Defending Market Access — Bed Linen from India[1]

Introduction
Can David defeat Goliath? Is it possible for a poor, developing country member of the World Trade Organization (WTO) to take on one of the WTO’s biggest members and bring its policies and practices into line with internationally agreed rules? In an important WTO dispute settlement case, India set out to test whether it is possible to protect hard-won rights to market access in the face of an intransigent European Union (EU)[2] and a determined EU textile lobby. To succeed, however, India would need to deploy its scarce resources strategically and well, prove that it would and could defend its rights, and persevere against formidable odds.

The story has its origins in two of the less attractive dimensions of the international trade regime: the special rules governing trade in ‘low-cost’ textiles and clothing (See Exhibit 1), and the rules governing procedures and penalties to offset injurious ‘dumping’, i.e., the sale of goods in the export market at lower prices than they are offered for sale in the home market (See Exhibits 2 and 3). Both sets of rules have proven very attractive to mature textile and clothing industries in the industrialized world competing against low-cost imports from developing countries exploiting their comparative advantage of low labour costs.

From the perspective of India, exports of textile and clothing products are an important part of the benefits to be derived from participation in the international trading system. With a population of a billion people, many of them poor and unskilled, the production of standard-technology, labour-intensive products such as textiles and clothing is a natural and important contributor to employment and economic development. Given the high volumes and wide range of qualities of cotton grown in India, it is little wonder that cotton textiles constitute the largest part of the Indian textile industry. As a result, India has become one of the world’s major exporters of these products and, together with Pakistan and Egypt, major suppliers of lower-end bed linen to the markets of EU members.

 
From the perspective of the EU, on the other hand, low-cost textile imports raise some sensitive political issues. EU consumers may welcome these products, but well-organized lobbies of textile manufacturers and workers have mounted powerful campaigns to slow down the inroads of these products, arguing that such imports amount to unfair competition, driving EU firms out of business, and leading to unemployment for some of Europe’s most vulnerable workers. EU firms have made some adjustments, restructuring and modernizing to remain competitive, but in the 1990s, firms were still closing, each time throwing hundreds of workers on the streets.

The special rules governing textiles and clothing, first introduced in the GATT in 1961, have been one response, arguably providing industries in developed countries more time to adjust to the new competition from developing countries. Resort to antidumping procedures is a second, and one that began to be used more frequently following the implementation of the WTO Agreement on Textiles and Clothing, which provides for the phased elimination of the special regime for textiles and clothing by the end of 2004. By the end of 2001, for example, EU industries had successfully launched 26 complaints about dumping from India, many of them in the textiles sector.

This case focuses on India’s complaint to the WTO, pursuant to the procedures of the WTO’s Dispute Settlement Understanding (See Exhibit 4) that a series of antidumping orders affecting its exports of cotton-type bed linen to the EU relied on procedures and methods that were inconsistent with the EU’s obligations under the WTO’s Agreement on Antidumping (the ‘ADA’).  

The main facts of the case

The EU initiates a dumping investigation against cotton-type bed linen from India, Pakistan, and Egypt
The story begins in August 1996 with a complaint from European producers of cotton-type bed linen that imports of these products from India, Pakistan, and Egypt were being imported into the markets of the European Union at dumped prices, causing material injury to domestic production. The complaining industry, European producers of cotton textile products, represented by Eurocoton, had already pursued a number of earlier dumping complaints and had bitterly contested before the European Court of Justice decisions reached by the Commission. Three complex and unresolved cases against importers of ‘grey’ i.e., unbleached or unfinished, cotton textiles from Turkey, India, Egypt, China, Indonesia, and Pakistan over the period 1993-98 were already straining relations between foreign suppliers and the European industry. Global excess capacity and declining prices and profits had put the industry in a combative mood, and placed European politicians and officials in a defensive position.

That defensive mood was evident in the foot-dragging approach of the Commission to implementing the WTO Agreement on Textiles and Clothing (ATC). The ATC required importing countries to remove quotas on at least 16 percent of their textile and clothing imports in the first three years. In its draft schedule, however, the Commission included items such as hats, umbrellas, car seat belts, and parachutes (mostly exempt from earlier MFA quotas), but no mass-market products such as cotton garments or household linens. Some critics of the EU charged that this amounted to lifting restrictions on only 0.1 percent of the products subject to quotas. Quotas on cotton products, in particular, were not significantly enlarged in the first phase.

The EU (and particularly its Southern member states) worried about the consequences of removing protective barriers without reciprocal concessions from developing countries. India, Egypt, Thailand, Pakistan, Argentina, Turkey, Indonesia, China, and South Korea, to name but a few, all maintained various restrictions including prohibitive tariffs, import licenses, standards, foreign exchange restrictions, and certificates of origin. To increase pressure on developing countries, Sir Leon Brittan, then the Commission’s vice-president and commissioner for external affairs, announced in 1996 that the EU would speed up its timetable only if its trade partners agreed to liberalize their own markets, and proposed opening negotiations on reciprocal market access with textile-exporting countries. But they declined even to open talks, accusing the EU of trying to wrangle concessions from them as the price for fulfilling its own obligations under the ATC.

The EU’s approach, while politically attractive was, of course, little more than a diversionary tactic. None of the developing countries owed the EU better market access for EU textile and clothing products, whereas the EU had made commitments to phase out the MFA quota regime and had ‘bound’ its tariffs on textile and clothing products at sufficiently low levels to make the ordinary tariff little more than a nuisance factor in conditioning exports to the EU market. High tariffs and other barriers to EU exports to these countries, while perhaps economically unwise and one of the reasons dumping from these countries is easier to find, are not illegal under WTO terms.

The Commission was also prepared to use antidumping investigations to send positive signals to the European industry, even if this required some questionable analysis and decisions. The bed linen case offered a clear example of this tactic. On 13 September 1996, the European Commission, satisfied that the complainants had established that they represented the major part of the industry in the EU[3] — as required by the ADA — and that they had provided prima facie evidence of dumping, material injury, and a causal link between the dumping and the injury — again, as required by the ADA — formally initiated an antidumping investigation of the subject goods.[4]

It is against this embattled background that, over the course of the next nine months, Commission officials investigated both the allegations of dumping and material injury on the basis of well-established patterns, including:

·         sending detailed questionnaires to the EU importers and the principal Indian, Pakistani, and Egyptian exporters in order to establish the necessary data to compare export and domestic prices;

·         making visits to the offices of these firms to verify the information provided;

·         sending detailed questionnaires to EU producers in order to gather the information needed to determine material injury;

·         again, making visits to the offices of these firms to verify the information provided;

·         holding hearings to provide representatives of the competing parties opportunities to advance their cases;

·         analyzing the information in order to reach conclusions about the margins, if any, of dumping, the existence of material injury, and a causal link between the dumping and the material injury; and

·         holding disclosure meetings with the parties to inform them of preliminary and final determinations.

Dumping is established by comparing export and domestic prices. The ADA requires that the authorities make a fair comparison, for example, by comparing weighted average export prices and weighted average domestic prices (or normal value), of the same goods over the same representative time period. If there are insufficient domestic sales to establish normal value, the authorities may construct such a price, again based on clearly established guidelines. Material injury is determined by examining the economic health of the domestic industry by looking at such factors as changes in levels of employment, shipments, prices, profits, and similar facts. The ADA requires that authorities examine the full list of factors and make a determination that takes them all into account.

While the basic concepts involved are relatively straightforward, the information gathered is usually sufficiently voluminous and complex to allow for a wide range of interpretations of the data and the use of various methodologies to arrive at the required conclusions. There is also sufficient scope for discretion and judgment to allow for contested conclusions. The breadth of discretion also adds to the scope for using antidumping investigations as an effective tool for harassing foreign competitors. The need to satisfy detailed requests for information and to engage expert assistance can pose a major burden for foreign suppliers, particularly those located in developing countries. The process clearly favours the domestic complaining industry. Not surprisingly, antidumping authorities, charged with determining whether there is dumping, can often find it and, in systems in which injury findings are made by the same officials, findings of injury usually follow.[5]

Over the years, as a result of both the volume of cases and the increasingly detailed requirements of the ADA, procedures have become more and more complex and legalistic, requiring the involvement of lawyers, accountants, and economists. Both complaining and responding parties are now well-advised to avail themselves of expert assistance to ensure that their interests are protected. In Brussels, as in other major capitals, the trade bar has grown exponentially over the years, with most firms earning their bread and butter from antidumping and antisubsidy cases. India made extensive use of one such firm in pursuing its interests, Vermulst Waer & Verhaeghe. Other private parties to the dispute, such as the complainant, Eurocoton, used other firms. The European Commission relies on the expertise of hundreds of officials in its Antidumping and other Directorates to pursue and defend its interests.  

In the case of cotton-type bed linen, in June of 1997 Commission officials made a preliminary affirmative determination of dumping. In December 1997 they made a final determination of dumping and of material injury and calculated margins of dumping for imports from five Indian suppliers ranging from 2.6 percent to 24.7 percent, with the average of 13.8 percent being assessed for all other Indian suppliers of the subject goods.

A critical element in realizing these margins was the EU practice of ‘zeroing.’ US law professor Joel Trachtman describes the issue as follows:

The practice of zeroing involves establishing a set of categories of the product under investigation. Within each category, a weighted average normal value is calculated by reference to home-country sales, third-country sales or a constructed value. This normal value is then compared with a weighted-average export price for that category. Then the normal value is compared with the export price. If the normal value is higher, the difference is a positive dumping margin: the goods are being exported at less than their normal value. If the normal value is lower than the export price, a negative dumping margin would exist. Under EC practice, in calculating a total weighted average for all categories of the product under investigation, the negative dumping margins are changed to zero. This is “zeroing.”[6]

The EU had come to rely on this practice after the changes made in the ADA during the Uruguay Round of GATT negotiations (1986-1993) had made some earlier methodologies favoured by the EU, such as comparing weighted averages to individual transactions and vice versa, no longer acceptable.

Similarly, since there were a large number of individual exporters from India, the EU had based its analysis on a sample. For purposes of establishing ‘normal value’, it selected one Indian exporter (Bombay Dyeing) as representative of domestic sales of such linen. There were five types of products comparable to those exported to the EU sold on the domestic market, which the EU ‘found’ to be not sold in the ordinary course of trade. It calculated constructed value for all types of bed linen sold by Bombay Dyeing; for others, administrative, selling and general (SG&A) costs and profits used in the ‘constructed normal value’ of Bombay Dyeing was applied. The export price, on the other hand, was established by reference to the prices actually paid or payable on the EU market. On this basis, the weighted average normal constructed value by type was then compared with weighted average export price by type for the investigated Indian producers, and a dumping margin was calculated for each producer.

Zeroing, constructed value, and other borderline practices gave rise to legitimate questions about the fairness of the EU proceedings and the basis upon which EU officials had reached their decisions about dumping and material injury.
  

India and Indian producers contest the EU’s findings of dumping and material injury

Both the Indian government and Indian suppliers expressed outrage at the decision. From the perspective of the Indian government, India had negotiated in good faith in previous rounds of GATT negotiations and Indian officials believed Indian suppliers were entitled, like suppliers from all other members of the GATT, to the most-favoured-nation tariff rate. The new, additional dumping duty seriously undermined the competitiveness of Indian bed linen on the EU market. Indian officials were convinced that if any Indian suppliers were dumping, the margins of dumping were significantly lower. They were already convinced that any evidence of injury was not directly attributable to such dumping but due to a host of other factors.

      More generally, Indian officials shared the view that EU manufacturers of cotton-type bed linen were fighting a losing battle in trying to keep the much more competitive imported products out of their market. Cotton-type bed linen is exactly the type of product that should be imported from countries like India, benefiting from lower labour and other input costs, and with access to a ready supply of various grades of cotton. In their view, the European industry was no longer cost competitive, particularly in the utility and lower segments of the market, and should adjust out of the industry or concentrate on higher value products. They were determined to contest the application of antidumping duties with all the tools at the government’s disposal.  

Indian suppliers shared this view and were even more familiar with the weak state of the European industry and the artificial nature of the dumping investigation. European distributors, including manufacturers, wholesalers, and retailers, were among their best customers, eager to buy lower priced goods from India to remain competitive. Even manufacturers bought from their Indian competitors to fill out their lines and compete at all price points. Indian suppliers regarded the dumping suits as pure harassment, part of a long line of efforts by the European industry to maintain market share in the face of declining competitiveness.

While understandable, both Indian officials and Indian firms had to accept that under the rules of the WTO, EU firms are entitled to complain about dumping and EU officials are entitled to investigate, make determinations, and impose penalty duties. If India wanted to reverse the case or reduce the margins of dumping, it had to address issues within the rules of the WTO’s ADA or within the rules of the EU. On this point, Indian officials and their legal counsel in Brussels were confident that EU officials were vulnerable to a legal challenge because they were convinced that EU officials had played fast and loose with the rules in order to arrive at a politically acceptable result.

      A number of options were available to the Indian side:

·         During the course of the investigation, Indian firms were entitled to request that they be allowed to enter into an ‘undertaking’, i.e., negotiate an arrangement with EU officials, subject to consent by the EU industry, to raise prices or limit quantities for a specified period. Given the extent to which Indian exports of textile products are already subject to various constraints under the succession of special arrangements negotiated to govern international trade in textiles, Indian exporters were well-experienced in working within such constraints. The Cotton Textiles Export Promotion Council of India (Texprocil), acting on behalf of Indian producers and exporters, did at one point indicate to EU officials its desire, and that of its members, to offer price undertakings. The offer was not taken up and became an issue in the subsequent dispute settlement case.

·         Indian firms, with or without the help of their government, could appeal any errors in law or procedure to the European Court; EU experience, however, indicates that the grounds for appeal are very narrow and the chances of success slim. Neither the Indian government nor Indian firms chose to pursue this option. Eurocoton, on the other hand, was well-experienced in pursuing such cases, a fact EU officials may well have had in mind in their conduct of this case.

·         At the end of a year, Indian firms could seek an administrative review with a view to reducing the margin of dumping or even vacating the order. Experience had demonstrated, however, that such reviews could as easily increase duties; meanwhile, the punitive duties in place would continue.

·         The Indian government could contest various aspects of the procedures, methodologies, and determinations used by EU officials under the terms of the Dispute Settlement Understanding (DSU) of the WTO. This is what India chose to do. At the same time, Indian officials were aware that this was not an option without costs and consequences. Quality legal advise is expensive, dispute settlement cases require significant resources to prosecute successfully, and dispute settlement cases take time, time during which the duties stay in place.

India takes its complaint to the WTO
Under the terms of the DSU, any member is entitled to request consultations with any other member with a view to rectifying or removing a measure, practice, or policy of the second member that the complaining member believes to be inconsistent with the rules of the WTO and that ‘nullifies or impairs’ (i.e., harms) benefits that it would gain but for that measure, practice, or policy. In rare instances, it is even possible to complain about practices that may not be inconsistent with the rules but still cause nullification and impairment. This was not the case here. India was confident that the EU had engaged in numerous illegal practices The responding member must honour the request for consultations, enter into them on a timely basis, and give ‘sympathetic’ consideration to the complaint. Both parties are required to make their best effort to resolve the issue on a bilateral, and amicable, basis.

India requested consultations with the EU on 3 August 1998 and consultations took place in Geneva on 17 August and again the following 15 April, but without resolving the issues under dispute. Pakistan joined India in the consultations as an interested third party, but chose not to pursue the case any further. The time between the two formal consultations afforded the parties time for informal discussions and for developing their approach to the issues. During the course of the consultations, India set out its arguments that the methodologies used by EU officials to arrive at both their determinations of dumping and material injury were flawed and inconsistent with the requirements of the ADA. The EU, for its part, maintained that there was sufficient scope within the rules of the ADA to justify the methodologies employed and the conclusions reached. The chances of a successful resolution of the issues through consultations were slim, given the stakes and the interest of other parties. Indeed, in its submissions to the subsequent panel, India claimed that the EU had consulted in bad faith, and took the unusual step of providing the panel with verbatim records of the consultation proceedings. Even unsuccessful consultations, however, can prove of value to both members in thinking through the issues and in addressing the concerns of the private parties affected by the issue.

Under the terms of the DSU, if the disputing members fail to reach a mutually acceptable solution, the complaining member is entitled to seek the help of either the Director General of the WTO, the other members as a whole through the Dispute Settlement Body (DSB), or both. The Director General has the authority to appoint an impartial arbitrator to work with the two members with a view to facilitating resolution of the issue(s). Developing countries, in particular, are encouraged to pursue this option because it is less expensive and may prove more timely. Alternatively, the complaining member can seek the establishment of a panel to hear the case and make recommendations to the DSB on the issue under dispute and the necessary steps to resolve it. India chose not to pursue the arbitration option; the issues were too important to be settled on the basis of an arbitration that would establish no lasting legal standards to discipline future EU conduct.

The WTO dispute settlement procedures represent the nearly fifty-year cumulative experience of GATT members in developing procedures to resolve disputes on a basis that respects not only the rights and obligations of individual member states but also the collective interest of all in the enforcement of the agreed rules. The DSB meets regularly to address complaints from members, to deal with requests for the establishment of panels, to consider reports from panels, and to address issues arising from compliance with DSB decisions. In pressing situations, a member can ask for a special meeting. Any member can request the establishment of a panel and such a request is automatically granted at the second meeting. It can be acted upon at the first meeting if the responding party does not object.

India requested establishment of a panel at the September 1999 meeting of the DSB. The DSB established the panel at its next meeting in October in accordance with India’s request, stipulating that the panel ‘examine, in the light of the relevant provisions of the covered agreements cited by India in document WT/DS141/3, the matter referred to the DSB by India in document WT/DS141/3, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.’

At this stage, it is important that the complaining party has a good idea of the case it wants to pursue, because the terms of reference basically define a case along the lines of the official complaint lodged by the complaining party. As India learned, elements that it had inadvertently left out of its complaint but which were important to its case could not be added later. The panel ruled that its jurisdiction was limited to the issues set out in its terms of reference. If India wanted to add elements, it would need to start a new process. Even so, India had a long list of issues for the panel to address; in its view, the EU’s abuse of the rules was extensive and pervasive. 

 
The WTO establishes a panel to hear India’s complaint
Panels are constituted by the Director General in consultation with the parties to the dispute. If such consultations prove difficult, the complaining party can ask the Director General to proceed on the basis of consultations with ‘the Chairman of the DSB and the Chairman of the relevant Council or Committee.’ India made such a request on 12 January 2000 and the Director General consequently constituted a panel made up of three senior diplomats: Dariusz Rosati, former Foreign Minister of Poland, Marta Lemme (from the Brazilian Permanent Mission to the WTO), and Paul O’Connor (from the Australian Permanent Mission to the WTO). The panel would be assisted in its work by WTO staff, including a legal advisor from the Legal Division and an analyst from the division responsible for the matters at issue, in this case the Trade Remedies Division.

The DSU provides that other members of the WTO, who believe that they have an interest in the issues to be examined by the panel, can reserve their rights to participate in the proceedings and make submissions to the panel. Egypt, the United States, and Japan reserved their rights as third parties to the India-EU proceedings.

Once the panel is constituted, the disputing members are invited to provide the panel with briefs setting out their view of the issues, including the facts at issue, the interpretation of the rules, and rebuttals of the arguments raised by the other member. If third parties submit briefs, the disputing members are also given an opportunity to address the arguments raised in these briefs. Typically, these briefs can run into hundreds of pages.

In its briefs to the panel, the government of India’s task was to establish that EU officials had abused the provisions of the WTO’s Agreement on Antidumping in making its findings. As is typical in such pleadings, India pursued as many claims as possible — 31 in this case, involving violations of Articles 2.2, 2.2.2, 2.4.2, 3.1, 3.4, 3.5, 6, 6.10, 6.11, 5.3, 5.4, 15, and 12.2.1 and 12.2.2. The most important of these included:

·         Claim 4: Inconsistency with Article 2.2, by applying the profit amount determined for Bombay Dyeing in calculating constructed value for other producers, even though that amount was clearly not “reasonable”;

·         Claim 7: Inconsistency with Article 2.4.2, by zeroing negative dumping amounts in calculating dumping margins;

·         Claim 8: Inconsistency with Article 3.1, by assuming that all imports of the product concerned during the investigation period were dumped;

·         Claims 11 and 14: Inconsistency with Article 3.4, by failing to consider all injury factors mentioned in that provision for the determination of the state of the domestic industry; and by failing to disclose or make public findings thereon, which violates the rights of defence contained in Article 6;

·         Claims 15 and 16: Inconsistency with Article 3.4, by relying in the injury determination on companies outside the domestic industry, by not consistently basing the injury determination on the chosen sample and by relying on different “levels” of industry for different injury indices; and with Articles 6.10 and 6.11, by selecting a sample of the domestic industry that was not representative;

·         Claim 29: Inconsistency with Article 15, by failing to explore possibilities of constructive remedies before imposing anti-dumping duties;

India argued that, as a result of these inconsistencies, the EU had nullified and impaired benefits accruing to India under the WTO Agreement and requested that the Panel recommend that the EU bring its measures into conformity with its WTO obligations by immediately repealing the Regulation imposing definitive anti-dumping duties and refunding anti-dumping duties paid.

The EU, for its part, needed to establish that each of the 31 complaints raised by India was without merit and that EU officials had conducted their investigation and made their findings in a manner fully consistent with the provisions of the ADA. It also argued that many of India’s claims were beyond the scope of the panel’s terms of reference either because they had not been included in India’s original complaint or because they referred to the provisional finding that had since been vacated and replaced by the definitive finding, which was properly the focus of the panel’s proceedings.

Once the panel has had an opportunity to absorb the written briefs, it meets with the parties to the dispute. The India-EU panel met with officials from India and the EU on 10-11 May 2000 and again on 7 June. Officials from Egypt, the United States, and Japan joined the hearings on 11 May. These hearings, held at WTO headquarters in Geneva, afford panel members an opportunity to hear oral presentations of the arguments of the parties and to question them on aspects that panel members are not clear on. Unlike domestic court proceedings, there is no opportunity for cross examination, no rules of evidence, and similar procedural safeguards. Rather, the hearings betray their diplomatic origin and the underlying intent of the proceedings: to find a mutually acceptable resolution of the issues in dispute. Given the mass of evidence and argumentation advanced by the parties,[7] three days of hearings can do no more than scratch the surface. In effect, panel proceedings rely largely on paper briefs and argumentation.

Once the panel is satisfied that it understands the arguments of the parties, it sets to work to assess these arguments in light of its own reading of the relevant provisions of the WTO and its constituent agreements. With the help of WTO staff, the panel summarizes the arguments of the parties, prepares its own analysis of the issues, and reaches conclusions. The panel is not required to make findings on all the claims. Indeed, as a result of the oral hearings, India vacated a number of its claims. Additionally, under the principle of judicial economy, the panel needs to make only those determinations it judges necessary to resolve the dispute.  

The panel rules on the issues before it
Once the panel has finished its analysis, it prepares an interim report that is circulated to the parties in order to provide them an opportunity to identify any errors, particularly relating to the arguments they have placed before the panel. On 31 July 2000, the Indian bed linen panel provided its interim report to the parties. The parties submitted their comments on the interim report on 7 August 2000. Neither party requested that the panel hold an interim review meeting, and as a consequence no meeting was held.

On that basis, the panel proceeded to prepare its final report, which it circulated to the parties and to all the members of the DSB on 30 October 2000 (See the panel’s conclusions in the box below). The panel rejected 12 of India’s claims, upheld 4, and did not rule on the remaining 15, either because India had withdrawn the claim or the panel did not consider it necessary, pursuant to the principle of judicial economy, to make a finding. On the surface, the panel appears to have ruled largely in favour of the EU. In fact, however, it provided India with a major victory. It is normal for complaining parties to make as many claims as possible, in the hope that a few of them will stick. Additionally, many of the claims could have gone in either direction. In this particular case, the evidence presented in the panel’s report makes clear that EU officials conducted an investigation highly prejudicial to the interests of Indian suppliers of cotton-type bed linen to the EU, stretching the discretion allowed them under the ADA and EU law to the limit. The issue before the panel, therefore, was to determine the extent to which EU officials had crossed the line between what is permissible and what is not. It was in India’s interest to identify as many instances of impermissible conduct as possible and up to the EU to defend its conduct.[8]

The four instances in which the panel ruled that the EU had crossed the line were enough to discredit the EU’s determinations of dumping and material injury. The panel ruled that the practice of zeroing, which had been critical to the calculation of margins of dumping, was illegal. It further made clear that the EU determination of material injury had been based on a very superficial and inadequate analysis of all the factors set out in the ADA, and that EU officials had ended up comparing apples and oranges in using different definitions of the industry for the purposes of determining dumping and injury. Finally, in ruling that the EU had failed in addressing its duty to explore alternative remedies, the panel breathed new life into a requirement that the WTO’s developed members deal more sympathetically with products from developing countries. The panel report thus constituted a major rejection of EU policy and practice.

  
The EU appeals the panel’s findings
Normally, panel reports are adopted by the DSB 60 days after they are circulated unless there is a consensus not to adopt it — a consensus that does not include the parties to the dispute — or one of the parties launches an appeal to the WTO’s Appellate Body (AB). In this case the EU, despite being vindicated on all but 27 of the 31 claims against it by India, decided to appeal. EU officials were well aware that the panel’s findings had major implications for EU policy and practice. On 1 December 2000, the EU notified the DSB of its intention to appeal certain issues of law covered in the panel report and certain legal interpretations developed by the panel. On 11 December 2000, the EU filed its appellant’s submission. On 18 December 2000, India filed its own submission and on 4 January 2001, Egypt filed a third participant’s submission. On 8 January 2001, India and the EU each filed an appellee’s submission. On the same day, Japan and the United States each filed a third participant’s submission.

The Appellate Body was established by WTO members as a safety valve and to ease US acceptance of the rule that panel reports would be automatically adopted unless there was a consensus not to adopt it. Initially, the expectation was that appeals to the AB would be relatively rare and limited to intricate issues of law, procedure, and interpretation. As it turned out, most panel reports are appealed and the AB has become a very busy part of the dispute settlement process. It is made up of seven permanent members, appointed for fixed four-year terms, of whom three hear individual cases. Most have had extensive previous experience in international law or trade policy or as national judges. It is served by its own legal staff. The AB’s work has, over the first eight plus years of its existence, served to make WTO law more predictable and consistent.  

Appellate reviews do not entail a rehearing of the whole case. Rather, they are limited to considering errors of law and procedure at the original panel stage. Submissions to the AB, therefore, are limited to addressing where, in the opinion of the parties, the original panel erred in its interpretation of WTO law. The AB had before it one claim from the EU, appealing the panel’s rejection of the EU practice of zeroing, and one from India, appealing the panel’s rejection of India’s claim against the EU’s practice of using information from only one producer as the basis for findings about all. 

Similar to the panel proceedings, most of the process is consumed by the submission of briefs by the parties to the dispute and from third parties that participated in the original proceedings. An oral hearing — held on 24 January 2001 in this case — provides the parties an opportunity to present their views directly to the AB panel and for the AB members to question the parties. Similarly to the original panel proceedings, once the AB members are seized of the claims advanced by the parties, they — with the help of the legal officers assigned to the case — analyze the issues and reach a finding. On 1 March 2000, the AB panel circulated its report. The AB sustained the finding of the original panel that the EU practice of ‘zeroing’ was inconsistent with EU obligations, thus rejecting the EU’s appeal. It further ruled that the EU’s practice in constructing normal values on the basis of information limited to one supplier was inconsistent with the ADA, thus sustaining India’s appeal and reversing the original panel’s findings.

As with original panel reports, AB reports are automatically adopted by the DSB at its next meeting or 30 days after they are circulated, whichever comes first, unless the DSB rejects the report on the basis of a consensus exclusive of the parties to the dispute. To date, the DSB has yet to reject either an original panel report or an AB report, although it has expressed its displeasure with details of a number of AB reports. The DSB adopted the AB’s report on 12 March and gave the EU until 12 April 2001 to comply.

  
The rulings become WTO law
In effect, therefore, by the middle of March 2001, some eighteen months after India had first requested a panel, or some 30 months following India’s request for consultations, binding WTO decisions had clearly established that certain EU practices were inconsistent with its obligations under the ADA, requiring the EU to bring its practice into line or face retaliation from India and further censure from the DSB. Most of the delays had been the result of EU tactical maneuvering. The original panel, once constituted, completed its work in less than nine months, and the AB in less than three. The practical effect was that the EU needed to recalculate and adjust its findings of dumping and material injury in the case of bed linen from India, Pakistan, and Egypt, as well as in any other case in which it had relied on the same interpretations of the ADA.[9]

The legal argumentation in both the AB’s report and the original panel’s report are complex, detailed, and repetitive, making it difficult for non-lawyers to interpret the results. The original panel had before it exhaustive argumentation presented by the two disputing parties, as well as briefs from third parties. The AB, in turn, considered argumentation by the two parties, and again third parties, setting out competing views on the narrower legal issues under appeal. For our purposes, the final result can be summarized as follows:

·         Both the original panel and the AB found the practice of ‘zeroing’ to be inconsistent with ADA article 2.2.4; i.e., they rejected the EU practice of inflating margins of dumping by taking account of the average of ‘positive’ dumping margins in investigated products, but ignoring the cases where there are ‘negative’ margins and giving a zero value to them instead.

·         The AB additionally found the EU methodology in calculating the administrative, selling, and general (SG&A) costs and profits, in which it used a method where data applicable to one other exporter or producer is used to apply to all others, to be inconsistent with article 2.2.2(ii).

·         The original panel ruled that the EU did not conduct ‘an evaluation of all relevant economic factors and indices having a bearing on the state of the industry’ and, therefore, failed to act consistently with its obligations under Article 3.4 of the AD Agreement in making a finding of material injury.

·         The original panel additionally ruled that the EU erred in using all types of bed-linen products: bed sheets, duvet covers and pillow cases, packaged for sale either separately or in sets, and made of cotton-type fibres, pure or mixed with man-made fibres or flax, and bleached, dyed or printed — as a single product competing with ‘like’ products of the domestic industry, for certain purposes of investigation, but using the various components of the imported product for calculating export price and normal value and averaging them, to establish dumping, again prejudicing the interests of Indian suppliers and favouring the interests of domestic suppliers.

·         Finally, the original panel ruled that the EU had failed to explore possibilities of constructive alternative remedies before applying anti-dumping duties, as it is required to do in cases involving developing countries consistent with article 15 of the ADA.

      The cumulative impact of these rulings was a major vindication of India’s complaint, and set a critically important precedent: India had successfully challenged the highly prejudicial approach of both the EU and the United States in prosecuting antidumping cases. The case put the authorities in both of the major users of trade remedies on notice that exporting countries, whether poor or not, were prepared to avail themselves of the procedures of the DSU to hold trade remedy officials to account. Ironically, both the United States and the EU had used dispute settlement proceedings to discipline what they considered to be sloppy applications of antidumping proceedings in, for example, Mexico. With the shoe on the other foot, it appeared that both the original panel and the AB were prepared to hold EU and US officials to the same standard.