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US provisions violate WTO’s SCM agreement – DSB Panel

The Panel composed by Dispute Settlement Body of the World Trade Organization (Panel) in United States – Countervailing Measures on certain Hot-rolled carbon steel flat products from India released its report on 14-7-2014. The dispute was filed by India in 2012 and it relates to WTO compatibility of the United States' law pertaining to countervailing duty investigation as well as CVD measures imposed by the United States on hot-rolled carbon steel produced and exported from India. Before the panel, India presented four "as such" and multiple “as applied” claims. “As such” claims relate to those claims where India challenged certain provisions of the US law itself to be inconsistent with its WTO obligations.  “As applied” claims relate to the application of the law to the facts of the case at hand.

The Panel held one of the legal provisions of the United States’ law, i.e. pertaining to cumulation of volumes in the injury investigation “as such” in violation WTO’s Agreement on Subsidies and Countervailing Measures (SCM). Additionally, India’s claims in respect of, factual inadequacy of the initiating investigation for certain programmes, incorrect subsidy determination, incorrect benefit determination, incorrect “as applied” injury determination and unwarranted use of adverse facts in cases of non-cooperation by exporters, were also upheld by the Panel. In this case, India was represented before WTO by the International Trade & WTO Team of Lakshmikumaran & Sridharan. This write-up provides a brief overview of major findings contained in the panel report.

Injury assessments in investigations

The Panel found the legal provision contained in 19 USC § 1677(7)(G), which provides for cumulative assessment of imports for the purposes of determining material injury during the original investigation, to be inconsistent with Article 15.3 of the SCM (both “as such” and “as applied”). The said provision requires cumulative assessment of the effects of subsidized imports with the effects of imports not subject to simultaneous countervailing duty investigations. Further, the said provision (again both “as such” and “as applied”) was also found to be in violation of Articles 15.1, 15.2, 15.4 and 15.5 of the SCM agreement because it required the assessment of injury based on volume, effects and impact of non-subsidized or merely dumped imports. The Panel agreed with India’s view that the term “simultaneously” in Article 15.3 of SCM suggests that imports under consideration must all be subject to CVD investigations at the same time. It also observed that Article 15 refers only to “subsidized imports” and hence object of the analysis to be made under said Article is injury caused by “subsidized imports”, and not injury caused by any “unfairly traded imports” or dumped imports. The Panel also accepted India's interpretation of Article VI:6(a) of the GATT, 1994 that cross-cumulation is not permissible i.e. non-subsidized, dumped imports cannot be cumulated with subsidized imports in a CVD investigation.

Provision of iron ore by NMDC

The US measures ("as applied") were found also found to be inconsistent with Article 2.1(c) of the SCM Agreement inasmuch as they failed to take into account of all mandatory factors prescribed in the Article while determining de facto specificity (subsidies that are specific) for the provision of high grade iron ore by NMDC. The Panel relying on the findings of the Appellate Body in US – Anti-Dumping and Countervailing Duties (China), held that Article 2.1(c) does contain legal obligations that a Member may be found not to have complied with. Though India’s contention that a subsidy can only be specific if it discriminates between similarly-situated entities, was rejected by the panel, it held that USDOC did not take into account mandatory factors such as extent of diversification of the Indian economy and the length of time that the relevant programme has been in operation, while determining de facto specificity under Article 2.1(c) of the SCM.

USDOC’s actions were also found inconsistent with Article 14(d) of the SCM inasmuch as US authorities failed to apply, without giving any reason, in-country benchmarks to assess sales by NMDC to certain entities. Washington’s arguments giving new rationale for the investigating authority’s determination was rejected as ex post rationalization (although later ruled upon) by the panel which noted that there was no reference to the domestic price data in the preliminary or final determinations, or in any other contemporaneous USDOC document. The Panel observed that the data submitted by Government of India did relate to domestic prices of iron ore in India and hence should have been considered as a price benchmarks. Further, Article 22.5 of the SCM was also found to have been violated as the United States failed to provide adequate notice of USDOC’s consideration of such in-country benchmarks while assessing benefit conferred for goods supplied by NMDC.

Captive mining of iron ore and coal

The Panel found that the USDOC did not properly establish the existence of any Captive Mining of Iron Ore Programme on the basis of accurate information, as required by Article 12.5 of the SCM. The panel in this regard noted that while both Dang report and the Hoda report, as relied upon by USDOC, confirmed the existence of captive mines, neither of them identified any Captive Mining of Iron Ore Programme, or any Government of India policy in favour of such mines. It was also noted that there was no suggestion that mining leases were provided to steel producers on terms different from those provided to other miners. Further, judicial economy was exercised by the panel in respect of the claims of specificity of such alleged captive mining programmes.

Though the US authority’s findings that India provided goods through grant of mining rights for iron ore or coal, were not found to be in violation of Article 1.1(a)(1)(iii) [provision of financial contribution when a government or public body “provides” goods for less than adequate remuneration] relying on previous report in the dispute US – Softwood Lumber IV, the panel found that there was no reference to any lease having been provided by the Indian Government under the Coal Mining Nationalization Act to Tata for mining of coal. It was noted that United States has not established that Tata's obligation to pay royalties under the Mines and Minerals (Development & Regulation) Act, 1957 depends on a lease granted under the Coal Mining Nationalization Act, and had failed to identify any provision to support a conclusion that, notwithstanding the initial exemption of Tata's coking coal mining operations from the scope of the (non-coking) Coal Mining Nationalization Act, the 1976 Amendment reversed that exemption and brought those coking coal operations within the scope of that Act. Finally, USDOC's rejection of certain domestic price information when assessing benefit under the mining rights of iron ore, was also held as being in violation of Article 14(d) of the SCM.

Facts available – Use of adverse facts

Although the Panel rejected India's "as such" claims regarding consistency of Sections 1677e(b) and 351.308(a), (b) and (c) (providing for use of adverse facts available in case of non-cooperation by the exporters) with Article 12.7 of the SCM agreement, it panel found violation of the said WTO provisions while application of the said law to the facts of the case. The Panel, in 73 out of 85 instances, found the application to be devoid of any factual foundation.
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