dispute settlement

WTO Panel report on UNITED STATES – ANTI-DUMPING AND COUNTERVAILING DUTIES ON CERTAIN PRODUCTS AND THE USE OF FACTS AVAILABLE should be appealed by the United States

On January 21, 2021, the WTO panel that had been composed back on 5 December 2018 issued its report in UNITED STATES – ANTI-DUMPING AND COUNTERVAILING DUTIES ON CERTAIN PRODUCTS AND THE USE OF FACTS AVAILABLE, WT/DS539/R. Korea had requested consultations on a series of antidumping and countervailing investigations and reviews on February 14, 2018 and a panel had been established on May 28, 2018. See WT/DS539/R at para. 1.1, 1.3 and 1.5.

Korea mounted a broad attack on the U.S. Department of Commerce’s use of facts available in a number of antidumping and countervailing duty proceedings largely pertaining to the same major Korean company with a long record of participation in various U.S. trade remedy cases.

For investigating authorities working under a statutory timeline and time limits existing within the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (“ADA”) and the Agreement on Subsidies and Countervailing Measures (“ASCM”), it is important that parties provide complete information in a timely manner. While WTO obligations require administering authorities to flag deficiencies and provide an opportunity to respondents to correct such deficiencies, administering authorities need the ability to cut off submissions and move to decision at a reasonably early period to permit all work to be done in verifying information (investigations), providing other parties a chance to comment and challenge information provided.

Where a party fails to provide information requested, the administering authority is authorized to use facts available. As stated in Article 6.8 of the ADA and Article 12.7 of the ASCM, “In cases in which any interested party refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation, preliminary and final determinations, affirmative or negative, may be made on the basis of the facts available.” Art. 6.8 of the ADA then adds, “The provisions of Annex II shall be observed in the application of this paragraph.” Similar language is not in Art. 12.7 of the ASCM (changes to the ADA during the Uruguay Round of negotiations were typically adopted in the ASCM as they related to trade remedy proceedings, although changes made at the end of the negotiations to the ADA were not brought into the ASCM due to timing limitations).

Annex II of the ADA consists of seven paragraphs and is copied below.

“Annex II: Best Information Available in Terms of Paragraph 8 of Article 6

“1.   As soon as possible after the initiation of the investigation, the investigating authorities should specify in detail the information required from any interested party, and the manner in which that information should be structured by the interested party in its response. The authorities should also ensure that the party is aware that if information is not supplied within a reasonable time, the authorities will be free to make determinations on the basis of the facts available, including those contained in the application for the initiation of the investigation by the domestic industry.

“2.   The authorities may also request that an interested party provide its response in a particular medium (e.g. computer tape) or computer language. Where such a request is made, the authorities should consider the reasonable ability of the interested party to respond in the preferred medium or computer language, and should not request the party to use for its response a computer system other than that used by the party. The authority should not maintain a request for a computerized response if the interested party does not maintain computerized accounts and if presenting the response as requested would result in an unreasonable extra burden on the interested party, e.g. it would entail unreasonable additional cost and trouble. The authorities should not maintain a request for a response in a particular medium or computer language if the interested party does not maintain its computerized accounts in such medium or computer language and if presenting the response as requested would result in an unreasonable extra burden on the interested party, e.g. it would entail unreasonable additional cost and trouble.

“3.   All information which is verifiable, which is appropriately submitted so that it can be used in the investigation without undue difficulties, which is supplied in a timely fashion, and, where applicable, which is supplied in a medium or computer language requested by the authorities, should be taken into account when determinations are made. If a party does not respond in the preferred medium or computer language but the authorities find that the circumstances set out in paragraph 2 have been satisfied, the failure to respond in the preferred medium or computer language should not be considered to significantly impede the investigation.

“4.   Where the authorities do not have the ability to process information if provided in a particular medium (e.g. computer tape), the information should be supplied in the form of written material or any other form acceptable to the authorities.

“5.   Even though the information provided may not be ideal in all respects, this should not justify the authorities from disregarding it, provided the interested party has acted to the best of its ability.

“6.   If evidence or information is not accepted, the supplying party should be informed forthwith of the reasons therefor, and should have an opportunity to provide further explanations within a reasonable period, due account being taken of the time-limits of the investigation. If the explanations are considered by the authorities as not being satisfactory, the reasons for the rejection of such evidence or information should be given in any published determinations.

“7.   If the authorities have to base their findings, including those with respect to normal value, on information from a secondary source, including the information supplied in the application for the initiation of the investigation, they should do so with special circumspection. In such cases, the authorities should, where practicable, check the information from other independent sources at their disposal, such as published price lists, official import statistics and customs returns, and from the information obtained from other interested parties during the investigation. It is clear, however, that if an interested party does not cooperate and thus relevant information is being withheld from the authorities, this situation could lead to a result which is less favourable to the party than if the party did cooperate.” (emphasis added).

Antidumping and countervailing duty proceedings in the United States are very transparent with full access to information on the record available to parties under administrative protective order and with many opportunities to submit comments, raise questions, seek clarification or respond to additional inquiries flowing from earlier responses. It is quite common for Commerce to receive requests for more time to respond to the initial questionnaire and to any supplemental requests flowing from developments. Responding parties can determine whether or not to submit all information, partial information or no information. Questionnaire responses are often incomplete or adopt interpretations of what has been requested to provide less than complete information. In antidumping investigations, it is not uncommon for respondent data bases to change during the course of the investigation, sometimes markedly. Briefing after the preliminary determination permits challenges to the preliminary determination by all parties, including challenges to use of facts available. While there are always legal issues that are briefed, facts available issues are fact-based issues flowing from whether parties cooperated, withheld information, failed to supply requested information, etc., and if so, what alternative information is available that can be used.

The ADA provides special provisions on dispute settlement in Article 17.6. The approach on review of facts is laid out in Article 17.6(i) of the ADA (there is no counterpart in the ASCM for the reason that Art. 17.6 of the ADA was added at the end of the Uruguay Round without chance to consider adopting a parallel provision in the ASCM). Art. 17.6(i) states:

“17.6  In examining the matter referred to in paragraph 5:

“(i)   in its assessment of the facts of the matter, the panel shall determine whether the authorities’ establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned;”

Article 17.6 was added to the ADA at the end of the Uruguay Round at the insistence of the United States which was interested in seeing that very complicated and detailed administrative proceedings were not second guessed by panels or the Appellate Body which would not have been involved in the proceeding or have access to all materials. Art. 17.6(i) deals with providing deference to administering authorities on facts. Art. 17.6(ii) does the same for legal interpretations for provisions subject to more than one meaning.

The panel report, following other panel and Appellate Body reports that have been problematic from the U.S. perspective, doesn’t view Art. 17.6(i) as being deferential to an investigating authority as long as the authority hasn’t conducted the investigation in a biased or non-objective manner or somehow established facts improperly. See WT/DS539/R at para. 7.23 – 7.36 (after a review of the meaning of ADA Art. 6.8 and Annex II, the panel sums its view of the panel’s task to be the following: “In sum, we consider that the terms of Article 6.8, interpreted in light of their context and object and purpose, require investigating authorities to select – in an unbiased and objective manner – those facts available that constitute reasonable replacements for the missing “necessary” information in the specific facts and circumstances of a given case. In doing so, investigating authorities must take into account all facts that are properly available to them. In selecting the replacement facts, Article 6.8 does not require investigating authorities to select those facts that are most ‘favourable’ to the non-cooperating party. Investigating authorities may take into account the procedural circumstances in which information is missing, but Article 6.8 does not condone the selection of replacement facts for the purpose of punishing interested parties.”).

In reading the panel report, the Commerce Department is not given deference for its decisions of what facts available should be used. Thus, that violations were found for how Commerce determined facts available in each of the six proceedings reflect the panel reaching a different conclusion than Commerce. But while the panel may have reached a different result than Commerce, that by itself does not constitute a basis under Art. 17.6(i) to find a violation.

Conclusion

The constant limiting by panel and Appellate Body reports of the ability to utilize trade remedy agreements is, of course, the main substantive concern that the United States has with the operation of the WTO’s Dispute Settlement system, although there are examples of the same problem in other areas covered by panel or AB reports as well. Last week’s panel report on Korea’s challenge to U.S. antidumping and countervailing duty proceedings on the use of facts available continues to undermine the legitimacy of WTO dispute settlement.

Accordingly, the Biden Administration should file an appeal from last week’s panel decision and ensure that any eventual resolution of the Appellate Body impasse includes a restoration of rights that have narrowed or eliminated under the trade remedy or trade defense agreements (ADA, ASCM and safeguard).

Malaysia files request for consultations with the European Union and Certain Member States on certain measures concerning palm oil and oil palm crop-based biofuels at the WTO on January 15

Malaysia filed the second request for consultations of 2021 on January 15, 2021. The request for consultations addresses the European Union, France and Lithuania and certain enumerated measures pertaining to palm oil and oil palm crop-based biofuels. See WT/DS600/1 (15 January 2021). France and Lithuania have already adopted laws and regulations implementing and EU provision which Malaysia views as violating a wide range of WTO obligations. As other EU members are working on possible implementing laws and regulations, Malaysia is keeping open the possibility of raising issues with additional EU members.

Because the dispute involves the interface of EU efforts to reduce greenhouse gases and trade restricting effects on certain biofuels that the EU views as not sufficiently promoting the reduction greenhouse gases, it will likely draw a lot of attention. The background part of the request for consultations lays out the Malaysian concerns.

A. Background

“1. Malaysia is the world’s second largest producer of palm oil. In 2019, Malaysia produced around 19.86 million metric tonnes of crude palm oil, accounting for 28% of world palm oil production and 33% of world palm oil exports.1 In 2019, Malaysia exported around 1.9 million metric tonnes of palm oil to the EU. The palm oil industry directly employs more than one million Malaysians and 40% of all palm oil plantations in Malaysia are owned or farmed by smallholder farmers, who have benefited from oil palm cultivation.2 Palm oil production and export has been a major factor in Malaysia reducing poverty from 50% in the 1960s, down to less than 5% today.

“2. As one of the biggest producers and exporters of palm oil and palm oil products, Malaysia recognises that it has an important role to play in fulfilling the growing global need for oils and fats in a sustainable manner. Malaysia is a responsible producer of palm oil and has long taken the lead in the continuous process of making palm oil production more sustainable and environmentally friendly. As of December 2020, nearly 90% of Malaysia’s total oil palm cultivation has obtained Malaysian Sustainable Palm Oil (MSPO) certification. Additionally, as at that date, 428 of Malaysia’s 452 oil palm mills, corresponding to around 95% of total milling capacity, received the MSPO certification. Most recently, on 1 January 2020, Malaysia made the MSPO certification mandatory.

“3. It is important to recall Malaysia’s commitment at the 1992 Rio Earth Summit, where it pledged to maintain at least 50% of the country’s landmass under forest cover. On the basis of data from 2018, about 55.3% of Malaysia’s 33 million hectares (ha) land areas are under forest cover, exceeding the country’s pledge made at the Rio Earth Summit.

“4. In the context of addressing the environmental risks posed by the extensive use of fossil fuels, the EU and its Member States have, since 2009, adopted a policy of promoting the use of biofuels by setting national targets for the use of renewable energy in various sectors, including the transport sector. This policy led to a rapid increase in the EU consumption of biofuels, produced mainly from food crops.

“5. While the measures taken by the EU and EU Member States under this policy pursue the reduction of greenhouse gas (‘GHG’) emissions and the achievement of commitments under international climate agreements, some of these measures contravene their WTO obligations. In 2018 and 2019, the EU adopted legislative measures that, in simple terms, define palm oil as an unsustainable feedstock for the production of biofuel. The EU further argues that only palm oil production entails a high risk of indirect land-use change (‘ILUC’). On that basis, oil palm crop-based biofuels cannot be counted towards EU renewable energy targets.3

“6. Generally speaking, the measures adopted by the EU, as well as the related measures adopted by EU Member States, confer unfair benefits to EU domestic producers of certain biofuel feedstocks, such as rapeseed oil and soy, and the biofuels produced therefrom, at the expense of palm oil and oil palm crop-based biofuels from Malaysia. These measures may also discriminate against Malaysian palm oil and oil palm crop-based biofuels in favour of ‘like products’ from third countries.

“7. Malaysia submits that the measures adopted by the EU and its Member States currently already limit and will increasingly limit the volume of Malaysian palm oil and oil palm crop-based biofuels that can be counted towards reaching EU renewable energy targets and, consequently, that will be sold in the EU market.

“fn1 Malaysian Palm Oil Council (MPOC), Malaysian Palm Oil Industry. Available at:
http://mpoc.org.my/malaysian-palm-oil-industry/. Malaysian Palm Oil Board, Production 2019. Available at
http://bepi.mpob.gov.my/index.php/en/production/production-2019/production-of-oil-palm-products-
2019.html.

“fn 2 Malaysian Palm Oil Council (MPOC). Available at http://theoilpalm.org/about/http://theoilpalm.org/about/.

“fn 3 See European Commission, Factsheet, Indirect Land Use Change, 17 October 2012, available at https://ec.europa.eu/commission/presscorner/detail/de/MEMO_12_787 (accessed 13 January 2021). See also Recitals 80 and 81 of the RED II.”

The full request for consultations is embedded below.

600-1

The Malaysian request for consultations raises similar allegations of WTO violations by the EU and member states as a case filed by Indonesia in late 2019 where a panel was finally composed on November 12, 2020. See European Union — Certain measures concerning palm oil and oil palm crop-based biofuels, WT/DS593/10 (composition of panel). Malaysia and many other countries are third parties in that dispute.

The WTO alleged violations in Malaysia’s request for consultations are the following for the EU, France, Lithuania and other EU members.

C. Legal basis for the complaint in respect of the EU measures

“31. With regard to the EU measures, as embodied and developed in the respective legal instruments as specified in para. 22 herein and as applied by the relevant authorities, Malaysia considers that these measures are inconsistent with the EU’s obligations under the GATT 1994 and the TBT Agreement. In particular, the measures are inconsistent with:

GATT 1994

“i. Article I:1 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, discriminate among ‘like’ feedstocks and derived biofuels originating in third countries;

“ii. Article III:4 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, accord less favourable treatment to imported palm oil and oil palm crop-based biofuels than they do to ‘like’ domestic feedstocks and derived biofuels, thereby modifying the conditions of competition to the detriment of the imported palm oil and oil palm crop-based biofuels, in particular from Malaysia;

“iii. Article X:3(a) of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, are administered in a manner that is not uniform, impartial and/or reasonable; and

“iv. Article XI:1 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, and which provide criteria for certifying low ILUC-risk biofuels, restrict the importation of palm oil and oil palm crop-based biofuels.

TBT Agreement

“v. Article 2.1 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, have a detrimental impact on the competitive conditions in the EU market of Malaysia’s imports of oil palm crop-based biofuels compared with ‘like products’ imported into the EU from other countries and compared with ‘like’ domestic products;
vi. Article 2.2 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are more trade-restrictive than necessary to achieve the objectives pursued by the measures;

“vii. Article 2.4 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are not based on the relevant international standards;

“viii. Article 2.5 of the TBT Agreement, because the EU, in preparing, adopting or applying the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, has failed, upon the request of Malaysia, to explain the justification for those measures in terms of Articles 2.2 to 2.4 of the TBT Agreement;

“ix. Article 2.8 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are based on an abstract and unsubstantiated high-ILUC risk concept instead of the performance of such biofuels;

“x. Article 2.9 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, were adopted without the required timely publication and notification of these measures and organising an adequate process for commenting;

“xi. Article 5.1.1 of the TBT Agreement, because the EU, by preparing, adopting or applying the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, treats suppliers of oil palm crop-based biofuels from Malaysia less favourably than domestic suppliers of ‘like’ biofuels or suppliers from other WTO Members in a comparable situation;

“xii. Article 5.1.2 of the TBT Agreement, because the EU, by preparing, adopting or applying the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, creates unnecessary obstacles to international trade;
xiii. Article 5.2 of the TBT Agreement, because the EU failed to make available the conformity assessment procedures to certify low ILUC-risk;

“xiv. Article 5.6 of the TBT Agreement, because the EU, with regards to the measures at issue, which provide criteria for certifying low ILUC-risk, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, neither notified nor enter into meaningful consultations, or allowed for comments on such conformity assessment procedures;

“xv. Article 5.8 of the TBT Agreement, because the EU neither promptly published nor otherwise made available the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement; and

“xvi. Articles 12.1 and 12.3 of the TBT Agreement, because the EU, in the preparation and application of the measures at issue referred to above, failed to take into account the circumstances specific to developing countries, in particular Malaysia, where palm oil and oil palm crop-based biofuels are produced.

D. Legal basis for the complaint in respect of the EU Member States’ measures

a. France

“32. The set of advantages granted by France for oil crop-based biofuels, as embodied and developed in the respective legal instruments, as specified in paragraphs 24 to 27 herein, and as applied by the relevant authorities, are inconsistent with the obligations of France under the GATT 1994 and the SCM Agreement. In particular, the set of advantages described above, as contained in the mentioned legal instruments, are inconsistent with:

GATT 1994

“i. Article I:1 of the GATT 1994, because the measures at issue, under which the tax on petrol and diesel is only reduced when they contain biofuels other than oil palm crop-based biofuels, discriminates against ‘like’ biofuels by granting an advantage, in the form of a tax reduction, to biofuels of some countries, that is not granted to all WTO Members, and in particular not to Malaysia, and

“ii. Article III:2 of the GATT 1994, because the measures at issue, under which the tax on petrol and diesel is only reduced when they contain biofuels other than oil palm crop-based biofuels, indirectly applies a tax on imported oil palm crop-based biofuels: (1) in excess to ‘like’ domestic biofuels; or (2) which is not similar to the tax on ‘directly competitive and substitutable’ domestic biofuels, and affords protection to the production of these domestic biofuels.

SCM Agreement

“iii. Articles 3 and 5 of the SCM Agreement, because the measures at issue, under which the French Government reduces the tax on petrol and diesel containing crop-based biofuel other than oil palm crop-based biofuels and excludes petrol and diesel containing oil palm crop-based biofuels from this tax reduction, amount to a subsidy within the meaning of Article 1 of the SCM Agreement which is: (1) a prohibited import substitution subsidy within the meaning of Article 3.1(b); and/or (2) an actionable subsidy causing an adverse effect on the interests of Malaysia within the meaning of Article 5(c) of the SCM Agreement.

b. Lithuania

“33. Concerning Lithuania’s measures (including any annexes thereto, amendments, supplements, replacements, renewals, extensions, implementing measures or any other related measures, and any exemptions applied), as implemented and/or applied by the latter in line with its obligations as a EU Member State regarding the transposition of the RED II, Malaysia claims that those measures are inconsistent with the same WTO obligations as provided for in paragraph 31 and/or 32 herein.

c. Other EU Member States

“34. Malaysia contends that to the extent that any other EU Member State transposes the RED II and further implement and/or apply any measure(s) according to its obligations as regards the limitation and/or phasing out of oil palm crop-based biofuels from being counted towards reaching renewable energy targets, regardless of whether the said measures are explicit or implicit in their treatment of oil palm crop-based biofuels, such measure(s) shall be inconsistent with the same WTO obligations as provided for in paragraph 31 and/or 32 herein.”

With the Indonesian case now in the briefing stage, a panel report could be available in late 2021 or in the front half of 2022 depending on delays flowing from the continued limitations imposed by the pandemic. The Malaysian case will likely trail the Indonesian case by six months or more.

Neither Indonesia nor Malaysia are signatories to the Multi-Party Interim Appeal Arbitration Arrangement Pursuant To Article 25 Of The DSU. The EU has in at least one case where the party challenging EU actions was not a signatory opted to file an appeal into the void when it was dissatisfied with the panel report. See 28 August 2020:  Notification of Appeal  by the European Union in  DS494: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (Second Complaint) (WT/DS494/7). Thus, whether reform of the Appellate Body moves forward in the next year to address U.S. concerns may be important to a final resolution of the two cases. The WTO is a long distance from resolving the current impasse on the Appellate Body, but perhaps there will be reengagement during the second half of 2021.

Comments

It is surprising that with the pressing importance of working to address climate change and the EU efforts at leadership that the EU appears not to have found a way to work with trading partners like Malaysia or achieve a common science-based understanding as to which biofuels help reduce greenhouse gases. For trade and environment issues to gain a greater role within the WTO (as Members need them to do), all Members working to achieve sustainable development objectives have to feel that the rules of trade will support their effort, provide guidance as to what more is needed and not close those Members out of the market of a trading partner.