This is a guest post from trade lawyer Adarsh Ramanujan:
This blog earlier carried a post on the developments in the SCM benchmarking analysis arising from the Appellate Body decisions in US-Carbon Steel (India) (DS436), and US-CVD (China) (DS437). I consider these two reports as a watershed in SCM jurisprudence, given that it elaborates on a number of aspects of the SCM Agreement. Deliberating on all these aspects may require a series of blog entries. Given that there is already one on the Article 14 implications, I thought I will add to the list, this time focusing on the 'facts available' standard (Disclaimer: As part of the law firm I work for, I have been involved as the attorney for one of the parties in DS436 and as the attorney for one of the third participants in DS437. So, my thoughts may have to be taken with a pinch of salt when it comes to objectivity. I have attempted to use the language used by the Appellate Body as much as possible).
The significance of the Appellate Body's findings in these recent reports on Article 12.7 of the SCM Agreement may be better understood with a short background. Before DS436 and DS437, the Appellate Body provided important clarifications on the 'facts available' standard under both the SCM Agreement (Article 12.7) and the AD Agreement (Article 6.8), in its Report in Mexico – Anti-Dumping Measures on Rice (DS295). The Appellate Body in that Report did mention that the standards across the two agreements cannot be "markedly different":
295. ……Indeed, in our view, it would be anomalous if Article 12.7 of the SCM Agreement were to permit the use of "facts available" in countervailing duty investigations in a manner markedly different from that in anti-dumping investigations.
In that vein, the Appellate Body did provide certain common aspects of both provisions – e.g. the need to take into account all substantiated facts even if such facts do not constitute the complete information (paras. 288, 292, 294, 297). Nonetheless, the Appellate Body did not entirely use the exact same language in describing the nature of the right / privilege granted under both provisions, throughout its Report. In respect of Article 6.8 of the AD Agreement, the Appellate Body found:
289. With respect to the facts that an agency may use when faced with missing information, the agency's discretion is not unlimited. First, the facts to be employed are expected to be the "best information available". In this respect, we agree with the Panel's explanation:
The use of the term "best information" means that information has to be not simply correct or useful per se, but the most fitting or "most appropriate" information available in the case at hand. Determining that something is "best" inevitably requires, in our view, an evaluative, comparative assessment as the term "best" can only be properly applied where an unambiguously superlative status obtains. It means that, for the conditions of Article 6.8 of the AD Agreement and Annex II to be complied with, there can be no better information available to be used in the particular circumstances. Clearly, an investigating authority can only be in a position to make that judgement correctly if it has made an inherently comparative evaluation of the "evidence available". (original emphasis; footnote omitted)
…
(Emphasis supplied in bold and italics)
In other words, Article 6.8 of the AD Agreement only permits investigating authorities to use the "best information available", which information is to be selected based on "inherently comparative evaluation of the "evidence available"". On the other hand, in respect of Article 12.7 of the SCM Agreement, the Appellate Body used entirely different wordings:
294. In view of the above, we understand that recourse to facts available does not permit an investigating authority to use any information in whatever way it chooses. First, such recourse is not a licence to rely on only part of the evidence provided. To the extent possible, an investigating authority using the "facts available" in a countervailing duty investigation must take into account all the substantiated facts provided by an interested party, even if those facts may not constitute the complete information requested of that party. Secondly, the "facts available" to the agency are generally limited to those that may reasonably replace the information that an interested party failed to provide. In certain circumstances, this may include information from secondary sources.
(Emphasis supplied in bold and italics)
Crucially, one may consider the following points:
- whereas the Appellate Body used the phrase "best information available" to describe which fact may ultimately be used under the AD Agreement, the Appellate Body found that under the SCM Agreement, facts that "reasonably replace" the missing information can be used;
- whereas the Appellate Body prescribed an obligation of conduct under the AD Agreement, i.e. engage in an "inherently comparative evaluation of the "evidence available"", this was not specifically postulated in respect of the SCM Agreement.
Although the Report in Mexico – Anti-Dumping Measures on Rice was considered as postulating the identical standards under both agreements (for instance, see Panel Report, China – Autos (US), para. 7.712.), some may wonder (as I did before the Report in DS436), whether these differences in language in the Appellate Body Report result in a "markedly different" approach to the 'facts available' standard under the two agreements.
In my opinion, the Appellate Body Report in DS436 has now effectively ironed out these issues:
- The Appellate Body has now clarified why the phrase 'reasonably replace the missing information' was used in the earlier report in Mexico – Anti-Dumping Measures on Rice:
4.416. …This suggests that the process of identifying the "facts available" should be limited to identifying replacements for the "necessary information" that is missing from the record… Article 12.7 is not directed at mitigating the absence of "any" or "unnecessary" information, but is rather concerned with overcoming the absence of information required to complete a determination…Accordingly, there has to be a connection between the "necessary information" that is missing and the particular "facts available" on which a determination under Article 12.7 is based. For this reason, the Appellate Body in Mexico – Anti-Dumping Measures on Rice stated that an investigating authority must use those "facts available" that "reasonably replace the information that an interested party failed to provide"[1], with a view to arriving at an accurate determination.
(Emphasis supplied in bold and italics)
- Second, taking contextual support from the title to Article 12 as well as Article 12.5, the Appellate Body clarified:
4.418. …In the light of this context, we consider that the task of ascertaining which "facts available" reasonably replace the missing "necessary information" under Article 12.7 calls for a process of reasoning and evaluation. In our view, it would not be possible to identify whether replacements for the missing "necessary information" are "reasonable", and thus constitute the "evidence" on which to ground a determination, without engaging in such a process.
4.419. We further consider that, as part of the process of reasoning and evaluating which "facts available" reasonably replace the missing information, all substantiated facts on the record must be taken into account. It would frustrate the function of Article 12.7, namely, to "replac[e] information that may be missing, in order to arrive at an accurate subsidization or injury determination", if certain substantiated facts were arbitrarily excluded from consideration…
4.424. …[title of Annex II, AD Agreement] supports our understanding of Article 12.7, namely, that ascertaining the reasonable replacements for the missing "necessary information" involves a process of reasoning and evaluation. As with Article 6.8 of the Anti Dumping Agreement, this in turn calls for a consideration of all substantiated facts on the record.
4.435. …an investigating authority would generally be expected to engage in a process of reasoning and evaluation with regard to the facts on the record as an incident of conforming to the legal standard for Article 12.7, i.e. to ascertain those "facts available" that reasonably replace the missing "necessary information", with a view to arriving at an accurate determination. Where there are several "facts available" from which to choose, it would seem to follow naturally that the process of reasoning and evaluation would involve a degree of comparison.
(Emphasis supplied in bold and italics)
Effectively now, even Article 12.7 places an obligation of conduct on investigating authorities to provide reasoning and evaluation to justify the selection of a given 'fact' under Article 12.7, on par with the language used in Mexico - Anti-Dumping Measures on Rice.
- Third, prescribing such an obligation of conduct would be meaningless if this could not be questioned and reviewed. In that respect, in a short reference, the Appellate Body in DS436 clarified that the "explanation and analysis provided in a published report" by the investigating authority must be sufficient to allow a panel to assess whether Article 12.7 of the SCM Agreement was properly complied with. Specifically elaborating on the interplay between Article 11 of the DSU and Article 12.7 of the SCM Agreement, the Appellate Body in DS437 found:
4.189. Although the precise contours of the standard of review to be applied in a given case are a function of the substantive provisions of the covered agreements at issue, as well as the particular claims made, Article 11 of the DSU requires, inter alia, that panels scrutinize whether the reasoning of an investigating authority is coherent and internally consistent, and carry out an "in depth examination" of the explanations provided by an investigating authority. In the context of Article 12.7 of the SCM Agreement, such an "in depth examination" by a panel would entail, inter alia, assessing whether an investigating authority's published report provided an explanation that sufficiently disclosed its process of reasoning and evaluation such that the panel could assess how the authority chose from the facts available those that could reasonably replace the missing information…
(Emphasis supplied in bold and italics)
- Fourth, the Appellate Body has clarified that procedural circumstances are relevant in assessing the application of Article 12.7, though such procedural circumstances resulting in the application of Article 12.7 cannot be the sole ground:
4.422. We also consider that Articles 12.4 and 12.11 shed light on the meaning of Article 12.7…In our view, the context provided by these provisions suggests that the manner or procedural circumstances in which information is missing can be relevant to an investigating authority's use of "facts available" under Article 12.7. In particular, Article 12.11 requires an investigating authority to take "due account of any difficulties experienced by interested parties"… Whether and how such procedural circumstances should be taken into account by an investigating authority, and any appropriate inferences that may be drawn, will necessarily depend on the particularities of a given investigation. We recall, however, that determinations under Article 12.7 must be made on the basis of "facts" that reasonably replace the "necessary information" that is missing, and thus cannot be made on the basis of procedural circumstances alone.
4.426. [The final sentence of paragraph 7 of Annex II to the Anti-Dumping Agreement] acknowledges that non-cooperation could lead to an outcome that is less favourable for the non-cooperating party…The juxtaposition between the "result" and the "situation" of non-cooperation in this clause confirms our understanding that the non-cooperation of a party is not itself the "basis" for replacing the "necessary information"…In this regard, we note that paragraph 1 of Annex II makes a connection between the "awareness" of an interested party, and the ability for an investigating authority to have recourse to the "facts available". This suggests that the knowledge of a non cooperating party of the consequences of failing to provide information can be taken into account by an investigating authority, along with other procedural circumstances in which information is missing, in ascertaining those "facts available" on which to base a determination and in explaining the selection of facts. Having said that, where there are several "facts available" from which to choose, an investigating authority must nevertheless evaluate and reason which of the "facts available" reasonably replace the missing "necessary information", with a view to arriving at an accurate determination.
(Emphasis supplied in bold and italics)
In other words, the fact of non-cooperation itself can be used as a factor to explainwhy a certain 'fact' was chosen under Article 12.7; but it cannot always be the sole reason.
Without a doubt, these standards would have significant implications on how authorities apply the 'facts available' standard in futures investigations. In both disputes, the Appellate Body did not complete the legal analysis to apply these legal standards to the facts. That would have been interesting aspect to analyze, especially where it includes as assessment of whether the published report of the investigating authority "sufficiently disclosed" its process of reasoning and evaluation. Therefore, at some level, one may imagine that there is no 'illustration' to investigating authorities / exporting members on what level of explanation is sufficient and what isn’t. The Panel / Appellate Body may have more opportunities in this respect, since these findings (which only clarify pre-existing obligations) would likely encourage members to look at previously issued CVD determinations with a microscope.
