jan bohanes senior counsel, advisory centre on wto law, geneva conference: “wto law in the legal...

RUSSIAN GAS, ARGENTINE SOY BEANS AND INDONESIAN PALM OIL:

EU COST ADJUSTMENT METHODOLOGIES UNDER THE WTO

ANTI-DUMPING AGREEMENT:

Jan BohanesSenior Counsel, Advisory Centre on WTO Law, Geneva

Conference: “WTO Law in the Legal System of the Russian Federation ”

Financial University, Moscow, 19-20 May [email protected]

Participation of Russia in the WTO dispute settlement system Russia has been a member of the WTO

since August 2012 Russia has so far been involved in 7 (9)

disputes so far at the WTO 2 (4) as complainant 5 as defendant

No judgments yet; some of these disputes may not go ahead

DS 474 – Russia challenges the EU’s anti-dumping determinations (1)

DS474: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia Russia challenges a series of EU’s anti-dumping

determinations concerning imports of steel and ammonium nitrate

These products were produced, inter alia, by using natural gas as energy source. The EU argues that the price of gas on the Russian market is artificially low

The “adjustment” for the allegedly low price by the EU in its dumping calculations has increased the dumping margin and the duties that importers have to pay

DS 474 – Russia challenges the EU’s anti-dumping determinations (2)

DS474: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia Is it permitted under the Anti-dumping

Agreement to make such adjustments? Can an investigating authority (here the EU) change the cost of an input?

Very interesting systemic issue Similar disputes are pending in the WTO,

brought by Argentina and Indonesia, both against the EU

Overview General principles of anti-dumping

determinations EU's anti-dumping cost adjustment

methodologies - what is the issue? Examples of application by the EU

DS474: challenge to several EU investigations involving Russian exporters and practices as such

DS459 and 480: biodiesel from Argentina & Indonesia DS494: new dispute brought by Russian Federation

WTO legal and systemic considerations Legal provisions Systemic considerations

The basics of anti-dumping (1)

Export Price

Normal Value:

Sales price or a cost

benchmark

Export market Domestic market

Same company sells on the domestic and export market


Export Price

Normal Value:


benchmark


No dumping in this scenario, because NV and EP equal


Export Price

Normal Value:


benchmark


No dumping in this scenario, because EP higher than NV


Export Price

Normal Value:


benchmark


Dumping, because EP lower than NV


Export Price

Normal Value:


benchmark


Dumping, because EP lower than NV

Dumping margin


Normal Value:


benchmark

Export

Price

Export market

Domestic market

How is normal value determined?

What is the practice at issue? (1)

Background: When determining normal value, anti-dumping investigating authorities (IAs) construct a cost-of-production benchmark To determine sales below cost and thus not in

the ordinary course of trade; and If below cost, to “construct” normal value

Raw Inputsand

overhead

Labor

Profits, SG&A

Cost Benchmark

Domestic price 1

Domestic price 2


Where are costs of production derived from?Article 2.2.1.1: In principle, take

figures from the investigated companies financial accounts

As long as they are in conformity with the home country’s GAAP and “reasonably reflect” costs of production

Typical issue: how have (overhead) costs been allocated to different products? Or, related party purchases?


Where are costs of production derived from?

Raw Inputsand

overhead

Labor

Cost Benchmark, as per company

records

Cost Benchmark, as recalculated by

the IA

Profits, SG&A


Background: When determining normal value, anti-dumping investigating authorities (IAs) construct a cost-of-production benchmark To determine sales below cost and thus not in

the ordinary course of trade; and If below cost, to “construct” normal value

Raw Inputsand

overhead

Labor

Profits, SG&A

Cost Benchmark

Domestic price 1

Domestic price 2

The basics of anti-dumping

Export Price

Normal Value:


benchmark


No dumping, because NV and EP equal


Export Price


No dumping, because NV and EP equal


Export Price


Dumping, because NV higher than EP, due to cost adjustment


Some investigating authories have created a practice whereby they reject correctly recorded costs of an input on the grounds that the domestic market for that input is distorted, such that the domestic price is deemed not acceptable/representative

In essence, the IA does not determine what the real costs were, but what they should have been “Real costs” as determined by the domestic

market ceases to be the benchmark


The EU Commission has done so e.g. with Price of gas on the Russian domestic market,

as an input for the production of steel products or ammonium nitrate (DS474)

GAS

Cost of production of steel pipe, as in producers’

records

Cost of production of steel pipe, as recalculated by the

Commission

GAS


The EU Commission has done so e.g. with Price of soybean oil or palm oil on the

Argentine and Indonesian domestic markets, as input for the production of biodiesel (DS473 and DS480)

Soybean or palm

oil

Cost of production of biodiesel, as in producers’

records

Cost of production of biodiesel, as recalculated by the

Commission

Soybean or palm

oil


What is the detailed justification?

DS474: various investigations claim that domestic price of gas is regulated by the government and is only a fraction of the international (export) price (approx. 25%)


What is the detailed justification?

DS473 and DS480: domestic price of input soybean or palm oil is distorted, because the government imposes an export tax on its exportation (but not on the exportation of the processed product), thereby artifically lowering the input price for biodiesel producers


Consequence in the eyes of the IA of these perceived market distortions: the recorded costs (for this item) do not “reasonably reflect” the production costs Replace the recorded costs for the input with

another (higher) price International benchmark (DS473 and DS480) Price of exports from the country of production

(DS474) “Waidhaus” price – price at which gas is sold to the

(Western) EU

Considerations under WTO law (1)

No case law to date on this issue under the ADA

Can you invoke Article 2.2.1.1 of the ADA to justify this practice? EU Commission invokes the EU law equivalent

of that provision Do records “reasonably reflect the costs

associated with the production and sale of the product under consideration"?


Can you invoke Article 2.2.1.1 of the ADA to justify this practice? This provision appears to be primarily

intended to assess the quality of the company’s book-keeping, rather than systemic market issues

E.g. cost allocations E.g. transfer pricing (related companies) Arguably, 2.2.1.1 requires taking the market

price as a given

Article 2.2.1.1

For the purpose of paragraph 2, costs shall normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration. …

Article 2.2.1.1

… Authorities shall consider all available evidence on the proper allocation of costs, including that which is made available by the exporter or producer in the course of the investigation provided that such allocations have been historically utilized by the exporter or producer, in particular in relation to establishing appropriate amortization and depreciation periods and allowances for capital expenditures and other development costs.

Article 2.2.1.1

… Unless already reflected in the cost allocations under this sub‑paragraph, costs shall be adjusted appropriately for those non‑recurring items of cost which benefit future and/or current production, or for circumstances in which costs during the period of investigation are affected by start‑up operations

Article 2.5 of the EU’s Basic Anti-dumping Regulation

… If costs associated with the production and sale of the product under investigation are not reasonably reflected in the records of the party concerned, they shall be adjusted or established on the basis of the costs of other producers or exporters in the same country or, where such information is not available or cannot be used, on any other reasonable basis, including information from other representative markets. ….


Can you invoke Article 2.2 to justify the EU’s practice? "When there are no sales of the like product in

the ordinary course of trade in the domestic market of the exporting country or when, because of the particular market situation or the low volume of the sales in the domestic market of the exporting country, such sales do not permit a proper comparison … "

What is the meaning of the phrase “particular market situation”?


Can you invoke Article 2.2? Used by some IAs for former NME countries, e.g.

Australia uses this concept against China E.g. market affected by subsidies or existence of state-

trading enterprises (Australia) “governmental control over pricing” (US) or “artificially low

prices (EU) A single sale represents 5 percent of all transactions (US) Different patterns of demand (US) Barter trade or non-commercial processing arrangements

(EU) “when … such sales do not permit a proper comparison”

What does "such sales" refer to? Only to the product under investigation, or can it refer also to an input?


Relationship Anti-dumping Agreement vs. SCM Agreement Anti-dumping is, in principle, a policy to

address individual firm pricing behaviour CVDs as a policy to address distortions

created by the government that qualify as subsidies


Relationship Anti-dumping Agreement vs. SCM Agreement Can you use AD to address issues that

Have nothing to do with an individual firm’s pricing behaviour?

May not even qualify as a subsidy?


Relationship Anti-dumping Agreement vs. SCM Agreement

US – Export Restraints (DS194): Canada imposes export restrictions on inputs, which

lowers the domestic price, for the benefit of the industry that uses these inputs

US countervails the final product WTO panel rules that that governmental measures

that impact the market, but are not a "financial contribution" under the SCM Agreement, cannot be countervailed

Biodiesel – EU Commission rejected requests to impose CVDs

Russian gas?


1984 GATT Anti-dumping Committee Draft Recommendation (ADP/W/83/Rev.2) “Input dumping” IAs may not determine dumping on the basis

that inputs purchased internationally or domestically are “dumped” – no provision in the ADA that authorizes such an approach

Only permissible adjustment scenario is when the seller and purchaser of the raw input are related Appears to take us back to the Article 2.2.1.1

situation “I will give you a special price for the input …”


If this methodology is permitted as a matter of principle, what should be the parameters? When is a difference between the international

and the domestic price merely a reflection of the country’s comparative advantage and when should it be grounds for rejecting the domestic price?

What are the government policies that should trigger legitimate adjustment?

What kind of surrogate value should be used? No doubt WTO panels and the Appellate Body

would say “case-by-case approach”, but guidance would be useful

Literature

J. Bohanes, A. Markitanova A Few Reflections on DS474 and The Intersection of Russia’s Domestic Energy Policies and The EU’s Anti-Dumping Cost Replacement Methodology (St. Petersburg State University Vestnik)

THANK YOU

jan bohanes senior counsel, advisory centre on wto law, geneva conference: “wto law in the legal...

Documents

export price normal

export market slide

sales price

eu slide

low price

price of gas

nv slide

nv dumping margin slide