Indonesia: WTO Case Summary. The Case "EU - Fatty Alcohols (Indonesia)"

WTO APPELATE BODY REPORT

The case "EU – Fatty Alcohols (Indonesia)" (DS 464) deals with anti-dumping measures imposed by the European Union on imports of certain fatty alcohols and their blends from Indonesia. Indonesia contested (1) an unwarranted adjustment to the export price, (2) a performanceof a non-attribution analysis with respect to such factors as "financial/economic crisis" and "issues related to the European Union's domestic industry's access to raw materials", (3) non-disclosure of the verification outcomes to Indonesian producers. Eventually, both Indonesia and the EU appealed certain measures developed by the Panel.

In fact, Indonesia appealed some interpretations developed by the Panelfindings regardingArticle 2.4 of the Agreement on Application of Article VI of the GATT 1994 relating to the application of antidumping measures (the "ADA"), which stipulates the obligation of investigating authorities to make a fair comparison between the export price and the normal value.

Simultaneously, the EU appealed the Panel's conclusionunder Article 6.7 of the ADA. It concerned the scope of the "results" of the on-the-spot investigation, whether it has to be disclosed to the interested parties and to which extent.Additionally,the EU contested the appropriateness of the appeal by Indonesia referring to the expiry of the measure at hand as well as some other issues.

SIGNIFICANCE OF THE REPORT

The Appellate Body Report in this case sends a strong signal to practical implementations of the recognized standards in anti-dumping investigation procedures. It emphasizes the importance of fair comparison between the normal value and the export price and precludes the possible circumventions in determining price comparability. In addition, it elaborates on the details ofArticle 2.4 application with regard to due allowance and treatment of related parties.

The Appellate Body also established the explicit requirements of Article 6.7 of ADA with respect to proceeding of data after on-the-spot verifications. A red line isdrawn between the requirements regarding the information on the results of investigation to be disclosed to the investigated parties based on Article 6.7 and Article 6.9 of the ADA. Thus, Article 6.7 gives the opportunity to the parties in question to protect their interest by insuring that the "results" of on-the-spot investigations are provided accurately in a detail.

BACKGROUND

In August 2010, the EU authorities initiated an anti-dumping investigation concerning imports of certain fatty alcohols and their blends originating in India, Indonesia, and Malaysia.1

By comparing the normal value and export price on an ex-works basis, the EU authorities made some allowances for differences affecting price and price comparability. In particular, these allowances concerned the differences in indirect taxes, transport, insurance, handling, loading and ancillary costs, packing costs, credit costs, and commission, where applicable and warranted.2

The challenged adjustments were made inter alia for commissions concerning the payments of two Indonesian producers (PT Musim Mas and Ecogreen) to their related trading companies. Consequently, the EU authorities imposed provisional anti-dumping duties on imports of fatty alcohols from these investigated Indonesian producers.3

In particular, the EU authorities found out that PT Musim Mas paid a mark-up to its related company for sales made by the latter to customers in the EU. The EU authorities assessed this mark-up as a payment for a service for which there was no corresponding pricing component on the domestic side. As a result, this commission was considered as a difference, which affects price comparability. Therefore, a downward adjustment to the export price was justifiable.4

The definitive anti-dumping duty was also imposed in respect of the products from Ecogreen, because Ecogreen in fact paid a commission to its related company, and therefore, the similar adjustment was conducted.

In January 2012, both companies filed actions for annulment of the anti-dumping duty before the European Union's General Court. They, in particular, contested the downward adjustment to export price for the commissions paid to their related companies.5

Based on the Interpipe Judgement6, the EU authorities decided to reassess their findings. In the revised calculations, the EU determined that the adjustment made for the commission paid by Ecogreen to its related trading company was not justifiable. The reassessed dumping margin for Ecogreen was de minimis. Thus, the anti-dumping duties applicable to Ecogreen were terminated. However, with respect to PT Musim Mas, the EU authorities did not change their previous view and, therefore, the duty remained applicable to PT Musim Mas.7

In June 2015, the General Court rejected the action for annulment introduced by PT Musim Mas (the "Indonesian producer").

CHALLENGED ISSUES

  • mark-up payment affects price comparability

Mark-up was a payment made bythe Indonesian producer to its related trading company for its services pursuant to a Sales and Purchase agreement between these related companies. As stated earlier, with regard to this payment, the EU investigating authorities made an adjustment, which helpedto determine the export price. Indonesia disputed that this downward adjustment did not comply with Article 2.4 of the ADA.

Specifically, Article 2.4 elaborates on a fair comparison between the export price and the normal value. It envisages that "due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are also demonstrated to affect price comparability" emphasis added8.

In its argumentation line, Indonesia brought up the Appellate Body's findings in US – Hot-Rolled Steel to argue that a the prices charged within"single economic entity" between related companies which constitute this "single economic entity" might not show any commercial effect. On appeal, Indonesia thus contested the Panel's assessment and denial of its arguments, namely:

  • that the existence of a single economic entity prevented the EU authorities from making adjustments for the mark-up; and
  • that the allowance resulted in asymmetrical evaluationwith the normal value.

Indonesia also underlined that the costs for services within a single economic entity are, for dumping purposes, indirect selling expenses, which are usually included in the normal value and export price and, thus, they cannot be deducted from both the normal value and export price.

The Appellate Body approved the Panels assessment based on the fact that the EU authorities relied on direct sales of Indonesian producer conducted to domestic and export consumers. By assessing these facts, the related trading company was considered not to be a part of the internal sales department of Indonesian producer. Actually, the related trading company made most of its sales to unrelated entities, which also proves that Indonesian producer and its related companies do not establish "single economic entity". Finally, from the Sales and Purchase agreement concluded between Indonesian producer and its related company it is possible to extract the functions of the latter as the ones "similar to those of an agent working on commission basis". In fact, the mark up did affect the price comparability and, thus, the corresponding due allowance was warranted. The Appellate Body upheld the Panel's findings and conclusions on this matter.9

  • on-the-spot verification issue

Before the Panel, Indonesia challenged that the disclosure to the investigated Indonesian producers did not meet the requirements of Article 6.7 of the ADA. Indonesia argued that no separate report was made available after the verification visits and that the disclosure of valuable facts was very general that improperly disclosed the "outcomes" of the verification visits.

In turn, the EU submitted that it had complied with Article 6.7, because it either "made available" or "disclosed" the outcomes of verification visits to the investigated Indonesian producers. In particular, the EU investigating authorities informed the Indonesian producers beforehand about the facts that were going to be checked, the EU investigating authorities also provided a list of exhibits collected during the on-the-spot verifications and, thus, provided the results of them, which can be considered as a part of the general disclosure of important facts to Indonesian exporters. Additionally,this disclosure was made by issuing country-specific report.

The Panel's analysis interpreted the meaning of the "results of any such investigations", which is the requirement of Article 6.7 of the ADA. The Panel underlined, that the aim of on-the-spot verifications is to enable the investigating authorities to prove whether the information supplied by the investigated firms is accurate.

The Panel further stated that Panel Report in Korea-Certain Paper contained the requirements that such disclosure pursuant to Article 6.7 of the ADA must constitute "adequate information regarding all aspects of the verification". The Panel relying on the above decision of the Panel assessed that the EU authorities had not made available or disclosed the "results of any such investigations" to Indonesian producer, as prescribed by Article 6.7. In particular, they could not manage to explain those parts of the questionnaire response or other information, for which they needed supporting evidence orfurther information, and whether the Indonesian producer and its related companies indeed had made available the appropriate evidence and information. The EU authorities also failed to explain whether they were or were not able to confirm that the supplied information was accurate in questionnaire responses of verified companies.10

On appeal, the EU raised the question of the scope of the "results" of the on-the-spot investigation pursuant to Article 6.7 of the ADA. The Appellate Body underlined that the investigating authority does not have to conduct on-the-spot investigations. However, if the investigated authorities carry out on-the-spot investigations, they must provide the investigated firms with the "results". The disclosure may take place either as a discrete step in the overall investigation, or together with the disclosure of the "essential facts" pursuant to Article 6.9.

The Appellate Body reaffirmed that the authorities should disclose the part of the questionnaire response or other information, for which they requestedsupporting evidence, as well as any further information, for which they managed to collect the appropriate documents. The Appellate Body stressed that the text of Article 6.7 of the ADA expressly states that on-the-spot investigations shall serve to "obtain further details".11 The (1) fact of the accuracy of information and the (2) fact of the accuracy of information that cannot be confirmed constitute the "outcomes" of the verification exercise. Thus, the "results" of the verification visits must be disclosed.12 The disclosure of the "results" of the on-the-spot investigations must provide the firms with the opportunity to defend effectively their interests at the remaining stages of the anti-dumping investigation. To insure this right, the investigating authorities must provide the investigated entities with the information that theyconsidered to have been successfully verified, as well as information that could not be verified, and inform them of the results in sufficient detail and in a timely manner.

  • Panel's ruling on the expired measure

The EU asked to dismiss Indonesia's appeal as inconsistent with Article 3 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU") because it related to an expired measure. It concerned the fact that the Panel issued its final report to the parties on 23 September 2016. While the Panel Report was being translated and circulated to all WTO Members, the EU sent an email on 16 November 2016 informing the Panel that the measure at issue had expired on 12 November 2016.

The Appellate Body found that it is within Panel's discretion to decide how to take into account subsequent modification to, or repeal of, the measure at issue. In the absence of any findings or acknowledgement by the Panel that the measure at issue is no longer in force, there was no basis for the Panel to depart from the requirement in Article 19.1 of the DSU to make recommendation after having found that measure to be inconsistent with the covered agreements.

Accordingly, the Appellate Body found that Indonesia did not act inconsistently with Article 3 of the DSU by appealing the Panel Report notwithstanding the expiry of the measure at issue shortly before circulation of the Panel report to WTO Members.13

CONCLUSIONS

Therefore, the Appellate Body upheld the Panel's finding that Indonesia had not demonstrated that the EU authorities acted inconsistently with Article 2.4 of the ADA by considering the mark‑up paid by the Indonesian producer to its related entity as a difference affecting price comparability, and, therefore, making a due allowanceto the export price. At the same time, the Appellate Body confirmed that the EU authorities failed to make available or disclose the "results" of the on-the-spot investigations to Indonesian producers pursuant to Article 6.7 of the ADA.14

Footnotes

1 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 5.3.

2 Appellate Body Report, EU – Fatty Alcohols (Indonesia),para. 5.4.

3 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 5.6.

4 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 5.5.

5 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 5.10.

6 The judgment in an appeal in the Court of Justice on 16 February 2012, which confirmed the judgment of the Court of First Instance of the EU , where there was an analogous price adjustment for commissions paid by an exporter to its related trader.

7 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 5.12.

8 ADA, Article 2.4., third sentence.

9 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 5.57-5.60.

10 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 5.125.

11 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 5.151.

12 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 5.152.

13 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 6.6.

14 Appellate Body Report, EU – Fatty Alcohols (Indonesia), para. 5.165.

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