Article 2.2 of the Anti-Dumping Agreement

According to US law, where domestic sales cannot be used to determine normal value, subject to some conditions, third-country export sales of the foreign like product can be used. One of these conditions is referred to as the viability test. Pursuant to this test, third-country export sales of the foreign like product can be used for determining normal value if these sales are 5% or more or the quantity or value of the sales of the subject product to or in the US. Korea considers this requirement a ‘minimum quantitative threshold’.Footnote ⁴ Korea thus argued that the viability test is ‘as such’ inconsistent with Article 2.2 of the Anti-Dumping Agreement because it conditions the use of third-country sales to determine normal value on the fulfilment of a minimum quantitative threshold. In addition, this test is ‘as applied’ inconsistent with the same provision in the context of the underlying investigation.Footnote ⁵

The panel disagreed with Korea's ‘as such’ claim. The panel found that Article 2.2 grants Members the freedom to choose between the use of third-country sales and constructed normal value to determine normal value. There is no hierarchy between the two options.Footnote ⁶ Thus if a Member decides to use third-country export prices as normal value, the criteria for use of third country sales that require the use of a comparable price of the like product exported to an appropriate third country (which price must be representative) must be satisfied. The panel concluded that Article 2.2 does not impose any limitation on the criteria that a Member may establish to decide which of the alternative methods to use. Consequently, the US' viability test is not ‘as such’ inconsistent with Article 2.2 of the Anti-Dumping Agreement.Footnote ⁷

Similarly, the panel considered that Article 2.2 does not oblige a Member to examine whether a respondent's third-country export prices are representative if it opts to construct the normal value (constructed value (CV)). Thus if a Member chooses not to use the third-country exports method, it is not required to nonetheless assess whether all the conditions for the use of that method are fulfilled. The panel thus found that the USDOC did not act inconsistently with Article 2.2 in applying the viability test in the underlying investigation and concluded on the basis of applying that test that it would not use the third-country sales to determine normal value.Footnote ⁸

Articles 2.2.2 and 2.4 of the Anti-Dumping Agreement

Korea claimed that the USDOC's profit rate determination in its final determination in the underlying investigation was inconsistent with the chapeau of Articles 2.2.2, 2.2.2(i), and 2.2.2(iii) of the Anti-Dumping Agreement. Further, Korea considered that the USDOC's failure to make adjustments to the profit rates of the Korean respondents in the final determination resulted in a violation of Article 2.4.Footnote ⁹

In brief, Korea argued that the USDOC's rejection of the profit data of the Korean representatives in favour of the profit data of a surrogate company (Tenaris) was inconsistent with the chapeau of Article 2.2.2, because the USDOC had access to the actual profit data of home markets sales and third-country sales realized by the Korean respondents but failed to use it. Korea additionally asserted that the US also violated Articles 2.2.2(i) and 2.2.2(iii) because the USDOC applied too narrow an interpretation of the term ‘some general category of products’ that affected its ability to determine profits properly. Furthermore, the USDOC's failure to calculate a profit cap and its use of Tenaris profit data to determine the Korean respondents' profit data did not result in a ‘reasonable amount’ within the meaning of Article 2.2.2(iii). Moreover, as a result of its failure to determine profits in a manner that is consistent with Article 2.2.2(iii), the USDOC acted inconsistently with Article 2.2, because it failed to ensure that the profit amount used in constructing normal value was a ‘reasonable amount’. Finally, subsequent to using the Tenaris profit rate to construct the Korean respondents' normal value, the USDOC's failure to make due allowance for the difference between that constructed normal value and the export price and to make appropriate adjustment resulted in inconsistency with Article 2.4.Footnote ¹⁰

With regard to the chapeau of Article 2.2.2, the panel's findings included that: (i) the chapeau of Article 2.2.2. does not permit the USDOC to reject the actual profit data of the Korean respondents' domestic market sales of the like product because the sales were made in low volumes during the period of investigation (POI);Footnote ¹¹ and (ii) the determinations of the USDOC did not indicate that it rejected the Korean respondents' actual data due to lack of domestic sales of the like product. The panel exercised judicial economy in respect of Korea's claim that the USDOC acted in a manner inconsistent with the chapeau of Article 2.2.2 because it did not use the Korean respondents' actual data to determine its constructed value profit rate, although it had access the respondents' third-country market data on record.Footnote ¹²

Further, the panel concluded that the USDOC acted inconsistently with Article 2.2.2(i) because it relied on an impermissibly narrow definition of the ‘same general category of products’, which gave rise to an inappropriate CV profit. This also led to an inconsistency with Article 2.2.2(iii) because the USDOC failed to calculate the profit cap. The panel found that USDOC acted inconsistently with the previous two provisions because it defined the same general category of products more narrowly than the like product by excluding OCTG not used for down-hole applications.Footnote ¹³ Moreover, regarding whether the USDOC's use of profit data from Tenaris financial statements in constructing normal value was a ‘reasonable method’ within the meaning of Article 2.2.2(iii), the panel found that Korea failed to properly allege a violation of that provision in its panel request. Thus, the panel rejected this claim as it fell outside of its jurisdiction.Footnote ¹⁴

Furthermore, the panel found that the USDOC acted inconsistently with Article 2.2.2(iii) because it failed to calculate and apply a profit cap, which is mandatory under that provision. In addition, the USDOC's determination that there was no profit data available that relates to the same general category of products cannot serve as a justification for its failure to calculate and apply the profit cap because it erroneously defined the same general category or products. As a result of these failures, the USDOC acted inconsistently with its obligations under Article 2.2 because it did not use a ‘reasonable amount for its profits’ in the construction of a normal value for the Korean respondents in the underlying investigation.Footnote ¹⁵

Finally, the panel exercised judicial economy with regards to Korea's Article 2.4 claim. The panel considered that it had already found violations under the chapeau of Article 2.2.2, Articles 2.2.2(i) and (iii), and again Article 2.2.2(iii). It thus followed that the USDOC did not determine the profit rate of the Korean respondents to construct the normal value in a manner consistent with its obligations under the Anti-Dumping Agreement.Footnote ¹⁶

With respect to whether the remand determination fell within its jurisdiction, the panel found that the references in Korea's panel request did not permit it to challenge the USDOC's remand determination. As Korea's panel request did not cover this particular determination, it thus fell outside the panel's terms of reference (ToR). The panel specifically found that it lacked jurisdiction to rule on this claim because Korea brought new claims that were different from the legal basis of the complaint that it set out in its panel request and the remaining determination was, in fact, not discussed in consultations between the parties.Footnote ¹⁷

Article 2.3 of the Anti-Dumping Agreement

The parties explained that US law permits the USDOC to reject the transaction export price and instead construct such export price where the exporter or foreign producer's export sales are to an affiliated entity. In the underlying investigation, the USDOC found that the Korean company NEXTEEL was affiliated to three entities (collectively referred to as the ‘concerned entities’).Footnote ¹⁸ The USDOC found an association between the ‘concerned entities’ within the meaning of Article 2.3 of the Anti-Dumping Agreement, rejected the transaction export price, and constructed the export price.Footnote ¹⁹

Korea argued that the USDOC acted in a manner inconsistent with Article 2.3 because its determination was not one that an unbiased and objective investigating authority could have reached on the basis of the available evidence. This means that the USDOC constructed the export price without making a proper determination of association between the concerned entities. Further, Korea asserted that even where association exits, the USDOC was required to determine whether the export price is indeed unreliable due to this association.Footnote ²⁰

The panel set out its analysis in two parts (i) whether the conclusion of association reached by the USDOC was inconsistent with Article 2.3; and (ii) whether the USDOC erred in not considering evidence of the reliability of NEXTEEL's export price.Footnote ²¹

The panel found that the USDOC conclusions, regarding the association between the concerned entities, were supported by evidence and satisfied the requirement under Article 2.3.Footnote ²² Further, the panel considered that Korea did not demonstrate that the USDOC erred in not considering evidence allegedly showing the reliability of NEXTEEL's export price, notwithstanding the association between the concerned entities. The panel thus concluded that Korea did not demonstrate that the USDOC acted inconsistently with Article 2.3 in respect of the underlying investigation.Footnote ²³

Article 2.2.1.1 of the Anti-Dumping Agreement

The USDOC found association between NEXTEEL and another entity, POSCO.Footnote ²⁴ Therefore, to consider whether NEXTEEL's steel coil purchase price should be used to construct normal value the USDOC (i) calculated the weighted-average price of POSCO's steel coil sales to unaffiliated customers; and (ii) compared NEXTEEL's steel coil purchase prices (transfer prices) with POSCO's cost of production of OCTG and with prices at which POSCO sold its product to unaffiliated customers.Footnote ²⁵

Thus, the issue that the panel sought to examine was whether the USDOC violated Article 2.2.1.1 when it disregarded the purchase price at which NEXTEEL obtained steel coils from POSCO based on the finding that the latter was an associated supplier. In other words, the panel sought to ascertain circumstances in which an investigating authority is permitted to conclude that the exporter's or producer's records do not ‘reasonably reflect’ the costs associated with the production and sale of the subject product. The panel acknowledged that this specific point had never been addressed in WTO jurisprudence.Footnote ²⁶

The panel concluded that the USDOC did not act in a manner that is inconsistent with the second condition in Article 2.2.1.1 by rejecting (i) the price at which NEXTEEL purchased steel coils from POSCO because it found that they did not ‘reasonably reflect’ the costs associated with product and sale of OCTG; and (ii) NEXTEEL's steel coil purchase price for constructing normal value.Footnote ²⁷

Articles 6.2, 6.4, and 6.8 of the Anti-Dumping Agreement

In its final determination, the USDOC determined the CV profit for the Korean respondents based on Tenaris profit data. However, it did not inform the interested parties that it had accepted the data on record or that it relied on that data for the CV determination until the final determination. The USDOC posted to the record certain communications from domestic US stakeholders setting out their concerns about the USDOC's preliminary determination and the impact of the OCTG imports on the domestic market. The USDOC made these postings shortly before the relevant filing deadlines.Footnote ²⁸

Korea argued that the USDOC violated Articles 6.2, 6.4, and 6.9 of the Anti-Dumping Agreement because it did not disclose its decision to accept the Tenaris financial data on the record until its final determination. Further, the USDOC acted inconsistently with Articles 6.4 and 6.9 because it did not post to the record certain communications on time.Footnote ²⁹

The panel concluded that Korea failed to prove that the USDOC failure to inform the Korean respondents that it had accepted the Tenaris financial statements until its final determination prevented those respondents from presenting adequate arguments and submitting rebuttal facts. Thus, Korea failed to establish the inconsistency of the USDOC's conduct with Article 6.2.Footnote ³⁰

Similarly, the panel found that Korea did not establish that through its conduct the USDOC failed to provide timely opportunities for Korean respondents to review all non-confidential information pertinent to the presentation of their cases and to prepare presentations based on this information.Footnote ³¹ Moreover, the panel ascertained that Korea did not establish that the USDOC acceptance of the Tenaris profit data constituted an ‘essential fact’ within the meaning of Article 6.9. Thus, the panel found that the USDOC did not act inconsistently with that provision by not disclosing its acceptance of that data until its final determination.Footnote ³²

With regards to the communications from US stakeholders, the panel found that Korea's allegations constitute an entirely new claim that was not included in its panel request. Thus, the panel found that Korea's claims under Articles 6.4 and 6.9, in this regard, fell outside of its ToR and did not make findings.Footnote ³³

Articles 6.10 and 6.10.2 of the Anti-Dumping Agreement

The USDOC ascertained that it would not be practicable to examine all known exporters and producers of the subject product as there were too many and it had limited resources. It thus selected NEXTEEL and HYSCO as the two mandatory respondents. According to Korea, this amounts to a violation of Article 6.10 of the Anti-Dumping Agreement and of Article 6.10.2, by failing to examine individually the voluntary respondents.Footnote ³⁴

The panel found that the reasons provided by the USDOC for not examining all known exporters of the product and for choosing to examine only the two exporters was not inconsistent with Article 6.10.Footnote ³⁵ Furthermore, the panel found that it was not convinced that the USDOC explanation of why it would be unduly burdensome to examine the voluntary respondents was not adequate to discharge its obligations under Article 6.10.2.Footnote ³⁶ The panel thus concluded that Korea did not demonstrate that the USDOC acted inconsistently with Articles 6.10 and 6.10.2.Footnote ³⁷

Article 12.2.2 of the Anti-Dumping Agreement

Korea argued that the failure of the USDOC to provide the reasons for accepting or rejecting relevant arguments or claims made by the exporters and importers resulted in inconsistency with Article 12.2.2 of the Anti-Dumping Agreement. Specifically, Korea claimed that the USDOC failed to provide reasons for rejecting arguments advanced by the Korean respondents. These arguments concerned the CV profit rate. The respondents challenged the that led the USDOC to the conclusion that NEXTEEL was affiliated with the two companies in question (Company A and B).Footnote ³⁸

The panel disagreed with Korea and found that Korea did not establish a prima facie case of violation of Article 12.2.2 regarding their complaint on the failure of the USDOC to provide reasons.Footnote ³⁹ Further, the panel found that the USDOC explanation permitted Korean respondents to understand why their arguments in respect of the appropriateness of the CV profit determination based on Tenaris profit data was rejected.Footnote ⁴⁰ Furthermore, the panel considered that Korea failed to identify arguments made by NEXTEEL before the USDOC alleging that its import price in relation to Company A was reliable, notwithstanding the association. The panel thus similarly found that Korea failed to make a prima facie case of violation on this claim.Footnote ⁴¹

Article X:3(a) of the GATT 1994

Korea's arguments under Article X:3(a) of the GATT 1994 are as follows: First, in its final determination, the USDOC determined the CV profit of the Korean respondents on the basis of the profits earned by Tenaris. However, Tenaris profits had no link with the profits earned in Korea. According to Korea, the USDOC thus acted contrary to its established practice of determining CV profit based on sources in the home market of the investigated exporter or producer without providing justification for this departure. Moreover, Korea alleged that the USDOC departed from its usual practice because of ‘political influence’. Second, Korea argued that the US regulation establishing deadlines for submitting new factual information and rebuttals was administered differently by the USDOC in the underlying investigation than in a parallel investigation on OCTG from Turkey.Footnote ⁴²

The panel found that the first argument fell outside of its ToR, as Korea had not included it in its panel request. With regard to the second argument, the panel considered that Korea did not show that the USDOC failed to administer its regulation in a ‘uniform’ or ‘reasonable’ manner.Footnote ⁴³

Article I of the GATT 1994

Korea submitted that the USDOC acted inconsistently with Article I:1 of the GATT 1994 because it treated the exporters and foreign producers from countries that were subject to a parallel USDOC OCTG investigation in a manner more favourable that it treated Korean producers in the Korean investigation.Footnote ⁴⁴

The panel rejected Korea's MFN argument because Korea's did not expressly mention in its panel request that (i) the underlying investigation is the only one in respect of which the USDOC required a questionnaire and on-site verification of companies that were not named as respondents or affiliates; and (ii) the questionnaires provided to Korean respondents were more extensive than those issued to respondents of the other OCTG investigation.Footnote ⁴⁵ Further, the panel considered that Korea did not establish that the USDOC discriminated against the Korean respondents by denying them the opportunity to provide rebuttal facts, while giving that opportunity to respondents in the Turkish investigation.Footnote ⁴⁶

The panel report was adopted on 12 January 2018. The US was required to bring its measure into conformity with the chapeau of Article 2.2.2, and Articles 2.2.2(i) and 2.2.2(iii).Footnote ⁴⁷