USA combined duties not WTO Compatible

USA combined duties not WTO Compatible
In March 2011 the World Trade Organisation’s (“WTO”) Appellate Body ruled that the United States of America (“USA”) illegally imposed simultaneous anti-dumping and countervailing duties on several products originating from the Peoples Republic of China (“China”). Specifically the Appellate Body ruled that the USA contravened section 19.3 of the WTO Agreement on Subsidies and Countervailing Measures (“SCM Agreement”). The implication of this ruling is not that the simultaneous use of antidumping and countervailing duties is prohibited per se, but rather that quantum of redress is limited to actual injury suffered, by whatever instrument that injury is actually redressed.

At the WTO Panel China argued that the USA essentially offset the same subsidy twice. This is due to the fact that the USA does not afford China market economy status (i.e. where prices are set in a free price system set by supply and demand) and treats it as a non-market economy (“NME”). In investigations involving NMEs, the USA calculates the normal value on the basis of surrogate values taken from countries considered to have market economy status rather than on the basis of the prices or costs of production actually incurred by the investigated producer/manufacturer. China argues that this methodology used by the USA essentially places the investigated producer/manufacturer in a position of having unsubsidized, market-determined cost of production and the producer’s export price. In doing so, China argues, the USA captures any trade distorting effect of the alleged subsidies in the anti-dumping margin. Thus when the USA again calculates the amount of subsidization in a parallel countervailing duty investigation, it is repeating the same exercise undertaken in the anti-dumping NME calculation which results in the same alleged subsidy being offset twice. The Panel found that it is likely that a double remedy may be imposed based on the methodology used by the USA, but did not consider the matter any further as it stated that China did not establish that the imposition of double remedies is inconsistent with the WTO Agreements which includes section 19.3 of the SCM Agreement.

On appeal to the Appellate Body China pointed out that the Panel’s finding, that nothing in the WTO Agreements prevents the same subsidy being offset twice, is:

“one of the most surprising and anomalous conclusions in the history of dispute settlement” and “flies in the face of the remedial purpose of countervailing duties and the objective of imposing meaningful disciplines on the use of countervailing measures”.

China argued that WTO Members are under a legal duty not to offset a subsidy in a countervailing measure if it simultaneously offsets the subsidy through the way it calculates anti-dumping duties in respect of the same imported product. According to China this obligation arises from Article 19.3 of the SCM Agreement which requires investigating authorities to impose countervailing duties in the “appropriate” amounts. Thus when an importing Member has offset a subsidy through its calculation of anti-dumping duties, it must take this into account in determining the “appropriate” amount of a countervailing duty to be levied. China also makes the point that the purpose of a countervailing duty is to offset any subsidy bestowed on the manufacture, production to export of any merchandise and as such the countervailing duty is remedial rather than punitive. Thus the “appropriate” amount can be no greater than the amount necessary to offset the subsidy.

The Appellate Body found in China’s favour. Specifically Article 19.3 is interpreted in the context of Article19.2 which states that it is “desirable” that “the duty should be less than the total amount of the subsidy if such lesser duty would be adequate to remove the injury”. This link to the subsidy actually causing injury to the USA industry is also found in Article 19.3 which provides that “countervailing duty shall be levied, in the appropriate amounts in each case … on imports of such product … found to be subsidized and causing injury”. Throughout the SCM Agreement references can be found which link the actual countervailing duty to the actual injury suffered. Thus the Appellate Body found that when taking into account the “appropriate amount” of countervailing duty to be levied, the USA must take into account the effect of the USA’s NME methodology used in calculating the anti-dumping duty and the diminished injury which the USA industry may now face as a result of the imposition of the anti-dumping duties. It therefore now the position that the imposition of double remedies, that is, the offsetting of the same subsidy twice by the simultaneous imposition of anti-dumping duties calculated on the basis of NME methodology employed by the USA and countervailing duties, is inconsistent with Article 19.3 of the SCM Agreement.