World Trade Organization Ruling on US Continued Dumping and Offset Act of 2000 (CDSOA)
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.
[2] WT/DS217/5.
[3] WT/DS234/12 and WT/DS234/13.
[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."
[8] WT/DS217/R, WT/DS234/R.
[9] Panel Report, para. 8.5.
[10] Panel Report, para. 156.
[11] Panel Report, paras. 157, 158.
[12] WT/DS217/AB/R; WT/234/AB/R.
[13] Appellate Body Report, para 236.
[14] Appellate Body Report, para. 242.
[15] Appellate Body Report, paras. 265, 268.