Caribbean Trade Law and Development

Category: WTO

  • WTO Panel rules in Argentina’s favour in EU Biodiesel Anti-dumping Case

    Alicia Nicholls

    A World Trade Organisation (WTO) dispute settlement body panel has ruled primarily in Argentina’s favour regarding anti-dumping measures imposed by the EU on Argentine biodiesel exports to the EU. Inter alia, the panel found that the EU had contravened the Anti-dumping Agreement and the GATT 1994 by failing to calculate the cost of production of the product on the basis of the records kept by Argentine producers, and by imposing anti-dumping duties in excess of the margins of dumping that should have been established per the Anti-dumping Agreement and the GATT 1994.

    Background

    The dispute (DS473) European Union – Anti-dumping Measures on Biodiesel from Argentina surrounds two EU measures regarding biodiesel imports from Argentina and Indonesia, namely:

    • Article 2(5), second subparagraph, of Council Regulation (EC) No. 1225/2009 of 30 November 2009 on protection against dumped imports from countries not members of the European Community (the Basic Regulation)
    • Anti-dumping measures imposed by the European Union on imports of biodiesel originating in Argentina and Indonesia.

    The EU’s anti-dumping measures were implemented following an investigation by the European Commission after the European Biodiesel Board (EBB), which represents the interests of EU biodiesel producers, lodged a complaint on July 17, 2012, for anti-dumping against biodiesel imports from Argentina and Indonesia. The  EBB has argued that Argentine and Indonesian biodiesel producers were selling biodiesel at artificially low prices in the EU market thereby putting the EU biodiesel industry at a disadvantage, compromising jobs in the industry and the industry’s ability to contribute to sustainable green transport in the EU.

    In January 2013, the Commission made Argentine and Indonesian biodiesel imports in the EU subject to registration. Following its investigation, the Commission imposed provisional anti-dumping duties on May 29, 2013 and definitive anti-dumping duties on 27 November 2013. In the Definitive Regulation No 1194/2013, it was calculated that the injury margins ranged from 41.9% to 49.5% . The EU applied anti-dumping duties of 22.0% to 25.7% which took the form of specific duties expressed as a fixed amount in euro/tonne.

    Argentina, one of the world’s largest exporters of biodiesel, argued that the EU’s measures were protectionist and aimed at protecting inefficient European biodiesel producers. It has been reported in Argentine media that the measures are estimated to have cost Argentina almost the equivalent of 1,600 million dollars worth in biodiesel exports annually.

    The Dispute

    In December 2013, Argentina requested consultations with the EU and requested that a panel be established in March 2014. A panel was established in April 2014.

    Argentina based its claims on various articles of the Anti-Dumping Agreement, the General Agreement on Tariffs and Trade (GATT) 1994 and the WTO Agreement, arguing that “as applied” the EU’s measures were inconsistent with various articles of these agreements. Argentina also asked the Panel to find that Article 2(5), second subparagraph of the Basic Regulation was  “as such” inconsistent with Articles 2.2, 2.2.1.1 and 18.4 of the Anti-Dumping Agreement, Article VI:1(b)(ii) of the GATT 1994, and Article XVI:4 of the WTO Agreement.

    “As such inconsistent”, basically means that the measure is inconsistent in and of itself and is not solely inconsistent because of its application in a specific instance. “As such” challenges are therefore “serious challenges” as noted by the Appellate Body in US – Oil Country Tubular Goods Sunset Reviews particularly given the presumption that WTO Members act in good faith in the implementation of their WTO commitments.

    Additionally, the ruling’s contribution to the WTO’s body of jurisprudence should not be overlooked. As noted by the panel, Argentina’s claims “raise[d] complex questions pertaining to the interpretation of Articles 2.2 and 2.2.1.1 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 that have not been addressed previously by panels or the Appellate Body”.

    Ruling

    In its panel report released yesterday (March 29), the panel found in favour of most of Argentina’s complaints. However, the Panel found that Argentina did not establish that Article 2(5), second subparagraph of the Basic Regulation was “as such” inconsistent with Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994.The Panel also rejected  Argentina’s claim that the amount for profits established by the EU authorities (15% on turnover) was not based on a reasonable method  within the meaning of Article 2.2.2(iii) and also rejected Argentina’s claim that the EU had failed to meet the “fair comparison” requirement under Article 2.4 of the Anti-Dumping Agreement.

    However, the Panel did find in Argentina’s favour on several key issues. Argentina claimed that the EU had failed to calculate the cost of production of biodiesel on the basis of the records kept by the producers/exporter under investigation and had therefore acted inconsistently with Article 2.2.1.1 of the Anti-dumping Agreement.

    Article 2.2.1.1. of the Anti-dumping Agreement provides that:

    For the purpose of paragraph 2, costs shall normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration.

    One of the issues the Panel had to consider was whether an investigating authority’s belief that a producer/exporter’s records reflect costs that are artificially low due to an alleged distortion constitutes a legally sufficient ground under Article 2.2.1.1. for that authority to find that a producer/exporter’s records do not “reasonably reflect the costs associated with the production and sale of the product under consideration”.

    The EU authorities had argued that Argentina’s Differential Export Tax had artificially depressed the domestic price of soybeans and soybean oil (the inputs for Argentina’s biodiesel) and had distorted Argentine producers’ production costs.  They argued that this cost distortion should be taken into account in constructing Argentine producers’ normal value and chose  to rely on the average reference price of soybeans published by the Argentine Ministry of Agriculture for export as opposed to the actual price for soybeans reported in the Argentine producers/exporters’ records.

    The panel found that the EU’s argument for ignoring the producers’ costs  did not constitute a legally sufficient basis  for arguing that the producers’ records do not reasonably reflect the producers’ costs as required per Article 2.2.1.1 of the Anti-dumping Agreement.Because of its ruling on Article 2.2.1.1, the Panel did not see it necessary to rule on whether as a consequence, the EU had acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 in this regard.

    The Panel also found that the EU did not use a cost that was the cost prevailing in the country of origin (i.e. Argentina) in the construction of the normal value and had therefore acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994.

    The Panel ruling also supported Argentina’s claim that the EU had imposed anti-dumping duties in excess of the margin of dumping per Article 2 of the Anti dumping argument and had therefore also acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994.

    The Panel upheld Argentina’s claim finding that as it relates to production capacity and capacity utilisation, the EU had acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement. However, the Panel ruled that Argentina’s claims with respect to the EU authorities’ evaluation of return on investments fell outside of the Panel’s terms of reference.

    The Panel concluded that “to the extent that the measures at issue have been
    found to be inconsistent with the Anti-Dumping Agreement and the GATT 1994, they have nullified or impaired benefits accruing to Argentina under these agreements”. Pursuant to Article 19.1 of the DSU, the Panel recommended that the EU bring its measures into conformity with its obligations under the Anti-Dumping Agreement and the GATT 1994.

    Both parties have 60 days in which to file an appeal against the panel’s decision.

    Indonesia, which was also affected by these EU measures, was one of the third parties to this dispute. Indonesia also currently has a dispute pending against the EU on this matter (DS480 :  EU – Anti-dumping measures on biodiesels from Indonesia).

    A summary of the panel report and  the full panel report may be accessed on the WTO’s website here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

  • WTO Panel rules in US’ Favour in Solar Dispute against India

    Alicia Nicholls

    A World Trade Organisation (WTO) Dispute Settlement Body panel has issued its report in the dispute  India — Certain Measures Relating to Solar Cells and Solar Modules in which the United States challenged the domestic content requirements imposed by India relating to solar cells and solar modules under the latter’s Jawaharlal Nehru National Solar Mission. The Panel found in favour of the US’ view, holding that India’s domestic content requirements were discriminatory and inconsistent with India’s obligations under Article III:4 of the General Agreement on Tariffs and Trade (GATT) 1994 and Article 2:1 of the Agreement on Trade Related Investment Measures (TRIMs).

    The dispute is  one in a growing body of WTO disputes in which one member’s government support programmes for the renewable energy sector (whether local or national) have been challenged by another member as being inconsistent with the former’s obligations under WTO rules. It is therefore not surprising that a long list of countries notified their interests as third parties to this dispute, namely: Brazil, Canada, China, Ecuador, the European Union, Japan, the Republic of Korea, Malaysia,Norway, Russia, Saudi Arabia, Chinese Taipei and Turkey.

    Background

    The Indian Government launched the National Solar Mission (NSM) in January 11, 2010 as one of the eight national missions under India’s National Action Plan on Climate Change (NAPCC). The NSM has the aim to promote the use of solar energy in India, foster energy security and make India a global leader in solar energy. According to the Indian Ministry of New and Renewable Energy’s website, the NSM’s ambition is “to deploy 20,000 MW of grid connected solar power by 2022” and to reduce the cost of solar power generation in India through four key aspects, including domestic production of critical raw materials, components and products.

    At the heart of the dispute, the Indian Government required solar developers (or their successors to the contract) to purchase or use solar cells or solar modules of domestic origin in order to be eligible to enter into and maintain certain power purchase agreements under the NSM.

    The US argued that these domestic content requirements mandated by the Indian Government under Phases I and II of the NSM were discriminatory and inconsistent with India’s WTO obligations. Specifically, the US challenged the measures’ consistency with Article III:4 of the GATT 1994 (National Treatment), arguing that they accord less favorable treatment to imported products than to like domestically produced goods.Additionally, the US argued that these domestic content requirements were trade-related investment measures which fell within paragraph 1(a) of the Illustrative List of the TRIMs Agreement’s annex and were therefore inconsistent with Article 2.1 of the TRIMs Agreement.

    In its defense, India argued that its domestic content requirements at issue were not inconsistent with Article III:4 of the GATT 1994 or Article 2.1 of the TRIMS Agreement. India also sought to rely on the exceptions in  Article III:8(a), Articles XX(j) and/or XX(d) of GATT 1994 (General Exceptions).

    The US requested consultations with India initially in February 2013 and then in relation to Phase II of the NSM in February 2014. A panel was established in May 2014 and the parties agreed to the panel’s composition in September of that same year.

    Ruling

    In its report circulated today, the Panel found in favour of the US’ view. It held that:

    • India’s domestic content requirements in question were trade-related investment measures for the purposes of the Illustrative List in the TRIMs Agreement’s Annex and were therefore inconsistent with Article 2.1 of the TRIMs Agreement.
    • The Panel also found that the domestic content requirements in question do accord “less favourable treatment” within the meaning of Article III:4 of the GATT 1994

    In regards to India’s argument about the government procurement derogation under Article III:8(a) of the GATT 1994, the Panel referred to the Appellate Body’s interpretation of that article in the Canada — Renewable Energy / Feed-In Tariff Program dispute in which the EU had successfully challenged domestic content requirements imposed by the Ontario provincial government in relation to its Feed-In Tariff (FIT) programme. Relying on its interpretation in that dispute, the Panel held that discrimination relating to solar cells and modules under the domestic content measures is not covered by Article III:8(a) of the GATT 1994.

    The Panel also argued that India failed to show that the domestic content requirements were justified under the general exceptions, Article XX(j) or Article XX(d) of the GATT 1994.

    The big picture

    What this dispute and others like it concerning domestic support for renewable energy programmes show is the increasing intersection and conflict between  trade and environmental policy, in particular, trade and climate change policy.It is an issue which is more than moot for small island developing States  like Barbados  (a Caribbean leader in solar energy which aims to become a “green economy”) in regards to how much policy space is available to policy makers to provide support for the advancement of the renewable energy sector in the country without running afoul of the country’s WTO obligations.

    The relationship between trade and climate policy is one of the issues which was discussed at length in the E15 Initiative Report entitled “Analysis and Options for Strengthening the Global Trade and Investment System for Sustainable Development”, particularly in this think piece  considering “the costs and benefits  for adjusting WTO rules to provide additional policy space to mitigate climate change and promote renewable energy”.

    As countries take more aggressive measures in order to meet their national emissions reduction targets in the spirit of the Paris Agreement’s goal to limit the global temperature increase to no more than 2 percent above pre-industrial levels (with the best endeavour goal of 1.5 percent), there is likely to be more conflict between WTO rules and climate change policies in years to come. WTO members will be forced to address ways in which the WTO rules can be flexed to more adequately accommodate members’ climate change mitigation policies, while at the same time ensuring that they are not used as a guise for protectionism.

    For further information on the US-India Solar dispute, please see the  WTO’s case summary and the full Panel Report.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

  • WTO holds first post-Nairobi full membership meeting; Turkmenistan considering membership

    Alicia Nicholls

    This week the World Trade Organisation (WTO) held its first full membership meeting after the 10th Ministerial Conference in Nairobi last December. For the WTO’s news item on the meeting, please visit here.

    Turkmenistan considering WTO membership

    In other news, Turkmenistan is said to be considering WTO membership. According to Azer News, the EU proposed Turkmenistan for WTO membership in 2011 and Turkmenistan’s Deputy Prime Minister and Foreign Minister reportedly held several meetings in Geneva this week, including with Roberto Azevedo, Director General of the WTO. For the full Azer News article, please see here.

    Alicia Nicholls B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The following information is for general You can read more of her commentaries and follow her on Twitter @LicyLaw.

  • Davos 2016: Proposals for Strengthening the Global Trade and Investment System

    Alicia Nicholls

    A new report by the E15 Initiative entitled “Strengthening the Global Trade and Investment System in the 21st Century” was launched at the World Economic Forum’s Annual Meeting 2016 held January 20-23 in Davos, Switzerland. The new report proposes a set of reforms with the aim of strengthening the global trade and investment system in the 21st century. Small vulnerable economies (SVEs) like those in the Caribbean stand to benefit from many of the proposals if endorsed by the international community.

    According to details on the website of the E15 Initiative, the E15 Initiative report is a product of the E15 Initiative  jointly undertaken by the International Centre for Trade and Sustainable Development (ICTSD) and the World Economic Forum, in conjunction with 16 partnering institutions and 375 international experts over the past two years.

    The E15 Initiative report is timely as it comes at a time of slowing global trade. Global trade is now growing at less than the rate of global GDP, which is not the norm, and last year the WTO revised downward its global trade growth projections for this year. The report also comes on the heels of the failure of WTO members at the 10th WTO Ministerial Conference in Nairobi, Kenya in December to agree on the continuation of the Doha Development Agenda, as well as in the midst of an ever-growing “spaghetti bowl” of regional trade agreements, which includes the recently concluded Trans-Pacific Partnership (TPP) and several other mega-regional trade agreements currently under negotiation.

    The E15 Initiative report has 16 chapters of practical recommendations organised in thematic groups. The reforms proposed are not limited to the WTO’s architecture but include proposals on wider global trade and investment cooperation. As an example, in light of the concerns about fragmentation, one of the proposals is for the establishment of a Regional Trade Agreement Exchange. The report is accompanied by a Synthesis Report which “summarizes and interprets the significance of the proposals for progress on many of the international community’s most important shared imperatives”.

    Proposals of Interest to the Caribbean SVEs

    The report’s recommendations touch on several issues which are of particular concern to SVEs, including the availability of correspondent-banking relationships. The loss of correspondent banking due to de-risking practices by banks in metropolitan countries is an issue of significant import to Caribbean SVEs as it has implications for remittances sending/receiving and the transaction of business with the rest of the world.

    Another recommendation which benefits services-based economies of the region is the proposed development of a comprehensive WTO Framework for Trade Facilitation in Services, while the proposed establishment of an Agreement on Access to Basic Science and Technology is also noteworthy. Other proposals touch on food security, fisheries subsidies and illegal unreported and unregulated (IUU) fishing, trade solutions to climate change, proposals on ensuring trade rules are equitable and predictable and on modernising the coherence of the investment agreements framework.

    For further information on the report, please see the website of the E15 Initiative. The full E15 Initiative report may be accessed here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The Author is in no way affiliated with the ICTSD, WEF, the E15 Initiative or the report mentioned. You can read more of her commentaries and follow her on Twitter @LicyLaw.