In EU – PET (Pakistan), the EU Commission began, as expected, its causation analysis by considering that a causal link existed between subsidized imports and injury to the domestic industry. The Commission then assessed the “effect of other factors” and found that none broke this link. Thereafter, the Commission concluded that the imports from Pakistan have caused material injury to the EU industry.
Before the Panel, Pakistan argued that the EU Commission should have adopted the reverse approach. Namely, ensuring in a first stage that “the injurious effects caused to the domestic industry by increased imports are distinguished from the injurious effects caused by other factors” and then in a second stage, determining that subsidized imports cause injury to the domestic industry.
For this purpose, Pakistan relied on the following observation of the Appellate Body in US – Wheat Gluten:
[A]s a first step in the competent authorities' examination of causation, … the injurious effects caused to the domestic industry by increased imports are distinguished from the injurious effects caused by other factors. The competent authorities can then, as a second step in their examination, attribute to increased imports, on the one hand, and, by implication, to other relevant factors, on the other hand, “injury” caused by all of these different factors, including increased imports.
The EU – PET (Pakistan) Panel disagreed with Pakistan on the basis that the Appellate Body clarified in US – Lamb, that the steps identified in US – Wheat Gluten “simply describe a logical process for complying with the obligations relating to causation”, and “are not legal 'tests' mandated by the text of the Agreement on Safeguards”. The Appellate Body stressed that “the method and approach WTO Members choose to carry out the process of separating the effects of increased imports and the effects of the other causal factors is not specified” in the Agreement on Safeguards, but that whatever methodology is followed “the final identification of the injurious effects caused by increased imports must follow a prior separation of the injurious effects of the different causal factors”. Moreover, later cases concerning Article 4.2(b) of the Agreement on Safeguards , Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM have established that no method is prescribed in these provisions for satisfying the requirements of the causation analysis of the type contained in Article 15.5 of the SCM.
The EU – PET (Pakistan) Panel concluded that there was “nothing in either the SCM Agreement or jurisprudence indicating that the three-step methodology described in US – Wheat Gluten is mandatory in any circumstances presented in this case”. It therefore rejected Pakistan's argument that the Appellate Body report in US – Wheat Gluten prescribes a methodology regarding causation analysis to which the Commission improperly failed to adhere.
There is a pending appeal ( WT/DS486/7, 5 September 2017) by Pakistan relating to this issue. In this appeal, Pakistan does not hesitate to claim that the “break the causal link” approach is inconsistent with Article 15.5 of the SCM. According to Pakistan:
the Panel erred in its interpretation and application of Article 15.5 of the SCM Agreement when rejecting Pakistan's claim that the European Commission's approach of finding a causal link between the subject imports and the observed injury and then inquiring whether any injury attributable to other factors ‘breaks the causal link’ previously found (the “breaking the causal link” approach) was inconsistent with Article 15.5.
It is likely that the Appellate Body would reject this claim after noting with the Panel that:
It was only after the analysis of other known factors revealed that they did not do so did the Commission “conclude[] that the imports from the countries concerned … caused material injury to the Union industry”. It is therefore evident that the Commission allowed for the possibility that the analysis of other known factors could have negated its initial consideration that a causal link existed between subject imports and the observed injury to the domestic industry, as the Commission only made its final identification of the injurious effects caused by subject imports after separating and distinguishing the injurious effects of the other known factors.
In other words, the Panel considered that the EU Commission sufficiently separated and distinguished the effects of other factors and did not simply “dismiss” the role of these other factors. In fact, the Panel agreed with Pakistan that there were certain deficiencies in the Commission's analysis of specific other known factors. However, the Panel saw “ no reason to think that the use of the overall ‘break the causal link’ framework necessarily compelled their occurrence or would preclude their remedy”.
The Appellate Body would likely consider that this issue falls with the discretion of investigative authorities to adopt their own causal methodology since it is not specified in the SCM. For the Appellate Body, the decisive criterion is that the final identification of the injurious effects caused by subsidized imports must follow a prior separation of the injurious effects of any other known factors. Since the Commission allowed for the possibility that the analysis of these other known factors could have negated its initial consideration, this decisive criterion seems satisfied.
