Worldwide: USA - Washing Machines (DS464)

WTO APPELLATE BODY REPORT

The dispute "United States - Washing Machines" (DS464) regards the anti-dumping and countervailing measures imposed by the United States on goods from South Korea. The dispute was initiated by Korea. Korea claimed that these measures were introduced in violation of WTO rules. The Panel, having considered the dispute, acknowledged that anti-dumping measures did not comply with Article VI of the General Agreement on Tariffs and Trade ("GATT")1 and the WTO Agreement on Implementation of Article VI of the GATT, however, did not support Korea's arguments regarding the illegality of countervailing duties under the Agreement on Subsidies and Countervailing Measures. The Appellate Body, in its turn, identified a violation in the application of countervailing duties as well, however, upheld the decision of the Panel on most issues related to anti-dumping measures.

BACKGROUND

In 2012, USA initiated anti-dumping and anti-subsidy investigation concerning imports of washing machines from South Korea into their customs territory. In the course of the anti-dumping investigation it was found that imports of washing machines were carried out at dumped prices, which caused injury to national producers. As a result, anti-dumping duties were imposed on the import of washing machines from South Korea.

In addition, the anti-subsidy investigation established that the injury to domestic industry in the United States had been inflicted due to the subsidies for three manufacturers in Korea - they had been exempt from income tax, subject to certain conditions.2 On this basis the United States imposed countervailing duties on washing machines originating in Korea.

On 5 December 2013, Korea requested the establishment of the Panel to the WTO Dispute Settlement Body, claiming that the mentioned investigations had been conducted in breach of the relevant provisions of the WTO agreements, which resulted in too high level of the respective duties.

With respect to the anti-dumping duties, Korea contested the methodology for determining the dumping margin in calculating the amount of the duty, including the use of zeroing by the US Government.

As to the countervailing duties, Korea challenged the targeting nature of subsidies and compliance with the procedures of duty calculation, aimed at neutralizing the negative impact of subsidies on the US producers.

IMPORTANCE

In accordance with applicable WTO rules, anti-dumping duties shall be applied to the extent necessary to eliminate dumping which causes injury to domestic producers, and the countervailing duty shall be applied in the amount necessary to offset subsidization.

The grounds for imposition of duties and their rates are established upon results of the relevant investigations, in which the relevant authorities establish the existence of dumping/subsidy, injury to domestic industry, and the causal relationship between them.

Thus, the existence of dumping is established by determining the dumping margin - the percentage by which the normal value of the goods (price for the said product within the market of the exporting country) exceeds the export price. In comparing the normal value of the product and its export price investigation authorities may use a variety of techniques. For these purposes, some countries (notably the USA) using zeroing.3

WTO DSB in its decisions has repeatedly confirmed that the use of this technique increases (sometimes significantly) the level of the dumping margin, and as a result, the rate of anti-dumping duty levied on imported goods.

However, in this case, the Dispute Settlement Body for the first time acknowledged that the practice of zeroing is unacceptable in establishing the target dumping as well.4Thus, the decision prohibits the US agencies, engaged in anti-dumping investigation, the use of zeroing as such, and accordingly, reduces the possibility of the imposition of anti-dumping duties on imported goods.

ANTIDUMPING MEASURES

Article 2.4.2 of the Agreement on Implementation of Article VI of the GATT provides three methods for determining the dumping margin:

  • Comparingthe weighted averageof normalvalue to a  weighted average of the export or constructed export pricesof comparable merchandise (Average-to-average comparison methodology)  (A-A);
  • Comparing the normal values of individual transactions to the export prices or constructed export prices of individual transactions for comparable merchandise (Transaction-to-transaction comparison methodology) (T-T);
  • Comparing a weighted average normal value to the export prices or constructed export prices of individual transactions (Average-to-transaction methodology) (A-T).

A-T methodology is used, if necessary, to expose the target dumping, i.e. the practice whereby the export prices of the product differ significantly among purchasers, regions or periods of time. If target dumping is detected, the investigating authorities may use the A-T methodology to calculate the margin in order to properly take account of these differences.

South Korea has challenged the use of the A-T methodology by the US authorities It was noted that the US authorities failed to demonstrate that there was a pattern of export prices which differed significantly from the others, and that such differences could not be properly taken into account using of other methods of determining the dumping margin (such as A-A or T-T).

The Panel supported Korea's argument that the mere fact of the price difference does not indicate a target dumping and does not justify exclusion of prices of certain samples from the calculations. To establish the sample of export prices that differs significantly from the others, the following factors are to be compared: (1) the prices for different purchasers, (2) the prices in different regions, or (3) the price at different periods of time. The difference between the prices for different purchasers and prices in various regions does not form a specific pattern that would indicate target dumping.  This conclusion was supported by the Appellate Body and the WTO. In this case, the Appellate Body, unlike the Panel, said that, since the mentioned procedure shall be applied in exceptional cases, the investigating authorities need to demonstrate that other methods do not allow them to properly determine the appropriate margin of dumping.

In addition, both the Panel and the Appellate Body agreed with Korea's arguments on the inappropriate use of zeroing while using the A–T methodology.  By applying this methodology, the investigating authorities compare the prices of the goods in the exporting country (prices in Korea) and the prices at which they were imported (import prices in USA).  However, if at some point the price of goods in the exporting country is less than the price of the goods at which they were imported (a negative conclusion on the existence of dumping), this difference is referred to as zero. Thus, at the final calculations for all periods only positive conclusion on the existence of dumping is taken into account This does not comply with Article 2.4.2 of the Agreement on Implementation of Article VI of the GATT, which provides for implementation of a comparison based on the prices of all export transactions in a certain period, and not only in cases where the prices of goods in the exporting country are higher than the those at which they were imported (a positive conclusion on the existence of dumping).

The practice of zeroing,  however, leads to the fact that the rate of the imposed anti-dumping duty exceeds the margin of dumping and violates Article 9.3 of the Agreement on Implementation of Article VI of the GATT.

COUNTERVAILING MEASURES

The state may encourage its exports by providing subsidies to national producers. WTO rules prohibit the provision of specific subsidies, i.e. those that are provided to certain enterprises/group of enterprises or industry/group of industries. If such subsidies cause serious injury to domestic industry in the importing country, the latter is authorized to take appropriate counter-measures to neutralize their negative impact, in particular, it may introduce a countervailing duty on imports of the products.

The Panel and the Appellate Body supported Korea's arguments regarding the specific nature of subsidies provided for Samsung in the form of tax credits. It was found that the subsidy can be considered as specific, if it is provided to a limited number of individual enterprises located in a certain geographical region. At the same time, it was noted that (1) "limited range of individual businesses" includes not only legal persons, but also branches and representations that do not have such a status, and (2) "in a given geographical area" is not limited to the subsidies allocated for a certain region only, but also applies to cases were the existence of the subsidy is deducible from the wording and structure of the subsidies (its actual use).

Unlike the Panel, the Appellate Body concluded that the US authorities conducting investigation had not considered a number of evidence to determine whether subsidies were granted only to Samsung products of national origin or to its foreign subsidiaries as well. This shows that the investigating authorities could not calculate the amount of subsidies in such a manner as to ensure that the countervailing duties designed to neutralize their negative impact on the importing country producers do not exceed the amount of subsidies granted. At the same time, tax credits granted to Samsung violated Article 9.4 of the Agreement on Subsidies and Countervailing Measures.5

CONCLUSION

The Appellate Body upheld the decision of the Panel, stating that USA calculations of anti-dumping and countervailing duties were in breach of WTO rules. This decision can affect other disputes, including those involving the United States, in particular, those regarding the use of the above-mentioned controversial practice of calculation of trade defense duty rates by investigating agencies.

Footnotes

1 Sets the rules for imposing anti-dumping and countervailing duties.

2 Certain amount of subsidies allocated on R&D spending.

3 In the calculation of the dumping margin the negative margin on certain types of goods is recorded as a zero margin in the calculation of the final index for the product generally.

4 In accordance with this practice, certain transactions for import of goods at dumping prices are masked by other transactions on the import of goods at export prices which are above normal value.

5 Article 9.4 of the Agreement on Subsidies and Countervailing Measures provides that a countervailing duty should not be levied on all imported goods in an amount exceeding the amount of subsidy established and calculated in the amount of subsidy per unit of the subsidized and exported product.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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