The EC anti dumping regulations and their application with respect to vietnam

It is defined in G A TT General Agreement on Tariff and Trade Article VI as: 1 selling at an export price which is below the home market price 2 selling at an export price vvhich is belo

Joint Svvedish-Vietnamese

M aster’s Programme

MASTER’S THESIS

P h a m T h i T r a n g

The EC Anti-dumping Regulations

Their application with respect to Vietnam

D r B u i X ư a n N h u

Prof Moẽll, Christina

THƯ V IỆ NTRƯƠNG ĐẠI HỌC LŨÂT HÀ NÔI

p h ỏ n g DO C

Preĩace and Acknovvledgements

First o f all, I would like to express my thanks to both o f my supervisors, Professor Christina Moell, Faculty o f Law, Lund University, Svveden and Dr Bui Xuan Nhu, Paculty o f International Law Hanoi Law University They have given me inany good pieces o f advice and supported me during my research Proíessor Moell spent a great deal o f time reading my thesis, even during her holiday, and made many valuable comments She also helped me fmd the necessary material for the thesis

1 also express my thanks to the 1 ibrarians vvorking in the libraries o f the Faculty o f Lavv, Lund University and Hanoi Law University, especially Ms Huong and Ms Anna NVithout their kind help, I could not have finished my thesis

1 also would like to thank Deputy Proíessor Hoang Phuoc Hiep - the international law department, Ministry o f Justice, Vietnam for his suggestions when I choose the topic o f my thesis and his ansvvers to my queries

Last o f all, I \vant to thank all the members o f my íầmily and all o f my triends for their support

Table of Content

Preface and A c k n o w le d g e m e n ts 1

Table o f C o n te n t 2

A b b re v ia tio n s 4

1 Introduction 5

1.1 Back ground 5

1.2 P urpose 6

1.3 M e th o d 6

1.4 M a te r ia l 6

1.5 D e lim ita tio n s 6

2 Dumping, anti-dumping and overvievv on EC anti-dumping investigation against V ietnam 7

2.1 Dumping and anti-dum ping 7

2.1.1 What is “ dum ping” ? 7

2.1.2 History o f dum ping and at p re s e n t 7

2.1.3 Anti-dumping in international l a w 8

2.1.4 The relation betvveen EC law and WTO l a w 8

2.1.5 Anti-dumping evolution in E C 9

2.2 Overview on EC anti-dưmping investigations against V i e tn a m 10

3 Determination o f d u m p i n g 12

3.1 For the market econom y countries 13

3.1.1 Normal va lu e 13

3.1.2 Export p r ic e 20

3.1.3 C o m p a ris o n 23

3.1.4 Dumping m a r g i n 26

3.1.5 Z eroing 27

3.2 For the non- market econom y country 27

4 Determination o f injury 30

4.1 Like product 31

4.1.1 Product c o n c e r n e d 31

4.1.2 Like p r o d u c t 32

4.2 Community in d u s t r y 33

4.2.] Notion o í C o m m u n ity ind u stry 33

4.2.2 Determination o f Com m unity industry 34

4.3 irýury 35

4.3.1 Notion o f “ i n ịu r y " 35

4.4 The causal link betvveen dumped irnport and injury 39

4.5 Community interest 40

5 Procedure 41

5.1 The advantages o f c ooperation 41

5.2 Terminating the proceeding 42

5.3 C ircum vention 42

6 Conclusion: 43

International Treaties and C onve ntions 44

National Legislations 44

Vietnam 44 Table o f C a s e s 45

EC D e c is io n 45

Bibliography 48

Official Reports and other D o c u m e n ts 48

M onographs 48

Articles in Journals, Anthologies etc 48

AD Agreement Agreement on Implementation o f Article VI o f General

Agreement on Tariffs ans TradeAPEC Asian - Pacific Economic Conference

ASEAN Association o f South East Asia Nations

CIF Costs o f Insurance and Freight

EC European Community

ECJ Court o f Justice o f the European Communities

Eurostat European statistic

FOB Free on Board

G A TT General agreement on the Trade and Tariffs

IP Investigution period

IT Individual treament

IZ Industrial Zone

LEFA SO Leather and Footwear Association

M E T Market economy treatment

SGA Selling, General and Administration costs

W TO World Trade Organizarion

When taking part in internationai trade, Vietnamese enterprises have had many good opportunities o f dealing with other foreign companies in order to market their Products, get proíit and broaden their market share However there have been many challenges to face And one o f these is the imposing o f anti-dumping duties on Vietnamese goods Up to May, 2008, there had been 27 anti-dumping investigations

o f Vietnamese goods, 10 o f them from the E U 1

No one can count the exact damage which the economy, the society and the people o f Vietnam has suffered as a result o f these investigations For example, due

to the EC anti-dumping investigation o f Vietnamese footwear with uppers o f leather, exports will decline and foreign investment will move to other countries according to the report from the Leather and Footwear Association (LEFASO) and the Ministry o f Trade From the \vebsite: http//www.vietnamnet.vn, and the article: “ Vietnam oppose

E C ’s 10% tax on its shoes” 7th October, 2006 “ Many foreign partners have left Vietnamese enterprises and decided to place orders with producers from other countries Local companies have become less competitive in the EU market This has resulted in low sales o f products and lower incomes for Vietnamese vvorkers, which were very low already”

To avoid being subjected to such loss and damage, Vietnamese enterprises need to know about anti-dumping regulations and their application This thesis hopes to contribute to their understanding the EC anti-dumping regulations to allow them to avoid being involved in anti-dumping cases or at least be able to react positively if they are investigated

1 Statistics on anti-d u m p in g case with Vietnam involvement up to May 2008

http://anti-dumping.vn/beta/en/page/statistics/anti-dum ping

Short title o f the thesis

1.2 Purpose

The main aim o f my thesis is to íìnd ways for V ietnam ese enterprise to avoid being involved in anti-dumping cases or to react in the positive way if their goods are considered as having been dumped ỉn order to achieve this, 1 vvill exam ine the EC anti-dumping regulations and their application in Vietnam cases

So these questions need to be ansvvered:

What are the EC anti-dumping regulations ?

How are the EC anti-dumping regulations applied against Vietnain?

What lessons can be drawn by Vietnamese enterprises?

1.3 Method

The method vvill be used in the thesis are the traditional methods uscd in law researching such as analysis, synthesis and comparison

1.4 Material

All the legal texts and documents studied can be found on three main vvebsites:

- The European Com m ission vvebsite: http://ec.eui'opa.eu.

The World Trade Organization website: w w w w to.org

The website o f Vietnam C ham ber o f com m erce and industry: http://chongbanphagia.vn

The thesis will also use books, articles and cases which relate to the implementing

o f the EC anti-dumping regulations and the ten Vietnarnese cases wi 11 also be studied

1.5 Delimitations

The thesis will only cover 9 o f the anti-dumping cases where the EC initiated

proceedings against Vietnam (shoes/slippers will not be covered) How ever at one

point, the íbcus will be on One typical exam ple only

Dum ping, anti-dum ping and an overview o f the E C anti-dum ping investigatiom tìf

Vietnamese eníerprises.

2 Dumping, anti-dumping and an overview o f the

EC anti-dumping investigations of Vietnamese enterprises.

2.1 Dumping and anti-dumping

2.1.1 W hat is “dum ping”?

D um ping can be simply deíined as selling a product below its normal value It is

defined in G A TT (General Agreement on Tariff and Trade) Article VI as:

1) selling at an export price which is below the home market price

2) selling at an export price vvhich is below the export price to a third country, orselling at an export price \vhich is below the cost o f production plus proĩit and selling cost

2.1.2 History o f dum pin? and the current situation

After World War II, a new surge o f dumping occurred, gathering strength in the late1970s The phenomenon seems to have increaseđ because o f the GATT, advances in technology and the emergence o f newly industrialised countries Since the 18lh century, whenever production capacity increases rapidly and the desire for market expansion grows, dumping becomes a big issue.2

Antidumping laws were fưst passed in the early 20th century in Canada The law

gave thc govem m ent the right to lcvy a special duty on goods After that, similar

laws were passed in South Africa, Australia, Great Britain, New Zealand and the United State

Article VI o f the G A TT 1994 is now the basis for establishing an international anti-dumping lavv The purpose o f the Article is however not to control the practice

o f duniping, but to regulate the administration o f antidumping measures

A ntidum ping measures imposed by a m em ber o f the W orld T rad e Organization are

authorized under the Agreement on Implementation o f Article VI o f the General

A greem ent on Tariffs and T rade 1994 (the AD Agreem ent) “ A ntidum ping

measures are unilateral remedies which may be applied by a M e m b er after an

investigation and determination by that M ember, in accordance with the provisions

o f the A D A greem ent, that an imported product is “ d u m p e d ” and that the dum ped

2 Wenxi Li A n tid u m p in g Law o f the W T O /G A T T a n d the EC G ra d u a l E vo lu tio n o f

A n tid u m p in g Law in G lo b a l E conom ic In teg ra tio n Juristfồrlaget i Lund Page 23-24 and also

Viner, íòotnote 1, supra, p p 36-37.

Short title o f the thesis

imports are causing material injury to a domestic industry producin g the like

p ro d u ct”

2.1.3 Anti-dum ping in international law

Within the iníemational arena, anti-dumping la\v must be based on treaties: Ít is contained now in one agreement (the AD agreement)

In general, the G A T T anti-dumping law in both Article VI and the subsequent

C odes contains two prerequisite conditions and procedual ruies for an anti-dumping action Article VI does not prohibit dum pin e, nor do any o f the three Codes, Article

VI co n d e m n s d um ping only if there exists dum ping which causes or threatens material inrjuy to an established domestic industry or materially retards the establishment o f a domestic industry The two conditions for an anti-dumping action are theretbre:

(i) existence o f dum ping, and

(ii)m aterial injury o r threat o f material injury to a dom estic industry, or material

retardation to establish a domestic industry.

In nature, the G A T T rules for determination o f both dum ping and injury are rather technical T h ese rules provide various and sometimes, alternative or surrogate, ap proaches for determining vvhether d um ping has occurred as well as vvhether a dom estice inđustry has been inịuried T he procedural rules are mainly deve loped by and contained in the three successive G A T T A nti-dum ping C o d e s4.

2.1.4 The relation between EC law and W T O law

The relationship between EC and WTO anti-dumping law can be considered under two aspects:

The íìrst relates to the applicability o f W TO law in the Community

The ECJ has held in several cases that G A TT and W TO law do not have direct effect in the EC legal system but must operate through the EC legal instruments5.Secondly, even if W TO anti-dumping law is not directly applicable in the EU it still has an effect on this region by indirect means In other words, the WTO anti- dumping law is implemented in the EC by way o f Regulations which are directly applicable in all M ember States

Ele nor Lissel, A field study o f an EU anti-dumpin g proceedin g - The case o f Vietnamese footw ear, p.13.

4 W enxi Li A n tid u m p in g Law o f the W T O /G A T T a n d the EC G ra d u a ì E volution o f

A n tid u m p in g Law in G lo b a l E conom ic Integration Juristfổrlaget i Lund Page 23-24 and also

Viner, íootnote 1, supra, p p 36-37.

5 See case C -149/96 Portugal V Council, ECR 1-8395, para 47

Dum ping, anti-dum ping a n d an overview o f the EC anti-dum ping investigations o f

Vietnamese enterprises.

2.1.5 The evolution o f Anti-dum pina law in the EC

M em ber States within the EU have agreed on a common commercial policy in trade with non M ember States Articles 131- 134 Treaty Establishing the European Commưnity (EC Treaty) provide the legal basis for this policy.6 According to articles 131-134 EC Treaty, Member States enter agreements with other states based on uniíbrm principles and likewise adopt common regulations on imports to and exports from the EU.7 When establishing trade with other countries, dumping may occur and that is the reason for the appearance o f anti-dumping law in the EC

The legal basis for antiduinping in primary EC lavv is Article 133 (1) o f the EC Treaty which provides that:

T h e co m m o n commercial policy shall be based on uniíòrm principles, particularly

in regard to changes in tariff rates, the conclusion o f tariff and trade agreements, the achievem ent o f uniíòrmity in measures o f liberalism, export policy and measures to protect trade such as those to be taken in event o f dum ping or subsidies.

Under Article 133 EC Treaty, the Council o f European Communities adopted the first EC antidưmping legislation on 5 April 1968 It is Regulation 459/68 on protection against dumping or the granting o f bounties or subsidies by the countries which are not members o f the EEC

Regulation No 459/68 was amended in 1973 and 1979 In the 1973 amendment, only a procedural point was changed But the 1979 amendment is very signiílcant

with m any changes to the computation o f the normal valuc o f imports from non-

market economy countries, the constructed export price and sales made at a loss etc

At the end o f 1979, Regulation 459/68 was replaced by Regulation 3017/79 This regulation introduced new rules for determination o f injury and some procedural amendm ents

In July, 1984, Regulation 3017/79 was replaced by Regulation 2176/84 This Regulation has new provisions and a ‘‘sunset clause” It was amended in 1987

In July 1988, the 2423/88 Regulation repiaced the Regulation 2176/84 Some changes were made and a new rule on anti-absorption duty was established

Regulation 2176/84 was replaced by the Regulation 3283/94 and amendcd in

Short tille o f the thesis

The current EC antidumping legislation in force is the 1995 Basic regulation; Regulation No 384/96 o f 22 Decem ber 1995.8 The Regulation applies to imports from ali countries that are not m em bers o f the European C om m unity but the

C om m unity may adopt precise provisions in relation to countries vvithout a market econotny or whose econom y is in transition.9

According to Article 1 (1) Regulation N o 384/96 antidumping duties can be applied to any product vvhose release for free circulation within the Com m unity causes irýury Article 3 deílnes determination o f injury as material injury to Com m unity industry or the threat o f the same The examination o f the impact o f dumped imports shall include “all relevant economic íactors and indices having a bearing on the State o f the ind u stry ” 10

The determination o f dum ping is made in accordance with Article 2 where in (1)

a normal value and (2) an export price shall be applied to the price A fair comparison shall be made based on these prices The determination o f inịury and the defínition o f Commiinity Indưstry are deíìned in Article 3 and 4 According to Article 12, if the measure has led to no m ovem ent, the investigation can be reopened.11

2.2 Overview o f EC anti-dumping investigations against

Vietnam

In the year o f 1998, the EC initiated an anti-dumping proceeding concerning imports

o f monosodium glutamate originating in Vietnam, the definitive anti-dumping duty being 16,8%

In the same year, the EC initiated an anti-dum ping proceeding concerning the imports o f shoes and slippers originating from Vietnam, China, Indonesia, Thailand However, because o f its small market share, the EC did not levy anti-dumping measures on Vietnam

In 2002, the EC initiated an anti-dumping proceeding concem ing imports o f disposable gas-fuelled pocket lighters originating in the China, Indonesia, Malaysia

8 Council Regula tion (EC ) N o 38 4 /9 6 o f 22 D e c e m b e r 1995 on protection again st d u m p e d

imports from countries not m e m b ers o f the E u ro p e a n C om m unity, O ffic ia l J o u r n a l L 05 6 ,

0 6 /0 3 /1 9 9 6 p 1 - 2 0

9 ibid Article 2(7)

10 ibid Article 3

" ibid Article 12

Dumping, anti-dum ping and an overview o f the EC anti-dum ping investigations o f

On 28 April, 2004, the EC proved that ring binder mechanisms originating in China, were consigned to Vietnam in order to be exported into the EC It initiated anti-dumping proceedings

On 29 April 2004, the EC initiated an anti-dumping proceeding concerning imports o f bicycles originating in Vietnam On 4 July 2005, it announced the levy o f

a deíinitive anti-dumping duty level o f 15,8% - 34,5%

On 11 August 2004, the EC otĩicially initiated an anti-dumping proceeding concerning imports o f certain tube or pipe íìttings originating in Taiwan and Vietnam On 8 July 2005, there was an announcement that the proceeding was terminated because o f the withdrawal o f the complaint

On 24 August 2004, the EC announced the initiation o f an anti-dumping proceeding concerning imports o f stainless Steel fasteners and parts thereoĩ originating in China, Indonesia, Malaysia, the Philippines, Taiwan, Thailand and Vietnam The duty level was levied is 7,7%

On 10 September 2004, the EC initiated an antidumping proceeding concerning integrated electronic compact íluorescent lamps (CFL-i) originating in China but consigned from Vietnam The defmitive anti-dumping duty was 66,1%

On 7 July, 2005, the EC officially initiated an anti-dumping proceeding concerning certain footwear with uppers o f leather originating in China and Vietnam The deíinitive anti-dumping duty was 10%

C onclusion: There have been over 20 anti-dumping cases against Vietnam goods brought by various countries in the world Among them are 10 cases from the EC, thus nearly h a lf o f them It means that the EC is the market where Vietnamese goods may be considered as being dumped most oíìten

We can sum m ary the above 10 cases in the below table:

Short title o f the thesis

In the year 2004, 5 anti-dumping proeeedings were initiated against Vietnam

goods in the EC market The types o f goods involved are metals, electronic Products and mechanical Products These are disadvantageoưs for Vietnam because they are the major products exported from Vietnam to íbreign countries and most o f them need considerable raw material and/or workforce I f they are regarded as having been dumped, the damage may well be larger

A disadvantage for Vietnam is our country’s location We are in a region vvhich has attracted many anti-dumping proceedings So Vietnamese goods are often suspected o f being dumped as are the goods o f other Asian countries

The main task o f an anti-dumping proceeding is to determine vvhether the export price is lower than the normal value or not To do this, we have to determine the export price and the normal value and compare them If the export price is higher than the normal value, no dumping But if it is less than the normal value, dumping can be considered to have occurred

D eterm ination o f dum ping

For example: if a Vietnamese export company sold a bicycle in the EU market for I0€ but it sold the same thing in Vietnam for 12€, this would mean the company is dumping in the EU rnarket lf the price in Vietnam for the same bicycle was 9€, there vvould be no trace oí'dum ping there

3.1 In market economy countries

3.1.1 Normal value.

Although this differs slightly from the G A TT provisions, in the EC, the gencral rule appỉied for calculating the normal value is “ based on the prices paid or payable, in the ordinary course o f trade, by the independent customer in the exporting country” 12 This means that the primary rule for determining normal value is the domestic price paid or payable for the like product in the exporting country

There are two other ways to calculate the normal price in case this domestic price cannot be determ ined13:

a The “constructed value” or

b.T he export price, in the ordinary course o f trade, to an appropriate third country, provided that these prices are representative

3.1.1.1 N orm al price as the dom estic p rice

The domestic price will be established as the normal value if it meets the following conditions;

- Domestic sales must exist;

- These domestic sales must be representative;

- These sales must have been made in the ordinary course o f trade;

- These sales must permit a proper com parison.14

in the Basic Regulation meaning o f “exist” and the meaning o f “ represerìtative” are not deíineđ, but it does stipulate cases in vvhich the domestic price in the exporting country is to be disregarđed They are:

Firstly, in case o f no sales or insufficient sales

By no sales, it is understood that the Products exported to the Community are not sold in the exporting country (i.e the Products are only made for export) or the

12 Council Regulation 384/96, Article 2(1)

13 Council Regulation 384/96, Article 2(3)

14 Wolfgang Mulỉer, Nicholas Khan, Hans-Adolf Neumann, EC Anti-dum ping Law - A com m entary on R eguỉation 384/96, John Wiley & Sons, 1998.

Short titỉe o f the thesis

model sold on the domestic market is diíìerent from the model sold in the

C om m unity.13 In this case, the normal value will be calculated on the basis o f other exporter’s sales

Insufficient sales (or the 5% rule) are deíìned by way o f this rule:

“ Sales o f the like product intended for domestic consumption shall normally be used to determin e normal value if such sales volume constitutes 5% or more o f the sales volume o f the product under consideration to the C o m m u n ity ” 16

This can be clariĩied by a very simple example: If exporter A produces 55 Products with 50 for export to the Community and 5 for sale in the domestic country, the domestic sale volưme equal to 10% (5/50x100%) > 5% In this case the domestic price may be used to determine the normal value

In B ic y c le s '7, only one company “ Ahvays” received the market economy

treatment under the EC regulations When determining the normal value, the 5% rule was used, and the Commission stated that:

In accordance with the Article 2(2) o f the basic Regulation, the C om m ission fĩrst exam in ed wheth er the domestic sales o f the like product to independent customers

by Always were representative, i.e whether the total volume o f such sales was equal to or greater than 5% o f the total v olum e o f the corresponding export sales to the C o m m u n ity 18.

The 5% rule has been applied in the EC since the early 1980s In the application process, some aspects should be noted:|l)

- l f the exporter sells different models for export and domestically, theCommission will first apply the 5% rule to the vvhole and subsequently apply this

rule on a model-by-model basis (e.g in the Recordable com pací disc case or polyethylene terephthalate case).

- In some cases, where the domestic sales volume is less than five percent o f the sale to the Community, it can still be considered representative and used to determine the normal value pursuant to Article 2(2) but this happens quite rarely

15 Van Bael & Bellis, Anti-dumping and other trade protection Laws o f the EC,Kluwer-Law International, 2004, p.54

16 Article 2(2) o f Basic Regulation

17 Bicycles (Vietnam), OJ LI 83 14.7.2005, p 12

18 Council Regulation (EC) No 1095/2005 , recital 75

19 Van Bael & Bellis, A nti-dum ping a nd other trade protection Law s o f the EC,

Kluwer-Law International, 2004, p 54

D eterm ination o f dum ping

- Domestic sales vvhich were subsequently cancelled or transferred outside the investigation period have in the past been taken into consideration f'or the purposes o f applying the 5% rule

Secondly, in the case o f no sales in the ordinary course o f trade

In the Basic Regulation, there are three circumstances if sales under that, sales can

be considered as not in the ordinary course o f trade:

(1) Sale below cost o f production

Sale o f product in the dom estic m arket o f the exporting country, or export sales to a

third country, at prices below unit production costs (íixed and variable) plus selling,

seneral and administrative costs may be treated as not beina in the ordinary course

o f trade by reason o f price, and may be disregarded in determining normal value,

only if it is determined that such sales are m ade vvithin an extended period in

substantial quantities, and are at prices which do not provide for the recovery o f all

costs within a reasonable period o f time.20

So, sales at a price below unit production costs plus selling, general and administrative costs (SGA) are alvvays considered sales not in the ordinary course o f trade i f “they are made within an extended period o f time in substantial quantities or are at the prices which do not provide for the rccovery o f all costs within a reasonable period o f tim e”

In Article 2(4), “the recovery o f all costs within a reasonable period o f tim e” may

be considered to occur i f the prices below costs at the time o f sale are above weighted average costs for the period o f investigation And the “ extended period o f time” should normally be one year but shall in no case be less than six months

In the practice o f the Commission, there is a “ 80/10 rule” to determine the nonmal value in cases o f sales below cost:

If sales equal to or above the cost o f production represent more than 80% o f total sales volume, the normal value will be based on the weighted average price o f all domestic sales during the investigation period, including sales below costs;

If sales equal to or above cost o f production represent less than 80% but more than 10% o f the total sales volume, the normal value will be based on a vveighted average o f proíĩtable domestic sales only;

If sales equal to or above cost o f production represent less than 10% o f the total sales volume, the Commission will consider that there are no domestic sales in the ordinary course o f trade and vvill construct the normal value.21

20 Council Regulation 384/9 6, Article 2(4)

21 Van Bael & Bellis, A nti-dum ping a nd other trade protection Laws o f the EC,

Kluwer-Law International, 2004, p.p 57-58

Short tille o f the thesis

The 80/10 rule was applied to determine the normal value in Bicvcles, Stainless Steel Fasteners and F ootw ear w ith Upper o f Leather In Bicycles, the Commission

stated that:

In the case w here the volum e o f proíitable sales o f a product type represented 80%

or less but at ieast 10% o f the total sales volume o f that type, or w here the weighted average price o f such sales vvas below the unit cost, norm al value was based on the actual domestic price, calculated as a weighted average o f proíitable sales o f those types only.

For those product types, where the volume o f proíitable sales represented less than

10 % o f the total sales volume o f that type on the domestic market, it was considered that the product type concerned was not sold in the ordin ary course o f trade and therefore, normal value could not be based on domestic prices in M ex ico 22.

(2) Sales between associated parties

Under Article 2(1) sales betvveen associated parties shall be considered as not being sales in the course o f ordinary trade “Associated” in this case can be Linderstood as being where parties form a “ single economic unit” or one party hold a majority o f the shares in the other company

(3) Compensatory arrangements

Article 2(1) o f the Council Regulation 384/96 stipulates that:

Prices betvveeen parties vvhich appe ar to be associated or to have a co m pensato ry arrangem ent with each other may not be considered to be in the ordinary course o f trade and may not be used to establish normal value unless it is determined that they are unaffected by the relationship.

If parties have a compensatory arrangement, sales betvveen them can not be considered as sales in the ordinary course o f trade unless it is determined that those prices are unaffected by the relationship This ideas proceeds from the finding o f the

ECJ in the case Petrotub SA a n d R epublica SA V Council, (2003) We cannot find

the exact detìnition o f “compensatory arrangement” in the Regulation but in the EC proceedings, the Commission sometimes classes the relationship between the sellers and the buyers as such

Thirdly, sales not permitting a proper comparison

This is one o f the cases where sales are disregarded when calculating the normal value based on the exporter’s domestic prices To determine what the term

■‘permitting a proper comparison” means is quite complicated In some cases, it is linked to the sales channel but in others, it refers to the sales to original equipment manufacturers (OEM) It will be analyzed in t h e

In the Basic Regulation, Article 2(1) states that:

22 Council Reguiation (EC) N o 1095/2005 , recital 71, 72

D eterm inatỉon t ì f dum ping

Hovvever, vvhere the exporter in the exporting country does not produce or does not sell the like product, the normal value may be established on the basis o f prices o f other sellers or producers.

This means that if the exporter!s domestic prices are not sufficient to establish the normal value the domestic prices o f other producers or sellers vvill be used

In m onosodium glutam ate, Thailand was chosen as an analogue country, and:

Normal value was th ereĩore established on the basis o f the prices paid or payable,

by independent customers in T hailand for sales o f the like product which were found to have been m ade in the ordinary course o f trade and in sufficient quantities

to permit a proper co m parison2’.

3.1.1.2 C onstructed norm al value

Under the Article 2(3), if the normal value cannot be determined from the domestic prices o f exporters or others, the constructed norinal value will be used instead:

" the normal value o f the like p roduct shall be calculated on the basis o f the cost

o f production in the country o f origin plus a reasonable am ount for selling, general and adm inistrative costs and for p r o fit s .”

The constructed normal value is covered in both thc Basic Regulation and Article2.2.1 o f the AD Agreement The constructed normal value is the cost o f production plus a reasonable amount for selling, general and administrative costs plus proíìt.First, on the cost o f production, Article 2(5) o f the Basic Regulation provides that:

Cost shall normally be calculated on the basis o f records kept by the party under investigation, provid ed that such records are in accordance with the generally accepted accounting principles o f the country concerned and that it is shown that the records reasonably reílect the costs associated with the production and sale o f the p ro d u c t under consideration.

Consid eratio n shall be given to evidence submitted on the proper allocation o f costs, provided that it is shovvn that such allocations have been historically utilized.

In the absence o f a m ore appropriate method, preference shall be given to the allocation o f costs on the basis o f turnover ư n le s s already reílected in the cost allocation under this subparagraph, costs shall be adjusted appropriately for those

n on-recurring items o f cost which benefit ĩuture and/or current production.

Where the costs for part o f the period for cost recovery are affected by the use o f new production ĩacilities requirin g substantial additional investment and by low capacity utilization rates, w hich are the result o f start-up operations which take place within or during part o f the investigation period, the average costs for the start-up phase shall be those applicable, under the abovem entioned allocation rules,

23 Council Regulation (EC) N o 205 1 /9 8 , recital 34

Short title o f the thesis

at thc end o f such a phase, and shall be included at that level for the period

concerned, in the weighted average costs reterred to in the second sub-paragragh o f

paragragh 4 The length o f a start-up phase shall be determined in relation to the

circumstances o f the producer or exporter concerned, but shall not exceed an

appropriate initial portion o f the period for cost recovery For this adjustment to

costs applicable during the investigation period, iníòrmation relating to a start-up

phase which extends beyond that period shall be taken into account vvhere it is

submitted prior to veriíication visits and vvithin three m onth s o f the initiation o f the

investigation.

From the above regulation, we realize that there are three major rules concerning the determination o f costs They are:

- The costs shall be based on the records kept by the party under investigation

- Cost allocation methods may be used

- Costs for any start-up phase shall be applicable

These may well be the rules but we cannot base necessarily use them to calculate the cost ot' production The EC authorities have not stated exactly what items constitute costs o f production but according to the qưestionnaire used by the Commission, they comprise:

The direct labour cost consists of:

- Pay, overtime pay, incentive pay, bonuses and shift differentials;

- Employee benefits: housing, holiday pay, retirement, social security programmes;

- Other employee-related expenses24

The manufacturing overheads cover all expenses incident to and necessary for production o f a product, inciuding the items of:

D eterm ination o f dum ping

- Rent;

- Povver;

- Maintenance and repair and;

- Any other relevant costs23

Secondly, selling, general and administrative costs (SGA)

SGA are not described under any regulation o f the Commission but from the questionnaire used by it, SGA costs embrace all other costs incurred in connection wit'h domestic sales not covered by the costs o f production

SGA shall be based on actual data pertaining to production and sales, in the ordinary course o f trade, o f the like product, by the exporter or producer under investigation26 In case SGA can not be determined on the basis set out above, it can

be calculated by:

- the weighted average o f the actual am ounts determined for other exporters or producers subịe ct to investigation in respect o f production and sales o f the like

p roduct in the d om estic market o f the country o f origin;

- the actual am ounts applicable to production and sales, in the ordinary course o f trade, o f the sam e general category o f products for the exporter or producer in question in the dom estic market o f the country o f origin;

- any other reasonable m e th o d 27.

Thirdly, reasonable proíìts

Rcasonablc proíìts can bc added to determine the constructed value As providcd for

in Article 2(6)(c), reasonable proíìts “ shall not exceed the proíit normally realized by other exporters or producers on sales o f Products o f the same general category in the domestic market o f the country o f origin”

In Bicycles, M exico w as chosen as the analogue country, and the constructed normal

value in the M exico markeí was applied to Vietnam:

For exported p ro d u ct types, without corresponding types sold in the ordinary course

o f trade on the dom estic m arket o f Mexico, normal value was constructed, pursuant

to Article 2(3) o f the basic Regulation, on the basis o f the weighted average o f each producer's o w n manufactu rin g costs plus a reasonable am ount for selling, general

25 Li, Wenxi, A n ti-d u m p in g L aw o f the W T O /G A T T a n d the EC : G ra d u a l E volution o f A nti-

d u m p in g Lcrw in G lo b a l E co n o m ic In tegration, ju ristfổ rla g e t i Lund, 2003.

26 Council Regula tion 384/96, Article 2(6)

27 Van Bael & Bellis, A n ti-d u m p in g a n d other trade p ro te ctio n L aw s o f the EC, Kluwer-L aw

International, 2 0 0 4 ,p.72

Short title o f the thesis

and administrative (S G & A ) costs and for proílt T h e S G & A costs and proíìt were determined on the basis o f the weig hted av e rag e o f S G & A costs incurred and o f proíìt realised by each o f the co o p e ratin g M e x ica n pro d u cers on their domestic sales o f the like product, in the o rdinary c ourse o f trade For exported p ro d u c t types, without sales on the d o m e stic m ark e t o f M exico, the m a n uíacturing costs o f similar product types were used in the construc tion o f norm al values, appropriately adjusted in order to take into acco u n t the dif ference s in physical characteristics with the exported types.28

3.1.1.3 Exporl price to a th ird country

The second alternative method for determining the normal value is “the export prices, in the orđinary course o f trade, to an appropriate third country’'29 There are two conditions:

The third country should be '‘appropriate” ;

The export prices should be “ representative”

However, in practice, the C om m unity authorities have rarely relied on export prices

to a third country to detcrmine norrnal value as they fear that sales to a third country might also be made at dumped prices

3.1.2 Export price

In order to find vvhether dum ping occurred or not, the export price must be

determined and compared with the normal value.

Under Council Regulation 384/96, there are tw o ways to determine the export price, they are:

- The actual export price;

- The constructed export price

3.1.2.1 The actual export price.

Article 2(8) states that:

T h e export price shall be the price actually paid or payable for the p ro d u ct w hen sold for export from the e x p o rtin g co u n try to the Com m unity.

This determination is quite simple if the product was imported directly from the producing country However, in international trade, Products usually go from the producing country to an intermediate com pany and only aíter that are they imported into the Community In this case, the export price can be determined as follows:

28 Council Regulation (EC) N o 1095/2005 recital 74

29 Ibid, Article 2(3)

D eterm ination o f dum ping

(1) If the intermediate company is independent from the producer provided that the producers knows that the final destination o f goods is the EU, the export price is the price charged by the íbreign producer to the intermediate company

(2) If the intermediate company is not independent (related) o f the producer, the export price will be determined on the basis o f the price charged by the related company to the íìrst independent customer in the Community

3.1.2.2 The co n stru c te d e x p o rtp ric e

Article 2(9) Regulation 384/96 provides that:

In cases w here there is no export price or w here it appears that the export price is unreliable because o f an association or a com pensatory arrangement between the exporter and the importer or a third party the export price may be c o n s tru c te d

This means that, the constructeđ export price may be used in two cases:

- Where there is no export price;

- Where it appears that the export price is unreliable because o f an association or a compensatory arrangement between the exporter and the importer or a third party

No export price means that there are no sales between the exporter and the importing country so no actual export price can be found In this case a constructed export price will be used

How to calculate the constructed export price

According to Article 2(9) Regulation 384/96:

the export price may be constructed on the basis o f the price at which the imported products are íĩrst resold to an in dependent buyer, or, if the Products are not resold to

an independent buyer, or are not resold in the condition in which they were

im ported, on any reasonable basis.

So there are two methods to determine the constructed export price:

The basic method is the price at vvhich the imported Products are íirst resold to an independent buyer;

I f above method is not satisfied, the alternative method o f “any reasonable basis” will be used

This Article also stated that:

“ In th ese cases, adjustm ent for all costs, including duties and taxes, incurred

b etween importation and resale, and for proíìts accruing, shall be made so as to establish a reliable export price, at the C om m unìty írontier level”

The factors to be adjusted for included:

- usual transport, Insurance, handling, loading and ancillary costs;

- customs duties, any anti-dumping duties, and other taxes payable in the importing country by reason o f the importation or sale o f the goods; and

- a reasonable margin for selling, general and administrative costs and proíit

Short titỉe o flh e thesis

In addition, some other expenses can be dcducted vvhen deterinining the constructed export price, e.g commissions and transĩers between related companies

or any advertising and promotion expenses for which the related importer was reimbursed by the exporter

“ a reasonable margin o f profit" deducted from the construction o f the export price

is calculated very differently from case by case In fact, it fluctuates between 2,8% and 12% Hovvever, in most cases, a reasonable margin o f profit is 5% The Commission tries to use 5% for all cases.30

in practice, the reasonable margin o f proíìt is calculated much more often than the actual margin o f proĩit This leads to the situation where the export price constructed with a reasonable margin o f profit is tnuch lower than the actual export price The dumping margin in such a case will be increased

In most o f the ten Vietnamese cases , the export price was constructed and based

on the facts available This is the main reason that the dumping margin for Vietnamese product is so high

In m onosodium glutam ate:

As far as Vietnam is concerned, it was found that the export volum e o f the cooperating Vietnamese exporting p roducer was immaterial and hence not an appropriate basis for the determination o f the vveighted average export price Therefore, also for Vietnam the export price had to be established on the facts available accordin g to Article 18 o f the Basic Regulation Eurostat data, vvhich were found to be in line with the export price alleged in the com plaint and with the prices

o f import transactions veriíied at the premises o f o n e cooperating unrelated importer were considered an appropriate basis to establish the export p r ỉ c e ' 1.

It leads to the fact that, the dumping margin in this case is quite high and the anti- dumping duty for Vietnamese monosodium glutamate is

In Staìnless Steel/asteners:

As was explained under the analysis o f IT above, only o n e com pany cooperated in Vietnam, but it vvas not granted IT Furtherm ore, this com pany was operating as a subcontractor o f a Taiwanese related com pany, w hich cooperated with the investigation The Taiwanese co m p an y was the ow ner o f the raw materials and it was p erform ing all íunctions related to export sales Hovvever, it was not able to dem onstrate through its accounts that the export prices to independent customers, as reported in the reply to the questionnaire o f the V ietnam ese subcontractor, concerned Products m anuíactu red in Vietnam and ex ported to the Community Therefore, such prices cannot be used as export prices from Vietnam to the

30 Van Bael & Bellis, A nti-dum pin g and other trade protection Laws o f the EC, Kluwer- Law International, 2004

31 Council Regulation (EC )2051/98 recital 40

D eterm ination o f dum ping

Com m unity The com pany was intbrmed accordingly Since no other source was available, export prices \vere provisionally based on Eurostat import statistics for all exporti ng p ro d u c e rs ’2.

3.1.3 Comparison

A comparison is thc necessary step in the determination o f dumping33 Article 2 ( 1 0 )

o f Regulation 384/96 gives the principles concerning the comparison between normal value and export price

A fair com parison shall be m ade between the export price and the normal value.

T his com parison shall be m ade at the same level o f trade and in respect o f sales

m ade at as nearly as possible the same time and with d u e account taken o f other differences which affect price comparability W here the normal value and the export price as established are not on such a com parable basis due allovvance, in the form o f adjustments, shall be m ade in each case, on its merits, for differences in factors which are claimed, and dem onstrated, to affect prices and price comparability Any duplication vvhen making adjustm ents shall be avoided, in particular in relation to discounts, rebates, quantities and level o f trade.

With this provision, the comparison must be:

- At the same level o f trade;

- As nearly as possible at the same time;

T h e am ount o f the adjustm ent shall correspond to a reasonable estimate o f the market value o f the d ifferen ce’4.

32 Council Regulation (EC ) 771/2 005 Recital 91

33 Li, Wenxi, A n ti-d u m p in g L aw o f the W T O /G A T T a n d the EC : G ra d u a l E volution o f A nti-

d u m p in ẹ L aw in G lo b a l E co n o m ic In tegration, juristfõrlaget i Lund, 2003

34 Council Regulation 384/9 6, Article 2(10)(a)