Investigating Wireless Modems From China: Triple Jeopardy in the Making?
Edwin Vermulst
Folkert Graafsma -
In June and September 2010, the European Commission initiated anti-dumping (AD) and safeguard (SG) and countervailing duty (CVD or AS) investigations into Wireless Wide Area Network (WWAN) modems respectively. Should these investigations all lead to protective measures, such a grand slam will pose some unprecedented questions.
Edwin Vermulst and Folkert Graafsma
First, the imposition of countervailing (anti-subsidy) measures against a non-market economy (NME) such as China may, under certain circumstances, be tantamount to double jeopardy. While the WTO AD and SCM Agreements and corresponding EU Regulations contain some basic rules to avoid double-counting of AD and CVD measures, these rules do not address the challenge posed by a combined AD/CVD action against a NME. And yet, the need for clear guidelines on how to apply combined AD/CVD measures against China is highly opportune in light of difficulties encountered by the US Department of Commerce (DOC) in the GPX litigation before the US Court of International Trade (GPX International Tire Corp et al v US, case number 08-cv-00285).
Second, the imposition of triple measures could prove to be problematic in the context of causation. While the EU in 2003 unilaterally promulgated Regulation 452/2003, setting forth rules on a combination of either AD or CVD with SG measures, EU law is silent with respect to a triple application. This may, therefore, give rise to tensions with the case law of the Appellate Body concerning the non-attribution requirements in the context of causation. We will address these concerns in turn.
Doubling Up Against the Enemy (NME)
A little over a year ago, the Court of International Trade (CIT) addressed the enigma of dealing with a CVD against an NME in GPX International Tire Corp v United States. The Court focused specifically on the issue of parallel imposition of AD and CVD with respect to off-road tyres originating in China. In its deliberations, the Court was highly critical of DOC’s failure to avoid double counting in imposing CVD and AD measures. The Court remanded the matter to DOC, with clear instructions to adopt additional policies and procedures to adapt its NME AD and CVD methodologies on merchandise from China in order to avoid double counting. The DOC sought to implement this judgment, yet on 4 August 2010 the CIT again remanded this attempt and stated that the DOC stubbornly adheres to the position that it does not have discretion to do so. On 3 September 2010 the DOC complied and lifted the CVD duties on the companies in question – albeit under protest.
We note that, seemingly different from the position of the CIT, WTO case DS379 is rumored to have resulted in a different outcome at the Panel stage. However, since the details of this report are not publicly available at the time of writing, it is not clear to what extent or why the Panel’s reasoning is different. It is of course also unknown how the Appellate Body would rule on this issue in due course.
In any event, as a matter of logic, double-counting may easily occur when an investigating authority imposes a CVD measure to offset an alleged government subsidy. This is so because the normal value is based on non-subsidised analogue country prices or costs and hence the investigating authority can have its cake and eat it too: by imposing an anti-subsidy duty based on a subsidised domestic price and simultaneously establishing a dumping margin based on a subsidy-free normal value (from an analogue country). To be sure, double-counting is less likely to arise if a company secures Market Economy Treatment (MET), but in practice the existence of subsidies is often one of the very reasons to deny MET.
Economic modelling sometimes describes the additional deadweight loss caused by the use of combined duties against NMEs in specialised formulas such as: DA + DC = NVT (PI0 - r*SD) + SD = NVT - PI0 + r*SD + SD.
However we will endeavour to illustrate the double-counting with the use of a simplified hypothetical-please see table at the end of the article.
Thus, the exporter is subjected to a higher duty than it deserves because his real normal value is denied, yet it does not get exempted from the amount of production subsidy received.
A Causal Headache
Turning to the second issue, some questions may also arise in the context of causation, notably with respect to the issue of non-attribution. As a matter of WTO and EU law, investigating authorities must conduct a rigorous non-attribution analysis before imposing SG measures.
Where SG measures are imposed following the imposition of AD or CVD measures, the Investigating Authority will need to ensure that this non-attribution analysis encapsulates any injury caused by non-dumped or non-subsidised imports. It is difficult to fathom how SG measures could interact with, for instance, an AD measure imposed on the basis of the lesser duty rule whereby the duty imposed is based on the injury margin, as opposed to the dumping margin. To the extent that the AD measure in question then by definition removes the injury, it will be problematic if not downright impossible to find and measure serious injury in the simultaneous SG investigation.
Conversely, where AD or CVD measures are imposed in respect of products already subject to SG measures, the existing SG measure should make it more difficult for the causation requirement to be met in the AD and AS cases; supposedly, the harm suffered by local industries as a result of dumping and subsidisation cannot be isolated from that caused by a sheer net increase in imports. This view is strengthened by the exceptional nature of SG measures as a trade remedy in WTO disputes to date.
Regulation 452/2003 seeks to address some of the problems outlined in the previous paragraphs. Accordingly, this Regulation may provide some insight into the Commission’s expected approach in WWAN modems. However, the Regulation does not address all problems. The Regulation directs the Commission to take action to ensure that the combination of SG measures and AD or CVD measures does not have a net effect greater than that intended in terms of the EU’s trade defence policy, recognising that this would indeed place an undesirably onerous burden on exporters. In practical terms: whenever the AD or CVD duty is less than, or equal to, the amount of the SG duty (if the SG measure takes the form of a duty in the first place), no AD or CVD duty needs to be paid. Conversely, where the AD or CVD duty is higher than the SG duty, only the excess amount of the SG duty must be paid. This effectively enshrines a greater duty rule.
Thus far, Regulation 425/2003 has been used three times with respect to citrus fruits from China, strawberries from China and salmon from Norway. We focus on salmon from Norway, which remains the only case that has been meaningfully disposed. The Commission had initiated an SG investigation into Norwegian salmon on 6 March 2004 and definitive safeguard measures were imposed on 5 February 2005. Following the initiation of an AD investigation and the imposition of provisional AD measures on the same salmon on 22 April 2005, the SG measure was revoked as the Commission determined that the AD measures sufficiently remedied the injury suffered by the EU salmon industry.
Thus, salmon from Norway illustrates that Regulation 452/2003 may serve as a legal basis for the substitution of trade remedies. This may come in handy where a WTO trading partner challenges specific trade remedies notably SG measures before a WTO Panel. Short of this substitution function, however, Regulation 452/2003 does not offer a meaningful window into the potential problems that the imposition of triple whammy trade remedies measures would pose to the extent that each trade remedy pursued may well frustrate the causation requirements of the other.
It can be expected that the EU will therefore try and sidestep such issues by avoiding concurrent application in favour of a logically more defensible sequential application. In so sequencing, the expected preference is for the use of the tried and tested basic AD Regulation to prevail, so that the SG investigation will at some point be closed. Rationally, no triple whammy is expected.
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As noted, the imposition of three simultaneous measures is likely to open Pandora’s box, notably as a result of the difficulties in satisfying the causation requirements. It would therefore appear unlikely for the EU to open that box. Yet, while a rational decision-tree cautions against such triple jeopardy, the EU may still take its chances as far as double jeopardy is concerned, particularly in the light of the possible dichotomy between the CIT and the WTO position, it being understood that the EU lesser duty rule may to some extent mitigate the impact. The EU could then adopt a combined AD and CVD measure and hope that the ECJ might follow the Panel rather than the CIT.
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