WTO Appellate Body Grants India Victory in US Steel Duties Case

11 December 2014

The WTO Appellate Body ruled on Monday that the US’ anti-subsidy duties on imports of certain Indian steel products violated global trade rules, in a complicated decision that is expected to have implications for India’s booming steel trade. (DS436)

Back in July, a WTO dispute panel had already supported part of India’s challenge against a series of provisions of the US Tariff Act, and its application in countervailing duty investigations of hot-rolled carbon steel flat products from India, while rejecting the rest of the claims. (See Bridges Weekly, 17 July 2014)

In its report, the Appellate Body reviewed the case on two levels – first, on whether India was guilty of an illegal subsidy as the US had concluded in its original trade remedy investigation, for instance through the state-run National Mineral Development Corporation’s (NMDC) provision of high-grade iron ore only to those industries that use the good, such as steel.

Secondly, the WTO judges looked at how the US conducted its own anti-subsidy investigation into the measure, in order to determine whether the subsequent duties that Washington imposed were lawful. The use of trade remedies by the US has come up in a series of cases at the WTO, particularly with instances involving state-owned enterprises in emerging economies, with countries looking to the global trade arbiter to clarify various provisions of existing international rules.

“Public body” finding reversed

In a significant shift, the Appellate Body reversed the panel’s finding that India’s NMDC is a “public body” under the Subsidies and Countervailing Measures (SCM) Agreement, which says that a “subsidy” shall be deemed to exist if there is a “financial contribution by a government or any public body” and “a benefit is thereby conferred.”

The Appellate Body held that the panel erred in applying this SCM provision to the US Department of Commerce’s public body determination in the underlying investigation, in effect treating the Indian government’s ability to control the NMDC as essential for establishing whether the latter constitutes a public body.

Monday’s report ultimately found that the US Commerce Department’s determination of the NMDC as a “public body” violates WTO subsidy rules.

Benefits, specificity

The Appellate Body found that India’s captive mining rights and steel development fund (SDF) loans are tantamount to “financial contributions” under the SCM Agreement.

However, to be considered a subsidy under the SCM Agreement, the government measure involved should also confer a benefit to the recipient. In determining this benefit, the Appellate Body held that WTO rules require investigating authorities to account for all market-determined prices in their benchmark analysis, including such prices of government-related entities, other than the source of the financial contribution.

Moreover, the SCM Agreement allows for the use of out-of-country benchmarks where the government is not the main source of the good in question. Adjustments to those benchmarks are therefore necessary to reflect the prevailing market conditions, said the Appellate Body, and US law in this area is therefore not inconsistent with WTO rules.

However, the Appellate Body also found that various US Commerce Department practices in determining benchmarks do violate WTO rules.  

The US, in conducting its investigations, had also argued that the NMDC’s provision of iron ore to certain industries, such as steel, was in effect a specific subsidy, given that those companies receiving such ore were limited in number.

Under WTO rules, even if a measure qualifies as a subsidy under the SCM Agreement, it is only subject to those rules if it has been specifically provided to an enterprise or industry, or group thereof. India had challenged whether the US had met its WTO obligations in determining that this was a “specific” subsidy; however, the Appellate Body ultimately ruled in the US’ favour in this area.

Cumulative assessment questions

The Appellate Body also agreed with the panel in its conclusion that the SCM Agreement does not authorise the cumulative assessment of the effects of “subsidised” and “non-subsidised but dumped” imports.

However, the Appellate Body added that the panel failed to make a precise finding regarding the extent to which the US statute serving as the domestic legal basis for cumulative assessment is inconsistent with Washington’s WTO obligations, and ultimately found the statute to be in violation of trade rules.

India welcomes victory; US steel industry raises questions

“India has achieved a significant victory at the WTO,” said the Indian Ministry of Commerce in an official statement welcoming the news.

The move would definitely help domestic manufacturers, which had been suffering due to inconsistent practices by the US Department of Commerce, the Indian ministry added, noting that “out of the current 10 products on which US has imposed [countervailing duties], about seven products suffer from the same inconsistency.”

The American Iron and Steel Institute (AISI), for its part, warned that it could have consequences for a number of other trade cases. Thomas J. Gibson, President and CEO of the US industry group, said that steel imports accounted for 30 percent of the US market share last month and that the WTO decision will significantly weaken the effectiveness of domestic trade laws.

“US law expressly requires the ITC to cumulate dumped and subsidised imports when they are under simultaneous investigations,” Gibson said. “The WTO Appellate Body has once again created an obligation not agreed to by our trade negotiators, and this ruling will make it very difficult for domestic industries to obtain an effective remedy when facing both dumped and subsidised imports at the same time.”

Next steps

Under WTO dispute settlement practices, if the US cannot immediately bring the cited measures into compliance, the parties can seek a mutual agreement on the reasonable period of time for doing so. Otherwise, the parties can then resort to arbitration.

ICTSD reporting.

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