred source of information for the establishment of the costs of production. The term "shall" in this first sentence of Article 2.2.1.1 indicates that it establishes a mandatory rule in this respect,377 whereas the term "normally" suggests that this rule may be derogated from under certain conditions.378 In that regard, the first sentence of Article 2.2.1.1 expressly provides for two circumstances in which an investigating authority need not follow the general rule to calculate costs on the basis of the records kept by the producer/exporter under investigation.379 In the case before us, the investigating authority explicitly relied on the second of these conditions, namely that the records do not reasonably reflect the costs associated with the production and sale of the product under consideration.380[12]

1. Australia agrees with the Panel’s analysis that the "term 'normally' suggests that this rule may be derogated from under certain conditions." This approach is consistent with the previous points made by thePanel in China – Broiler Products (US):[13]

…although Article 2.2.1.1 sets up a presumption that the books and records of the respondent shall normally be used to calculate the cost of production for constructing normal value, the investigating authority retains the right to decline to use such books if it determines that they are either (i) inconsistent with [generally accepted accounting principles - GAAP] or, (ii) do not reasonably reflect the costs associated with the production and sale of the product under consideration.

1. Australia therefore submits that panels have found on multiple occasions that there could besituations which are not "normal",where the records of a producer or exporter’s costsshould not determine what constitutes costs under Articles 2.2.1.1 and 2.2. This flexibility is important, and guidance on which scenarios may be regarded as abnormal, like the indicative list in paragraph 7.232 of the Panel’s report, ought not unduly limit that flexibility.

IV.Maintaining an appropriate degree of flexibility in the Anti-Dumping Agreement

1. The Anti-Dumping Agreement is drafted in a manner which accommodatesa range of scenarios which could arise in anti-dumping investigations. Flexibility ought to be maintained to ensure investigating authorities can exercise discretion where appropriate.

1. Australia supported the Panel’s finding that it considered it "unnecessary to express any views on any potential derogations other than that specifically invoked and relied upon by the European Union."[14] This is an appropriate approach to clarifying provisions of the Anti-Dumping Agreement, which we respectfully request also be applied in this instance by the Appellate Body.

V.CONCLUSION

1. Central to this dispute are important issues of legal interpretation concerning the application of Article 2.2.1.1 against the facts of this case, and the interplay of Article 2.2.1.1 with the appropriate standard of review.

1. Australia is of the view that an investigating authority should be permitted to consider whether the costs as reflected in the records of the exporter or producer are reasonable and, where they are not, to adjust or replace them in an appropriate manner. Also, we recognise that there are opportunities to go beyond records of exporters and producers under investigation where situations are abnormal. The Anti-Dumping Agreement’s drafting provides that flexibility, to be used in appropriate circumstances.

1

[1] Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 130.

[2] DSU, Article 11.

[3] Anti-Dumping Agreement, Article 17.6(i).

[4] Anti-Dumping Agreement, Article 17.6(ii).

[5]Article 3.2 of the DSU explicitly states that the dispute settlement system should “clarify the existing provisions of [the] agreements in accordance with customary rules of interpretation of public international law.”

[6] Appellate Body Report, US-Gasoline, page 23.

[7] Panel Report, EU –Biodiesel, para. 7.247.

[8] Panel Report, Egypt – Rebar (Turkey), para. 7.393.

[9]Anti-Dumping Agreement, Article 2.2.

[10]Anti-Dumping Agreement, Article 2.1.

[11]Appellate Body Report, US – Continued Zeroing, para. 268.

[12] Panel Report, EU –Biodiesel, paragraph 7.227, footnotes omitted.

[13] Panel Report, China – Broiler Products (US), para. 7.164.

[14]Panel Report, EU –Biodiesel, footnotes 380 and 388.