WTO Panel Faults EU for WTO-Inconsistent Cost Adjustment Methodology and Anti-Dumping Measures on Russian Welded Tubes and Pipes and on Russian Ammonium Nitrate

On July 24, 2020, a World Trade Organization ("WTO") dispute settlement panel issued its report in DS494, European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia — (Second complaint).¹

In this dispute, the Russian Federation ("Russia")² challenged four sets of measures attributed to the European Union ("EU" or “Union”), which all relate to the imposition of anti-dumping measures and the underlying methodology applied to calculate dumping margins. On the one hand, the panel dismissed the "as such" claims made by Russia against certain provisions of the EU's basic anti-dumping regulation,³ as the panel was not convinced that these provisions, as drafted, necessarily required the EU investigating authority to act in a WTO-inconsistent manner. On the other hand, the panel agreed with Russia that the EU's cost adjustment methodology in anti-dumping investigations, as well as its anti-dumping measures on Russian welded tubes and pipes and on Russian ammonium nitrate, did not comply with the WTO rules.

The panel's findings are discussed in this Legal Update.

1. Panel's findings vis-à-vis the EU's "cost adjustment methodology"

Russia claimed that the EU implements a "cost adjustment methodology" in anti-dumping investigations, pursuant to which the EU rejects the recorded costs of exporting producers and adjusts them with out-of-country benchmarks, by alleging that costs are not reasonably reflected in the records of the exporting producers since they are "artificially or abnormally low" due to alleged "distortions" or "market impediments" (e.g., government price regulation or the application of export duties in the country of origin).

As a first step, the panel recognized that Russia had sufficiently evidenced the existence of this "cost adjustment methodology," which—although unwritten—qualified as a challengeable measure of general and prospective application attributable to the EU.

As a second step, the panel found that this cost adjustment methodology is inconsistent with the WTO Anti-Dumping Agreement and, in particular, violates:

• Articles 2.2.1.1 because it cannot be concluded that the records do not “reasonably reflect costs” on the basis of an examination of the reasonableness of the costs, rather than of the records;⁴ and

• Article 2.2 because the EU relies on out-of-country benchmarks that are not adapted to represent the costs of production in the country of origin, while such adjustments must be made by the investigating authority, regardless of whether they are requested or not.

The panel, however, refused to make findings with regard to the compliance of the "new" Articles 2(6a) and 7(2a) of the EU's basic anti-dumping regulation. These provisions correspond to the new, horizontal, non-standard dumping methodology in cases of "significant distortions" (Article 2(6a)) and the criteria for the non-application of the lesser duty rule in cases of raw material distortions.⁵ The panel found that these provisions do not relate to whether costs are reasonably reflected in the records of the exporting producer, contrary to the cost adjustment methodology.

This notwithstanding, absent an appeal from the EU, the panel's findings on the EU's cost adjustment methodology are likely to have important ramifications. On the one hand, measures currently in force, which are based on the cost adjustment methodology, should be subject to reviews pursuant to Regulation (EU) 2015/476 on the measures that the Union may take following a report adopted by the WTO Dispute Settlement Body concerning anti-dumping and anti-subsidy matters.⁶ On the other hand, the panel's findings would prevent the EU from continuing to adopt measures based on the cost adjustment methodology, whereas the EU has recently continued to invoke this methodology, as an alternative to Article 2(6a) of the basic anti-dumping regulation.⁷

2. Panel's findings vis-à-vis the anti-dumping measures on Russian welded tubes and pipes

Russia claimed that the EU's anti-dumping measures on Russian welded tubes and pipes were inconsistent with the WTO Anti-Dumping Agreement since, in the last expiry review, the EU investigating authority had established the likelihood of recurrence of dumping relying on a dumping margin established by improperly rejecting the costs reflected in the records of the Russian exporter and by using inconsistently adjusted costs in the ordinary-course-of-trade test.

The panel agreed and consequently found that the EU had acted in breach not only of Articles 2.2.1.1 and 2.2.1 of the WTO Anti-Dumping Agreement but also in breach of Article 11.3 thereof.

3. Panel's findings vis-à-vis the anti-dumping measures on Russian ammonium nitrate

The EU first imposed anti-dumping measures on Russian ammonium nitrate ("AN") in 1995. These measures have since been renewed and revised several times.⁸ Russia took issue primarily with the last expiry review, which took place after Russia's WTO accession and resulted in the adoption of Regulation 999/2014.⁹

While the panel refused to consider issues that it deemed to have been last considered by the EU before Russia's WTO accession, it nevertheless concluded that the anti-dumping measures on Russian AN do not comply with the WTO Anti-Dumping Agreement since the EU acted in breach of:

• Article 11.3 because the request for initiation of the expiry review did not contain adequate evidence on the likelihood of dumping. More precisely, the EU failed to verify whether the constructed normal value included in the request for initiation was based on the cost of production in the country of origin and, as a consequence, failed to ensure that the review request was duly substantiated. The panel noted that—to initiate the review —the EU accepted as evidence of "dumping" and "likelihood of recurrence of dumping" the calculation made by the petitioners but that there is no indication that the normal value constructed by the applicant and "verified" by the European Commission was based on the cost of production in the country of origin.

• Articles 6.1.2 and 11.4 because on four instances, the EU failed to make evidence available promptly to Russian producers.

• Articles 6.1.3 and 11.4 because the EU failed to provide the original petition of March 28, 2013, and only provided a consolidated version of the request, whereas the notice of initiation expressly refers to the petition of March 28, 2013.

• Articles 6.5 and 11.4 by granting confidential treatment to a submission without requesting or obtaining that the interested party submitting the information show good cause.

In practical terms, the first ground for which the panel faulted the EU is the one which will have the greatest effects. Indeed, the findings of the panel imply that—at the time the Commission decided to initiate the expiry review—it did not have sufficient evidence of a likelihood of dumping. Absent that evidence, the EU therefore should have let the measures expire.

4. What are the possible next steps?

Following today's circulation of the panel report, at least 20 days must pass before the report can be considered for adoption by the WTO Dispute Settlement Body ("DSB"). Thus, based on DSB’s working schedule, the report could be considered for adoption at its August 28, 2020, meeting.

The consideration of a panel report by the DSB, however, will be suspended if the EU files an appeal. In that case, the DSB would not adopt the panel report’s recommendations until such time as the Appellate Body has completed the appeal.