I just spent an hour looking at the Appellate Body's decision in this case, which relates to Ukraine's rejection of natural gas prices in Russia for the purpose of calculating exporters' costs of production. The Appellate Body upheld the Panel's ruling that Ukraine erred in rejecting "distorted" gas input prices.
This is highly arcane for the non-AD expert, but the issue is huge: If an investigating authority can reject "distorted" input prices, then it is looking at what an exporter's costs ought to be in a non-distorted market, rather than what those costs actually are in the market as it exists. In other words, such an approach is a potential alternative to the non-market economy methodologies whose continued WTO legality is unclear.
This material is dense, I did not read it thoroughly, and I may not have understood at all what the Appellate Body was saying. But several things struck me.
First, the Appellate Body (like the Panel) went out of its way to limit its actual ruling to the so-called "second condition" of Article 2.2.1.1., which allows an authority to reject a company's costs as reflected its books and records if they do not "reasonably reflect the costs...."
Second, and as pure obiter dicta, the Appellate Body once again "did not exclude" that the word "normally" in the chapeau of Article 2.2.1.1 might allow the rejection of a company's costs as reflected in its books and records for reasons other than the two specifically identified in that Article (para. 6.87). So far, no big surprises, as previous decisions had also so suggested. This remains then a potential avenue for the defense of a "distortions" methodology.
Third, although the Panel seemed to say that the fact that inputs were provided at below cost was not a basis to reject them under Article 2.2.1.1, the Appellate went out of its way to emphasize aspects of the Panel's reasoning that related to a failure to demonstrate as a matter of fact that the exporters in question had purchased below-cost gas, and it was on this basis that the Appellate Body upheld the Panel (para. 6.103).
Finally, the Appellate Body criticized the Panel for suggesting that "records may not be rejected on the sole basis that input prices are set by the government below the cost of production" where the supplier and exporter are unrelated (para, 6.105). While the Appellate Body on its face is criticizing the Panel for distinguishing between sales involving related and unrelated input suppliers, it also recalls again the flexibility provided by the "normally" language in the chapeau of Article 2.2.1.1.
So my question: Is the Appellate Body signaling that input prices in a company's books and records may disregarded in calculating costs if they are provided at below the input supplier's cost of production, using the flexibility of the term " normally" in Article 2.2.1.1? Or am I just hopelessly confused? Perhaps better brains than mine can sort this out?
