Australia's WTO complaint against China's AD/CVD determinations on barley (DS598) is going forward. A panel was established at the May 28 DSB meeting. (The panelists for the case have not been announced yet.) In this post, we describe several key aspects of the Chinese determinations, as well as the related WTO claims, although a detailed analysis will have to wait until the written submissions are available.
China began its antidumping and countervailing duty investigations on imports of Australian barley on November 19, 2018 (No. 89 Notice  and No. 99 Notice ), in response to an October 9 petition for an antidumping investigation and an October 29 petition for a countervailing duty investigation (both filed by the China Chamber of International Commerce on behalf of the domestic barley industry). In its final determinations issued on May 18, 2020, MOFCOM announced that it would impose anti-dumping duties of 73.6 percent on imports of Australian barley; and, separately, it announced that it would impose countervailing duties of 6.9 percent on these products.
Many of the issues discussed in Australia’s WTO complaint had been previously raised during the comment period for MOFCOM’s final determination, and MOFCOM responded to them to some extent in the final determination. As a result, the final determination may offer a preview of the arguments on these issues in the WTO dispute settlement proceeding. In this post, we set out some of the key reasoning in the final determinations that will be under consideration in the WTO dispute. As the Appellate Body has explained, "panels should test whether the conclusions reached by the investigating authority are reasoned and adequate in the light of the explanations provided by the investigating authority in its written determination." (See China - HP-SSST, para. 5.55) We therefore set out MOFCOM's explanations on certain key issues, through the unofficial translations provided below.
With regard to the product at issue, the final antidumping ruling defined the investigated products as barley which can be used for production of wine, feed, and other products, or can be used as seeds, or consumed directly or through processing. MOFCOM identified it under China’s Customs Import and Export Tariff as No. 1003.10.00 and No. 1003.90.00. The determination justified these categories by stating:
After the investigation launched, the Australian government submitted comments stating that China never imports seed barley from Australia, hence the inclusion of seed barley in the petition is to expand the scope of domestic industry and blur the product description. Imported products under investigation include malting barley (as known as brewing-grade barley), medium-quality barley and feed barley, which all have differences in the quality, market and price. The petition failed at defining the investigated products. Some responding companies submitted comments stating that brewing-grade barley is a highly specialized product and different from other barleys, and therefore should be excluded from investigation.
After investigation, the investigating agency believes that the investigation announcement already identified the scope of investigated products, and therefore seed barley or brewing-grade barley should not be excluded due to different purposes as claimed by interested parties. Furthermore, the Australian government failed to provide supporting documents on the differences of quality, market and price of products under investigation. And finally, brewing-grade barley and feed barley are basically the same in terms of physical and chemical properties and cultivation methods. Barley grown from the same land can be used for food, brewing, feed, or as seed. There is no evidence on distinctions of downstream users.
The Australian government also stated in its submitted comments that barley exports to China for consumption would be listed in China’s Customs Tariff No. 1003.90.20, and brewing-grade barley would be listed under the China Customs Tariff No. 1003.90.10. Such statement is not supported by fact.
Turning to the calculation of a dumping margin, in calculating the normal value, the ruling went on at length in explaining that the four respondents—Iluka Trust, JW & JI McDonald & Sons, Kalgan Nominees Pty. Ltd., and Haycroft Enterprises—did not provide accurate and complete sales information, production costs, and fees for domestic like products during the investigation. On this basis, MOFCOM refused to rely on the information submitted by the respondents. It concluded:
The investigating agency has reviewed the websites of the Australian Department of Agriculture and related agencies, customs statistics, publicly obtained industry information, publications and research reports, as well as information in the petition. After a comparative analysis, it is believed that the export price to Egypt obtained from the Global Trade Atlas is the best information available. The investigating agency decided to use this as the basis for normal value … . The investigating agency received comments from the Australian government, some Australian chambers of commerce and associations, some traders, and CBH Grain Pty. Ltd., stating that the best available information selected by the investigating agency is not representative. The investigating agency chooses the export prices to Egypt as the best information available after reviewing all information obtained from the investigations and independent sources, and considering factors such as sales volume, export markets, and transportation methods.
The choice of sales to Egypt as the source of normal value is an important one for the calculation, but there is not much detail provided in MOFCOM's reasoning on this point.
In its panel request, one of the key claims of violation made by Australia that relates to this reasoning was as follows:
xii. Article 2.2 of the Anti-Dumping Agreement because, inter alia, China improperly determined normal value by reference to third country sales without proper justification, without establishing that the third country was "appropriate", and without establishing that the price of the like product when exported to that third country was "comparable" and "representative".
Turning to the export price, MOFCOM explained that it would use "facts available" based on the respondents’ failure "to provide complete and accurate sales information of the investigated products to China":
The investigating agency, in the “Questionnaire for foreign exporters or manufacturers for barley anti-dumping case,” requires foreign exporters or manufacturers to submit complete and accurate answers within the required timeframe, so the investigating agency can analyze the answers as soon as possible and make the ruling. Furthermore, the investigating agency has granted up to 14 days grace period upon the requests of abovementioned manufacturers and traders. Even so, the above-mentioned producers and traders failed to provide complete and accurate sales information of the investigated products to China.
The investigating agency has done its best to remind the above-mentioned manufacturers and traders the consequences of not fully cooperating with the investigation, including explicit requirements in the questionnaire and reminders. Since the above-mentioned manufacturers and traders did not, within a reasonable timeframe, provide confirmation of their export sales information to China that is necessary to identify the export prices, the investigating agency decided to determine the export price based on the facts available, in accordance with Article 21 of the Anti-dumping Regulations. The investigating agency reviewed the website of the Australian Department of Agriculture and related agencies, customs statistics, publicly available industrial Information, publications and research reports, information in the petition. After comparative analyses, it is believed that the export price to China in Global Trade Atlas database is the best information available. The investigating agency decided to use this price as the basis for the export price.
In its panel request, Australia made the following claim of violation in relation to the export price:
xiii. Article 2.3 of the Anti-Dumping Agreement, because, inter alia, China did not determine export price on a reasonable basis when it improperly discarded the information provided by exporters on their export sales of barley to China, and determined the export price by reference to third party information.
On the issue of "facts available," Australia made the following claims of violation:
xi. Article 6.8, and Annex II.1, 3, 5, 6 and 7 of the Anti-Dumping Agreement and Article 12.7 of the SCM Agreement because China improperly based its determinations on the facts available. In particular, China was not entitled to reject necessary information submitted by Australian interested parties as such information was submitted in a reasonable period of time and Australian interested parties did not significantly impede the investigation. China also, inter alia:
a. failed to take into account information that was verifiable, appropriately submitted so that it could be used in the investigation without undue difficulties, which was supplied in a timely fashion, and, where applicable, which was supplied in a medium or computer language requested by China;
b. improperly and without justification disregarded information provided by interested parties acting to the best of their abilities;
c. failed to inform supplying parties forthwith of the reasons for not accepting evidence or information or to give an opportunity to provide further explanations within a reasonable period;
d. failed to give reasons for the rejection of such information in its published determination; and
e. failed to exercise special circumspection in regard to information from secondary sources in making its findings.
With regard to the calculation of individual dumping margins for the various companies at issue, when determining the cost, insurance and freight (CIF) export price, MOFCOM’s final determination noted that after reviewing the survey submitted by 12 traders, there is insufficient evidence to prove the production cost of different products exported to China or sold domestically. The agency acknowledged “comments submitted by some Australian chambers of commerce and associations, and some traders,” which stated that “it is impossible to trace the whereabouts of barley from the producer to the final market, given the special circumstances of the Australian barley industry,” and that “the investigating authority should determine the individual dumping margin rate for traders.” However, MOFCOM disagreed with this view:
The investigating agency has fully reviewed the responses the respondents submitted and fully considered the submitted comments. In response to the abovementioned claims, the investigating agency believes that the interested parties … failed to explain the different roles of traders and producers in sales transactions and overlooked sales transactions between traders. In addition, such claims do not deny or justify the fact that the surveys submitted are incomplete. … The interested parties failed to prove separate dumping margins based on the facts mentioned above. The investigating agency does not support such claims.
As a result, the ruling stated:
Due to the incomplete surveys submitted by 12 traders including CBH Grain Pty. Ltd., the investigating agency was not able to obtain necessary information to calculate dumping margins, and therefore cannot determine a separate dumping margin for the abovementioned 12 traders. As a result, the 12 traders including CBH Grain Pty. Ltd. will be subject to the same dumping margin as other Australian companies.
On this issue, Australia made the following claim of violation:
xvi. Article 6.10 of the Anti-Dumping Agreement because, inter alia, China did not determine individual margins of dumping for each known exporter or producer concerned of barley.
Finally, with regard to defining the domestic like products, MOFCOM explained the following in its ruling:
The Australian government and some responding companies stated in their comments and surveys that the petitioner did not correctly describe the barley, and the product under investigation does not have a comparable product in the Chinese domestic market. According to the comments summitted by China Alcoholic Drinks Association and some domestic malting companies, malt made from domestic barley has high protein content, low extraction rate, low brittleness, and causes turbidity in beer.
After investigation, the investigating agency believes that, as mentioned previously, domestically grown barley and investigated barley have the same or similar physical properties, cultivation methods, end-uses, sales channels, and customer groups. Even if the two have slight difference in specific areas, they can both be used to produce malt for brewing beer and as feed materials. They are similar and can substitute each other, are in direct competition. Hence, the investigating agency does not support the claims of Australian government and some respondents.
In conclusion, the investigating agency determined that domestically grown barley and the barley under investigation are like products.
In its panel request, Australia put forward the following claims of violation related to the determination of the products at issue:
i. Articles 2.1, 2.6, 3.1, 3.6 and 5.2 (i) and (iv) of the Anti-Dumping Agreement and Articles 11.2(i) and (iv), 15.1, footnote 46 and 15.6 of the SCM Agreement because, inter alia, in conducting its investigation China incorrectly defined and applied the "product under consideration" and the "like product" including, inter alia, by failing to account for the difference between: seed barley and other barley; malting barley and feed barley; and different qualities of malting barley.
ii. Article 4.1 of the Anti-Dumping Agreement and Article 16.1 of the SCM Agreement because, inter alia, in conducting its investigation China incorrectly defined and applied the "domestic industry" in part because of its incorrect definition and application of "product under consideration" and "like product".
Finally, in the determination on countervailing duties, MOFCOM reviewed subsidy programs within the past ten years and identified three programs: Sustainable Rural Water Use and Infrastructure Program, South Australian River Murray Sustainability Program-Irrigation Efficiency Element, Agriculture Infrastructure and Jobs Fund-Victoria. Responding to arguments from the Australian government and some respondents that these three programs are not specific to barley and that the calculation of the subsidy is inconsistent with WTO rules, MOFCOM's ruling stated that:
The investigating agency believes, first, according to Article 4 of the Countervailing Regulations, “subsidies obtained by some enterprises or industries which are clearly determined by the government of the exporting country (region) shall be deemed to be specific. When determining the specificity of a subsidy, the number of enterprises subsidized, the amount, proportion, duration, means, etc. of the subsidy granted to the enterprises should also be considered.” As mentioned previously, the Australian government did not fully answer the questions in the questionnaire, including the questions regarding the specific contents of the programs, application and implementation procedures, or the criteria, etc. In some other cases, while it provided some general information, it did not provide translations for supporting documents as requested. Therefore it is impossible to verify whether the survey is complete and accurate. The Australian government also failed to provide information on agricultural goods covered by the three programs, the number of benefited companies within different sectors and regions, and subsidies received by each sector, nor did it submit evidence that barley did not benefit from these programs. According to Article 21 of the Countervailing Regulations, the investigating agency makes determinations based on the facts available. Hence, the investigation agency determined that the three programs are specific [for the barley industry]. …
Second, none of the Australian barley producers that export barley to China provided a complete survey answer, and the Australian government only provided overall information but did not submit the information on the names, planting areas, outputs, the amounts, and other information of companies that applied and received subsidies. According to Article 21 of Countervailing Regulations, the investigating agency may calculate the subsidy benefits based on the facts available. As stated in the questionnaire, one-time subsidy programs in this case will have a 10-year distribution period. No interested parties had expressed any oppositions or raised any alternative proposals. Hence, the subsidies for the barley industry will be calculated in accordance to its relative fraction of the crop area.
MOFCOM did not rule on the other 28 subsidy programs that it investigated. Based on the subsidies that it found to exist, it calculated a countervailing duty rate of 6.9 percent. On these issues, Australia's panel request sets out the following claims of violation:
xvii. Articles 1.1, 1.2, 2.1, 2.2 and 2.4 of the SCM Agreement because, inter alia, China improperly established the existence of a subsidy, as defined in paragraph 1 of Article 1 of the SCM Agreement, including by improperly determining that a subsidy existed, that a "benefit" was conferred on Australian producers or exporters of barley, and that the alleged subsidy was specific to certain enterprises within Australia.
These issues will all be elaborated in the parties' and third parties' submissions in this dispute. (Australia usually posts its submissions online, as do third parties such as the United States and the European Union). We will follow up on these points as the submissions become available.