On June 15, 2012, a World Trade Organization (WTO) dispute settlement Panel circulated its decision in the challenge brought by the United States regarding China – Countervailing and Anti-Dumping Duties on Grain Oriented Flat- Rolled Electrical Steel (GOES) from the United States (WT/DS414/R). The United States had raised numerous claims, most of which were upheld by the Panel, regarding the manner in which China’s investigating authority, MOFCOM, initiated and conducted these antidumping (AD) and countervailing duty (CVD) investigations. The Panel found China’s analysis lacking in a number of respects, which may require China to revise its approach to AD and CVD investigations generally.

The Panel began by analyzing the United States’ challenge to MOFCOM’s initiation of the CVD investigation. The Panel first held that, under Articles 11.2 and 11.3 of the Subsidies and Countervailing Duty Measures (SCM) Agreement, an investigation is unjustified when an investigating authority lacks “sufficient evidence” of a subsidy, even if the evidence was not “reasonably available” to the applicant.

The Panel next reviewed the general requirements for a subsidy to exist and to be countervailable under the SCM Agreement, including that it be “specific” to particular users. The Panel rejected China’s argument that, for purposes of initiation, the evidentiary standard for showing specificity is lower than for the other required elements of a subsidy. According to the Panel, “The same standard of ‘sufficient evidence’ applies regardless of whether the evidence relates to the existence of a financial contribution, benefit or specificity.” The Panel went on to find that MOFCOMhad lacked sufficient evidence to initiate the investigation as to any of the 11 alleged subsidy programs challenged by the United States.

The Panel next considered whether the Chinese applicants had provided adequate nonconfidential summaries of their data, as required by Articles 12.4.1 of the SCMAgreement and 6.5.1 of the AD Agreement. As explained by the Panel, both provisions require that summaries permit a “reasonable understanding” of the substance of the confidential information submitted, unless “exceptional circumstances” exist, in which case a statement of reasons why summarization is not possible must be provided. In this case, with respect to each issue challenged by the United States, the Panel found that the relevant summaries were inadequate.

The Panel upheld MOFCOM’s finding that the respondents had failed to cooperate with certain requests for necessary information in the CVD investigation, thus justifying resort to “facts available” under Article 12.7 of the SCM Agreement. However, the Panel rejected MOFCOM’s reliance on a 100 percent utilization rate to determine the extent to which respondents’ sales were subsidized. According to the Panel, while “non-cooperation triggers the use of facts available,” it “does not justify the drawing of adverse inferences.” Because MOFCOMlacked any factual basis for applying a 100 percent utilization rate, its determination was inconsistent with China’s obligations under Article 12.7.

The United States next complained that MOFCOM acted inconsistently with Article 12.2.2 of the AD Agreement by failing to disclose the data and calculations used to arrive at the respondents’ dumping margins. The Panel rejected this claim, stressing that Article 12 “is concerned with public disclosures and that the obligations it contains do not extend to confidential information.” The Panel agreed that such disclosure may be very useful to allow respondents to check the accuracy of the authority’s calculations. Citing several previous WTO panel reports, however, the Panel held that Article 12.2.2 does not require inclusion of the data and calculations underlying the dumping margin in the public notice or separate report.

The Panel then considered whether, pursuant to Article 22.3 of the SCM Agreement, MOFCOM adequately explained why the exclusion of foreign producers from the competitive bidding process under the US government procurement statutes led to the conclusion that the resulting prices were not market prices for purposes of the benefit determination. In also rejecting this US claim, the Panel stressed that the disclosure required by Article 22.3 “relates to the findings and conclusions actually reached by an investigating authority, rather than the findings and conclusions that should reasonably have been reached under an objective standard and by reference to the substantive obligations at issue.”

The Panel ruled that MOFCOM acted inconsistently with Article 6.8 and Annex II(1) of the AD Agreement by using facts available to calculate dumping margins for unknown (i.e., “all other”) exporters. Article 6.8 permits resort to facts available whenever an interested party refuses access to, or otherwise fails to provide, necessary information within a reasonable period or significantly impedes an investigation. Annex II(1) requires an investigating authority to “specify in detail the information required” and to ensure that if information is not supplied within a reasonable time, the parties are aware that the authority may use facts available. The Panel also found Article 6.1 relevant, which requires that interested parties “be given notice of the information” required.

MOFCOM’s notice of initiation requested certain general information, but not the detailed information necessary for unknown exporters to participate fully in the investigation. Given that these “all other” exporters were not notified of the “necessary information,” the Panel found that MOFCOM did not meet this precondition for applying facts available under Annex II(1). Further, exporters that were unknown to MOFCOM, and, indeed, were non-existent, could not reasonably have refused to provide necessary information or to have impeded the investigation within the meaning of Article 6.8.

The Panel also held in relation to the “all others” dumping rate that China acted inconsistently with Article 6.9 of the AD Agreement, which requires disclosure of the “essential facts” underlying an authority’s final findings and conclusions. Because MOFCOMpurportedly relied upon the respondents’ confidential information to calculate the all others rate, it should have disclosed a non-confidential summary of that information for purposes of Article 6.9. Similarly, MOFCOMacted inconsistently with Article 12.2.2 of the AD Agreement by not providing the factual and legal basis underlying its resort to facts available. The Panel reached similar conclusions regarding MOFCOM’s application of facts available to the unknown exporters and its disclosure of pertinent information in the CVD investigation, contrary to China’s obligations under Articles 12.7, 12.8, 22.3, and 22.5 of the SCM Agreement.

The Panel then turned to the United States’ claims regarding injury and causation. The Panel first considered MOFCOM’s price effects analysis under Articles 3.1 and 3.2 of the AD Agreement and 15.1 and 15.2 of the SCM Agreement. The United States did not contest the existence of significant price depression during the period of investigation, but contended that, contrary to MOFCOM’s finding, price depression was not an effect of subject imports. The Panel ruled that MOFCOM’s comparison of average unit values between subject imports and domestic sales, without either adjusting for differences in levels of trade and physical characteristics between the products or conducting contemporaneous price comparisons, was “neither objective, nor based on positive evidence,” as required by the SCM Agreement.

China also argued that MOFCOM found that price depression was an effect of subject imports based purely on its findings regarding the volume effects of subject imports. The Panel rejected this argument, finding that there was nothing in MOFCOM’s determination to indicate that it relied more heavily on the increase in the volume of subject imports than it did the low prices for the purpose of establishing that price depression was an effect of subject imports. The Panel also found that the same flaws undermined MOFCOM’s finding that price suppression was an effect of subject imports.

The Panel then found that MOFCOM violated Articles 12.8 of the SCM Agreement and 6.9 of the AD Agreement by failing to disclose the essential facts underlying its price effects analysis. In particular, even though MOFCOM had not made a formal “price undercutting” finding, it repeatedly referenced its conclusion regarding the relative “low price” of subject imports. The Panel held that, in order to allow interested parties to defend their interests, MOFCOMimproperly failed to disclose the “essential facts” supporting this conclusion. The Panel also concluded that China acted inconsistently with Articles 22.5 of the SCM Agreement and 12.2.2 of the AD Agreement by failing adequately to disclose “all relevant information on matters of fact” underlying MOFCOM’s conclusion regarding the existence of “low” import prices.

The United States also challenged MOFCOM’s causation analysis as inconsistent with Articles 3.1 and 3.5 of the AD Agreement and 15.1 and 15.5 of the SCM Agreement. The Panel ruled that, because MOFCOM relied on its price effects findings to support its finding that subject imports caused material injury to the domestic industry, the shortcomings found to exist in the price effects context also undermined MOFCOM’s causation analysis. The United States also demonstrated that domestic capacity and production increased by more than the increase in the volume of subject imports during the period. The Panel thus concluded that the domestic industry’s increase in capacity and production was at least partly responsible for the accumulation of inventory. As a result, MOFCOMfailed to properly examine whether a known factor other than subject imports was at the same time injuring the domestic industry, contrary to the requirement of Articles 3.5 and 15.5.

The Panel went on to find that China again acted inconsistently with Articles 12.8 of the SCM Agreement and 6.9 of the AD Agreement by failing to disclose data on the volume of non-subject imports for purposes of its causation analysis. The Panel first clarified that Articles 12.8 and 6.9 require an investigating authority to disclose those facts that are actually under consideration by it. The Panel then found that the data on non-subject import volume was an “essential fact under consideration” with respect to causation. By not disclosing this information, MOFCOMundermined the ability of interested parties to challenge the basis of MOFCOM’s conclusion that non-subject imports were not a cause of injury. The Panel also ruled that China acted inconsistently with Articles 22.5 of the SCM Agreement and 12.2.2 of the AD Agreement in relation to the public notice and explanation of its causation analysis and conclusion that non-subject imports were not injuring the domestic industry.

Finally, the Panel found that, to the extent it had upheld the United States’ other claims under the SCM and AD Agreements, China also acted inconsistently with Article 10 of the SCM Agreement and Article 1 of the AD Agreement.

Given the broad scope and sheer number of issues at stake, it seems likely that China—and possibly also the United States—will appeal certain aspects of the Panel’s decision to the WTO Appellate Body. In that event, the Panel decision will not be adopted by the Dispute Settlement Body of theWTO until completion of the appeal.