Executive summary

What is the basis of the EU practice of choosing the lesser of the dumping (subsidy) or injury margins as the basis for setting anti-dumping or anti-subsidy duties? Is there a lesser duty ‘rule’12 in EU or WTO law?

And if there is a ‘rule’ is it applied correctly by the EU Commission. The note concludes that:

The note concludes that:

  1. there is no rule in EU (or WTO) law requiring that an anti-dumping or anti-subsidy13 duty should be lower than the dumping or subsidy margin. In other words, there is no Lesser Duty Rule (LDR) in EU or WTO law;
  2. there are no provisions in EU or WTO law requiring the calculation of an injury margin or indicating how an injury margin should be calculated;
  3. the injury margin calculated by the EU does not capture injury as defined in WTO and EU law.
  4. the injury margin as calculated by the EU cannot in law and in practice ever be considered adequate to remove injury (the legal test on which the LDR is based);
  5. the fact that the lesser duty ‘rule’ has been applied in the EU for decades does not make a practice that is not based on law legal, or give exporters a legitimate expectation that the EU will continue to apply it.

WTO anti-dumping law does not mandate a duty lower than the dumping margin

There is no rule of WTO law requiring the imposition of an anti-dumping duty lower than the dumping  margin.14

Therefore the EU practice of imposing duties set at the level of the lower of the dumping or injury margins is a WTO Plus provision. The EU is not required by the WTO law to apply a lesser duty. The most recent confirmation of this view by the WTO Appellate Body (AB) is found in EC- Fasteners.15

There are no provisions in WTO anti-dumping law providing for an injury margin. Consequently  there are no provisions on how to calculate an injury margin. WTO law requires that there is a determination of injury. Certain economic criteria have to be examined. Not all factors have to show injury. In fact WTO (and EU) law allows measures to be imposed on the basis of the threat of injury. If an injury margin was necessary, or even within the logic of anti-dumping law, how would it apply to a finding of a threat of injury?

Article 9(3) of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the WTO ADA) provides:

[t]he amount of the anti-dumping duty shall not exceed the margin of dumping as established under Article 2.

Article 9(1) of the ADA provides in relevant part:

It is desirable…..that the duty be less than the [dumping] margin if such lesser duty would be adequate to remove the injury to the domestic industry.

The concept of applying a duty lower than the dumping margin has been addressed by the WTO Appellate Body in the EC-Fasteners case. The view of the AB is clear. There is no binding rule in WTO imposing an obligation to set the anti-dumping duty at a level lower than the margin of dumping. The AB held:

[t]he mandatory nature of the first and second sentences of Article 9.2 can be contrasted with the preference expressed in the second sentence of Article 9.1 for duties lesser than the margin of dumping, if lesser duties are adequate to remove the injury to the domestic industry.   To express such a preference, Article 9.1 uses the expression "it is desirable".16

In US–India Plate, India argued that the US Department of Commerce (USDOC) should have considered applying a lesser duty as one form of “constructive remedy” under Article 15 ADA. However, the Panel disagreed with India stating:

India suggests that the USDOC should have considered applying a lesser duty in this case, despite the fact that US law does not provide for application of a lesser duty in any case. We note that consideration and application of a lesser duty is deemed desirable by Article 9.1 of the AD Agreement, but is not mandatory. Therefore, a Member is not obligated to have the possibility of a lesser duty in its domestic legislation. We do not consider that the second sentence of Article 15 can be understood to require a Member to consider an action that is not required by the WTO Agreement and is not provided for under its own municipal law.17

In the earlier EC – Bed Linen case the Panel had found that the use of a lesser duty was a form of constructive remedy, but did not find that the imposition of a lesser duty was mandatory:18

The Agreement provides for the imposition of anti-dumping duties, either in the full amount of  the dumping margin, or desirably, in a lesser amount, or the acceptance of price undertakings, as a means of resolving an anti-dumping investigation resulting in a final affirmative determination of dumping, injury, and causal link. Thus, in our view, imposition of a lesser duty, or a price undertaking would constitute ¨constructive remedies¨ within the meaning of Article 15. We come to no conclusions as to what other actions might in addition be considered to constitute “constructive remedies” under Article 15, as none have been proposed to us.

A limited number of WTO members favour amending the ADA to require an obligatory, rather than discretionary, lesser duty rule.19 The EU is not a part of this group. However, even these WTO members “acknowledge that the current provision [on the lesser duty] is not mandatory, but they chose to implement provisions to foster a better system”, and ask that “the positive actions of these Members should not be undermined under the DDA, the spirit of which is, we understand, to increase trade flows, enhance predictability and provide more transparency”.20

Conclusion on WTO law

There is no requirement in WTO to set an anti-dumping duty at a level lower than the dumping margin.

There is no concept in WTO law of an injury margin or even how an injury margin might even be calculated.

Because the possible setting the duty at below the dumping margin is facultative and not mandatory, there has been no need for WTO Members to agree on what ‘adequate to remove injury to the domestic industry’ means.

EU law does not impose an obligation to set the duty at less than the dumping margin

The  Basic  Anti-Dumping  Regulation  refers  to  the  level  of  the  anti-dumping  duty  in  three different provisions:

Article 9(4) provides:

The amount of the anti-dumping duty shall not exceed the margin of dumping established but it should be less than the margin if such lesser duty would be adequate to remove the injury to the Community  industry.

Article 7(2) provides:

The amount of the provisional anti-dumping shall not exceed the margin of dumping as provisionally established, but it should be les than the margin if such lesser duty would be adequate to remove the injury to the Community industry.

Article 8(1) provides:

Price increases under such undertakings shall not be higher than necessary to eliminate the margin of dumping and they should be less than the margin of dumping if such increases would be adequate to remove the injury to the Community industry.

There is no distinction in the three provisions relative to their correct interpretation. The law is clear:

  1. an anti-dumping duty cannot, by law, be more than the dumping margin;
  2. the EU has the facility to set the duty at less than the dumping margin if such lesser duty would be adequate to remove injury to the Union industry.

So the legal texts set a maximum upper limit of the duty and the possibility of a lower amount.

The text of the EU provisions and the WTO provisions are remarkably similar. There is a mandatory element and a facilitative element. The mandatory provision ‘shall’ refers to the upper limit of the anti-dumping duty. The facilitative provision ‘should’ refers to a possible duty lower than the dumping margin. The AB in EC-Fasteners has addressed this distinction, when it found:

[t]he mandatory nature of the first and second sentences of Article 9.2 can be contrasted with the preference expressed in the second sentence of Article 9.1 for duties lesser than the margin of dumping, if lesser duties are adequate to remove the injury to the domestic industry.   To express such a preference, Article 9.1 uses the expression "it is desirable".21

The text of the basic EU anti-dumping regulation in other EU languages reflects this distinction between ‘shall’ and ‘should’. ‘Shall’ is presented in the Italian version of Article 9(4) as “non deve superare” and in the French version as “ne doit pas exceder”. ‘Should’ is presented in the Italian and French versions of Article 9(4) in the conditional mood: “dovrebbe essere inferiore” and “devrait être inférieur”.

The word ‘should’ cannot, in law, be the basis of a mandatory rule. The word ‘should’ is conditional and gives to the competent authority the possibility to impose a duty at less than the dumping margin should that authority consider it appropriate and should that lesser duty be adequate to remove injury.

Two considerations flow from the wording of the text of the basic regulation. 

  1. there is no lesser duty rule;
  2. the imposition of an anti-dumping duty at less than the dumping margin is facilitative.

Have the EU Courts examined this issue

Reference is made to the lesser duty in two cases. In Allied International II from 1985, the Court of Justice found:

when the Council adopts an anti-dumping regulation it is required to ascertain whether the amount of the duties is necessary in order to remove the injury. In this case, however, there is nothing in the documents before the Court to suggest that the Council took into consideration that aspect of the matter. 22

The Court did not consider that the imposition of a lesser duty was a mandatory requirement. Rather the Court held that the Council is required to ascertain whether the amount of duties is necessary in order to remove injury.

The finding of the Court of Justice in Allied International II can be questioned. The Court finds that ‘should’ is a requirement when it is quite clear that the word is an indication of a possibility.

That being said, Allied International II does not set out a rule. It requires that there be an evaluation as to whether a particular duty is adequate to remove injury. Making an evaluation of whether a duty lower than the dumping margin is adequate to remove injury is not the same as finding that the lower of two margins must always be the basis of the duty imposed. In other words, if there was a rule as to the result there cannot be an evaluation. An evaluation implies the possibility of a variety of results.

In International Potash, from 2000, the General Court found, in paragraph 42, that, before imposing duties, the institutions must balance the various interests at stake. It found that:

[t]he fact that various interests are to be balanced is conveyed by the wording of Article 9(4) of the basic regulation, which provides that the amount of the anti-dumping duty may not exceed the amount necessary to remove the injury to the Community industry.

This interpretation of the law by the EU’s lower court was not appealed to the Court of Justice. It can be strongly questioned whether this finding of the General Court is an accurate reflection of the law. The General Court uses the words ‘may not’ thus making the provision mandatory rather than facilitative. In any event, this citation does not address what the EU is required to do within the terms of Article 9(4).

What is the Commission required to do within the terms of Article 9(4)?

The correct interpretation of the last sentence of Article 9(4) is not that the Commission is obliged to impose a duty at the level of the lower of the dumping or injury margins. The last sentence of Article 9(4) does not impose a requirement to assess whether a duty set at the level of the dumping margin is adequate to remove injury. Rather it allows the EU to make such an assessment.

Not only is there no lesser duty rule in EU law, the legality of the EU practice of setting the anti- dumping duty at the level of the injury margin, if that margin is less than the dumping margin, is not compliant with law.

There is no reference in the last sentence of Article 9(4) to an injury margin. Thus a mechanical comparison between a dumping margin and an injury margin fails to address what is made possible on the basis of the last sentence of Article 9(4).

The wording of the last sentence makes clear that the assessment is in relation to the dumping margin only. The ‘margin’ referred to in the phrase ‘should be less than the margin’ is the dumping margin. It is not an injury margin. The question is whether a duty set at the level of the dumping margin, and that margin alone, is adequate to remove injury.

The first observation is that an evaluation of adequacy could, in the abstract, result in a finding that only a duty set at the level of the dumping margin is adequate to remove injury. An examination of adequacy could also find that a duty at the level of the dumping margin was inadequate to remove injury (however, the law provides that the duty cannot exceed the dumping margin). The examination of adequacy does not necessarily imply a duty lower than the dumping margin.

The second observation is that a mechanical choosing between two margins can never be an evaluation of the adequacy of one of the margins. In other words, the provision requires the assessment of the dumping margin and does not provide for its simple replacement by another margin.

This means that to the extent that the Commission is required to make an examination of the adequacy of the level of the duty, the Commission does not carry out this assessment under current practice.

The third observation is that fixing the anti-dumping duty at the level of the same (injury) margin for all exporters does not respect the object of setting an anti-dumping duty on the basis of the margin of dumping of that exporter.

The fourth observation, as will be seen below, is that an injury margin, as determined in EU practice, is not the same as an anti-dumping duty adequate to remove injury to the Union industry.

What duty is adequate to remove injury?

A draft document of the Commission from 201323 in relation to the calculation of the profit margin provides, under the heading Legal Basis, as follows:

2. The injury margin is the margin adequate to remove the injury to the Union industry.

3. The injury margin is calculated by comparing an exporting producer’s export price with the non-injurious price of the Union industry. The latter consists of the Union industry’s cost of production plus a reasonable profit margin.

The first observation is that the statement in a draft Commission document that the injury margin is the margin adequate to remove injury does not make sense. The question is what duty is adequate to remove injury. By referring to a margin, the Commission seeks to refer to the injury margin, something that is not provided for in law.

The second observation is that, despite this apparently clear statement from the Commission, there is nothing in the basic anti-dumping regulation in relation to the calculation of the injury margin.

The third observation is that a Commission working document referring to a margin, not provided for in the basic anti-dumping regulation, does not suddenly become law and cannot, in any case, constitute a deviation from, or a change, in law.

Furthermore a statement from the Commission that the injury margin is adequate to remove injury cannot be as assessment of adequacy for the purposes of Article 9(4). The first sentences of Article 9(4) refer to the setting of the anti-dumping duty in any one investigation. As part of that investigation a specific assessment of the adequacy of the level of the duty (to remove injury) may be required.24

The fourth observation is that the Commission calculates the margin as the difference between the export price and the Union industry cost of production plus a reasonable profit.

This methodology  does  not  comply  with Union law. Article 3(2)  of  Regulation 1225/2009 provides that the “determination of injury shall be based on positive evidence and shall involve an objective examination of both: the volume of the dumped imports and the effect of the dumped imports on prices in the Community market for like products.

The methodology to determine an injury margin used by the Commission only assesses the impact of dumping on prices and does not assess the other injury factors. Most importantly it does not assess the impact of the volume of imports on the sales of the Union producers.

Injury is something much more than a difference in price. It can include all the injury factors to be evaluated and, from a market perspective, loss of market share to dumped imports. 

The fact that an injury margin, as currently calculated by the Commission, is less than a dumping margin, cannot be a substitute for an assessment of the adequacy of the dumping margin and cannot be the basis of a duty adequate to remove injury.

Conclusions on EU law

EU law does not mandate the imposition of a duty lower than the dumping margin.

At most, EU provides that the Commission should assess whether the anti-dumping duty should be set at the level of the dumping margin or a lower level. This assessment must be made in relation to the dumping margin and not any other margin.

The Commission does not, in current practice, carry out an assessment of the adequacy of a duty set at the level of the dumping margin to remove injury. The mechanical comparison of a dumping and an injury margin is not an assessment of adequacy.

In any event, the methodology used by the Commission to determine a margin for injury does not capture the injury to the Union industry and cannot therefore be considered adequate to remove injury.

The phrase Lesser Duty Rule in an incorrect synthesis of both EU and WTO law. To the extent that any procedure exists it should be called: the assessment of the adequacy of a duty set at the level of the dumping margin to remove injury or, in short, the Duty Adequacy Assessment.

It cannot be argued that exporters in specific investigations have a legitimate expectation that an anti-dumping duty will be based on the lesser of the dumping and the injury margins. In Case 256/84 Koyo Seiko, paragraph 20, the Court of Justice ruled that traders do not have a legitimate expectation in the use of a particular methodology for the calculation of an anti- dumping duty. In addition, in Branco, Case T-347/03, the General Court has ruled that there can be no legitimate expectations based on an incorrect interpretation of the law.

Thus there is no legitimate expectation that an incorrect application of the law will continue to apply.