World Trade Organization
Ruling on US Continued Dumping and Offset Act of 2000 (CDSOA)
By Eliza Patterson
February 2003
On January 16, 2003, the WTO Appellate Body (AB) ruled
that the U.S. Continued Dumping and Offset Act of 2000
(CDSOA) (also referred to as the "Byrd Amendment")
is inconsistent with the WTO Agreement on Implementation
of Article VI of the GATT (the "Anti-Dumping (AD)
Agreement") and the Agreement on Subsidies and Countervailing
Measures (the "SCM Agreement"). [1]
The ruling is considered important because the Appellate
Body's interpretation of several WTO provisions effectively
created a new category of prohibited government measures-
subsidization of domestic producers that have successfully
petitioned for anti-dumping or countervailing duties.
In addition, the AB granted the Panel in the original
case brought against the CDSOA wide latitude in matters
of procedure, and thereby significantly diminished WTO
member governments' control over the panel process.
BACKGROUND
On July 12, 2001, Australia, Brazil, Chile, the European
Communities, India, Indonesia, Japan, Korea and Thailand
requested that a WTO dispute settlement panel be established
to examine the WTO-consistency of the CDSOA. [2] A similar request was made by Canada and Mexico
on August 10, 2001. [3]
The CDSOA was enacted on October 28, 2000, as part
of the Agriculture, Rural Development, Food and Drug
Administration and Related Agencies Appropriations Act,
2001. [4] The CDSOA provides that the United States
Commissioner of Customs ("Customs") shall
distribute, on an annual basis, duties assessed pursuant
to a countervailing duty order, an antidumping order,
or a finding under the US Antidumping Act of 1921, to
"affected domestic producers"-i.e. petitioners
for "qualifying expenditures."
[5] Such distributions, known as "the continued
dumping and subsidy offset," are made from a special
account into which antidumping and countervailing duties
are deposited. Upon collection the duties are first
deposited in a "clearing account." When entries
are liquidated the monies are transferred to the special
account from which they are distributed to the domestic
producers. [6]
The Complaining Parties argued before the Panel that
the CDSOA : (i) is a "specific action against dumping
and subsidization" that is not in accordance with the
Anti-Dumping Agreement or the SCM Agreement, and as
such is WTO-inconsistent; (ii) undermines the value
of, and thus violates, the requirements in the AD and
SCM Agreements that dumping and countervailing duty
investigations not proceed unless they are supported
by a specified percentage of the domestic industry.
[7]
THE PANEL REPORT
In its Report of September 16, 2001,
[8] the Panel largely agreed with the complainants,
ruling that the CDSOA was a non-permissible specific
action against dumping and against a subsidy contrary
to Article 18.1 of the AD Agreement and Article 32 of
the SCM Agreement. The Panel also ruled that providing
a financial incentive for domestic US producers to initiate
and support an anti-dumping and countervailing duty
investigation was inconsistent with Article 5.4 of the
AD Agreement and Article 11.4 of the SCM Agreement.
The Panel recommended that the Dispute Settlement Body
(DSB) request the U.S. to bring the CDSOA into conformity
with its obligations under the cited agreements.
[9]
Article 18.1 of the AD Agreement and Article 32.1of
the SCM Agreement
The Panel determined that an action would constitute
"specific action against dumping or subsides" and
as such be covered by Article 18.1 and Article 32.1
if it met a two pronged test: (1) it was taken only
in situations presenting the constituent elements of
dumping or subsidies and was thus "specific"; and (2)
it had a direct or indirect "adverse bearing"
on the practice of dumping or subsidization and as such
was "against" dumping. [10]
The Panel concluded that the CDSOA met both prongs
of this test. It found that the first test was met because
there was a clear, direct and unavoidable connection
between the determination of dumping or of a subsidy
and the offset payments. [11]
Moving to the question whether the
CDSOA was "against" dumping or a subsidy the Panel determined
that the offset payments had an "an adverse bearing"
on dumping and subsidies because (i) the offset payments
to domestic producers adversely affected the competitive
relationship of dumped/subsidized goods with domestic
producers; and (ii) the offset payments provided a
financial incentive to domestic producers to file and
support investigations and in so doing would increase
the number of rulings against dumping or subsidies.
Article 5.4 of the AD Agreement and Article 11.4
of the SCM Agreement
The Panel found that the CDSOA provides a financial
incentive for domestic producers to file or support
applications for the initiation of anti-dumping or countervailing
duty investigations because offset payments are made
only to producers that file or support such applications.
According to the Panel such incentives will result in
more investigations having the level of support required
by Articles 5.4 and 11.4 than would be the case without
the CDSOA. Consequently the Panel determined that the
CDSOA undermines the purpose of those articles to ensure
that investigations proceed only when there is wide-spread
industry concern with the effect of dumped or subsidized
imports. Further, the Panel concluded that the US acted
in bad faith by enacting the CDSOA, which it knew would
result in an increase in the number of investigations
against its trading partners.
The US filed a Notice of Appeal. The Appellate Body
ruled on January 16, 2003. [12]
APPELLATE ARGUMENTS OF THE UNITED STATES
Article 18.1 and Article 32.1
In support of its claim that the CDSOA is not a specific
action against dumping or a subsidy and as such is not
covered by Article 18.1 or Article 32.1, the US argued
that an action can qualify as being "against"
dumping or subsidization within the meaning of Article
18.1 or Article 32.1 only if it applies directly to
the dumped or subsidized imported good or to the entity
responsible for the dumped or subsidized imported good.
This is not, the US claimed, the case for the offset
payments. They are neither imposed on dumped or subsidized
products, nor liabilities on importers/foreign producers/exporters.
Moreover the payments are not triggered by the dumping
or subsidization. Rather they are merely the distribution
of money - triggered by the applicants qualifying as
an "affected domestic producer"- from the
US government to domestic producers. The only connection
with anti-dumping and countervailing duty orders is
that the offset payments are available only to successful
petitioners in anti-dumping and countervailing duty
cases.
According to the US, the fact that the CDSOA may affect
the competitive relationship between dumped/subsidized
goods and domestic products does not qualify it as being
"against" dumping or subsidization within
the meaning of Article 18.1 or Article 32.1 because
neither article requires that existing conditions of
competition between imports and domestic products be
maintained or that importers/foreign producers/exporters
have a reasonable expectation that existing conditions
of competition will remain unaltered. Similarly, the
fact that the CDSOA may lead to an increased number
of dumping and countervailing duty cases is irrelevant
because neither article prohibits such increases. In
the US view, the panel erred in reading additional requirements
into the clear language of the WTO rules.
Article 5.4 and Article 11.4
The US argued that Article 5.4 and Article 11.4 require
only that the US domestic law implementing the obligations
under the Anti-Dumping and SCM Agreements be consistent
with the text of those agreements, i.e. that US authorities
not allow investigations to proceed unless the number
of domestic producers supporting the case meets the
trigger level provided in the Agreements. Thus, a finding
of violation may not be based on a determination that
the CDSOA "undermines the value" or "defeats
the purpose" of the Agreements. Further, there
is no basis in the WTO for enforcing a "good faith"
obligation.
APPELLATE BODY ("AB") REPORT
Article 18.1 and Article 32.1
The AB applied a two step analysis. First, it examined
whether the CDSOA was governed by Article 18.1 and Article
32.1. In the AB view, Article 18.1 of the AD Agreement
and 32.1 of the SCM Agreement apply only when two conditions
are met: the measure must be "specific" and it must
be "against" dumping or subsidization. [13]
The AB ruled that to be "specific," a measure must
be "inextricably linked to, or have a strong correlation
with, a determination of dumping or of subsidization." [14] In the AB view, the CDSOA meets this test
because the offset payments can be made only if anti-dumping
or countervailing duties are imposed, which occurs only
when there has been a determination of dumping or subsidization.
According to the AB, a measure is "against" dumping
or subsidization if it has "an adverse impact on foreign
producers/ exporters of dumped or subsidized goods."
In the view of the AB, the CDSOA has such an adverse
effect in that the offset payments constitute a transfer
of financial resources (the dumping or countervailing
duties collected) from producers/exporters of dumped
or subsidized goods to their US competitors (receipt
of the offset payments). Thus, in addition to having
their products subject to dumping or countervailing
duties, foreign producers/exporters of dumped or subsidized
goods face US competitors subsidized by those duties.
Having found the CDSOA to be a "specific action against"
dumping or a subsidy, the AB moved to the second step
of its analysis: a determination of whether the CDSOA
is "in accordance with the provisions of GATT 1994."
In the AB opinion those provisions strictly limit the
permissible responses to dumping or subsidization to
definitive anti-dumping or countervailing duties, provisional
measures, price undertakings and multilaterally-sanctioned
countermeasures under the WTO dispute settlement system. [15] Because the CDSOA does not
correspond to any of those sanctioned responses the
AB ruled that it was inconsistent with Article 18.1
of the AD Agreement and Article 32.1 of the SCM Agreement.
Article 5.4 of the AD Agreement and Article 11.4 of
the SCM Agreement
According to the AB, Article 5.4 and Article 11.4 are
quite straightforward. They require no more than a formal
examination by the investigating authorities of whether
a sufficient number of domestic producers has expressed
support for an investigation. The motives of the domestic
producers are irrelevant. As a result the AB reversed
the Panel finding that the CDSOA was inconsistent with
these articles.
CONCLUSION
This case has raised some serious concerns about the
power of WTO Dispute Settlement Panels and Appellate
Bodies to effectively rewrite the rules painstakingly
negotiated and agreed to by the WTO members. The perceived
"judicial activism" on the part of the Panel
and the AB will strengthen the case of critics of the
WTO and its formal dispute settlement process. These
critics advocate a return to the early days of the GATT
in which disputes were settled through negotiation rather
than through a quasi-judicial process, and control over
the operation of the GATT system rested with signatory
governments.
Supporters of the current system argue that only a
quasi-judicial dispute resolution process will provide
the legitimacy necessary to ensure widespread support
for the WTO rules-based system. In an organization
with over 100 members of varying levels of economic
development, "negotiated" settlement of disputes simply
means the imposition of the will of the more economically
powerful members. Moreover, supporters argue, the WTO
rules are often imprecise, by design. This is often
the price of agreement as well as being necessary to
deal with an ever-changing global economy. As a consequence,
it is argued that panels and appellate bodies must be
given considerable latitude to interpret the rules in
the context of the facts before them. According to this
school, this is precisely the role played by both the
Panel and the Appellate Body in this case.
About the Author:
The author is a trade lawyer currently adjunct teaching
at Temple University's Beasley School of Law and a senior
advisor at Market Solutions, a Washington-based economic
research organization. She can be reached at erpatterson@Msn.com.
She graduated from Harvard Law School in 1975.
[1] DS217/AB/R, DS234/AB/R. The Dispute Settlement
Body (DSB) adopted the report on January 27, 2003.
[4] Public Law 106-387, 114 Stat.1549 . The CDSOA
amended Title VII of the Tariff Act of 1930 by adding
a new section 754.(19 USC 1675c)).
[5] Qualifying expenditures" are expenditures
on specific items identified in the CDSOA incurred
after the issuance of the ant-dumping or countervailing
duty order. Identified items include: Manufacturing
facilities, R&D, personnel training, pension and
health care benefits, among others.
[6] The Panel found that the CDSOA distributions made
as of December 2001 totaled over $206 million. Panel
report, para. 7.44.
[7] The complaints claimed the CDSOA was inconsistent with Articles
1,8, 18.1.and 18.4 of the Anti-Dumping Agreement;
Articles 7.9, 10, 18, 32.1, and 32.5 of the "SCM
Agreement"; Article XVI:4 of the Marrakesh Agreement
Establishing the WTO, and Article X:3 of the GATT
1994. In a separate Claim Mexico asserted a violation
of Article 5(b) of the SCM Agreement and India and
Indonesia asserted a violation of Article 15 of the
Anti-Dumping Agreement.
- Article 18.1 of the AD Agreement provides that:
"No specific action against dumped exports of
another Member can be taken except in accordance with
the provisions of GATT 1994."
-Art 32.1 provides that "No specific action
against a subsidy of another Member can be taken
except in accordance with the provisions of GATT 1994."
The GATT 1994 specifically provides for only four
permissible responses to another nation's subsidies
or dumping- countervailing or antidumping duties,
provisional measures, price undertaking or multilaterally
agreed measures.
- Article 5.4 of the AD Agreement and Article 11.4
of the SCM Agreement provide that no investigation
shall be initiated unless the authorities determine
that the application has been made "by or on behalf
of the domestic industry" and no investigation may
be brought if less than 25%of domestic producers support
the investigation.
- Article 9.2 of the Dispute
Settlement Understanding (DSU) provides in relevant
part that :"If one of the parties to the dispute so
requests, the panel shall submit separate reports
on the dispute concerned."
[15] Appellate Body Report, paras. 265, 268.
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