THE UNITED STATES. Chapter 1

Transcription

1 Chapter 1 THE UNITED STATES The United States has been one of the most active users of the WTO dispute settlement mechanism, yet continues to maintain procedures and measures that are inconsistent with its obligations under the WTO Agreements, such as Section 301 of the Trade Act of 1974 which allows the United States to impose unilateral measures. Throughout the past year the United States has persistently applied and maintained provisions and measures which are inconsistent with its obligations under the WTO Agreements. The following illustrates many of these instances. Japan was pleased to note that a bill which proposed replacing the harbor maintenance tax with a cost-based harbor service fee was scrapped. While legislation referring to elimination of the harbor maintenance tax has been submitted to the House of Representatives. However, the FY2002 Defense Appropriations bill contained provisions on preferential treatment for ships of US nationality. These were struck out in the course of the bill s passage, but where a similar system is proposed again, Japan will be forced to formally request that the system conform to the United States WTO obligations. With regard to anti-dumping measures, the US sunset review provisions diverge from the spirit and letter of the WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ( Anti-Dumping Agreement or AD Agreement ) Under the Anti- 1

2 Dumping Agreement Japan believes that anti-dumping duties automatically expire at the end of five years unless the authorities determine, in a sunset review, expiry of the duty would be likely to lead to continuation or recurrence of both dumping and injury. The United States, however, makes continuation of the anti-dumping order the rule instead of the exception by automatically initiating all sunset reviews. This creates an unreasonably high standard that must be met before duties are eliminated. In response to these and other inconsistencies with the Anti-Dumping Agreement, in January 2002, Japan requested consultations with the United States pursuant to the WTO Agreement. Another issue has been the Byrd Amendment (Continued Dumping and Subsidy Offset Act of 2000). The Byrd Amendment requires the United States Treasury Department to distribute revenues collected from anti-dumping and countervailing duties to U.S. domestic producers who filed or supported the initial petition. In December 2000, Japan, along with the EU and seven other Members, requested consultations with the United States under WTO dispute settlement procedures on the grounds that the Amendment violates the Agreement on Subsidies and Countervailing Measures and the Anti-Dumping Agreement. When no agreement was reached through these consultations, a request for the establishment of a panel was made in August The panel was established in September. Through the panel, Japan and 10 other petitioners seek the abolition of the Byrd Amendment. The WTO Appellate Body report, concerning the United States -- Anti- Dumping Act of 1916, found almost entirely for the Japanese and EU positions, and was adopted by the Dispute Settlement Body (DSB) in September Both Japan and the EU claimed that Title VIII of the United States Revenue Act of 1916 ( Anti-Dumping Act of 1916 ) was inconsistent with the United States obligations under the WTO Agreements. The Anti-Dumping Act of 1916 provided for civil actions and criminal proceedings against importers who have sold foreign-produced goods in the United States at prices which are substantially less than the prices at which the products are sold in the respective foreign market. The report found that the United States should have implemented the panel s recommendation by July 2000, which was later 2

3 extended to the end of December The Appellate Body s report, however, as of the DSB meeting held in January 2002 the report recommendations have yet to be implemented. Consequently, pursuant to the Understanding on Rules and Procedures Governing the Settlement of Disputes ( DSU ), Japan and the EU reserved the right to suspend tariff concessions and other obligations owed to the US (i.e., retaliate) under the WTO Agreement. The very existence of this law has a detrimental effect on corporate activities. Japan has requested that the government of the United States repeal this law immediately, and will continue to monitor its response. As for steel-related developments, Japan considers U.S. imposition of anti-dumping measures on hot-rolled steel products from Japan a violation of the United States obligations under the GATT 1994 and the Anti-Dumping Agreement. A panel was established, and the case was subsequently brought to the Appellate Body. In July 2001, the Appellate Body upheld Japan s position. The Appellate Body s report was adopted at the DSB meeting in August. During arbitration in February 2002 it was decided that the United States should implement the report s recommendations by November Japan needs to monitor US implementation. After the United States institution of safeguard measures on all Line Pipe Steel imports under Section 201 of the Trade Act of 1974 both the EU and Korea requested WTO consultations. A panel was subsequently established, and found WTO inconsistencies but were substantially upheld by the Appellate Body. Japan should continue to carefully monitor such protectionist trends in the United States. In the area of subsidies and countervailing measures, in November 2000, the United States established the extraterritorial income exclusion (ETI) plan to replace the foreign sales corporation program. A panel was established to determine whether the new scheme constituted an export subsidy. In January 2001, the case was subsequently referred to the Appellate Body. The Appellate Body found that the scheme was indeed an export subsidy, and violated the Agreement on Subsidies and Countervailing Measures, as well as the principle of national treatment. Japan should continue to seek the revision or amendment of the scheme, observing future developments in this area. 3

4 National Treatment 1) Harbor Maintenance Tax HMT (Harbor Services Fee) Since 1987, in accordance with the Water Resources Development Act (1986 Public Law ) and related amendments, the United States has operated a system that is designed to impose ad valorem taxes of percent (0.04 percent until 1990) regarding freight (imports and exports and parts of national freight) on persons who own the freight and use harbors within the territory of the United States. Under this system, imported products are almost invariably subject to the tax because it is collected at the point of importation, where relevant duties are charged. On the other hand, the tax burden on exports and national freight is comparatively low because ship-owners or exporters voluntarily pay the tax in these circumstances on a quarterly basis. With regard to national freight, exceptions to this system are allowed in the following three cases: (a) payments under $10,000 per quarter, (b) traffic in Alaska, Hawaii, and territorial dependents, and (c) landing of fish from ships, and some freight shipments of Alaskan crude oil. Yet similar exceptions are not allowed for imported products. An annual limit of $500 million of the above-mentioned ad valorem taxes are also granted to US military personnel. It is reported that, as of October 1997, a surplus of $1.1 billion has accumulated. This new system instituted by the United States may be in violation of the WTO Agreement in the following three respects. (a) GATT Article II (Schedules of Concessions): The system imposes a tax that is higher than that prescribed in the schedules of concessions; (b) GATT Article III (National Treatment): Imported products are accorded 4

5 less favorable treatment as explained above; (c) GATT Article VIII (Fees and Formalities Connected with Importation and Exportation): The system is designed to levy charges that are greater than fees for harbor maintenance. In February 1998, the European Union requested consultations with the United States regarding this system, pursuant to GATT Article XXII. Japan has participated in the consultations as a third party. Consultations were held in March and June 1998, but no further developments have taken place. In March 1998, the Supreme Court of the United States held the HMT tax to be unconstitutional with regard to exports. In accordance with this decision, the US government stopped collecting the tax from exporters as of 25 April However, the problems described above have not yet been solved. In May 1999, the US government submitted bill HR 1947 establishing the Harbor Services Fee as a substitute for the Harbor Maintenance Tax. The bill, however, was subsequently scrapped without debate. A separate proposal was made in the FY2001 draft budget to eliminate the tax and replace it with the Harbor Services Fee, but this too was rejected by the Lower House. In August 2001, bill HR 2737 titled Support for Harbor Investment Program (SHIP), was submitted to Congress. This bill was designed to eliminate the Harbor Maintenance Tax and fund public harbor and waterways maintenance costs from the general budget. The matter was turned over to the House of Representatives Subcommittee on Water Resources and Environment and the Subcommittee on the Coast Guard Patrol and Maritime Transportation. Bill HR 2586 (FY2002 Defense Appropriations), which was passed by the House of Representatives in September 2001, included preferential treatment for ships of US nationality. Thereby, restricting a foreign company s maritime transport options for shipments to the United States. As the Senate had passed its own legislation on the issue, it was taken up by a joint conference of the two Houses. However, the provision in question was eliminated when the bill was approved and passed, nipping the problem in the bud. At the same time, if a 5

6 similar system is proposed again, Japan will need to request consultations with the United States to ensure consistency with WTO rules. 2) Merchant Shipping Act of 1920 ( the Jones Act ) The Jones Act specifies that only ships owned by US citizens, built in US shipyards, and run by US crews are permitted to engage in domestic passenger and cargo transport within the United States. The measure is conceivably a violation of Articles III and XI of the GATT, but the United States has maintained its legality under the provisional application of the GATT 1947 existing laws were grand-fathered and exempt from the obligations of the GATT During the Uruguay Round negotiations, the United States successfully maintained this exemption pursuant to introductory paragraph 3(a) of the GATT However, paragraph 3(b) of the GATT 1994 stipulates that the Ministerial Conference shall review this exemption not later than five years after the date of entry into force of the WTO Agreement and thereafter every two years for as long as the exemption is in force for the purpose of examining whether the conditions that created the need for the exemption still prevail. The WTO General Council began its review in July The United States argued that the exemption continued to be necessary because there had been no change in domestic law. A large number of Members including Japan take the position that the Council should adopt a restrictive attitude when the exemptions are renewed. The exemptions provided under paragraph 3(a) of the GATT 1994 should be narrowly interpreted because they are contrary to the basic principles of the GATT and the WTO Agreements. The issue has not yet been resolved, and we will need to continue to monitor the US response (Concerning the maritime services, see Trade in Services ). 6

7 Quantitative Restrictions 1) Export Restrictions on Logs The United States regulated the cutting of forests to conserve the habitat of the spotted owl. In turn, this reduced supply in the domestic log market. To compensate the United States imposed a permanent ban on the export of logs cut from federally owned forests and implemented export restrictions on logs cut from state-owned forests. From the beginning, the Forest Resource Conservation and Shortage Relief Act of 1990, which took effect in August 1990, regulated the export volume of state-owned logs as follows: A. States selling not more than 400 million board feet a year are permanently banned from exporting logs cut from state-owned forests. And B. States selling more than 400 million board feet a year are, without exception, banned from exporting three-quarters of all logs cut from state-owned forests. Washington state was the only state able to satisfy the requirements in B; thus only 25 percent of the logs cut from its state-owned forests were available for export. Nevertheless, domestic lumber mills strongly requested to be allowed to maintain or even increase the supply of logs cut from state-owned forests in order to achieve job security and other objectives. In September 1992, the Secretary of Commerce published a notice totally banning the export of logs cut from state-owned forests from October of that year until the end of Further, the Forest Resource Conservation and Shortage Relief Act was amended in June 1993 to prevent states satisfying element B above from exporting until the end of 1995 and banned exports from states that sell more 7

8 than their annual sales as of January 1996, or 400 million board, whichever is less. The Balanced Budget Down-payment Act enacted in January 1996 and the later Omnibus Consolidated Rescissions and Appropriations Act of 1996 enacted in April extended the total ban until October The Omnibus Consolidated Appropriations Act of 1997 further extended the terms of the ban until October 1997, which was followed by the Department of Commerce s public notice in November 1996 formally extended it one more year. Since the amendment of this act in November 1997, the export of logs from forests west of 100 degrees west longitude was permanently banned. The United States contends that its measures are implemented to protect spotted owls and related forest resources and to relieve the resultant shortage of lumber. It reasoned that the restrictions are permissible to protect human, animal, or plant life or health under Article XX(b) as well as to relieve a shortage of products consumed domestically under Article XI:2(a) and Article XX (j), both of which exempt certain types of quantitative restrictions. It is unlikely that the above measures are necessary or appropriate to protect the habitats of spotted owls, nor to relieve the shortage of products in the domestic market. Conservation of spotted owls should be accomplished by restrictions on the cutting of forests rather than export restrictions of logs. Although the government imposes restrictions on log exports, it allows domestic sales of logs without any restriction and promotes exports of lumber. Thus, these restrictions should be characterized as quantitative restrictions implemented to protect domestic lumber mills, and as a violation of Article XI that cannot be justified by Article XX. Japan should continue to request that these measures be brought into conformity with the WTO Agreement. 2) Export Management System 8

9 Under its International Emergency Economic Powers Act, the United States can restrict exports: 1) for security reasons, 2) for foreign policy reasons, and 3) to cover domestic shortages. These powers were invoked in 1973 to ban or restrict exports of soybeans and soybean products after short supplies within the United States caused prices to soar. The move had serious implications for Japan and the EC. When global wheat supplies were tight and prices soaring in 1974 and 1975, the Act was used to restrict exports to the Soviet Union and Poland. With its accession to the WTO, China is now expected to become a major cereals importer, which could cause even steeper price increases. The US system allows the exporter to unilaterally restrict exports of agricultural products for foreign policy reasons or to cover domestic shortages. This not only distorts trade it also prevents importing countries from importing stable supplies of food and therefore raises food security concerns. 3) U.S. Re-export Control Regimes The U.S. re-export control regime requires permits from the U.S. government for all exports, even from Japan if: 1) the product is U.S.-made, 2) a U.S.-made product is an input in a further manufactured product, or 3) a U.S.- made product is used as a means or tool of production. These rules are applied even to exports that have gone through the export control procedures of the government of Japan, which adheres faithfully to all international agreements on export controls. The U.S. re-export control regime has long been considered a potential violation of international law because of its broad even by U.S. standards extraterritorial application of domestic laws. Because the U.S. re-export control regime lacks adequate transparency there are administrative problems as well. In short, this is a regime that places excessive burdens on the industries of Japan and other countries. 9

10 During the U.S.-Japan deregulation talks of , Japan sought the full exclusion from U.S. re-export controls as a full participate in international export control regimes and that have sufficiently effective export controls in place and operating. In the interim prior to exclusion, Japan also sought reductions in the burdens on foreign exporters from U.S. authorities by: publication of guidelines on the methods used to calculate the content ratio of software and technology, the waiver of permits from US authorities for cases that are covered by the guidelines under the de minimis rule allowing foreign exporters to do their own calculations, and other improvements. Japan continued to push for these measures during the WTO Trade Policy Review of the United States which was conducted in September Tariffs 1) High Tariff Goods Even after the implementation of the Uruguay Round Agreements, high tariffs on items such as woolen fabrics (maximum 25 percent), glassware (maximum 38 percent), some ceramics (maximum 25 percent), and trucks (maximum 25 percent) continue to be levied in the United States. Trucks, in particular, have very high tariffs as compared to passenger vehicles (2.5 percent). 2) Method of Calculating Tariffs on Clocks and Wristwatches The United States calculates tariffs on finished clocks and watches as the aggregate of the tariffs on their components. These calculations are complex, thus, making the administrative procedures onerous. For example, under the current rules, the tariff on a wristwatch is the total of the tariff on its: 1) movement, 2) case, 3) strap, band or bracelet, and 4) battery. In other words, when a company exports a finished wristwatch to the United States, it must 10

11 classify it under an eight-digit HTS number according the nature of the product, and then calculate and total tariff for each component: the movement, case, band, and battery. This calculation method is not a violation of WTO rules because it was enacted in accordance with concession table amendment procedures. Nonetheless, it places excessive burdens on traders. What is more, this component price breakdown system is unusual by international standards, and is based on the assumption that mechanical clocks and watches are the primary form of clocks and watches made. In actuality, they account for less than 2 percent of worldwide production today. Because of the disparities between the tariff system and the actual state of the industry, In bilateral deregulation talk Japan has requested the United States switch to six-digit HTS headings for watch imports, and to assign a flat tariff rate to the finished article instead of calculating tariffs for the individual components. But in the an ITC report for the facilitation of trade, the U.S. continues to define the classification of finished clocks and watches under the eight-digit HTS system of size classification and price division, rather than the proper six-digit HTS classification. Anti-Dumping Measures While the United States is one of the most open markets in the world, it still has elements of unilateralism and protectionism in its trading systems. Anti-dumping legislation is perhaps the largest source of hidden protectionism in the United States, and many countries have complained about its shortcomings. Some of these problems have been remedied in the Uruguay Round implementation legislation, in which the United States brought certain parts of its anti-dumping system in line with the current Anti-Dumping Agreement. Notwithstanding these improvements, there are two concerns. First, in some areas, the U.S. implementing legislation could be interpreted or 11

12 applied in ways that may be inconsistent with the Anti-Dumping Agreement. Second, even in areas where the implementing legislation seems to be clear, there is a concern that actual practice under the new provisions might violate the intent of the Anti-Dumping Agreement. Therefore, it will be very important to monitor closely the future administration of the U.S. anti-dumping law and, if any problems exist, to point them out. 1) Problems Involved in Determining Dumping In the past, the US anti-dumping law had a provision to deduct from the exporters sales price an all selling expenses, but deduct from foreign market price an indirect selling expenses limited to that of US affiliates (ESP offset), lead easily to dumping determination because of high normal value and low export price. The current US anti-dumping law, based on the Uruguay Round negotiation, clarifies the importance of making comparison at comparable levels of trade and revises the provisions on level of trade adjustment and limits the offset for indirect selling expenses to those situations where a proper level of trade comparison or level of trade adjustment cannot ensure price comparability (CEP offset). However there still leaves the concerns like ESP offset. The law states that the profit of a related importer shall be deducted from the constructed export price. However, it is not clear how or whether profit in the normal value calculation will be accounted for. We need to monitor this point. In addition, the U.S. law prescribes several factors to be considered in determining affiliates, but in actual administration the authorities focus largely on the percentages of shares held and use an unreasonably low standard to define affiliation. This raises the risk that affiliates that are not, in essence, affiliates will nonetheless be deemed to be so. Moreover, a Dispute Settlement Panel and the Appellate Body in, 12

13 Certain Hot-Rolled Steel Products from Japan, found the U.S.: (1) application of facts available ; (2) methodology used to calculate the all others dumping margin; and (3) treatment of sales to affiliates to be in violation of the Anti- Dumping Agreement. The U.S. should make these practices consistent with the WTO Agreement. (See U.S. Anti-dumping Measures on Certain Hot-Rolled Steel Products from Japan (WT/DS184) for further details.) 2) Problems Involved in Determining Injury The Anti-Dumping Agreement contains no provisions for aggregating the effects of both dumped and subsidized exports when assessing injury (so-called cross cumulation ). The United States argues that cross cumulation is obvious, but were the United States to actually administer it, it would likely violate the prohibition against attributing material injury caused by other factors as stipulated in Article 3.5 of the Anti-Dumping Agreement. In addition, the captive production provision of the current antidumping statue allows, if certain conditions are met, exclusion of the internal consumption of exports to the United States from the domestic production volume that serves as the denominator in calculations of market share for imported goods under investigation. This tends to overstate changes in import share when analyzing injury. The United States bases this measure on the idea that imports that do not compete with domestic production are excluded from the numerator (products consumed by the importers), so that both numerator and denominator are adjusted. However, in some sectors there is significant unevenness in the adjustments between the two. Moreover, the Panel and Appellate Body in, U.S. -- Hot-Rolled Steel, found the U.S. application of its captive production provision to be inconsistent with the U.S. obligations under the Anti-Dumping Agreement. In this case, the U.S. analysis of the causal link between subject imports and injury 13

14 was also found to be inconsistent with the U.S. obligations under the Anti- Dumping Agreement. Therefore the United States should make these practices consistent with the Anti-Dumping Agreement. (See US Anti-dumping Measures on Certain Hot-Rolled Steel Products from Japan (WT/DS184) for further details.) 3) Problems Involving the Scope of Anti-dumping Duties The scope of anti-dumping duties are largely left up to the discretion of the investigating authority, as was discussed earlier, this is an area that often causes problems. (See supra, the Effects on Technology Transfers section of Ant- Dumping in Part 2). Specifically, in areas like semiconductors, anti-dumping duties may also be applied to later developed products in addition to the products originally subject to duties. This is an arbitrary expansion of the scope of the original investigation. The scope determination in anti-dumping investigations must be approached with extreme care, and should not be needlessly expanded later. If application is to be expanded to later developed products, a new investigation should be conducted. 4) Zeroing Zeroing is a practice whereby in an investigation negative dumping margins in individual transactions are considered to be zero (i.e., zeroed ). Consequently, different types of subject products in an investigation who have higher export prices than domestic prices are not allowed to off-set the overall dumping margin. This has the effect of artificially raising dumping margins. (See Figure U.S.-1). Both the United States and the EU apply this practice. The Appellate Body in EC Anti-Dumping Duties on Imports of Cotton Type Bed Linen from India, found the practice of zeroing to be inconsistent 14

15 with the Anti-Dumping Agreement. See WT/DS141/R. The Appellate Body s determination was adopted by the DSB at its meeting on March Zeroing is in fact an unfair calculation method which effectively ignores non-dumped transactions. Japan is monitoring U.S. practices to ensure that unfair dumping margins are not calculated using this particular method again. Figure US-1 Example of Unfair Price Comparisons Domestic Price ($) Export Price ($) Dumping Margin ($) Transaction Transaction Transaction * Transaction Sales volumes are all considered to be 1 unit to simplify calculations. * The practice of zeroing dictates that this dumping margin (-50) be calculated as 0. Notes: The dumping margin (DM) would be calculated as follows if zeroing were not used: DM = * 100 = 0 % There would be no dumping margin. However, the use of zeroing results in the creation of an artificial margin DM = * 100 = 12.5 %

16 5) U.S. -- Anti-dumping Act of 1916 (WT/DS162/R) The Revenue Act of 1916 (hereinafter referred to as the Anti-dumping Act of 1916 ) provides for civil and criminal proceedings to be brought against importers who have sold foreign-produced goods in the United States at prices which are substantially less than the prices of the corresponding product in the relevant foreign market (i.e., dumped). A litigant must establish that these products were imported with the intent to harm the U.S. domestic industry. The law also allows parties harmed by the dumping to seek triple damages for injury incurred. In November 1998, U.S. steel maker Wheeling Pittsburgh filed a suit with the Federal District Court of Ohio under the Anti-dumping Act of 1916 seeking civil compensation for injury and a halt to imports from nine foreign companies, including three Japanese. Wheeling Pittsburgh alleged that these companies engaged in dumping with the intent to harm the U.S. steel industry and Wheeling Pittsburgh itself. In February 1999, pursuant to the dispute settlement procedures of the WTO Japan requested bilateral consultations with United States. Japan believed that because: 1) the law in question provided criminal penalties and fines as relief, rather than the anti-dumping duties allowed by the GATT, and 2) the procedures used to initiate the investigation did not conform with the Anti- Dumping Agreement, the U.S. was in violation of is obligations under the WTO Agreements. In July 1999, a panel was established and its report distributed to all Members in May Similarly, the EU also requested bilateral consultations with the US in June 1998 because of perceived WTO Agreement violations. A panel for the case was established in February 1999, and its report was distributed to all members in March The reports of both panels upheld virtually the entire arguments made by Japan and the EU. The Panel advised the United States to bring the Anti- 16

17 dumping Act of 1916 into conformance with the WTO agreement, and suggested that one way of doing so would be to abolish the act. The United States was dissatisfied with the panel reports and brought both cases to the Appellate Body in May The Appellate Body upheld the Panel s findings in both cases, and in August 2000 distributed a report to all members advising the U.S. to bring the Anti-dumping Act of 1916 into conformance with the WTO Agreement. This report was adopted in September. Although the deadline for implementation of the Appellate Body decision was originally set for 26 July 2001, it was extended until the end of December 2001, as a result of the consultation between Japan, EU and the United States in response to the US argument that the US congress could not repeal the antidumping Act of 1916 within that time frame. However, as the recommendation has not been implemented even subsequent to those deadlines, at the January 2002 meeting of the Dispute Settlement Body (DSB), Japan and the EU reserved the right to suspend the application of tariff concessions and other obligations owed to the US (in other words, to retaliate) under the WTO Agreement pursuant to the DSU. In March 2000, Goss Graphic Systems, Inc., a U.S. manufacturer of printing machines, filed a suit against Japanese and EU companies under the Anti-dumping Act of 1916 this suit is still pending. Although this company dismissed its actions under the Tariff Act of 1930, it has persisted with its case under the Anti-Dumping Act of The existence of this law in itself has a detrimental effect on corporate activities. Japan has requested that the government of the United States repeal this law right away, and will continue to monitor its response. 6) US Anti-dumping Measures on Certain Hot-rolled Steel Products from Japan (WT/DS184/R) 17

18 Japan has requested consultations with the United States pursuant to the WTO dispute settlement procedures regarding the United States anti-dumping measures on certain hot-rolled steel products ( hot-rolled steel ) from Japan. The Japanese challenge has several aspects that include: 1)dumping margin calculation methodology, 2) determination of critical circumstances (calling for retroactive dumping duties imposition), 3) determination of injury and causal link, and 4) unfair investigation procedures. All of which Japan considers to be violations of the U.S. obligations under the GATT and the Anti-Dumping Agreement. Consultations between Japan and the United States took place in January 2000, but failed to settle the dispute. This led to the establishment of a Panel in March Brazil, Canada, Chile, the European Communities ( EC ), and the Republic of Korea participated in the panel proceeding as third parties. In February 2001, the Panel report was circulated to all WTO Members. The Panel report agreed with some Japanese claims, but rejected others. Both the United States and Japan, therefore appealed to the Appellate Body in April and May 2001; Korea, the EC, Canada, Brazil and Chile participated as third parties. A report of the Appellate Body was circulated in July 2001 to all WTO Members which upheld most of Japan s claims and adopted by the DSB in August Japan s main arguments and the decisions made in the Panel and Appellate Body reports were as follows: The application of facts available of three investigated respondents by the United States Department of Commerce ( DOC ) in this case was inconsistent with Article 6.8 and Annex II of the Anti-Dumping Agreement. Upheld by both the Panel and the Appellate Body. DOC s inclusion of margins based on partial facts available in the calculation of the all others rate, which is the dumping margin of exporters and producers not individually investigated, was inconsistent with Articles 18

19 9.4 and 18.4 of the Anti-Dumping Agreement Upheld by both the Panel and the Appellate Body. DOC s exclusion of certain home market sales to affiliates in the calculation of the normal value as not in the ordinary course of trade in this case was arbitrary and inconsistent with Article 2.1 of the Anti-Dumping Agreement. Upheld by both the Panel and the Appellate Body. The US practice of exclusion of certain home market sales in the normal value calculation as not in the ordinary course of trade and use of sales to non-affiliates only was inconsistent with Article 2.1 of the Anti-Dumping Agreement. Upheld in the Panel report, but rejected by the Appellate Body. DOC s critical circumstances determination without sufficient evidence and determination of material injury, which was made before the preliminary dumping determination, was inconsistent with the Anti- Dumping Agreement. DOC s finding was based on mere allegations contained in the petition and only on a preliminary threat of injury finding by the United States International Trade Commission ( ITC ). A related U.S. statute was also inconsistent with Article 10 of the Anti-Dumping Agreement. Rejected by the Panel and not appealed. The injury determination was focused primarily on injury in the merchant market and factors affecting financial performance in that market was inconsistent with Articles 3.1 and 3.4 of the Anti-Dumping Agreement. The Anti-Dumping Agreement requires the administering authority to focus on the industry as a whole. Rejected by the Panel, yet overturned by the Appellate Body. The US statue which is focused primarily on the merchant market when 19

20 evaluating market share and other factors affecting financial performance concerning the determination of injury to the United States domestic industry was inconsistent with Articles 3 and 4.1 of the Anti-Dumping Agreement, which requires the authorities to focus on the industry as a whole. Rejected by both the Panel and the Appellate Body. The determination of injury without separation of dumped exports and other factors with respect to the causation analysis was inconsistent with Article 3 of the Anti-Dumping Agreement. The Panel rejected this claim by Japan, but the Appellate Body did not address it. Rather the Appellate Body upheld Japan s claim regarding the necessity of non-attribution of other facts to the injury by dumped imports. DOC s accelerated proceeding and revising application of critical circumstances policy were inconsistent with Article X of GATT 1994, which requires WTO Members administer their measures in a uniform, impartial and reasonable manner. Rejected by the Panel and not appealed. The DSB made the following recommendations: (1) Amend the statutory provision regarding the all others rate. (2) Abolish the practice of excluding home market sales to affiliates from the normal value calculation. (3) Re-calculate dumping margins to be consistent with the Anti-Dumping Agreement. (4) Re-determine its injury in conformance with the WTO Agreement. Japan and the United States, however, were not able to reach agreement on the content and the period of time of the implementation of these recommendations. 20

21 The implementation period of time, therefore, was determined by a DSB arbitration report of February 2002 to be 15 months from the date of adoption of the Panel and Appellate Body reports (in other words, by 23 November 2002). Japan will closely monitor US implementation of these recommendations. 7) The Byrd Amendment (The Fiscal Year 2001 Agricultural Appropriations Bill) In October 2000, the U.S. Congress passed the Fiscal Year 2001 Agricultural Appropriations Bill, which included an amendment to the Tariff Act of 1930 requiring the distribution of revenues collected from anti-dumping and countervailing duties to U.S. domestic companies who filed complaints or supported the petition. The Continued Dumping and subsidy Offset Act of 2000 is called the Byrd Amendment because it was introduced by Senator Byrd. The president signed this Bill into law. Japan, the EU, Korea, Canada, and Australia all expressed reservations about the Byrd Amendment before it was passed and protested to the U.S. legislate and executive branches. The Amendment has also been on the agendas of the WTO Anti-dumping Committee and Subsidies Committee. As many as 12 Members have expressed concerns about its consistency with the WTO Agreement. In December 2000, Japan requested together with Australia, Brazil, Chile, the EU, India, Indonesia, Korea and Thailand for consultations with the United States under the WTO dispute settlement procedures. (Argentine, Canada and Mexico requested to be included in the consultations as third parties, but the US refused.) The request for WTO consultations so soon after the legislation became law was designed to highlight the legal problems with the Byrd Amendment, to strongly urge the United States to abolish it, and to prevent other members from passing similarly protectionist legislation. 21

22 However, as the U.S. made no attempt to repeal the Byrd Amendment, in February 2001, Japan had consultations with the United States on this issue jointly with Australia, Brazil, Chile, the EU, India, Indonesia, Korea and Thailand. The same group of countries subsequently requested the DSB to establish a panel based on the WTO Dispute Settlement Understanding on the grounds that their rights under the WTO were being violated. The following claims were made: (1) that the Byrd Amendment violates Articles VI:2 and VI:3 of the GATT, Article 18.1 of the Anti-Dumping Agreement, and Articles 32.1, 4.10, 7.9 and 7.10 of the Agreement on Subsidies and Countervailing Measures; (2) that it could distort unbiased and objective consideration of the degree of support for, or opposition to, the application for anti-dumping measures or countervailing duties expressed by domestic producers of the like product, which is a prerequisite to initiate investigations (Article 5.4 of the Anti-Dumping Agreement, Article 11.4 of the Agreement on Subsidies and Countervailing Measures, and Article X:3 of the GATT); (3) that it obstructs the fair operation of the price undertaking system (Article 8.1 of the Anti-Dumping Agreement); and (4) that these violations also infringe Article 16.4 of the Agreement Establishing the World Trade Organization, 18.4 of the Anti- Dumping Agreement, and 32.5 of the Agreement on Subsidies and Countervailing Measures. A panel was established in August Canada and Mexico also requested consultations with the United States in June 2001 regarding the same issues. When no solution was reached they requested that a Dispute Settlement Panel be established. The Canada -- Mexico Panel was established in September. Because both cases would be dealing with the same issues, the cases were consolidated into the same Panel which will address both cases. Japan and the other Members involved are currently seeking the early abolition of the Byrd Amendment through the panel. 22

23 8) Sunset Provision Because past US anti-dumping laws lacked a sunset review mechanism and time limits on order imposing anti-dumping duties, anti-dumping duties tend to remain in force much longer in the United States than in other Members. The Anti-Dumping Agreement provided for a sunset review for the first time ever under Article 11.3 of the Anti-Dumping Agreement. Pursuant to Article 11.3 anti-dumping duties automatically expire at the end of five years unless the measures are reviewed and it is determined that dumping and injury are likely to continue upon termination of the measures. Subsequently, the U.S. adapted its anti-dumping law to incorporate the sunset provisions of Article Under the law, all anti-dumping measures must be reviewed ( sunset reviews ) beginning July Since that time 27 measures against Japan were terminated out of 47 sunset reviews of outstanding measures. (See Figure US-2) The premise of the sunset review methodology under the Uruguay Round negotiations establishes termination of the anti-dumping measures as the rule. The US sunset provisions, however, are designed so that continuation of the measures are the rule rather than the exception. These provisions are thus inconsistent with the Anti-Dumping Agreement, which calls for elimination as the rule. Moreover, Some points of these provisions including its unreasonably high termination standard is inconsistent with the Anti-Dumping Agreement. In January 2002, Japan accordingly requested consultations regarding these sunset provisions with the United States pursuant to the WTO dispute settlement procedure. 23

24 Figure US-2 Revoke or Continuance of Anti-dumping Duties (Products imported from Japan) Expiration Sunset Review Expiration Sunset Review Expiration Sunset Review Revocation Cont. Revocation Cont. Not yet Revocation Cont. Not yet US EU Note: Figures valid as of the end of December Subsidies and Countervailing Measures 1) Tax Treatment for Export Companies (ETI regime; formerly FSC regime) The United States allows foreign sales corporations ( FSC ) domiciled within its tax havens or outside of its borders engaged in commercial activities to exempt a portion of their export income from their income taxes if exports contain a certain level of US products. Parent companies can also deduct dividends paid to them by these FSC from their income taxes. The system is employed mainly by US parent companies exporting their products through foreign subsidiaries. In November 1997, the EU requested consultations with the US, claiming that the system represented an export subsidy and subsidy contingent upon the use of domestic goods over imported goods prohibited under the agreement. Consultations were held three times between the United States and the EU, but they were unable to reach an agreement. In September 1998, a panel was established. Japan participated in the panel as a third party and asserted that the program was a violation of the agreement. The Panel report was issued in October 1999 and found that the tax exemptions granted under the FSC 24

25 program constitute export subsidies in violation of the Agreement. The report recommended the United States eliminate the regime by October The Panel did not, however, rule on whether the program was a subsidy contingent upon the use of domestic goods over imported goods. The US appealed the export subsidy ruling, while the EU appealed the failure to find the program a subsidy contingent upon the use of domestic goods over imported goods. Japan again participated as a third party and pointed out that the FSC program was inconsistent with the WTO Agreements. In February 2000, the Appellate Body upheld the panel ruling. In light of the Appellate Body ruling, the US declared that it would repeal the FSC by 1 November Congress repealed the FSC and replaced it with the Extraterritorial Income Exclusion Act of 2000 ( ETI ) signed by the President on 17 November The U.S. claimed that the ETI had two main purposes: 1) to expand the scope of tax deductions by not requiring that products (including services) be produced within the United States, so that the ETI does not constitute an export subsidy; and 2) to amend the Internal Revenue Code of 1986 to exclude tax deductions for the income derived from foreign sales or leasing of products (including services) produced under certain conditions, therefore not creating a subsidy as defined in the Agreement. The EU criticized the ETI for: 1) maintaining the condition that sales be outside the United States, so that the ETI still provides an export subsidy; 2) requiring at least 50 percent U.S. content, so that the ETI also provides a subsidy contingent upon the use of domestic over imported goods; and 3) serving as a transitional measure allowing the FSC to continue to operate after November 2000 for the foreseeable future, thereby violating the DSB decision that the system be eliminated by 1 November The EU thus argued that the ETI continues to violate the WTO and Subsidies Agreements. A panel was established to judge the WTO consistency of the ETI pursuant to Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ( DSU ). The EU also submitted a list of U.S. products which could be subject to sanctions, preparing to invoke retaliatory sanctions. In August 2001, the panel upheld the claims of the EU and Japan and found that the ETI comprised an export subsidy prohibited under the 25

26 Agreement on Subsidies and Countervailing Measures and the Agreement on Agriculture, and that its local content requirement was in violation of GATT Article III (national treatment). However, in October, the U.S. appealed to the Appellate Body, arguing that the ETI did not comprise an export subsidy in that the method used to receive tax breaks was not restricted to exports and that there was accordingly no direct causal link between the ETI and exports. In January 2001, the Appellate Body upheld the panel s decision and ruled that the ETI was a WTO violation. One of the greatest points of contention in regard to the ETI pertains to the relation between the Agreement on Subsidies and Countervailing Measures and prevention of the double taxation of income for which tax is withheld abroad. The United States claimed that because the ETI is a system designed to prevent double taxation on such income, it is permitted under Footnote 59 of the Subsidies Agreement, and therefore does not constitute an export subsidy banned under the Agreement. The EU and Japan reject this argument on the grounds that the ETI is little more than a whitewashed version of the FSC and is clearly an export subsidy. Moreover, the EU and Japan argued, it is unlikely that the system was designed to prevent double taxation, as the U.S. claims, because the scope of the tax breaks under the ETI was selective. The issue seems likely to remain a major controversial point in future subsidy negotiations. The FSC system was created to take the place of the Domestic International Sales Corporation (DISC) program that was created in The benefits of the measures are estimated to be enormous in excess of $4 billion annually. The EU has stated that it will impose as a countermeasure duties worth an annual maximum of $4 billion on U.S. exports, and in November 2000 announced a provisional list of items to be taxed, including steel products, airplanes and meat products. The U.S. strongly opposes the imposition of these measures, which would be the largest in WTO history. Japan will call for the early improvement or elimination of the ETI program, and will monitor subsequent developments. 2) Byrd Amendment (Agricultural Appropriations Act of 2001) 26

27 In October 2000, the U.S. Congress passed the Agriculture Appropriations Act of 2001, which included a provision (the Byrd amendment ) to amend a part of the Tariff Act of 1930 so as to distribute the revenues collected from anti-dumping and countervailing duties to companies within the United States either filed petitioners or supported the petition. President Clinton signed the law in November of In effect this program acts as an illegal subsidy because the imposition of anti-dumping and countervailing duties are designed to prevent continued injury to the domestic industry by unfairly traded imports, these measures are not retroactively compensatory for previous injury suffered.. In spite of this, however, the Byrd Amendment goes beyond the relief measures allowed under the WTO Agreements by distributing the funds obtained from anti-dumping and countervailing duties to U.S. industries.. The provision also provides an unnecessary incentive to companies to file petitions seeking relief from unfairly traded imports and has the potential to encourage abuse of anti-dumping and countervailing duty measures. This is problematic for the maintenance of the free trading system. (For a detailed discussion of the Byrd Amendment see Anti-Dumping Measures section 7.) 3) Export Promotion of Agricultural Products In the 1980s, the European Union, faced with a serious glut of agricultural products, increased its subsidized exports. During this period, the United States saw its share of the export markets rapidly diminish as its competitiveness was sapped by the strong dollar and domestic price supports. To counter the export slump and revive prices, the United States has developed the following export promotion programs. The Agriculture Act of 1996 maintains these export policies, though it brings them into conformance with the WTO Agreement. 27