Commentary on the first five years of the WTO antidumping agreement and agreement on subsidies and countervailing measures

I. INTRODUCTION

The Symposium brochure states that, "In the case of these Agreements . . . the primary U.S. objective was defensive: to maintain effective remedies to address unfair trade practices." While this statement is certainly accurate as to the Antidumping Agreement, I submit that it is not an accurate or useful characterization of the Agreement on Subsidies and Countervailing Measures.

On the issue of subsidies, the United States was successful in its effort to transform a GATT discipline that was deficient both in its substance and enforcement mechanism into a WTO regime that would provide a meaningful remedy for U.S. companies encountering subsidized competition in markets outside the United States. To obtain such a regime, U.S. negotiators did not have to accept any significant weakening of the substance of U.S. countervailing duty law They did accept as a necessary consequence of obtaining the new binding system of dispute resolution needed to provide a true remedy against subsidies encountered in non-U.S. markets-the proposition that U.S. countervailing duty decisions could be challenged in that same binding dispute resolution process. On the whole, I submit that this bargain is working very well for the United States. Keeping in mind this distinction between the two agreements, let me offer some observations on the experience thus far under each agreement.

I. THE ANTIDUMPING AGREEMENT

A. Department of Commerce Practice

During the debate over the Uruguay Round Agreements Act (URAA), much concern was expressed that substantive changes in U.S. law required by the new Antidumping Agreement would "raise the bar," making it more difficult for petitioners to obtain relief. Such concerns focused on, inter adia, higher "de minimis" margin levels; comparing weighted-average U.S. price to weighted-average home market price (instead of comparing the price of each U.S. sale to a single home market weighted average price); and changing from "purchase price" and "exporter's sale price" to the new "export price" and "constructed export price."

Today, after five years of experience under the new law, these petitioner-side concerns have largely disappeared. The difference in de minimis levels has not proved significant. The Department of Commerce (DOG) has coped with the "averages to averages" methodology by making comparisons on the basis of narrowly-defined product groupings.l Furthermore, the new definitions of "export price" and "constructed export price" have significantly favored petitioners, as many import sales that would have fallen into the more respondent favorable "purchase price" category under the old law are now being put in the "constructed export price" category, resulting in higher dumping margins.

In addition, the DOC has adopted a number of interpretations under the new law that have tended to increase the dumping margin in most cases. First, the DOC is much more likely to find a raw material or component supplier, or a company in the chain of distribution; to be "affiliated" to the exporter. The consequence of such a determination is usually a higher dumping margin and invariably more arduous verification. Second, in selecting the home market sales appropriate for comparison with each grouping of U.S. sales, the DOC must eliminate below-cost home market sales, scrutinize home market sales to related parties to ascertain whether they are at arm's length, and determine which products sold to home market customers are most nearly identical to the product category sold in the United States. The DOC has changed the order in which these analyses are made, and has done so in a manner that, in most cases, tends to increase the dumping margin.

Finally, the DOC has substantially raised the bar for the revocation of orders in changed circumstance reviews. Not too many years ago, an order would be revoked if a certain number of annual reviews found all sales to have been made at fair value, or if a greater number of reviews had found (as to a particular exporter) no imports at all. Commerce has progressively toughened those requirements. Today, a year with no imports does not count at all toward revocation-three consecutive reviews in which imports were made entirely at fair value are now required, and even that may not be sufficient. Over the past two years, Commerce has begun examining the volume of fair value imports in each review year and rejecting revocation where that volume is deemed too small.

In sum, it would be extremely difficult to make the case that the new WTO Antidumping Agreement has weakened antidumping law enforcement by the DOC.

B. International Trade Commission Practice

Here there is little to say, because neither the new Antidumping Agreement nor the URAA significantly changed the criteria applied in antidumping investigations at the International Trade Commission (ITC) . Apart from the new standard for negligibility, under which a few countries with very small import volumes have been excluded from affirmative determinations in multi-country cases, decisional trends have turned on the makeup of the Commission and not significantly on any effect of the Uruguay Round.

C. Sunset Reviews

The inclusion of a five year "sunset review" provision in the Antidumping Agreement and the Agreement on Subsidies and Countervailing Measures was seen as a major concession by the United States. The sunset review procedure caused particular concern in the petitioner bar when it became apparent that both the agreements and the URAA provided that an order would be terminated unless both the DOC and the ITC found a likelihood of future dumping, or of renewed or continued injury, if the order were to be revoked. While it is still too early to draw firm conclusions about the effect of the sunset review provision, it is abundantly clear that the prospects for revocation differ radically between the two agencies.

The DOC's approach to revocation under the sunset review provision is comparable to my recollection of a classic Monty Python comedy sketch: In a small, windowless office sits an insurance agent (played by Eric Idle) dressed in a gangster suit, sunglasses, and sporting a thin black moustache. In bursts a policyholder (played byJohn Cleese), who turns out to be a minister. He cannot understand why his claim has been rejected because the damage to his car occurred when another car ran into it while parked in the minister's garage! The insurance agent finds a copy of the policy (a single sheet of crumpled paper) in his desk drawer, reads it, and says, "Well, here's the problem, reverend. It says here very clearly that the company is under no obligation whatsoever to honor any claim [pause for dramatic effect] that you make."

This appears to be precisely the position of the DOC-mandated in large part by the URAA legislative history-towards sunset reviews. Where dumping is found in annual reviews after the original order, they will not revoke. Where there are no imports after the original order, they will not revoke. Where all imports after the order are found to have been at fair value, but the volume of those imports is lower than the pre-investigation volume, they will not revoke. Only in situations where the exporter in question not only stops dumping but also increases sales in the U. S. market will the DOC find future dumping unlikely and revoke. Not surprisingly, revocation at the DOC has depended on whether the petitioning U.S. industry contests the sunset review. If it does, the respondent's hope of revocation lies with the ITC, not with the DOC.

It is still a bit too early to draw firm conclusions as to how the ITC will be handling its portion of the sunset review process. Early analysis, however, suggests some preliminary conclusions. First, the sunset reviews are being analyzed similarly to the ITC's analysis in threat cases, with the exception that the standard of "imminence' is somewhat more favorable to U.S. petitioners. In other words, the ITC will reach an affirmative determination based on a finding that material injury is likely at a somewhat more remote time than the "imminent" injury standard requires in threat cases. Second, the Commission is playing it straight, there is no clear predilection apparent in the early decisions, either in favor of or against revocation.

Finally, at least two types of situations have emerged in which, given compelling facts, the ITC has demonstrated a willingness to find no likelihood of material injury if the order is revoked. In the first scenario, major U.S. consumers argue, and the ITC finds it to be the fact, that the subject merchandise is in short supply and thus additional imports are needed.2 In the second scenario, the foreign exporter has established production in the United States (or for some other reason has a greatly diminished reason to export to the United States) and the exporter has little or no available capacity with which to increase its U.S. exports.

Thus, while it continues to be evident that most contested ITC sunset reviews will result in the order remaining in effect, the new procedure is having its intended effect of weeding out those orders as to which U.S. producers have no further interest, or as to which there is compelling evidence that future imports will be minimal or noninjurious.

D. WTO Panel Reviews of U.S. Antidumping Decisions

The strongest complaints regarding the Uruguay Round Antidumping Agreement were directed, not against that Agreement itself, but against subjecting U.S. antidumping decisions to the new, non-- blockable WTO dispute resolution mechanism. It was feared that the hostility of most WTO member nations to U.S. antidumping practice would result in decision after decision overturning the results of U.S. cases. Additionally, under the new procedures the United States would no longer be able to block the adoption of adverse panel reports.

It has not turned out that way at all. In the Uruguay Round negotiations, the United States obtained agreement for a higher standard of review where panels considered the validity of a member nation's antidumping decision. In essence, the panel must give considerable deference to the agency's determination.

Only one U.S. antidumping measure, United States-Anti-dumping Duty on Dynamic Random Access Memory Semiconductors (DRAMS) of One Megabit or Above from Korea (United States DRAMS), has been ruled upon by the WTO, so there is as yet little evidence of a flood of challenges to U.S. determinations.4 This decision does not demonstrate that WTO panels will delve into the intricacies of Commerce's dumping calculations. The United States DRAMS decision does show that, where a panel finds an overt and explicit conflict between U.S. law or practice and the language of the agreement, an adverse decision is likely. In evaluating a revocation proceeding, the panel found it inappropriate for the DOC to use as its criterion whether dumping is unlikely to occur if the order is revoked (as opposed to a finding that future dumping is likely if the order is revoked). The DOC has revised the language of its regulation, with no discernible change in the outcome of revocation proceedings.

E. WTO Panel Reviews of Other Countries' Antidumping Decisions

Against U.S. Exporters

One of the goals of U.S. negotiators in the Uruguay Round was "to ensure that AD/CVD remedies were not misused against U.S. export ers." That goal was inconsistent with, and greatly subordinated to, the goal of limiting a WTO panel's ability to overturn U.S. antidumping decisions. Thus, the higher standard of review that the United States insisted upon for panel review of antidumping decisions means that panels will rule against antidumping orders imposed on U.S. exporters only in fairly extreme cases. For example, in the recent panel decision in Mexico-Anti-dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States (Mexico-High Fructose Corn Syrup), the panel upheld the investigating authority's initiation of the case even though notice of initiation failed to disclose that the investigating authority and the petitioner had contrary information on the make-up of the domestic industry and the like product, and failed to reconcile these differences on the record.5 Nevertheless, it is encouraging that the panel in Mexico-High Fructose Corn Syrup found that the Mexican authority's determination of threat of material injury failed to address the factors set forth in Article 3.4, was based on an improper segmentation of the domestic market, and improperly concluded that there was a likelihood of substantially increased importation. The panel also found that the Mexican authority had acted improperly regarding its imposition and collection of provisional measures and the retroactive levying of duties.

II. THE AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES

A. Disciplines on Subsidized Competition Encountered by U.S. Companies Outside the U.S. Market

On this issue-the primary goal of U.S. negotiators in the subsidy area-the news is very good indeed. Not only has the United Sates prevailed in the two panel proceedings it has thus far initiated under the Agreement on Subsidies and Countervailing Measures (Indonesia-- Certain Measures Affecting the Automobile Industry and Australia-Subsidies Provided to Producers and Exporters of Automotive Leather), the precedents established in other cases are making clear that this agreement will in fact become a tough constraint on trade-distorting subsidization.6 Most notable is the panel decision in Canada Measures Affecting the

Export of Civilian Aircraft. This case involved a Canadian program that provided so-called "repayable advances" to assist in the development of new models of commuter aircraft. The advances were to be repaid exclusively out of income generated by the sales of the newly developed aircraft models. If a model's sales were insufficient to generate full repayment of the money advanced, the recipient Canadian company had no further obligation to make repayment.

The titular belligerents in this proceeding were Canada and Brazil. However, this case could be considered the Spanish Civil War of WTO subsidies law, because the issues at stake were fundamental to the antagonistic positions of the United States and the European Union (EU) on the meaning of WTO constraints on subsidies. On all the important points, the panel took the approach desired by the United States, creating a truly meaningful discipline and rejecting positions long espoused by the EU, some of which would have largely vitiated the Agreement's effectiveness.

First, the panel confirmed that the test of whether the Canadian funding was a subsidy was whether it conferred a benefit on the recipient, in the sense that monies were provided to the Canadian manufacturer on terms more favorable than could have been obtained from commercial sources. The panel explicitly rejected the position long advanced by the EU-namely, that a subsidy can be found only where there is a cost to the government in providing the funds.

Second, the panel confirmed that the existence of subsidization is to be . determined by looking to the terms on which the funds are provided, i.e., by looking at Canada's projected rate of return. The panel did not find-as the EU has argued in other contexts-that one cannot determine the existence of this type of subsidy until the entire program (i.e., all sales of the aircraft model developed with government funding) has run its course. Had the panel taken the European approach, there would be no meaningful way to apply the WTO constraints to this type of subsidy, because all benefits would have been received, and all adverse effects would have occurred, before it could be determined whether a subsidy existed.

Finally, the panel ruled that the Canadian scheme was an export subsidy, and therefore violated WTO-commitments, even without any showing of adverse effects on other WTO member nations. It based this conclusion on the fact that repayment of the advanced monies was to come from revenues predominantly derived from export sales, as well as official statements demonstrating that export revenues were a significant factor in the decision to grant funds.

In sum, the U.S. objective of achieving tough, enforceable WTO constraints on foreign subsidies is being achieved. The puzzling question is why more U.S. companies and industries-only two so far-are not asking USTR to challenge foreign subsidies.

B. WTO Panel Reviews of U.S. Countervailing Duty Decisions Unlike the Antidumping Agreement, the Agreement on Subsidies and Countervailing Measures does not contain a special standard of review that gives deference to DOC or ITC decision making in cases brought against U.S. countervailing duty determinations. Thus, U.S. decisions are in some jeopardy if a U.S. agency adopts practices or methodologies at variance with international norms for subsidy analy sis.

An example of such jeopardy is the recent WTO panel rejection of the DOC's analysis of the effect of a market value privatization on the countervailability of pre-privatization subsidies. For over a decade, the DOC has wrestled with the privatization issue. The issue is whether and to what extent the purchase of a company (or business unit) by new owners who pay full market value affects the continued countervailablity of "nonrecurring" subsidies provided to that company before the market value privatization. The analytical complexities arise because such nonrecurring subsidies (e.g., a grant or low-interest loan for capital investments) are not continuing money infusions (in which what is countervailed each year is the new funding provided in that year) . Rather, these are provisions of funds in one year whose benefit to the company continues in future years. In other words, what is countervailed in later years is a portion of the earlier-year funding, which is then allocated or amortized to each of a given number of years after the actual fund infusion.

In two decisions in the 1980s, the DOC took the view that a sale of the subsidy recipient company for its market value ended the countervailablity of past non-recurring subsidies. The DOC adopted this view on the basis that such a market value transaction constituted payment in full by the new owners for all of the continuing benefits of any prior non-recurring subsidies. This approach was consistent with the DOC's view-expressed most recently in the preamble to its latest countervailing duty regulations-that a subsidy confers a benefit where, as a result of the infusion of funds by the government, it acquires some of its inputs at an artificially reduced cost. In such an analysis, it follows logically that the company no longer enjoys a subsidy benefit after its new owners have paid full market value for the entire company (and thus paid full value for any input whose cost had earlier been reduced by the non-recurring subsidy).

In the early I990s, however, the DOC radically changed its approach beginning with decisions in the Leaded Bar and Certain Steels cases. In these cases, the DOC adopted the view that the continuing countervailability of the portion of a non-recurring subsidy allocated to future years was not dependent on whether the recipient company continued to benefit from that subsidy. Indeed, the DOC stated explicitly that "whether a subsidy confers a benefit, in the year of receipt or in any subsequent year, is irrelevant." Under this analysis, the payment of market value by the new owners of a privatized company did not end the countervailability of past non-recurring subsidies. The DOC took the position that it would countervail the privatized company whether or not its operations enjoyed any benefit from the past subsidies.

The WTO panel found this analysis inconsistent with the Agreement on Subsidies and Countervailing Measures. It ruled that countervailing duties could not be imposed unless the current production of the imports on which duties are assessed benefits from the countervailed subsidies. Applying logic quite similar to that used by the DOC in its pre-1990 cases, the panel found that payment of market value eliminates the benefit previously conferred by the past subsidy and thus ends countervailability.

The United States has stated that it is considering an appeal of this decision to the WTO Appellate Body, but the lesson of the case seems clear. Where U.S. countervailing duty law or practice diverges sharply from internationally accepted subsidy analysis-as in this case, where the United States professed itself ready to impose duties regardless of whether the production of the countervailed imports enjoyed any benefit from subsidies-such divergence is likely to be found WTO violative.

1. This, together with other DOC changes, has significantly exacerbated the nightmare complexity of the verification exercise.

2. See, e.g., Titanium Sponge From the Russian Federation: Final Results of Antidumping Duty Administration Review, 64 Fed. Reg. 1599 (Dep't Commerce 1999).

3. See, e.g., Revocation of Antidumping Finding: Stainless Steel Plate From Sweden, 64 Fed Reg. 42922 (Dep't Commerce 1999).

4. WTO Panel Report, United States-Anti-dumping Duty on Dynamic Random Access Memory Semiconductors (DRAMS) of One Megabit or Above from Korea, WT/DS99/R (Jan. 29, 1999).

5. WTO Panel Report, Mexico-Anti-dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States, WT/DS132/R (Jan. 28, 2000).

6. See generally WTO Panel Report, Indonesia-Certain Measures Affecting the Automobile Industry, WT/DSS54/R, WT/DSS55/R, WT/DSS59/R, WT/DSS64/R (July 2,1998); WTO Panel Report, Australia-Subsidies Provided to Producers and Exporters of Automotive Leather, WT/DS126/R (May 25,1999).

7. WTO Panel Report, Canada-Measures Affecting the Export of Civilian Aircraft, WT/DS70/R (Apr. 4,1999).

RICHARD O. CUNNINGHAM*

* Partner, Steptoe & Johnson LLP, Washington, D.C.

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