countervailing duty investigation

WTO Dispute Settlement — What the Recently Adopted Panel Report on United States – Antidumping and Countervailing Duties on Ripe Olives from Spain says about the existing dispute settlement system and about needed WTO reforms

On November 19, 2021, the WTO panel hearing the dispute brought by the European Union against the United States on trade remedies imposed on ripe olives from Spain released publicly its report. See UNITED STATES – ANTI-DUMPING AND COUNTERVAILING DUTIES ON RIPE OLIVES FROM SPAIN, WT/DS577/R (19 November 2021). The panel made some findings in the countervailing duty investigation by the U.S. Department of Commerce adverse to the U.S. determinations including finding a statutory provision contrary to the WTO obligations in the Subsidies and Countervailing Measures Agreement “as such”. The panel also disagreed with the EU on various aspects of its challenges to the U.S. countervailing duty investigation and disagreed on all claims of WTO violations from the U.S. International Trade Commission final injury determination in both the antidumping and countervailing duty investigations.

At the Dispute Settlement Body (“DSB”) meeting on December 20, 2021, the United States did not oppose adoption of the panel report despite reservations on parts of the decision. While the EU and U.S. statements at the DSB meeting paint different pictures of the relevance and/or importance of the panel report, U.S. acceptance of the report moves the dispute to the phase where the U.S. considers how it will bring itself into compliance with its WTO obligations. It is another case where the “losing” party has not opted to file an appeal into the void (i.e., where the Appellate Body is not functioning because of lack of AB members). It is another example of the U.S. and EU looking for ways to resolve bilateral disputes to permit greater focus on reform needs at the WTO. Indeed, the U.S. and EU agreed to delay the release of the panel report for several months — time while other bilateral matters were being handled. Adoption of the report by the U.S. also avoids the EU acting contrary to its WTO obligations by retaliating against a WTO Member who takes an appeal vs. pursuing other resolution.

The panel report raises some challenging issues for WTO Members if trade remedies are to be available to all industries in fact. That said, the analysis in the report is largely well reasoned and well articulated.

Statement of Parties at the DSB meeting of December 20, 2021

At the DSB meeting on December 20th, consideration of the panel report on olives was the seventh agenda item. See Airgram, WTO/AIR/DSB/113 10 DECEMBER 2021, SUBJECT: DISPUTE SETTLEMENT BODY.

The WTO press release on the WTO DSB meeting had the following discussion of the olive dispute panel report.

“United States — Anti-dumping and countervailing duties on ripeolives from Spain

“The European Union thanked the panel for its work in this dispute. The panel report circulated on 19 November (https://www.wto.org/english/news_e/news21_e/577r_e.htm) substantially upheld the EU’s claims and largely confirmed that in the anti-subsidy duties imposed by the US on ripe olives from Spain, the US acted inconsistently with the WTO Agreement on Subsidies and Countervailing Measures (ASCM), the EU said. The panel found that the US did not comply with its obligation in the determination of “de jure” specificity of the subsidy and in the calculation of the subsidy benefit for one specific EU company. It also found that Section 771B of the US Tariff Act of 1930, which presumes that the entire benefit of a subsidy provided in respect of a raw agricultural product passes through to the downstream processed agricultural product, is ‘as such’ inconsistent with the ASCM. The EU said it expects the US will promptly and fully implement the panel’s findings.

“The United States said that while it was disappointed in certain respects, it welcomed the panel’s findings on key issues in the dispute. The panel rightly rejected many of the numerous claims brought by the EU regarding the anti-dumping and countervailing duties at issue, including key EU claims relating to injury and so-called “decoupled” payments.

“The United States said it appreciated the panel’s rejection of all eight claims concerning the US International Trade Commission’s injury determination and that, contrary to certain comments, the panel rejected the EU position that so-called “decoupled” agricultural payments cannot be subject to countervailable duties. In particular, the panel did not find that the EU Common Agricultural Policy programs at issue were outside the scope of the ASCM. Although disappointed with some of the panel’s findings, the US has decided to allow the report to be adopted in light of all the circumstances, including the overall quality of the panel report and the US desire to work with the EU to resolve this dispute, the US said.

“Canada highlighted the panel’s important finding that an investigating authority must establish the existence and extent of indirect subsidization, taking into account all relevant factors, in order to impose countervailing duties.

“The DSB took note of the statements made and adopted the panel report.”

WTO Press Release, WTO panels to review Russian procurement measures, Dominican duties, 20 December 2021, https://www.wto.org/english/news_e/news21_e/dsb_20dec21_e.htm.

The WTO Press Release contained the entirety of the prepared EU statement on the dispute. See EU Statements at Regular Dispute Settlement Body (DSB) meeting, 20 December 2021, https://eeas.europa.eu/delegations/world-trade-organization-wto/109169/eu-statements-regular-dispute-settlement-body-dsb-meeting-20-december-2021_en. The U.S. statement was longer and is presented below in its entirety.

“7. UNITED STATES – ANTI-DUMPING AND COUNTERVAILING DUTIES ON RIPE OLIVES FROM SPAIN

“”A. REPORT OF THE PANEL (WT/DS577/R AND WT/DS577/R/ADD.1)

“• The United States thanks the Panel, and the Secretariat staff assisting it, for their work in this dispute. We acknowledge the Panel’s thorough review of the legal arguments put forward by the parties, and while we are disappointed in certain respects, we welcome the Panel’s findings on key issues in this dispute.

“• The EU brought numerous claims regarding antidumping and countervailing duties on ripe olives from Spain, as well as one statutory provision. The Panel rightly rejected many of those claims, including key EU claims relating to injury and so-called “decoupled” payments.

“• First, the United States appreciates the Panel’s rejection of all eight claims concerning the U.S. International Trade Commission’s injury determination.

“• For example, the Panel agreed with the United States that nothing in Articles 15.1 and 15.2 of the SCM Agreement or Articles 3.1 and 3.2 of the Antidumping Agreement prohibits an investigating authority from paying particular attention to one segment of the domestic industry in its injury analysis. And as a factual matter, the USITC did not exclude certain segments of the domestic industry in its analysis.

“• Furthermore, the USITC properly considered whether there was a significant increase in the volume of subsidized and dumped imports, and was not required to make a finding of absolute or relative volume increase, pursuant to Article 15.2 of the SCM Agreement or Article 3.2 of the Antidumping Agreement.

“• The Panel also agreed that the USITC considered all of the relevant economic factors having a bearing on the state of the entire domestic industry, established a causal link between subject imports and injury to the domestic industry, and accounted for any injury caused by factors other than subject imports as part of its non-attribution analysis.

“• Accordingly, the EU failed to make out its claims under Articles 15.1, 15.2, 15.4, and 15.5 of the SCM Agreement and Articles 3.1, 3.2, 3.4, and 3.5 of the Antidumping Agreement. We are gratified that the Panel agreed, and rejected all of the EU’s injury claims. (See, e.g., para. 7.319.)

“• Second, we welcome the Panel’s narrow findings with respect to specificity. While we disagree that the U.S. Department of Commerce erred in certain aspects of its factual evaluation, the Panel correctly rejected the EU’s broader challenge regarding the proper interpretation of Article 2 of the SCM Agreement.

“• Contrary to certain comments, including in press reports, the Panel has rejected the EU position that so-called ‘decoupled’ agricultural payments cannot be subject to countervailable duties:

“o In particular, and contrary to certain characterizations of these findings, the Panel did not find that the Common Agricultural Policy (CAP) programs at issue were outside the scope of the SCM Agreement.

“o To the contrary, the Panel rejected the EU’s arguments that the legal design of the CAP – in particular, ‘decoupling’ subsidies from current production or basing them on an earlier reference program – means the subsidies conferred cannot be countervailed. (See, e.g., paras. 7.30-7.33, 7.37-7.39, 7.51-7.52, 7.85, and 7.124.)

“o In doing so, the Panel similarly rejected the EU argument that decoupled ‘Green Box’ subsidies under the Agreement on Agriculture are not actionable under the SCM Agreement. The Panel found that Article 2.1(a) does not prescribe particular facts or factors that may or may not be taken into account by an investigating authority, or any particular methodology or analytical approach in evaluating that information.

“• Thus, on these two core issues in this panel proceeding, injury and countervailing so-called ‘decoupled’ payments, the Panel disagreed with the very premise of the EU’s claims.

“• We are disappointed with other of the Panel’s findings, however, and in particular its findings on a U.S. statute related to the calculation of subsidies for certain processed agricultural products.

“• By enacting Section 771B, the U.S. Congress sought to eliminate the possibility that ‘a foreign nation could avoid U.S. countervailing duty on an agricultural product merely by doing some minor processing of the agricultural product before it is exported to the United States’.1 The United States is evaluating the Panel’s findings with a view to ensure that countervailing duties account for the economic realities of trade in raw agricultural products and processed downstream products.

“• Mr. Chairman, although the United States is disappointed with certain of the Panel’s findings, on balance, we have decided to permit the report to be adopted today. We take this step in light of all the circumstances, including the overall quality of the Panel report and our desire to work with the European Union to resolve this dispute.

“• We thank Members for their attention to this statement.

“1 See 133 Congressional Record S8814 (Exhibit USA-9) at S8815. See also Issues and Decision Memo for Final Determination C-469-818 (Exhibit EU-2), p. 23.”

Statements by the United States at the Meeting of the WTO Dispute Settlement Body Geneva, December 20, 2021, pages 9-10, https://uploads.mwp.mprod.getusinfo.com/uploads/sites/25/2021/12/Dec20.DSB_.Stmt_.as_.deliv_.fin_.pdf

Panel conclusion

Because of the number and complexity of issues explored in the panel report, the panel’s conclusion is a good basis for understanding the extent of the EU “win” and US “loss”.

“8 CONCLUSIONS AND RECOMMENDATION

“8.1. For the reasons set forth in this Report, the Panel concludes as follows:

“a. With respect to the European Union’s claims regarding the USDOC’s de jure specificity determination:

“i. the European Union has demonstrated that the USDOC’s 29 May 2020 Remand Redetermination as it relates to the USDOC’s original findings of de jure specificity is a measure or is part of the measure that is before the Panel in this dispute;

“ii. the European Union has not demonstrated that the USDOC acted inconsistently with Articles 2.1 and 2.1(a) of the SCM Agreement merely because the USDOC based its findings of de jure specificity in the ripe olives countervailing duty investigation on the rules in the relevant subsidy programmes governing the calculation of the amounts of subsidies available to eligible enterprises;

“iii. the European Union has not demonstrated that the USDOC acted inconsistently with Article 2.1(a) of the SCM Agreement because the USDOC’s determination of de jure specificity was dependent upon how certain alleged features of past subsidy programmes no longer in force were relied upon and integrated into the BPS programme;

“iv. the European Union has not demonstrated that, as a matter of fact, the USDOC found that the BPS/GP and SPS subsidies were de jure specific to olive growers as a result of being coupled or tied to olive production;

“v. the USDOC acted inconsistently with Articles 2.1, 2.1(a), and 2.4 of the SCM Agreement because:

“(1) the USDOC did not properly examine and account for the rules governing the allocation and valuation of BPS entitlements with respect to new farmers, farmers holding entitlements transferred under the SPS programme, and farmers no longer growing olives;

“(2) the USDOC relied upon erroneous factual findings with respect to function and role of the so called “regional rate” to support its determination of de jure specificity; and

“(3) the USDOC did not properly examine and account for the rules governing the allocation and valuation of SPS entitlements with respect to farmers with SPS entitlements obtained via transfer, and farmers holding COMOF programme-based entitlements no longer producing olives.

“For the reasons set out in (v)(1)-(3), the USDOC’s determination of de jure specificity was not based on a reasoned and adequate explanation of why access to the BPS and SPS subsidies was explicitly limited to olive growers, within the meaning of Articles 2.1 and 2.1(a) of the SCM Agreement, and was not clearly substantiated on the basis of positive evidence, as required by Article 2.4 of the SCM Agreement;

“vi. the USDOC acted inconsistently with Article 2.4 of the SCM Agreement to the extent that the USDOC’s determinations of de jure specificity with respect to the SPS and BPS/GP subsidies relied upon an erroneous factual finding concerning the calculation of assistance under the COMOF programme832;

“vii. the European Union has not demonstrated that the USDOC acted inconsistently with Articles 2.1, 2.1(a), and 2.4 of the SCM Agreement because, contrary to the European Union’s assertions:

“(1) the USDOC’s rejection of the arguments concerning the application of the convergence factor under the BPS programme was supported by record evidence, and to this extent, reasonably and adequately explained and based on clearly substantiated positive evidence;

“(2) the totality of the USDOC’s discussion of the rules governing the calculation of SPS payments reveals that the USDOC correctly understood that SPS payments were made to farmers and that Spain did not implement the SPS programme on a regional basis; and

“(3) the lack of a formal specificity finding under US law does not undermine the USDOC’s determinations of de jure specificity with respect to the SPS, BPS, and GP programmes, given the absence of any suggestion on the part of the European Union that the COMOF programme subsidies were not de jure specific, and in the light of the fact that the USDOC considered it had made sufficient factual findings to satisfy itself that those subsidies would be de jure specific under its domestic legislation, had it been required to make such a determination.

“viii. given our findings at paragraphs 8.1.a.v and vi, the Panel declines to make further findings under Articles 1.2, 2.1, 2.1(a), 2.1(b), and 2.4 of the SCM Agreement.

“b. With respect to the European Union’s claims in relation to Section 771B of the Tariff Act of 1930 and its application in the ripe olives countervailing duty investigation:

“i. Section 771B of the Tariff Act of 1930 is as such inconsistent with Article VI:3 of the GATT 1994 and Article 10 of the SCM Agreement because it requires the USDOC to presume that the entire benefit of a subsidy provided in respect of a raw agricultural input product passes through to the downstream processed agricultural product, based on a consideration of only two factual circumstances, without leaving open the possibility of taking into account any other factors that may be relevant to the determination of whether there is any pass-through and, if so, its degree;

“ii. the USDOC acted inconsistently with Article VI:3 of the GATT 1994 and Article 10 of the SCM Agreement regarding its application of Section 771B of the Tariff Act of 1930 in the Spanish ripe olives countervailing duty investigation because it failed to establish the existence and extent of indirect subsidization taking into account all relevant facts and circumstances; and

“iii. given our findings at paragraphs 8.1.b.i and ii, the Panel declines to make further findings under Articles 19.1, 19.3, 19.4, and 32.1 of the SCM Agreement, either with respect to Section 771B of the Tariff Act of 1930 as such or the USDOC’s application of Section 771B of the Tariff Act of 1930 in the Spanish ripe olives countervailing duty investigation.

“c. With respect to the European Union’s claims regarding the USITC’s Injury Determination:

“i. with respect to the United States’ request for a preliminary ruling, the United States has not demonstrated that the European Union’s claims under Article 15.4 of the SCM Agreement and Article 3.4 of the Anti-Dumping Agreement are not properly before the Panel;

“ii. the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.1 and 15.2 of the SCM Agreement, and Articles 3.1 and 3.2 of the Anti-Dumping Agreement, by failing to undertake an analysis of the volume of ripe olives from Spain based on an objective examination of positive evidence;

“iii. the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.1 and 15.2 of the SCM Agreement, and Articles 3.1 and 3.2 of the Anti-Dumping Agreement, by failing to consider a “volume effect” within the meaning of Article 15.2 of the SCM Agreement and Article 3.2 of the Anti-Dumping Agreement;

“iv. the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.1 and 15.2 of the SCM Agreement, and Articles 3.1 and 3.2 of the Anti-Dumping Agreement, by failing to undertake an analysis of the price effects of ripe olives from Spain that was based on an objective examination of positive evidence;

“v. given our findings at paragraphs c.ii-iv, the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.4 and 15.5 of the SCM Agreement, and Articles 3.4 and 3.5 of the Anti-Dumping Agreement, as a consequence of alleged violations concerning the USITC’s volume analysis and price effects analysis;

“vi. the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.1 and 15.4 of the SCM Agreement, and Articles 3.1 and 3.4 of the Anti-Dumping Agreement, by failing to undertake an analysis of the consequent impact of ripe olives from Spain on the domestic industry that was based on an objective examination of positive evidence;

“vii. given our findings at paragraph c.vi, the European Union has not demonstrated that the USITC acted inconsistently with Article 15.5 of the SCM Agreement, and Article 3.5 of the Anti-Dumping Agreement, as a consequence of alleged violations concerning the USITC’s impact analysis; and

“viii. the European Union has not demonstrated that the USITC acted inconsistently with Articles 15.1 and 15.5 of the SCM Agreement, and Articles 3.1 and 3.5 of the Anti-Dumping Agreement, by failing to undertake a causation analysis that was based on an objective examination of positive evidence.

“d. With respect to the European Union’s claims concerning Aceitunas Guadalquivir’s final subsidy margin and countervailing duty rate calculation:

“i. the USDOC acted inconsistently with Article VI:3 of the GATT 1994 because, by relying on the volume of Aceitunas Guadalquivir’s raw olive purchases reported in its response to the initial 4 August 2017 questionnaire to determine Aceitunas Guadalquivir’s final subsidy margin and countervailing duty rate, the USDOC did not ensure, and take the necessary steps to ascertain as accurately as possible the amount of subsidization bestowed on the investigated products;

“ii. the USDOC acted inconsistently with Article VI:3 of the GATT 1994 because the USDOC relied upon the margin of subsidization incorrectly determined for Aceitunas Guadalquivir in its determination of the ‘all others’ rate of countervailing duties imposed on exporters of ripe olives that were not individually investigated;

“iii. given our findings at paragraphs 8.1.d.i and ii, the Panel declines to make further findings that the same USDOC actions are also inconsistent with Articles 10, 19.1, 19.3, 19.4 and 32.1 of the SCM Agreement;

“iv. the USDOC acted inconsistently with Article 12.1 of the SCM Agreement because the USDOC failed to notify the respondents that the USDOC required information regarding the volume of purchases of raw olives processed into ripe olives; and

“v. the USDOC acted inconsistently with Article 12.8 of the SCM Agreement because the USDOC failed to inform interested parties before the final determination that the volume of purchases of raw olives processed into ripe olives was an ‘essential fact under consideration’.

“8.2. Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. We conclude that, to the extent that the measures at issue are inconsistent with the GATT 1994, the SCM Agreement and Anti-Dumping Agreement, they have nullified or impaired benefits accruing to the European Union under that agreement.

“8.3. Pursuant to Article 19.1 of the DSU, we recommend that the United States bring its measures into conformity with its obligations under the GATT 1994, the SCM Agreement, and the Anti-Dumping Agreement.

“832 See para. 7.127(d) above.”

Comments on the Panel Report

With the dispute settlement system likely to be without an agreed solution to the reforms needed and role of a second tier review (“appeal”) for the next several years, the panel report and the response thereto shows that Members can find solutions to disputes even if there is only the panel process, depending on the quality of the panel report and the goodwill of the parties. This is not surprising as most disputes in the GATT system resulted in eventual adoption by the parties. While many Members, including the U.S. and the EU and China, have filed appeals into the void, resolution of disputes is achievable even in these unusual circumstances.

While many of the panel findings of U.S. violations of existing obligations are arguably addressable by the U.S. without statutory or regulatory change, absent from the panel’s analysis is the practical ability of investigating governments to seek and of investigated companies and their governments to provide ever increasing quantities of information in the 12-18 month time frame of investigations. This is particularly true in most agricultural cases and processed agricultural cases where the number of producers can be in the thousands, tens of thousands or more.

In the United States, all industries are supposed to be able to avail themselves of statutory tools to address injurious dumping or subsidization. For many agricultural producers, there can be issues of seasonality that should be addressable in cases so that relief if warranted only addresses products entering during the relevant season.

But the same concern applies if options under U.S. law or the WTO agreements require gathering information from huge numbers of producers and/or processors. For example, in the olive case, there is the open question of whether benefits to farmers raising olives are larger than to other producers, whether there is a concentrated group receiving large funds, etc. Gathering information on benefits received under different programs from hundreds or thousands or tens of thousands of agricultural producers would provide factual information to confirm whether there is de facto specificity even if further refined analysis would be unclear on whether there is de jure specificity. No country sends questionnaires to such large numbers of producers and analyzing such data would presumably be impractical in the statutory time frame available to investigators.

Thus, the panel report puts into focus whether trade defense agreements like the countervailing duty law are available in fact to all industries or just to more concentrated industries. This is an issue that should concern trade officials and obviously is important to industries. A cornerstone right under the GATT and now WTO has been the right to seek redress from injurious dumped or subsidized imports. That right cannot be limited to a subset of industries without causing loss of support in a number of Members where such rights are important.

The same concern exists with regard to the panel finding “as such” inconsistency in Section 771B of the Tariff Act of 1930, as amended. 19 U.S.C. 1677-2. The panel report is probably at its weakest in its conclusion that the two factors listed under the statute are not a reasonable basis to find a pass through in processed agricultural cases or at least that it can be in many situations. That should have eliminated the as such claim. That would have left the EU’s as applied claim. The U.S. concern as articulated by the Commerce Department and the U.S. Congress is a real one. The WTO SCMA and U.S. law should not permit evasion of the countervailing duty law because of minor processing of agricultural products. Common sense approaches such as that adopted in 771B are important to ensure all industries can pursue relief when needed. Subsidization of upstream agricultural products will almost always result in excess production which will depress prices resulting in artificial advantages to downstream processors that are unaffiliated. That common sense understanding of reality in agricultural market was not accepted by the panel. It will be interesting to see how, if at all, the U.S. chooses to address this finding.

All of the above strongly suggests that WTO Members need to examine the needs of the trade defense agreements to be sure all industries facing injurious dumping or subsidization can seek relief, and that the agreements are administrable in fact without impossible factual data gathering requirements.