rare defeat at the WTO

Australia suffers a rare defeat at the WTO

16 December 2019

This article was first published by Daily Cargo News.

While much debate surrounds the operation of our anti-dumping legislation in practice, it may be a surprise to some that we did not create the regime unilaterally. Our regime takes its origin from Article VI of the General Agreement on Tariffs and Trade 1994 (GATT).

That Article permits the imposition of specific ‘anti-dumping’ duties in excess of agreed bound rates where dumping causes or threatens injury to a domestic industry or significantly impedes the establishment of a domestic industry.

Article VI of the GATT led to the further ‘Agreement on Implementation of Article VI of the GATT’ which is widely known as the ‘Anti-Dumping Agreement’ or ‘ADA’ and provides additional guidance on the basic principles of Article VI and how investigations are to be conducted. Each World Trade Organisation (WTO) member then chooses to implement that ADA in their way. Australia’s processes are set out in complex provisions of the Customs Act 1901 (Act). The United States of America (US) has a two-stage process starting with an ‘injury’ investigation by one agency which includes public hearings. It is only if injury is found that another agency undertakes the next stage of calculating dumping levels to address the injury.

As with many WTO provisions complaints regarding a country’s regime can be taken to the WTO Dispute Settlement Understanding. Countries are concerned that their exporters to Australia are appropriately treated under the Act when dumping proceedings are initiated. Our investigations often include submissions by the governments of exporting countries that our regime is unfair and is not compliant with the ADA or the GATT.

This has gone one step further in the recent complaint brought at the WTO by Indonesia against Australia in its conduct of the investigation imposing dumping duties on A4 copy paper where the WTO panel found that in several important factors Australia had acted inconsistently to the provisions of the ADA. While the main litigating parties were Australia and Indonesia, China, the EU and the US joined consultations and other countries reserved ‘third party rights’.

Following consultations, the composition of a panel and hearings the panel report was published on 4 December 2019 to be found here.

The panel made several findings, including one that Australia had appropriately acted in finding a ‘particular market situation’ existed in the Indonesian domestic market for A4 copy paper. However, the panel found that Australia had acted inconsistently to the ADA in some of the places. A very general summary of complex issues and decisions is set out below.

  • That the ADC had failed to conduct the proper research to disregard domestic transactions of A4 copy paper as ‘normal values’ without accurately determining that the sales did ‘not permit proper comparison’ even where a ‘particular market situation’ existed.
  • That the ADC had incorrectly rejected Indonesian ‘normal values’ based on the adequately recorded cost information of the exporter for the pulp export; and
  • That the ADC had mistakenly dismissed the cost of production of A4 copy paper in Indonesia as a base for normal value and used the cost of rejected pulp costs as a substitute without proper explanation. The panel found that the cost of production of woodchips would have been an appropriate substitute when they were unaffected by the particular market situation.

There could be significant consequences?

  • Australia’s ability to appeal the panel decision may presently be impossible as there are no longer adequate members of the appeal body mostly as the US had blocked potential candidates as a protest against WTO practices it feels are ‘unfair’.
  • The panel recommended that Australia bring its measures into conformity with the ADA, which will make the ADC and the government unhappy as it believes it already complies. In this case, the issue does seem to focus on the conduct of the investigation as opposed to the provisions in the Act. That could lead to changes to the ADC Manual.
  • The ADC approach to a ‘particular market situation’ in an exporting country (and the costs and values in those domestic markets) will need to be reviewed carefully to ensure that both pre-conditions in the ADA are met before disregarding local values, not just one of those conditions.
  • The ADC approach to using substituted normal values’ in a country with a ‘particular market situation’ will need review. Australia often finds such a ‘particular market situation’ exists in China and Vietnam even though we consider them to be ‘market economies’ and then has to find mechanisms to calculate normal values; and
  • Those involved in similar investigations may find grounds to seek review of past decisions in which the ADC may have been seen to act in a way which the WTO panel has now found to be incorrect.

This will not affect the Indonesia-Australia Comprehensive Economic Partnership Agreement and its provisions allowing trade remedy action in both countries, although some practices may need to change.

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