On 12 September 2019, the Appellate Body of the World Trade Organization (WTO) Dispute Settlement Body (DSB) issued its report in Ukraine – Anti-Dumping Measures on Ammonium Nitrate (DS493). The underlying dispute concerned a complaint by the Russian Federation (Russia) with respect to certain measures taken by Ukraine regarding the imposition of anti-dumping duties on imports of ammonium nitrate from Russia. The Panel Report in this dispute was issued on 20 July 2018. In this appeal, Ukraine appealed certain issues of law and legal interpretations developed in the Panel Report.

The anti-dumping measures at issue were imposed by Ukraine’s Intergovernmental Commission on International Trade (ICIT) through its decision of 21 May 2008. Russian producer JSC MCC EuroChem (EuroChem) successfully challenged the 2008 original decision before domestic courts in Ukraine, following which the ICIT issued an amendment (2010 amendment) to the 2008 original decision (as amended, 2008 amended decision). Subsequently, following interim and expiry reviews conducted by the Ministry of Economic Development and Trade of Ukraine (MEDT), the ICIT issued a decision (2014 extension decision), which imposed antidumping duties at modified rates, including with respect to EuroChem.

To start with, Ukraine brought three claims on appeal under Articles 6.2, 7.1, and 11 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) related to the Panel’s analysis of the 2008 amended decision and the 2010 amendment.

Under Article 6.2 of the DSU, Ukraine challenged the Panel’s finding that Russia’s request for the establishment of a panel had been “sufficiently precise to identify” the 2008 amended decision and the 2010 amendment as measures at issue. Ukraine argued that the Panel had erred by failing to demand sufficient precision in its application of the standard set forth in Article 6.2 (which requires the complaining Member to “identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly”) to Russia’s panel request. The Appellate Body agreed with the Panel’s assessment, found that the Panel had not erred under Article 6.2 of the DSU, and upheld the Panel’s findings that the 2008 amended decision and the 2010 amendment were discernable and therefore identified as specific measures at issue in Russia’s request for the establishment of a Panel.

Under Articles 7.1 and 11 of the DSU, Ukraine challenged the Panel’s ruling that the Ukrainian investigating authorities had acted inconsistently with Article 5.8 of the Agreement on Implementation of Article VI of the GATT 1994 (Anti-Dumping Agreement). In making this ruling, the Panel had considered that: (i) the outcome of the relevant Ukrainian court judgments and the 2010 amendment was that there was there was no basis under Ukranian law for a dumping margin or an anti-dumping duty with respect to EuroChem, and that this amounted to a determination of a de minimis dumping margin for EuroChem; (ii) this de minimis dumping margin triggered the obligation under Article 5.8, requiring Ukraine to immediately terminate the investigation with regard to EuroChem and to exclude EuroChem from the scope of the anti-dumping measures; (iv) this obligation could not be satisfied by the imposition of a 0% duty; (v) Ukraine instead included EuroChem within the scope of the interim and expiry reviews and imposed anti-dumping duties on EuroChem through the 2014 extension decision.

On appeal, Ukraine argued that: (i) the Panel had erred in making this ruling because Russia had not articulated such a claim under Article 5.8 of the DSU, and the Panel’s finding was therefore outside its terms of reference; and (ii) the Panel had not made an objective assessment of the relevant facts because it had failed to consider that neither the Ukrainian investigating authorities nor the Ukrainian courts had the competence to recalculate the dumping margin for EuroChem. The Appellate Body disagreed on both points and upheld the Panel’s ruling.

Ukraine also raised three claims of error under Articles 2.2, 2.2.1, and 2.2.1.1 of the Anti-Dumping Agreement. First, Ukraine claimed that the Panel erred in its interpretation and application of the second condition in the first sentence of Article 2.2.1.1 in finding that the MEDT had not provided an adequate basis for rejecting the reported gas cost that is normally required under that condition (i.e., the price of gas that the Russian producers under investigation had paid and reported in their records). Second, Ukraine claimed that these same errors also led the Panel to err in finding that Ukraine had acted inconsistently with Article 2.2.1 because, in conducting its ordinary course-of-trade test, the MEDT had relied on costs calculated inconsistently with Article 2.2.1.1. Third, Ukraine claimed that the Panel had erred in its interpretation and application of Article 2.2 in finding that, when constructing normal value, the MEDT had failed to calculate the cost of production “in the country of origin”.

In resolving these claims, the Appellate Body began by outlining the applicable legal standard. It recalled that Articles 2.2, 2.2.1, and 2.2.1.1 form part of the disciplines concerning the determination of dumping in Article 2 of the Anti-Dumping Agreement and considered the following points, among others:

  • With regard to the construction of normal value under Article 2.2 (i.e., “the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits”), the fact that “the cost of production” is that “in the country of origin” defines the parameters of the inquiry. This phrase indicates that whatever information or evidence is used to determine the “cost of production”, it must be capable of yielding a cost of production “in the country of origin”. Therefore, an investigating authority must ensure that the information it collects is used to arrive at the “cost of production in the country of origin”, and compliance with this obligation may require the investigating authority to adapt that information.
  • The first sentence of Article 2.2.1.1 directs the investigating authority to “normally” base its calculations of costs on the records kept by the exporter or producer under investigation, provided that the two conditions set out in the first sentence of Article 2.2.1.1 are met. Read in conjunction with the words “provided that”, which introduce the two conditions, the word “normally” indicates that when the two conditions are met, “under normal or ordinary conditions” or “as a rule”, the costs recorded in the records shall be used.
  • Given this reference to “normally” in the first sentence of Article 2.2.1.1, the Appellate Body did not exclude that there might be circumstances other than those in the two conditions in which the obligation to base the calculation of costs on the records kept by the exporter or producer under investigation does not apply.
  • In the second condition of the first sentence of Article 2.2.1.1, there is no standard of “reasonableness” that governs the meaning of “costs” that would allow investigating authorities to disregard domestic input prices when such prices are lower than other prices internationally. Rather, this condition can be understood to refer to whether the records suitably and sufficiently correspond to or reproduce the costs incurred by the investigated exporter or producer that have a genuine relationship with the production and sale of the specific product under consideration.
  • Simply because parties to input transactions are considered to be unrelated does not mean that cost calculations should necessarily be based on records kept by the exporter or producer under the first sentence of Article 2.2.1.1. Again, given the reference to “normally” in the first sentence of Article 2.2.1.1, the Appellate Body did not exclude that there might be circumstances, other than those in the two conditions set out in that sentence, in which the obligation to base the calculation of costs on the records kept by the exporter or producer under investigation would not apply.

On the basis of the foregoing, the Appellate Body agreed with the Panel that the examination under the second condition in the first sentence of Article 2.2.1.1 is not one that pertains to whether the costs contained in the records are not reasonable because, for instance, they are lower than those in other countries. On this basis, it found that the Panel had not erred: (i) in its interpretation and application of the second condition in the first sentence of Article 2.2.1.1; (ii) in its examination of whether the MEDT had provided an adequate basis in the Investigation Report to find that the records of the investigated Russian producers, insofar as the reported gas cost was concerned, did not reasonably reflect the costs associated with the production and sale of ammonium nitrate; and (iii) in its assessment of the MEDT’s reasons for rejecting the reported gas cost under the second condition in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement.

Therefore, the Appellate Body upheld the Panel’s finding that the MEDT had acted inconsistently with Article 2.2.1.1 because it had failed to provide an adequate basis under the second condition in the first sentence of Article 2.2.1.1 to reject the reported gas cost in the Records of the Russian producers.

Having upheld the Panel’s finding of inconsistency under Article 2.2.1.1, and given that Ukraine’s claim on appeal under Article 2.2.1 was dependent upon a reversal of that finding, the Appellate Body also upheld the Panel’s finding that the MEDT had acted inconsistently with Article 2.2.1 because, in conducting its ordinary-course-of-trade test, it had relied on costs calculated inconsistently with Article 2.2.1.1.

Similarly, having found that the Panel did not err in its interpretation or application of the second condition in the first sentence of Article 2.2.1.1, and given that Ukraine raised certain arguments under Article 2.2 that were dependent upon the finding of such errors, the Appellate Body found that the Panel had not erred in its interpretation and application of Article 2.2 of the Anti-Dumping Agreement. Consequently, the Appellate Body upheld the Panel’s finding that the MEDT had acted inconsistently with Article 2.2 because it failed to calculate the cost of production “in the country of origin”.