A WTO Panel has handed down a mixed ruling in an EU challenge to anti-dumping duties imposed by the Russian Federation on certain light commercial vehicles (LCVs). The Panel found for the EU on 8 of the 28 claims it brought against the Russian measure.
Significance of Decision:
This case marks the first time that a Russian trade remedies measure has been challenged in the WTO.
In May 2013, the Russian Federation imposed anti-dumping duties on LCVs from Germany (29%) and Italy (23%) pursuant to a determination of the Eurasian Economic Commission (EEC). The EEC anti-dumping determination applied to all member countries of the Eurasian Economic Union, i.e., Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan. The EU contested the duties imposed by Russia.
In general terms, for an anti-dumping determination to be WTO-consistent, the investigating authority must make a valid determination of (i) dumping; (ii) injury to the domestic industry; and (iii) causation, i.e., the injury must have been caused by the dumped imports rather than other factors. In the present dispute, the EU based its claims largely on injury and causation.
The Panel found that the Russian Federation violated a number of provisions of the WTO Anti-Dumping Agreement, although, as noted above, most EU claims were dismissed. The EU succeeded on claims related to the investigating authority's definition of the 'domestic industry’, as well as price suppression, the state of the domestic industry, and causation.
Of particular note is the Panel's analysis of how an investigating authority is to define the 'domestic industry'. The Panel reinforced the core principle that the domestic industry cannot be defined in such a way as to skew the subsequent injury determination.
Given the split ruling, this decision is likely to be appealed by both sides.
The EU made wide-ranging claims against the determination by the EEC's Department for Internal Market Defence (DIMD). A non-exhaustive summary of Panel’s key findings is set out below.
Improperly defined 'domestic industry' causes 'risk of material distortion' in the injury analysis
A key requirement of the Anti-Dumping Agreement is that no duties can be imposed unless the investigating authority has determined that there is injury to a 'domestic industry'. This term is defined in Article 4.1. As the Panel noted, ‘Article 4.1 imposes a substantive obligation on a Member to "define" the "domestic industry" subject to the injury analysis under Article 3 as either "the domestic producers as a whole of the like products" or "those of them whose collective output of the products constitutes a major proportion of the total domestic production of those products".' (Original emphasis.) It cautioned that 'producers of domestic like products may not be left out of the definition of domestic industry on the basis of considerations or selection methods that, by their nature, are likely to distort the subsequent injury determination'.
In the present case, DIMD defined the 'domestic industry' as consisting of a single producer, which accounted for over 87% of domestic production. The Panel found that '[m]eeting the quantitative threshold of Article 4.1 is a necessary but not a sufficient condition of fulfilling its requirements as a whole' because 'the definition of domestic industry under Article 4.1 has both a quantitative and a qualitative aspect'. (Original emphasis.) The Panel noted that DIMD 'decided to not include in its definition a known producer of the like product that had provided data and sought to cooperate in the investigation after having reviewed that producer's data', which in the Panel's view 'gives rise to an appearance of selecting among domestic producers based on their data to ensure a particular outcome, resulting in an obvious risk of material distortion in the subsequent injury analysis'. (Original emphasis.)
The Panel therefore concluded that DIMD acted inconsistently with Article 4.1 in its definition of 'domestic industry' and, consequently, was in breach of Article 3.1 'because it undertook its injury and causation analyses on the basis of information related to an improperly defined domestic industry'.
Price suppression: need to question whether the effects of the financial crisis would continue
Under Article 3.1 of the Anti-Dumping Agreement, an investigating authority is required to make its injury determination based on ‘positive evidence’ and an ‘objective examination’.
Article 3.2 provides, among other things, that ‘the investigating authorities shall consider whether there has been a significant price undercutting by the dumped imports as compared with the price of a like product of the importing Member, or whether the effect of such imports is otherwise to depress prices to a significant degree or prevent price increases, which otherwise would have occurred, to a significant degree’. The Panel found that DIMD acted inconsistently with Articles 3.1 and 3.2 by failing to take into account the impact of the financial crisis in its price suppression analysis.
The Panel noted that 'the consideration of price suppression is counterfactual in nature', and that 'in considering whether prices have been suppressed to a significant degree, an investigating authority must consider hypothetical domestic prices that would have occurred if dumped imports had not taken place'. (Original emphasis.)
The Panel stated that '[w]e do not consider it reasonable for an investigating authority to base its analysis on facts relating to a period in which extraordinary conditions prevailed without, at a minimum, explaining why the extraordinary conditions are not relevant to its counterfactual analysis'. It therefore found that '[a]n objective and unbiased investigating authority in the underlying investigation would, in our view, have questioned whether the effects of the financial crisis, including the preference for the domestic product, would continue and thus whether the high rate of return reported in 2009 could reasonably be expected in the subsequent years in the absence of dumped imports'.
Other EU claims relating to price suppression were dismissed.
State of the domestic industry: magnitude of dumping margin not analyzed
Article 3.4 provides that in making an injury determination, the investigating authority must examine 'the impact of the dumped imports on the domestic industry concerned' by evaluating 'all relevant economic factors and indices having a bearing on the state of the industry'. The provision has a non-exhaustive list of factors to be considered.
The EU made ten claims related to this aspect of the injury determination, nine of which were dismissed. However, the Panel found for the EU on one count, ruling that DIMD breached Article 3.4 by 'failing to evaluate the magnitude of the margin of dumping’, one of the factors listed in that provision.
The Panel noted that the ‘evaluation’ of each of the factors in Article 3.4 'requires a process of analysis and assessment of the role, relevance and relative weight of each factor in the particular investigation' and that '[w]here an investigating authority concludes that a particular factor listed in Article 3.4 is not relevant, this conclusion must be explained'. With respect to the magnitude of the margin of dumping, the Panel found that there was ‘no discussion’ of this factor by DIMD, in breach of Article 3.4.
Causation and non-attribution: failure to examine alleged 'self-inflicted injury'
Article 3.5 of the Anti-Dumping Agreement sets out a requirement of causation, i.e., it must be demonstrated that there is a 'causal relationship between the dumped imports and the injury to the domestic industry'.
The Panel noted that in making a determination of causation, ‘the investigating authority must demonstrate a relationship of cause and effect, such that dumped imports are shown to have contributed to the injury to the domestic industry. Dumped imports need not be "the" cause of the injury suffered by the domestic industry, provided they are "a" cause of such injury; that other factors may also have caused injury to the domestic industry is no bar to establishing this causal relationship'. Article 3.5 also imposes a requirement of non-attribution. As the Panel stressed, the investigating authority cannot 'attribute to dumped imports injuries caused by… other factors'.
The Panel recalled its earlier finding that ‘DIMD acted inconsistently with Articles 3.1 and 3.2 by failing to taken into account the impact of the financial crisis in its consideration of price suppression'. It added that this error 'undermines the DIMD's determination of a causal link between the dumped imports and the injury suffered by the domestic industry’, in breach of Articles 3.1 and 3.5.
The EU also argued successfully that DIMD breached these provisions by failing to consider whether the domestic industry’s 'overly ambitious business plan' was causing injury to the domestic industry at the same time as dumped imports. The Panel said that it 'would have expected a reasonable and objective investigating authority to have considered, in the light of the facts and arguments in this case, whether the level of installed capacity in the domestic industry was an "other factor" causing injury and addressed it in its non-attribution analysis'. It added that there was 'nothing in the Investigation Report to suggest that the DIMD considered the possible cause of low capacity utilisation, an allegedly overly ambitious business plan and excessive capacity, in its assessment of non-attribution'.
The EU's other claims related to causation and non-attribution was dismissed.
The Panel also found that the Russian Federation breached certain procedural obligations related to the treatment of confidential information, as well as the disclosure of the essential facts to all interested parties.
The Report of the WTO Panel in Russia – Commercial Vehicles (DS479) was released on January 27, 2017.