10 Sep 2019

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WTO Appellate Body issues Report in the Korea-Japan Dispute concerning Anti-Dumping Duties Imposed by the Government of Korea on Certain Pneumatic Valves from Japan

On 10 September 2019, the Appellate Body of the World Trade Organization (WTO) Dispute Settlement Body (DSB) issued its report inKorea – Anti-Dumping Duties on Pneumatic Valves from Japan (DS504). The underlying dispute concerned the definitive anti-dumping duties imposed by Korea on imports of pneumatic valves originating from Japan following the investigation conducted by the Korea Trade Commission (KTC) and the KTC’s Office of Trade Investigation (OTI). The Panel Report in this dispute was issued on 12 April 2018. In this appeal, both Japan and the Republic of Korea (Korea) appealed certain issues of law and legal interpretations developed in the Panel Report.

Before the Panel, Korea had challenged the sufficiency of Japan’s request for the establishment of a panel. The Panel had assessed each of Japan’s claims to determine whether each claim fell within its terms of reference under the legal standard outlined in Article 6.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). For each claim that the Panel found to be within its terms of reference, it then proceeded to examine the merits pursuant to the relevant provisions of the Agreement on Implementation of Article VI of the GATT 1994 (Anti-Dumping Agreement). On appeal, the Appellate Body applied the same approach to the appeal claims of Japan and Korea. However, the Appellate Body found that it was unable to complete the analysis on a number of points due to the absence of relevant factual findings by the Panel or undisputed facts on the Panel record.

The Appellate Body found that the Panel had erred in finding that certain claims in Japan’s panel request under Articles 3.1, 3.2, 3.4, 4.1, and 6.9 of the Anti-Dumping Agreement were not within its terms of reference, reversed these findings, and instead found that the claims were within the Panel’s terms of reference. At the same time, the Appellate Body also found that the Panel had not erred in finding that certain other claims under Articles 3.1, 3.5, 6.5, and 6.5.1 of the Anti-Dumping Agreement were within its terms of reference.

Having reversed the Panel’s findings on the points referenced above, the Appellate Body then proceeded to complete the analysis where sufficient facts on the Panel record permitted it to do so. It found that the Korean investigating authorities had acted inconsistently with Articles 3.1 and 3.2 of the Anti-Dumping Agreement for two reasons: (i) they had improperly found price suppressing and depressing effects of dumped imports based on average price comparisons without ensuring the comparability of the prices being compared; and (ii) they had failed to provide an explanation and analysis of how and to what extent the prices of the domestic like product were affected in light of the consistent overselling by dumped imports.

However, the Appellate Body found that it was unable to complete the legal analysis on a number of issues, including:

  • the inconsistency of the Korean investigating authorities’ definition of the “domestic industry” with Articles 3.1 and 4.1 of the Anti-Dumping Agreement;
  • whether the Korean anti-dumping authorities acted inconsistently with Articles 3.1 and 3.2 in their consideration of the volume of dumped imports from Japan;
  • whether the Korean investigating authorities acted inconsistently with Articles 3.1 and 3.2 on the basis that:
    • the KTC failed to address the counterfactual question of how prices might have been different in the absence of dumping;
    • the “reasonable sales price” analysis was flawed and insufficient because the KTC had failed to examine market interactions between the subject imports and domestic like products; and
    • the KTC never considered whether the alleged price suppression and price depression were “significant”; and
  • whether the Korean investigating authorities acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement on the basis of Japan’s argument that the KTC failed to adequately explain how imports had negatively impacted the domestic like products as a whole in light of positive trends experienced by the domestic industry.

In addition, Japan appealed the Panel’s conclusion that Japan had failed to demonstrate that the KTC’s evaluation of the magnitude of the margin of dumping was inconsistent with Articles 3.1 and 3.4 of the Anti-Dumping Agreement. Japan argued that the Panel’s finding had no factual support and was contradicted by the fact that the prices of the dumped imports were consistently higher than domestic like product prices. According to Japan, the investigating authority should pay particular attention to the “impact of the margin of dumping” when examining the magnitude of the margin of dumping under Article 3.4, including through a counterfactual analysis in which the margin of dumping is removed from prices. The Appellate Body rejected Japan’s arguments and upheld the Panel’s finding. In doing so, it considered that Articles 3.1 and 3.4 require an investigating authority to evaluate the magnitude of the margin of dumping as a substantive matter, and to assess the relevance and the weight to be attributed to this factor in the overall assessment of injury under Article 3.4. The Appellate Body considered that a counterfactual analysis may be useful in certain circumstances, but Japan had not established that the overselling in this case made a counterfactual analysis obligatory under Article 3.4.

The appeal also dealt with two of the three claims that Japan had raised before the Panel concerning the Korean authorities’ causation analysis (i.e., whether the dumped imports from Japan had caused injury to Korea’s domestic industry). Japan had argued on a number of grounds that this part of the Korean authorities’ investigation was inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement.

First, the Appellate Body reversed the Panel’s finding that the Korean investigating authorities had acted inconsistently with Articles 3.1 and 3.5 in their causation analysis as a result of flaws in their evaluation of the effect of the dumped imports on prices in the domestic market. The Appellate Body found that the Panel had erred in its application of Article 3.5 by incorporating requirements that are set out in the first sentence of Article 3.2 and Article 4 rather than properly applying the requirements set out in Article 3.5.

Second, the Appellate Body upheld the Panel’s finding that Japan had failed to demonstrate that the Korean investigating authorities’ conclusion that the dumped imports, through the effects of dumping, were causing injury to the domestic industry was inconsistent with Articles 3.1 and 3.5. Japan argued that the KTC had ignored the lack of correlation between the domestic industry’s profit, the dumped import prices, and the volume and market share of the dumped imports. The Appellate Body disagreed and saw no error in the Panel’s finding that Japan had not established an “insufficient correlation” that would preclude the Korean authorities’ finding of a causal relationship.

Finally, the Appellate Body upheld the Panel’s finding that the Korean investigating authorities had acted inconsistently with Article 6.5 of the Anti-Dumping Agreement in their treatment of information provided by the Korean domestic industry as confidential without requiring that good cause be shown. It also upheld the Panel’s finding that the Korean investigating authorities had acted inconsistently with Article 6.5.1 by failing to require that the submitting parties provide a sufficient non-confidential summary of the information for which confidential treatment was sought.

Some of the points of interest in the Panel’s reasoning include the following:

  • Whether a panel request complies with the requirements of Article 6.2 of the DSU must be determined on the face of the panel request, on a case-by-case basis. Defects in the panel request cannot be cured in the subsequent submissions of the parties during the panel proceedings. (However, in considering the sufficiency of a panel request, submissions and statements made during the course of the panel proceedings — in particular, in the first written submission of the complaining party — may be consulted in order to confirm the meaning of the words used in the panel request.)
  • Articles 3.1 and 3.4 of the Anti-Dumping Agreement do not require any one of the listed factors, such as the magnitude of the margin of dumping, to be evaluated in a particular manner or given a particular relevance or weight, in examining the impact of the dumped imports on the domestic industry.
  • The phrase “through the effects of dumping, as set forth in paragraphs 2 and 4” in Article 3.5 does not require a panel to duplicate the analysis under Articles 3.2 and 3.4. The use of the phrase “as set forth in paragraphs 2 and 4” in Article 3.5 makes it clear that proper assessments under Articles 3.2 and 3.4 are necessary building blocks, which contribute to, rather than replicate, the overall determination of injury and causation that is required under Article 3.5. Article 3.5 establishes a standard that is distinct from Articles 3.2 and 3.4, inasmuch as Article 3.5 is concerned with the establishment of the causal link between dumped imports and injury. It covers a broad basket of evidence that encompasses, and is not limited to, the evidence relating to the inquiries under Articles 3.2 and 3.4, suggesting that it has a broader scope of examination than Articles 3.2 and 3.4.

Tereposky & DeRose LLP regularly provides advice and acts as counsel in international trade disputes, including WTO dispute settlement proceedings.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com