On August 2, 2013, a World Trade Organization (WTO) dispute settlement panel circulated its decision in the United States’ challenge regarding China – Countervailing and Anti-Dumping Duties on Broiler Products from the United States (WT/DS427/R). In the underlying investigations, China imposed duties of up to 105.4 percent in 2010 against chicken legs and various other chicken parts imported from the United States into China. The panel upheld most of the United States’ claims against the determinations by China’s investigating authority, MOFCOM.

This is the latest of several recent WTO decisions, including China – Grain-Oriented Electrical Steel (GOES) from the United States, that have faulted China’s approach to conducting anti-dumping (AD) and countervailing duty (CVD) investigations. Given the broad scope and number of claims at stake in the Broiler Products case, China is likely to appeal at least certain aspects of the panel’s decision to the WTO Appellate Body. The United States may also file an appeal. In the event of an appeal, the panel decision will not be adopted by the Dispute Settlement Body of the WTO until the appeal is concluded.

In Broiler Products, the panel first found that MOFCOM failed to comply with several of the same procedural requirements that China had been faulted for in previous WTO proceedings. These included finding that MOFCOM did not require the Chinese petitioner to provide adequate non-confidential summaries of its data in the petition requesting the investigation, contrary to Article 6.5.1 of the WTO AD Agreement and Article 12.4.1 of the Subsidies and Countervailing Measures (SCM) Agreement. The panel also found that MOFCOM failed to disclose all of the “essential facts,” as required by Article 6.9 of the AD Agreement, particularly with regard to its determination of the existence and margins of dumping for the mandatory US respondents.

The panel considered several claims concerning MOFCOM’s calculation of the AD and CVD margins in the investigations, beginning with two issues concerning how MOFCOM calculated the respondents’ costs of production for purposes of determining “normal value” in the AD context. The panel first held that Article of the AD Agreement requires an investigating authority to explain its reasoning for declining to rely on a respondent’s books and records used in the calculation of its cost of production for determining normal value. The panel then found that, in declining to use the books and records for two of the three respondents, MOFCOM failed to satisfy this requirement. The panel concluded that MOFCOM also violated Article in several respects when applying its own cost allocation methodology.

The panel rejected a claim under Article 2.4 of the AD Agreement as being outside the panel’s terms of reference, after concluding that the United States failed to include the claim in its request for consultations with China, as required. Finally, the panel agreed with the United States that China had acted inconsistently with Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994, because MOFCOM failed to ensure that the duty imposed had not exceeded the amount of subsidization per unit of the exported product. 

The panel next considered several claims by the United States under various provisions of the AD Agreement challenging MOFCOM’s application of “facts available” to calculate dumping margins for “all other” US companies, i.e., those companies that did not register with MOFCOM at the outset of the investigation. The panel first held that MOFCOM fulfilled the conditions set forth under Article 6.8 and Annex II of the AD Agreement for resorting to facts available in order to calculate the AD duty applied to all other US companies. However, MOFCOM’s limited explanation did not allow an understanding of which facts on the record it used to calculate the “all others” rate, which resulted in a violation by China of Article 6.8 of the WTO AD Agreement. The panel also found that China acted inconsistently with Article 6.9 of the AD Agreement, because MOFCOM failed to disclose certain “essential facts” pertaining to the data it relied upon that formed the basis of its determination of the all others rate.

The panel also ruled that MOFCOM acted inconsistently with Articles 12.2 and 12.2.2 of the AD Agreement by not providing the factual and legal basis underlying its resort to facts available. The panel reached similar conclusions regarding MOFCOM’s application of facts available to the unknown exporters and its disclosure of pertinent information in the CVD investigation, contrary to China’s obligations under Articles 12.7, 12.8, 22.3, and 22.5 of the SCM Agreement.

The panel then turned to the United States’ claims challenging MOFCOM’s injury determination. The panel first considered the United States’ claim that China defined the domestic industry improperly for purposes of its injury analysis. Articles 4.1 of the AD Agreement and 16.1 of the SCM Agreement set forth the definition of the domestic industry for purposes of each agreement, either as the domestic producers as a whole or those producers whose collective output represents a major proportion of total domestic production. The panel interpreted this provision as giving investigating authorities an option; they are not required to first attempt to identify every domestic producer or to define the domestic industry as the domestic producers as a whole. Rather, contrary to the United States’ claim, the authorities may begin by defining the domestic industry as those producers whose output constitutes a major proportion of total production. Nevertheless, the determination that a group of producers represents a “major proportion” of total domestic output must necessarily be determined in relation to the production of the domestic producers as a whole. The panel also found that, in this case, MOFCOM did not act to effectively exclude domestic producers from consideration as part of the domestic industry so as to create a self-selection bias giving rise to a material risk of distortion of the injury analysis.

The panel next considered the United States’ challenge to several aspects of MOFCOM’s price effects analysis under Articles 3.1 and 3.2 of the AD Agreement and 15.1 and 15.2 of the SCM Agreement. Consistent with several recent Appellate Body and panel decisions, including China – GOES from the United States, the panel stressed that, for purposes of determining whether there is price undercutting, an investigating authority must ensure that the prices it relies upon are comparable in terms of level of trade and product mix in that investigation. Here, the panel found that the United States failed to demonstrate that MOFCOM’s finding on price undercutting was in error by not being compared at the same level of trade. However, the panel found that MOFCOM improperly compared subject import and domestic prices that included different product mixes without attempting to control for differences in physical characteristics or making necessary adjustments.

The panel rejected China’s argument that MOFCOM’s finding of price suppression was based on the impact of the volume and increased market share of subject imports, rather than MOFCOM’s flawed price undercutting finding. Therefore, the panel found that MOFCOM’s price suppression finding was also inconsistent with Articles 3.1 and 3.2 of the AD Agreement and 15.1 and 15.2 of the SCM Agreement.

The United States also challenged MOFCOM’s findings that subject imports had an adverse impact on the domestic industry, in violation of Articles 3.1 and 3.4 of the AD Agreement and 15.1 and 15.4 of the SCM Agreement, and MOFCOM’s causation analysis, in violation of Articles 3.1 and 3.5 of the AD Agreement and 15.1 and 15.5 of the SCM Agreement. However, the panel found that it was unnecessary to make findings with respect to either of these claims, given its earlier findings concerning MOFCOM’s price effects analysis. The panel found that MOFCOM’s examination of the state of the domestic industry was inextricably linked to its earlier analysis of the price effects of subject imports. Implementing the panel’s findings regarding the inconsistencies of MOFCOM’s price effects analysis will require China to re-examine MOFCOM’s determination regarding the impact of subject imports on the domestic industry as well as MOFCOM’s causation analysis. 

For more information about the matters raised in this Legal Update, please contact Duane W. Layton in Washington, DC at +1 202 263 3811, Paulette Vander Schueren in Brussels at +32 2 551 5950, or Jeffery C. Lowe in Washington, DC at +1 202 263 3821.