A WTO panel was established on September 27 to hear a complaint brought by Japan over China's anti-dumping (AD) duties on stainless steel products. The panel has not been composed yet. This piece sets out some key claims made by Japan in its panel request, as well as some parts of MOFCOM’s reasoning in relation to these claims (in the form of an unofficial English translation of the MOFCOM ruling).
On July 22, 2019, China’s MOFCOM issued a final anti-dumping determination (link in Chinese) on stainless steel billet and hot-rolled stainless steel plate (coil) originating from the European Union, Japan, South Korea, and Indonesia. The products are under HS codes 72189100, 72189900, 72191100, 72191200, 72191312, 72191319, 72191322, 72191329, 72191412, 72191419, 72191422, 72191429, 72192100, 72192200, 72192300, 72192410, 72192420, 72192430, 72201100, 72201200. (Based on the description of the covered products, stainless steel “slabs” may be a better English translation than “billets” here. However, in this piece, we will use the translation chosen by MOFCOM.)
The final ruling determined the AD duties for specific countries/companies as follows:
On June 11, 2021, Japan filed a WTO consultations request (DS601) in which it raised a number of concerns about specific aspects of MOFCOM’s determination. After consultations did not resolve the issues, on August 19 Japan requested that a WTO panel be established to hear the dispute.
Turning to some of the key issues raised in Japan's panel request, Japan first referred to AD Agreement Articles 3.1 and 3.2, and alleged that MOFCOM did not make an objective examination of the effect of the imports under investigation ("subject imports") on prices in the domestic market for like products, on the following bases:
China failed to conduct proper analyses with respect to three different products (i.e. stainless steel slabs, hot-rolled coils, and hot-rolled plates) included within the subject imports and the like domestic products, the different series of steel grades based on the products' chemical compositions, and the subject imports as a whole. China improperly concluded that the subject imports as a whole had a significant effect on the prices of the like domestic products as a whole, but reached this conclusion erroneously, as China failed to appropriately consider the differences among the three distinct products included in the subject imports and the like domestic products. China also failed to appropriately consider, inter alia, the different series of steel grades. Furthermore, China failed to properly analyze the price trends of the subject imports and the like domestic products; and
China failed to provide any reasonable explanation and analysis of how and to what extent the prices of the like domestic products were affected, given the situation that the prices of subject imports were generally significantly higher than those of the like domestic products.
With regard to the scope of the investigated products and whether the investigation should group three different products together, MOFCOM’s ruling reasoned that:
First, stainless steel billets, stainless steel hot-rolled plates and stainless steel hot-rolled coils are mainly made of molten iron, chromium, nickel and stainless steel scrap as raw materials, with a small amount of niobium, copper, titanium, manganese and other alloys added as required. They are alloy steel products with a carbon content of 1.2% or less by weight and a chromium content of 10.5% or more by weight, casted through casting machines and hot rolling. They also share the same basic physical and chemical properties. Second, companies with continuous production capacity would produce stainless steel billets and stainless steel hot-rolled plates/coils, which enter the final consumer market. Some companies that do not have continuous production capacity would purchase stainless steel billets and process them into stainless steel hot-rolled plates/ coils, which later enter the final consumer market. Third, the difference in the physical form of stainless steel billets and stainless steel hot-rolled plates/coils could lead to the price differences. The fact that products belong to different classification standards is not the only determining factor of whether several products belong to the same group. Therefore, the investigating agency did not accept the above-mentioned interested parties’ claims regarding the scope of the product under investigation in the preliminary ruling.
After further investigation, the investigating agency also found that the physical and chemical properties, as well as technical indicators, of stainless steel hot-rolled plates/coils are all determined by the physical and chemical properties of stainless steel billets in the steelmaking process. There are no substantial differences among the three products in their basic characteristics, and the physical differences cannot negate that they share the same characteristics. The final markets and uses of stainless steel billets and stainless steel hot-rolled plates/coils are similar. Stainless steel hot-rolled sheets and stainless steel hot-rolled coils have overlapping downstream uses in practical applications, such as in storage tanks, bridges, and ships. Although there are differences between the two in some specific subdivision uses and customers, these are reasonable differences caused by subdivision specifications in the same category of products. The end uses and customer groups of the three products are similar. Therefore, the investigating agency sustained the preliminary determination that stainless steel billets and stainless steel hot-rolled plates/coils belong to the same category and can be evaluated as a whole.
When evaluating the prices of the like domestic products, the ruling acknowledged that the price of dumped imports cumulatively declined 27.02 percent while the price of like domestic products overall increased during the injury investigation period. In the meantime, MOFCOM stated that:
Stainless steel billets and stainless steel hot-rolled plates/coils can be divided into 200 series, 300 series, 400 series and other series according to different metal content. Products of each series compete with each other in the Chinese market, and there are certain price differences among different series. In the preliminary ruling, the investigation authority compares the prices of dumped imported products and like domestic products with the same specifications.
After detailed analysis of the price trends of the imports and domestic like products in the 300 series, 400 series and others respectively, the agency concluded that
... Due to the difference in development, dumped imported products have a certain brand effect in China's domestic market, which attracted consumers. The price drop of dumped imported products, including specific series, has caused obvious adverse effects on the prices of domestic industries. Dumped imported products seized China's market share through dumping activities and cumulatively increased market share by 8.68% during the investigation period, while the overall market share of like domestic products declined. In order to maintain a certain level of sales volume and market share, the price of like domestic products was pressured to drop. In 2015, the price of like domestic products was already lower than the product costs. Since 2016, although the prices of like domestic products rebounded due to active policies such as terminating outdated production capacity, overall the prices of like domestic products fell again at the end of the injury investigation period, due to the substantial increase in the number of dumped imports and continued decline of import prices.
The agency also emphasized that:
The price impact of the imported products under investigation on like domestic products must be analyzed based on the facts, reflect the overall price trend during the investigation period, and be objectively evaluated with reference to market changes. The investigating authority noticed that the price trends [of the dumped imports and like domestic products] were inconsistent within certain specific time periods, but the overall trend and the trend for each series is that the prices of like domestic products were pressured to drop under the influence of the decline in the prices of dumped imports. Because of the active industrial policy of the Chinese market in 2016, the market price of like domestic products in China rebounded temporarily while the import prices of dumped imports continued to fall.
Next, Japan’s panel request argued that there was a violation of Articles 3.1 and 3.4 because MOFCOM's analysis of the impact of the allegedly dumped imports on the domestic industry:
failed to conduct an objective examination, based on positive evidence, of the impact of subject imports on the domestic industry based on the volume of such imports and their effect on prices.
failed to conduct an objective examination, based on positive evidence, of all relevant economic factors and indices having a bearing on the state of the domestic industry; and
failed to provide a reasoned and adequate explanation of the determination of material injury to the domestic industry by failing to objectively determine the relative importance and weight to be attached to relevant economic factors and indices, and improperly disregarding the majority of those factors and indices indicating that the domestic industry did not suffer material injury.
On this issue, MOFCOM’s overall evaluation of the domestic market was that the consumption, production capacity, output, domestic sales, operating rate, employment and salary of the domestic sector of stainless steel billets and stainless steel hot-rolled plates/coils had increased. However, the market share of the like domestic products had declined; the sales prices, revenue, productivity, investment yield all had increased first but later declined; pre-tax profit had a turnaround first but decreased significantly in the later period; and the inventory declined first but then increased.
The agency acknowledged that:
Some interested parties claimed that most indicators of the domestic industry are good and therefore it is not injured by the products under investigation. After the preliminary ruling, the interested parties again claimed that most of the domestic industry indicators were good, and the profit indicators of relevant domestic listed companies in the first half of 2018 were improved rather than injured. In addition, they believed that the investigating agency should consider the petitioners’ self-consumption of the products.
In response, the agency explained:
The determination of whether a domestic industry has suffered material injury cannot be based solely on certain domestic industry economic indicators, but should fully consider the impact of all economic indicators of the domestic industry as well as other factors. The investigating agency comprehensively considered the changes in all indicators and reached the conclusion that the domestic industry suffered material injury ...
In addition, the investigating agency noticed that, first, as domestic demand is increasing, domestic industry has expanded their production scale, and some indicators such as production capacity, output, and sales increased to a certain extent. However, the overall market share of the domestic industry declined, certain indicators such as operating rate and sales revenue, investment yield, pre-tax profit and others witnessed a significant downward trend after 2017. Second, some interested parties referred to the half-year report data of listed companies in the relevant domestic industry from January to June 2018 [to show that the domestic industry is not impaired]. This time frame exceeds the injury investigation period [which is January 1, 2014 to March 31, 2018]. In addition, the data only represents a few individual domestic companies. Hence, this data cannot be regarded as evidence that domestic industry is not injured. Third, with regard to the internal consumption of domestic enterprises, the investigating agency already included the self-use volume when evaluating the total demand in the preliminary determination. Even if we exclude the self-consumption amount, the market share still gradually declined since 2017.
In conclusion, the investigating authority determined that during the injury investigation period, the domestic stainless steel billet and stainless steel hot-rolled plate/coil industries suffered material injury. In the final ruling, the investigating agency decided to sustain the preliminary ruling.
Japan also made claims under Articles 3.1 and 3.5 in relation to issues of causation. As stated in Japan’s panel request:
China failed to demonstrate, based on positive evidence and an objective examination, that the subject imports were, through the effects of dumping, as set forth in Articles 3.2 and 3.4, causing injury to the domestic industry. In particular, China determined that the allegedly dumped imports were causing injury based on its flawed analysis of price effects under Article 3.2 and its flawed analysis of impact under Article 3.4;
China failed to demonstrate the required causal relationship between the subject imports and the injury to the domestic industry based on an objective examination of all relevant evidence before the authorities, including, inter alia, the fact that the allegedly dumped imports had limited market shares in the Chinese market; and
China failed to conduct an objective examination, based on positive evidence, of factors other than the subject imports which were at the same time injuring the domestic industry, and therefore improperly attributed the injury caused by those other factors to the subject imports. The other factors include, inter alia, rise of raw material nickel prices, strict environmental protection, excessive stainless steel production capacity and competition with other domestic producers.
Turning to MOFCOM’s analysis of this issue, the ruling stated that during the injury investigation period, dumped imports cumulatively grew 161.86 percent between 2014 and 2017 and 626.22 percent YOY during January and March of 2018. Different series of dumped imports all witnessed an increase in market share. In the meantime, the prices of dumped imports decreased overall by 18.17 percent between 2014 and 2017, and 18.31 percent between January and March of 2018. It also stated:
At the same time, the dumped imports had a depressing effect on the sales price of like products in domestic industry, resulting in obvious squeezing of the market space for like products in domestic industry, ineffective use of production capacity, a declining market share, relatively high inventory, low pre-tax profit. This caused difficulties and brought pressure on the production and operation of domestic industry.
The ruling acknowledged some arguments of the interested parties:
After the preliminary ruling, the relevant interested parties argued that despite the increase in the number of products under investigation, the prices of like products in the domestic industry did not fall, but rose instead, and the injury was caused by other factors.
In this regard, the investigating agency stated that:
As mentioned above, since 2016, the prices of like domestic products have rebounded due to policies such as eliminating outdated production capacity. At the end of the investigation period, the prices of like domestic products declined again due to a large increase in the volume of dumped imports and continuous falling of import prices. The proposition of the interested party is inconsistent with the facts. In the final ruling, the investigating agency decided to sustain the preliminary ruling.
When considering other factors, the ruling noted that:
The interested parties argued that the price of nickel, the raw material of the products under investigation, had risen sharply with limited resources since 2014, which affected the operation of domestic manufacturers of like products. Strict environmental standards have caused business costs to rise, which in turn caused injury to domestic industry. In addition, the obvious surplus of global and Chinese stainless steel production capacity, excessive investment, competition among stainless steel enterprises, and difficulties in exporting are the causes of the domestic industry’s injury. After the preliminary ruling, the respondents reiterated the above-mentioned propositions in the hearing and in their comments on the preliminary ruling, and suggested that the investigating agency investigate the impacts of other domestic manufacturers.
In response, the agency elaborated on its reasoning:
First, regarding raw materials, in normal market competition, product prices will change with costs, supply and demand, etc. The price change of raw material nickel is to some extent related to the price of stainless steel billet and stainless steel hot-rolled plate/coil, and therefore affects the production and operation of the enterprise to a certain extent. However, it is not the only factor that affects the operation of the enterprise. In the context of sustained and steady growth in domestic demand, the price fluctuations of raw materials should be reasonably transmitted to the price changes of like domestic products. However, as the aforementioned analysis shows, due to the dumped imports drastically depressing the prices, the prices of the like domestic products were even lower than the production cost during the period under investigation. Data shows that the price of nickel, a raw material, had risen, while the price of nickel-containing products fell. In the preliminary ruling, the investigating authority determined that the rising price of raw materials did not preclude the causal relationship between the dumped imports and the material injury to the domestic industry. In the final ruling, the investigating agency decided to sustain the preliminary ruling.
Second, with regard to the impact of environmental protection, the expenses for environmental protection will increase the costs and expenses of enterprises, but the total expenses including environmental protection expenses of the five domestic enterprises did not increase significantly during the investigation period, and there is no evidence that higher environmental protection standards have caused material injury to the domestic industry. The impact of environmental protection measures cannot preclude the causal relationship between dumped imports and material injury to domestic industry. In the final ruling, the investigating agency decided to sustain the preliminary ruling.
Third, the investigating authority believes that global stainless steel overcapacity may have an adverse impact on the global market, but it cannot preclude the fact that dumped imports caused injury to domestic industry. In the preliminary ruling, the investigating agency determined that there was no sufficient evidence to show that the domestic industry had overcapacity or overinvestment. The domestic industry only expanded production in 2016, and the production capacity had remained stable since then. Data from the injury investigation period showed that domestic demand continued to increase, and actual output and demand basically increased simultaneously. At the same time, the country's industrial policy to terminate outdated production capacity played a positive role in improving domestic industrial production and operation. There was normal market competition among businesses. The overall export volume of domestic industry was relatively stable, and there is no evidence of export difficulties. Therefore, factors such as the supply-demand conflict in the global and Chinese stainless steel markets cannot preclude the causal relationship between dumped imports and material injury to domestic industry. In the final ruling, the investigating agency decided to sustain the preliminary ruling.
Fourth, with regard to the impact of other domestic producers, the respondents did not specify the type and level of the impact, nor did they provide corresponding evidence. Current data shows that the five surveyed companies accounted for more than 50% of the adjusted national output and can represent the domestic industry, and that the domestic industry suffered material injury during the investigation period. Evidence shows that during the investigation period, the output of like products of other domestic manufacturers (excluding Baosteel, Qingshan, and Puxiang) also had a downward trend, and therefore the hypothesis that the expansion of other domestic manufacturers intensified market competition and caused domestic industry injury does not hold. Quite the opposite, the number of dumped imports continued to increase, which drastically lowered the price of like domestic products and caused material injury to the domestic industry. The investigating agency had collected relevant information through public questionnaires, hearings and other means. So far, there is no evidence that other domestic producers caused injury to domestic industry. Therefore, the impact of other domestic producers on the domestic industry cannot preclude the causal relationship between dumped imports and material injury to the domestic industry.