One day, the Appellate Body will be presented with just the right measure and legal obligation to fully elaborate all of the contours of the mandatory/discretionary distinction. Last week's EU - Biodiesel report was not the case to do that, but nonetheless the Appellate Body said some things about this issue that may be of interest to those of you who follow it:
6.2.4.5 Whether the Panel erred by employing an erroneous legal standard to find that Argentina had not established that the second subparagraph of Article 2(5) of the Basic Regulation is inconsistent "as such" with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994
6.268. Before the Panel, Argentina put forward an alternative to its argument that the second subparagraph of Article 2(5) of the Basic Regulation is mandatory. For Argentina, even if it does not mandate recourse to out-of-country costs, the fact that the second subparagraph of Article 2(5) permits the authorities to construct the cost of production using a basis other than the costs of production in the country of origin renders that measure inconsistent "as such" with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. The Panel, however, rejected this alternative argument, finding instead that, "while Argentina has established that Article 2(5), second subparagraph, is capable of being applied in a manner that is inconsistent with the European Union's obligations under Article 2.2 of the Anti-Dumping Agreement and … Article VI:1(b)(ii) of the GATT 1994, … Argentina has not demonstrated that this provision cannot be applied in a WTO-consistent manner."
6.269. On appeal, Argentina submits that this Panel finding is erroneous because it suggests that, in order to prevail with a claim that a measure is inconsistent "as such", a complaining party must establish that the measure at issue leads to WTO-inconsistent results in all instances in which the measure is applied.
6.270. We understand Argentina and the European Union to have advanced several possible tests as to what must be established in order for a measure to be found to be inconsistent "as such" with WTO obligations. Argentina contends that a complainant challenging a measure "as such" has to demonstrate that a certain aspect of that measure would lead to an outcome that is necessarily inconsistent with WTO rules. In addition, Argentina suggests that, to the extent that a WTO provision at issue prohibits certain conduct, the fact that the challenged measure permits such conduct renders it inconsistent "as such" with that WTO provision. The European Union, for its part, asserts that for a measure to be found inconsistent "as such", the measure must "unavoidably" or "compulsorily" require the domestic authorities to act contrary to WTO obligations in all cases. We also take note of the views of two of the third participants in this regard. China submits that, in order to show that a legislative measure is inconsistent "as such" with a WTO obligation, a complainant need not show that the measure leads to a WTO-inconsistent outcome in every instance. Instead, in China's view, the claim will prevail as long as a measure necessarily operates, at least in certain circumstances, to preclude conduct required under the covered agreements. For its part, the United States opines that, where a Member may apply a measure in a WTO-consistent manner, there is no basis to find that the Member has, through that measure, breached its WTO obligations because of the potential for a future WTO-inconsistent application.
6.271. As we have discussed in paragraphs 6.228-6.229 above, the discretionary nature of a measure is no barrier to an "as such" challenge, and measures involving some discretionary aspects "may violate certain WTO obligations". Consistent with the generally applicable principles regarding the burden of proof in WTO disputes, it is for the complainant to establish the WTO-inconsistency of the challenged measure. Precisely what is required to establish that a measure is inconsistent "as such" will vary, depending on the particular circumstances of each case, including the nature of the measure and the WTO obligations at issue.
6.272. In the present dispute, the Panel began its analysis of Argentina's claims concerning the Basic Regulation by recalling "the relevant principles established under WTO jurisprudence" on, inter alia, the examination of a complaint that a Member's municipal law is inconsistent "as such". The Panel noted the Appellate Body's clarification that challenges to a Member's legislation "as such" are "'serious challenges', particularly as Members are presumed to have enacted their laws in good faith." The Panel added that, consistent with the generally applicable principles regarding the burden of proof in WTO disputes, it is for the complainant to establish the WTO-inconsistency of provisions of domestic law. In that section of its analysis, the Panel made no additional statements in connection with the examination of a complaint that a measure is inconsistent "as such".
6.273. Our review of the Panel's analysis of Argentina's claim under Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 suggests to us that the Panel proceeded as follows. The Panel first ascertained the meaning of the second subparagraph of Article 2(5) of the Basic Regulation before examining the nature of the WTO obligations in Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. The Panel then compared the two to assess whether the second subparagraph of Article 2(5) is inconsistent "as such" with those WTO obligations. In our view, the Panel did not err in adopting this approach.
6.274. In addressing Argentina's alternative line of argument, the Panel stated that, "while Argentina has established that Article 2(5), second subparagraph, is capable of being applied in a manner that is inconsistent with the European Union's obligations under Article 2.2 of the Anti-Dumping Agreement and … Article VI:1(b)(ii) of the GATT 1994, … Argentina has not demonstrated that this provision cannot be applied in a WTO-consistent manner." In a footnote to this statement, the Panel indicated that it found guidance in certain statements in the Appellate Body report in US – Carbon Steel (India) containing language that is quite similar to that used by the Panel in its Report.
6.275. In US – Carbon Steel (India), the Appellate Body reversed the panel's findings under Article 12.7 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) because it found that the panel had failed to comply with its duty under Article 11 of the DSU. India requested the Appellate Body to complete the legal analysis and address its claim that the US measures at issue in that case were inconsistent "as such" with Article 12.7 of the SCM Agreement.
6.276. With respect to the nature of the obligation at issue in that dispute, the Appellate Body found that, pursuant to Article 12.7 of the SCM Agreement, an investigating authority must use "facts available" that reasonably replace the information that an interested party failed to provide, with a view to arriving at an accurate determination. The Appellate Body rejected India's argument that Article 12.7 prohibits the use of an inference that is "adverse to the interests" of a non-cooperating party. Instead, the Appellate Body clarified that using an inference that is "adverse to the interests" of a non-cooperating party is not, in itself, inconsistent with Article 12.7. Rather, whether the "facts available" used are reasonable replacements of the missing information, and whether an adverse inference is drawn in accordance with Article 12.7, is to be determined in light of the particular circumstances of a given case.
6.277. As regards the measure at issue in that dispute, India argued that the measure was inconsistent "as such" with Article 12.7 of the SCM Agreement because, despite the "innocuous" language of the text of the measure, other evidence, including the United States Department of Commerce (USDOC) practice, allegedly demonstrated "a consistent and systematic application of the measure, which contribute[d] to proving the existence, as part of the measure, of a system created to punish non-cooperation by drawing adverse inferences in every case of non-cooperation." The Appellate Body made intermediate findings with respect to each of the elements before it, and concluded that those elements: [did] not establish conclusively that the measure requires an investigating authority to consistently apply inferences in a manner that would not comport with Article 12.7 in all cases of non-cooperation. Where inferences are drawn, this evidence of the use of "adverse inferences" does not establish conclusively that the measure at issue cannot be applied in a manner that comports with Article 12.7.
6.278. In light of the obligation under Article 12.7 of the SCM Agreement, the Appellate Body examined all the relevant elements and found that India had failed to establish that the measure bore the meaning that India attributed to it. As noted above, Article 12.7 directs an investigating authority to use "facts available" that reasonably replace the information that an interested party failed to provide, with a view to arriving at an accurate determination. For this reason, evidence that an adverse inference was drawn in a particular instance, or in several instances, could not, in itself, have sufficed to establish that the information selected did not reasonably replace the information in a manner consistent with Article 12.7. Thus, the finding of the Appellate Body related to the nature of the WTO obligation at issue, and the burden of proof with regard to India's assertion as to the meaning of the municipal law at issue.
6.279. For these reasons, we consider that the Panel in the present dispute took the Appellate Body's statements in US – Carbon Steel (India) out of context. To the extent that the Panel was expressing a legal standard for an "as such" challenge when it stated that "Argentina has not demonstrated that this provision cannot be applied in a WTO-consistent manner", the Panel misread the Appellate Body's statements in US – Carbon Steel (India).
6.280. We recall that the WTO obligation at issue in the present dispute is found in Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. As stated at paragraph 6.234 above, Article 2.2 and Article VI:1(b)(ii) do not limit the sources of information or evidence that may be used in establishing the costs of production in the country of origin. However, whatever the information that it uses, an investigating authority has to ensure that such information is used to arrive at the "cost of production" "in the country of origin". Compliance with this obligation may require the investigating authority to adapt the information that it collects.
6.281. We further recall our finding, at paragraph 6.266 above, that the Panel did not err in finding that, "even when information from 'other representative markets' is used, Article 2(5), second subparagraph, does not … require the EU authorities to establish the costs of production so as to reflect costs prevailing in other countries." We also recall our view that nothing in the second subparagraph of Article 2(5) precludes the possibility that, when the EU authorities rely on "information from other representative markets", they could adapt that information to reflect the costs of production in the country of origin, in a manner consistent with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. We therefore find that Argentina has not satisfied its burden of proving that the second subparagraph of Article 2(5) of the Basic Regulation restricts, in a material way, the discretion of the EU authorities to construct the costs of production in a manner consistent with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994.
So when would a measure "restrict" "in a material way" the discretion of government officials to act consistently with WTO obligations? Maybe when the measure specifies clearly the actions to be taken by the officials, does not give them much leeway on whether and how to act, and the WTO violation if those actions are taken is fairly obvious.
