2.1 Scope of circumvention (1997‒2000)

With respect to the scope of circumvention, discussions have focused on identifying circumventing activities that are adopted to avoid existing antidumping duties. Major contributions have come from the US and the EU who believe that ‘without meaningful rules dealing with circumvention, anti-dumping orders would frequently be made meaningless’.Footnote ¹⁶ The circumventing activities contemplated by the US and the EU fall within the following categories:Footnote ¹⁷

• • minor modification or further alteration of products subject to existing antidumping duties, whereby an exporter of the goods changes the physical characteristics or other features of the goods or further processes or develops the goods so that the modified goods fall within a different tariff classification not covered in the antidumping order (Minor Modification or Alteration);

• • assembly operations, by which an exporter of the subject goods, instead of exporting the goods, exports a like product (such as parts or components of the subject goods) to a third country or the importing country for assembly into the subject goods (Assembly Operations);

• • trans-shipment, which involves the shipment of the subject goods to a third country not subject to the antidumping duties; and then from that third country the goods are exported to the importing country (Trans-shipment); and

• • ‘incorrect customs declarations concerning the origin, tariff classification or value’ of the subject goods (Fraudulent Customs Declaration).

Both the US and the EU emphasized that the list of circumventing activities is not exhaustive but is likely to evolve as production activities, processes, and strategies become more sophisticated and globalized.Footnote ¹⁸ The ultimate position of the US and the EU is that uniform anti-circumvention rules should be introduced under the WTO in a timely fashion.Footnote ¹⁹ The main proponents of the position of the US and the EU are CanadaFootnote ²⁰ and Turkey.Footnote ²¹ While Turkey agreed with the list of examples above as constituting circumventing activities, Canada proposed a number of factors that may need to be considered in determining whether circumvention has occurred. These factors include the timing of the activities subject to circumvention claims, the change of pattern of trade, and the consumers of the subject imports.Footnote ²² Canada also observed that an assessment of injury is necessary as anti-circumvention measures should not be imposed if the subject imports ‘result in injury to a different industry’.Footnote ²³ The EU envisaged a similar list of factors to assist determination of whether an activity constitutes circumvention or merely ‘represents the kind of foreign direct investment’; the latter, in the view of the EU, must not be condemned.Footnote ²⁴

The proposed list of circumvention and the promotion of uniform rules on anti-circumvention have been vigorously criticized by Japan,Footnote ²⁵ Hong Kong,Footnote ²⁶ New Zealand,Footnote ²⁷ Korea,Footnote ²⁸ and Egypt.Footnote ²⁹ The basic position of the opponents is that uniform rules on anti-circumvention are unnecessary as all of the proposed circumventing activities can and should be dealt with under the AD Agreement or other existing WTO rules. Japan provided the most comprehensive responses to the circumventing activities contemplated by the US and the EU. In general, Japan believed that most of the activities are legitimate business activities which are likely to be taken in response to changes in external conditions such as consumer tastes, production costs, and technology development, and hence should not be characterized as circumventing activities.Footnote ³⁰ Using anti-circumvention measures against these activities is a disguised way of ‘expanding the scope of the Anti-Dumping Agreement to restrict normal commercial activities [which] is against the general trend toward increased market access and increased globalization of production and trade’.Footnote ³¹ Specifically, Japan observed:Footnote ³²

• • with respect to Minor Modification or Alteration, the modified or further developed imports can be captured by the existing antidumping measures if ‘the product coverage [is defined] precisely to include products with minor alterations in the original investigation’. In cases where the modified or further developed imports have become different goods than the original goods, the existing antidumping duties must not be applied to the imports by way of anti-circumvention.

• • with respect to Assembly Operations, parts or components of subject goods are essentially different goods than the finished goods; hence a fresh antidumping investigation is required to determine whether there is dumping and, if there is, whether the dumped parts or components have caused material injury to the parts or components industry in the importing country. Where the parts or components are assembled into the subject goods in a third country, a separate antidumping investigation should also be conducted.

• • in regard to Trans-shipment, the existing antidumping duties should be applicable to the subject goods as trans-shipment does not change the origin of the goods; and

• • in regard to Fraudulent Customs Declaration, while such activities constitute circumvention, they can be addressed by other WTO agreements.

New Zealand shared its own experience in dealing with the above-mentioned activities. While New Zealand regarded these activities as potential circumvention, in practice it has effectively dealt with them in accordance with existing WTO rules.Footnote ³³ In support of Japan's observations, Korea reached the following conclusion which provides a good summary of the general position of the opposing members:

Accordingly, even on the threshold issue of what constitutes circumvention, WTO members have had extremely opposite views. During this stage of the negotiations, Australia did not make contributions to the discussions.

2.2 Anti-circumvention practice (2000‒2002)

With respect to the existing anti-circumvention practice in WTO members, both the EU and the US provided a brief overview of how they have dealt with identified circumventing activities. A common feature of their practice is that a finding of an activity to be circumvention would lead to the application of existing antidumping duties to the relevant imports without a separate antidumping investigation.Footnote ³⁵ However, while both countries’ anti-circumvention laws mandate consideration of a number of criteria and factors in determining circumvention, the US law appears to include factors in addition to those contemplated by the EU law. In summary, the EU law requires an assessment of (1) whether there is a change in the pattern of trade at the time of the relevant antidumping investigation, (2) whether there are economic justifications for the change other than the imposition of an antidumping duty, and (3) whether the effects of the duty have been undermined by the circumventing activities at issue.Footnote ³⁶ In cases of Assembly Operations, the value of parts or components and the ‘value added’ of an assembly operation are also to be considered under the EU law.Footnote ³⁷ In addition to these factors, the US law also mandates an assessment of factors such as the level of investment, the level of research and development, and the extent of production facilities in the US.Footnote ³⁸

The opposing members challenged the US’ and EU's anti-circumvention practice. Hong KongFootnote ³⁹ and EgyptFootnote ⁴⁰ questioned how the US and the EU can ensure that their anti-circumvention laws and practice, which lead to the application of antidumping duties, comply with the substantive and procedural requirements under the AD Agreement. New Zealand provided detailed information on how it had managed to deal with the proposed circumventing activities through existing domestic or international rules, including using Customs legislations and rules of origin to tackle Fraudulent Customs Declarations and initiating new antidumping investigations against the other circumvention.Footnote ⁴¹ Japan continued to challenge the need for uniform rules on anti-circumvention, arguing that circumventing activities are rare in practice given the insignificant number of cases in the US and the EU, and that a number of WTO members had been able to deal with circumvention under existing domestic laws and the AD Agreement.Footnote ⁴² With respect to the anti-circumvention laws and practice in the US and the EU, Japan was concerned about the lack of criteria for distinguishing between legitimate commercial activities and circumvention, and the potential violation of the AD Agreement as a result of the application of antidumping duties without affirmative findings of dumping and injury.Footnote ⁴³ Probably due to the lack of anti-circumvention experience, Australia did not make contributions to the negotiations.

Accordingly, the discussions of the second issue relating to existing anti-circumvention laws and practice seem to have created new problems in addition to those already existjng after the discussions of the first issue. These problems may have widened the differences between the proponents and opponents of uniform anti-circumvention rules, rendering the conclusion of such rules even less achievable.

2.3 Circumvention and existing WTO rules (2002‒2003)

WTO Members’ debates of the first two issues between 1997 and 2002 have covered the issue of whether existing WTO rules are sufficient to deal with circumventing activities. As shown above, their position and practice are widely divided on this issue. Since 2002, without further debate on this issue, several members attempted to facilitate a resolution of the threshold issue relating to the scope of circumvention.Footnote ⁴⁴ As of the time of writing this article, members have not made any meaningful progress on any of the three issues.

During the discussions of the third issue, Australia made its first and only submission in the whole negotiations. The key aspects of Australia's position can be summarized as follows:Footnote ⁴⁵

• • circumvention undermines the effects of antidumping measures;

• • examples of circumvention include Minor Modification or Alteration, Assembly Operations, etc.;

• • dealing with circumvention through normal antidumping investigations is costly and time-consuming; and

• • an anti-circumvention mechanism is necessary for an expedited investigation against circumvention.

As will be shown below, Australia's position above was eventually translated into its anti-circumvention laws.

2.4 A commentary

The above review of the WTO negotiations on circumvention and anti-circumvention shows that after almost a decade of negotiations, there has been no consensus on any of the major issues. This is probably one of the reasons why members have made little effort in the negotiations of the matter since 2004; consequently, the negotiations have made little progress.Footnote ⁴⁶ Given the strikingly opposing positions between the import-oriented and export-oriented members, the author is not optimistic that consensus on uniform anti-circumvention rules can be reached in the near future.

That said, the author believes that a WTO anti-circumvention agreement is desirable.Footnote ⁴⁷ The central issue during the WTO negotiations has been whether the AD Agreement is sufficient to deal with circumvention and anti-circumvention. While anti-circumvention and anti-dumping are similar in many aspects, anti-circumvention has complex and distinctive features that necessitate the creation of separate rules. For example, a multilateral agreement on anti-circumvention needs to clearly define the scope of circumventing activities so as to avoid the imposition of anti-circumvention measures on legitimate business activities. As shown above, even the US and the EU shared the view that legitimate business activities should not be incorrectly treated as circumvention. Further, the agreement needs to set out in detail the criteria and substantive and procedural rules that must be applied in anti-circumvention inquiries. These criteria and rules may differ from those applicable to anti-dumping investigations, such as the evidence that is required for the initiation of an anti-circumvention investigation, in what circumstances re-investigation of dumping, injury, and causation is not required, factors to be considered in determining whether anti-circumvention measures should be applied, and in what circumstances an expedited investigation may be conducted. Finally, the agreement may require that before initiating an anti-circumvention investigation, members must investigate the probability of overcoming circumvention by recourse to other domestic laws or international rules. Indeed, all of these issues may be addressed by revising the AD Agreement. However, given their volume and complexities, such a revision would be difficult and may affect the integrity of the AD Agreement.

In the end, it must be pointed out that, as with the AD Agreement, the purpose and function of uniform anti-circumvention rules under the WTO is to discipline, rather than to encourage, unilateral application of anti-circumvention measures. In the absence of uniform rules, the discretion of members to determine circumvention and apply anti-circumvention measures is largely unconstrained. Thus, a WTO anti-circumvention agreement would standardize the anti-circumvention laws and practice in WTO members. In practice, the lack of multilateral rules has left room for the proliferation of a unilateral anti-circumvention framework. Following the EU and the US, a number of countries have introduced an anti-circumvention mechanism, including a few Latin American countries (such as Mexico and Brazil)Footnote ⁴⁸ , South AfricaFootnote ⁴⁹ , IndiaFootnote ⁵⁰ , and most recently, Australia. In contrast, Asian countries are generally against the use of anti-circumvention measures and hence have not introduced an anti-circumvention system.Footnote ⁵¹ However, as the use of anti-circumvention measures increases in the other jurisdictions, it is not unlikely that Asian countries may take retaliatory actions by creating similar mechanisms. To avoid the abuse of anti-dumping measures through anti-circumvention investigations by individual member countries, the AD Agreement should be applied to the imposition of anti-circumvention measures before multilateral anti-circumvention rules are introduced.

3.1 An overview of Australia's anti-circumvention mechanism

Australia's current anti-circumvention mechanism is developed from three tranches of reforms, including the 2009‒11 reform led by the Productivity Commission (PC Reform),Footnote ⁵² the 2012 reform headed by former Victorian Premier John Brumby (Brumby Review),Footnote ⁵³ and the most recent inquiry into Australia's anti-circumvention framework launched by the Minister for Industry and Science (Minister) on 15 September 2014 (2014 Inquiry).Footnote ⁵⁴

The PC Reform responded to the concerns of Australian industries about the lack of a mechanism to tackle a number of circumventing activities which may undermine the effectiveness of trade remedies.Footnote ⁵⁵ As a result of the PC Reform, Division 5A of the Customs Act 1901 (Act) was introduced to create an anti-circumvention framework. The framework applies to activities that are considered to have the effect of circumventing antidumping and/or countervailing duties. Initially, the framework covers the following prescribed circumventing activities:

• • Assembly Operations in Australia, that is an exporter of subject goods exports parts or components of the goods to Australia which are subsequently assembled into the subject goods in Australia (section ZDBB(2) of the Act);

• • Assembly Operations in a third country, that is an exporter of subject goods exports parts or components of the goods to a third country where they are assembled into the subject goods which are subsequently exported to Australia (section ZDBB(3) of the Act);

• • Trans-shipment, that is an exporter of subject goods exports the goods to a third country and then to Australia via that third country (section ZDBB(4) of the Act);

• • Arrangement between exporters, that is an exporter subject to existing duties makes an arrangement with another exporter of the same exporting country to export the subject goods to Australia as the other exporter is exempt from the duties or subject to a lower duty rate (Section 269ZDBB(5) of the Act); and

• • Any other activities prescribed by regulation (Section 269ZDBB(6) of the Act).

These activities are quite similar to, and hence appear to be based on, the activities contemplated in the WTO negotiations. Notably, the PC Reform did not lead to the inclusion of Minor Modification or Alteration as a prescribed activity. In response to industries’ requests for including this activity during the 2014 Inquiry,Footnote ⁵⁶ the activity was prescribed through section 48 of the Customs (International Obligations) Regulation 2015 which commenced on 1 April 2015. The activity refers to:

• • slight modification of goods subject to existing duties without changing the use or purpose of the goods.

All of the activities above will be referred to as Traditional Activities below for ease of discussion.

Apparently, the original framework stemmed from the PC Reform and did not satisfy the needs of Australia's import-competing industries which immediately challenged the effectiveness of the framework.Footnote ⁵⁷ In response to the challenge, the Brumby Review proposed to strengthen the framework.Footnote ⁵⁸ As a result, in 2014 a new type of circumvention was added to the Act, that is:

• • Avoidance of Intended Effect of Duty, whereby over a reasonable period of time, ‘the importer of the circumvention goods, whether directly or through an associate or associates, sells those goods in Australia without increasing the price commensurate with the total amount of duty payable on the circumvention goods’ (Section 269ZDBB(5A) of the Act). (New Activity)

According to the Explanatory Memorandum, the New Activity:

The New Activity was not discussed in the WTO negotiations and does not appear to have been adopted in other jurisdictions, such as the EU and the US, as a circumventing activity.Footnote ⁶⁰ As will be shown below, it was the introduction of the New Activity that stimulated the application for the first anti-circumvention investigation in Australia.

With respect to procedural rules,Footnote ⁶¹ the Anti-Dumping Commission (AD Commission), Australia's current investigating authority, must determine whether to initiate an anti-circumvention investigation within 20 days of the receipt of an application for investigation.Footnote ⁶² However, once an investigation is initiated, different procedural rules apply to the Traditional Activities and the New Activity. In relation to investigations of the Traditional Activities, the AD Commission is required to complete an investigation and report to the Minister by day 155 after initiation unless an extension of the time frame is approved by the Minister.Footnote ⁶³ For investigations of the New Activity, the statutory timeframe is only 100 days.Footnote ⁶⁴ Further, in relation to the Traditional Activities, the AD Commission must publish a statement of essential facts (SEF), which sets out the facts on which recommendations to the Minister are to be based, by day 110 after initiation unless the Minister authorizes an extension.Footnote ⁶⁵ However, the AD Commission is not required to publish an SEF in investigations of the New Activity. For all of the activities, the AD Commission's final report to the Minister must recommend whether the original antidumping and/or countervailing notice should be altered depending on whether a circumventing activity has occurred, and if it should, the alteration(s) to be made.Footnote ⁶⁶

3.2 Australia's first anti-circumvention investigation

The New Activity became the target of Australia's first anti-circumvention investigation – the Aluminium Extrusions Investigation – only around two months after it was introduced into the Act.

On 19 March 2014, Capral Limited, ‘Australia's largest manufacturer and distributor of aluminium profiles’,Footnote ⁶⁷ lodged an application for an anti-circumvention investigation into aluminium extrusions exported from China by PanAsia Aluminium (China) Limited (PanAsia).Footnote ⁶⁸ The application concerned the original antidumping and countervailing investigation into aluminium extrusions exported from China in 2009‒10 and, in particular, the resultant imposition of antidumping and countervailing duties – 10.1% and 6.1% respectively and a combined duty rate of 10.1% – on PanAisa.Footnote ⁶⁹ At the time, PanAsia was said to be the largest exporter of extrusions to Australia accounting for around half of all extrusions exports to Australia.Footnote ⁷⁰ The application alleged that P&O Aluminium (P&O) and Oceanic Aluminium (Oceanic), the two major importers of the subject goods from PanAsia:

In support of its application, Capral compared the two importers’ actual/estimated selling prices with a target price it constructed by adding up estimated export prices, the original duties, the applicable ordinary customs duty, costs and expenses, and profits (Target Price), and concluded that the importers ‘have failed to increase the price commensurate with the total amount of duty payable and are effectively making sales at a loss’.Footnote ⁷² The claim that the importers were making losses on sales was, therefore, based on the comparison between the constructed Target Price and the actual selling prices showing that the latter was lower. Capral went on to argue that the importers’ sale of the subject goods at prices lower than the Target Price has caused significant price undercutting and hence injury to the Australian industry.Footnote ⁷³ In Capral's view, despite the imposition of the original duties aiming at removing the injury, ‘the injury continues because prices from P&O and Oceanic did not increase as expected’.Footnote ⁷⁴ Accordingly, Capral requested for an alteration of the original duty payable by increasing the duty according to the difference between the export price ascertained in the original investigation and a re-ascertained export price which was essentially deducted from the Target Price.Footnote ⁷⁵

The AD Commission accepted Capral's application and initiated an investigation on 14 April 2014.Footnote ⁷⁶ The investigation was completed in favour of Capral, with a final report to the Minister on 23 December 2014 recommending alterations of the original antidumping and countervailing notice by increasing the applicable combined duty from 10.1% to 57.6%.Footnote ⁷⁷ Specifically, the AD Commission found that during the inquiry period from 1 January 2013 to 27 October 2013,Footnote ⁷⁸ the importers sold the subject goods at a loss which constituted avoidance of the intended effect of the original duty.Footnote ⁷⁹ In determining ‘sale at a loss’, the AD Commission relied on a profitability analysis whereby it compared the total sales revenue of the subject goods of each of the importers with the so-called ‘fully absorbed cost to import and sell’ the goods which was constructed by adding up the cost of the goods, ocean freight and marine insurance, expenses associated with import clearance, other direct expenses, indirect SG&A costs, and total duties payable (Absorbed Cost).Footnote ⁸⁰ After an assessment of each of the importers using the profitability analysis, the AD Commission concluded that all of them sold the subject goods at a loss during the inquiry period as their total sales revenue was significantly lower than their Absorbed Cost.Footnote ⁸¹ The AD Commission went on to find that the ‘sale at a loss’ was not caused by external factors, market conditions or cost reduction initiatives after considering the relevant submissions of the importers.Footnote ⁸² The AD Commission then found that the circumventing activity has occurred over a reasonable period on the ground that the ‘sale at a loss’ occurred ‘almost every month of the inquiry period’.Footnote ⁸³

Having found the existence of circumvention, the AD Commission proceeded to assess the alterations to be made to the original antidumping and countervailing duties. A key element of the assessment was the determination of a new ascertained export price (AEP) for the subject goods. The AD Commission decided to calculate the AEP through a deductive method whereby a weighted average selling price of the importers was determined and then deducted by the relevant Absorbed Costs plus profit.Footnote ⁸⁴ In contrast, the AD Commission observed that a determination of a new normal value was unnecessary and used the normal value calculated in the original investigation for the determination of a new dumping margin.Footnote ⁸⁵ Eventually, the AD Commission found a new dumping margin of 57.6%.Footnote ⁸⁶ In relation to the subsidy margin, the AD Commission assumed that PanAsia continued to receive the subsidy that it was found to have received in the original investigation.Footnote ⁸⁷ Following an adjustment of the original subsidy margin against the AEP, a new subsidy margin was found to be 8.7%.Footnote ⁸⁸ Accordingly, the AD Commission recommended that the applicable combined duty be increased from 10.1% to 57.6% effective from 14 April 2014 the date of the initiation of the anti-circumvention inquiry (on the subject goods imported by the identified importers from PanAsia), and from the date of the publication of the Minister's final decision (on all subject goods imported from PanAsia).Footnote ⁸⁹ The AD Commission's recommendations were accepted by the Minister whose final decision was published on 19 February 2015.Footnote ⁹⁰

3.3 WTO-consistency issues

Australia's anti-circumvention law relating to the New Activity (i.e. Section 269ZDBB(5A) of the Act) and the AD Commission's application of the law in the Aluminium Extrusions Investigation seem to have violated a number of substantive and procedural rules under the WTO AD Agreement and the Agreement on Subsidies and Countervailing Measures (SCM Agreement). As a general principle, Article 1 of the AD Agreement provides:

Article 18.1 of the AD Agreement further states:

Under the SCM Agreement, Article 32.1 is identical to Article 18.1 of the AD Agreement setting out the same rules applicable to the taking of actions against subsidies. In US – 1916 Act, the Appellate Body found that Article 18.1 prohibits the taking of any ‘specific action against dumping’ unless it is taken in accordance with Article VI of GATT 1994 and the AD Agreement.Footnote ⁹¹ With respect to what constitute ‘specific action against dumping’, the Appellate Body ruled that it at least encompasses ‘action that is taken in response to situations presenting the constituent elements of “dumping”’.Footnote ⁹² On whether the US measure constituted such an action, the Appellate Body held:

Subsequently in US – Offset Act (‘Byrd Amendment’), the Appellate Body further clarified:Footnote ⁹⁴

• • ‘the constituent elements of a subsidy … are set out in the definition of a subsidy found in Article 1 of the SCM Agreement’; and

• • to be considered as an action against dumping or subsidy under Article 18.1 of the AD Agreement or Article 32.1 of the SCM Agreement, the action should be found to have ‘a clear, direct and unavoidable connection … [with] the determination of dumping’ or subsidy. The focus of such a finding is ‘the degree of correlation between the scope of application of the measure and the constituent elements of dumping or of a subsidy’, regardless of whether ‘the language of the measure include(s) the constituent elements of dumping or of a subsidy’.

Accordingly, the most significant problem with the Australian law and practice in relation to the New Activity is that while the law mandates an inquiry into circumvention and the taking of an action against circumvention by imposition of antidumping and/or countervailing duties, it does not require the inquiry to be conducted in accordance with the AD Agreement or the SCM Agreement. As shown above, Australia's anti-circumvention framework was incorporated into its antidumping legislation and regulation. As such, any action taken as a result of an anti-circumvention inquiry is governed by the AD Agreement according to Article 1 of the Agreement.Footnote ⁹⁵ Further, in the Aluminium Extrusions Investigation, the imposition of the new antidumping and countervailing duties was unequivocally based on the determination of the existence of dumping and subsidy and the new dumping and subsidy margins. Therefore, there is little doubt that the imposition of the duties is an action taken against dumping and subsidy and has a close and clear correlation with the constituent elements of dumping and subsidy. To take such an action, the AD Commission is required, under Article 18.1 of the AD Agreement and Article 32.1 of the SCM Agreement, to conduct an investigation in accordance with the two agreements. However, the way that the AD Commission conducted the Aluminium Extrusions Investigation suggests that the Australian law and practice in relation to the New Activity is unlikely to comply with the substantive and procedural rules envisaged in the AD Agreement and the SCM Agreement.

First, section 269ZDBB(5A) of the Act, on its face, does not require an assessment of dumping and determination of dumping margin in accordance with Article 2 of the AD Agreement. In essence, Article 2 of the AD Agreement provides that a finding of dumping must be based on a comparison between normal value and export price of subject goods during the period nominated for an investigation. However, the only criterion contemplated in the Australian law appears to be whether the selling price of subject goods in the Australian market has increased commensurately with the total amount of duty payable on the goods. The Aluminium Extrusions Investigation shows that in conducting an inquiry into the New Activity, the focus of the AD Commission was on whether during the inquiry period the selling price of subject goods in Australia increased to the level of a target price which consists of the existing dumping and subsidy duties, the applicable ordinary customs duty, the costs and expenses associated with exportation of the goods to Australia and with the sale of the goods in Australia, and an estimated profit. In contrast, the AD Commission deliberately ignored its obligation to determine the normal value for the exporter in question for the same inquiry period, but simply assumed that the normal value remained at the same level as the one determined five years ago in the original investigation. This is unacceptable because the AD Commission failed to calculate normal value for the exporter and had no evidence whatsoever to support its assumption that the normal value calculated in the original investigation remained applicable. In the absence of a calculation of a current normal value, the AD Commission's finding of dumping and the significant dumping margin is completely baseless. Therefore, the AD Commission's failure to calculate a current normal value and to conduct a comparison between the new export price and that normal value has led to an unjustified finding of dumping and of the dumping margin, constituting a violation of Article 2 of the AD Agreement. Consequently, the imposition of the new anti-dumping duty was also unjustified in breach of Articles 1 and 18.1 of the AD Agreement. Indeed, one may argue that an investigation of the New Activity differs from that of the Traditional Activities as the former deals with the same goods and markets involved in the original investigation. As such, it is not unreasonable for investigating authorities to estimate normal value with necessary adjustments based on time variations.Footnote ⁹⁶ Similar practice has been adopted by some WTO members such as the EU in conducting the so-called ‘anti-absorption’ investigations.Footnote ⁹⁷ While ‘anti-absorption’ investigations are not part of the EU's anti-circumvention regime, they serve the same objective and consider essentially the same factors as Australia's New Activity investigations do. Both types of investigations, therefore, are subject to the challenges of WTO-inconsistencies raised above. Despite the differences between the New Activity and the Traditional Activities, the bottom-line is a current normal value of subject goods during the nominated investigation period must be determined to allow a proper comparison with the newly calculated export price. If the normal value is estimated, due adjustments must be made to allow fair comparison between the normal value and the export price in accordance with Article 2.4 of the AD Agreement. However, in the Aluminium Extrusions Investigation, the AD Commission explicitly stated that ‘[t]he calculation of a normal value is not considered to be one of the variable factors within the scope of the inquiry’. This suggests that regardless of its obligations under the AD Agreement, the AD Commission is not to determine a current normal value at all but simply to rely on the normal value calculated in original investigations without any adjustments. Such a practice would be unlikely to justify an inflation of original dumping margins through anti-circumvention inquiries.

Likewise, section 269ZDBB(5A) of the Act does not require an assessment of subsidy in accordance with the SCM Agreement. Under the SCM Agreement, a finding of the existence of a countervailable subsidy based on objective and positive evidence is one of the key pre-conditions for the imposition of countervailing duties. However, in the Aluminium Extrusions Investigation, the AD Commission, again, simply assumed that the exporter continued to receive the same subsidy as identified in the original investigation. By doing so, the AD Commission at least failed to substantiate that during the inquiry period, the subsidy still existed and in fact conferred a benefit to the exporter, amongst the other elements contemplated in Articles 1 and 2 of the SCM Agreement.Footnote ⁹⁸ Accordingly, as with its finding of dumping and application of the revised antidumping duty, the AD Commission's finding of the existence of the subsidy based on a mere assumption is inconsistent with Articles 1 and 2 of the SCM Agreement, and its imposition of the new countervailing duty in violation of Article 32.1 of the SCM Agreement. In addition, Article 19.4 of the SCM Agreement prohibits the application of a countervailing duty ‘in excess of the amount of the subsidy found to exist’. In the absence of an assessment of the margin of the subsidy during the inquiry period, the AD Commission's application of the new countervailing duty may also have breached Article 19.4 of the SCM Agreement insofar as the duty is in excess of the amount of the subsidy (if any) that PanAsia actually received during the inquiry period.

Second, section 269ZDBB(5A) of the Act does not require an assessment of material injury and causation in accordance with Article 3 of the AD Agreement and Article 15 of the SCM Agreement. It is well-established WTO law that antidumping and countervailing measures must not be imposed by an importing member country unless the alleged dumping and/or subsidy is found to have caused material injury to the relevant domestic industry of the member.Footnote ⁹⁹ This law is embedded in a number of provisions of the WTO agreements such as Article VI:1 of the GATT 1994,Footnote ¹⁰⁰ Article 11.1 of the AD Agreement,Footnote ¹⁰¹ and Article 19.1 of the SCM Agreement.Footnote ¹⁰² In the Aluminium Extrusions Investigation, the AD Commission did not consider at all whether Australia's aluminium extrusions industry has suffered material injury and if it had, whether that injury was caused by PanAsia's export of aluminium extrusions to Australia at allegedly dumped and subsidized prices. Accordingly, the AD Commission's imposition of the new antidumping and countervailing duties, without a finding of material injury and causation, contravenes the WTO rules. For example, in its assessment of whether the ‘sale at a loss’ was caused by external factors, the AD Commission treated Capral's import activities and the decrease in the LME price for primary aluminium during 2011‒2013 as being irrelevant.Footnote ¹⁰³ However, if a proper assessment of material injury and causation were conducted, these factors should be considered as they may well have impacted on the performance of the Australian industry.

Third, as far as the WTO procedural rules are concerned, both the AD Agreement (Articles 5.1‒5.3) and the SCM Agreement (Articles 11.1‒11.3) provide that an antidumping or countervailing investigation must not be initiated unless the application for investigation includes sufficient evidence relating to the existence of dumping or subsidy, material injury, and causation. However, neither section 269ZDBB(5A) of the Act nor the AD Commission's Aluminium Extrusions Investigation seems to require the provision of such evidence before the initiation of an anti-circumvention inquiry into the New Activity. As shown in section 3.2, the absence of such evidence in Capral's application did not stop the AD Commission from initiating the investigation. Accordingly, the Australian law allows for a violation of the aforesaid procedural rules contemplated in the AD Agreement and the SCM Agreement; and the Aluminium Extrusions Investigation exemplified such a violation.

In addition to the violations of the AD Agreement and the SCM Agreement discussed above, one could also argue that the Australian law and practice relating to the New Activity runs against Australia's WTO commitments to tariff concessions. Under the WTO, Australia has committed to bound tariff rates for a wide range of goods with a rate of 5% for aluminium extrusions.Footnote ¹⁰⁴ Under Article II of the GATT 1994, Australia is prohibited from applying tariffs beyond scheduled bound rates unless doing so is allowed under the WTO agreements. As the Australian law and practice has allowed the imposition of antidumping and countervailing duties against the New Activity without obeying the substantive and procedural rules contemplated in the AD Agreement and the SCM Agreement, the imposition of the duties is not justified under the WTO agreements. Accordingly, an imposition of such duties would violate Article II of the GATT 1994 insofar as it results in the applicable customs duties going beyond their corresponding bound rates. As a result of the Aluminium Extrusions Investigation, the applicable import tariff on aluminium extrusions imported from PanAsia has increased to 57.6%,Footnote ¹⁰⁵ which is far beyond the bound rate. By doing so, Australia has deliberately reneged on its commitments of tariff concessions under the WTO.

The above analysis of the potential WTO-inconsistencies of the Australian laws and practice relating to the New Activity also applies to the Traditional Activities. On the face of the laws described in section 3.1, there appears to be no requirements on the AD Commission, in conducting investigations of the Traditional Activities, to apply the substantive and procedural rules under the AD Agreement and the SCM Agreement. Rather, the focus of the laws is on whether the prescribed circumventing activities have occurred. Accordingly, the laws, at least, leave the room for non-compliance with the WTO rules.Footnote ¹⁰⁶

Comparing with the Traditional Activities, the New Activity may also trigger other WTO-consistency issues. As the Aluminium Extrusions Investigation suggests, the New Activity does not concern any particular type of circumventing activity, but concerns whether the application of antidumping and/or countervailing duties has resulted in a price increase to the level of a target price. Accordingly, the fundamental goal of an investigation of the New Activity is to set a minimum selling price (MSP) of imported goods in the Australian market so as to safeguard the competitiveness of Australian manufacturers and suppliers of like goods. This creates a de facto MSP mechanism which may run against WTO rules. For example, the MSP mechanism may contravene Article XI:1 of the GATT which prohibits the use of any measures ‘other than duties, taxes or other charges’ to restrict the importation of goods. Indeed, where the MSP mechanism is maintained by antidumping duties, Article XI:1 may not be applicable. However, if the mechanism is maintained by other types of antidumping measures such as price undertakings, then insofar as it has the effect of restricting the quantity of subject imports, it may well constitute a violation of Article XI:1.Footnote ¹⁰⁷ Alternatively, if the MSP mechanism is considered to be an internal measure, a breach of Article III of the GATT – the national treatment principle – may be established. That is, to the extent that the MSP mechanism has the effect of preventing importers of subject goods from selling at price levels below the selling prices of domestic suppliers of the goods, it treats imported goods less favourably than ‘like’ domestic goods in violation of Article III:4 of the GATT.Footnote ¹⁰⁸ As far as procedural requirements are concerned, both the AD Agreement (Article 6.9) and the SCM Agreement (Article 12.8) require investigating authorities of WTO members to ‘inform all interested parties of the essential facts under consideration’ before a final determination is made. In ordinary antidumping and countervailing investigations and anti-circumvention inquiries of the Traditional Activities, the AD Commission is to publish an SEF as required by the Act. In contrast, the Act does not require the publication of an SEF in investigations of the New Activity; hence the AD Commission did not do so in the Aluminium Extrusions Investigation. Evidently, the Australian law and practice is not consistent with the WTO rules which require the publication of an SEF prior to the making of a final determination in investigations against dumping and subsidy. While the non-publication of an SEF would accelerate the investigation process, it constitutes a denial of procedural fairness for exporters and importers of subject goods.

3.4 Beyond WTO-inconsistencies

The implications of the Aluminium Extrusions Investigation go beyond the potential breaches of the WTO rules discussed above. The investigation represents an unjustified expansion of the scope of the AD Agreement and the SCM Agreement for the application of anti-circumvention measures in the form of antidumping and countervailing duties. With the newly calculated final duty significantly higher than the original duty, Australia can maintain a high level of protection for its aluminium extrusions industry. This is a striking deviation from Australia's commitments to eliminate barriers to trade under the WTO and under the free trade agreements (FTAs) with its major trading partners. Australia has been very active in negotiating FTAs in the past decade and has nine FTAs currently in force, with the most recent ones being the FTAs with Japan and Korea.Footnote ¹⁰⁹ In June 2015, Australia also signed a FTA with China aiming at substantially enhancing the market access for two-way trade and investment.Footnote ¹¹⁰ Australia's use of anti-circumvention measures against exports from WTO members and its FTA partners is likely to undermine the achievements of trade liberalization under the WTO and the FTAs and frustrate the expectations of the exporters of these countries. The introduction and application of such a protectionist instrument not only puts Australia at the risk of sliding down the slippery slope of protectionism, but also may ignite trade retaliation by the other countries.

At international level, Australia's anti-circumvention framework is a unilateral response to the failure of WTO members to conclude multilateral anti-circumvention rules. Taking advantage of the absence of such rules, Australia not only adopted the activities discussed in WTO negotiations, but also invented the New Activity. The introduction of the New Activity is likely to open Pandora's Box for protectionism. As shown above, a New Activity investigation is not focused on whether a circumventing activity has occurred but on whether the alleged effect of circumvention has occurred. As a consequence, any activity may be treated as a circumventing activity as long as the selling price of the imports in Australia is below the target price determined by the AD Commission. Further, it seems unlikely that an investigation of the New Activity is to conscientiously consider whether the level of selling price in Australia is a result of legitimate business decisions. In the Aluminium Extrusions Investigation, the AD Commission did not consider whether the allegedly low domestic selling price of the importers was due to the constant decline in the LME price for primary aluminium during 2011‒2013. In the WTO negotiations, while members were divided on various issues, they seemed to have agreed that anti-circumvention measures must not be imposed on legitimate business activities. Australia's law and practice relating to the New Activity is a significant step beyond the existing international practice and common observations on anti-circumvention and is likely to lead to increasing protectionism. In addition, consistent with its position in the WTO negotiations, Australia has envisaged a shorter period of investigation for the New Activity (i.e. 100 days) which expedites such investigations and provides a more immediate response to its domestic industries’ need for protection.

At domestic level, there has been no evidence or studies to show that the application of antidumping and/or countervailing measures is in fact effective to protect Australia's import-competing industries.Footnote ¹¹¹ As shown in Section 3.1, Australia's antidumping and countervailing system has been strengthened in several rounds of recent reforms to satisfy the needs of the domestic industries. Despite the reforms and the protection afforded to various industries by antidumping and/or countervailing measures, the industries have not been able to withstand the intense competition of foreign goods and have become increasingly vulnerable and uncompetitive. For example, Australia's automotive manufacturing industry has not been able to survive foreign competition and is on the verge of collapse even though the industry has received significant government support, including protection by way of antidumping and/or countervailing duties.Footnote ¹¹² As one of the major beneficiaries of antidumping and/or countervailing protection over years, Australia's steel industry is still struggling to increase its competitiveness and profitability.Footnote ¹¹³ Accordingly, it can be observed that alleged dumping and subsidization are not the cause of the poor performance of Australian industries, and the application of antidumping and/or countervailing measures has not assisted, and is unlikely to assist, in enhancing their competitiveness and efficiency. This observation also applies to Australia's aluminium extrusions industry represented by Capral. Capral has been an experienced user of Australia's antidumping and countervailing system and one of the most forceful proponents of making the system tougher and more protective.Footnote ¹¹⁴ However, Capral, and the Australian industry it represented, has not managed to grow under the umbrella of antidumping and countervailing duties; rather, they seem to have become more vulnerable to foreign competition as suggested by their application for protection by higher duties in the Aluminium Extrusions Investigation. Finally, it is notable that Australia did not use the review mechanism contemplated under Article 11 of the AD Agreement to deal with the New Activity. This is probably aimed to simplify the evidentiary burdens and application procedures for Australian industries. Whether it is an administrative review (i.e. Article 11.2) or a sunset review (i.e. Article 11.3), the AD Agreement requires that the evidence and procedure rules applicable to original investigations to be applied (Article 11.4). Amongst other requirements, review applications can only be filed after the lapse of a period of time since the imposition of original anti-dumping duties and must be supported by sufficient evidence relating to likelihood of dumping and injury. By separating the New Activity from the review procedure, Australia makes it easier for domestic industries to file applications and for the AD Commission to initiate an investigation. The Aluminium Extrusions Investigation provides a practical illustration. The investigation commenced in the context that the original antidumping and countervailing duties applied since October 2010 were to be subject to a ‘sunset review’ of whether the duties should expire.Footnote ¹¹⁵ This review involves an assessment of whether the dumping and injury found in the original investigation are likely to continue or recur if the existing duties are lifted.Footnote ¹¹⁶ In practice, such a review is unlikely to lead to a significant increase in the original antidumping and countervailing duties. In applying for the Aluminium Extrusions Investigation, Capral was able to circumvent its evidentiary obligations relating to dumping and injury as it would be required to undertake in the ‘sunset review’, and to pursue an opportunity to obtain a significantly higher protection than what it may achieve in the ‘sunset review’. It would be interesting to monitor how the AD Commission is to reconcile the outcome of the Aluminium Extrusions Investigation with its ‘sunset review’ of the original antidumping and countervailing duties.