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By
Prabhash Ranjan,
Visiting faculty to the Indian Law Institute, New Delhi, India and former research officer, Centad
India and the European Union (EU) were involved in a hard and long legal battle in the World Trade Organisation (WTO) on the imposition of antidumping duties by the EU on cotton-type bed linen (a particular type of textile product) that was exported by India to the EU.
The EU alleged that India was dumping (selling below the normal price) bed linen in the EU; that there was material injury to domestic industry in the EU; and that there was a causal link between the dumping of bed linen by India and material injury to the domestic industry.
India challenged the imposition of such antidumping duties by the EU on its export of cotton-type bed linen with the Dispute Settlement Body (DSB) of the WTO. Hence the dispute between India and the EU on this issue.
Facts of the case and chain of events
Application to impose antidumping duties: On July 30, 1996, the Committee of the Cotton and Allied Textile Industries of the EU (Eurocoton), the EU federation of national producers’ associations of cotton textile products, filed an application with the EU for the imposition of antidumping duties on cotton-type bed linen that was exported by India to the EU. It is important to recall that any application for the imposition of antidumping duties should be made by the domestic industry, or by somebody on behalf of the domestic industry.
Notice to initiate antidumping proceedings: After receiving the application from the domestic industry, the EU published notice of the initiation of an antidumping investigation regarding the import of bed linen from India, on September 13, 1996. The purpose of such an antidumping investigation was to find out whether antidumping duties on cotton-type bed linen coming from India should be imposed or not on the basis of the application made by Eurocoton.
Investigating period: The EU established the investigating period from July 1, 1995 , to June 30, 1996 . The investigation of dumping of cotton-type bed linen covered this period. The examination of material injury to domestic industry of the EU covered the period from 1992 up to the end of the investigation period, ie, June 30, 1996 .
Indian producers and exporters under investigation: A large number of Indian producers and exporters were under investigation, including companies as big as Bombay Dyeing. In view of the large number of Indian producers and exporters, the EU conducted its analysis of dumping based on a sample of Indian exporters. The EU also established a reserve sample, to be used in the event that companies in the main sample subsequently refused to cooperate.
Calculating normal value based on constructed value to determine dumping: In order to investigate dumping and find out the dumping margin, the export price of the product is compared to the price at which it is sold in the domestic market of the exporting country, provided the sale is in the ordinary course of trade. If the sale is not in the ordinary course of trade, then the export price is compared with a ‘constructed value'. This constructed value comprises the cost of production in the country of origin plus a reasonable amount of selling, general and administrative (SG&A) costs, and profits.
The EU established the normal value based on the constructed value for all Indian companies and producers under investigation, including Bombay Dyeing. The reason behind establishing the normal value based on the constructed value was that the products were not sold in the ordinary course of trade. The constructed value of Bombay Dyeing was determined. The information for SG&A and profits used to calculate the normal value for Bombay Dyeing was also used for the other Indian producers and exporters.
Injury to domestic industry: In the course of the investigation, the EU found that its domestic industry suffered declining and inadequate profitability and price depression. Hence it reached the conclusion that the domestic industry had suffered material injury. The EU found a direct causal link between the increased volume and price effects of the dumped imports (cotton-type bed linen) and the material injury suffered by the EU's industry. This was evident by the existence of heavy undercutting resulting in a major swelling in the market share of cotton-type bed linen (dumped imports) and corresponding negative consequences on volumes and prices of sales of EU producers.
Preliminary affirmative determination of dumping: The EU published notice of its preliminary affirmative determination of dumping, injury and causal link, on June 12, 1997 . Provisional antidumping duties were imposed with effect from June 14, 1997 . So, provisional antidumping duties were imposed almost one year after the application for imposing duties was made.
Hearing the interested parties: The EU continued its investigation, received comments from interested parties, and provided the interested parties, including the exporting country, an opportunity to be heard. This is mandatory under WTO rules. The interested parties then put forward their cases. On October 3, 1997 , the EU informed all parties of the essential facts and considerations on the basis of which it intended to recommend the imposition of definitive antidumping duties, and the definitive collection, at the level of these duties, of amounts secured by provisional duties. An opportunity for further representations was subsequently provided.
Final affirmative determination of dumping: Notice of the final affirmative determination (the determination that dumping is taking place and is leading to material injury to the domestic industry of the EU) was published on November 28, 1997 . Injury margins were determined to be above the level of dumping margins, in all cases. Therefore, definitive antidumping duties in the amount of the dumping margins determined, ranging from 2.6% to 24.7% depending on the exporter in question, were imposed on imports of cotton-type bed linen originating from India .
Complaint by India : On August 3, 1998 , after the determination and imposition of final antidumping duties, India requested consultations (the first stage in dispute resolution, whereby countries try to settle the dispute by talking to each other) with the EU to settle the dispute. However, the dispute between India and the EU could not be settled during the consultations.
Request for the formation of a panel by India : Since the dispute could not be settled during the consultations, India requested the Dispute Settlement Boards (DSB) for the establishment of a panel, on September 7, 1998 . At its meeting on September 22, 1999 , the DSB postponed the establishment of a panel. India made a second request for the formation of the panel; the DSB established the panel on October 27, 1999 .
Panel constituted by the director general of the WTO: There was no agreement between India and the EU regarding the composition of the panel. Hence, the director general (DG) of the WTO intervened as he is empowered to do under the Dispute Settlement Understanding (DSU) of the WTO. On January 24, 2000 , the DG constituted the panel, which had three members.
India 's contention
India 's arguments were as follows:
- The determination of dumping made by the EU was inconsistent with Article 2.4.2 of the antidumping agreement, and hence illegal according to the WTO law. Article 2.4.2 states how to determine the dumping margin during an antidumping investigation. The existence of the dumping margin shall be established on the basis of a comparison of a weighted average normal value with the weighted average of prices, or by a comparison of normal value and export prices.
According to India, the EU used the ‘zeroing’ methodology to determine the weighted averages. India said that this methodology goes against Article 2.4.2. In the use of the ‘zeroing’ methodology to determine the weighted averages, and hence dumping margin, negative dumping margins are given values equal to zero. Hence, negative dumping margins are not allowed to offset positive dumping margins.
For instance, if there are five numbers, say -3, -2, 1, 2 and 5. The sum of these numbers will be 3. However, if the negative values are given a value equal to zero, then the sum will be 8, which is greater than the previous sum. The ‘zeroing’ methodology follows this technique whereby negative items are given values equal to zero. This inflates the overall sum and leads to determining a higher dumping margin and hence a higher antidumping duty.
- The calculation of the constructed value by the EU to determine whether dumping is taking place or not was in violation of Article 2.2.2. For the calculation of the constructed value, Article 2.2.2 states that this value will be calculated on the basis of actual date of production and sale of the like product in the ordinary course of trade by the exporter. If this option cannot be used, then the investigating country determining the amounts can use the other options. One of these options is the use of ‘weighted averages’. India contended that the weighted average option is the second option and can be used only if the first option cannot be used. However, the EU did not consider using the first option and straightaway came to the second option ie the weighted average option. Hence it was acting in contradiction to Article 2.2.2.
- The EU erred in applying the weighted average option given in Article 2.2.2 (ii). This Article states that in determining the amount of selling, general and administrative costs and profits (to determine whether dumping is taking place or not) the weighted average of all exporters and producers will be considered while determining whether dumping is taking place or not. India contended that the EU used the weighted average of just one Indian producer (Bombay Dyeing) and did not take into account the facts and figures of other exporters and producers. So, the EU used the figure of one producer for all the other producers and exporters. This, according to India, is a violation of Article 2.2.2 (ii).
- The determination of material injury to the domestic industry of the EU was inconsistent with Article 3.4 of the antidumping agreement. Article 3.4 states that in the process of finding out whether the domestic industry has suffered material injury or not, the investigating authorities will consider all the relevant economic factors and indices given in that Article. India argued that the EU did not consider all the factors and indices given in Article 3.4 while determining whether the domestic industry had suffered material injury or not.
- The EU did not establish the accuracy and adequacy of the evidence given by the domestic industry in the antidumping application and hence acted in violation of Article 5.3 of the antidumping agreement which requires it to do so.
- The EU acted in violation of Article 5.4 of the antidumping agreement. Article 5.4 applies when an application will be considered to be made by or on behalf of the domestic industry.
- The EU did not establish the facts in an objective and unbiased manner.
- The EU violated Article 15 of the antidumping agreement by failing to take into account India’s developing country status. Article 15 is a special and differential treatment principle. It states that in cases where one of the parties is a developing country and the other party a developed country, the latter will explore possibilities of constructive remedies before imposing final antidumping duties. India contended that the EU failed to explore such remedies. In fact, India also contended that the offer of price undertakings made by the Indian textile associations, producers and exporters, was also not substantially considered by the EU.
Ruling of the panel
On violation of Article 2.4.2 (the ‘zeroing methodology’). The panel held that the EU was in violation of Article 2.4.2 of the antidumping agreement. The panel said that use of the zeroing methodology to calculate dumping margins was not given in Article 2.4.2 and hence could not be used to determine the weighted averages. By giving negative items a value equal to zero, the EU was creating new prices and not taking into account existing prices. Hence, the calculation of weighted averages by using the zeroing methodology was throwing up a distorting picture. This would make it difficult to determine the dumping margin and hence to find out whether a particular product is being dumped or not.
On the violation of Article 2.2.2 (calculation of the constructed value). The panel held that the EU was not in violation of Article 2.2.2. The panel rejected India 's argument that Article 2.2.2 creates a hierarchy between the options given to calculate the constructed value (comprising the cost of production in the country of origin, plus a reasonable amount of SG&A and profits. The panel held that there was nothing in Article 2.2.2 that created or suggested such a hierarchy between the three options given. In the absence of such a hierarchy, the investigating authority or importing country had the discretion to choose any of the three options to calculate the constructed value and hence to determine whether dumping is taking place or not.
On the violation of Article 2.2.2 (ii) (using one producer's figure for all other producers and exporters). The panel held that the EU was not in violation of Article 2.2.2 (ii). The data of only one producer and exporter could be used by the investigating authority or the importing country if the data of other producers and exporters was missing, to determine the weighted averages and hence to determine whether dumping is taking place or not.
On the violation of Article 3.4 (determination of injury). The panel held that the EU was in violation of Article 3.4 of the antidumping agreement. All the factors given in Article 3.4 have to be taken into account when material injury to domestic industry due to dumping is being determined. In other words, the assessment of material injury to the domestic industry cannot be ascertained only on the basis of one or a few factors given in Article 3.4. The EU failed to take into account all the factors given in Article 3.4 while investigating material injury to domestic industry, and hence was in violation of Article 3.4.
On the violation of Article 5.3 (adequacy of evidence in the application). The panel held that the EU was not in violation of Article 5.3 of the antidumping agreement. There was sufficient evidence to initiate the antidumping investigation.
On the violation of Article 5.4 (application made by or on behalf of domestic industry). The panel held that the EU did not violate Article 5.4 of the antidumping agreement. The EU had requests for imposing antidumping duties from 38 producers. Some of these producers filed the application individually, and some through their associations. All these applications taken together constituted more than 25% of the EU share and hence it was an application made by or on behalf of the domestic industry.
On the violation of Article 15 (special and differential treatment). The panel held that the EU was in violation of Article 15 of the antidumping agreement. The EU did not explore the possibilities of constructive remedies. The EU rejected outright the offer of ‘price undertaking' made by the Indian textile association. ‘Price undertaking' or imposing antidumping duties less then the dumping margin (less duty rule) are examples of exploring constructive remedies before imposing a full antidumping duty. However, the EU imposed a full antidumping duty and hence acted in violation of Article 15.
Ruling of the appellate body
On December 1, 2000 , the EU notified the DSB of its intention to appeal certain issues of the law covered in the panel report and legal interpretations developed by the panel. The appellate body (AB) of the WTO consequently heard the appeal.
The appellate body circulated its report on March 1, 2001 .
- It upheld the finding of the panel that the practice of ‘zeroing’ when establishing “the existence of margins of dumping”, as applied by the EU, is inconsistent with Article 2.4.2 of the antidumping agreement.
- It reversed or set aside the findings of the panel that the method for calculating amounts for SG&A costs and profits provided for under Article 2.2.2 (ii) of the antidumping agreement may be applied where there is data on SG&A costs and profits for only one other exporter or producer. In calculating the amount for profits under Article 2.2.2 (ii) of the antidumping agreement, a member may exclude sales by other exporters or producers that are not made in the ordinary course of trade. In other words, the AB body held that the data of one producer or exporter couldn’t replace the lack of data of other producers and exporters. The requirement of Article 2.2.2 (ii) was to take the weighted average of exporter(s) and producer(s), ie, of more than one exporter and producer.
Hence the AB concluded that the EU, in the process of calculating the amounts for SG&A and profits, acted inconsistently with Article 2.2.2 (ii) of the antidumping agreement. In other words, it held that the antidumping duties that were levied by the EU on cotton-type bed linen coming from India were illegal as they were inconsistent with the provisions of WTO law. Hence these duties need to be removed.
The DSB adopted the appellate body report, and the panel report as modified by the appellate body report, on March 12, 2001 .
Compliance of the ruling
At the DSB meeting, on April 5, 2001 , the EU announced its intention to implement the DSB's recommendations. But it said it would need a reasonable period of time to do so. India argued that the EU could complete its implementation process within a very short period of time. On April 26, 2001 , the parties to the dispute notified the DSB that they had mutually agreed that the reasonable period of time shall be five months and two days, ie, from March 12, 2001 until August 14, 2001 .
The EU amended its regulation imposing a definitive antidumping duty on imports of cotton-type bed linen originating in Egypt , India and Pakistan , and suspended its application with regard to imports originating in India by the deadline of August 14, 2001 . However, at the August 23, 2001 , meeting of the DSB, India made a statement whereby it expressed the view that the new EU regulation did not bring the EU legislation into full compliance with the DSB's recommendations.
Hence, after a long legal battle, India was successful in challenging the antidumping duty imposed by the EU on cotton-type bed linen coming from India . The EU removed the antidumping duty. This saw a resurgence of bed linen exports from India to the EU that had declined after the imposition of the duty.
References:
WTO Panel Report on EC-Bed Linen, WT/DS141/R
WTO Appellate Body Report on EC-Bed Linen, WT/DS141/AB/R. |
