WT/DS179/R
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ANNEX 1-1
FIRST SUBMISSION OF KOREA
(5 May 2000)
CONTENTS
Page
I. INTRO DUCTION ................................................................................................................. .53
II. PROCEDURAL B ACKGRO UND ........................................................................................56
A. R EQUEST FOR CONSULTATIONS ......................................................................................56
B. C ONSULTATIVE PROCESS ................................................................................................56
C. R EQUEST FOR ESTABLISHMENT OF A PANEL ..................................................................56
D. E STABLISHMENT OF THE PANEL .....................................................................................56
III. STATEMENT OF FACTS.....................................................................................................56
A. I NTRODUCTION TO US A NTI-DUMPING LAW AND PROCEDURE .....................................57
B. P ROCEDURAL FACTS CONCERNING THE US A NTI-DUMPING INVESTIGATIONS
OF KOREAN SSPC AND SSSS .........................................................................................59
1. The SSPC Investigation:  Procedural Facts ..................................................59
2. The SSSS Investigation:  Procedural Facts ...................................................60
C. F ACTS CONCERNING THE WTO D EFICIENCIES OF THE US A NTI-DUMPING
MEASURES AT ISSUE .......................................................................................................62
1. POSCO’s Sales to an Unaffiliated Customer that Later Went Bankrupt ..62
2. The Division of the Investigation Period into Separate
"Averaging Periods" for Purposes of Comparing AverageNormal Values with Average Export Prices ....................................................64
3. POSCO’s Dollar-Priced "Local Sale s" in the Korean Home Market.........66
(a) POSCO’s Accounting Practices for the Different Types of Sales It
Makes .........................................................................................................66
(b) POSCO’s Reported Local Sales of SSSS and SSPC..................................69
(c) The DOC’s Treatmen t of Local Sales ........................................................70
(d) The DOC’s Rationale for Its Treatment of POSCO’s "Local Sales" .........71
IV. LEGAL AR GUMENT............................................................................................................74
A. T
HE UNITED  STATES ’ TREATMENT OF POSCO’ S SALES TO AN UNAFFILIATED
US C USTOMER THAT LATER WENT BANKRUPT WAS UNFAIR AND
INCONSISTENT WITH GATT 1994 AND THE ANTI-DUMPING AGREEMENT ....................76
1. The United States Unfairly Adjusted POSCO’s Export Price to
Account for a Factor that Does Not "Affect Price Comparability," in
Violation of Article VI:1 of GATT 1994 and Article 2.4 of the
Anti-Dumping Agreement...............................................................................77WT/DS179/R
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(a) Article VI:1 of GATT 1994 and Article 2.4 of the  Anti-Dumping
Agreement Permit Adjustments to the Prices Being Compared
Only for "Differences Which Affect Price Comparability" .......................77
(b) A Customer’s Failure to Pay Is Not a Difference Affecting Price
Comparability for Which an Adjustment is Permitted under GATT
Article VI:1 and Article 2.4 of the Anti-Dumping Agreement ..................78
(c) One Customer’s Failure to Pay Is Not a "Difference Affecting
Price Comparability" for Which Adjustments May be Made to thePrices of Other Sales to Ot her Customers Who Did Pay ...........................79
2. The United States’ Treatment of the Non-payment by One
Customer Was Inconsistent with the "Fair Comparison" Requirement
of Article 2.4 of the Anti-Dumping Agreement .............................................80
(a) Article 2.4 of the Anti-Dumping Agreement Mandates that the
Comparison of Export Price to Normal Value, Which Underpins
Any Finding of Dumping,  Must be "Fair" .................................................81
(b) The Adjustment to Export Price for the Non-payment by One
Customer Was Inconsistent with the "Fair Comparison"Requirement of Article 2.4 of the Anti-Dumping Agreement ...................81
(c) As Past Decisions of the United States Have Recognized, the
Inclusion of Atypical US or Home-Market Sales in the Price
Comparisons Used to Calculate Dumping Margins Is Unfair....................82
3. The Failure of the United States to Follow Its Established Practice
and Exclude these Atypical US Sales from Its Analysis, and theFailure to Provide a Coherent Rationale for Its Treatment of these
Sales, Were Inconsistent with Article X:3(a) of GATT 1994 and
Article 12.2 of the Anti-Dumping Agreement ...............................................83
(a) Article X:3(a) of GATT 1994 Establishes "Minimum Standards of
Transparency and Procedural Fairness" that Are Amplified by the
Specific Procedural Requirements of the Anti-Dumping
Agreement ..................................................................................................83
(b) The DOC’s Treatment of the Atypical US Sales Failed to Meet the
"Minimum Standards" of Procedural Fairness Set by
Article X:3(a) of GATT 1994 and Article 12.2 of the Anti-
Dumping Agreement..................................................................................84
B. T
HE UNITED  STATES UNFAIRLY CHANGED ITS METHODOLOGY FOR
CALCULATING DUMPING MARGINS , ALLEGEDLY TO ACCOUNT FOR THE
DEPRECIATION OF THE KOREAN WON, IN VIOLATION OF ARTICLES   2.4, 2.4.1,
AND 2.4.2 OF THE ANTI-DUMPING AGREEMENT .............................................................86
1. The "Multiple Averaging" Methodology Used by the United States
Is Inconsistent with Article 2.4.2 of the Anti-Dumping Agreement...............86
2. The Change in the Price Comparison Methodology Adopted by the
United States to Account for the Devaluation of the Korean Won Is
Inconsistent with the Requirements of Article 2.4.1 of the
Anti-Dumping Agreement, Which Permits Departures from the
Normal Comparison Methodology Only for an Appreciation of
the Exporting Count ry’s Currency...................................................................87WT/DS179/R
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3. The Use of the "Multiple Averaging" Methodology Was
Inconsistent with the Procedural Requirements of GATT 1994and the Anti-Dumping Agreement .................................................................89
4. The "Multiple Averaging" Methodology Is Inconsistent with the
Underlying Basis for the Anti-Dumping Measures against SSPC
and SSSS, and Thus Deprived POSCO of the "Fair Comparison"Required by Article 2.4 of the Anti-Dumping Agreement ...........................90
C. T
HE COMPARISON OF NORMAL VALUE TO EXPORT PRICE WAS UNFAIR AND
CONTRARY TO THE REQUIREMENTS OF THE ANTI-DUMPING AGREEMENT ,
BECAUSE THE UNITED  STATES INFLATED THE NORMAL VALUE BY "DOUBLE
CONVERTING " DOLLAR -PRICED SALES IN KOREA INTO WON AND THEN BACK
INTO DOLLARS USING DIFFERENT EXCHANGE RATES ...................................................91
1. The "Double Conversion" of the Dollar-Denominated Home-Market
Sales Prices Violated Article 2.4.1 of the Anti-Dumping Agreement,
Which Permits Currency Conversions Only When Such ConversionsAre Required ....................................................................................................92
2. The "Double Conversion" Methodology Employed by the
United States Is Unreasonable and Departs from Established Practice
Without Adequate Explanation, and Thus Is Inconsistent with the
"Uniform" and "Reasonable" Administration of the Anti-Dumping
Laws Required by GATT Article X:3(a) and Article 12 of theAnti-Dumping Agreement...............................................................................93
(a) The "Double Conversion" Methodology Employed by the
United States Constituted a Departure from Its Previous Practice
that Was Unwarranted, Contrary to the Evidence, and
Inadequately Explained..............................................................................93
(b) The "Double Conversion" Methodology Adopted by the
United States Unreasonably Penalizes Exporters for Differences
Between Official Korean and US Exchange Rates, and Is
Otherwise Unreasonable ............................................................................96
3. The Double-Conversion Methodol ogy Adopted by the United States
Unfairly Penalizes Exporters for Differences between Official Korean
and US Exchange Rates, Even Though Such Differences CannotBe Anticipated and Are Beyond the Exporters’ Control .............................97
V. CONCLUS ION ................................................................................................................... ....98
NOTE:  In this submission, including the exhibits, Korea has placed information which POSCO has
previously designated as business proprietary information in brackets ("{ }").  This information has
been omitted and the brackets left in the text."{ }"WT/DS179/R
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I. INTRODUCTION
1.1 The Republic of Korea ("Korea") contests the anti-dumping measures imposed by the
United States on stainless steel plate in coils ("SSPC ") and stainless steel sheet and strip in coils
("SSSS") from Korea, respectively, on 21 May 1999 and 27 July 1999.  These anti-dumping measuresare inconsistent with the obligations of a Member of the World Trade Organization ("WTO"),
including Article VI and X of the General Agreement on Tariffs and Trade 1994 ("GATT 1994") and
Articles  1, 2, 6, and 12 of the Agreement on Implementation of Article VI of the General Agreement
on Tariffs and Trade 1994 (the "Anti-Dumping Agreement").
1.2 In the proceedings that led to the imposition of anti-dumping measures on SSPC and SSSS
from Korea, the United States made critical errors on three major issues, which resulted in a massive
overstatement of the "dumping margins" found fo r Pohang Iron & Steel Co., Ltd.  ("POSCO"), the
Korean producer.  As discussed below, the treatment of these issues by the United States violated
numerous individual provisions of GATT 1994 and the Anti-Dumping Agreement.  As a result, the
United States imposed anti-dumping measures far in excess of those permitted by the Anti-DumpingAgreement, when a proper analysis would have resulted in little, if any, dumping margins for POSCO.
1.3 The first of these issues arose from the fact that an unrelated US customer of POSCO went
bankrupt and, as a result, failed to pay POSCO for certain purchases.  In its preliminary
determinations, the United States had excluded POSCO’s sales to this customer from its analysis,
because it concluded that these sales were "atypical."  However, in its final determinations, theUnited States reversed course:  It included these sales in its calculation of the export price, and also
deducted the cost of these unpaid sales as an adjustment to the export price—thus reducing the export
price of all US sales to all US customers.  Not surprisingly, the comparison of these reduced export
prices to home-market prices artificially created and inflated the dumping margins.  In applying this
methodology, the United States acted inconsisten tly with its WTO obligations in the following
respects:
• Article VI:1 of GATT 1994 and Article 2.4 of the Anti-Dumping Agreement permit
adjustments to be made only for "differences which are … demonstrated to affect price
comparability."  But the fact that a customer unexpectedly goes bankrupt after a sale is made
does not affect the comparability of prices that were set at the time of sale.  Consequently, the
non-payment by the bankrupt US customer did no t, and was not demonstrated to, affect price
comparability — neither for the specific US sales for which the customer did not pay, nor for
the other US sales to other US customers who di d pay.  Accordingly, the adjustment made for
the bankrupt customer’s non-payment was inco nsistent with the provisions of GATT 1994
and the Anti-Dumping Agreement.
• Article 2.4 of the Anti-Dumping Agreement also requires the investigating authorities to
make a "fair comparison" of export price and normal value.  The inclusion of the unpaid salesin the dumping calculations, and the deduction of the cost of the bankrupt customer’s
unexpected non-payment from the export prices for all US sales to all US customers, was notconsistent with this fair comparison requirement, because:  (1)it created an unbalanced
comparison that distorted the results, and (2)it effectively penalized POSCO for a factor
beyond its control, despite established US judicial precedents holding that it is "unreal,
unreasonable and unfair" for a finding of dumping to be based on "a factor beyond the control
of the exporter."
• Article X:3(a) of GATT 1994 requires each WTO Member to "administer … its laws,
regulations, decisions and rulings" in a "uniform, impartial and reasonable manner."  Themethodology employed by the United States was not consistent with this requirement,
because it failed to follow, and failed to provide a rational basis for departing from,WT/DS179/R
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established US practice.  The United States has acknowledged that the inclusion in dumping
calculations of sales that are "extraordinary for the market in question" can "lead to irrational
or unrepresentative results."  To avoid such results, the United States routinely excludes
atypical sales from its analysis of export price and normal value.  Despite conceding that thesales to the bankrupt customer were atypical, however, the United States failed to follow that
established practice in these cases.  Also, Article 12.2 of the Anti-Dumping Agreement
requires the investigating authorities to provide a full explanation of the reasons for their
determinations.  In these cases, however, the United States failed to provide an adequate
explanation of its decisions.
1.4 The second of these issues arose from the manner in which the United States calculated and
compared the average export prices and normal values to determine the dumping margin.  Under the
Anti-Dumping Agreement and the normal methodology employed by the United States, the
investigating authority calculates a single average export price and a single average normal value, and
then determines the dumping margins by comparing these single averages.  In these cases, however,the United States departed from its established practice and the explicit requirements of the Anti-
Dumping Agreement, by dividing the period of investigation into sub-periods and then calculating
dumping margins based on a comparison of the average export price and normal value for each of
these sub-periods (rather than for the entire investig ation period).  The United States claimed that this
departure from the proper methodology was required to account for the devaluation of the Koreanwon during the investigation period.  The effect of th is departure, however, was to artificially create
dumping margins in a manner contrary to the WTO obligations of the United States:
• Article 2.4.2 of the Anti-Dumping Agreement requires that the calculation of dumping
margins be based on a comparison of a single average normal value to a single average of"prices of all comparable export transactions."  A "multiple averaging" methodology is not
consistent with that requirement.
• Article 2.4.1 of the Anti-Dumping Agreement permits alterations to the standard price
comparison methodology to account for curr ency movements only when the exporting
country’s currency is appreciating against the importing country’s currency in a manner that
would create or inflate dumping margins.  It does not permit alterations to the standard price
comparison methodology to account for currency devaluations that would reduce the dumping
margins.  Consequently, the adoption of a "multiple averaging" methodology to account for a
currency devaluation was not consistent with the requirements of Article 2.4.1.
• As mentioned, Article X:3(a) of GATT 1994 requires each WTO Member to "administer ...
its laws, regulations, decisions and rulings" in a "uniform, impartial and reasonable manner."
In a decision addressing the same issue in another case (which was issued only months before
the decisions in these cases), the United States held that no adjustment to its standard price
comparison methodology was appropriate to account for the devaluation.  In these cases,
however, the United States failed to follow that established methodology—and thus did not
act in a uniform and reasonable manner.  Also, Article 12.2 of the Anti-Dumping Agreementrequires the investigating authorities to provide a full explanation of the reasons for their
determinations.  In these cases, however, the United States failed to provide an adequate
explanation of its departure from the standard single-average methodology.
• Articles 6.1, 6.2, and 6.9 of the Anti-Dumping Agreement require the investigating authorities
to give exporters notice of all "essential fact s" in order to provide them with a "full" and
"ample opportunity" to defend their interests.  In these cases, however, the United States did
not decide to depart from its established methodology until the final stage of the anti-dumping
investigations (after the United States had foll owed its established policy in the preliminaryWT/DS179/R
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determinations).  The United States therefor e failed to provide POSCO with the required
opportunity to fully defend its interests.
• Finally, Article 2.4 of the Anti-Dumping Agreement requires investigating authorities to base
anti-dumping measures on a "fair comparison."  In the unique circumstances of these cases,
the "multiple-averaging" methodology was not consistent with that requirement.  In effect, the"multiple averaging" methodology allowed the Unit ed States to base the finding of dumping
solely on sales before the devaluation of the Korean won, when a proper analysis showed that
there was no dumping after the devaluation.  Such a result is fundamentally unfair where, as
in these cases, petitioners’ claims of injury were explicitly based on the alleged impact of
increasing imports caused by the "Asian economic  crisis" that accompanied the devaluation of
the Korean won and, the United States based its affirmative injury determinations— which
allowed it to impose anti-dumping measures— on these post-devaluation imports.
1.5 The third of these issues arose from certain "local sales" POSCO made in its home market, for
which the prices were set in US dollars.  The United States did not base its calculation of normal
value for these sales on the actual invoice prices in US dollars— as it had in previous cases involving
similar dollar-denominated home-market sales.  Instead, it converted the dollar-denominated home-
market sales into Korean won using one exchange ra te, and then converted them back into US dollars
(for comparison to export price) using a different exchange rate.  The United States held that this
methodology was appropriate, because the exchange rates used to record these transactions in
POSCO’s internal accounting records— although matching the official exchange rates announced bythe Korean Exchange Bank— differed slightly from certain US benchmark rates.  The result,
however, was the artificial creation and inflation of the dumping margins, in a manner that was
contrary to the following WTO obligations of the United States:
1.6 Article 2.4.1 of the Anti-Dumping Agreement, which permits currency conversions only
when such conversions are "required."  The distortive "double-conversion" of the dollar-denominated
home-market sales prices was not "required," however, when the United States could simply have
used the dollar-denominated prices without  conversion, and thus avoided the distortion.
• Article 2.4 of the Anti-Dumping Agreement requires investigating authorities to base anti-
dumping measures on a "fair comparison."  In this case, however, the United States employed
a distortive comparison that created and inflated the dumping margins because POSCO’s
internal records used the official exchange rates set by the Korean Exchange Bank, and not
US exchange rates that were not even known on the relevant date.
• Finally, Article X:3(a) of GATT 1994 requires ea ch WTO Member to "administer ...  its laws,
regulations, decisions and rulings" in a "uniform, impartial and reasonable manner."  TheUnited States failed to act in the required uniform and reasonable manner when it chose not to
follow its established methodology of using dol lar-denominated home-market prices without
conversion.  It also failed to act reasonably when it rejected the official exchange rates set by
the Korean Exchange Bank, and held that POSCO should have used US exchange rates thatwere not even known on the relevant date.  Also, Article 12.2 of the Anti-Dumping
Agreement requires the investigating authorities to provide a full explanation of the reasons
for their determinations.  In these cases, however, the United States failed to provide an
adequate explanation of the departure from its past practices.
1.7 As a result of its treatment of these three critical issues, the United States imposed anti-
dumping measures against SSPC and SSSS from Korea in circumstances not provided for in
Article VI of GATT 1994 and pursuant to investigations not conducted in accordance with the Anti-
Dumping Agreement.  The imposition of these anti-dumping measures thus violated Article 1 of the
Anti-Dumping Agreement and Article VI of GATT 1994.WT/DS179/R
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1.8 Korea therefore requests that the Panel find that:  (i) the US anti-dumping measures
concerning imports of SSPC and SSSS from Korea, in cluding the anti-dumping investigations and
other actions preceding these measures, are inconsistent with the provisions of the Anti-Dumping
Agreement and GATT 1994;  (ii) the United States has nullified or impaired benefits accruing,directly or indirectly, to Korea under the WTO Agreements;  and (iii) the United States is impeding
the achievement of the objectives of the WTO Agreements.  Korea also requests that the Panel
recommend that the United States bring its anti-dumping measures against SSPC and SSSS from
Korea into conformity with the WTO Anti-Dumping Agreement and GATT 1994.  Specifically,
Korea further requests that the Panel suggest that the United States revoke the anti-dumping dutyorders concerning SSPC and SSSS from Korea.
II. PROCEDURAL BACKGROUND
A. R
EQUEST FOR CONSULTATIONS
2.1 On 30 July 1999, Korea requested consultations with the United States regarding the anti-
dumping measures against SSPC and SSSS from Korea that are being imposed on the basis ofdumping investigations conducted in a manner that was unfair and inconsistent with the WTO
Agreements (WT/DS179/1).  Korea made its request pursuant to Article 4 of the Understanding on
Rules and Procedures Governing the Settlement of Disputes (the "Dispute Settlement Understanding"
or "DSU"), Article XXIII:1 of GATT 1994, and Article 17.3 of the Anti-Dumping Agreement.
B. C
ONSULTATIVE PROCESS
2.2 Pursuant to this request, Korea and the United States consulted in Geneva on
17 September 1999.  Unfortunately, the consultations failed to resolve the dispute.
C. REQUEST FOR ESTABLISHMENT OF A PANEL
2.3 On 14 October 1999, Korea requested the establishment of a panel with the standard terms of
reference provided by Article 7 of the DSU (WT/DS179/2).  Korea made this request pursuant to
Article 6 of the DSU, Article XXIII:2 of GAT T 1994, and Article 17.5 of the Anti-Dumping
Agreement.  Korea’s panel request sets forth the challenged US measures with specificity, along with
the legal basis of the complaint.
D. ESTABLISHMENT OF THE PANEL
2.4 On 19 November 1999, the Dispute Settlement  Body (the "DSB") established a panel
pursuant to Korea’s request.  The Panel’s terms of reference are:
To examine, in light of the relevant provisions of the covered agreements cited by
Korea in document WT/DS179/2 the matter referred to the DSB by Korea in thatdocument and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements.
The members of the Panel are Mr. José Antonio S. Buencamino (Chairman), Ms. Enie Neri de Ross,
and Mr. G. Bruce Cullen (WT/DS179/3).
III. STATEMENT OF FACTS
3.1 As the measures at issue are anti-dumping measures arising from two separate, but broadly
similar, anti-dumping investigations under US anti-dumping law, this Statement of Facts is organized
as follows:WT/DS179/R
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3.1.1 Part A provides an introduction to US anti-dumping law and procedure.
3.1.2 Part B describes the procedural history of the US anti-dumping investigations of
Korean SSPC and SSSS.
3.1.3 Part C provides the facts most relevant to the WTO deficiencies of the US anti-
dumping measures against Korean SSPC and SSSS.
A. INTRODUCTION TO US A NTI-DUMPING LAW AND PROCEDURE
3.2 In the United States, responsibility for administering the anti-dumping laws is divided
between the US Department of Commerce (the " DOC") and the US International Trade Commission
(the "USITC").  The DOC is responsible for determin ing whether or not imports are being sold in the
United States at "less than fair value" ( i.e., whether the imports are being "dumped").  The USITC is
responsible for determining whether or not imports ar e causing or threatening injury to a US industry.
For the United States to issue an anti-dumping order and thereby impose final anti-dumping measures,
it is necessary for the DOC to make a final affirmative determination of dumping and for the USITC
to make a final affirmative determination of injury.1
3.3 The DOC makes the determination of dumping by comparing the "export price" (for sales tothe United States) to the " normal value" (which is normally based on the prices for home-market
sales).  Under US law, the export price and normal value are subject to certain adjustments before
they are compared.
2  The DOC then calculates an average adjusted normal value and export price for
each product comparison.  The "dumping margin" for each product then represents the amount by
which the average adjusted normal value exceeds the average adjusted export price for that product
(i.e., normally the price difference between the home-market price and the export price).
                                                     
1 The US statutory provisions authorizing the DOC and USITC to perform investigations and impose
anti-dumping duties are set forth in Section 731 et seq. of the Tariff Act of 1930, as amended (the "Tariff Act").
These statutory provisions are codified in Section 1673 et seq. of Title 19 of the US Code.  The DOC’s
regulations addressing the procedures and substantive methodologies employed in its anti-dumping
investigations and reviews are set forth in Section 351 of Title 19 of the Code of Federal Regulations.  A copyof the relevant provisions of the US anti-dumping statute is provided in ROK Ex. 1.  A copy of the relevantprovisions of the DOC’s regulations is provided in ROK Ex. 2.
2 The manner in which these adjustments are made depends, in part, on whether the US sales being
analyzed are classified as "export-price" or "constructed -export-price" sales.  As a general matter, an "export-
price" analysis is used when the merchandise is sold by the exporter directly to an unaffiliated customer in theUnited States (or in certain situations in which the merchandise is sold through an affiliated importer).  Aconstructed-export-price analysis is used in certain circumstances where the merchandise is sold through an
affiliated importer in the United States.  See Tariff Ac t §§ 772(a) and (b), 19 USC.  §§ 1677a(a) and (b).
Under US law, when a "constructed-export-price" analysis is used, the DOC will deduct from the US
sales price the amount of any " direct selling expenses " incurred on the US sales.  See Tariff Act § 772(d), 19
USC.  § 1677a(d).  By contrast, when an "export price" analysis is used, the DOC does not deduct these USdirect selling expenses from US price.  Instead, the DOC makes the adjustment for the US direct sellingexpenses by  increasing the normal value  — that is, it adds to the home-market price the amount of the direct
selling expenses incurred on the comparable US sales.  See Tariff Act § 773(a)(6)(C)(iii), 19 USC.§ 1677b(a)(6)(C)(iii).  See also 19 C.F.R.  § 351.410(c).
However, the net effect on the dumping margins of these two methodologies is essentially the same,
since an increase in the normal value has the same eff ect as a decrease in the export price when calculating the
"price difference" between the two.  Therefore, for purposes of simplicity, this Submission will refer to"decreases in the export price on all US sales" to refer to the combined effect of increases in the normal value
for some US sales and decreases in the export price for the other US sales.WT/DS179/R
Page 58
3.4 After the DOC initiates an anti-dumping investigation, the USITC makes a preliminary injury
determination.  If the preliminary determination of the USITC is affirmative, the investigation returns
to the DOC.  In order to gather the information needed for the anti-dumping investigation, the DOC
issues questionnaires requesting information about exporters’  costs, export prices, home-marketprices, and other issues.
3.5 The DOC reaches its preliminary determination on the basis of the facts presented in the
exporters’ responses to the questionnaires.  The DOC may also address legal issues needed to reach a
preliminary determination.  The analysis underlying the preliminary determination is explained in thepublished notice of the DOC preliminary determination, and in an internal DOC "analysis
memorandum," which is provided to the parties.
3
3.6 The DOC next conducts "verification" of the responses to the questionnaires and prepares its
"verification reports."  After verification, the DOC prepares a report on its verification findings, whichis provided to the parties.  The parties participat ing in the investigation then simultaneously submit
"case briefs" to the DOC concerning  legal issues raised by the preliminary determination.  Each later
simultaneously submits a "rebuttal brief" commenting on the other’s arguments.  A hearing may then
be held at which the parties explain their arguments, and respond to the arguments of the other parties,
before DOC officials.
3.7 The DOC then reaches its final determination.  As with the preliminary determination, the
analysis underlying the final determination is explained in the published notice of the determination,
and in an internal DOC "analysis memorandum."  Th e published notice of the final determination also
summarizes comments made by the parties in their briefs and presents the DOC’s view of thosecomments.
3.8 If the DOC’s final determination is negative ( i.e., if the DOC determines that US sales are not
being made at prices below normal value), the investigation ends.  On the other hand, if the DOC’s
final determination is affirmative, the investigatio n returns to the USITC.  The USITC then makes a
final determination whether the imports are causing or threatening injury to a US industry.  If the
USITC makes a negative final determination, the investigation ends.  If the USITC makes anaffirmative final determination, it so notifies the DOC, which then publishes an anti-dumping order.
3.9 The determinations by the DOC and USITC are published in the US Federal Register.  The
published determinations by the DOC normally contain a discussion of the issues that have arisen in
the investigation, as well as an explanation of the DOC’s position on the comments raised by theparties.  These published DOC determinations are also supplemented by internal "analysis
memoranda" by the DOC’s staff.
3.10 The final decisions by the DOC and USITC may be appealed, as a matter of right, to the US
Court of International Trade ("USCIT").  The decisions by the USCIT may then be appealed, as amatter of right, to the US Court of Appeals for th e Federal Circuit ("CAFC").  The parties may request
that the US Supreme Court review decisions by the CAFC;  however, the US Supreme Court is not
obligated to accept such appeals and, in practice, it has never accepted an appeal of a decision by the
CAFC arising from an anti-dumping proceeding.
                                                     
3 The DOC’s procedures also permit the parties to  comment on any "ministerial" errors in the
preliminary determination.  If the DOC agrees that there were "ministerial errors," it may issue an amendedpreliminary determination correcting those errors.WT/DS179/R
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B. PROCEDURAL FACTS CONCERNING THE US A NTI-DUMPING INVESTIGATIONS OF KOREAN
SSPC AND SSSS
1. The SSPC Investigation:  Procedural Facts
3.11 On 20 April 1998, at the behest of US steel companies and workers, the DOC initiated an
anti-dumping investigation of imports of SSPC from Korea and five other countries.4  The "period of
investigation" (for purposes of determining whether dumping had occurred) covered the period from
1 January 1997 through 31 December 1997.5
3.12 On 27 May 1998, the DOC issued a questionnaire to POSCO.6  POSCO timely responded to
Section A of the questionnaire on 1 July 1998 and to  Sections B, C, and D of the questionnaire on
20 July 1998.7  The DOC issued supplemental questionnaires in July, August, September and
October 1998, to which POSCO timely responded.8
3.13 On 27 October 1998, the DOC formally issued the preliminary determination in the SSPCinvestigation.  The DOC preliminarily determined that the dumping margin for Korean SSPC was
only 2.77%.
9  The methodologies used in the preliminary determination were described in the notice
of the preliminary determination, and in an analysis memorandum also dated 27 October 1998.10  The
substance of this preliminary determination is discussed, in relevant part, below.
3.14 From 9 to 13 November 1998, the DOC conducted  verification of POSCO’s responses to the
DOC questionnaires as they pertained to POSCO’s sales.11  From 19 to 20 November 1998, the DOC
conducted verification pertaining to the US sales of POSCO’s US affiliate, Pohang Steel America
("POSAM").  From 7 to 15 December 1998, the DOC  conducted verification pertaining to POSCO’s
costs.  The verified evidence is discussed, in relevant part, below.
3.15 On 26 January 1999, the DOC received case briefs from POSCO and the US petitioners.12  On
2 February 1999, the DOC received rebuttal briefs from POSCO and the US petitioners.13
3.16 On 19 March 1999, the DOC issued its fina l determination regarding SSPC.  Because of
several changes from the analysis in the SSPC Preliminary Analysis Memorandum, the "dumping
margin" for Korean SSPC increased from 2.77%  in the preliminary determination to 16.26%  in the
                                                     
4 See Notice of Initiation, 63 Fed. Reg. 20580, 20585 (27 April 1998) (hereinafter, "SSPC Notice of
Initiation").  A copy of the SSPC Notice of Initiation is provided as ROK Ex. 3.
5 Notice of Preliminary Determination of Sales at Less than Fair Value:  Stainless Steel Plate in Coils
("SSPC") from the Republic of Korea, 63 Fed. Reg. 59535, 59536 (4 Nov.  1998) (hereinafter, "SSPC
Preliminary Determination").  A copy of the SSPC Preliminary Determination is provided as ROK Ex. 4.
6 SSPC Preliminary Determination, ROK Ex. 4, at 59536.  The DOC also issued a questionnaire to
another Korean steel company.  The other company responded that it did not export the merchandise underinvestigation to the United States during the period of investigation.  Id.
7 Id.
8 Id.
9 Id.  at 59539.
10 DOC Memorandum to File of 27 October 1998, at 1 (hereinafter, "SSPC Preliminary Analysis
Memorandum").  SSPC Preliminary Analysis Memorandum is provided at ROK Ex. 5.
11 DOC Memorandum to File of 5 January 1999, at 1 (hereinafter, "SSPC Sales Verification Report").
Excerpts of the SSPC Sales Verification Report are provided at ROK Ex. 6.
12 POSCO’s Case Brief of 26 January 1999 (hereinafter, "POSCO’s SSPC Case Brief") is provided at
ROK Ex. 7.  The US Petitioners’ Case Brief of 26 January 1999 (hereinafter, "US Petitioners’ SSPC Case
Brief’) is provided at ROK Ex. 8.
13 POSCO’s Rebuttal Brief of 2 February 1999 (hereinafter, "POSCO’s SSPC Rebuttal Brief") is
provided at ROK Ex. 9.  The US Petitioners’ Rebuttal Brief of 2 February 1999 (hereinafter, "US Petitioners’
SSPC Rebuttal Brief") is provided at ROK Ex. 10.WT/DS179/R
Page 60
final determination.14  The changes in the DOC’s analysis were described in the notice of the final
determination and in the final "analysis memorandum.15  The substance of the DOC’s final
determination and final "analysis memorandum" is discussed, in relevant part, below.
3.17 Also on 19 March 1999, the DOC provided to POSCO and the US petitioners various
"disclosure documents" containing data used in connection with the DOC’s final analysis.
3.18 On 4 May 1999, the USITC informed the DOC of its final affirmative injury determination.16
On 21 May 1999, the DOC issued its anti-dumping order with respect to SSPC, setting the cash
deposit rate for Korean SSPC at 16.26%.17
2. The SSSS Investigation:  Procedural Facts
3.19 On 30 June 1998, at the behest of US steel companies and workers, the DOC initiated an anti-
dumping investigation of imports of SSSS from Korea and seven other countries.18  The "period of
investigation" (for purposes of determining whether dumping had occurred) covered the period from
1 April 1997 through 31 March 1998.19
3.20 On 3 August 1998, the DOC issued a questionnair e to POSCO and several other Korean steel
companies.20  POSCO timely responded to Section A of the questionnaire on 8 September 1998 and to
Sections B, C, and D of the questionnaire on 23 September 1998.21  The DOC issued three
supplemental questionnaires to POSCO in Oct ober 1998, to which POSCO timely responded in
November 1998.22
3.21 On 17 December 1998, the DOC issued its prel iminary determination regarding SSSS.  The
DOC preliminarily determined that the dumping margin for POSCO’s SSSS was 12.35%.23  T h e
DOC’s analysis was described in the notice of th e preliminary determination in the preliminary
"analysis memorandum" also dated 17 December 1998.24  The substance of the DOC’s analysis is
discussed, in relevant part, below.
                                                     
14 Notice of Final Determination of Sales at Less than Fair Value:  Stainless Steel Plate in Coils
("SSPC") from the Republic of Korea, 64 Fed. Reg. 15444, 15456 (31 Mar.  1999) (hereinafter, "SSPC FinalDetermination").  The SSPC Final Determination is provided at ROK Ex. 11.
15 DOC Memorandum to File of 19 March 1999, at 1 (hereinafter, "SSPC Final Analysis
Memorandum").  The SSPC Final Analysis Memorandum is provided at ROK Ex. 12.
16 See Antidumping Duty Orders, 64 Fed. Reg. 27756 (21 May 1999) (hereinafter, "SSPC Anti-
Dumping Order").  The SSPC Anti-Dumping Order is provided at ROK Ex. 13.
See also Certain Stainless Steel Plate from Belgium,  Canada, Italy, Korea, South Africa, and Taiwan,
64 Fed. Reg. 25515 (12 May 1999).  The USITC’s explanation of its final injury determination was set forth
separately in its publication Certain Stainless Steel Plate from Belgium, Canada, Italy, Korea, South Africa andTaiwan, USITC Pub.  3188 (May 1999) (hereinafter, "SSPC Final Injury Determination").  The SSPC FinalInjury Determination is provided as ROK Ex. 14.
17 SSPC Anti-Dumping Order, ROK Ex. 13, at 27757.
18 See Notice of Initiation of Antidumping Duty Investigations, 63 Fed. Reg. 37521, 37528
(13 July 1998) (hereinafter, "SSSS Notice of Initiation").  A copy of th e SSSS Notice of Initiation is provided as
ROK Ex. 15.
19 Notice of Preliminary Determination of Sales at Less than Fair Value:  Stainless Steel Sheet and
Strip in Coils from South Korea, 64 Fed. Reg. 137, 139 (4 Jan.  1999) (hereinafter, "SSSS Preliminary
Determination").  A copy of the SSSS Preliminary Determination is provided as ROK Ex. 16.
20 Id.  at 137.
21 Id.
22 Id.
23 Id.  at 147.
24 DOC Memorandum to File of 17 December 1998,  at 1 (hereinafter, "SSSS Preliminary Analysis
Memorandum").  The SSSS Preliminary Analysis  Memorandum is provided at ROK Ex. 17.WT/DS179/R
Page 61
3.22 On 28 December 1998, POSCO pointed out that the DOC made three "significant ministerial
errors" in its preliminary determination regarding SSSS.  On 14 January 1999, the DOC concluded
that POSCO was correct.  Therefore, the DOC amended its preliminary determination.  Upon
recalculation with the ministerial errors correc ted, the DOC preliminarily determined that the
dumping margin for POSCO’s SSSS was only 3.92%.25
3.23 From 7 to 15 December 1998, the DOC conducted verification of POSCO’s responses to the
DOC questionnaires as they pertained to POSCO’s costs.  From 22 to 26 February 1999, the DOCconducted verification pertaining to POSCO’s sales.
26  From 17 to 18 March 1999, the DOC
conducted verification of the US sales of POSAM, POSCO’s US affiliate.  The verified evidence is
discussed, in relevant part, below.
3.24 On 15 April 1999, the DOC received case briefs from POSCO and the US petitioners.27  On
21 April 1999, the DOC received rebuttal brie fs from POSCO and the US petitioners.28
3.25 On 19 May 1999, the DOC issued its final determination regarding SSSS.  Because of
changes from the analysis in the SSSS Preliminary Determination, the dumping margin for POSCO’s
SSSS increased from 3.92%  in the amended preliminary determination to 12.12%  in the final
analysis.29  The DOC’s revised analysis was described in the notice of the final determination and in
the final "analysis memorandum" also dated 19 May 1999.30  The substance of the DOC’s final
analysis is discussed, in relevant part, below.
3.26 Also on 19 May 1999, the DOC provided to POSCO and the US petitioners various
"disclosure documents" containing data used in connection with the DOC’s final analysis.
3.27 On 19 July 1999, the USITC informed the DOC of  its final affirmative injury determination
with respect to imports of SSSS from Korea and two other countries.31
                                                     
25 Notice of Amended Preliminary Determination of Sales at Less Than Fair Value:  Stainless Steel
Sheet and Strip in Coils from South Korea, 64 Fed. Reg. 3928, 3930 (26 Jan.  1999) (hereinafter, "SSSSAmended Preliminary Determination").  The SSSS Amende d Preliminary Determination is provided at ROK
Ex. 18.
26 DOC Memorandum to File of 6 April 1999, at 1 (hereinafter, "SSSS Sales Verification Report").
Excerpts of the SSSS Sales Verification Report are provided at ROK Ex. 19.
27 POSCO’s Case Brief of 15 April 1999 (hereinafter, "POSCO’s SSSS Case Brief") is provided at
ROK Ex. 20.  The US Petitioners’ Case Brief of 15 April 1999 (hereinafter, "US Petitioners’ SSSS Case Brief")
is provided at ROK Ex. 21.
28 POSCO’s Rebuttal Brief of 21 April 1999 (hereinafter, "POSCO’s SSSS Rebuttal Brief’) is provided
at ROK Ex. 22.  The US Petitioners’ Rebuttal Brief of 21 April 1999 (hereinafter, "US Petitioners’ SSSSRebuttal Brief") is provided at ROK Ex. 23.
29 Notice of Final Determination of Sales at Less Than Fair Value:  Stainless Steel Sheet and Strip in
Coils from the Republic of Korea, 64 Fed. Reg.  30664, 30688 (8 June 1999) (hereinafter, "SSSS Final
Determination").  The SSSS Final Determination is provided at ROK Ex. 24.
30 DOC Memorandum to File of 19 May 1999, at 1 (hereinafter, "SSSS Final Analysis Memorandum").
The SSSS Final Analysis Memorandum is provided at ROK Ex. 25.
31 See Notice of Antidumping Duty Order;  64 Fed. Reg. 40555 (27 July 1999) (hereinafter, "SSSS
Anti-Dumping Order").  The SSSS Anti-Dum ping Order is provided at ROK Ex. 26.
See also Certain Stainless Steel Sh eet and Strip from France, Germany, Italy, Japan, the Republic of
Korea, Mexico, Taiwan, and the United Kingdom, 64 Fed. Reg. 40896, 40897 (28 July 1999).  The USITC’s
explanation of its final injury determination was set forth separately in its publication Certain Stainless SteelSheet and Strip from France, Germany, Italy, Japan, the Republic of Korea, Mexico, Taiwan, and the United
Kingdom, USITC Pub.  3208 (July 1999) (hereinafter "SSSS Final Injury Determination").  The relevant
portions of the SSSS Final Injury Determination are provided as ROK Ex. 27.WT/DS179/R
Page 62
3.28 On 27 July 1999, the DOC issued its anti-dumping order with respect to SSSS.  The order set
the cash deposit rate for POSCO’s SSSS at 12.12%.32
C. FACTS CONCERNING THE WTO D EFICIENCIES OF THE US A NTI-DUMPING MEASURES AT
ISSUE
3.29 This Part of the Statement of Facts provides the facts most relevant to the WTO deficiencies
of the US anti-dumping measures against Korean SSPC and SSSS, namely, facts concerning:  (1) the
DOC’s treatment of POSCO’s sales to an unaffiliate d US customer that subsequently went bankrupt
without paying POSCO;  (2) the DOC’s methodolo gy for dividing the investigation period into
multiple "averaging periods" for purposes of comparing average normal values with average export
prices;  and (3) the DOC’s treatment of POSCO’ s "local sales," which are sales made in the Korean
domestic market that are priced in US dollars.
1. POSCO’s Sales to an Unaffiliated Customer that Later Went Bankrupt
3.30 The ABC Company (as we will refer to it for r easons of confidentiality) had been a valued US
customer of POSCO.  It is not affiliated with POSC O.  It often bought on credit from POSCO.  Prior
to the period of investigation, it never defaulte d on a payment due POSCO.  Indeed, prior to the
period of investigation, none of POSCO’s US customers had ever defaulted on a payment due
POSCO.33
3.31 During the period of investigation, POSCO made several sales of SSPC and SSSS to the ABCCompany.  The ABC Company subsequently declared bankruptcy, and to date has not paid POSCO
for certain of those sales.  This bankruptcy was an unprecedented, unanticipated event beyond
POSCO’s control.  It had nothing to do with POSCO’s pricing policies in the United States.
3.32 The record shows that the ABC Company did not pay POSCO for { } sales of SSPC,
accounting for { }% of POSCO’s US sales by value and { } by quantity.
34  Likewise, the ABC
Company did not pay for { } sales of SSSS, accountin g for { }% of POSCO’s US sales by value and
{ } by quantity.35
3.33 The issue of how to treat the unpaid sales to the ABC Company first arose in the anti-
dumping investigations when POSCO submitted its response to the DOC questionnaire in the SSPC
investigation, explained the extraordinary circumstances, and asked the DOC to exclude the unpaid
sales from its calculation of export price (and thus from the comparison of export price to normal
value).36  The US petitioners objected to POSCO’s re quest, arguing that the unpaid sales were "bad
debts" which "should be allocated over [POSCO’s] sales to other customers to arrive at a direct sellingexpense on US sales" and that "direct selling expense must be deducted from gross price in
calculating net export prices."
37  POSCO responded that the unpaid sales were not "bad debts" and
they should be excluded lest the calculation of the dumping margin be distorted by extraordinary or
unusual circumstances.38
                                                     
32 SSSS Anti-Dumping Order, ROK Ex. 26, at 40557.
33 POSCO’s SSPC Rebuttal Brief, ROK Ex. 9, at 5.
34 SSPC Supplemental Questionnaire Response for Sections B and C, ROK Ex. 28, at 15.
35 SSSS Questionnaire Response for Sectio ns B and C, ROK Ex. 29, at C-1.
36 SSPC Questionnaire Response for Sections B and C, ROK Ex. 30, at C-1.
37 Letter of 19 October 1998 from US Petitioners to DOC, at 2-3.  This letter is provided at ROK
Ex. 31.
38 Letter of 22 October 1998 from POSCO to DOC, at 3-5.  This letter is provided at ROK Ex. 32.WT/DS179/R
Page 63
3.34 The issue arose in the same way in the SSSS investigation.  POSCO submitted its response to
the DOC questionnaire and requested exclusion of these aberrant sales and the US petitioners
objected.39
3.35 In the preliminary determinations for both SSPC and SSSS, the DOC excluded the unpaidsales to the ABC Company from its calculation of export price.
40  It agreed with POSCO that these
sales were "atypical and not part of POSCO’s normal business practice.41  It expressly rejected the
petitioners’ argument that the cost of these sales was a "direct expense.42
3.36 The preliminary determination to exclude the unpaid sales because they were "atypical" wasconsistent with the past practice of the United States.  The United States has acknowledged that the
inclusion in dumping calculations of sales that are "extraordinary for the market in question" can "lead
to irrational or unrepresentative results.
43  For that reason, the US anti-dumping statute specifically
directs the DOC to exclude any home-market sales that  are "outside the ordinary course of trade" from
its calculation of normal value.  Similarly, although the US statute does not contain an explicit
provision directing the DOC to exclude such sales from the calculation of the export price, the DOC
routinely excludes such sales from its export price analysis.  In fact, the US Court of International
Trade has affirmed that the DOC "has the discretion to disregard certain US pricing data if ‘inclusion
of certain sales which are clearly atypical would undermine the fairness of the comparison of foreignand US sales.’
44  In accordance with this principle, the DOC has, in at least one past case, excluded
from its analysis US sales for which payment was never received because of the customer’s
bankruptcy, on the ground that the sales were not representative.45
3.37 In the final determinations, however, the United States reversed position.  The United Statesdid not exclude the sales for which POSCO did not receive payment because of the customer’s
bankruptcy.  Instead, it included these unpaid sales in its analysis;  it declared that the amounts due
POSCO by the ABC Company were "bad debts;" it tr eated the costs of the unpaid sales as "direct
selling expenses;" and it adjusted for these alleged expenses in the calculation of the dumping
margins.
46  This adjustment was made despite the DOC’s admission that, "at the time [the sales] were
made, POSCO was not aware that the customer would declare bankruptcy.47
3.38 The United States offered the following explanations for its change in policy:
                                                     
39 SSSS Questionnaire Response for Sections B and C, ROK Ex. 29, at C-1 (POSCO’s request);  Letter
of 2 December 1998 from US Petitioners to DOC, at 6-7 (US petitioners’ response).  This letter is provided atROK Ex. 33.
40 SSPC Preliminary Determination, ROK Ex. 4, at 59536-37;  SSSS Preliminary Determination ROK
Ex. 16, at 140.
41 SSPC Preliminary Analysis Memorandum, ROK Ex. 5, at 3;  SSSS Preliminary Determination, ROK
Ex. 16, at 140.
42 SSSS Preliminary Determination, ROK Ex. 16, at 140.
43 Statement of Administrative Action for the Uruguay Round Agreements, at 164, reprinted in 1
H.Doc.  103-316 at 656, 834 (1994).  The relevant excerpt of the Statement of Administrative Action isprovided as ROK Ex. 34.
44 Chang Tieh Industry Co., Ltd. v. United States , 840 F. Supp. 141, 145 (Ct. Int’l Trade 1993) (see
ROK Ex. 35), quoting Ipsco, Inc. v. United States , 714 F.  Supp.  1211, 1217 (Ct. Int’l Trade 1989).  See also
Asociacion Colombiana de Exportadores de Flores v. United States , 704 F.  Supp.  1114, 1126 (Ct. Int’l Trade
1989) (when deciding whether to include US sales in its analysis, DOC "must make a determination as to whichsales of the included producer are so unrepresentative as to be unfairly distorting.") (see ROK Ex 36).
45 See Fabric and Expanded Neoprene Laminate from Taiwan:  Final Determination of Sales at Less
Than Fair Value, 52 Fed. Reg. 37193, 37194 (5 Oct.  1987) (see ROK Ex. 37).
46 SSPC Final Determination, ROK Ex. 11, at 15447-49;  SSSS Final Determination, ROK Ex. 24,
at 30671-74.
47 SSPC Final Determination, ROK Ex. 11, at 15449;  SSSS Final Determination, ROK Ex. 24,
at 30673-74.WT/DS179/R
Page 64
• With respect to SSPC, the United States stated:  "Although we disregarded the sales [to
the ABC Company] in the preliminary determination, we find that the sales account forsuch a large percentage of POSCO’s US sales that they cannot be dismissed as
abnormalities."
48
• With respect to SSSS, where the sales to the ABC Company were relatively small, the
United States explained that:  "[R]espondent’s arguments regarding the relativesignificance of these sales [to the ABC Company] compared to POSAM’s total sales is
[sic] inapposite.  Although the Department employs a 5 per cent threshold in regard to
other issues in investigations … none … apply to this case."
49
In other words, the United States expressl y based its decision regarding SSPC on the "large
percentage " of the atypical sales compared to the total sales being investigated.  But, when faced with
a much smaller percentage of atypical sales in SSSS, the United States held that the percentage of
atypical sales was irrelevant.  These explanations are obviously inconsistent.
3.39 Having decided to make an adjustment for the unpaid sales to the ABC Company, the DOC
adjusted the export price downward by { } for ev ery metric ton of SSPC that POSCO sold in the
United States, a distortion equal to 13.7% of the weighted average unit value ({ }).50  L i k e w i s e ,
regarding SSSS, the adjustment of { } per metric ton distorted the export price downward by 4.6% of
the weighted average unit value ({ }).51
2. The Division of the Investigation Period into Separate "Averaging Periods" for
Purposes of Comparing Average Normal Values with Average Export Prices
3.40 The standard practice in US anti-dumping investigations is for the DOC to calculate a single
weighted-average normal value to compare to a single weighted-average export price for the entire
period of investigation.52
3.41 In the SSPC investigation, the US petitioners asked the DOC to depart from that methodologyand "at least ‘wall off’ November and December 1997 … by limiting pricing/cost comparisons
between markets to ‘same month’ transactions."
53  The petitioners alleged that this departure was
necessary to account for the devaluation of the Korean won beginning in October 1997.  The US
petitioners elaborated on this argument in a letter to the DOC in the SSSS case.54
3.42 The same argument had been raised by the US petitioners in another US anti-dumpinginvestigation involving the currency devaluation in Indonesia.  In its preliminary determination in that
case, the United States expressly found "no basis to depart from our practice of calculating the
weighted-average EPs [ i.e., export prices] for the entire POI [ i.e., period of investigation]" merely
because of a currency devaluation without "evidence that there has been a significant change in therespondents’ pricing or marketing during the POI."
55
                                                     
48 SSPC Final Determination, ROK Ex. 11, at 15449.
49 SSSS Final Determination, ROK Ex. 24, at 30674.
50 SSPC Final Analysis Memorandum, ROK Ex. 12, at 1, Attachment 1.
51 SSSS Final Analysis Memorandum, ROK Ex. 25, at 1, Attachment 1.
52 See, e.g., 19 C.F.R.  § 351.414(d)(3) (ROK Ex. 2).
53 SSPC Letter of 14 October 1998 from US Petitioners to  DOC, at 2-3.  This letter is provided as ROK
Ex. 38.
54 SSSS Letter of 2 December 1998 from US Petitioners to DOC, ROK Ex. 33, at 2-5.
55 Notice of Preliminary Determination of Sales at Less than Fair Value and Postponement of Final
Determination:  Certain Preserved Mushrooms from Indonesia, 63 Fed. Reg. 41783, 41785 (5 August 1998) (seeROK Ex. 39).WT/DS179/R
Page 65
3.43 In accordance with that determination, the DOC’s preliminary determinations in the SSPC
and SSSS cases again rejected the US petitioners’ request for November and December to be "walled
off."  In SSSS, the DOC distinguished as inapplicable "the one case cited by petitioners in support ofaveraging multiple periods" and "preliminarily determine[d] that … the use of multiple periods for
averaging is unwarranted .
56  The DOC’s preliminary determination in the SSPC case did note that it
was currently studying this issue in the Preserved Mushrooms  case.  Thus, it explained that:
For the purposes of the final determination, the Department will also analyze the
implications, if any, of the decline in the won during 1997 for price averaging and
whether multiple averages are warranted.  The Department is studying this issue  in
Mushrooms from Indonesia.57
3.44 On 31 December 1998, the United States issued its final determination in Preserved
Mushrooms from Indonesia.  This final determination once more rejected the petitioners’ request for
multiple averaging, and maintained the established practice of declining to deviate from its standard
methodology because of a currency devaluation.58
3.45 Yet, some three months later, in the final determinations for SSPC and SSSS, the
United States reversed itself.  Although it had previously considered the use of "multiple averagingperiods" to be "unwarranted," the United States decided to use multiple averaging in these steel
investigations.
59  The United States failed to provide any facts or legal reasons that were not
considered in its preliminary decisions  and which (in the DOC’s view) warranted a different outcome
in the final determination.  The United States also failed to explain its departure from its then three-
month-old precedent in Preserved Mushrooms , when the similarities between the devaluations of the
won and the Indonesian rupiah clearly demanded the same treatment.
3.46 As a result, the DOC divided the period of investigation into sub-periods:  For SSPC, the sub-
periods ran (i) from January to October 1997 and (ii) from November to December 1997.  For SSSS,
the periods ran (i) from April to October 1997 and (ii) from November 1997 to March 1998.  The
DOC then calculated a separate weighted average export price and a separate weighted average
normal value for each sub-period, and calculated a separate dumping margin for each sub-period(based on the amount by which the average normal value exceeded the average export price for that
sub-period).  In combining the dumping margins for the sub-periods, the DOC treated sub-periods
where there were sales at more  than fair value" ( i.e., "negative dumping") as a sub-period of "zero
dumping."
60  It then calculated an overall average dumping margin based on the average of the
dumping margins found in certain sub-periods and the "zero" dumping margins assigned to the sub-periods in which there had been "negative dumping."  As a matter of simple arithmetic, the effect of
dividing the period of investigation into separate sub-periods and then treating "negative dumping" for
any sub-period as "zero" is necessarily to raise the overall dumping margin.
3.47 The purpose of the "multiple averaging" methodology was plainly to "wall off" the period
after the devaluation.  In their submissions to the DOC, the US petitioners conceded that {  }.
61
                                                     
56 SSSS Preliminary Determination, ROK Ex. 16, at 145 (emphasis added).
57 SSPC Preliminary Determination, ROK Ex. 4, at 59359 (emphasis added).
58 Notice of Final Determination of Sales at Less than Fair Value:  Certain Preserved Mushrooms from
Indonesia, 63 Fed. Reg. 72268, 72272 (31 Dec.  1998) (see ROK Ex. 40).
59 SSPC Final Determination, ROK Ex. 11, at 154 50-52;  SSSS Final Determination, ROK Ex. 24, at
30674-76.
60 This practice of treating "negative dumping" as "zero dumping" is sometimes called "zeroing."
61 Petitioners’ SSPC Case Brief, ROK Ex. 8, at 28;  Petitioners’ SSSS Case Brief, ROK Ex. 21, at 14.WT/DS179/R
Page 66
3.48 By adopting the "multiple averaging" methodology, however, the DOC was able to
effectively exclude the sales during the second sub-period from the calculation of the dumping
margins.  Consequently, the "walling off" of th e later sales from the calculation of the dumping
margins meant that the finding of dumping was based exclusively on sales before the devaluation ofthe Korean won.  This finding is fundamentally inconsistent with the underlying basis of the anti-
dumping orders:  Throughout the proceedings in the investigations at issue, the US petitioners
predicated their requests for anti-dumping orders on the claim that such relief was needed to protect
the US industry from the adverse consequences of the so-called Asian economic crisis that
accompanied the devaluation of the Korean won.
62  The final injury determinations also relied heavily
on the imports (and consequent impact on the US industry) after the devaluation.63  In other words,
the increased imports and injury about which petitioners’ complained, and on which the anti-dumping
orders were predicated, all occurred after  the devaluation — while, because of the "multiple
averaging" methodology, all the sales that led to the finding of dumping occurred before  the
devaluation.
3. POSCO’s Dollar-Priced "Local Sales" in the Korean Home Market
(a) POSCO’s Accounting Practices for the Different Types of Sales It Makes
3.49 In the normal course of business, POSCO’s sales may be classified into three basic categories:
(1) domestic sales to Korean companies that are negotiated in Korean won, invoiced in Korean won,
and paid in Korean won, (2) export sales to non- Korean companies that are negotiated in a foreign
currency, invoiced in the foreign currency, and paid  in the foreign currency, and (3) "local sales" to
Korean companies that are negotiated in a foreign cu rrency (typically US dollars), invoiced in the
same foreign currency, but paid in Korean won.
3.50 For the first category of sales (which are ne gotiated, invoiced and paid in Korean won),
POSCO records the sale in its accounting records at the time of invoice based on the Korean won
amount on the invoice, and it records the amount of the payment in its accounting records at the time
of payment based on the Korean won amount of th e payment (which should be the same as the
Korean won amount of the invoice).  No difference is recognized between the amount of the sale and
                                                     
62 See USITC Hearing Transcript in Final SSPC Investigation at 91 (Statement of Dr. Magrath)
(explaining that the sharp drop in the US industry’s profitability in the fourth quarter of 1997 (the "flip-flop")was caused by "the price declines of both the domestic producers and the subject imports, [which] ...  were
unusually steep and severe in the latter part of ‘97");  id.  at 91-92 (Statement of Mr.  Rosenthal)  (" the principal
factor " affecting imports of the subject merchandise was "the beginning of the Asian financial crisis") (emphasis
added).  See also USITC Hearing Transcript in Final SSSS Investigation at 142 (Statement of Mr. Malashevich)("the price competition was felt only beginning in late 1997").  For the Panel’s reference, a copy of the relevantpages of these transcripts is provided at ROK Ex. 41 and ROK Ex. 42, respectively.
See also Petitioners’ Post-Hearing Brief in Final USITC Investigation of SSPC (30 March 1999),
Exhibit 1 (Responses to Commission’s Questions) at 12 ("Weakening foreign markets, particularly in Asia
which culminated in the currency crisis that began in mid-1997 and deepened in the fourth quarter of 1997 ,
contributed to a sharp influx in US imports in the second half of 1997, as demand in the United States remainedrelatively robust.  ...  [T]he severe weakness for the domestic industry in the fourth quarter of 1997  coincided
with a period of relative strength for subject imports, which rose by 26 percent in terms of volume and by 21percent in terms of value compared to their respective averages in the first three quarters of the year.")
(emphasis added).  Petitioners’ Post-Hearing Brief in Final USITC Investigation of SSPC (30 Mar.  1999),
Exhibit 1 (Responses to Commission’s Questions) at 12 (emphasis added).  A copy of the relevant pages of thisbrief is provided in ROK Ex. 43.
63 SSPC Final Injury Determination, ROK Ex. 14, at  15-16, 20-22;  SSSS Final Injury Determination,
ROK Ex. 27, at 14-15, 17-20.WT/DS179/R
Page 67
the amount of the payment due to changes in exchange rates, because no conversion of currency is
required to record the sales or payment.64
3.51 For the second category of sales (which are negotiated, invoiced and paid in a foreigncurrency), POSCO also records the sale in its accounting records in Korean won  at the time of invoice
— using the exchange rate of the official Korean Ex change Bank at the date of invoice to determine
the relevant Korean won amount.  POSCO subsequen tly records the payment in its accounting records
in Korean won  at the time of payment — using the exchange rate of the Korean Exchange Bank at the
date of payment to determine the relevant Korean  won amount.  If the exchange rate has changed
between the date of invoice and the date of paymen t, the amount recorded for the sale in Korean won
may not match the amount recorded for the payment in Korean won (even though the amount
invoiced and paid in the foreign currency is the same).  POSCO must therefore record an additional
exchange gain or loss to account for the difference between the amount in Korean won recorded at the
time of sale and the amount in Korean won recorded at the time of payment.
65
3.52 For the third category of "local sales" (whi ch are negotiated and invoiced in a foreign
currency), the payments are made in Korean won.  The amount of the Korean won payment for these
"local sales" is not fixed at the time of the sales negotiation or at the time of invoice.  Instead, to
accurately reflect the dollar value of these sales at the time of payment, the agreed-upon sale amountin the foreign currency is translated into Korean won using the exchange rate of the Korean Exchange
Bank on the date on which the customer pays .  The economic value of the sale is therefore fixed in the
foreign currency and not in Korean won.
3.53 The accounting for these local sales is, therefore, necessarily the same as the accounting for
the transactions resulting in foreign currency payments:  In both cases the economic value is fixed in
foreign currency, the accounting records are kept in  Korean won, and any change in the exchange rate
of the Korean Exchange Bank between the date of invoice and the date of payment has to be recorded
in won as an exchange gain or loss.
66
                                                     
64 POSCO’s accounting practices for domestic sales that  were invoiced in Korean won were reviewed
by the DOC in its verifications in both the SSSS and SSPC cases.  See SSPC Sales Verification Report, ROK
Ex. 6, at Ex. 6, 19, 20;  SSSS Sales Verification Report, ROK Ex. 19, at Ex. 17, 19, 21.
65 POSCO’s accounting practices for export sales in US dollars were reviewed by the DOC in its
verifications in both the SSSS and SSPC cases.  SSPC Sales Verification Report, ROK Ex. 6, at Ex. 25, 26, 31;SSSS Verification Report, ROK Ex. 19, at Ex. 22.
66 Specifically, even though the local sale is invoi ced in the foreign currency, POSCO records the sale
in its accounting records in Korean won  at the time of invoice — using the exchange rate of the Korean
Exchange Bank at the date of invoice to determine the relevant Korean won amount for its accounting entry.POSCO subsequently records the payment in its accounting records in Korean won  at the time of payment —
using the amount of the customer’s actual payment in Korean won, which was calculated by applying theexchange rate of the Korean Exchange Bank at the date of payment to the foreign currency amount shown onthe invoice.  If the exchange rate has changed between the date of invoice and the date of payment, the amount
recorded for the sale in Korean won may not match the amount recorded for the payment in Korean won.
POSCO must therefore record an additional exchange gain or loss to account for the difference between theamount recorded in Korean won at the time of sale an d the amount recorded in Korean won at the time of
payment.
In this regard, it should be noted that POSCO’s accounting practices for the local sales that were
invoiced in US dollars were reviewed by the DOC in its verifications in the SSSS and SSPC cases.  For
example, in the SSSS case, it was verified that POSC O "recognized an exchange rate loss" on Home Market
Sale No.  1, due to changes in the dollar-won exchange rate between invoice and payment.  SSSS SalesVerification Report, ROK Ex. 19, at 14.  See also SSPC Sales Verification Report, ROK Ex. 6, at 6;  SSPCFinal Analysis Memorandum, ROK Ex. 12, at 4;  SSSS Sales Verification Report, ROK Ex. 19, Ex. 17;  SSSS
Final Analysis Memorandum, ROK Ex. 25, at 3.WT/DS179/R
Page 68
3.54 The economic substance and accounting treatment of these three types of transactions may be
illustrated by the following simplified examples.  Suppose that POSCO makes three sales that are
invoiced on April 1:  (1) a domestic sale at a price of 100,000 won that is invoiced and paid in Korean
won;  (2) an export sale at a price of $100 that is invoiced and paid in US dollars;  and (3) a local saleat a price of $100 that is invoiced in dollars but paid in won (as determined by converting the US
dollar price using the exchange rate on the date of payment).  Suppose, further, that payment for all
three sales is made on April 30, that the exchange rate on April 1 (the date of invoice) was 1,000 won
per dollar, and that the exchange rate on April 30 (the date of payment) was 1,100 won per dollar.  In
such circumstances, the transactions would be recorded in POSCO’s accounting records as follows:
1. Domestic Sale in Korean Won
Transaction Actual
Amount of
TransactionApplicable
Exchange RateAmount Recorded for
Accounting Purposes
Debit Credit
Invoice (Recorded in Sales Account) 100,000 won -- 100,000 won
Debit to Accounts Receivable
Account100,000 won
Payment (Recorded in Cash
Account)100,000 won -- 100,000 won
Credit to Accounts Receivable 100,000 won
Exchange Gain --
2. Export Sale in US Dollars
Transaction Actual
Amount of
TransactionApplicable
Exchange
RateAmount Recorded for
Accounting Purposes
Debit Credit
Invoice (Recorded in Sales Account) $100 1,000 100,000 won
Debit to Accounts Receivable
Account100,000 won
Payment (Recorded in Cash
Account)$100 1,100 110,000 won
Credit to Accounts Receivable 100,000 won
Exchange Gain 10,000 wonWT/DS179/R
Page 69
3. Local Sale Invoiced in US Dollars but Paid in Korean Won
Transaction Actual
Amount of
TransactionApplicable
Exchange RateAmount Recorded for
Accounting Purposes
Debit Credit
Invoice (Recorded in Sales Account) $100 1,000 100,000 won
Debit to Accounts Receivable Account 100,000 won
Conversion ofPayment byCustomerDollar Amount        (A)
Exchange Rate        (B)Won Amount      (AxB)$100
x 1,100 won/$
110,000 won
Payment (Recorded in Cash Account) 110,000 won -- 110,000 won
Credit to Accounts Receivable 100,000 won
Exchange Gain 10,000 won
As these examples demonstrate, the foreign currency export sales and local sales result in the same
accounting entries, because the economic substance of the transactions is the same.  In both types ofsales, the value of the customer’s payment is determined by converting a foreign currency amount
into Korean won using the exchange rate on the date  of payment.  The only difference is whether this
conversion is made by POSCO (as in foreign-currency export sales) or by the customer (as in foreign-
currency local sales).
(b) POSCO’s Reported Local Sales of SSSS and SSPC
3.55 During the period of investigation, approximately { } of POSCO’s sales of SSPC and
approximately { } of its sales of SSSS in the home market consisted of "local sales" that were pricedin US dollars.
67  As discussed above, POSCO booked these dollar-priced sales in its sales ledgers in
Korean won, using the daily exchange rate in ef fect at the Korean Exchange Bank on the date of
sale.68  The customers made payment in Korean won.  The amount of the payment was calculated by
multiplying the US dollar invoice amount by the exchan ge rate in effect at the Korean Exchange Bank
on the date of payment.69  Gains or losses resulting from a ch ange in the exchange rate between sale
and payment were reflected in POSCO’s books as transaction gains or losses.70
                                                     
67 Data reported to DOC shows that there were { } me tric tons of local sales of SSPC out of { } metric
tons of total home-market sales of SSPC during the period of investigation and that there were { } metric tons oflocal sales of SSSS out of { } metric tons of total home-market sales of SSSS.
68 A chart showing the daily exchange rates of the Korean Exchange Bank for the period from
1 January 1997 to 31 March 1998 is provided at ROK Ex. 44.  The DOC verified that POSCO used the Korean
Exchange Bank’s rates in its accounting books.  See SSSS Sales Verification Report, ROK Ex. 19, at 14.
69 The DOC verified that the payment amount for these "local sales" was determined by applying the
exchange rate on the date of payment to the foreign currency amount on the invoice.  The payment record (setforth on page 25 of the verification exhibit) indicates that  the "total US$ to be paid" for this transaction was { }.
It further indicates that POSCO received a total amount of { } Korean won for this transaction on { } — a datewhich is described in the verification exhibit as the "date monies are received" and as "date of ‘payment’ for
exchange rate purposes."  The Korean Exchange Bank exchange rate on { } was { } won per dollar (according
to page 17 of the verification exhibit).  Multiplying the { } dollar invoice price by the { } won per dollarexchange rate yields a Korean won amount of { }, which is exactly the amount in Korean won actually receivedby POSCO.  Thus, a review of this verification exhibit demonstrates that the customer’s payment in Korean wonwas determined by multiplying the US dollar invoice amount by the exchange rate of the Korean ExchangeWT/DS179/R
Page 70
(c) The DOC’s Treatment of Local Sales
3.56 The issue of how the "local sales" should be  treated first arose wh en the DOC preliminary
determination in SSPC treated POSCO’s "local sales" as export sales  and excluded  them from the
calculation of normal value.71  Both the US petitioners and POSCO agreed that this decision was in
error.72
3.57 In its preliminary determination in SSSS and in its final determinations in both SSPC and
SSSS, the DOC included these "local sales" in its calculation of normal value.73  The DOC did not,
however, base its calculations on the actual dollar amount at which POSCO invoiced the customer for
these sales.  Instead, the DOC applied the following methodology:
• The DOC first assigned a won value to these "local sales," by using the amounts in
Korean won at which the sales had been recorded in POSCO’s sales ledgers at the
time of sale.  In other words, the DOC effectively converted the actual dollar priceson POSCO’ s invoices into Korean won using the exchange rates from the Korean
Exchange Bank on the date of the sale
• The DOC then combined these converted amounts in won with the won amounts of
POSCO’s other home-market sales ( i.e., those sales that were invoiced in won) to
calculate an average normal value in Korean won.
• The DOC then converted this average normal value in Korean won into a normal
value in US dollars by applying a weighted-average exchange rate (based on New
York Federal Reserve exchange rates) for the dates of POSCO’s US sales.
74
For the "local sales," this methodology meant that the dollar amount of the invoice was translated into
Korean won using one exchange rate ( i.e., the exchange rate of the Korean Exchange Bank on the
date of the local sale), and then translated back into dollars using a different exchange rate  (i.e., a
calculated exchange rate based on a weighted average of the New York Federal Reserve exchangerates on the dates of POSCO’s US sales).
75
3.58 Not surprisingly, this "double conversion" methodology distorted the results of the DOC’s
calculations, and increased the dumping margins found.  The following example, which is based on
the actual US and home-market ("HM") sales data submitted by POSCO for one of its SSSS products,
                                                                                                                                                                    
Bank on the date of payment — which differed from the exchange rate on the date of sale.  (A copy of the
relevant pages of SSSS Sales Verification Exhibit 17 is provided in ROK Ex. 45.)
70 SSSS Supplemental Sales Questionnai re Responses, ROK Ex. 46, at 19.
71 SSPC Preliminary Analysis Memorandum, ROK Ex. 5, at 2.
72 Letter of 5 November 1998 from US Petitioners to DOC, at 3 (US petitioners alleging " ministerial
error");  Letter of 6 November 1998 from POSCO to DOC, at 2 (agreeing with US petitioners that there was an
error, but disagreeing as to its characterization as "ministerial").  The US petitioners’ letter is provided at ROKEx. 47.  POSCO’s response is provided at ROK Ex. 48.
73 SSPC Final Determination, ROK Ex. 11, at 154 55-56;  SSSS Preliminary Analysis Memorandum,
ROK Ex. 17, at 2.
74 This average exchange rate was calculated by weighting the New York Federal Reserve exchange
rates on the date of each US sale by the quantity sold in each US sale.
75 After the DOC’s preliminary determination in  SSSS, POSCO strongly objected to the DOC’s
methodology in its case briefs in both the SSPC and SSSS cases.  SSPC Final Determination, ROK Ex. 11, at15456;  SSSS Final Determination, ROK Ex . 24, at 30678.  In the end, however, the DOC persisted in making a
"double conversion" of local sales from dollar prices to won prices back to dollar prices.WT/DS179/R
Page 71
illustrates how the double-conversion methodology increased its normal value and thus inflated the
dumping margins.
Calculation of Weighted Average Exchange Rate for US  Sales
US Observation
NumberProduct
Matching
NumberDate of
US SaleUS Sale
QuantityExchange
RateWeighted
Exchange
Rate
86 0006 3/11/1997 { } 976.0
87  0006 3/11/1997 { } 976.0
Total { } 976.0
Calculation of Weighted Average Normal Value Based on Dollar Prices
Home-Market
Observation
NumberProduct
Matching
NumberDate of
Home-Market
SaleHome-Market
 Sale QuantityHome-Market
Invoice Price in US
Dollars
14 0074  12/12/1997 { } { }
15 0074 19/12/1997 { } { }
Total { } { }
Calculation of Weighted Average Norm al Value Based on Double Conversion
HM
Obs.
NumberProduct
Matching
NumberDate of
HM SaleHM Sale
Quantity
(A)Invoice
Price in
US
Dollars
(B)POSCO
Exchange
Rate
(C)Invoice
Price
In Won
(D=BxC)Average
US
Exchange
Rate
(E)Normal Value
in US Dollars
(F=D/E)
14 0074 12/12/97 { } { } 1,685.2 { } 976.0 { }
15 0074 19/12/97 { } { } 1,412.1 { } 976.0 { }
Total { } { } { } 976.0 { }
Thus, for this comparison, the DOC’s double-conversion methodology increased the normal value inUS dollars from { } to { } — an increase of { }.
(d) The DOC’s Rationale for Its Treatment of POSCO’s "Local Sales"
3.59 The United States claimed that its "double conversion" of the prices of the "local sales" was
necessary, primarily because the exchange rates us ed by POSCO did not correspond to the exchange
rates announced by the US banking authorities.
76  In particular, the DOC claimed that the exchange
rates used by POSCO "are quite dissimilar" from the exchange rates published by the Federal Reserve
Bank of New York — which are based on the exchange rates at 12:00 noon in New York on the
relevant dates.77
                                                     
76 SSPC Final Determination, ROK Ex. 11, at 15456;  SSPC Final Analysis Memorandum, ROK Ex.
12, at 4;  SSSS Final Determination, ROK Ex. 24, at 30678;  SSSS Final Analysis Memorandum, ROK Ex. 25,
at 3.
77 The DOC’s "Policy Bulletin" regarding its exchange rate methodology notes that:
The ...  exchange rates are collected by the New York Federal Reserve Bank from a sample of market
participants.  They are the noon buying rates in New York for cable transfers payable in foreign currencies.WT/DS179/R
Page 72
3.60 The factual basis for this decision is severely flawed in several respects:
• In the SSSS case, the United States indicated that the difference between the Korean
Exchange Bank rates used by POSCO and the New York Federal Reserve Bank rates
was, for all comparisons, less than one per cent.78
• In the SSPC case, the United States found larger differences only because it
compared the exchange rate used by POSCO to the wrong exchange rate .  While the
stated justification for the "double conversion" was the alleged discrepancy between
POSCO’s "internal rate"  ( i.e., the rate of the Korean Exchange Bank) and the Federal
Reserve rate, the United States failed to use the Federal Reserve rates for that
comparison in the SSPC case.  Instead, the United States erroneously comparedPOSCO’s "internal rate" to a modified exchange rate calculated by the DOC  to
implement the special exchange rate provis ions that apply to investigations in US
anti-dumping proceedings.
79
The United States also failed to explain why the New York Federal Reserve exchange rates should beconsidered more accurate than the Korean Exchange Bank rates, or why a Korean company should be
                                                                                                                                                                    
Notice:  Change in Policy Regarding Currency Conversions, 61 Fed. Reg. 9434, 9436 n.4
(8 March 1996) (hereinafter, "DOC Notice on Currency Conversion" ).  A copy of the DOC Notice on CurrencyConversion is provided at ROK Ex. 49.
The daily New York Federal Reserve exchange rates, from 1 January 1990 to the present, are available
on the Internet at www.bog.frb.fed.us/releases/H10/his t/dat96-ko.txt.  For the Panel’s reference, the exchange
rates for the fifteen months covering the periods of the SSPC and SSSS investigations, from 1 January 1997 to31 March 1998, are provided as ROK Ex. 50.
78 According to the final analysis memorandum in the SSSS case,
[A] comparison of the internal exchange rate used by POSCO to the market exchange rate
used by the Department for Home Market Observation { } shows that the two exchange
rates are dissimilar:  POSCO’s won/USD exchange rate for { } is { } won per dollarwhile the Federal Reserve rate for this date is { } won per dollar.  Also, POSCO’swon/USD exchange rate on the date of payment ({ }) is { } won per dollar, while theFederal Reserve exchange rate on the date of payment is { } won per dollar.SSSS Final Analysis Memorandum, ROK Ex. 25, at 3.  A simple calculation indicates
that the differences between the POSCO rates and Federal Reserve rates identified by this
analysis memorandum represent in all cases less than one percent of the Federal Reserveexchange rate.
79 For example, the final analysis memorandum in the SSPC case stated that the Federal Reserve
exchange rate on 23 November 1997 was 947.87 won per dollar.  SSPC Final Analysis Memorandum, ROK Ex.
12, at 4.  In fact, the Federal Reserve rate on that date was actually 1060.00 won per dollar.  See New York
Federal Reserve Daily Exchange Rates, ROK Ex. 50.  The 947.87 won per dollar rate mentioned in the finalanalysis memorandum is actually the exchange rate for 23 November 1997 calculated by the DOC using itsspecialized exchange rate model for appreciating currencies — a model which, by its terms, should not havebeen applied to the Korean won in the first place, b ecause the won was depreciating in value during the period
under consideration.  (The adjusted exchange rates calculated by the DOC are available on the Internet at
www.ita.doc.gov/import_admin/records/exchange/skorea.tx t.  The adjusted exchange rates for the fifteen
months covering the periods of the SSPC and SSSS inve stigations, from 1 January 1997 to 31 March 1998, are
provided as ROK Ex. 51.).
The final analysis memorandum makes a similar error with respect to the exchange rates on
18 November 1997.  See SSPC Final Analysis Memorandum, ROK Ex. 12, at 5.
In this regard, it is interesting to note that the "internal" rate used by POSCO for 23 November 1997
(which is also the rate published by the Korean Exchange Bank) was 1072.10 won per dollar.  See SSPC Final
Analysis Memorandum, ROK Ex. 12, at 4;  see also Korean Exchange Bank Daily Exchange Rates, ROK Ex.44.  In other words, the actual Federal Reserve rate was much closer to POSCO’s "internal" rate than it was tothe adjusted DOC rate that the United States erroneously relied upon in its analysis ( i.e., 1060.00 is much closer
to 1072.10 than it is to 947.87).WT/DS179/R
Page 73
expected to use New York exchange rates with respect to its accounting in Korea of domestic
transactions within Korea.  And, the United States failed to address how a Korean exporter could
possibly use rates that are not determined until eight or nine hours after the close of business in
Korea.80
3.61. The "double conversion" of the prices of the "local sales" from dollars to won to dollars (atdifferent exchange rates) was an unprecedented departure from the established policy of "accept[ing]
charges in the currency in which the charges are made."
81  In fact, neither the United States nor the
petitioners in the investigations cited a single case before the investigations at issue where theUnited States treated a home-market sale priced in dollars as if it had been priced in the local
currency.
3.62 By contrast, there are several cases — most notably Fresh Cut Roses from Colombia  — in
which the United States properly declined to "double convert" home-market sales that were priced indollars.
82  The United States claimed that the factual situation in Fresh Cut Roses  differed from the
factual situation presented in the SSPC and SSSS cases.  However, that claim made no sense.
• Specifically, the United States claime d that the SSPC and SSSS cases could be
distinguished from  Fresh Cut Roses  case because "a comparison of the internal
exchange rate used by POSCO to the market exchange rate used by the Departmentshows that the two exchange rates are quite dissimilar."
83  The United States claimed
that this difference was "in contrast to Fresh Cut Roses from Colombia  in which the
Department verified that the payment in pesos reflected the market exchange rate at
the time of payment."84  However, as is evident from the facts described above, that
claim lacks foundation, because the exchange rate used by POSCO was, in fact, amarket exchange rate.
• In the SSSS decision, the United States offered an alternative basis for distinguishing
the Fresh Cut Roses  decision.  It claimed that, in the Fresh Cut Roses  case, "all prices
and costs, both in the home market and in the US, were dollar denominated…." while
in the case of SSSS "the vast majority of the costs incurred for home market and US
sales are denominated and paid by POSCO in won."
85  The factual basis for this
distinction is suspect:  Fresh Cut Roses  made no mention of the currency of the
exporter’s costs , so that does not appear to have been a factor of any significance in
                                                     
80 As mentioned, the Federal Reserve rates are collected by the New York Federal Reserve Bank based
on the noon buying rates in New York for a sample of market participants at 12:00 noon in New York.  See
DOC Notice on Currency Conversion, ROK Ex. 49, at 9436 n.4.  Noon in New York is either 1 a.m.  or 2 a.m.the following morning in Korea (depending on whether daylight saving’s time is in effect in New York).
81 Final Determination on Sales at Less Than Fair  Value:  Fresh Cut Roses from Colombia, 60 Fed.
Reg. 6980, 7006 (6 Feb.  1995) ("It is the Department’s practice to accept charges in the currency in which thecharges are made.  In this instance, home market prices were charged in dollars.  Therefore, the Department
found it appropriate that respondent’s home market sales were reported in dollar value since the dollar value was
the currency in which the sales transactions were made.") (ROK Ex. 52).
82 Id.;  see also Final Determination of Sales at Less Than Fair Value:  Silicon Metal from Argentina,
56 Fed. Reg. 37891, 37895-96 (9 Aug.  1991) (ROK Ex. 53).
83 SSPC Final Determination, ROK Ex. 11, at 154 56;  accord SSSS Final Determination, ROK Ex. 24,
at 30678 ("[T]here is a disparity between the exchange rates reflected in POSCO’s accounting records and those
used by the Department….").
84 SSPC Final Determination, ROK Ex. 11, at 15456;  SSPC Final Analysis Memorandum, ROK Ex.
12, at 5;  SSSS Final Determination, ROK Ex. 24, at 30678;  SSSS Final Analysis Memorandum, ROK Ex. 25,
at 3-4.
85 SSSS Final Determination, ROK Ex. 24, at 30678.WT/DS179/R
Page 74
the previous decision.86  More broadly, the United States routinely addresses
situations where at least some foreign-currency-denominated costs are associated with
dollar-denominated sales without "double converting" the prices of those sales.
Indeed, in virtually every US anti-dumping in vestigation some of the costs incurred in
connection with sales to the United States (such as production costs, freight from the
factory to the port, and brokerage and handling fees in the exporting country) are
denominated in the foreign currency, while the sales prices are denominated in US
dollars.
IV. LEGAL ARGUMENT
4.1 Article VI of GATT 1994 governs the use of  anti-dumping measures by WTO Members.87  In
the anti-dumping context, Article VI must be read in connection with the Anti-Dumping Agreement
— which is formally entitled the Agreement on Implementation of Article VI of GATT 1994.  The
Anti-Dumping Agreement expressly "govern[s] the application of Article VI of GATT 1994" to all
anti-dumping actions.88  Article VI and the Anti-Dumping Agreement are therefore "part of the same
treaty" and an "inseparable package of rights and disciplines."89  Together, Article VI and the Anti-
Dumping Agreement govern when and how anti-dumping duties may be imposed by any Member.
4.2 An understanding of Article VI and the Anti-Dumping Agreement in their proper context
must begin with the fact that anti-dumping duties are a derogation from the main thrust of the WTOregime — which is to liberalize and promote trade.
90  Although the GATT has from its inception
allowed dumping to be offset if it causes or threatens material injury to a domestic industry, it has
always narrowly circumscribed in Article VI both the circumstances in which and the extent to which
anti-dumping duties may be imposed.  Indeed, widespread concerns among the Contracting Parties
(now, Members) about the detrimental effects of over-use and abuse of anti-dumping duties have ledto ever tighter restrictions on their use.
91
                                                     
86 Fresh Cut Roses from Colombia, ROK Ex. 52, at 7005-06.
87 As recognized by the Panel in United States — Anti-Dumping Act of 1916 (Complaint by the EC) ,
"Article VI does not regulate the practice of dumping itself, but the anti-dumping activities of Members....  [It]concentrates on what Members may do in order to counteract dumping."  United States - Anti-Dumping Act of
1916 (Complaint by th e European Communities)  , Report of the Panel, WT/DS136/R, 31 Mar.  2000, not yet
adopted, at para. 6.103 (" 1916 Act I ").
88 Anti-Dumping Agreement, art.  1.
89 1916 Act I, at para. 6.97 (following Argentina — Safeguard Measures on Import of Footwear, Report
of the Appellate Body, adopted on 12 Jan.  2000, WT/DS/121/AB/R, at para. 81, and India — Quantitative
Restrictions on Imports of Agricultural Textile and Indus trial Products, Report of the Panel, adopted on 22 Sept.
1999, WT/DS90/R, at paras.  5.18-5.19).  See also id.  at paras.  6.195 (the Anti-Dumping Agreement " isessential for the interpretation of Article VI"), 6.197 (the provisions of the Anti-Dumping Agreement are"essential elements" of the  "context" of Article VI).
90 See John H.  Jackson, World Trade and the Law of GATT, 411 (1969) ("Article VI of GATT treats
two subjects:  antidumping duties and countervailing duties.  In both cases Article VI is something of an
anomaly:  in essence it is an "exception" to GATT, allowing certain measures that would otherwise be a
violation of GATT.");  cf.  United States - Countervailing Duties on Fresh, Chilled and Frozen Pork from
Canada , Report of the Panel, DS7/R -3 8S/30, adopted on 11 July 1991, para. 4.4 ("Article VI:3, as an exception
to basic principles of the General Agreement, ha[s] to be interpreted narrowly….");  1916 Act I , at para. 6.202 &
n.443 (quoting Jackson and treating anti-dumping measures as an exception to the MFN and tariff bindingobligations).
91 See, e.g., Negotiating Group on MTN Agreements and Arrangements, Meeting of 6 March 1987,
Note by the Secretariat, MTN.GNG/NG8/1, 23 March 1987, at para. 8 ("Several delegations expressed theirdissatisfaction with [the Tokyo Round Anti-Dumping Code].  Reference was made to the problem of ‘tradeharassment’ in the area of countervailing and anti-dumping duties and it was suggested that the application ofcertain provisions of the Codes had in some cases led to increased protectionism.").WT/DS179/R
Page 75
4.3 Thus, Article VI "should be interpreted as limiting the use of anti-dumping measures to the
situations expressly foreseen in Article VI."92  Of course, an essential prerequisite for the imposition
of anti-dumping duties is that "‘dumping’ within the meaning of the definition of Article VI:1 has to
be found in the first place."93  This requirement has been made explicit by the first sentence of
Article 1 of the Anti-Dumping Agreement, which provides that:
An anti-dumping measure shall be applied only under the circumstances provided for
in Article VI of GATT 1994 and pursuant to investigations initiated and conducted in
accordance with the provisions of this Agreement.  (emphasis added).
In other words, the WTO Agreements forbid  the imposition of anti-dumping measures unless  they are
imposed pursuant to investigations that are conducted strictly in accordance with WTO disciplines.
The US failure to satisfy the requirements of an y Article  of the Anti-Dumping Agreement therefore
results in a violation of Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.
4.4 Under these disciplines, the authority to impose anti-dumping duties is not only
preconditioned on the existence of "dumping," it is also limited to the extent of dumping properly
found.94  Thus, the calculation of the extent of "the price difference" between the export price and
normal value ( i.e., the "dumping margin"),95 if any, is a critical aspect of an anti-dumping
investigation.  Consequently, the calculation of the "dumping margin" is subject to numerous
substantive and procedural disciplines in Article VI of GATT 1994 and the Anti-DumpingAgreement.
4.5 As discussed below, the actions by the United States in the SSPC and SSSS cases failed to
comply with the rules and procedures for calcul ating dumping margins, and this failure led the
United States to impose improperly high anti-dumping duties.  Since Article 3.8 of the DSU provides
that "[i] n cases where there is an infringement of the obligations assumed under a covered agreement,the action is considered prima facie  to constitute a case of nullification and impairment," it is clear
that the United States, by this failure, has nullified or impaired benefits accruing to Korea under the
WTO Agreements.
                                                     
92 1916 Act I,  at para. 6.114.
93 See id.  at para. 6.105;  see also European Communities — Imposition of Anti-Dumping Duties on
Imports of Cotton Yarn from Brazil , Report of the Panel, ADP/137, adopted on 30 October 1995, at para. 585
("Article 1 [of the Tokyo Round Anti-Dumping Code] provided that anti-dumping duties could not be appliedprior to determination of dumping….") (emphasis omitted).
This requirement was first recognized as long ago as 1955.  See Swedish Anti-Dumping Duties , Report
of the Panel, L/328 - 3S/81, adopted on 26 Feb.  1955, at para. 22 ("The Panel agreed that if the Swedish Decreewas being applied in such a manner as to impose an anti-dumping levy in the absence of dumping practices, theItalian Government would be deprived of the protection it would reasonably expect from the terms of Article VIof the Agreement and that it could claim an impairment of benefits.").
Cf. United States — Anti-Dumping Duty on Dy namic Random Access Memory Semiconductors
(DRAMS) of One Megabit or Above from Korea  , Report of the Panel, WT/DS99/R, adopted on 19 March 1999,
para. 6.43 ("The necessity of the continued imposition of the anti-dumping duty can only arise in a definedsituation pursuant to Article 11.2:  viz to offset dumping.").
94 See GATT 1994, art.  VI:2 ("In order to offset or prevent dumping, a [Member] may levy on any
dumped product an anti-dumping duty not greater in amount than the margin of dumping in respect of suchproduct.");  Anti-Dumping Agreement, art.  9.3 ("The amount of the anti-dumping duty shall not exceed the
margin of dumping as established under Article 2.");  see also Anti-Dumping Agreement, art.  11.1 ("An anti-
dumping duty shall remain in force only as long as and to the extent necessary to counteract dumping which iscausing injury.").
95 See GATT 1994, art.  VI:2 (defining the "margin of dumping" as "the price difference determined in
accordance with the provisions of paragraph 1," i.e., the difference between the export price and normal value).WT/DS179/R
Page 76
A. THE UNITED  STATES ’ TREATMENT OF POSCO’ S SALES TO AN UNAFFILIATED US C USTOMER
THAT LATER WENT BANKRUPT WAS UNFAIR AND INCONSISTENT WITH GATT 1994 AND THE
ANTI-DUMPING AGREEMENT
4.6 As discussed in the Statement of Facts, during the period of investigation, POSCO made
several sales of SSPC and SSSS to a US customer (referred to here as the ABC Company) that later
declared bankruptcy.  In the preliminary determinations for both SSPC and SSSS, the United States
excluded these aberrant sales from its calculation of export price (and thus from the comparison of
export price to normal value).96
4.7 In the final determinations, however, the United States reversed position.  It declared that theamounts due POSCO by the ABC Company were "bad de bts" and that the cost of this "bad debt"
should be treated as a "direct selling expense" and deducted as an adjustment from the prices of
POSCO ’s US sales.  This adjustment increased the price difference between export price and normal
value and hence increased the dumping margins found by the United States.
97
4.8 In essence, the United States penalized POSCO for an event that occurred after POSCO madeits sales, that was utterly beyond POSCO ’s cont rol, and of which POSCO did not know (and could
not have known) at the time it made its sales and fixed its prices.  As discussed below, such a
methodology is inconsistent with the requirements governing dumping calculations under the WTOAgreements and it is unfair.  Specifically, the United States’ treatment of the non-payment by a US
customer is inconsistent with:
(a) the requirements for allowances for "differences affecting price comparability" in
Article VI:1 of GATT 1994 and Article 2.4 of the Anti-Dumping Agreement(Part IV.A.1 infra );
(b) the requirement for a "fair comparison" between the export price and normal value in
Article 2.4 of the Anti-Dumping Agreement (Part IV.A.2 infra );  and
(c) the requirement for "uniform, impartial, and reasonable" administration of the anti-
dumping laws in Article X:3(a) of GATT 1994 and the related procedural
requirements of Article 12 of the Anti-Dumping Agreement (Part IV.A.3 infra ).
4.9 Before examining those specific requirements, however, it is important to consider the
consequences of permitting the approach adopted by the United States in the SSPC and SSSS cases.
That approach would make it impossible  for an exporter to avoid the risk of a dumping determination.
Regardless of the exporter’s pricing policies, there would always be the risk that later events, entirely
beyond the exporter’s control, would result in findings of dumping.  Suppose, for example, that an
exporter sells its merchandise in the United States and in its home market at exactly the same pricesand under exactly the same terms and conditions.  Clearly, there would be no "price differences"
within the meaning of Article VI of GATT 1994.  Even so, if it happens that one of the exporter’s US
customers goes bankrupt after the sale is made, under the methodology used in the SSPC and SSSS
cases the United States would find that all of the exporter’s US sales were dumped, and it would
therefore impose anti-dumping measures on all of the exporter’s US sales.  Such a result cannot beconsistent with the object and purpose of either Article VI of GATT 1994 or the Anti-Dumping
Agreement.
                                                     
96 See paras.  3.30 - 3.36 supra .
97 See paras.  3.37 - 3.39 supra .WT/DS179/R
Page 77
1. The United States Unfairly Adjusted POSCO’s Export Price to Account for a Factor
that Does Not "Affect Price Comparability," in Violation of Article VI:1 of GATT 1994
and Article 2.4 of the  Anti-Dumping Agreement
(a) Article VI:1 of GATT 1994 and Article 2.4 of the  Anti-Dumping Agreement Permit
Adjustments to the Prices Being Compared Only for "Differences Which Affect Price
Comparability"
4.10 Article VI of GATT 1994, which authorizes WTO Members to impose anti-dumping duties
under certain circumstances, provides that the existence of "sales below normal value" (or "dumping")
is normally to be determined based on a comparison of the export price to the comparable price in theexporting country (or "home market").  Thus, paragraph 1 of Article VI states that:
[A] product is to be considered as being introduced into the commerce of an
importing country at less than its normal value, if the price  of the product exported
from one country to another ...  is less than the comparable price  , in the ordinary
course of trade, for the like product when destined for consumption in the exporting
country....  Due allowance shall be made in each case for  differences in conditions
and terms of sale, for differences in taxation, and for other differences affecting price
comparability .  (emphasis added).
As this passage indicates, a calculation of a dumpi ng margin must ordinarily focus on a comparison of
the prices.
98  If the export price is less than the comparable home-market price, then the exporter is
dumping.  On the other hand, if the export price is greater than or equal to the comparable home-
market price, then there is no dumping.
4.11 The comparison of prices is, therefore, the key to a proper determination of dumping under
GATT 1994.  In recognition of the centrality of the price comparison, GATT 1994 expressly limitsthe adjustments that can be made to the prices used in the comparison to those adjustments that reflect
"differences affecting price  comparability."
4.12 The basic framework adopted by Article VI:1 of GATT 1994 has been maintained in the
Anti-Dumping Agreement.  Thus, Article 2.1 of the Anti-Dumping Agreement confirms that the
normal focus of an anti-dumping investigation is a comparison of prices in the importing country with
prices in the exporter’s home market:
For purposes of this Agreement, a product is considered to be dumped, i.e.,
introduced into the commerce of another countr y at less than its normal value, if the
export price  of the product exported from one country to another is less than the
comparable price , in the ordinary course of trade, for the like product when destined
for consumption in the exporting country.  (emphasis added)
Moreover, Article 2.4 of the Anti-Dumping Agreement confirms that, in order to achieve a fair
comparison, adjustments may only be made for differences that affect price comparability.  Thus,
Article 2.4 provides that:
A fair comparison shall be made between the export price and the normal value….
Due allowance shall be made  in each case, on its merits, for differences which affect
price comparability , including differences in conditions and terms of sale, taxation,
                                                     
98 The alternative to price comparison provided by Article VI and the Anti-Dumping Agreement, which
allows comparison of export price to cost of produc tion when home-market or third-country prices cannot be
used, is not at issue in the SSPC and SSSS cases.WT/DS179/R
Page 78
levels of trade, quantities, physical characteristics, and any other differences which
are also demonstrated to affect price comparability  ….  (internal footnote omitted,
emphasis added).
4.13 Under these provisions, the focus of an anti-dumping investigation must be on the exporter’s
prices.  Adjustments to the exporter’s prices are permitted if, and only if, they account for differences
in the factors that affect those prices.
4.14 As mentioned, Article VI:1 of GATT 1994 spec ifically permits adjustments for "differences
in conditions and terms of sale" and for "differences in taxation.  "  Article 2.4 of the Anti-DumpingAgreement follows GATT 1994 in specifically allowi ng adjustments for "differences in conditions
and terms of sale" and for differences in "taxation," and it also specifically allows additional
adjustments for differences in "levels of trade, quantities, [and] physical characteristics."  After the list
of enumerated factors deemed to affect price comparability, GATT Article VI:1 contains a closing
phrase that authorizes adjustments for "other differences affecting price comparability."  Article 2.4 ofthe Anti-Dumping Agreement contains a similar closing phrase:  it authorizes adjustments only for
"other differences which are also demonstrated  to affect price comparability."
4.15 Significantly, a comparison of the texts of GATT Article VI:1 and Article 2.4 of the Anti-
Dumping Agreement shows that the Anti-Dumping Ag reement contains a requirement that had not
existed in the original GATT:  factors that are not expressly enumerated in Article 2.4 must not only
"affect price comparability," but they must be " demonstrated " to do so.  Any interpretation of
Article 2.4 that ignored the words "which are also demonstrated" would run afoul of the rule that
WTO Agreements must not be construed so as to render any words superfluous.
99
4.16 Therefore, under Article 2.4 of the Anti-Dumping Agreement, an administering authority maynot make an adjustment for "other differences" ( i.e., differences other than those enumerated in
Article 2.4) unless it is first " demonstrated " that these "other differences" affect price comparability.
(b) A Customer’s Failure to Pay Is Not a Difference Affecting Price Comparability for Which an
Adjustment is Permitted under GATT Article VI:1 and Article 2.4 of the Anti-Dumping
Agreement
4.17 As mentioned, the ABC Company failed to pay POSCO after receiving shipments of SSPC
and SSSS and, in the anti-dumping investigations, the United States adjusted the export price for
POSCO’s US sales to account for that non-payment.
100  The ABC Company’s non-payment does not
fall within any of the categories of differences for which adjustments are specifically permitted by
Article VI:1 of GATT 1994 or Article 2.4 of the Anti-Dumping Agreement.  The non-payment clearlyis not a difference in (i) the conditions and terms of sale, (ii) taxation, (iii) levels of trade, (iv)
quantities, or (v) physical characteristics.
4.18 Consequently, an adjustment for this non-payment could be justified only if non-payment is
an "other difference[] affecting price comparability."  No such justification is tenable, however, in this
case.
• First, on procedural grounds, Article 2.4 permits such adjustments only if these
"other differences" are " demonstrated  to affect price comparability."  However,
there is no indication anywhere in the SSPC or SSSS investigations that such a
                                                     
99 See United States — Standards for Reformulated Gasoline , Report of the Appellate Body,
WT/DS2/AB/R, adopted on 20 May 1996, at 22 ("An interpreter is not free to adopt a reading that would resultin reducing whole clauses or paragraphs of a treaty to redundancy or inutility.").
100 See paras.  3.30 - 3.39 supra .WT/DS179/R
Page 79
demonstration was made with respect to the non-payment by the ABC Company.
Therefore, the United States failed to comply with the specific requirements of
Article 2.4 of the Anti-Dumping Agreement with respect to adjustments for "other
differences affecting price comparability."
• Second, on substantive grounds, non-payment is not a "difference affecting price
comparability."  The United States has conceded that POSCO did not know that theABC Company would not pay at the time POSCO set its sales prices.
101  I n  f a c t ,
POSCO had no reason to suspect that any of its US customers would not pay
because it had never before experienced a non-payment on its US sales.  Because
POSCO did not know, and could not have known, that a particular US customer
would fail to pay at the time it set its prices, the customer’s subsequent failure to pay
did not affect the prices that POSCO set.  Thus, the customer’s non-payment was
not a "difference affecting price comparability.102
4.19 Therefore, the adjustment made by the United States to the export price to account for thefailure of the ABC Company to pay POSCO is inconsistent with Article VI:1 of GATT 1994 orArticle 2.4 of the Anti-Dumping Agreement.  The resulting anti-dumping measures violate Article 1
of the Anti-Dumping Agreement and Article VI of GATT 1994.
(c) One Customer’s Failure to Pay Is Not a "Difference Affecting Price Comparability" for
Which Adjustments May be Made to the Prices  of Other Sales to Other Customers Who Did
Pay
4.20 As discussed above, it was improper for the United States to make any adjustment to account
for the ABC Company’s non-payment to POSCO, because non-payment is not a "difference affecting
price comparability" for which adjustments are allowed under Article VI:1 of GATT 1994 and
Article 2.4 of the Anti-Dumping Agreement.  But if, by some chance, the Panel were to conclude thatArticle VI:1 and Article 2.4 permit investigating aut horities to make an adjustment to account for a
customer’s non-payment, the way in which the actual adjustment was made by the United States in
the SSPC and SSSS cases would nevertheless have to be found inconsistent with the requirements of
Article VI:1 and Article 2.4.
4.21 The United States did not limit its adjustment to the unpaid sales to the ABC Company.
Rather, the United States allocated the cost of those unpaid sales over all of POSCO’s sales to all ofits US customers during the investigation period, and then deducted the allocated amount from the
sales price for each and every  US sale as an adjustment to the expo rt price.  In other words, the cost of
the non-payment by the ABC Company was deducted from the prices of all of POSCO’s US sales —
including sales to other customers who had paid for their purchases  .  As a result, the export prices
                                                     
101 The United States admitted in its final determinations that "at the time [the sales] were made,
POSCO was not aware that the customer would declare bankruptcy."  SSPC Final Determination, ROK Ex. 11,
at 15449;  SSSS Final Determinat ion, ROK Ex. 24, at 30673-74.
102 This conclusion is reinforced by an examinatio n of the adjustments that are specifically enumerated
by Article VI:1 of GATT 1994 and Article 2.4 of the Anti-Dumping Agreement.  All of the "differences" forwhich adjustments are specifically permitted under those provisions (i.e., for conditions and terms of sale,taxation, levels of trade, quantities and physical charact eristics) are "differences" about which the seller would
know at the time it entered into its sales agreements and set its prices.  In keeping with the ejusdem generis
doctrine — which provides that "general words following  … special words are limited to the genus indicated by
the special words" — the phrase that allows adjustments for "other differences affecting price comparability"must also be limited to "differences" about which the seller would know at the time it entered into its salesagreements and fixed its prices.  See Ian Brownlie, Principles of Public International Law, 634 (5th ed.  1998).WT/DS179/R
Page 80
for all of POSCO’s US sales were lowered, and the dumping margins (which equal the difference
between the "normal value" and the adjusted export price) were increased for all US sales.103
4.22 Assuming arguendo  that a non-payment by a customer could be considered a "difference
affecting price comparability," the adjustment would have to be limited to the particular sales for
which the non-payment affected price comparability.  The blanket adjustment to all export sales
(including sales to customers that paid in full) cannot be consistent with the requirements of
Article VI:1 of GATT 1994 and Article 2.4 of the Anti-Dumping Agreement for the following
reasons.
• To begin with, such a blanket adjustment to the prices of all export sales is
inconsistent with the requirement of Article 2.4 that the difference must be
"demonstrated" to affect price comparability.  An adjustment may not be made to the
price of every export sale, but only to those prices whose "comparability" has been
"demonstrated" to be affected by the non-payment.  There is simply no"demonstration" in either of the final determinations that the failure of the ABC
Company to pay POSCO for its purchases had any effect on the prices (or price
comparability) of the purchases by other  US customers who did pay.
• Furthermore, as a substantive matter, the unexpected failure of one US customer to
pay for its purchases did not affect the price comparability of POSCO’s other US
sales to other customers who did pay for their purchases.  The DOC’s decisionsassume that POSCO must have reacted to the ABC Company’s non-payment by
raising prices for all other US sales during the investigation period, and only by
raising its prices on those sales.  In fact, however, it is at least equally plausible that
POSCO did not adjust its prices during the investigation period at all — or reacted by
raising prices in Korea or other markets to make up for the non-payment in theUnited States.  Therefore, there is no logical basis for the assumption underlying the
DOC’s adjustments.
4.23 The ABC Company’s failure to pay POSCO for its purchases did not affect — and they were
not "demonstrated" to affect — the price comparability of POSCO’s sales to other US customers who
did pay.  Therefore, the DOC’s adjustments re lating to the ABC Company’s non-payment were not
permitted under Article VI:1 of GATT 1994 or Article 2.4 of the Anti-Dumping Agreement.  The
resulting anti-dumping duties therefore violate Article 1 of the Anti-Dumping Agreement andArticle VI of GATT 1994.
2. The United States’ Treatment of the Non-payment by One Customer Was Inconsistent
with the "Fair Comparison" Requirement of Article 2.4 of the Anti-Dumping
Agreement
4.24 As discussed above, the adjustments made by the United States to account for the non-
payment by the ABC Company were not consistent  with the technical rules of GATT 1994 and the
Anti-Dumping Agreement.  But the treatment of th ese sales by the United States suffered from
another fundamental flaw:  It simply was not fair.  In essence, the United States penalized POSCO for
an event — the bankruptcy of a customer after POSCO had made its sales to that customer — thatwas utterly beyond POSCO’s control.  Such an unfair result cannot be reconciled with the
requirements of GATT 1994, as applied by the Anti-Dumping Agreement.
                                                     
103 See para. 3.39 supra .WT/DS179/R
Page 81
(a) Article 2.4 of the Anti-Dumping Agreement Mandates that the Comparison of Export Price to
Normal Value, Which Underpins Any Finding of Dumping, Must be "Fair"
4.25 The Anti-Dumping Agreement explicitly requires that the price comparisons used by the
administering authorities to determine whether or not dumping has occurred must be "fair." Thus,Article 2.4 of the Agreement explicitly requires that:  "A fair comparison  shall be made between the
export price and the normal value."
4.26 The fairness requirement of Article 2.4 imposes important substantive disciplines on the use
of anti-dumping measures.  The Anti-Dumping Agreement requires the administering authorities tomeet the fairness requirement, along with other technical and procedural requirements.  "Fairness" is a
well-understood concept in international law and in the interpretation of treaties.
104
4.27 Although it may be difficult to develop a genera l definition of "fairness" in the abstract, the
judicial decisions of the United States help illuminate what "fairness" requires in the context of ananti-dumping investigation.  They have recognized that it is "unreal, unreasonable and unfair " for a
finding of dumping to be based on "a factor beyond the control of the exporter."
105 In other words, it is
fundamentally unfair to attribute factors beyond the control of an exporter against the exporter as
evidence of dumping.
(b) The Adjustment to Export Price for the Non-payment by One Customer Was Inconsistent
with the "Fair Comparison" Requirement of Article 2.4 of the Anti-Dumping Agreement
4.28 As discussed in the Statement of Facts, the United States effectively penalized POSCO for the
ABC Company’s non-payment.  Specifically, the United States reduced the export price for all of
                                                     
104 To give substance to the Anti-Dumping Agreement’s fairness requirement, we have attached, as
ROK Ex. 54, a memorandum of law prepared by Professor Thomas M.  Franck, the Murry and Ida Becker
Professor of Law at New York University and the President of the American Society of International Law (the"Franck Memorandum").  Professor Franck is a recognized expert on international law and institutions and theauthor of a recent treatise entitled Fairness in International Law and Institutions .  For the reference of the Panel,
Professor Franck’s curriculum vitae  is attached as ROK Ex. 55.
The Franck Memorandum reviews numerous contemporary legal instruments that use the word "fair"
or similar terms.  It concludes that the concept of fairness is " well-established in international law and practice"
and that its inclusion in a treaty text signifies that the pa rties intend for the text to be construed, by the parties
themselves and by dispute settlement tribunals, to secure a fair result in all cases.
The Franck Memorandum specifically addresses the responsibility of a WTO panel to decide whether
the price comparison in an anti-dumping investigation was "fair," and not merely whether the investigation was
technically compliant with other aspects of the Anti-Dumping Agreement, calling this the " most fundamental[]"
responsibility of the panel:
By entering upon a treaty in which such a term as ‘fair comparison’ is used, WTOMembers have formally invited ‘fairness discourse’ into the evaluation of anti-dumpingmeasures and they should be taken to have intended that the WTO dispute resolutionprocess would develop, case by case, reasonable parameters and rules by which to
determine in similar cases the applicable factors or standards by which a ‘comparison’s
fairness’ can be measured.  Thus, by requiring that the price comparison in an anti-
dumping investigation must be ‘fair,’ Article 2.4 of the WTO Anti-Dumping Agreementcalls for a WTO panel to determine not only whether the anti-dumping measures at issueresult from an anti-dumping investigation that satisfied the substantive and proceduralrequirements spelled out elsewhere in th e same Agreement (including elsewhere in
Article 2.4), but should also — and most fundamentally — determine whether the
comparison of export price to normal value was ‘fair.’   (emphasis added)
Franck Memorandum, ROK Ex. 54, at 1-2.
105 Melamine Chemicals v.  United States , 732 F.2d 924, 933 (Fed. Cir.  1984) (ROK Ex. 56) (emphasis
added).WT/DS179/R
Page 82
POSCO’s US sales to account for the ABC Company’s failure to pay.  It then compared the prices
charged by POSCO in the home market with this reduced export price, thus creating or inflating the
dumping margins.106
4.29 This adjustment to account for the non-payment by the ABC Company denied POSCO thebenefit of a "fair comparison" between export price and normal value, as required by Article 2.4 of the
Anti-Dumping Agreement, in at least two respects.
• First, as demonstrated in Part IV.A.1 above, the non-payment is not a "difference
affecting price comparability" for which an adjustment may be made under
Article 2.4.  By making an inappropriate adjustment to the export price, the
United States failed to conduct a fair comparison of the export price to normal
value.  Instead, it compared the inappropriately reduced export price to normal
value, which necessarily overstated the dumping margin.  In other words, the
United States compared apples to oranges.
107
• Second, the non-payment by the ABC Company was a factor that was beyond
POSCO’s control.  POSCO was not affiliated with the ABC Company, it had noknowledge at the time it made its sale that the ABC Company would fail to pay, and
it could not have prevented the ABC Company from failing to pay.
108  As the US
courts have recognized, it is "unreal, unreasonable, and unfair " for the DOC to base
a finding of dumping on "a factor beyond the control of the exporter" in thismanner.
109
4.30 The adjustment made by the United States to  the export price for all of POSCO’s US sales
based on the non-payment by the ABC Company was, thus, inconsistent with the "fair comparison"
requirement of Article 2.4 of the Anti-Dumping Agreement.  The resulting anti-dumping measurestherefore violated Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.
(c) As Past Decisions of the United States Have Recognized, the Inclusion of Atypical US or
Home-Market Sales in the Price Comparisons Used to Calculate Dumping Margins Is Unfair
4.31 As discussed above, Article 2.4 of the Anti-Dumping Agreement explicitly requires that the
comparisons used by the administering authorities to determine existence of dumping must be "fair."
This fairness requirement applies, of course, to the adjustments  that are made to export prices and
normal value.  It also applies to the sales that are included in the comparison  of export price and
normal value.  When an exporter has atypical sales in one market, and the inclusion of those sales in
the dumping calculations would distort the results, then the inclusion of those sales is inconsistent
with the "fair comparison" requirement of Article 2 .4.  In other words, the "fair comparison" required
by Article 2.4 cannot rest on a calculation of the export price or normal value that is distorted by theinclusion of atypical sales.
4.32 The United States has acknowledged that the inclusion in dumping calculations of sales that
are "extraordinary for the market in question" can "lead to irrational or unrepresentative results."
110
For that reason, the United States routinely excludes such sales from its analysis of both export price
                                                     
106 See para. 3.39 supra .
107 It should not be surprising that a violation of the adjustment requirements of Article 2.4 also states a
violation of the "fair comparison" requirement of Article 2.4.  Indeed, one may view the adjustment
requirements as a subset of the "fair comparison" requirement.
108 See paras.  3.30 - 3.36 supra .
109 Melamine Chemicals v.  United States , ROK Ex. 56, at 933 (emphasis added).
110  Statement of Administrative Action for the Uruguay Round Agreements, ROK Ex. 34, at 164.WT/DS179/R
Page 83
and normal value — where "inclusion of … sales which are clearly atypical would undermine the
fairness of the comparison ... ."111
4.33 The US sales for which POSCO’s customer did not pay were clearly atypical.  In fact, the
United States explicitly admitted this point.  In the preliminary determinations for both SSPC and
SSSS, the United States concluded that these unpaid sales were "atypical and not part of POSCO’s
normal business practice."112
4.34 Therefore, the inclusion of the unpaid sales to the ABC Company in the calculation of exportprice was inconsistent with the "fair comparison" requirement of Article 2.4 of the Anti-Dumping
Agreement.  The resulting anti-dumping measures thus violated Article 1 of the Anti-Dumping
Agreement and Article VI of GATT 1994.
3. The Failure of the United States to Follow Its Established Practice and Exclude these
Atypical US Sales from Its Analysis, and the Failure to Provide a Coherent Rationale for
Its Treatment of these Sales, Were Inconsistent with Article X:3(a) of GATT 1994 and
Article 12.2 of the Anti-Dumping Agreement
(a) Article X:3(a) of GATT 1994 Establishes "M inimum Standards of Transparency and
Procedural Fairness" that Are Amplified by the Specific Procedural Requirements of the Anti-
Dumping Agreement
4.35 Article X:3(a) of GATT 1994 requires each WTO Member to "administer … its laws,
regulations, decisions and rulings" relating to duties and other restrictions on imports (such as anti-
dumping measures) "in a uniform, impartial and reasonable manner."  Unlike most GATT provisions,
which are concerned with the content of a government’s laws, regulations, decisions, and rulings,Article X focuses on the administration  of those laws, regulations, decisions, and rulings.
4.36 The decisions of the Appellate Body show that Article X:3(a) establishes "certain minimum
standards for transparency and procedural fairness" in the administration of trade laws.
113  These
                                                     
111 The US anti-dumping statute specifically directs the DOC to exclude any home-market sales that are
"outside the ordinary course of trade" from its calculation of normal value.  The US statute does not contain an
explicit provision directing the DOC t o exclude such sales from the calculation of the export price.  However,the US Court of International Trade has affirmed that  the DOC "has the discretion to disregard certain US
pricing data if ‘inclusion of certain sales which are clearly atypical would undermine the fairness of thecomparison of foreign and US sales."  Chang Tieh Industry Co., Ltd.  v.  United States , ROK Ex. 35, at 145,
quoting Ipsco, Inc.  v.  United States , 714 F.  Supp.  1211, 1217 (Ct. Int’l Trade 1989).  See also Asociacion
Colombiana de Exportadores v.  United States , ROK Ex. 36, at 1126.
In accordance with this principle, the DOC has, in at least one past case, excluded from its analysis US
sales for which payment was never received because of the customer’s bankruptcy, on the ground that the saleswere not "representative."  See Neoprene Laminate from Taiwan, ROK Ex. 37, at 37194.
112 SSPC Preliminary Analysis Memorandum, ROK Ex. 5, at 3;  SSSS Preliminary Determination,
ROK Ex. 16, at 140.
113 United States — Import Prohibition of  Certain Shrimp and Shrimp Products , Report of the
Appellate Body, WT/DS58/AB/R, adopted on 6 Nov.  1998, at para. 183 (holding that the "minimum standards"established by Article X:3(a) were not satisfied by the United States’ administration of its restrictions on certainshrimp imports).
Cf. United States - Restrictions on Imports of Cotton and Man-made Fibre Underwear , Report of the
Appellate Body, WT/DS24/AB/R, adopted on 25 February 1997, at 21 ("Article X:2, General Agreement , may
be seen to embody a principle of fundamental importance….  The relevant policy principle is widely known asthe principle of transparency and has obviously due process dimensions .")  (emphasis added).  We note that,
while the Appellate Body was addressing Article X:2, the "due process dimensions" it observed are even greaterin the context of Article X:3(a).WT/DS179/R
Page 84
minimum standards apply to " all trade laws within the scope of Article X:1,"114 regardless of whether
or not other WTO Agreements also apply to the administration of particular trade laws.115  Because
anti-dumping laws clearly fall within the scope of Article X:1, their administration must comport with
the "minimum standards" of fairness established by Article X:3(a).116
4.37 The requirements of procedural fairness in anti-dumping investigations are further amplifiedby the explicit requirements of the Anti-Dumping Agreement.  Thus, Articles  6.1, 6.2, and 6.9 of the
Anti-Dumping Agreement establish a broad requiremen t that the administering authorities inform the
parties of the  "essential facts" of the case in a manner that allows them a "full" and "ampleopportunity" to defend their interests.  In the same vein, Article 12.2 of the Anti-Dumping Agreement
requires publication of "the findings and conclusions reached on all issues of fact and law considered
material by the investigating authorities" in both preliminary and final determinations, including:  (1)
"a full explanation of the reasons for the methodology used in the establishment and comparison of
the export price and the normal value," (2) "all releva nt information on the matters of fact and law and
reasons which have led to the imposition of final measures," and (3) "the reasons for the acceptance or
rejection of relevant arguments or claims made by the exporters and importers …."
(b) The DOC’s Treatment of the Atypical US Sales Failed to Meet the "Minimum Standards" of
Procedural Fairness Set by Article X:3(a)  of GATT 1994 and Article 12.2 of the Anti-
Dumping Agreement
4.38 As discussed in the Statement of Facts, in the preliminary determinations for both SSPC and
SSSS, the United States concluded that the sa les for which POSCO was not paid by the ABC
Company were "atypical and not part of POSCO’s normal business practice."  Accordingly, the
United States excluded these sales from its calculation of export price.  This was consistent with theprior practice of the United States.
117
4.39 In the final determinations, however, the United States abruptly reversed its position.118  Its
final price comparisons included the atypical sales on which the customer did not pay, and therefore
yielded distorted results that overstated the dumping margins.  The explanations offered by the
United States for its change in policy are inconsistent and arbitrary on their face:
• Regarding SSPC, the United States explained that:  "Although we disregarded the
sales [to the ABC Company] in the preliminary determination, we find that the salesaccount for such a large percentage of POSCO’s US sales that they cannot be
dismissed as abnormalities."
119
                                                     
114 Article X:1 of GATT 1994 provides for the prompt and effective publication, inter alia , of "[l]aws,
regulations, judicial decisions and administrative ruli ngs of general application, made effective by any
[Member], pertaining to … rates of duty, taxes or other charges, or to requirements, restrictions or prohibitionson imports … or affecting their sale [or] distribution.…"
115 European Communities — Regime for the Im portation, Sale and Distribution of Bananas , Report of
the Appellate Body, WT/DS27/AB/R, AB-1997-3, at para. 203-204 (9 Sept.  1997) (" Bananas III " ) (holding
that Article X:3(a) applies to the administration of import licensing measures notwithstanding the existence ofthe WTO Agreement on Import Licensing, although the panel should have considered the more specificagreement first) (emphasis added).
116 Cf.  id.  (finding "for all practical purposes, interchangeable" the requirements of GATT
Article X:3(a) with the requirements of Article 1.3 of the Import Licensing Agreement that measures be "neutral
in application and administered in a fair and equitable manner") (emphasis added).
117 See paras.  3.35 - 3.36 supra .
118 SSPC Final Determination, ROK Ex. 11, at 154 47-49;  SSSS Final Determination, ROK Ex. 24, at
30671-74.
119 SSPC Final Determination, ROK Ex. 11, at 15449.WT/DS179/R
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• Regarding SSSS, where the sales to ABC Company were relatively small, the
United States explained that:  "[R]espondent’s arguments regarding the relative
significance of these sales [to the ABC Company] compared to POSAM’s total sales
is [sic] inapposite.  Although the Department employs a 5 per cent threshold in regard
to other issues in investigations … none … apply to this case."120
As the first of these passages indicates, the United States expressly based its decision regarding SSPC
on the "large percentage" of the atypical sales compared to the total sales being investigated.  But,
when faced with a much smaller percentage of atypical sales in SSSS, the United States held that the
percentage of atypical sales was irrelevant.  In other words, the United States took the position that the
percentage of atypical sales is only relevant when that percentage would support its decision toinclude the atypical sales in the dumping analysis.  This was clearly arbitrary.
4.40 The inclusion of POSCO’s unpaid sales to th e ABC Company in the calculation of export
price violated Article X:3(a) of GATT 1994 in at least four respects:
• First, as recognized by executive, legislative, and judicial branches of the
United States, it is "irrational" and "unreasonable" to include such atypical sales in the
calculation of the prices to be compared.
121
• Second, it was neither "uniform" nor "reasonable" for the United States to fail to
follow its precedents on the exclusion of atypical data from dumping calculations.
• Third, as discussed above, the explanations the United States offered to justify its
departure from its established practice were internally inconsistent and thus inherentlyunreasonable.
• Finally, having found that the unpaid sales were "atypical and not p art of POSCO’s
normal business practice" and that their inclusion would distort the calculation of the
dumping margin, it was unreasonable for the United States to reverse that decision
when there was no new evidence or argument to justify such a change.
• The inclusion in the dumping calculations of the atypical US sales on which the
customer did not pay was, therefore, inconsistent with Article X:3(a) of GATT 1994,which requires each WTO Member to "administer … its laws, regulations, decisions
and rulings" relating to duties and other restrictions on imports (such as anti-dumpingmeasures) "in a uniform, impartial and reasonable manner."
122
4.41 In addition, by offering inherently contradictory statements about the relevance of thepercentage of unpaid sales to its final decisions that such sales were not atypical, the United States
                                                     
120 SSSS Final Determination, ROK Ex. 24, at 30674.
121 See para. 3.36 supra .
122 GATT 1994, art.  X:3(a).  It should be noted that the DOC’s failure to provide a reasoned
explanation for its departure from its own precedents is also inconsistent with fundamental principles of USadministrative law.  See Kenneth C.  Davis and Richard J.  Pierce, Jr., 2 Administrative Law Treatise, at 206(3rd ed.  1994) (ROK Ex. 57).WT/DS179/R
Page 86
failed to provide an adequate statement of reasons for its decisions, in violation of Article 12.2 of the
Anti-Dumping Agreement.123
4.42 As a result, the anti-dumping measures imposed by the United States violate Article 1 of theAnti-Dumping Agreement and Article VI of GATT 1994.
B. T
HE UNITED  STATES UNFAIRLY CHANGED ITS METHODOLOGY FOR CALCULATING DUMPING
MARGINS , ALLEGEDLY TO ACCOUNT FOR THE DEPRECIATION OF THE KOREAN WON, IN
VIOLATION OF ARTICLES   2.4, 2.4.1, AND 2.4.2 OF THE ANTI-DUMPING AGREEMENT
4.43 As discussed in the Statement of Facts, in each of the investigations at issue the United States
divided the period of investigation into sub-periods, and then calculated separate average prices and
separate dumping margins for each sub-period (based on the amount by which the average normal
value exceeded the average export price for that sub-period).  For any sub-period where the DOC
found "sales at more  than fair value" ( i.e., "negative dumping"), the DOC treated this as a sub-period
of "zero dumping."  It then calculated an overall average dumping margin based on the average of the
"positive" dumping margins found in certain sub-pe riods and the "zero" dumping margins assigned to
the sub-periods in which there had been "negative dum ping."  As a result, the United States calculated
a dumping margin that overstated POSCO’ s true average dumping margin (if any).124
4.44 As discussed further below, such a methodology is inconsistent with the requirements
governing dumping calculations under the WTO Agreements and it is unfair.
1. The "Multiple Averaging" Methodology Used by the United States Is Inconsistent with
Article 2.4.2 of the Anti-Dumping Agreement
4.45 Article 2.4.2 of the Anti-Dumping Agreement establishes the following standard
methodology for dumping calculations:
Subject to the provisions governing fair comparison in paragraph 4, the existence of
margins of dumping during the investigation phase shall normally be established on
the basis of a comparison of a weighted average  normal value with a weighted
average  of prices of all comparable export transactions or by a comparison of normal
value and export prices on a transaction-to-transaction basis.  (emphasis added).
4.46 Article 2.4.2 thus obligates a WTO Member conducting an anti-dumping investigation to
compare either (i) a single "weighted average normal value" with a single weighted average export
price for the full period of investigation or (ii) individual home-market transactions to individual
export transactions.125  A simple textual analysis of Article 2.4.2 reveals that it does not allow for the
comparison of "multiple averages" with "multiple averages."
                                                     
123 Cf.  Korea —  Anti-Dumping Duties on Imports of Polyacetal Resins from the United States , Report
of the Panel, ADP/92, adopted on 27 Apr.  1993, paras.   222-224 (finding that the investigating authorities did
not provide an "adequate statement of reasons" under Article 8:5 of the Tokyo Round Anti-Dumping Code [thepredecessor of Article 12.2 of the Anti-Dumping Agreement] where the statement was "internallycontradictory").
124 See para. 3.39 supra .
125 Article 2.4.2 contains an exception to its rule that either an average must be compared to an average
or individual transactions must be compared to individu al transactions.  The second sentence of that provision
provides that:
A normal value established on a weighted av erage basis may be compared to prices of
individual export transactions if the authorities find a pattern of export prices which differsignificantly among different purchasers, regions or time periods, and if an explanation isWT/DS179/R
Page 87
• Article 2.4.2 repeatedly uses the distinctly singular phrase " a weighted average" — which is
to say, one average, not two averages.
• This requirement is confirmed by the reference in Article 2.4.2 to "a weighted average of
prices of all comparable export transactions."  Clearly, there can only be one average if it
takes into account all data.
4.47 The United States failed to follow the methodology required by Article 2.4.2 in the final
dumping determinations at issue.  It did not comp are a single weighted-average normal value with a
single weighted-average export price for the full period of investigation.  Rather, it divided the period
of investigation into sub-periods.  Then, the United States used "multiple averages," one for each sub-
period, to calculate a separate dumping margin for each sub-period.  These separate sub-perioddumping margins were then combined using a methodology that resulted in a distorted overall
dumping margin.
126
4.48 The use of "multiple averages" by the United States therefore failed to comply with the
requirement of Article 2.4.2 that export price must be compared to normal value on the basis of either"a weighted average" to "a weighted average" or individual transactions to individual transactions.
The US practice of comparing "multiple averages" to "multiple averages" finds no support in
Article 2.4.2.  As a result, the anti-dumping measures against SSPC and SSSS from Korea violate
Article 1 of the Anti-Dumping Agr eement and Article VI of GATT 1994.
2. The Change in the Price Comparison Metho dology Adopted by the United States to
Account for the Devaluation of the Korean Won Is Inconsistent with the Requirements
of Article 2.4.1 of the Anti-Dumping Agreement, Which Permits Departures from the
Normal Comparison Methodology Only for an  Appreciation of the Exporting Country’s
Currency
4.49 The United States claimed that this departure from the requirements of Article 2.4.2 was
necessary to account for the devaluation of the Korean won against the US dollar during the period of
investigation.  As discussed further below, however, under the Anti-Dumping Agreement, departures
from the normal price comparisons to account for changes in exchange rates are permitted only when
the currency of the exporting country was apprecia ting in relation to the currency of the importing
country — and not when, as in these cases, the currency of the exporting country was depreciating.
4.50 Article 2.4.1 of the Anti-Dumping Agreement sets forth the basic rule for conversion of
currencies in the price comparisons used to calculate dumping margins, as follows:
When the comparison under paragraph 4 requires a conversion of currencies, such
conversion shall be made using the rate of exchange on the date of sale, provided thatwhen a sale of foreign currency on forward markets is directly linked to the export
sale involved, the rate of exchange in the forward sale shall be used.  Fluctuations in
                                                                                                                                                                    
provided as to why such differences cannot be taken into account appropriately by the use of a
weighted average-to-weighted average or transaction-to-transaction comparison.
In other words, the second sentence of Article 2.4. 2 permits an average to be compared to individual
transactions if certain criteria are met.
In this regard, it should be noted that the United States never claimed that the criteria for invoking this
exception were met in this case, and it did not use the specific methodology (comparing an average to individualtransactions) permitted by the exception.
126 See paras.  3.45 - 3.48 supra .WT/DS179/R
Page 88
exchange rates shall be ignored and in an investigation the authorities shall allow
exporters at least 60 days to have adjusted their ex port prices to reflect sustained
movements in exchange rates during the period of investigation.  (internal footnote
omitted, emphasis added).
The basic rule established by Article 2.4.1, then, is that currency conversions are to be made using the
exchange rate on the date of sale.  Article 2.4.1 provides one exception to this rule:  It "allows" an
exporter time to adjust when its currency is appreciating  against the currency of the Member
conducting an anti-dumping investigation.  On the other hand, a similar exception to the basic rule is
not provided for situations in which the exporting country’s currency is  depreciating.127
4.51 The rationale for this difference in treatment between currency appreciation and currency
depreciation is clear:  An exporter must be allowed time to adjust its prices to a currency appreciation
or it would be unfairly found to be dumping as a result of an event beyond its control.  By contrast, no
such difficulties arise from a currency devaluation, because currency devaluations do not create or
inflate dumping margins.128
4.52 All this indicates that the normal price comp arison methodology may be modified to account
for changes in exchange rates only when the export ing country’s currency is appreciating.  No such
departures are permitted to account for other changes in the exchange rate (such as devaluation of the
exporting country’s currency).
4.53 By adopting a new price comparison methodology (using multiple averages) to account for
the devaluation of the Korean won, the United States departed from the requirement in Article 2.4.1
                                                     
127 As mentioned, the second sentence of Article 2.4.1 provides that "the authorities shall allow
exporters at least 60 days to have adjusted their export prices to reflect sustained movements in exchange ratesduring the period of investigation." The United States ha s expressly recognized that this exception only applies
when "there is a sustained movement increasing the value of the foreign currency relative to the US dollar ." See
19 C.F.R.  § 351.415(d) (emphasis added) (ROK Ex. 2);  see also Notice of Final Results of Antidumping DutyAdministrative Review:  Certain Welded Carbon Steel Pipe and Tube from Turkey, 61 Fed. Reg. 69067, 69071(31 December 1996) ("[S]ection 773A(b) directs the Depart ment to allow a 60 day adjustment period when a
currency has undergone a sustained movement.  Such an adjustment period is required only when the foreigncurrency is appreciating against the US dollar….  No adju stment period is warranted in this review, because the
Turkish Lira generally remained constant or depreciat ed against the dollar during the [period of review].")
(ROK Ex. 58).
128 The difference in the effects of currency appreciation and currency devaluation can be seen from the
following example.  Suppose that a Korean exporter sells the product in its home-market at 10,000 won per unitat a time when the exchange rate is 1,000 won per dollar.  When it sets its export price at $10 ( i.e., 10,000 won
divided by 1,000 won per dollar)  dum ping should not be found, because the export price equals the normal
value converted into dollars.
Now, suppose that the value of the Korean won appreciates, resulting in a new exchange rate of 800
won per dollar.  If the exporter does not adjust its prices, it will be found to have engaged in dumping, becausethe normal value when expressed in dollars will be $12.50 ( i.e., 10,000 won divided by 800 won per dollar),
while the export price will remain at $10.  To allow th e exporter a reasonable period to identify the currency
trend, determine that it is a "sustained movement" rather  than a "fluctuation," and adjust its prices to avoid a
finding of dumping in such circumstances, Article 2.4.1 mandates that the exporter be allowed a period of atleast 60 days to respond to the currency appreciation.
On the other hand, if the value of the Korean won had devalued, the exporter would not have faced a
dumping problem.  Suppose that, instead of the appreciation discussed in the foregoing example, the Koreanwon had been devalued, resulting in an exchange rate of 1,200 won per dollar.  If the exporter did not adjust its
prices, no dumping would be found, because the normal value when expressed in dollars will be $8.33 ( i.e.,
10,000 won divided by 1,200 won per dollar), while the export price would remain at $10.  Significantly, theAnti-Dumping Agreement does not permit the investigatin g authorities to adjust their calculation methodologies
to find dumping margins in such circumstances.  Instead, it requires the investigating authorities to follow thenormal currency conversion rules (thus allowing the exporter the full "benefit" of the currency devaluation).WT/DS179/R
Page 89
that the price comparisons not be modified to account for devaluations in the exporting country’s
currency.  As a result, the anti-dumping measures against SSPC and SSSS from Korea violate
Article 1 of the Anti-Dumping Agr eement and Article VI of GATT 1994.
3. The Use of the "Multiple Averaging" Methodology Was Inconsistent with the
Procedural Requirements of GATT 1994 and the Anti-Dumping Agreement
4.54 As discussed in Part IV.A.3 supra , Article X:3(a) of GATT 1994 requires each WTO Member
to "administer ...  its laws, regulations, decisions and rulings" relating to duties and other restrictions
on imports (such as anti-dumping measures) "in a uniform, impartial and reasonable manner."  This
provision establishes "certain minimum standards for transparency and procedural fairness" in alltrade-related actions by WTO Members."  The requirements of procedural fairness in anti-dumping
investigations are further amplified by the explicit requirements of the Anti-Dumping Agreement,
particularly the requirements of Article 6.1, 6.2, 6.9, and 12.2 of the Anti-Dumping Agreement.
129
4.55 Taken as a whole, these provisions establish a broad requirement that the investigatingauthorities interpret the relevant laws in a reason able and consistent manner — and that they provide
private parties with an explanation of their proposed interpretation of the relevant laws in a manner
that will allow the private parties a "full" and "ample opportunity" to defend their interests.
Unfortunately, the actions by the United States in adopting the "multiple averaging" methodology in
the SSPC and SSSS investigations did not comply with this requirement.
4.56 As discussed in the Statement of Facts, the United States originally maintained a policy
against  using "multiple averaging" to respond to currency depreciations before abruptly abandoning
that position during the course of the SSPC and SSSS investigations.
130
• In the preliminary determinations for both SSPC and SSSS, the United States declined to
use "multiple averaging."131  In SSSS, the United States distinguished as inapplicable
"the one case cited by petitioners in support of averaging multiple periods" and
"preliminarily determine[d] that the modification of currency conversion reasonably
accounts for the devaluation of the won, and that the use of multiple periods for
averaging is unwarranted ."132
• Moreover, in the preliminary determination in Preserved Mushrooms from Indonesia
(which was proceeding approximately three months before the SSPC investigation and
which raised a similar issue of currency devaluation under similar circumstances), theUnited States expressly found "no basis to depart from our practice of calculating the
weighted-average EPs [ i.e., export prices] for the entire POI [ i.e., period of
investigation]" merely because of a currency devaluation without "evidence that there
has been a significant change in the respondents’ pricing or marketing during the POI."
133
• The final determination in Preserved Mushrooms from Indonesia  reached the same
conclusion.  In that determination, the United States rejected the petitioners’ request for
"multiple averaging," saying  "we have declined to alter our methodology in this case."134
                                                     
129 See paras.  4.35 - 4.37 supra .
130 See paras.  3.40 - 3.44 supra .
131 SSPC Preliminary Determination, ROK Ex. 4, at 59539;  SSSS Preliminary Determination, ROK
Ex. 16, at 145.  
132 SSSS Preliminary Determination, ROK Ex. 16, at 145 (emphasis added).
133 Certain Preserved Mushrooms from Indonesia (Preliminary), ROK Ex. 39, at 41785.
134 Certain Preserved Mushrooms from Indonesia (Final), ROK Ex. 40, at 72272.WT/DS179/R
Page 90
4.57 The investigations at issue here were the first where the United States departed from its
established policy of using a single weighted average for the full period of investigation without any
evidence of a change in the respondent’s "pricing or marketing" policies.  Indeed, in taking this
unprecedented action in the SSPC case, the United States failed to even articulate a reason for itsdeparture from its then three-month-old precedent in Preserved Mushrooms , when the similarities
between the devaluations of the won and the Indonesian rupiah clearly demanded the same treatment.
The DOC’s failure to explain the departure from the Preserved Mushrooms  decision was especially
glaring in light of the fact that the DOC had previously indicated that the issue in the SSPC case was
the same as the issue in Preserved Mushrooms.
135
4.58 Therefore, there is no basis for the United States’ departure in the investigations at issue from
its well-established standard methodology.  To the contrary, the unprecedented resort to "multiple
averaging" by the United States in the circumstances of this case violates numerous obligations of the
United States under GATT 1994 and the Anti-Dumping Agreement:
• By failing to follow its established methodology, the United States violated
Article X:3(a) of GATT 1994, which requir es WTO Members to "administer … its
laws, regulations, decisions and rulings" in a "uniform, impartial and reasonable
manner."
• By failing to provide POSCO with notice of the "essential fact " of a change in US
policy from the preliminary determination in a manner that would have allowed
POSCO a "full" and "ample opportunity" to defend its interests, the United States
acted in violation of Article 6.1, 6.2, and 6.9 of the Anti-Dumping Agreement.136
• Finally, by failing to provide an adequate explanation of its departure from the
standard methodology (and particularly of its departure from the recent, factuallysimilar decision in Preserved Mushrooms ), the United States acted in violation of
Article 12.2 of the Anti-Dumping Agreement.
As a result of these procedural errors, the imposition of anti-dumping measures against SSPC and
SSSS from Korea violated Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.
4. The "Multiple Averaging" Methodology Is Inconsistent with the Underlying Basis for
the Anti-Dumping Measures against SSPC and SSSS, and Thus Deprived POSCO of the
"Fair Comparison" Required by Article 2.4 of the Anti-Dumping Agreement
4.59 In addition to the substantive and procedural errors demonstrated above, the "multiple
averaging" methodology also suffered from a larger problem:  The fundamental inconsistency
between the effect of "multiple averaging" and the underlying basis of the anti-dumping orders on
SSPC and SSSS meant that, in the circumstances of these cases, the use of "multiple averaging" was
unfair.
                                                     
135 Thus, the DOC’s preliminary determination in the SSPC case explained that:
For the purposes of the final determination, the Department will also analyze the implications,
if any, of the decline in the won during 1997 for price averaging and whether multiple
averages are warranted.  The Department is studying this issue  in Mushrooms from Indonesia .
SSPC Preliminary Determination, ROK Ex. 4, at 59539 (emphasis added).
136 This violation was particularly significant with regard to SSPC, because (i) it was the very first
investigation to use "multiple averaging" to account for a currency devaluation, and (ii) that decision was madeat the very end of the Commerce Department investigation.WT/DS179/R
Page 91
4.60 As discussed in Part IV.A.2 supra , the "most fundamental" responsibility of this Panel is to
ascertain whether or not the United States afforded POSCO the "fair comparison" mandated by
Article 2.4 of the Anti-Dumping Agreement.
4.61 As discussed in the Statement of Facts, throughout the proceedings in the investigations at
issue, the US petitioners predicated their requests for anti-dumping orders on the claim that such relief
was needed to protect the US industry from the adverse consequences of the so-called Asian
economic crisis that accompanied the devaluation of the Korean won.137  In essence, petitioners
claimed that the anti-dumping orders were needed to protect them from an increase in imports after
the devaluation.
4.62 In these circumstances, a fair analysis of whether POSCO was truly engaged in injurious
dumping must necessarily focus on — or, at an absolute minimum, include — pricing data after the
devaluation of the won .  Yet, that is the very pricing data which was effectively excluded (or "walled
off," in the petitioners’ words) from the DOC’s price comparisons by the "multiple averaging"
methodology.
4.63 In other words, the "multiple averaging" methodology resulted in a finding of dumping based
solely on pre-devaluation sales.  That methodology wa s, therefore, flatly inconsistent with the injury
analysis, which found injury based primarily on post-devaluation imports.  The "multiple averaging"
methodology was, therefore, particularly distortive in this case, and thus cannot be reconciled with the
fair comparison requirement of Article 2.4 of the Anti-Dumping Agreement.  The resulting anti-
dumping measures are thus inconsistent with Article 1 of the Anti-Dumping Agreement andArticle VI of GATT 1994.
C. T
HE COMPARISON OF NORMAL VALUE TO EXPORT PRICE WAS UNFAIR AND CONTRARY TO
THE REQUIREMENTS OF THE ANTI-DUMPING AGREEMENT , BECAUSE THE UNITED  STATES
INFLATED THE NORMAL VALUE BY "DOUBLE CONVERTING " D OLLAR -PRICED SALES IN
KOREA INTO WON AND THEN BACK INTO DOLLARS USING DIFFERENT EXCHANGE RATES
4.64 As discussed in the Statement of Facts, POSC O had a significant quantity of "local sales" of
both SSPC and SSSS during the investigation periods.  These "local sales" were negotiated and
invoiced in US dollars, but the payments were ma de in Korean won.  Significantly, to ensure that
payment accurately reflected the actual dollar value of the sales, the amount of the Korean won
payment for these "local sales" was not fixed at the time of the sales negotiation or at the time of
invoice.  Instead, the payment in Korean won was determined by applying the market exchange rate
(as announced by the official Korean Exchange Bank) for the date of payment to the US dollar
amount shown on the invoice.  Thus, the economic reality is that the final payment for these sales is
determined by the US dollar amount shown on the invoice, and not by the Korean won amount
recorded in POSCO’s accounting records at the time  of invoice.  In economic terms, these "local
sales" are equivalent to sales that are invoiced and paid in US dollars.138
4.65 Nevertheless, in its final determinations, the United States chose to analyze these local salesbased not on the US dollar price from the invo ice, but on the Korean won amounts recorded in
POSCO’s accounting records at the time of invoice.  This entailed a two-step process.
• First, the United States included the Korean won amounts from POSCO’s accounting
records in its calculation of the average price, in Korean won, for home-market sales.Since the won amounts in the accounting records were converted from the invoice
                                                     
137 See para. 3.48 supra .
138 See paras.  3.49 - 3.55 supra .WT/DS179/R
Page 92
prices in dollars (so that the books would be kept in a single currency, in accordance
with normal accounting practices) at the market exchange rate announced by the
official Korean Exchange Bank for the da te of invoice, this meant that the US
methodology effectively first converted the US dollar prices of the "local sales" fromdollars into won at that rate.
• Then, the average home-market price in won was converted into US dollars using a
weighted average exchange rate, based on the exchange rates announced by the New
York Federal Reserve, for the dates of the US sales  during the relevant period.
139
Thus, the dollar-denominated prices for "local sales" were converted into Korean won using one
exchange rate and then converted back into US dollars using a different exchange rate.  Notsurprisingly, this "double conversion" using different exchange rates distorted the price comparisons
and inflated the dumping margins found by the United States.
140
1. The "Double Conversion" of the Dollar-Denominated Home-Market Sales Prices
Violated Article 2.4.1 of the Anti-Dumping Agreement, Which Permits Currency
Conversions Only When Such Conversions Are Required
4.66 As discussed in Part IV.B.2 supra , Article 2.4.1 of the Anti-Dumping Agreement establishes
the methodology for converting currencies in anti-dumping investigations.  The introductory clause of
Article 2.4.1 makes clear, however, that resort to this methodology is limited to those circumstances
"[w]hen the comparison under paragraph 4 requires  a conversion of currencies."
4.67 Past decisions by WTO panels indicate that an action may be considered to be "required"
when there "is no other reasonable alternative."141  If there is a "reasonable alternative," then the
action is not "required" within the meaning of the WTO Agreements.
4.68 In this case, the United States clearly had a reasonable alternative to the double-conversion of
currencies:  It could simply have used the original dollar prices on POSCO’s invoices.  Needless to
say, a home-market sale priced in dollars may be readily compared to an export sale priced in dollars
without any need for currency conversion.  Nevertheless, the United States passed over the obvious
                                                     
139 The weighted average exchange rate was calculated by averaging the New York Federal Reserve
exchange rates on the dates of each US sale, weighted by the quantity involved in each US sale.
140 An example of the distortion caused by this double-conversion methodology is set forth in
paragraphs 3.56 - 3.58, supra .  In that example, which reflects the actual data for POSCO’s sales of SSSS, the
DOC’s double-conversion methodology increased the normal value by { }.
141 In the context of Article 11.1 of the Anti-Dumping Agreement, the DRAMS  Panel held that an anti-
dumping duty only remains "necessary" as long as "circumstances require  [its] continued imposition" and "the
need for the continued imposition of the duty must be demonstrable on the basis of the evidence adduced."
United States — Anti-Dumping Duty on Dynamic Ra ndom Access Memory Semiconductors (DRAMS) of One
Megabit or Above from Korea  , Report of the Panel, WT/DS99/R, adopted on 19 Mar.  1999, at para. 6.42
(emphasis added).
The word "necessary" is understood by the Appellate Body (and by WTO and GATT panels) to limit
certain exceptions in Article XX of GATT 1994 to circumstances where there is no other reasonable alternative.See United States — Standards for Reformulated and Conventional Gasoline , Report of the Panel, WT/DS2/R,
at para. 6.24 ("If there were consistent or less inconsistent measures reasonably available to the United States,
the requirement to demonstrate necessity would not have been met."), adopted on 20 May 1996 as modified bythe Report of the Appellate Body, WT/DS2/AB/R, at 16-17 (distinguishing between "necessary" inArticle XX(b) and " relating to" in Article XX(g), and critiquing the panel for applying the narrow "‘necessary’test" to both Article XX(b) and XX(g)).WT/DS179/R
Page 93
choice in favour of a more complex (and less accur ate) methodology.  This "double conversion" was
unnecessary.142
4.69 By double-converting the dollar-denominated home-market prices of POSCO’s local sales,
the United States departed from the requirement in Article 2.4.1 that currency conversions be
employed only when "required." As a result, the anti-dumping measures against SSPC and SSSS from
Korea violate Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.
2. The "Double Conversion" Methodology Employed by the United States Is Unreasonable
and Departs from Established Practice Without Adequate Explanation, and Thus Is
Inconsistent with the "Uniform" and "Reasonable" Administration of the Anti-
Dumping Laws Required by GATT Article X:3(a) and Article 12 of the Anti-Dumping
Agreement
4.70 As discussed in Parts IV.A.3 and IV.B.3 supra , Article X:3(a) of GATT 1994 obligates
Members to administer their anti-dumping laws in a "uniform, impartial, and reasonable manner."
Article X:3(a) establishes "certain minimum standards for transparency and procedural fairness" that
are amplified by the procedural requirements of Article 6.1, 6.2, 6.9, and 12.2 of the Anti-Dumping
Agreement.  Together, these provisions establish a broad requirement that the investigating authorities
interpret the relevant laws in a reasonable and consistent manner — and that they provide privateparties with an explanation of their proposed interpretation of the relevant laws in a manner that will
allow the private parties a "full" and "ample opportunity" to defend their interests.
4.71 In "double converting" the prices of the "local sales," the United States acted "unreasonably"
and failed to comply with its procedural obligat ions in several respects.  In addition, the "double
conversion" caused a distortion in the calculati on of POSCO’s home-market price, which denied
POSCO the benefits of the "fair comparison" between export price and home-market price to which it
is entitled under Article 2.4 of the Anti-Dumping Agreement.
(a) The "Double Conversion" Methodology Employed by the United States Constituted a
Departure from Its Previous Practice that Was Unwarranted, Contrary to the Evidence, and
Inadequately Explained
4.72 As discussed in the Statement of Facts,
143 the "double conversion" of the prices of the "local
sales" from dollars to won to dollars (at different exchange rates) was an unprecedented departure
from the established policy of the DOC of "accept[in g] charges in the currency in which the charges
are made."144  In fact, neither the United States nor the petitioners in the investigations cited a single
case before the investigations at issue where the United States treated a home-market sale priced indollars as if it had been priced in the local currency.
                                                     
142 In addition, the "double conversion" is inconsistent with the requirement of Article 2.4.1 that, when
a currency conversion is required, investigating authorities should use the "rate of exchange on the date of sale."As discussed, for the "local sales" in Korea, the United States did use a "rate of exchange on the date of sale" for
the conversion from dollars to won (specifically, the rate  of the Korean Exchange Bank on the date of each local
sale).  For the conversion back to dollars, however, the United States did not use an exchange rate for that samedate.  Instead, the conversion back to dollars was effected at an exchange rate based on the weighted average of
the rates prevailing on the dates of different sales  (specifically, the weighted average of the rates of the New
York Federal Reserve or DOC on the dates of POSCO’s US sales .)  See para. 3.57 supra .  This methodology
was inconsistent with the plain language of Article 2.4.1 and it was obviously distortive.
143 See paras.  3.59 - 3.62 supra .
144 Fresh Cut Roses from Colombia, ROK Ex. 52, at 7006 ("It is the Department’s practice to accept
charges in the currency in which the charges are made.  In this instance, home market prices were charged indollars.  Therefore, the Department found it appropriate that respondent’s home market sales were reported indollar value since the dollar value was the currency in which the sales transactions were made.").WT/DS179/R
Page 94
4.73 By contrast, there are several cases — most notably Fresh Cut Roses from Colombia  — in
which the United States properly declined to "double convert" home-market sales that were priced in
dollars.145  The United States claimed that the factual situation in Fresh Cut Roses from Colombia
differed from the factual situation presented in the SSPC and SSSS cases.  However, as discussed
below, the purported distinctions offered by the United States made no sense.
4.74 The United States claimed that the SSPC and SSSS cases could be distinguished from the
Colombian Roses  case because "a comparison of the internal exchange rate used by POSCO to the
market exchange rate used by the Department shows that the two exchange rates are quite
dissimilar."146  The United States claimed that this difference was "in contrast to Fresh Cut Roses
from Colombia  in which the Department verified that the payment in pesos reflected the market
exchange rate at the time of payment."147  This proposed distinction does not withstand scrutiny.
• First , the verification in the SSPC and SSSS case confirmed that the internal
exchange rates used by POSCO were the market exchange rates announced by theofficial Korean Exchange Bank for the date of the home-market sale.
148  Thus, the
"internal" rates used by POSCO were not arbitrarily selected figures.  To the contrary,
they were the actual market rates for conversions of Korean won into US dollars in
the Korean exchange market.
• Second , because exchange rates fluctuate within the course of the day and in different
markets, there is no reason to expect the exchange rates published by the KoreanExchange Bank to match exactly the exchange rates published by the New York
Federal Reserve Bank some hours later.  However, the actual differences between the
rates were, in fact, quite small.  For example, in the SSSS case, the United States
indicated that the difference between the Korean Exchange Bank rates used byPOSCO and the New York Federal Reserve Bank rates was, for all comparisons, less
than one per cent .
149
• Finally , it should be noted that the evidence indicates that, at least in the SSPC case,
the United States made a clear error in its exchange rate comparison.  The purported"market" exchange rates used in this comparison were not, as the United States
claimed, the "Federal Reserve" rates.  Instead, the purported "market" rates were, in
                                                     
145 Id.;  see also Silicon Metal from Argentina, ROK Ex. 53, at 37895-96.
146 SSPC Final Determination, ROK Ex. 11, at 154 56;  accord SSSS Final Determination, ROK Ex. 24,
at 30678.
147 SSPC Final Determination, ROK Ex. 11, at 15456;  SSPC Final Analysis Memorandum, ROK Ex.
12, at 5;  SSSS Final Analysis Memorandum, ROK Ex. 25, at 3-4;  accord SSSS Final Determination, ROK Ex.24, at 30678;
148 SSSS Sales Verification Report, ROK Ex. 19, at 14.
149 According to the final analysis memorandum in the SSSS case,
[A] comparison of the internal exchange rate used by POSCO to the market exchange rate
used by the Department for Home Market Observation { } shows that the two exchange ratesare dissimilar:  POSCO’s won/USD exchange rate for { } is { } won per dollar while theFederal Reserve rate for this date is { } won per dollar.  Also, POSCO’s won/USD exchange
rate on the date of payment ({ }) is { } won per dollar, while the Federal Reserve exchange
rate on the date of payment is { } won per dollar.
SSSS Final Analysis Memorandum, ROK Ex. 25, at 3.  A simple calculation indicates that the
differences between the POSCO rates and Federal Reserve rates identified by this analysis memorandumrepresent in all cases less than one percent of the Federal Reserve exchange rate.WT/DS179/R
Page 95
fact, adjusted exchange rates calculated by the US Department of Commerce  to
implement provisions of US law that require a 60-day lag in exchange rates when a
foreign currency has a "sustained movement" against the US dollar.150  Moreover,
these adjusted Commerce Department exchange rates were, for the relevant dates,quite different from the Federal Reserve rates.
151  In fact, the actual Federal Reserve
rate was much closer to POSCO’s  "internal" rate than it was to the adjusted
Commerce Department rate that the United States relied upon in its analysis.
Compounding the error is the fact that the DOC lag rate has no bearing on cases
where a foreign currency is depreciating against the dollar, as its role is strictlylimited to cases of appreciation.  Thus, the exchange rate comparison that the
United States relied upon was deeply flawed.
4.75 In the SSSS decision, the United States offered an alternative basis for distinguishing the
Fresh Cut Roses  decision.  It claimed that, in the Fresh Cut Roses  case, "all prices and costs, both in
the home market and in the US, were dollar denominated…." while in the case of SSSS "the vastmajority of the costs incurred for home market a nd US sales are denominated and paid by POSCO in
won."
152  Once more, however, the proposed distinction is unpersuasive.
• First , the proposed distinction has no bearing on t he issue before the Panel.  POSCO
has not asserted that the home-market sales or costs that were denominated in Korean
won should not have been converted into US dollars using an appropriate exchangerate.  Instead, it has asserted only that the US dollar-denominated home-market sales
should not have been double-converted.  The fact that there were other won-
denominated sales and costs of SSSS, which obviously had to be converted into
dollars, does not affect in any way the appropriateness of "double converting" the
prices that already were in dollars.
• Second , the distinction proposed by the United States is contrary to its established
practice in virtually all cases.  According to the United States, the double-conversionwas necessary to treat the dollar-denominated home-market prices consistently with
the foreign-currency-denominated costs.  In virtually every US anti-dumping
investigation, however, some of the costs incurred in connection with sales to the
United States (such as production costs, freight from the factory to the port, and
brokerage and handling fees in the exporting country) are incurred and denominated
in the foreign currency, while the sales prices are denominated in US dollars.  The
                                                     
150 See DOC Notice on Currency Conversion, ROK Ex. 49.
151 For example, the final analysis memorandum in the SSPC case stated that the Federal Reserve
exchange rate on 23 November 1997 was 947.87 won per dollar.  SSPC Final Analysis Memorandum, ROK Ex.12 at 4.  In fact, the Federal Reserve rate on that date was actually 1060.00 won per dollar.  See New YorkFederal Reserve Daily Exchange Rates, ROK Ex. 50.  The 947.87 won per dollar rate mentioned in the finalanalysis memorandum is actually the exchange rate for 23 November 1997 calculated by the DOC using itsspecialized exchange rate model for appreciating currencies — a model which, by its terms, should not have
been applied to the Korean won in the first place, b ecause the won was depreciating in value during the period
under consideration.  See DOC Adjusted Exchange Rates, ROK Ex. 51.).
The final analysis memorandum makes a similar error with respect to the exchange rates on
18 November 1997.  See ROK Ex. 12 at 5.
In this regard, it is interesting to note that the "internal" rate used by POSCO for 23 November 1997
(which is also the rate published by the Korean Exchange Bank) was 1072.10 won per dollar.  SSPC Final
Analysis Memorandum, ROK Ex. 12, at 4;  see also Korean Exchange Bank Daily Exchange Rates, ROK Ex.
44.  In other words, the actual Federal Reserve rate was much closer to POSCO’s "internal" rate than it was tothe adjusted DOC rate that the United States erroneously relied upon in its analysis ( i.e., 1060.00 is much closer
to 1072.10 than it is to 947.87).
152 SSSS Final Determination, ROK Ex. 24, at 30678.WT/DS179/R
Page 96
United States does not "double convert" the dollar-denominated US sales prices (first
into the foreign currency at one exchange rate, and then back into dollars at another
exchange rate) to be consistent with  the treatment of the foreign-currency-
denominated costs.  It is inconsistent, then, to insist that such double-conversion isnecessary for dollar-denominated home-market sales.
• Finally , the factual basis for the distinction proposed by the United States is suspect:
The decision in Fresh Cut Roses  makes no mention whatsoever of the currency of the
exporter’s costs.
153  Thus, this factor does not appear to have been of any significance
to that decision.
4.76 Therefore, the unprecedented "double conversion" of dollar-denominated home-market sales
prices by the United States in the circumstances of this case violates obligations of the United States
under GATT 1994 and the Anti-Dumping Agreement.  In particular, by failing to follow its
established methodology and by providing incorrect and incoherent justifications for this failure, the
United States acted in a manner that was neither "uniform" nor "reasonable," in violation of
Article X:3(a) of GATT 1994.  In addition, by provid ing incorrect and irrelevant arguments to justify
its departure from the standard methodology, the United States failed to provide the statement of
reasons required by Article 12.2 of the Anti-Dumping Agreement.  As a result, the US anti-dumping
measures against SSPC and SSSS from Korea violate Article 1 of the Anti-Dumping Agreement and
Article VI of GATT 1994.
(b) The "Double Conversion" Methodology Adopted by the United States Unreasonably
Penalizes Exporters for Differences Between Official Korean and US Exchange Rates, and Is
Otherwise Unreasonable
4.77 As discussed in the Statement of Facts, the United States disregarded the economic reality of
the "local sales" — i.e., that the ultimate payment was dictated by the dollar price from the invoice
and not by the Korean won amount recorded in POSCO’s accounting records at the time of invoice.
Instead, the United States applied a "double co nversion" methodology that penalized POSCO by
converting the prices of the "local sales" from dollars to won to dollars in a manner that artificially
inflated the normal value and hence the dumping margin.154
4.78 The United States claimed that its "double conversion" of the prices of the "local sales" was
necessary, primarily because the exchange rates used by POSCO did not match the exchange ratespublished by the Federal Reserve Bank of New York — which are based on the exchange rates at
12:00 noon in New York on the relevant dates.
155  In other words, the United States took the position
that POSCO acted unreasonably by making currency conversions for accounting purposes using the
market exchange rates announced by the official Korean Exchange Bank, and not the exchange rates
set by a New York bank eight or nine hours after the close of business in Korea.156  Significantly, the
United States never even attempted to explain why the New York Federal Reserve exchange rates
should be considered more accurate than the Korean Exchange Bank rates, or why a Korean company
should be expected to use New York exchange rates with respect to its accounting in Korea of
domestic transactions within Korea.
                                                     
153 Fresh Cut Roses from Colombia, ROK Ex. 52, at 7005-06.
154 See paras.  3.49 - 3.58 supra .
155 See para. 3.59;  DOC Notice on Currency Conversion, ROK Ex. 49, at 9436 n.4 ("The … exchange
rates are collected by the New York Federal Reserve Bank from a sample of market participants.  They are the
noon buying rates in New York for cable transfers payable in foreign currencies.").
156 Noon in New York is either 1 a.m.  or 2 a.m.  the following morning in Korea (depending on
whether daylight saving’s time is in effect in New York).WT/DS179/R
Page 97
4.79 Moreover, in applying this rule in the SSPC case, the United States compared the exchange
rate used by POSCO to the wrong exchange rate .  While the stated justification for the "double
conversion" was the alleged discrepancy between POSCO’s "internal rate" ( i.e., the rate of the Korean
Exchange Bank) and the Federal Reserve rate, the United States failed to use the Federal Reserve ratefor that comparison.
157
4.80 The consequence of the double-conversion methodology applied by the United States in this
case was to increase the dumping margins found.  As a practical matter, then, the United States ruled
that a Korean company that made dollar-denominated "local sales"  to Korean customers would bepenalized (through the application of a distor tive double-conversion methodology) whenever the
exporter relied on the market exchange rates published by an official Korean bank and failed
accurately to predict (1) the New York Federal Reserve rates announced some eight or nine hours
after the close of business in Korea, or (2) the adjusted rates calculated some time afterwards by the
DOC from the Federal Reserve rates.
4.81 Such a result cannot be consistent with the object and purpose of either Article VI of
GATT 1994 or the Anti-Dumping Agreement.  It is patently unreasonable for the United States to
expect that a Korean company will use New York  exchange rates rather than official Korean
exchange rates to record Korean domestic sales in its accounting books.  It is even more unreasonablefor the United States to expect that a Korean company will use exchange rates in its accounting
records exchange rates that are not actual market rates, but instead reflect after-the-fact calculations
by the DOC.
4.82 Thus, the "double conversion" methodology and the rationale provided therefor are not
"reasonable" and the United States failed to administer its anti-dumping laws in the manner required
by Article X:3(a) of GATT 1994.  The resulting an ti-dumping measures accordingly violate Article 1
of the Anti-Dumping Agreement and Article VI of GATT 1994.
3. The Double-Conversion Methodology Adopted by  the United States Unfairly Penalizes
Exporters for Differences between Official Korean and US Exchange Rates, Even
Though Such Differences Cannot Be Anticipated and Are Beyond the Exporters’Control
4.83 In addition to the substantive and procedural errors demonstrated above, the "double
conversion" methodology also suffered from a larger  problem:  By penalizing POSCO for differences
between the Korean and US exchange rates, which is clearly a factor beyond POSCO’s control, the
United States calculated the normal value in a manner that was unfair.
4.84 As discussed in Part IV.A.2 supra , the "most fundamental" responsibility of this Panel is to
ascertain whether or not the United States afforded POSCO the "fair comparison"  mandated by
Article 2.4 of the Anti-Dumping Agreement.  As discussed in the Statement of Facts, the "double
conversion"  methodology distorted the calculation of the normal value.  By converting the prices of
the "local sales," which constituted a significant percentage of POSCO’s total sales, from dollars to
won to dollars at different exchange rates, the United States distorted the calculation of normal value.
Indeed, in the example provided above, the "double conversion" increased the normal value of the
"local sale" by an astounding { }.
158
4.85 This distortion in the calculation of the normal value inevitably denied POSCO a "faircomparison" between export price and normal value:  The United States did not compare the export
                                                     
157 See paras.  3.60, 4.74 supra .
158 See paras.  3.56 - 3.58 and paras.  4.24 - 4.27  supra .WT/DS179/R
Page 98
price to the true normal value, but to an inflated normal value.  An overstated dumping margin
resulted from this unfair  comparison.
4.86 The "double conversion" methodology also led to an "unfair comparison" in another respect.
As demonstrated in Part IV.C.2 supra , this methodology "unreasonably" penalized POSCO for the
differences between the exchange rates of the Federal Reserve and the Korean Exchange Bank.  It was
likewise "unfair" to penalize POSCO for these differences.
4.87 There can be no doubt that the differences in exchange rates were beyond POSCO’s control.
In particular, POSCO could not have predicted how  exchange rates might change between the time
they were fixed by the Korean Exchange Bank (during business hours in Korea) and the time they
were fixed by the Federal Reserve (eight or nine hours later) or by the DOC (even later).  And, as the
judicial decisions of the United States have recognized, it is "unreal, unreasonable and unfair " for a
finding of dumping to be based on "a factor beyond the control of the exporter."159
4.88 Consequently, the treatment of these "local sales" by the United States was inconsistent withthe "fair comparison" requirement of Article 2.4 of the Anti-Dumping Agreement, and the resulting
anti-dumping measures therefore violated Article 1 of the Anti-Dumping Agreement and Article VI of
GATT 1994.
V. CONCLUSION
5.1 Anti-dumping investigations are, by their very nature, complex proceedings requiring detailed
analysis of highly technical data and issues.  The rules governing such investigations are, therefore,
also complex and technical.  The provisions of Article VI of GATT 1994 and the Anti-DumpingAgreement establish highly technical substantive and procedural rules that Members must follow
before they may impose anti-dumping duties.
5.2 These technical rules are critical.  Because dumping calculations are so detailed, decisions on
what might appear to be minor technical or procedural issues may create dumping margins, or inflate
small dumping margins enormously.  Without close scrutiny of these technical issues, importing
countries will invariably be tempted to use technicalities to impose unwarranted anti-dumpingmeasures to satisfy the demands of politically important domestic industries.
5.3 As discussed above, it is clear that the United States failed to comply in the SSPC and SSSS
investigations with the technical rules established by Article VI of GATT 1994 and the Anti-Dumping
Agreement.  As a substantive matter, the United St ates failed to comply with the substantive rules
that, inter alia :  (1) limit the permissible adjustments to export price and normal value to "differences
which are demonstrated to affect price comparability;" (2) require that dumping margins be calculated
by comparing a single average export price to a single average normal value;  and (3) permit currency
conversions only when they are required.  As a procedural matter, the United States failed to conform
to the standards that require Members, inter alia , to:  (1) administer their laws in a "uniform, impartial
and reasonable manner;" (2) give an exporter notice of all "essential facts" needed to allow a "full"
and "ample opportunity" to defend its interests;  and (3) provide a full explanation of the reasons for
their decisions.  As a technical matter, then, the anti-dumping measures imposed by the United States
cannot be sustained.
5.4 The flaws in the methodologies employed by the United States were not, however, minor
technicalities.  Instead, they went to the very heart of the limitations imposed by GATT 1994 and the
Anti-Dumping Agreement.  The inflated duties imposed in these cases demonstrate how such
technicalities can, if left unchallenged, eviscerate the disciplines on the abuse of anti-dumping
                                                     
159 Melamine Chemicals v.  United States, ROK Ex. 56, at 933.WT/DS179/R
Page 99
measures that the WTO Members had sought to impose.  Without close scrutiny and effective
oversight by Panels such as this one, importing countries will invariably be tempted to use
technicalities just as they were used in this case, to impose unwarranted anti-dumping measures when
convenient for domestic political purposes.  This Panel now has the opportunity and the obligation touphold the principle that methodologies that depart from the strict requirements of GATT 1994 and
the Anti-Dumping Agreement, and result in inflated  anti-dumping measures, will not be allowed to
pass uncontested.
5.5 But the technical violations of the requirements of GATT 1994 and the Anti-Dumping
Agreement are only one part of the error in the US methodologies.  More fundamentally, the US
methodologies were unfair.  Each of the challenged methodologies placed POSCO, and all other
exporters, in a situation where their exposure to anti-dumping measures was based not on their own
sales practices, but on the whims of the investigating authorities and on unpredictable forces beyond
their control.  Thus, under the US methodology,
• An exporter that sold its products at exactly the same prices in both the United States
and its home-market might be found to have dumping margins on all of its US sales
if, after it made its sales, it turned out that one of its US customers went bankrupt and
failed to pay.
• An exporter that sold its products for the same average prices in the United States and
the home-market, might be found to have dumping margins on its sales, if the
investigating authority decides to depart from its established precedents and chop up
the investigation period into shorter "averaging periods" that distort the calculations.
• And, finally, an exporter that sold its produc ts at the same price in US dollars in both
the United States and the home market, might be found to have dumping margins onits sales if the investigating authority chooses to convert the dollar-denominated
prices of some home-market sales into the foreign currency using one exchange rate,and then convert that foreign currency amount back into dollars using another
exchange rate.
5.6 Obviously, these results cannot be consistent with the object and purpose of Article VI of
GATT 1994 or the Anti-Dumping Agreement.  Indeed, the "fair comparison" requirement of
Article 2.4 of the Anti-Dumping Agreement provides this Panel with an independent justification forreviewing whether the challenged methodologies are unbiased and objective.  And, under such a
review, these methodologies cannot be sustained.
5.7 For the reasons presented in this Submission, particularly with regard to (1) the treatment of
POSCO’s sales to an unaffiliated US customer that  later went bankrupt without paying POSCO, (2)
the division of the investigation period into  "m ultiple averaging periods," and (3) the treatment of
POSCO’s dollar-denominated home-market sales, Korea respectfully requests the Panel to find thatthe US anti-dumping measures at issue, including actions preceding those measures, are inconsistent
with the following provisions of the Anti-Dumping Agreement and GATT 1994:
• Article VI:1 of GATT 1994 and Article 2.4 of the Anti-Dumping Agreement, which
permit adjustments to be made only for differences that are demonstrated to affect
price comparability;
• Article 2.4 of the Anti-Dumping Agreement, which also requires the investigating
authorities to make a fair comparison of the export price and the normal value;WT/DS179/R
Page 100
• Article 2.4.1 of the Anti-Dumping Agreement, which permits alterations to the
standard price comparison methodology to account for currency movements only
when the exporting country’s currency is appreciating against the importing country’s
currency;
• Article 2.4.1 of the Anti-Dumping Agreement, which also permits currency
conversions only when such conversions are required;
• Article 2.4.2 of the Anti-Dumping Agreement, which requires that the calculation of
dumping margins be based on a comparison of a single average normal value to asingle average of prices of all comparable export transactions;
• Articles 6.1, 6.2, and 6.9 of the Anti-Dumping Agreement, which require the
investigating authorities to give exporters notice of all essential facts in order toprovide them with a full and ample opportunity to defend their interests;
• Article 12.2 of the Anti-Dumping Agreement, which requires the investigating
authorities to provide a full explanation of the reasons for their determinations;
• Article X:3(a) of GATT 1994, which requires each WTO Member to administer its
laws, regulations, decisions, and rulings in a uniform, impartial, and reasonablemanner;  and
• Article VI of GATT 1994 and Article 1 of the Anti-Dumping Agreement, which only
permit anti-dumping measures to be imposed in the circumstances provided for inArticle VI and pursuant to investigations conducted in accordance with the Anti-
Dumping Agreement.
5.8 Therefore, Korea requests that the Panel find that:  (i) the United States has nullified or
impaired a benefit accruing to Korea, directly or indirectly, under the WTO Agreements;  and (ii) the
United States is impeding the achievement of the objectives of the WTO Agreements.
5.9 Korea further requests that the Panel recommend that the United States bring its anti-dumping
measures against SSPC and SSSS from Korea into conformity with the WTO Anti-Dumping
Agreement and GATT 1994.  And, specifically, Korea requests that the Panel suggest that the
United States revoke the anti-dumping duty orders concerning SSPC and SSSS from Korea.WT/DS179/R
Page 101
ANNEX 1-2
ORAL STATEMENT OF KOREA
FIRST MEETING OF THE PANEL
(13-14 June 2000)
CONTENTS
Page
A. O VERVIEW ..............................................................................................................................1 02
B. T HE US T REATMENT OF THE UNPAID SALES ..........................................................................103
1. Background .................................................................................................................10 4
2. Korea’s Arguments.....................................................................................................104
(a) A Customer’s Failure to Pay Is Not a
DifferenceAffecting Pr ice Comparability .............................................................104
(b) The United States’ Treatment of the Unpaid Sales Was
Inconsistent with the "Fair Comparison" Requirement
of Article 2.4 of the An ti-Dumping Agreement....................................................106
C. S PLITTING THE PERIOD OF INVESTIGATION INTO SUB-PERIODS .............................................107
1. Background .................................................................................................................10 7
2. Korea’s Arguments.....................................................................................................108
D. T HE "DOUBLE CONVERSION " OF DOLLAR -DENOMINATED LOCAL SALES .............................110
1. Background .................................................................................................................11 0
2. Korea’s Arguments.....................................................................................................112
E. P ROCEDURAL ISSUES ..............................................................................................................112
F. R ESPONSES TO ARGUMENTS IN THE US S UBMISSION .............................................................113
1. The "Burden of Presenting a Prima Facie  Case" ....................................................113
2. The Standard of Review.............................................................................................113
3. Administration of the Antidumping Laws
under Article X:3(a) of GATT 1994..........................................................................114
4. POSCO’s Decision Not to Seek Domestic Judicial Review .....................................114
5. Remedies..................................................................................................................... .115
G. C ONCLUSION ...........................................................................................................................115WT/DS179/R
Page 102
1. The United States Government has imposed duties on imports of Korean steel in violation of
its obligations under the WTO Agreements.  As the two governments were not able to resolve this
matter through consultations, the Korean Government has found it necessary to request theestablishment of this Panel.
2. I shall begin today with a brief overview of the case.  Then, as the substantive errors at issue
before this Panel concern the United States’ treatment of three issues that arose in the calculation of
the dumping margins, I shall take each issue in turn.  Within my discussion on each issue, I shall
present the factual background and Korea’s argument.  And then, I shall respond preliminarily to
several general arguments made in the United States’ First Submission.  Following my oral statement,
my colleagues and I would be honoured to answer questions from the Panel.
3. So that this presentation will not be unduly long, I shall not attempt to discuss today every
single argument made by Korea and the United States in the First Submissions.  Please understand
that my focus on certain arguments today does not imply that Korea has withdrawn any other
arguments, and it is not intended to preclude Korea from making additional arguments at a later stage.
A. O
VERVIEW
4. In the past two-and-a-half years, the United States has launched many anti-dumping
investigations covering virtually all steel products from countries all over the world.  This dispute
arises out of two of those anti-dumping investigations and the resulting anti-dumping measures.
Specifically, this dispute concerns the US anti-dumping investigations and measures against imports
of Stainless Steel Plate in Coils ("Plate") and Stainless Steel Sheet and Strip ("Sheet") from thePohang Iron & Steel Co., Ltd. ("POSCO").
5. The United States preliminarily determined that the dumping margin was only 2.77% for
Plate and only 3.92% for Sheet.  In the final determinations, however, the United States changed its
methodology for calculating the extent of dumping in several key respects.  As a result of these
changes, the final dumping margins shot up to 16.26% for Plate and to 12.12% for Sheet.
1
6. The methodology used by the United States to calculate the final dumping margins for Plate
and Sheet was improper.  That methodology was not consistent with the methodology required by
Article VI of GATT 1994 and by the Anti-Dump ing Agreement.  That improper methodology
distorted the calculation of POSCO’s dumping margin s.  Those distortions caused the United States to
impose greater anti-dumping measures than would otherwise have been appropriate — if, indeed, any
anti-dumping measures at all would have been appropriate under a proper methodology.
7. Anti-dumping duties have a single purpose in the WTO regime:  to offset injurious dumping.
Where there is no dumping, there can be no anti-dumping duties.  Even where there is injurious
dumping, anti-dumping duties can be imposed only to the extent of the dumping — and no more.These rules are an essential bulwark against abuse of anti-dumping duties.  It is these rules that
confine anti-dumping duties to their limited sphere .  Without these rules, Members could readily
circumvent their tariff bindings, most-favoured-nation commitments, and other obligations under the
WTO Agreements.
8. To guard against abuse of anti-dumping measures, the WTO Agreements contain highly
detailed substantive and procedural rules that Members must follow before they may impose anti-
dumping duties.  These rules are necessary, because the use of an improper methodology — even in
                                                     
1  See Korea’s First Submission, paras. 3.13, 3.16, 3.22, 3.25.WT/DS179/R
Page 103
what might appear to be a minor issue — can create dumping margins or inflate small margins
enormously.2
9. To implement these rules, close scrutiny and effective oversight by dispute settlement Panelsare critical.  Otherwise, importing countries will invariably be tempted to use technical-sounding
arguments to impose unwarranted anti-dumping duties when convenient for domestic political
purposes.  Thus, despite the technical nature of some of the arguments made in this case, this is not
"only" a technical dispute.  Instead, the flaws in  the US methodologies for calculating the dumping
margins on Plate and Sheet go to the very heart of the limitations imposed by GATT 1994 and theAnti-Dumping Agreement.
10. The starting point for Korea’s legal argument is Article 1 of the Anti-Dumping Agreement.
This Article  is entitled "Principles."  Its first sentence reads as follows:  "An anti-dumping measure
shall be applied only under the circumstances provided for in Article VI of GATT 1994 and pursuant
to investigations initiated and conducted in accordance with the provisions of this Agreement."  In a
nutshell, the anti-dumping measures on Plate and Sheet violate this Article  because (1) they have
been applied even though the existence of dumping was not properly established and (2) they have
been applied pursuant to investigations that were not conducted in accordance with the substantive
and procedural requirements of the Anti-Dumping Agreement.
3
11. As I mentioned earlier, the substantive errors at issue concern three issues that arose in thecalculation of POSCO’s dumping margins for Plate and Sheet.  First, the United States reduced
POSCO’s export price to adjust for the fact that an unaffiliated US customer went bankrupt after
receiving POSCO’s goods without pa ying POSCO.  Second, the United States split the investigation
period into multiple sub-periods, calculated separate averages for each sub-period, and recombined
the data into an overall average in a manner that effectively excluded from consideration sales that
would have reduced POSCO’s dumping margins.  Third, the United States "double converted"
POSCO’s dollar-denominated sales in Korea from dolla rs to won and back to dollars at a different
exchange rate, thereby creating or inflating the dumping margins.  The WTO Agreements clearly do
not allow dumping margins to be calculated so arbitrarily.  Each of the methodologies used by the
United States would place a cloud of uncertainty over exporters that would chill international trade.Thus, these methodologies are obviously, fundamentally flawed.
12. In addition to these substantive errors, the United States also failed to follow proper
procedures in the Plate and Sheet investigations.  These procedural errors constitute a legally distinct
basis on which the Panel can and should find that the anti-dumping duties on Plate and Sheet areinconsistent with WTO disciplines.  The procedural irregularities also serve to highlight the
substantive errors committed by the United States.
13. These substantive and procedural errors led to the imposition of improper and excessive anti-
dumping measures.  In accordance with WTO rules and principles, the improper anti-dumpingmeasures should not be allowed to stand.  This Panel now has the opportunity and responsibility to
uphold WTO disciplines by finding that the US measures at issue are inconsistent with WTO rules
and by recommending that the United States bring its measures into conformity with those rules.
B. T
HE US T REATMENT OF THE UNPAID SALES
14. I shall now begin with the first of the three major issues in this case:  the United States’
treatment of POSCO’s sales to a US customer that  went bankrupt without paying POSCO for goods it
received.  I shall first describe the factual background on this issue before discussing Korea’s views.
                                                     
2  See Korea’s First Submission, paras. 5.1 - 5.4.
3  See Korea’s First Submission, paras. 4.3 - 4.4.WT/DS179/R
Page 104
1. Background
15. The ABC Company (as we call it) had been a valued US customer of POSCO.  It is not
affiliated with POSCO.  It often bought on credit  from POSCO.  It had never previously defaulted on
a payment due POSCO.  Indeed, in the entire hist ory of POSCO’s exports to the United States, none
of its US customers had ever previously defaulted.  Then, during the period of investigation, the ABC
Company went bankrupt.  To date, it has not paid POSCO for certain sales.4
16. None of these facts are in dispute.
17. It is clear that the bankruptcy was an unprecedented, unanticipated event.  It was beyond
POSCO’s control.  As the United States has admi tted, POSCO did not know that the customer would
not pay when it set its prices.5  Thus, the non-payment did not affect POSCO’s pricing policies during
the relevant period.
18. Nonetheless, the United States penalized POSCO by making an adjustment that reduced its
export price and thus inflated or created the dumping margins.
19. The US Submission unnecessarily complicates the facts.  It discusses extensively the US
decision to treat the unpaid sales as "bad debt.6   That discussion is irrelevant here.  The issue is not
whether or not the unpaid sales can be called "bad debt."  The real issue is whether the US treatment
of those unpaid sales was consistent with WTO rules.
2. Korea’s Arguments
20. The United States’ treatment of the unpaid sales was flawed in numerous respects, which are
detailed in Korea’s First Submission.7   I shall focus on two of those respects here:  First , the
United States made a price adjustment that is not consistent with the WTO rules governing allowances
for differences affecting price comparability.  Second , the United States did not make a "fair
comparison" between the export price and normal value.
21. Before turning to the details of these arguments, however, it is important to consider the
consequences of permitting adjustments like those made by the United States.  The adjustment for the
non-payment by the ABC Company punished POSCO fo r an event beyond its control that occurred
after it set its prices.  If anti-dumping duties could be imposed in that manner, then no exporter
anywhere in the world could ever sell its goods with assurance that it would not be found to be
dumping.  No matter how high the exporter set its actual export prices, there would always be thepossibility that later events — even highly unpredictable events — would lead to adjustments that
would reduce its export prices enough to cause a finding of dumping.  All else being equal, a
company that sold its goods for more  in an export market than at home could still be found dumping
solely  as the result of the bankruptcy of an export cust omer.  It is unfair for a finding of dumping to be
based on later events beyond the exporter’s control in this manner.
(a) A Customer’s Failure to Pay Is Not a Difference Affecting Price Comparability
22. The adjustment made by the United States reducing POSCO’s export price was improper.
                                                     
4 See Korea’s First Submission, paras. 3.30 - 3.39.
5 US First Submission, paras. 103-104.
6 US First Submission, paras. 54-58.
7 Korea’s First Submission, paras. 4.6 - 4.42.WT/DS179/R
Page 105
23. An understanding of the function of price adju stments begins with the nature of dumping.
What is dumping?  Under Article VI of GATT 1994 and Article 2.1 of the Anti-Dumping Agreement,
dumping generally occurs when the export price  of a good is less than its price  in the home market.
The comparison of prices is, therefore, the key to a proper determination of dumping.8
24. Adjustments to prices are permitted if - and only if - they account for differences in thefactors that affect those prices.  Thus, Article 2.4 states in relevant part, "Due allowance shall be made
. . . for differences which affect price comparability."  The Article continues by enumerating five
factors that are deemed to affect price comparability:  "differences in conditions and terms of sale,taxation, levels of trade, quantities, [and] physical characteristics."  Any other difference beyond these
five can support an adjustment only if it is "demonstrated to affect price comparability.
9
25. Korea has shown that ABC Company’s failure to  pay POSCO is not a factor affecting price
comparability.10  In response, the US Submission argues that the ABC Company’s failure to pay
POSCO is a "condition" of the sale.11  Leaving aside for the moment the absurdity of that contention,
it is important to consider what the United States does not argue.  The US Submission does not argue
that unpaid sales were an "other difference[] . . . demonstrated to affect price comparability."  Thus,
the United States concedes that, if the failure to pay was not a "condition and term of sale," then the
adjustment was improper.
26. The US Submission takes the word "condition" out of context, selects one of the word’s many
dictionary definitions, and argues that this is a permissible choice to which this Panel must defer
unquestioningly.12  But the meaning of the phrase "conditions and terms of sale" is not ambiguous.
When the word "condition" appears in the context of that standard phrase, as in Article 2.4, itsmeaning is evident.  As the EC observes in its Third Party Submission, "The word  ‘conditions,’ as
used in Article 2.4, is largely synonymous with the word ‘terms.’  Both words allude to the conditions
agreed by the seller and the purchaser, and not to the general conditions prevailing in the market in
which the sale takes place.
13
27. Furthermore, it is unclear from the US Submission just what the United States considers to be
the relevant "condition" warranting the price adjustment.
• If the United States meant that the non-payment itself is the "condition" of sale, that cannot be
correct.  Even under the dictionary definition proposed by the United States, a non-payment
can not be regarded as the "mode or state of being" of a sale, because it does not exist at the
time of sale.  POSCO did not know that the A BC Company would fail to pay until after the
prices were set, the contract was executed, and the goods were delivered.
• On the other hand, the United States may have meant that the "condition" of sale is the extent
to which the exporter anticipates the possibility of non-payment when setting its prices.  In
other words, under that view, the "condition" is the risk of non-payment.  This view has the
virtue of at least being consistent with the dictionary definition proposed by the United States.
However, it too ultimately fails to justify the US adjustment.  It is not enough that there be a"condition" of sale.  Under Article 2.4, there must be a difference  in the condition between the
US market and the home market.  Without such a difference, there is no need for an
adjustment to compare the prices.  In adjusting POSCO’s prices, the United States made no
                                                     
8 See Korea’s First Submission, paras. 4.10 - 4.13.
9 See Korea’s First Submission, paras. 4.14 - 4.16.
10 See Korea’s First Submission, paras. 4.17 - 4.23.
11 US First Submission, paras. 82-83.
12 US First Submission, paras. 82-83.
13 EC Third Party Submission, para. 21.WT/DS179/R
Page 106
showing of any relevant difference between the risk of non-payment in Korea and the
United States.
28. Therefore, the adjustment for unpaid sales cannot be justified under Article 2.4.29. Confronted with this reality, the United States has advanced a novel argument to circumvent
its obligations under Article 2.4.  The US Submission argues that, at least for some sales, the
Department of Commerce did not make an adjustme nt to export price under Article 2.4, but rather
made a deduction to construct the export price under Article 2.
14  That argument is, at best,
incomplete.  Article 2.3 addresses certain additional adjustments that are permitted only for the
analysis of sales through affiliated importers.  Consequently, the United States’ proposed defense
under Article 2.3 only applies to POSCO’s sales thr ough its affiliated distributor and not to POSCO’s
other US sales.  But, as the US Submission admits, the Department of Commerce also made the same
adjustments to POSCO’s other US sales.15  Article 2.3 does not, therefore, justify the adjustment made
to these other sales.
30. Moreover, the US argument under Article 2.3 cannot be correct.  Article 2.3 has a particular
purpose:  for sales through affiliated distributors, it allows the export price to be "constructed on the
basis of the price at which the imported products are first resold to an independent buyer."  Article 2.3thus allows such calculations as are needed to look beyond the affiliated distributor to determine what
the export price would be if the goods were sold directly from the exporter to an independent
customer.  Article 2.3 calculations are limited to that  particular purpose.  Article 2.3 does not allow
investigating authorities to arbitrarily adjust prices for other reasons.  To the contrary, any other
changes must conform to Article 2.4’s limitations on adjustments.
31. Non-payment by a customer is not related to the issue of affiliated distributors, so it is not the
type of circumstance governed by Article 2.3.  In fact, the US practice in the cases at issue prove that
point:  It is clear that the adjustment for unpaid sales was not made to account for the use of an
affiliated distributor, because the Commerce Department made the same adjustment to all of
POSCO’s US sales regardless of their distribution ch annel.  Therefore, despite the US claim that it
was constructing export price under Article 2.3, in reality it was making price adjustments underArticle 2.4.
16
(b) The United States’ Treatment of the Unpaid Sales Was Inconsistent with the "Fair
Comparison" Requirement of Article 2.4 of the Anti-Dumping Agreement
32. There is also another problem with the United States’ treatment of the unpaid sales:  It caused
the comparison of export price and normal value to be "unfair."  It is therefore flatly inconsistent with
the first sentence of Article 2.4.
33. The first sentence of Article 2.4 requires that  "A fair comparison shall be made between the
export price and the normal value."  The "fair comparison" requirement imposes important limitationson anti-dumping investigations that go beyond the other substantive rules in Article 2.4.  The "fair
comparison" requirement of Article 2.4 is a free-standing and substantial rule governing anti-dumping
investigations, and it is not satisfied merely by compliance with the other requirements of Article 2.
17
34. The US Submission essentially denies the existence of the first sentence of Article 2.4.  Itargues that conformity with the rules on adjustments in the other sentences of Article 2.4 is "all that
                                                     
14 US First Submission, para. 76.
15 US First Submission, para. 81.
16 Id.
17 See Korea’ s First Submission, paras. 4.25 - 4.27 & ROK Ex. 54.WT/DS179/R
Page 107
Article 2.4 requires.18   And, it insinuates that Korea’s arguments based on that sentence are trying to
"add to or diminish the rights and obligations provided" in the WTO Agreements.19
35. The US position is obviously incorrect.  The "fair comparison" requirement in the firstsentence of Article 2.4 is express.  The Appellate Body has consistently recognized that the WTO
Agreements must not be read so as to render a whole sentence redundant or inutile.
20   Moreover, the
changes from the predecessor provision of Article 2.4 in the Tokyo Round to the present text confirm
that the "fair comparison" requirement is intended to be absolute and unconditional.
36. In the cases at issue, the price comparisons were clearly unfair.  This is evident in several
respects:
• It is unfair for the price comparison to have been affected by a factor that was beyond
POSCO’s control.  POSCO was not affiliated with the ABC Company, and POSCO could not
have prevented the ABC Company from failing to pay.  Interpretative guidance in support ofthis view is found in a US judicial decision, which declared that it is "unreal, unreasonable,
and unfair " for a finding of dumping to be based on "a factor beyond the control of the
exporter.
21
• It is unfair for the price comparison to take into account factors that were not considered by
POSCO in its normal selling practices.  As the United States concedes, "when POSCO set the
prices, it was acting in accordance with its normal selling practices, not based on the
subsequent bankruptcy.22   Since POSCO did not take into account the ex-post bankruptcy
when setting its prices ex-ante, there is no basis for the United States to make an ex-post price
adjustment.
• Finally, it is unfair for the price comparison to take into account atypical sales.  Again,
interpretative guidance is found in a US judici al decision, which recognized that the inclusion
of atypical sales may lead to unfair results.  POSCO had never had a US customer default on
a payment before the ABC Company did so during the investigation period, so those sales are
undoubtedly atypical.  Inclusion of those sales in the analysis is therefore manifestly unfair.
C. SPLITTING THE PERIOD OF INVESTIGATION INTO SUB-PERIODS
37. I shall now turn to the second main issue:  the division of the period of investigation into sub-
periods and the resulting practice of "multiple averaging."
1. Background
38. In both the Plate and Sheet cases, the United States divided the period of investigation into
two sub-periods.  In Plate, the first sub-period was ten months and the second was two months.  In
Sheet, the sub-periods were seven months and five  months.  In both cases, the second sub-period
started in November 1997.23
39. Then, the United States calculated (1) a separate average normal value for each sub-period,
(2) a separate average export price for each sub-period, and (3) a separate dumping margin for each
                                                     
18 US First Submission, para. 72.
19 US First Submission, para. 62.
20 See Korea’s First Submission, para. 4.15 n. 99.
21 See Korea’s First Submission, para. 4.27.
22 US First Submission, paras. 103-104.
23 See Korea’s First Submission, paras. 3.40 - 3.48.WT/DS179/R
Page 108
sub-period.  The separate dumping margins were then combined into a single dumping margin for
each case.  When the separate averages were combined, sub-periods with negative dumping margins
were assigned a margin of zero.  This is known as "zeroing" and it obviously minimizes the impact of
negative margins on the overall average.
40. Of course, this multiple-averaging approach is not the normal methodology for calculating
dumping margins.  The normal methodology is to calculate a single weighted-average normal value
and export price for each product for the full period of investigation, and then calculate the dumping
margin based on the difference between the average normal value and export price.  In these cases,that normal methodology would have resulted in low dumping margins for POSCO.
41. To avoid that result, the US petitioners asked the Department of Commerce to modify the
dumping calculations to "wall off" POSCO’s sales after October 1997 (which had relatively lower
dumping margins).  In its preliminary determination, the Department of Commerce rejected thatrequest, calling it "unwarranted."  In its final determination, however, the Department of Commerce
reversed course, and adopted the multiple-averaging methodology.  As a result, the dumping margins
increased dramatically.
42. As mentioned, the multiple-averaging methodology adopted by the United States inflated the
dumping margins because of "zeroing."  If an exporter sold its goods at 10% below normal value for
the first six months of the year and at 10% above normal value for the last six months, then (assuming
equal sales volumes) one would expect it to be found that the exporter was not dumping for the year.
And that is exactly what would be found if one calculated the dumping margin for the year as a
whole.  Under "multiple averaging," however, dumping would be found.  The first sub-period wouldhave a margin of 10%.  Because of zeroing, the second sub-period would be assigned a margin of zero
rather than its true margin of negative 10%.  Thus, the exporter would be given a 5% dumping margin
for the year.
43. So, the effect of dividing the investigation period into sub-periods is to allow the authorities
to effectively exclude times when the dumping margin is inconveniently low, thus inflating the overall
result.
2. Korea’s Arguments
44. The multiple-averaging practice employed by the United States is directly contrary to the
express language of Article 2.4.2 of the Anti-Dumping Agreement.  That Article does not tolerate the
manipulation of methodology in this arbitrary fashi on.  Rather, Article 2.4.2 expressly mandates that
prices shall be compared on the basis of either " a weighted average  normal value with a weighted
average  of prices of all comparable export transactions" or on a transaction-to-transaction basis.
24
45. Article 2.4.2 repeatedly uses the distinctly singular phrase " a weighted average".  That is, one
average — not two averages.  That is confirmed by the requirement for an average that takes intoaccount " all comparable export transactions."  Clearly, there can be only one average if it takes into
account all data.
46. So, the text is unambiguous.  And it is reinforced by the provision’s context and object and
purpose.  Article 2.4.2 is part of Article 2.4.  Its function is to promote the fairness of pricecomparisons in anti-dumping investigations, so as to ensure that anti-dumping measures are imposed
only where there is dumping and to the extent thereof.  An interpretation of Article 2.4.2 that permits
the manipulation and effective exclusion of data cannot be squared with the object and purpose of
Articles 2.4 and 2.4.2.
                                                     
24 See Korea’s First Submission, paras. 4.45 - 4.48.WT/DS179/R
Page 109
47. In response, the United States relies principally on a post hoc  argument about the word
"comparable" in Article 2.4.2.  The US Submi ssion asserts that the Department of Commerce
concluded that Korean home-market sales after November 1997 "were not comparable" to earlierexport sales because of the currency depreciation.
25  That assertion has no basis in the Final
Determinations or the Final Analysis Memoranda.  It is a post hoc  rationale created for the benefit of
this Panel, in a belated attempt to reconcile the Department’s actions with the requirements of
Article 2.4.2.
48. We shall respond more fully to this belated argument in our subsequent written submissions.
For the present, we would offer the following initial observations:
• The language of Article 2.4.2 focuses on the comparability of the "transactions" (in particular,
on "comparable export transactions ").  Products sold at different levels of trade are not
comparable, absent a price adjustment to make them so.  Likewise, products with differentphysical characteristics (e.g., different models) are not comparable without a price
adjustment.  By contrast, in the absence of any changes in the transactions in each market due
to the depreciation, there was no basis for finding that the depreciation changed the
comparability of transactions .
• In the Plate and Sheet cases, there was no finding by the United States, and indeed no
evidence, that anything about the home-market or export sales transactions had changed as aresult of the depreciation.  The prices, conditions and terms of sale, taxes, level of trade,
quantities, and physical characteristics were not affected by the depreciation.  The only
change was in the exchange rate used by the United States to convert prices in won into
dollars for purposes of the dumping calculations.  Under Article 2.4.2 of the Agreement, thatdoes not make the sales "non-comparable."
49. The US effort to define comparability in terms of exchange rates also ignores the nature of
exchange rates.  To begin with, exchange rates are not conditions of sale; they are tools for converting
amounts from one currency to another.  Moreover, they are necessarily volatile and imperfect tools.
In hindsight, one might say that the Korean won was overvalued (at roughly 900 won per dollar)
throughout much of 1997, until it "crashed" in November.  The won then overshot the properexchange rate and remained undervalued (at a rate as high as 1960 won per dollar in December 1997),
until it finally rebounded to a mid-point of around 1400 won per dollar at the end of March 1998.  The
distortions caused by these exchange rate movements could have been minimized by the use of an
averaging period that included both the period of overvaluation and the period of undervaluation.  By
contrast, the "multiple-averaging" methodology employed by the United States essentially calculatedone dumping margin for the period when the won was overvalued and a separate margin for the
period when the won was undervalued — and then effectively ignored the latter through "zeroing."  It
thus created and inflated dumping margins from the imperfections in exchange rate movements.
50. The United States has admitted that the purpose of its departure from the normal price
comparison methodology was to increase the dumping margins.
26   It claims that this methodology
was appropriate to address a situation of currency depreciation that would otherwise "disguise"
dumping margins.27  This argument has it backwards, however.  The "correct" dumping margins are
those that are calculated in accordance with the requirements of the Anti-Dumping Agreement.  If
                                                     
25 US First Submission, para. 109; para. 137; see also para. 155 ("determined that [currency
devaluation] had as much of an effect on comparability of transactions as did physical characteristics, levels of
trade or high inflation").
26 US First Submission, para. 137, 139, 155.
27 US First Submission, para. 137.WT/DS179/R
Page 110
such calculations result in low dumping margins, then the only permissible conclusion is that there
were low dumping margins — and not that higher margins were somehow disguised.  An effort to
inflate the dumping margins in such circumstances is not a permissible remedy for "disguised"
dumping.  It is a violation of the Agreement.
51. The Anti-Dumping Agreement does establish specific rules for addressing currency
movements in the dumping margin calculations.  As a general matter, Article 2.4.1, which is the only
provision in the Anti-Dumping Agreement that addresses currency movements, requires the
investigating authorities to disregard currency fluctuations.  Article 2.4.1 does expressly authorize achange from the normal methodology in cases involving sustained currency appreciation.  But
Article 2.4.1 does not permit any change from the normal methodology for currency depreciation.
The multiple-averaging methodology is nothing more than an attempt to circumvent the requirements
of Article 2.4.1 — by adjusting the calculation methodology for a currency depreciation even though
Article 2.4.1 does not permit such a modification.
28
52. This violation led to particularly unfair results in these cases, in contravention of the "faircomparison" requirement of Article 2.4.  The US  methodology excluded from the price comparisons
the very sales that were the basis of petitioners’ injury claims:  the sales late in the investigation
period.  A price comparison that excluded the most relevant sales cannot be said to be fair.
29  I n
response, the US Submission merely states that Korea’s objection "has no bearing" on Article 2.4,
because it addresses injury determinations that Korea is not currently challenging.30  But that
argument is not correct.  Whether or not the injury determinations were legitimate, a calculation of the
dumping margin that effectively excluded the period that was the basis for the injury determination is
plainly unfair and cannot be upheld under the "fair comparison" requirement of Article 2.4.
53. In short, the "multiple averaging" methodology used by the United States is inconsistent with
(1) the requirements of Article 2.4.2 requiring the comparison of a single weighted-average normal
value to a single weighted-average export price, (2) the provisions of Article 2.4.1 which permit
adjustments to the dumping calculation methodology only for sustained appreciation in the exporter’s
currency and not for depreciations, and (3) the "fair comparison" requirement of Article 2.4.
54. Finally, please allow me to make an aside here to clarify a point obfuscated by the US
Submission:  Korea does not argue that Article 2.4.2 precludes Members from calculating separate
averages for different products.31  That is a very different issue from dividing and recombining the
investigation period, and it is not in dispute here.  A ruling by this Panel that clarified that
Article 2.4.2 prohibits splitting the investigation period into sub-periods would have no effect onMembers’ ability to calculate separate averages for separate products.
D. T
HE "DOUBLE CONVERSION " OF DOLLAR -DENOMINATED LOCAL SALES
55. I shall next turn to the third major issue:  the "double conversion" of dollar-denominated local
sales to won and back to dollars at a different exchange rate.
1. Background
56. Most of POSCO’s sales in Korea are denomin ated in won.  But some of POSCO’s sales in
Korea are denominated in dollars instead.  These are known as "local sales.32   
                                                     
28 See Korea’s First Submission, paras. 4.49 - 4.53.
29 See Korea’s First Submission, paras. 4.59 - 4.63.
30 US First Submission, para. 167 n. 151.
31 See US First Submission, para. 153.
32 See Korea’s First Submission, paras. 3.49 - 3.62.WT/DS179/R
Page 111
57. When calculating normal value, the United States refused to use the dollar value of Korea’s
local sales.  Instead, the United States converted the dollar value into won at one exchange rate,
calculated normal value in won, and then converted the won normal value into dollars at a differentexchange rate.  The potential for distortion is obvious.  In fact, an example set forth in paragraph 3.58
of Korea’s Submission demonstrates how this methodology increased the normal value of one actual
sale by more than 70%.
58. Let me try to explain the reason for this distortion.  The United States determined the won
amount of these sales using POSCO’ s internal conversion, which converted the dollars into won
using the official Korean Exchange Bank rate on the date of the invoice for the home-market  sale.
But the United States then converted the won amount back into dollars using the Federal Reserve
exchange rate on the date of the US sale.  By using the exchange rate from one date to convert the
dollar price into won, and then using a different exchange rate for a different date to convert the wonamount back into dollars, distortion was inevitable.
59. The United States attempts to defend this methodology by arguing that the local sales were
really made in won, so that the United States only made one conversion from won to dollars.
33   That
view is simply not correct, and it is not supported by the facts of this case.
60. The evidence shows that local sales are negotiated in a foreign currency (typically, US
dollars), and invoiced in that same currency.  On the payment date, the customer converts the dollar
amount due into won at the market rate published by the official Korean Exchange Bank, and pays
POSCO the resulting amount in won.  Because th e won amount is determined by applying the
exchange rate on the date of payment to the dollar amount shown on the invoice, it is clear that the
true economic value of the invoice is fixed by the dollar amount.
61. The United States claims that it acted appropriately in ignoring the dollar amount shown on
the invoice, because the invoices also showed an  amount in won.  It should be emphasized, however,
that the won amounts shown on the invoices were not the amounts that the customer actually paid.
Instead, the won amount shown on the invoice was simply an accounting convenience, since thetransactions have to be recorded in won in POSCO’s accounting records.  As mentioned, the actual
won amount of the payment was determined by multiplying the dollar price shown on the invoice by
the exchange rate on the date of payment.  That  amount did not correspond to the won amount shown
on the invoice, which was calculated using an earlier and different exchange rate.
62. This point is illustrated by the sample accounting entries at paragraph 3.54 of Korea’s
Submission (which, I should mention, have been re vised from our initial submission to correct a
typographical error).  Those tables show that the economic value for local sales is fixed in dollars at
the time of sale.  Significantly, this accounting was verified by the Department of Commerce during
the investigations, and it has not been disputed by the United States in this proceeding.
63. It is clear, then, that the prices for the local sales were really fixed in dollars, and not in won.
Nevertheless, the United States treated these sales as if the won amounts shown on the invoices were
the real prices - even though those won amounts were simply an accounting convenience and did not
correspond to the amounts actually paid by the customer.  By the same token, the United Statessimply ignored both the dollar prices shown on the invoices (which determined the amount actually
paid) and the actual amount in won that the customer paid.
                                                     
33 US First Submission, para. 172 ("The United States also concluded . . . that these home market sales
were in Koran won, not US dollars.").WT/DS179/R
Page 112
2. Korea’s Arguments
64. Article 2.4.1 only permits currency conversion when "require[d]" for a comparison under
Article 2.4.  Clearly, a "double conversion" is not required.  The local sales are valued in US dollars
and they can be compared with other US dollar sales without need for conversion to won and back.34
65. The "double conversion" also denied POSCO the "fair comparison" required by Article 2.4.The United States did not compare export price to normal value, but to an inflated normal value.  The
price comparisons were not based on POSCO’s actual prices, but on prices fabricated by the United
States through the unnecessary application of distortive exchange rates.
35
66. The United States attempts to avoid these problems by repeating that its calculations used theexchange rate on the date of sale, as requested by POSCO and required by Article 2.4.
36  T h a t
statement is disingenuous.  The problem in this case is not that the United States selected the wrong
exchange rate.  Rather, the problem is that the United States used a double conversion, applying theexchange rates in an inconsistent manner.  The inconsistency arose because the United States made
the final conversion from won to dollars using not the exchange rate on the date of the home-market
sale (which had been used to calculate the won am ount), but the exchange rate on the date of the US
sale (which could differ considerably from the exch ange rate used to calculate the won amount).  The
mere repetition of the fact that the United States used the exchange rate on the "date of sale" does notcure the problem caused when one "date of sale" is used for the initial conversion from dollars to won,
and another "date of sale" is used for the conversion back from won to dollars.
67. Finally, it should also be noted that the "double conversion" is inconsistent with established
US practice.  As explained in Korea’s Submission, the United States has a well-established policy ofaccepting prices and charges in the currency in which they are made.  In Roses from Colombia , for
example, the United States properly declined to "double convert" the home-market sales that were
priced in dollars.  The United States departed from that practice here.  Its reasons for doing so made
no sense.  The many problems with the US r easoning are detailed in Korea’s Submission.
37  For now,
I’d like to emphasize only one key point.  The US Submission admits that its stated rationale for
making the "double conversion " is in error.  Hidden in Footnote 161 is the admission that "Korea is
correct that the Department mistakenly used adjusted exchange rates in the SSPC case.38  T h a t
footnote goes on to explain why the United States considers that its error does not matter.  But those
explanations are irrelevant.  The United States has conceded that its anti-dumping measures are based
on a faulty rationale.
E. PROCEDURAL ISSUES
68. In addition to the substantive errors that I have already discussed, the United States also failed
to comply with the procedural requirements of th e WTO with respect to each of the three main issues
before this Panel.  In the interests of time, I will not belabour these procedural points.  Instead, I will
simply refer the Panel to the detailed discussion in Korea’s Submission, and will of course be happy
to answer any questions the Panel may have about them.39
                                                     
34 See Korea’s First Submission, paras. 4.66 - 4.69.
35 See Korea’s First Submission, paras. 4.83 - 4.88.
36 See, e.g., US First Submission, para. 175.
37 See Korea’s First Submission, paras. 4.70 - 4.82.
38 US First Submission, para. 173 n. 161.
39 See Korea’s First Submission, paras. 4.35 - 4.42, 4.54 - 4.58, 4.70 - 4.82.WT/DS179/R
Page 113
F. RESPONSES TO ARGUMENTS IN THE US S UBMISSION
1. The "Burden of Presenting a Prima Facie  Case"
69. I shall now respond preliminarily to several general arguments made in the US Submission,
beginning with the "burden of presenting a prima facie  case."
70. The US Submission states that a complaining party "bears the initial burden of coming
forward with evidence and argument that establishes a prima facie  case of a violation.40  T h i s
statement, while true, is wholly irrelevant.  Korea has already  borne that burden.  Korea has come
forward with evidence and argument that establishes a prima facie  violation.  Although the US
Submission introduces contrary argument on certain points, it does not dispute that Korea has met its
initial burden.  And, considering the ample evidence and argument submitted by Korea, the United
States could not do so.
71. Instead, it seems that the United States had a different purpose for making this statement.  The
US Submission set up a phantom argument that Korea did not make in an attempt to obscure a key
point in this case.
72. The United States argues at great length that Korea’s burden is not affected by the fact that
anti-dumping measures are a derogation from the trade-liberalization purposes of the WTO.41  The US
argument implies that Korea argued that it is exempt from the initial burden of presenting a prima
facie  case.  But Korea never made such an argument.  To the contrary, Korea introduced considerable
evidence and argument to meet its initial burden.
73. So, what is the significance of the fact that anti-dumping measures are a derogation from the
main thrust of the WTO?  The authority to im pose anti-dumping duties is narrowly limited to
circumstances where there is injurious dumping, and anti-dumping duties cannot exceed the dumping
margin.  This has always been the rule under GATT 1947, and it is very explicit in Articles 1 and 9.3
of the Anti-Dumping Agreement.  These limitations are essential to the proper functioning of the
WTO regime.  Without these limitations, Members could readily circumvent their tariff bindings and
most-favoured-nation commitments simply by labeling any new duties as "anti-dumping duties"
without regard to whether there was any dumping to offset.  It is precisely because of the centrality ofcalculating the dumping margin that the substantiv e and procedural rules governing that calculation
are so important.  The detailed rules of the Anti-Dumping Agreement must, therefore, be interpreted
in accordance with this object and purpose.
2. The Standard of Review
74. The US Submission also complains that "Korea invites the Panel to step into the shoes of the
DOC and engage in a de novo  review of the facts.
42   That statement has no basis.  Korea never invited
de novo  review.
75. To the extent that there are factual disputes, Korea expects that this Panel will assess the facts
of this matter in accordance with Article 17.6(i) of the Anti-Dumping Agreement.  Under that Article ,
factual conclusions are to be rejected if the facts were not established properly or they were not
evaluated objectively and without bias.  Thus, contrary to the United States’ suggestion, the Anti-
Dumping Agreement does not preclude the Panel from reviewing factual conclusions altogether.  To
                                                     
40 US First Submission, para. 36.
41 US First Submission, paras. 37, 39.
42 US First Submission, para. 27.WT/DS179/R
Page 114
the contrary, Article 17.6(i) expressly requires that factual conclusions be reviewed under an
appropriate standard.
76. In any event, there actually are very few, if any, facts in dispute.  For all of the substantive
issues, the question is solely whether the US met hodology for dealing with th e facts conforms to its
WTO obligations.
77. As a separate matter, the United States also misstates the rule for construing the Anti-
Dumping Agreement in Article 17.6(ii).  The United  States contends that "the relevant question in
every case is not whether the challenged determination rests upon the best or the ‘correct’
interpretation of the Anti-Dumping Agreement, but whether it rests upon a ‘permissible interpretation’
(of which there may be many).43   That argument virtually ignores the first sentence of Article 17.6(ii),
while distorting the meaning of the second.  In fact , this Panel is expressly charged with interpreting
the Anti-Dumping Agreement in accordance with customary rules of treaty interpretation.  If thatprocess leads the Panel to conclude that there is a correct interpretation, then an anti-dumping
measure based on a different interpretation cannot stand.  Only in those rare circumstances where the
interpretative process leads the Panel to conclude that "there is more than one permissible
interpretation," does the second sentence of Article 17.6(ii) apply.
3. Administration of the Antidumping Laws under Article X:3(a) of GATT 1994
78. Article X:3(a) of GATT 1994 requires each WTO Member to "administer … its laws,
regulations, decisions and rulings" relating to duties and other restrictions on imports (such as anti-
dumping measures) "in a uniform, impartial and reasonable manner.
44   The United States contends
that somehow this provision did not restrict the ab ility of the Department of Commerce to interpret
and apply the US antidumping laws in these cases in a manner that was both inconsistent with past
practice and highly arbitrary.45
79. That proposition is clearly without merit.  When the Department makes its determinations in
antidumping investigations as the US "administering authority," it plainly is "administering" the US
laws (which, in the US common-law system, include  not only codified statutes and regulations, but
also past judicial and agency decisions).  If it applies those laws inconsistently from case to case inreliance on flawed or arbitrary distinctions, then it cannot be said to be "administer[ing] … its laws,
regulations, decisions and rulings … in a uniform, impartial and reasonable manner."
80. Of course, an administering authority must have the ability to tailor its decisions to the facts
of each case.  Article X:3(a) clearly does not prec lude that.  However, it does require that the
decisions in each case be reached in a "uniform, impartial and reasonable manner."   When the
Department of Commerce simply ignores past precedent, or when it refuses to follow past decisions
based on meaningless, arbitrary or erroneou s distinctions, then it has not complied with
Article X:3(a), and a Panel should not permit its actions to pass unchallenged.
4. POSCO’s Decision Not to Seek Domestic Judicial Review
81. The United States refers to domestic judicial review as if that were the proper forum to decide
Korea’s claim that the United States has failed to administer its anti-dumping laws and regulations in
the "uniform, impartial, and reasonable" manner required by GATT Article X:3(a)
46   That cannot be
correct.  GATT 1994 is a "covered agreement," and dispute settlement before this Panel is the proper
                                                     
43 US First Submission, para. 35.
44 See Korea’s First Submission, paras. 4.35 - 4.37.
45 See, e.g., US First Submission, paras. 41-48.
46 See, e.g., US First Submission, para. 51.WT/DS179/R
Page 115
forum to hear Korea’s claims.  This Panel has the responsibility to determine whether the
United States has administered its anti-dumping laws and regulations in a "uniform" and "reasonable"
manner.  That inherently entails consideration of whether the decisions at issue are consistent with
previous US decisions and of the reasoning for any departures.
82. Domestic appeals and WTO dispute settlement are fundamentally different.  They are
between different parties, are established under different systems of law, serve different purposes,
follow different procedures, apply different substantive rules, and offer different remedies.  In these
circumstances, a decision by POSCO whether or not to pursue a domestic appeal in the United States
can have no impact on the Korean government’s ability to pursue its sovereign rights through WTO
dispute settlement.
83. Therefore, despite the US suggestion, POSCO’s  decision not to pursue a domestic appeal is
wholly irrelevant to Korea’s  claims under Article X:3(a).
5. Remedies
84. Finally, the United States opposes Korea’s request for the Panel to suggest that the United
States revoke its anti-dumping orders concerning Korean Plate and Sheet.  The United States argues
that revocation "far exceeds what would be necessary to bring these measures into conformity withthe [Anti-Dumping] Agreement.
47   That argument, however, ignores the plain dictates of Article 1 of
the Anti-Dumping Agreement.  Under Article 1, antidumping measures may be applied "only …
pursuant to investigations initiated and conducted in accordance with the provisions of this
Agreement."  If the United States did not conduct its investigations of Plate and Sheet in accordance
with the provisions of the Agreement, then it doe s not have the authority, under Article 1, to maintain
antidumping measures.  The proper remedy for the violations described in Korea’s Submission is,
therefore, the revocation of the measures.
G. CONCLUSION
85. In conclusion, the anti-dumping measures imposed by the United States against Plate and
Sheet, and the US investigations leading to the imposition of those measures, are inconsistent with
numerous substantive and procedural requirements of the WTO Agreements.  This Panel now has theopportunity and responsibility to uphold WTO rules by finding the US anti-dumping measures
inconsistent with those rules and by suggesting that the United States revoke those measures.
                                                     
47 US First Submission, para. 196.WT/DS179/R
Page 116
ANNEX 1-3
WRITTEN QUESTIONS FROM KOREA
FIRST MEETING OF THE PANEL
(13-14 June 2000)
CONTENTS
Page
I. UNPAID SALES ................................................................................................................. ..117
II. MULTIPLE AVE RAGING .................................................................................................118
III. DOUBLE CONVERSION OF LOCAL SALES ................................................................119WT/DS179/R
Page 117
I. UNPAID SALES
1. In its oral statement, the United States describes that it classified POSCO's US sales through
POSAM as constructed-export-price ("CEP") sales, while it classified POSCO's direct sales to US
customers as export-price ("EP") sales.1  The United States then describes that it made (or did not
make) the following adjustments for "bad debt" expenses:
• For the CEP sales, the United States deducted the allocated US "bad debt" expense from the
price to the first unaffiliated customer.2
• For the CEP sales, the United States did not add the allocated US "bad debt"  expense to the
normal value that was compared to the constructed export price.3
• For the EP sales, the United States did not deduct the allocated US "bad debt" expense from
the sales price to the first unaffiliated customer.4
The United States did not address the fourth circumstance, however.  In other words, the United States
did not state whether, for those sales classified as EP sales, the allocated US "bad debt" expense wasadded to the normal value that was compared to the export price.  Would the United States please
confirm whether the allocated US "bad debt" expense was added to the normal value that was
compared to the export price for the sales classified as "EP" sales?
2. If the allocated US "bad debt" expense was added to the normal value that was compared to
the export price for EP sales, is it the position of th e United States that this adjustment was authorized
by Article 2.3 of the Anti-Dumping Agreement?
3. Is it the US position that there are no limits on adjustments that may be made under
Article 2.3 of the Anti-Dumping Agreement?  If there are limits, what are they?
4. The United States contends that, if "the seller agrees to sell on credit ... [it] accepts a credit
expense, including the risk of non-payment."
5  It also states that, in this case, "POSCO agreed to sell
to this US customer on credit and in doing so accepted the risk of non-payment as a condition of
sale."6 The United States contends that POSCO's acceptance of this risk "is sufficient to warrant
including bad debt in an Article 2.4 adjustment."7  In light of these assertions,
(a) What evidence was there in the Plate and Sheet cases regarding the risk of non-payment at the
time that POSCO made its US sales to the ABC Company (and, according to the
United States, agreed to accept the risk of non-payment)?
(b) Was there any evidence in the Plate and Sheet cases demonstrating that, at the time POSCO
made its sales to the ABC Company, there was a difference in the risk of non-payment for
sales to customers in the United States and for sales to customers in Korea?
                                                     
1 See US Oral Statement, paras. 9 and 10.
2 See US Oral Statement, para. 9.
3 See US Oral Statement, para. 11.
4 See US Oral Statement, para. 9.
5 US Oral Statement, para. 15 (emphasis added).
6 US Oral Statement, para. 17 (emphasis added).
7 US Oral Statement, para. 17.WT/DS179/R
Page 118
(c) If there was no difference in the risk of non-payment for sales in Korea and the United States
at the time POSCO made its sales, what is the basis for claiming that there was a difference in
the conditions and terms of sale?
5. Does the actual bad debt experience that occurs after a sale is made provide an accurate
measure of the risk of bad debt before the sale was made?
6. The United States asserts that the risk of non-payment is equivalent to the risk that a warranty
expense will be incurred.  The past decisions by the United States have recognized that warrantyexpenses may fluctuate from year to year and that, where there are fluctuations in warranty expenses,
the use of a historical average is appropriate to avoid distortions.  The standard questionnaire used by
the Department of Commerce therefore requests information on the historical warranty expense
experience for sales in the home market and the United States.  Did the Department of Commerce
request information on POSCO's historical bad debt  experience in the home market or the United
States in the Plate and Sheet cases?  Did the United States evaluate whether the bad debt experience
during the investigation periods in those cases wa s consistent with POSCO's historical experience?
7. The United States has contended that, under US law, adjustments for differences in
"conditions and terms of sale" are referred to as "circumstance-of-sale" adjustments.
8  T h e
Department of Commerce's regulations state that circumstance-of-sale adjustments will normally be
made only for "direct selling expenses" (or for expenses that the seller assumes on behalf of the
buyer).9  In these circumstances, what is the significance of the finding by the Department of
Commerce that the "bad debt" expense on POSCO's US sales was a "direct" selling expense?
8. What evidence is there on the records of the Plate and Sheet investigations to indicate that
POSCO (or any of its affiliates) experienced actual bad debt expenses on any sales of Plate or Sheet to
the United States prior to the sale to the ABC Company?
9. Is it the position of the United States that investigating authorities may include any export
sales in the calculation of export price, no matter how aberrational they are and no matter how much
their inclusion distorts the calculation of the dumping margins?  Is it the US position that there are nolimits at all on the investigating authorities' discreti on to include export sales in the price comparison,
including the "fair comparison" requirement of Article 2.4?
II. MULTIPLE AVERAGING
1. In employing its "multiple-averaging" comparison methodology ( i.e., comparing sub-period
averages to sub-period averages and combining the results) in the Plate and Sheet cases, did the
Department of Commerce treat the dumping margins for sub-periods that had negative margins as if
they were zero margins?  In other words, did the United States employ the practice known as
"zeroing"?
2. Article 2.4 specifically refers to a number of "differences" for which adjustments are
permitted because they affect "price comparability".  This list includes differences in physical
characteristics and differences in levels of trade.  Where does Article 2.4 indicate that differences in
the timing of sales constitute "differences affecting price comparability"?
                                                     
8 See US Oral Statement, para. 11.
9 See 19 C.F.R. ' 410(b).WT/DS179/R
Page 119
III. DOUBLE CONVERSION OF LOCAL SALES
1. If the prices for the "local sales" were fixed in dollars, as POSCO contended, would it have
been appropriate for the Department of Commerce to base its normal-value calculations on won
amounts shown on the invoices that did not correspond to the amounts actually paid?  Would it havebeen appropriate in such circumstances to base the normal-value calculations on the US dollar prices
set forth on the invoices?
2. When the United States reviewed the local sales during the verifications in the Plate and Sheet
cases, did it confirm that the dollar prices shown on the invoices matched the dollar prices reported byPOSCO?
3. The United States admits that POSCO told it during the course of both the Plate and Sheet
investigations that the prices for its "local sales" were fixed in dollars and not in won.
10  The United
States also admits that, in the verification in the Sheet case, the Department of Commerce obtainedevidence confirming that the amount the customer actually paid for these "local sales" was based on
the dollar prices shown on the invoices, a nd not on the won amounts shown on the invoices.
11   Was
there any evidence indicating that any Korean customer who purchased Plate or Sheet in a "local sale"
actually paid the won amount shown on the invoice?  If there was no evidence that any Korean
customer who purchased Plate or Sheet in a "local  sale" actually paid the won amount shown on the
invoice, what evidence was there to refute POSC O's testimony that the prices for these sales were
fixed in dollars, and not in won?
4. Is it the normal practice of the Department of Commerce to verify that the  amounts shown on
the invoices to home-market customers correspond to the amounts actually paid by those customers?Is there any evidence that the Department of Commerce departed from that practice in the Plate and
Sheet investigations?
5. Were the Plate and Sheet investigations the first anti-dumping investigations where some of
the home-market sales were dollar-denominated local sales?  Does the United States agree or disagree
with the statement on para 4.72 of Korea's First Subm ission that "neither the United States nor the
petitioners in the [Plate and Sheet] investigations cited a single case before the investigations at issuewhere the United States treated a home-market sale priced in dollars as if it had been priced in the
local currency"?
6. Does the United States agree that the records of the Plate and Sheet cases show that POSCO's
"internal exchange rate" was the rate published by the Korean Exchange Bank?  If not, please describethe evidence to the contrary in the record.
7. Is it the US position that the fact that the currency conversion was made for accounting
purposes in a home-market sale is determinative of, or relevant to, whether that sale was valued in
dollars or won?  If so,  please explain the basis for that position.
                                                     
10 See US Oral Statement, paras. 36 and 38.
11 See US Oral Statement, para. 39.WT/DS179/R
Page 120
ANNEX 1-4
RESPONSES OF KOREA TO QUESTIONS POSED BY THE PANEL
AND BY THE UNITED STATES
FIRST MEETING OF THE PANEL
(29 June 2000)
CONTENTS
Page
I. RESPONSES OF KOREA TO QUES TIONS POSED BY THE PANEL .......................122
A. G ENERAL .......................................................................................................................122
B. M ULTIPLE AVERAGING .................................................................................................122
C. T REATMENT OF UNPAID SALES ....................................................................................126
D. C URRENCY CONVERSION ..............................................................................................134
II. RESPONSES OF KOREA TO QUESTIONS POSED BY THE UNITED STATES.....142
NOTE:  In this submission, including the exhibits, Korea has placed information which POSCO has
previously designated as business proprietary information in brackets ("{ }").  This information has
been omitted and the brackets left in the text."{ }"WT/DS179/R
Page 121
This submission sets forth the responses of the Republic of Korea to the questions posed by
the Panel during the First Meeting of the Panel.  For the convenience of the Panel and the Parties,
each of the questions is reproduced below, followed by Korea’s response.
As an initial matter, Korea notes that several of the Panel’s questions inquire about facts on
the record of the SSPC and SSSS investigations.  Korea respectfully submits that, if the US anti-
dumping measures are to be upheld, they must be uph eld on the basis of the reasons articulated in the
final determinations and the final analysis memoranda.  The United States may not introduce post hoc
arguments to support its actions.  Nor may it now rely on facts in the record that it did not rely upon inthe final determinations and the final analysis memoranda.
In the recent High Fructose Corn Syrup  case under the Anti-Dumping Agreement, the Panel
noted that "the only discussion concerning the retroactive application of anti-dumping duties is
contained in" one paragraph of the final determinat ion, which had "no analysis" of the relevant facts.
On this basis, the HFCS Panel found that the Mexican investiga ting authority (SECOFI) had failed to
provide adequate support for its ruling, and the Panel expressly declined to look at other parts of the
record for possible support.
1  The HFCS  Panel also cited the Tokyo Round anti-dumping decision in
Polyacetal Resins  for the proposition that allowing post hoc  arguments would undermine the goals of
"transparency" and "orderly dispute settlement."2
Accordingly, Korea respectfully submits that this Panel should not allow the United States to
defend its measures by pointing to any facts or reasons not mentioned in its final determinations or
analysis memoranda — although the Panel may consider other facts in the record as necessary to
evaluate whether the United States properly established and evaluated the facts within the meaning ofArticle 17.6(i).  For that reason, Korea will answer questions about the record principally with respect
to the facts relied upon in the US final determinations and analysis memoranda, and will also provide
additional information about other record evidence as appropriate.
                                                     
1 See Mexico — Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United
States , Report of the Panel, WT/DS132/R, adopted 24 Feb. 2000, para. 7.192, which stated:
In this case, we have no record of SECOFI’s establishment or evaluation of the facts
concerning this issue.  [The one relevant paragraph] cannot reasonably be read asfindings and conclusions by SECOFI establishing and evaluating facts leading to the
conclusion that in the absence of provisional measures, material injury to the Mexican
sugar industry would have occurred.  Moreover, we cannot agree that it is our task to
discern the necessary findings and conclusions from the entirety of the analysis in the
final determination, the preliminary determ ination, or the entire case record.
Therefore, we conclude that the retroactive levying of final anti-dumping duties in
this case is inconsistent with Article  10.2 of the AD Agreement.
2 Id. at para. 7.104 n. 592, citing  Korea — Anti-Dumping Duties on Imports of Polyacetal Resins from
the United States , Report of the Panel, ADP/92, adopted on 27 Apr. 1993, paras. 209-10 ("where the Panel noted
that the purpose of the requirement for explanations of final determinations in public notices . . . was
transparency, that this purpose would be frustrated if, in dispute settlement, the country imposing the measurecould rely on reasons not set forth in the public notice, which latter would be inconsistent with orderly disputesettlement, because a full statement of reasons ‘enabled Parties to the Agreement to assess whether recourse tothe dispute settlement mechanism . . . was appropriate . . .’.").WT/DS179/R
Page 122
I. RESPONSES OF KOREA TO QUESTIONS POSED BY THE PANEL
A. GENERAL
Q.1. (For the United States)  Does the United States agree with Korea that the first sentence
of Article  2.4 represents a "free-standing and substantial" rule?  If not, please explain your
view, taking into account the differences between the Tokyo Round AD Code and the WTO AD
Agreement in this respect.
The contrast between the current first sentence of Article 2.4 and the predecessor provision in
the Tokyo Round Anti-Dumping Code is striking.  The Tokyo Round Code did not contain a separate
sentence commanding that "[a] fair comparison shall be made between the export price and the
normal value," as the current Anti-Dumping Ag reement provides.  Instead, the Tokyo Round Code
provided only that,
In order to effect a fair comparison ... the two prices shall be compared at the
same level of trade ... and in respect of sales made at as nearly as possible the
same time.3
The language of the Tokyo Round Code thus explicitly linked  the "fair comparison"
requirement to the requirements that the comparison be made between sales at the same level of trade
and at the same time.  In other words, before the Uruguay Round, a comparison that complied with
the other requirements of the Anti-Dumping Code was deemed to be "fair."4
There is no such linkage in the current Anti-Dumping Agreement.  Instead, the "fair
comparison" requirement is stated in a sentence th at is independent of the other requirements of
Article 2.4.  It follows, then, that the "fair comparison" requirement of the first sentence of Article 2.4
must be construed as imposing disciplines other than those required by the other provisions of
Article 2.4.  Any other interpretation would render the first sentence of Article 2.4 "inutile."5
B. MULTIPLE AVERAGING
Q.1. (For Korea) In its first submission (par a. 4.46), Korea argues that Article  2.4.2 "does
not allow for the comparison of ‘multiple avera ges’ to ‘multiple averages’."  In its oral
statement at the first meeting, however, Korea states (para. 54) that it does not argue that
Article  2.4.2 precludes Members from calculating separate averages for different products.  In
light of the nature of Korea’s arguments (focus on the singular "a weighted average" and use of
the word "all") please explain how Article  2.4.2 can be interpreted to permit "multipleaveraging" based on product type while not permitting multiple averaging based on
                                                     
3 Tokyo Round Anti-Dumping Code, Article 2:6.
4 See EC — Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil , Report of the
Panel, ADP/137, adopted on 30 Oct. 1995, para. 492 ("the wording of Article  2:6 [of the Tokyo Round Code]
‘in order to effect a fair comparison’ made clear that if the requirements of that Article  were met, any
comparison thus undertaken was deemed to be ‘fair.’").
5 In this regard, it is instructive to recall Professor Franck’s conclusion about the significance of the
free-standing "fair comparison" requirement in the first sentence of Article  2.4:
Article  2.4 of the WTO Anti-Dumping Agreement calls for a WTO panel to determinenot only whether the anti-dumping measures at issue result from an anti-dumping
investigation that satisfied the substantive and procedural requirements spelled out
elsewhere in the same Agreement (including elsewhere in Article  2.4), but should also —and most fundamentally — determine whether the comparison of export price to normalvalue was "fair."
Franck Memorandum, ROK Ex. 54, at 1-2.WT/DS179/R
Page 123
sub-periods.  Please explain in addition Korea’s view about the consistency with Article  2.4.2 of
multiple averaging in the context of level of trade and quantities.
There is nothing in the Anti-Dumping Agreemen t that permits the investigating authority to
divide the investigation period into separate sub-periods to account for currency movements.  There
are provisions that permit separate dumping calculations for different products and for different levels
of trade.
Article  2.4.2 provides that the average normal value must be compared to the average price
for "comparable export transactions."  The word "comparable" means, in essence, "capable of being
compared."6  The determination of whether sales should be included in the average export price and
normal value (for any product comparison) must, therefore, be based on an analysis of the limitations
on comparisons imposed by the Anti-Dumping Agreement.  Transactions that can be compared under
the provisions of the Anti-Dumping Agreement are "comparable" transactions.  Transactions thatcannot be compared under the provisions of the Anti-Dumping Agreement are not "comparable"
transactions.
There are, of course, a number of substantive limitations on the transactions that may be
included in comparisons under the Anti-Dumping Agreement:
First , Article 2.1 of the Anti-Dumping Agreement only permits comparisons of products with
identical (or, in the absence of identical, the most similar) physical characteristics.
7  S a l e s  o f
products with less similar physical characteristics are, therefore, not "comparable transactions."
Second , the second sentence of the chapeau  of Article 2.4 only permits comparisons at the same
level of trade.  This means that sales at different levels of trade are not "comparable
transactions."
Third , the second sentence of the chapeau  of Article 2.4 also requires that comparisons be made
"in respect of sales at as nearly as possibly the same time."  This means that when the
transaction-to-transaction methodology is used, sales in different parts of the investigationperiod may not be "comparable transactions."  Similarly, when the average-to-average
methodology is used, the sales in each market must, on average , have been made at the same
time in order to be considered "comparable transactions."
Fourth , the first sentence of the chapeau  of Article 2.4 — which requires that a "fair
comparison" be made — only permits comparisons of transactions that may fairly be compared.
This mean that transactions whose comparison would lead to unfair results are not "comparable
transactions."
                                                     
6 The dictionary defines "comparable" as:
1.  capable of being compared: (a) having enough like characteristics or qualities to make comparison
appropriate — usu. used with with ... (b) permitting or inviting comparison often in or two salient
points only — usu. used with to ...
2. suitable for matching, coordinating or contrasting : EQUIVALENT, SIMILAR ....
WEBSTER ’S THIRD NEW INTERNATIONAL DICTIONARY .
7 Article 2.1 provides that "a product is to be considered as being dumped . . . if the export price of the
product exported from one country to another is less than the comparable price, in the ordinary course of trade,
for the like product  when destined for consumption in the exporting country."  As the United States has
recognized in its implementation of this provision, the phrase "like product when destined for consumption inthe exporting country" means the product that is identi cal (or, in the absence of an identical product, most
similar) in physical characteristics to the exported product.   See  Tariff Act of 1930, as amended, § 771(16), 19
USC. § 1677(16) (definition of "foreign like product.") (ROK Ex. 1).WT/DS179/R
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These substantive limitations define the transactions that are "comparable" within the meaning of the
Anti-Dumping Agreement.  If transactions may be included in the comparisons under these rules, then
they are "comparable" ( i.e., "capable of being compared") under the Agreement.
On the other hand, there are no provisions in the Anti-Dumping Agreement that limit,  due to
movements in exchange rates, the transactions that  may be included in comparisons.  Article 2.4.1 is
the only provision of the Anti-Dumping Agreement addressing exchange rates. That provision does
require investigating authorities to adjust th e dumping calculation methodology to ensure that
currency fluctuations are ignored and that exporters are "allowed" 60 days to adjust export prices inresponse to a sustained movement in the exchange rate.  However, the provisions of Article 2.4.1 do
not in any way limit the ability of the investigating authority to compare transactions before and after
the currency fluctuation or sustained movement. They do not indicate that sales before the fluctuation
or sustained movement cannot be compared to sale s during or after the fluctuation or sustained
movement.
Indeed, the United States has specifically recognized this fact.  In its first submission, it
specifically rejected the argument that the Article 2.4.1 "establishes a limit on which transactions may
be considered ‘comparable’ within the meaning of ... Article 2.4.2."
8
Q.2. (For Korea) Is it the view of Korea that Article  2.4.2 prohibits multiple averaging basedon sub-periods in all cases, or only in cases where such averaging is asserted to be justified as a
result of a devaluation?  What is Korea’s view about the consistency with Article  2.4.2 of
multiple averaging based on sub-periods in the context of (a) high inflation in the exporting
country; (b) differing proportional volumes of sales in the home and export markets combined
with consistent upward or downward trends in  global prices of a product during the POI?
The issue of the permissibility of a "multiple -averaging" methodology in situations involving
high inflation or consistent upward or downward trends in global prices is not presented in this case.
Nevertheless, Korea would note that those situations present different issues than the depreciation of a
currency.
Most importantly, in circumstances where there is high inflation or consistent trends in global
prices, there are discernible differences in the conditions and terms of sale — especially in the prices
charged by a seller within a particular market.  By contrast, a currency depreciation does not require a
seller to change the prices it charges within a market .  Instead, it simply involves a change in the tool
that is used by investigating authorities to facilitate the comparison of export price and normal valueby putting both numbers in the same currency.
The evidence in these cases demonstrates that POSCO’s prices (and other sales terms) in
Korea and in the United States changed little throughout the investigation periods — despite the
depreciation of the Korean won.  In other words,  there was no evidence of a change in POSCO’s
selling practices due to the currency depreciation.  Consequently, the analogy the United States has
attempted to draw to situations involving high inflation or consistent price trends is not persuasive.
Q.3. (For Korea)  In respect to Korea’s clai m that the use of multiple averages based on
sub-periods is inconsistent with Article  2.4.2 of the ADP Agreement, is it Korea’s view that it isalways inconsistent with Article  2.4.2 to calcul ate weighted averages for sub-periods within the
period of investigation?  Or does Korea cons ider that the use of multiple averages is only
prohibited by Article  2.4.2 where the methodology that is then used to  combine those weighted
averages to arrive at an overall margin of dumpin g involves "zeroing"?  If the latter is the case,
please explain how the issue of "zeroing" is within the Panel’s terms of reference.
                                                     
8 US First Submission, para. 142.WT/DS179/R
Page 125
As explained in Korea’s First Submission, the Anti-Dumping Agreement does not permit the
practice of splitting the investigation period into separate sub-periods for purposes of calculating the
average normal value and export price.  As a practical matter, however, the splitting of the periodwould have had little significance if the United States had not combined the margins for each sub-
period by "zeroing" any negative margins.  The adverse effect of the "multiple-averaging"
methodology was, therefore, a direct result of the practice of "zeroing."
In this connection, it may be useful to clarify what Korea does and does not claim with
respect to "zeroing."  Korea has not claimed in this proceeding that "zeroing" per se  violates the Anti-
Dumping Agreement.  That would be outside the Panel’s terms of reference.
On the other hand, Korea does claim that the "multiple averaging" methodology used by the
United States violates the Anti-Dumping Agreement.  To the extent that "zeroing" was an integral part
of the "multiple averaging" methodology, it is properly within the Panel’s terms of reference, and it is
properly the subject of Korea’s arguments.
It clearly is possible for the Panel to address the issue of "multiple averaging" without
addressing the issue of "zeroing" per se .
9  For example, "zeroing" may be permitted in the special
circumstances where an average-to-transaction methodology is permitted.  Or, "zeroing" may be
permitted where separate dumping margins are calculated for different "like products" or for different
"levels of trade."  However, those issues are not presented here.  Instead, the issue presented here is
whether the United States was permitted to inflate the dumping margins by splitting the investigation
period, when the Anti-Dumping Agreement does not permit such a calculation.
Q.4. (For the United States)  Please explain ho w, in the view of the United States, exchange
rates can affect the comparability of export pric es and prices in the market of the exporting
country.
Under the Anti-Dumping Agreement, the exchange rate is simply a tool that is used to convert
an amount in one currency into another when required for a price comparison.10  As discussed above,
in the response to question B.1, nothing in the Agreement suggests that movements in exchange rates
are to affect the choice of transactions to be included in the comparison.  As the Cotton Yarn  panel
observed, "The exchange rate in itself is not a difference affecting price comparability."11
                                                     
9 In this regard, it is Korea’s view that the requirement in Article 2.4.2 of a comparison of a single
average normal value to a single average export price wa s intended, in large measure, to eliminate the problem
caused by "zeroing."  Prior to the negotiation of the current Anti-Dumping Agreement, a number of major usersof anti-dumping laws (including the United States) regularly calculated dumping margins by comparing anaverage normal value to the export prices for individual  transactions and then "zeroing" any negative margins
found.  This methodology was challenged under the Tokyo Round Anti-Dumping Code, and a number of WTO
Members sought to prohibit this methodology in the Uruguay Round negotiations.  The provisions of
Article 2.4.2 represent a carefully negotiated bargain among the WTO Members concerning the methodologythat is to be used to calculate dumping margins.  See Terrence P. Stewart, ed., II The GATT Uruguay Round:  A
Negotiating History, 1986 - 1992 " (1993) (ROK Ex. 77).
10 Thus, Article 2.4.1 establishes the rules for selecting exchange rates that must be followed "[w]hen
the price comparison under [Article 2.4] requires a conversion of currency...."
 See EC — Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil , Report of the
Panel, ADP/137, adopted on 30 Oct. 1995, para. 494 (an exchange rate "is a mere instrument for translating intoa common currency prices that have previously been  rendered comparable in  accordance with the second
sentence of [Tokyo Round Code] Article 2:6," the predecessor of Article  2.4 of the Anti-Dumping Agreement).
11 Cotton Yarn , para. 494 (construing the Tokyo Round Code’s predecessor provision of Article  2.4).WT/DS179/R
Page 126
In short, the structure of the Agreement indicate s that the exchange rate is to be considered
only after the investigating authority has identified the "comparable transactions" — that is, the
transactions that may be included in the comparison under the relevant provisions of the Anti-
Dumping Agreement.  Thus, the exchange rates cannot affect the "comparability" of export and home-market prices.
Q.5. (For Korea)  The United States conte nds that Korea’s fair comparison claim with
respect to multiple averaging is in fact a claim under Article  3 of the AD Agreement which is
outside the Panel’s terms of reference.  Please respond.
There is no basis for the US attempt to recast Korea’s Article 2.4 "fair comparison" claim as
belonging under Article 3.
Korea is not currently challenging the injury de terminations made by the United States in the
Sheet and Plate cases.  Korea is challenging the methodology by which the United States determined
the dumping margins that were, inter alia , used in the injury analysis.  The calculation of those
dumping margins is, of course, subject to the disciplines of Article 2 of the Anti-Dumping
Agreement — including the "fair comparison" requirement of Article 2.4.
In this regard, it must be noted that the argument made by the United States invites
inconsistency.  If Korea were to challenge the US reliance in its injury analysis on improperly
calculated dumping margins under Article 3, the US response would undoubtedly be that such issues
must be addressed under Article 2.  Or, to put it in more concrete terms, the US International Trade
Commission (which is responsible for the injury analysis under US law) would undoubtedly arguethat it simply takes the dumping margins announced by the Department of Commerce ("DOC") as a
given, and it is not permitted to conduct its own separate dumping analysis.  The United States should
not be allowed to evade international scrutiny of its anti-dumping measures simply because it has
bifurcated responsibility for administering its anti-dumping laws.
C. T
REATMENT OF UNPAID SALES
Q.1. (For both parties)  Were all of the sales to ABC Company in the plate and sheet
investigations made through POSAM?  If not, please provide details.
All of POSCO’s sales to the ABC Company in the Plate and Sheet investigations were made
through POSAM.
Q.2. (For both parties)  Was there any eviden ce/argument in the record of the plate and/or
sheet investigations relating to whether POSCO had any knowledge of ABC company’s
precarious financial condition at the time it made  the sales in question?  If so, please specify.
As noted in Korea’s First Submission, the DOC specifically found that "at the time the [sales]
were made, POSCO was not aware that th e customer would declare bankruptcy."12  The United States
appears to concede this point.13  All of the relevant evidence in the record of the Plate and Sheet
investigations supports the conclusion that POSCO had no knowledge of the ABC Company’s
precarious financial condition at the time it made its sales.14
                                                     
12 See Korea’s First Submission, para. 4.18 and n.101.
13 See US First Submission, paras. 102-04.
14  {   }WT/DS179/R
Page 127
Q.3. (For both parties)  Does the record in th e plate and/or sheet investigations contain any
information regarding non-payment by either US or Korean customers other than ABC
company?  If so, please specify.
Significantly, there is no indication in the discussion of the "bankrupt sales" issue in either the
final determinations or final analysis memoranda for SSPC or SSSS that the DOC considered
evidence of other non-payments, in Korea or the United States, in deciding whether to make an
adjustment for the unpaid sales to the ABC Company.  The United States did not identify any
evidence indicating that sales to US customers were inherently more risky than sales to home-marketcustomers.  The United States did not request or examine data concerning POSCO’s historical bad
debt experience in the two markets, from which an analysis of the risk of non-payment might be
discerned.
15
In both the Plate and Sheet investigations, the record clearly shows that POSCO had no prior
non-payments on sales to the United States through its affiliated distributor, POSAM.  This is true for
all products, and not only for Plate and Sheet.  POSAM did not even have a "bad debt" account.16
Korea is not aware of any record evidence as  to whether POSCO ever had any non-payments
on any sales to the United States through other channels.  Korea observes that the mere existence ofbad debt accounts in Korea covering worldwide expo rts would not in itself show that there had ever
been any non-payments in the United States.
Q.4. (For the United States)  The United States  contends that, in respect of sales through
POSAM, the United States deducted an allocated portion of the US bad debt expenses as part ofthe construction of the export price.  Please indicate where in the reco rd of the investigations
this statement can be verified.
The record demonstrates that the United States deducted an allocated portion of the costs of
the unpaid US sales from the sales prices to unaffiliated US customers for the sales made through
POSAM.  However, there is no indication in the final determinations or analysis memoranda that this
adjustment was intended to "construct" the export price under Article 2.3, and not as an adjustment for"differences affecting price comparability" under Article 2.4.
It is significant that the DOC’s final determinations indicated that the unpaid sales were being
classified as a "direct" selling expense, and not as an "indirect" selling expense.  Under US law, this
was a signal that the DOC had determined that it would be appropriate to make a "circumstance ofsale" adjustment for those expenses.
17  In its oral statement, the United States conceded that
                                                     
15 If the United States had intended to make an ad justment for the differences in the costs of credit
insurance (or for some other measure of the differences in risk of non-payment) in the two markets, it wasrequired by the last sentence of Article 2.4 of the Anti-Dumping Agreement to "indicate to the parties inquestion what information [was] required."  The record of the SSPC and SSSS cases does not contain any
request from the DOC for information regarding either th e differences in the costs of credit insurance or any
other measures of the differences in the risks of non-payment in the two markets.
16 See POSAM Verification Report (SSSS), at 7 (ROK Ex . 61) ("We also examined the accounts where
other such negative invoices would have been recorded for both 1997 and 1998, and found no indication thatPOSAM had negated other sales invoices or recorded bad debt in these accounts.  We also spoke with theaccounting staff and reviewed the accounts on POSAM’s computer system.  We found no indication of the
existence of a bad debt account, and no discrepancies with POSAM’s response.").
17 Thus, Section 351.410 of the DOC’s regulations provides that:
(a) Introduction .  In calculating normal value the Secretary may make adjustments
to account for certain differences in the circumstances of sales in the United States and
foreign markets.  ( See section 773(a)(6)(C)(iii) of the Act. )  This section clarifies certainWT/DS179/R
Page 128
"circumstance of sale" adjustments under US law correspond to an adjustment under Article 2.4.18
Consequently, a finding by the DOC that unpaid sales were "direct" selling expenses was necessarily
a finding that an adjustment under Article 2.4 would be appropriate for them.
It is also significant that the United States conceded during the Panel’s first meeting that the
DOC made the adjustment for the cost of non-payment both to the indirect "constructed export price"
sales and to the direct "export price" sales.  The adjustment made to comparisons involving direct
"export price" sales for the cost of non-payment cannot be justified under Article 2.3, because
Article 2.3 only applies to indirect "constructed export price" sales through an affiliated importer.Consequently, the adjustment to the comparisons involving direct "export price sales" must be
justified, if at all, under Article 2.4.
The most charitable interpretation, then, is that the United States now intends to argue that the
adjustment to the indirect "constructed export price" sales was made under Article 2.3, while theadjustment to the comparisons involving direct "export price" sales (which was calculated in the same
manner based on the same  factual situation as the adjustment to indirect sales) was made under
Article 2.4.  Such an argument is, however, untenable.
The language of Article 2.4 addressing the adjustments for "differences affecting price
comparability" does not make any distinction between direct "export price" sales and indirect
"constructed export price" sales.  The adjustment are, in both circumstances, the same.  Consequently,
the special adjustments required to "construct" the export price do not replace the normal adjustments.
Instead, they are made in addition to  the normal adjustments.
This conclusion is reinforced by a close analysis of the language of the third and fourth
sentences of Article 2.4.  The adjustments for "differences affecting price comparability" are
described in the third sentence of Article 2.4.  The fourth sentence of Article 2.4 then describes
additional adjustments that are made only when constructing an export price ( i.e., for comparisons
involving the indirect "constructed export price" sales).  Significantly, the fourth sentence does not
state that the special constructed export-price adjustments are to be made in lieu  of the normal
adjustments described in the third sentence.  Instead, the fourth sentence states that, for comparisonsinvolving the indirect "constructed export price" sales, the special adjustments are "also" to be made.
19
In other words, the normal adjustments described in the third sentence of Article 2.4 are made for allcomparisons (including both direct "export price" sales and indirect "constructed export price" sales),
and then, for the indirect "constructed export pric e" sales, the special adjustments described in the
                                                                                                                                                                    
terms used in the statute regarding circumstances of sale adjustments and describes the
adjustment when commissions are paid only in one market.
(b) In general.   With the exception of the allowance described in paragraph (e) of
this section concerning commissions paid in only one market, the Secretary will make
circumstances of sale adjustments under section 773(a)(6)(C)(iii) of the Act only fordirect selling expenses  and assumed expenses.
19 C.F.R. § 351.410(b) (emphasis added).
18 See US Oral Statement, para. 11.
19 The relevant language is as follows.  The third sentence of Article 2.4 provides that:
Due allowance shall be made in each case, on its merits, for differences which affect pricecomparability, including differences in conditions and terms of sale, taxation, levels oftrade, quantities, physical characteristics, and any other differences which are also
demonstrated to affect price comparability.
The fourth sentence of Article 2.4 then states that:
In the cases referred to in paragraph 3 of Article 2, allowances for costs, including dutiesand taxes, incurred between importation and resale, and for profits accruing, should also
be made.(Emphasis added.)WT/DS179/R
Page 129
fourth sentence are "also" made.  Consequently, the adjustments made to construct the export price
are in addition to, and not a replacement for, the adjustments made for "differences affecting price
comparability."
Because the United States made the adjustment  for the actual costs of non-payment to the
direct sales by POSCO, it has effectively taken the position that this adjustment was intended as a
normal adjustment under the third sentence of Article 2.4 for "differences affecting price
comparability."  It cannot, therefore, also assert that the same costs are an appropriate adjustment to
construct the export price, because the fourth sentence of Article 2.4 explicitly states that theadjustments to construct the export price are made in addition to, and not in lieu  of, the normal
adjustments under the third sentence of Article 2.4 for "differences affecting price comparability."
The United States must, therefore, defend its adjustment under the third sentence of
Article 2.4.  In these circumstances, its arguments c oncerning the permissible adjustments to construct
an export price under Article 2.3 are irrelevant.
Q.5. (For the United States)  Korea states (ora l statement at the first meeting, para. 25) that
the United States does not argue in its firs t submission that unpaid sales were an "other
difference []. . . demonstrated to affect price comparability".  Is Korea correct that the UnitedStates does not advance such an argument?
The United States did not proffer any argument, in its First Submission or Oral Statement,
that the non-payments by the ABC Company were an "other difference []. . . demonstrated to affect
price comparability" within the meaning of Articl e 2.4.  Any attempt by the United States now to
make such an argument would have to fail on both procedural and substantive grounds.
As a procedural matter, Article 2.4 permits adjustments only for differences that are
demonstrated  to affect price comparability.  The determinations (and the underlying records of the
Plate and Sheet cases) did not contain any "demonstration" that the non-payment had affected price
comparability.  Thus, the procedural requirements of Article 2.4 were not met.
As a substantive matter, the customer’s failure to pay could not have affected price
comparability.  POSCO did not know, and could not have known, that a particular US customer
would fail to pay at the time POSCO set its pr ices, so the non-payment did not affect POSCO’s
pricing policies.  Thus, for the reasons set forth in paragraphs 4.17 to 4.23 of Korea’s First
Submission, there simply is no basis for any claim that the actual cost of non-payment was an "otherdifference ... demonstrated to affect price comparability."
Q.6. (For both parties)  Article  2.4 provides that "[d]ue allowance shall be made in each
case, on its merits, for differences which affect price comparability, including differences in
conditions and terms of sale . . . ."  The use of the term "on its merits" could be taken to suggestthat differences in conditions and terms of sale will not always affect price comparability.  Do
you agree?  Please explain your answer.
Korea believes that it is incumbent on the investigating authorities to determine whether an
adjustment is warranted.  The phrase "on its merits" reinforces the obligation of the investigatingauthorities to ensure that the adjustments are warr anted and the resulting comparisons are "fair."  Of
course, an adjustment for a difference in "conditions and terms of sale" that did not affect price
comparability would not be warranted and would not result in a fair comparison, and thus should be
rejected "on its merits."
Q.7.(For the United States)  The United States states in its first submission (para. 84) that
"[s]elling expenses such as warranty costs and bad debt not only reflect conditions of sale in theWT/DS179/R
Page 130
market, they are also an element of price.  Th erefore, differences in such selling expenses affect
price comparability."  Please provide furth er elaboration of the US view regarding when
differences "affect price comparability".
It is clear that the price for a transaction is inextricably bound with the terms of the
transaction.  The price for a transaction is, of course, the outcome of a negotiation between buyer and
seller.  In that negotiation, the seller offers a bundle of goods and ancillary items (such as warranty
coverage or delayed payment options).  Any changes in that bundle necessarily affects the outcome of
the negotiations.  Thus, the price cannot be analyzed apart from the bundle being sold.
Warranty coverage and delayed payment options are clearly a part of the bundle of items
being sold in a negotiation.  The investigating au thorities may, therefore, properly adjust for the
expected  value of those items at the time the sale was made.
By the same token, the risk of default that arises when the seller agrees to delayed payment
may also be part of the bundle being sold.  And, where evidence supports such a conclusion, the
investigating authorities may properly adjust for the risk of default.  However, such an adjustment
must be based on analysis of the risk that could be foreseen at the time of the negotiation. It cannot be
based on an "ex-post" event (such as the fortuity that a particular customer happened to default afterthe sale was made), because that ex-post occurrence by itself provides no indication of the anticipated
risk of default that might have been considered when the prices were set.
In its First Submission, the United States contended that the adjustment it made for the costs
of non-payment was analogous to the adjustments it routinely makes for warranty expenses.  It alsoasserted that the adjustment for warranty expenses is based on an "ex-post" event ( i.e., an actual
warranty claim for damaged or defective merchandise) that could not have been considered when the
prices were set.
20  This analogy, however, demonstrates the flaw in the US treatment of the costs of
non-payment in the SSPC and SSSS cases.
Under its normal practice, the DOC does not simply allocate current warranty expenses over
current sales to determine the amount of the warranty adjustment for the sales under investigation.Instead, the DOC has explained that:
The Department’s normal practice in computing warranty expenses is to use
historical data over a four- or five-year period preceding the filing of the
petition to estimate the likely warranty expenses on POI [ i.e., period of
investigation] sales.
21
The DOC has also explained that, if the warranty expenses incurred during the investigation period do
not correspond to historical experience, the DOC will rely on historical experience to calculate the
warranty adjustment.22
                                                     
20 See, e.g.,  US First Submission, para. 86.
21 Large Newspaper Printing Presses from Germany , 61 Fed. Reg. 38166, 38185 (July 23, 1996) (ROK
Ex. 65).  See also  Koenig & Bauer-Albert AG v. United States , 15 F. Supp. 2d 834, 855 (Ct. Int’l Trade 1998)
("Commerce’s normal practice in computing warranty expenses is to use historical data from a four- or five-yearperiod preceding the filing of the petition to estimate the probable warranty expenses on POI sales.") (ROKEx. 66).
22 See Bicycles from the People’s Republic of China , 61 Fed. Reg. 19026, 19042 (Apr. 30, 1996) ("Our
examination of Motiv’s historical warranty costs in dicate that the reported POI warranty costs may not be
reflective of what Motiv’s true warranty expenses will be on its POI sales.  Accordingly, we have used thehistorical warranty expenses.") (ROK Ex. 67); Television Receivers from Japan , 56 Fed. Reg. 38417, 38421
(Aug. 13, 1991) ("Although we generally use warranty expenses incurred during the period of the review, theWT/DS179/R
Page 131
In short, the DOC’s methodology for calculating the warranty adjustment includes safeguards
to ensure that the adjustment reflects the exporter’s historical experience, and not just the aberrant
data for a single year.  Such safeguards are essential to the calculation of an adjustment for the risk of
warranty expenses that the seller accepted when it agreed to the warranty terms of the sale.
The DOC failed to employ such safeguards, however, when calculating the adjustment for
non-payment costs in the SSPC and SSSS cases.  As a result, the United States cannot argue that those
adjustments provided a proper measure of the risk of non-payment in the US and Korean markets.
Q.8. (For the United States)  Article  2.4 of the ADP Agreement requires that a Member
make due allowances for "differences which affect price comparability".  It could be argued
that this means that, where there are differences that should affect the relative prices charged
by an exporter in his home market and expo rt market, the Member should make appropriate
adjustments.  Applying this approach to the case at hand, the logic of the United States’adjustments in  respect of unpaid sales is that POSCO should be charging higher prices in the
US market than in the Korean market becaus e defaults are more likely for US purchasers than
for Korean purchasers.  Please comment.
The "logic" of the US position is that (1) the actual non-payment by the ABC Company
during the investigation period demonstrates that the risk of non-payment was higher in the US
market than in Korea and, (2) given this supposed greater risk, POSCO’s export price should have
been higher than its home-market price by the full costs of the actual non-payment.  However, this
"logic" is not correct.
First , an actual one-time occurrence of an event is not a reliable indicator of the risk of that
event.  It is true that, during the relevant period, POSCO experienced a single large default by one US
customer.  But that does not mean that defaults are more likely for US customers than for Korean
customers.  Probabilities simply cannot be determined by a single event — no matter how large that
event may be — because there is no way of telling whether that single event is part of a common
pattern or a once-in-a-lifetime occurrence.  The probabilities can only be determined by considering a
pattern of occurrences over a sufficiently lengthy period of time.
Second , the more reliable, longer term evidence on record actually showed that the risk was
higher in Korea than in the United States.  This evidence showed that POSCO had never previously
suffered a non-payment by a US customer, while it has had multiple experiences of non-payment by
Korean customers.  There is no evidence in either the Plate or Sheet cases that defaults are more likelyfor US purchasers than for Korean purchasers.
Third , even if one accepts arguendo  that the risk of non-payment is greater in the United
States than in Korea (and that the US final determin ations had adequately demonstrated that to be so),
the adjustment made by the DOC would still be improper.  By adjusting for the full cost of the actualnon-payment, the DOC did not adjust for difference in risk at all.  Rather, the adjustment for the
actual event grossly exceeded a proper adjustment for any difference in risk between the two markets.
The United States is confusing the small risk of be ing hit with lightning with the large damage that is
caused if one happens to be one of the few people so hit.
The DOC noted that "POSAM could have chosen to insure itself against the risk that this (or
any) customer would not pay, as do other companies which sell on a credit basis."
23  Such insurance
goes to the heart of the US error:  The true measure of the difference in risk of non-payment between
                                                                                                                                                                    
Department will consider longer historical periods to provide a more accurate estimate of the eventual warranty
expenses for the merchandise under review.") (ROK Ex. 68).
23 SSSS Final Determination, at 30674 (ROK Ex. 24).WT/DS179/R
Page 132
the two markets would be the (small) difference in the premiums on identical policies in the two
markets, and not the (uncertain and potentially very large) difference in the actual amount of non-
payment in a single year.
Q.9. (For both parties)  In its first submission (para. 65), the United States asserts that it is
Article  2.1 of the ADP Agreement, and not Article  2.4, that addresses what sales may be used
to establish the export price and normal value.  The United States further notes Article  2.1
expressly limits the determination of normal value to sales in the ordinary course of trade, that
there is no such limitation in respect of the export price, and that this absence of a limitation
must be interpreted as intentional. It could be ar gued that it follows that Article  2.1 precludes a
Member from excluding any export sales.  The United States however contends (para. 70) that it
may exclude export sales in certain circumstances.  Please comment.
It is true that Article 2.1 places some limitations on the transactions that may be included in
the comparison of normal value and export price.  However, those clearly are not the only limitations
imposed by the Anti-Dumping Agreement.  For example, the chapeau  of Article 2.4 also indicates
that comparisons should be made between sales at the same level of trade and at the same time, and it
further provides that the comparison must be "fair."  These provisions thus provide additional
limitations on the transactions that may be included in the comparisons.
In any event, to the extent that the United States argues that Article 2.1 precludes
investigating authorities from excluding atypical export sales, that argument is obviously undone by
the US concession that it has the discretion to exclude such sales.  Indeed, a US judicial decision has
held that such exclusions are warranted where the inclusion of atypical sales would lead to an "unfair"result.
In short, Article 2.1 and the first sentence of Article 2.4 are complementary:  Even if the
inclusion of a sale would conform to Article 2.1, it must be excluded where necessary to ensure a "fair
comparison" under Article 2.4.
Q.10. (For Korea)  Korea argues that the "fair comparison" requirement of Article  2.4 of the
AD Agreement requires a Member to exclude "atypi cal sales" where the inclusion of those sales
would "distort the results" by increasing the ma rgin.  In Korea’s view, would a Member also be
entitled to exclude "atypical" export sales wh ere those sales would "distort the results" by
decreasing the margin?
Korea believes that atypical export sales should be excluded from the dumping calculations
whenever the inclusion of those sales would "distort the results."  It should not matter whether the
distortions involve aberrational increases or decreases in the dumping margins — the goal should be
to avoid distortions.
Q.11. (For Korea)  In the context of its "multiple averaging" claims, Korea emphasizes that
the language "all comparable export prices" precludes "multiple averaging".  Can this view be
reconciled with Korea’s position that the US DOC was required to exclude certain "atypical"
export prices from its dumping margin calculations altogether?
There is no conflict between Korea’s argument that atypical export sales should be excluded
from the calculation of the export price when necessary to ensure a "fair comparison" under
Article 2.4 and its argument that Article  2.4.2 precludes splitting the investigation period into sub-
periods.  In fact, Korea’s arguments highlight the way that Article  2.4 (including its chapeau  and its
sub-paragraphs) is intended to work together as a unitary whole.WT/DS179/R
Page 133
The chapeau  of Article  2.4 requires, inter alia , a "fair comparison."  It follows that any sale
that cannot be included in a "fair comparison" must be excluded.
Article 2.4.2 must be read in context, as part of Article  2.4.  Thus, it cannot be read to require
the inclusion of atypical sales that would distort the calculation of the dumping margin and lead to an
"unfair  comparison."  Indeed, this is made explicit in the text of Article 2.4.2 itself:  The opening
clause of Article  2.4.2 makes that provision "subject to the provisions governing fair comparison" in
the chapeau .
It is clear, therefore, that the function of Article  2.4.2 is not to determine which sales should
be included in the analysis (an issue that is governed by other provisions of the Anti-Dumping
Agreement).  Instead, its purpose is to determine the means of comparing those sales that are to be
included pursuant to other provisions of the Anti- Dumping Agreement.  This context indicates that
Article 2.4.2 should not be construed to require the inclusion of sales that are otherwise required to beexcluded.  Rather, the obligation to compare an average normal value to an average of " all
comparable export transactions " should be read as an obligation to compare the average normal value
to "all export transactions that are required to be included in the comparison under the applicable
rules of the Agreement ."  In this way, the phrase "all comparable export transactions" in Article  2.4.2
can be read consistently with the requirement of the chapeau  to exclude atypical, distortive sales.  In
other words, an "atypical" sale that must be excluded from the comparison to achieve the "fair
comparison" required by the chapeau  of Article 2.4 is not a "comparable" transaction within the
meaning of Article 2.4.2.
Q.12. (For the United States)  The United Stat es observes (first submission, para. 71) that
companies, including POSCO, routinely establish reserve accounts for bad debt.  Did the United
States have before it in the record of the plat e or sheet investigations any information regarding
precisely how POSCO and/or POSAM treated bad debt for accounting purposes?  Specifically,
did POSCO and/or POSAM establish a reserve for bad debt?  If so, how was that reserve
calculated?  Did any such reserve distinguish between anticipated levels of unpaid sales in
different markets?
The DOC explicitly stated in the final determinations in both SSPC and SSSS that "POSAM
does not maintain separate bad debt accounts."
24
In addition, Korea understands that the DOC verified precisely how POSCO and POSAM
treated the non-payments by the ABC Company: (1) POSAM had no "bad debt" account or "bad debt"reserves; (2) POSAM issued negati ve invoices for the {   } invoices that were unpaid; (3) POSAM
had already paid POSTEEL and POSTEEL had paid POSCO before the ABC Company’s bankruptcy;
(4) POSAM was not reimbursed by POSCO or POSTEEL for the non-payments; and (5) POSAM
issued no other negative invoices during 1997 or 1998.
25  The DOC also generally verified the
accounting systems for PO SCO, POSTEEL, and POSAM.26
POSCO does have bad debt accounts and reserves.  Korea notes that POSCO’s  bad debt
accounts and reserves were not implicated by the ABC Company’s non-payments, because POSCO
                                                     
24 SSPC Final Determination, at 15449 (ROK Ex. 11); SSSS Final Determina tion, at 30674 (ROK
Ex. 24).
25 See POSAM Verification Report (SSPC), at 8-9 and Ex. 5 (ROK Ex. 82); POSAM Verification
Report (SSSS), at 6-7 and Ex. 6 (ROK Ex. 61).
26 See POSCO Sales Verification Report (SSPC), at 3-4 (ROK Ex. 6); POSCO Sales Verification
Report (SSSS), at 6 (ROK Ex. 19); POSAM Verification Report (SSPC), at 2 (ROK Ex. 82); POSAMVerification Report (SSSS), at 3 (ROK Ex. 61).WT/DS179/R
Page 134
was paid by POSAM.27  Therefore, there is very little information about these accounts on the record.
Korea understands that these accounts do not distinguish between anticipated levels of unpaid sales in
different markets, and observes that the mere existence of bad debt accounts in Korea covering
worldwide exports would not in itself show that there had ever been any non-payments in the United
States.
Q.13. In its oral statement, the United States  argued that POSCO effectively wrote off the
unpaid sales. Is the US referring to the issuing of negative invoices by POSAM (thereby
cancelling the sales made to the company that went bankrupt) or does the US have in mindanother event? In the view of the US, does the cancellation of the sales concerned preclude the
possibility that repayment of the amounts outstanding is obtained by POSCO through
bankruptcy proceedings?
In Korea’s view, this question is uniquely directed to the United States.
D. C
URRENCY CONVERSION
Q.1. (For both parties)  The United States su ggests (first submission, para. 182) that the
invoices for what Korea refers to as POSCO’s "dol lar-priced local sales" reflect a price both in
dollars and in won ("The reported won amount s were reflected on POSCO’s invoices and
records").  See also Final Determination in SSSS, p. 59536 (indicating that "for HM channel 2
sales the shipping invoice also shows the won pr ice").  Korea (first submission, para. 3.52) by
contrast suggests that the sales in question were invoiced only in dollars and that the invoice did
not reflect an amount in won.  In its oral statement at the first meeting, however, Korea
acknowledged that both dollars and won appeared on the invoices.  Please clarify whether theinvoices reflected a price in dollars only, or pr ices in both dollars and won, or whether this
varied depending on the invoices in question.
Paragraph 3.52 of Korea’s First Submission was not intended to suggest that none of the
invoices used by POSCO for "local sales" referred  to an amount in won.  Rather, Paragraph 3.52 was
intended to emphasize that the value of the "local sales" was fixed in dollars and not in won.  That
point is not affected by whether some (or even al l) of the invoices referred to an amount in won in
addition to  the amount in dollars.  Rather, the fact that the "local sales" are fixed in dollars is
ascertained by the fact that the dollar value remained  constant from invoice to payment, while the won
value did not.
Paragraph 3.52 of Korea’s First Submission did not address whether or not the invoices also
referred to an amount in won, because Korea did not (and does not) consider that to be material to the
issue at hand.  The won value listed on the "local sales" invoice was an accounting convenience
(because POSCO must record the invoice amount in  its accounting records in won using the exchange
rate on the date of invoice); it was not a binding amount; and it had no effect on the amount due
(which was determined by converting the dollar amount from the invoice into won using the exchange
rate on the date of payment).
In this regard, it should be noted that the invoice was not the only document the DOC
reviewed for the local sales that  recorded the agreed-upon sales price.  For example, the DOC also
                                                     
27 See POSAM Verification Report (SSSS), at 7 (ROK Ex. 61) ("Company officials reported that only
POSAM had recognized the loss of these sales in its acc ounting records, and that it had not been compensated
for the lost sales by either POSTEEL or POSCO.  POSAM had already paid POSTEEL and POSTEEL hadsubsequently paid POSCO prior to the customer’s bankruptcy.  POSAM was not reimbursed by POSTEEL orPOSCO, and bears the risk of present and future uncollect ed invoices. . . .  We found . . . no discrepancies with
POSAM’s response.").WT/DS179/R
Page 135
verified that the initial orders for the local sa les were denominated in dollars, and not in won.28  In
addition, the DOC also verified that  the "shipping lists" sent to the customer listed the agreed-upon
dollar prices (but not any won amounts, except for a separate charge for freight in won).29
Q.2. (For both parties)   To the extent that the some or all of the invoices reflected won as
well as dollar amounts, was the amount actually pa id in won the same as the amount reflected in
the invoice?  Please provide details.
There is no evidence in the Plate or Sheet investigations of any local sales transactions where
the non-binding won amount listed on the invoice was identical to the amount actually paid in won.  If
there had been any such instances, it would have been pure happenstance.  The economic value of the
"local sales" was fixed in dollars and the amount paid in won varied with the dollar-won exchange
rate.  The won amount paid would only be the same as the won amount listed on the invoice in those
rare circumstances where the exchange rate on the date of payment happened to be the same as theexchange rate on the date of invoice.  In all other cases, POSCO would reflect an exchange gain or an
exchange loss in its accounting records.
In fact, the DOC verified that the won amount  shown on the invoice for local sales was not
the same as the won amount actually paid by the customer.  Thus, the Verification Report in the SSSScase reported that:
Observation {   } (HM#1):  This observation represented a local sale from POSCO to {   },
which involved a recognized loss on foreign currency exchange.  We tied the individual
sale from POSCO’s order sheet to a cumulati ve shipping list/invoice and tax invoice.  As
local sales are dollar denominated, and paid in  won equivalents, POSCO records the sale
in its won equivalent, reflected in the tax invoice to the customer.  On payment, the
exchange rate is determined based on the rates given to POSCO by the Korean Exchange
Bank for Inward Remittance .  For this sale, POSCO recognized an exchange rate loss of
{   }.  This difference between the recorded sales amount and payment amount is reflected
in the "Foreign Exchange Currency Loss of Transaction for Local Sales" account.  We
examined all journal entries, ledgers, bank documents, and publicly available information(re: Korea Exchange Bank, Foreign Exchange rates), and found no discrepancies.
30
Korea notes that the DOC verification report found local sales to be "dollar denominated"
notwithstanding its examination of the three fact ors that the DOC now claims to prove the opposite:
POSCO kept its books in won, POSC O was paid in won equivalents of the dollar price, and POSCO
relied on the Korean Exchange Bank’s exchange rates.31
Q.3. (For both parties)  Please provide a comprehensive statement, supported by citations to
relevant portions of the record, as to exactly what evidence and arguments were put before the
USDOC and at what time in each investigation in  respect of the issue whether the "local sales"
were dollar or won sales.  Please address, in ter alia, what evidence was placed before the
                                                     
28 See SSSS Sales Verification Report, at 14 ("We tied th e individual sale from POSCO’s order sheet to
a cumulative shipping list/invoice and tax invoice.")  A sample verified order sheet and explanatory form
demonstrating that the order was denominated in dollars (with a "D" for dollars in Box 10) is provided at ROKExhibit 78.
29 A sample verified shipping list is provided at ROK Exhibit 80.
30 See SSSS Sales Verification Report, at 14 (ROK Ex. 19) (emphasis added).
31 See SSPC Final Determination, at 15456 (ROK Ex. 11); SSSS Final Determina tion, at 30678 ("the
local sales were paid in won and r ecorded in POSCO’s accounti ng records in won, and the exchange rates used
by POSCO were dissimilar from those used by the Department") (ROK Ex. 24).WT/DS179/R
Page 136
USDOC in each investigation regarding the rec eipt by POSCO of won amounts that differed
from any won amounts reflected in the invoices.
The United States has belatedly made in its Oral Statement the argument that POSCO did not
provide sufficient, timely evidence to the DOC de monstrating that the economic value of the "local
sales" was fixed in US dollars and not in won.  Korea believes that this US argument is untimely and
meritless.
As discussed in the introduction to these answers, and in response to Question 15 below, the
United States cannot raise post hoc  arguments to defend its anti-dumping measures.  There is
absolutely no suggestion in the final determination or final analysis memorandum for either SSPC or
SSSS that the US decision was based on a failure by POSCO to provide sufficient and timely
information.  This new argument should be rejected outright.
In any event, the US argument is meritless.  There is no question that the DOC had adequate
evidence in both investigations to conclude that the local sales were dollar denominated.32
The United States has admitted that POSCO told it during the course of both the Plate and
Sheet investigations that the prices for its "local sales" were fixed in dollars and not in won.33  The
United States has also admitted that, in the verification in the Sheet case, the DOC obtained evidence
confirming that the amount the customer actually paid for these "local sales" was based on the dollar
prices shown on the invoices, and not on the won amounts shown on the invoices.34  Thus, there was
evidence (in the form of POSCO’s written testimony and verification documents) that the prices were
fixed in dollars.35
On the other hand, there was no evidence at all to contradict POSCO’s statements.  Indeed,
there was no evidence that any Korean customer who purchased Plate or Sheet in a "local sale"
actually paid the won amount shown on the invoice.
                                                     
32 Indeed, the DOC did conclude in SSSS that the local sales were "expressly linked to a dollar value,"
although it arbitrarily stated that they were neverthe less won-denominated.  SSSS Final Determin ation, at 30678
(ROK Ex. 24).
33 See US Oral Statement, paras. 36 and 38.
34 See US Oral Statement, para. 39.
35 More specifically, on 16 October 1998, POSCO provided DOC dollar-based calculations for the
local sales and argued that these sales should be accep ted in dollars per the DOC’s longstanding practice of
accepting charges in the currency in which they were incurred.  See POSCO’s Response to SSPC Supplemental
Cost Questionnaire, at 1-2 (ROK Ex. 83).  At the SSPC verification in November 1998, DOC conducted sales
traces of local sales among other home-market sales traces and, in keeping with its standard practice, DOC
examined all documentation from order to payment.  This would have included several order sheets marked witha "D" for dollars (in Box 10 for POSCO sales and Box 7 for POSTEEL sales), and accounting records showingthat the prices were fixed in dollars.  See SSPC Sales Verification Report, at Ex. 6 (ROK Ex. 6), Ex. 23-24
(ROK Ex. 84).
    SSSS followed a similar pattern.  On 23 November 1998, POSCO provided dollar-based
calculations, explained in detail the reasons why local sales must be regarded as dollar-denominated, andprovided sample documentation.  See POSCO’s Response to SSSS Supplemental Sales Questionnaire, at 19,
B-26. (ROK Ex. 85).  The accuracy of this submission was certified by POSCO and its counsel.  Id.  Atverification in February 1999, the DOC explicitly verified  that "local sales are dollar denominated."  SSSS Sales
Verification Report, at 14 (ROK Ex. 19).  As mentione d in response to Question 2 above, DOC reached this
conclusion despite familiarity with all of the factors that the DOC now claims warrant the opposite result.  The
DOC expressly stated in its report that it examined the "Accounts Receivable (Ledger) (indicating both sale andpayment)" for every home-market sales trace.  Id. at 13.  This included at least two local sales.  See id. at
Ex. 17, 20 (ROK Ex. 46, 86).WT/DS179/R
Page 137
The United States has contended that Korea is improperly asking the Panel to re-weigh the
evidence in a de novo  review.  But the truth is that there is nothing to weigh.  All of the evidence was
on POSCO’s side, and there was no evidence at all to contradict it.
Q.4. (For both parties)  Is there anything in the record of the investigations indicating why
these sales were paid in won if, as argued by Korea, they were in fact denominated in dollars?
The final determinations and final analysis memoranda do not explain why local sales are
paid in won.  Korea is not aware of any other releva nt evidence in the record.  There is no indication
that the DOC ever requested such an explanation.
The DOC’s failure to request this information precludes it now from relying on the absence of
information to justify its failure to make a "f air comparison."  The final sentence of the chapeau  of
Article 2.4 is explicit: "The authorities shall indicate to the parties in question what information is
necessary to ensure a fair comparison."
Q.5. (For Korea)  The United States considers that whether the "dollar-priced local sales"
were in fact dollar sales or won sales was an issue of fact to which the standard of review inArticle  17.6(i) of the AD Agreement applies.  Do you agree?  If not, why not?
Korea does not agree that there is a factual issue.  Article  17.6(i) does not apply to the issue
of local sales.
To begin with, there are no relevant facts in dispute.  The United States has admitted that
POSCO told it during the course of both the Plate and Sheet investigations that the prices for its "local
sales" were fixed in dollars and not in won.
36   The United States has also admitted that, in the
verification in the Sheet case, th e DOC obtained evidence confirming that the amount the customer
actually paid for these "local sales" was based on the dollar prices shown on the invoices, and not on
the won amounts shown on the invoices.37  Thus, there was evidence (in the form of POSCO’s written
testimony and verification documents) that the prices were fixed in dollars.  And there was noevidence at all contradicting POSCO’s position.
The United States has never disputed these essential facts.  Instead, the United States has
essentially taken the position that, under these facts, the Anti-Dumping Agreement permits the United
States to effectively convert the dollar value of the sales into won using the exchange rate on the dateof invoice (and then back to dollars at a different rate).  That is not a factual issue.  It is a
methodological choice defended by a legal argument.
The question for this Panel is whether the methodological choice made by the United States
was consistent with the WTO Agreements.  Specifically, the questions are whether the United Statesmade an unnecessary currency conversion, conducted an "unfair comparison" of normal value and
export price, and administered its anti-dumping laws in an unreasonable manner.
Q.6. (For Korea)  Korea states (first submission, para. 4.64) that the amount of the Korean
won payment for local sales was not fixed at the time of the sales negotiation or invoice, butrather "was determined by applying the market ex change rate . . . for the date of sale to the US
dollar amount shown on the invoice."  In that sa me submission (para. 3.52), Korea states that
the conversion is performed "on the date on which the customer pays".  Please clarify.
                                                     
36 See US Oral Statement, paras. 36 and 38.
37 See US Oral Statement, para. 39.WT/DS179/R
Page 138
Korea’s view of the facts concerning the "local sales" issue are described in detail in
Paragraphs 3.49 to 3.55 of its First Submission, including Paragraph 3.52 and the sample accounting
entries of Paragraph 3.54 (as corrected by Korea’s corrigendum).  It has been Korea’s consistent
position that the amount paid in won was determined by the market dollar-won exchange rate on the"date of payment ," as opposed to the "date of invoice."  Nevertheless, it seems that when these facts
were summarized in Paragraph 4.64, a typographical error was made and the phrase "date of sale" was
used inadvertently.  Korea meant to say "date of payment" and regrets any confusion caused.
Q.7. (For the United States)  Do you agree th at the exchange rates that you refer to as
POSCO’s "internal exchange rates" are the ma rket exchange rates announced by the Korean
Exchange Bank’?
As noted in Korea’s First Submission, the DOC verified that POSCO’s "internal exchange
rates" were, in fact, the same as the market exchange rates announced by the Korean ExchangeBank.
38
Q.8. (For the United States)  The United Stat es asserts (first submission, para. 192) that,
"[c]ontrary to Korea’s claim, a comparison of the exchange rates demonstrates that during the
month of November 1997, the rates varied by as much as { } percent."  Please state the sourcefor this statement.  Is the United States here  comparing POSCO’s "internal" exchange rate to
the US Federal Reserve’s daily exchange rate or to the USDOC’s "official exchange rate"?
Korea is not aware of the source of the statements by the United States concerning the
differences between the Korean Exchange Bank rates and the exchange rates used by the DOC.  Itshould be noted that the DOC’s analysis memoranda found differences of less than 1 percent when it
compared the Korean Exchange Bank rates to the Federal Reserve rates.
39  The DOC found larger
differences only when it incorrectly compared the Korean Exchange Bank rates to the modified rates
calculated by the DOC to implement the special exchange rate provisions of US law.40
Korea believes that the differences between th e exchange rates of the Korean Exchange Bank
and of the New York Federal Reserve (or the DOC itself) are completely irrelevant to the questionwhether POSCO’s local sales were denominated in won or in dollars.  Korea is not aware of any
attempt by the United States to justify the relevan ce of the exchange differences to the issue at hand.
Nevertheless, Korea notes that nothing about an exchange rate difference that never exceeded {  }%
— even at the most turbulent time for the won — could possibly justify the double-conversion
methodology’s distortion of {  } in the calculation of normal value.
Finally, as explained in Korea’s Second Submission, the comparisons offered by the United
States in its first submission are flawed, because they ignore the significant time differences between
the United States and Korea.  The Federal Reserve rates are based on a survey of New York banks at
12:00 noon on each date.  But 12:00 noon in New York on any given day is 2:00 in the morning thenext day in Korea.  Or, to put it the other way, 12:00 noon in Korea on any date is 10:00 at night the
previous day in New York.  Thus, a comparison that matches exchange rates on the "same" date
actually compares exchange rates determined 14 hours apart.
When exchange rates are shifting rapidly, as they were in November 1997, this 14-hour
difference can be critical.  Indeed, if one compares the exchange rates at the same time (rather than on
the same calendar date), the differences identified in the US brief simply disappear.  The following
table illustrates this point:
                                                     
38 See Korea’s First Submission, n.68.
39 See Korea’s First Submission, n.78.
40 See Korea’s First Submission, para. 3.60.WT/DS179/R
Page 139
Date of Sale
In KoreaDate in
New York at
Time of Sale
in KoreaKorean
Exchange Bank
Rate on
Date of SaleFederal Reserve
Bank Rate
at Time of Sale
in KoreaPercentage
Difference
10 Nov. 1997 9 Nov. 1997 975.5 985 0.97%
18 Nov. 1997 17 Nov. 1997 986.7 992 0.54%
20 Nov. 1997 19 Nov. 1997 1031.4 1040 0.83%
21 Nov. 1997 20 Nov. 1997 1134.5 1139 0.40%
Q.9. (For the United States)  The United Stat es asserts (first submission, para. 177) that
"Article  2.4.1 cannot be read to require that cu rrency conversions be avoided in any particular
circumstances."  In the view of the United States, would a Member be permitted by the AD
Agreement to engage in currency conversion in a case where all the sales in both markets were
indisputably both invoiced and paid in the same  currency?  If not, what provision of the AD
Agreement would regulate such behaviour?
Korea’s views on this issue have been set forth in detail in its First Submission.  Korea
reserves the right to comment on any responses provided by the United States to this question.  Korea
also respectfully submits that the task before the United States is not simply to explain why the Anti-
Dumping Agreement permits a currency conversion when a conversion is not required.  Instead, the
United States must explain why two conversions at different exchange rates are permitted.
Q.10. (For the United States)  A ssume that the United States ha d determined that the sales in
question were dollars sales, not won sales, and that there was no dispute among the parties on
this point.  Would it in the view of the United States have been consistent with Article  2.4.1 of
the AD Agreement to nevertheless convert those sales into won and then back into dollars?
Would any other provision of the AD Agreement be implicated?
As explained above, in the response to question 9, Korea’s views on this issue have been set
forth in detail in its First Submission.  Korea reserves the right to comment on any responses provided
by the United States to this question.
Q.11. (For the United States)   Please clarify how USDOC established the exchange rate
applied to the sales which it found were won-de nominated.  Did it use the "official exchange
rate" or daily exchange rates?  Did it convert as of  the date of sale of the "local sales" or as of
some other date?  Please address specifically Korea’s statements in footnote 142 to its first
submission and para. 58 of its oral statement, ref erring to the exchange rate on the date of the
US sale.
The Panel should be aware that the DOC has interpreted the US anti-dumping statute as
requiring that currency conversions be made using the exchange rate on the date of the US sale.41
                                                     
41 See Notice: Change in Policy Concerning Currency Conversions , 61 Fed. Reg. 9434 (8 Mar. 1996)
("Section 773A of the Tariff Act of 1930, as amended, (the ‘Act’) provides that [the DOC] will convert foreign
currencies at the exchange rates on the date of the US sale , subject to certain exceptions. Those exceptions
require [the DOC] to ignore ‘fluctuations’ in the exchange rate and to provide respondents in an investigation atleast 60 days to adjust prices after a ‘sustained movement’ in the exchange rate." (emphasis added)) (ROKEx. 49).WT/DS179/R
Page 140
Q.12. (For Korea)  Article  2.4.1 provides that currency conversions "should" be made using
the rate of exchange on the date of sale.  This would appear to be non-mandatory language.
Please comment.
The term "should" is sometimes hortatory and sometimes mandatory.  Whether any particular
use of the word is hortatory or mandatory must be determined in accordance with the customary rules
of treaty interpretation (Articles 31 and 32 of the Vienna Convention on the Law of Treaties).
Korea does not believe it is necessary for this Panel to address the meaning of the word
"should" in Article  2.4.1.  That word would be relevant if Korea argued that the United States was
required to use one exchange rate and erred by using a different exchange rate, and the United States
responded by denying that it was required to use a particular exchange rate.  But that is not the
situation here.  Rather, Korea’s argument is as follow s:  (1) Article  2.4.1 is the only provision in the
Anti-Dumping Agreement that addresses the use of ex change rates in calculating dumping margin; (2)
Article  2.4.1 specifies the exchange rates to be used "when the comparison under paragraph 4
requires  a conversion of currencies"; and (3) by implication, the Anti-Dumping Agreement does not
allow investigating authorities to make currency conversions (regardless of the exchange rate
selected) when such conversions are not "require[d]."
Q.13. (For the United States)  In respect of the differences between POSCO’s "internal"
exchange rate and that of the NY Federal Reserve, Korea notes (first submission, para. 4.74) the
existence of a time-lag between Korea and New York which it considers explain those
differences.  Please comment.
Korea’s First Submission noted that there is a time-lag between Korea and New York which
may explain some of the differences between the exchange rates announced by the Korean Exchange
Bank (which are used by POSCO for internal purposes) and the rates announced by the Federal
Reserve.  However, that time-lag is not the only possible source of the differences in the two rates.  It
should also be noted that the Federal Reserve rate is not an exact calculation.  Instead, it is based on
an unscientific telephone poll of a few banks in New York City, and thus is subject to errors.Moreover, because the Federal Reserve rate reflects only the local market conditions in New York
City,
42 it may not reflect conditions in other markets where the Korean won may be more (or less)
heavily traded.
The time-lag between the Korean Exchange Bank’s rates and the Federal Reserve rates also
raises a separate issue.  As discussed in Korea’s First Submission, the DOC justified its use of the
double-conversion methodology that inflated POSCO’s dumping margins because POSCO’s internal
rates did not match the Federal Reserve rates.  The DOC failed to recognize, however, that POSCO
could not have used the Federal Reserve rates in its accounting records in "real time," because the
Federal Reserve rates were not announced each day until long after the close of business in Korea.43
Thus, the DOC improperly held POSCO to a standard that could never have been met.
Q.14. (For the United States)  In its oral stat ement (para. 41), the US asserts that the USDOC
did not engage in a "double conversion" becaus e it took directly the won amounts reported by
POSCO for the so-called "local" sales. Howev er, in the "preliminary analysis memorandum"
for sheet & strip, the USDOC recognized that "for  all sales in the home market involving dollar
denominated transactions, we have applied a currency conversion to Korean won on the date of
the home market sale" (item L., at page 9). Is this not an indication that the USDOC converted
                                                     
42 See Korea’s First Submission, n.77.
43 See Korea’s First Submission, para. 3.60.WT/DS179/R
Page 141
the "local" dollar sales into won prior to converting them into dollars and that in so doing the
USDOC did undertake a "double conversion"?
Korea believes that the claim by the United States that it did not engage in a double
conversion is untenable.  It does not matter whether the United States actually made the initial
conversion from dollars to won itself, or whether it  simply used information reported to it by POSCO
(which had already been subject to that conversion).  The point is that the United States chose to use
the calculated won amounts rather than the actual dollar amounts.  The United States then chose to
convert those won amounts back into dollars using th e exchange rate on the date of the US sale —
 which was not the same as the exchange rate that had been used previously to convert the dollar
amounts into won.  The overall methodology ther efore involved a double-conversion of the dollar
amounts using inconsistent exchange rates.  This double-conversion methodology is improper —
regardless of whether the initial conversion was made by the United States or simply adopted by the
United States from the figures in POSCO’s accounting records.
Q.15. For the United States.  In its oral statem ent (para. 39), the US explains that the USDOC
was not provided enough evidence by POSCO at testing the fact that POSCO received won
amounts other than the amounts reflected in the invoices. The US seems to suggest that this is
one of the reasons why the USDOC refused to consider the "local" sales as dollar sales. Couldthe US explain why this important argument appears to be omitted from the determinations
and memoranda relevant to the case?
There is absolutely no suggestion in the final determinations or analysis memoranda in either
the SSPC or SSSS cases that the US decision was based upon a failure by POSCO to providesufficient and timely information.  Instead, this argument was made by the United States for the first
time in its Oral Statement during the Panel’s first meeting.
This new argument by the United States should be rejected.  As discussed in the introduction
to these answers, the United States is precluded from raising post hoc  justifications for its anti-
dumping determinations.  This Panel should determine the conformity of the US anti-dumping
determinations with the WTO Agreements solely on the basis of the justifications provided in the final
determinations themselves.
44
                                                     
44 See generally Mexico — Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the
United States , Report of the Panel, WT/DS132/R, adopted 24 Feb. 2000, para. 7.192; Korea — Anti-Dumping
Duties on Imports of Polyacetal Resins from the United States , Report of the Panel, ADP/92, paras. 212, 228.WT/DS179/R
Page 142
II. RESPONSES OF KOREA TO QUESTIONS POSED BY THE UNITED STATES
This submission sets forth the responses of the Republic of Korea to the questions posed by
the United States during the First Meeting of the Panel.  For the convenience of the Panel and theParties, each of the questions is reproduced below, followed by Korea’s response.
Q.1. In paragraph 26, Korea states that the words "conditions" and "terms" are largely
synonymous, implying that there are some distin ctions.  Please confirm whether, in Korea’s
view, there is a difference in meaning between th e word "conditions" and the word "terms" as
used in Article  2.4.
Article 2.4 of the Anti-Dumping Agreement does not use the words "conditions" and "terms"
independently.  Rather, Article 2.4 uses the phrase "conditions and terms of sale."  This is a well-
known phrase.  The focus of the Panel’s interpreti ve inquiry should, therefore, be on the meaning of
the phrase as a whole, without attempting to parse its meaning through  a tortured construction of the
individual words.
Nevertheless, if a word-by-word construction is necessary, we offer the following
observations: The words "conditions" and "terms" do not stand alone in Article 2.4.  Instead, they aremodified by the words "of sale" — in the phrase "conditions and terms of sale."  The meaning of the
individual words "conditions" and "terms" must, therefore, be considered in that context.
A "sale" is, of course, a form of contract or agreement.  Thus, the meaning of the words
"conditions" and "terms" would have to be ascertained based on their normal usage in the context ofcontracts and agreements.  In this regard, the word "condition" (in the context of contracts and
agreements) is generally understood to refer to a prerequisite that must be met before a contingent
contractual provision comes into force (as in the phrase "condition of closing" that often appears in,
for example, real estate contracts).
45  The word "term" is generally understood (in the context of
contracts and agreements) to refer either to specific provisions of an agreement46 or to the duration of
the agreement.47
                                                     
45 Definitions from dictionaries that take a word out of context are, of course, of limited utility in
interpreting the meaning of a phrase like "condition or term of sale."  However, it is worth noting that Black’sLaw Dictionary offers the following definitions of the word:
Condition.  A future and uncertain event upon the happening of which is made to depend the
existence of an obligation, or that which subordinates the existence of liability under acontract to a certain future event.  Provision making effect of legal instrument contingent uponan uncertain event ....
A clause in a contract or agreement which has for its object to suspend, rescind, or modify the
principal obligation....  A qualification, restriction, or limitation modifying or destroying the
original act with which it is connected; and event, fact, or the like that is necessary to theoccurrence of some other, though not its cause; a prerequisite; a stipulation.... Interestingly, Black’s Law Dictionary also recognizes that a "condition" may be a "mode or state of
being; state or situation; essential quality; property; attribute; status or rank."  However, it indicates that those
are not the primary "legal" definitions of the word and, more importantly, it does not use those definitions in the
context of contracts and agreements.
46 Thus, the Uniform Commercial Code (which is a primary source of contract law in the United
States), states that:
"Term" means that portion of an agreement which relates to a particular matter.
Uniform Commercial Code, § 1-201(42).
47 Thus, Black’s Law Dictionary gives the following definitions:WT/DS179/R
Page 143
The words "condition" and "term" do not have precisely the same meaning in the context of
sales agreements.  One might ordinarily think of the word "term" as describing the contract
provisions, while the word "condition" describes the prerequisites that must be met before contractual
obligations take force.  Thus, a sale agreement may have numerous "terms" — including "price terms"that determine how much must be paid, "payment  terms" that determine when payment is due,
"delivery terms" (or "terms of sale") that determine how delivery must be made and when title will
transfer, or "warranty terms" that determine what obligations the seller has if the goods are damaged
or prove defective.  One would not ordinarily refer to any of those "terms" as "conditions" of the sale.
However, one would refer to the prerequisites described by those terms as creating "conditions" — forexample, compliance with delivery terms may be a "condition" of receiving payment, or filling out
and mailing in a warranty card may be a "condition" of receiving warranty coverage.
As this discussion shows, the words "conditions" and "terms" are not ordinarily used
interchangeably.  However, both words are used to describe aspects of the obligations created in a saleagreement.  The "conditions and terms of sale" are, therefore, the agreed-upon bundle of rights and
obligations created by the sale agreement.
In any event, failure to pay amounts due under a contract is plainly not a "condition" or
"term" of the contract.  It is a breach  of the contract.
Q.2. In its oral statement, in reference to the second table on page 27 of Korea’s First
Submission, Korea stated that the United States ca lculated "invoice price in won" (i.e., column
D of the table).  Please confirm whether the United  States calculated this  figure, or whether this
figure was reported to the United States by PO SCO in its questionnaire response, and recorded
in POSCO’s books and records.
As Korea has explained previously, the amount in won used by the DOC to calculate the
normal value for local sales was based on the figu res recorded by POSCO in its normal accounting
records.  These won amounts were calculated by POSCO by multiplying the dollar prices for the sales
by the exchange rate on the date of the invoice.  As discussed above, these won amounts did not
correspond to the prices actually paid by POSCO’s Korean customers.
It appears that the United States believes that, because it did not itself actively convert the
dollar prices into won, it is not "guilty" of a doub le-conversion.  That position is, however, untenable.
                                                                                                                                                                    
Term.  A word or phrase; an expression; particularly one which possesses a fixed and known
meaning in some science, art or profession.
A fixed and definite period of time; implying a period of time with some definite termination.
Period of determined or prescribed duration.  A specified period of time; e.g. term of lease,
loan, contract, court session, public office, sentence....
(citation omitted).  In the context of a "term of sale," the word "term" generally means a specific provision of thesale contract and not the duration of the contract, because  sale contracts generally do not have a "duration" per
se.WT/DS179/R
Page 144
As discussed in Korea’s Responses to the Panel’s Questions, the United States chose to use
the converted won amounts (which did not represent th e fixed prices for the sales) rather than the
actual dollar amounts (which did represent the fixed prices for the sales).  The United States thenchose to convert those won amounts back into dollars using the exchange rate on the date of the US
sale — which was not the same as the exchange rate that had been used previously to convert the
dollar amounts into won.  The overall methodology th erefore involved a double-conversion of the
dollar amounts using inconsistent exchange rates.  This double-conversion methodology is
improper — regardless of whether the initial conversion was made by the United States or simplyadopted by the United States from the figures in POSCO’s accounting records.WT/DS179/R
Page 145
ANNEX 1-5
SECOND SUBMISSION OF KOREA
(29 June 2000)
CONTENTS
Page
INTRODUCT ION................................................................................................................... ...........149
ARGUMEN T....................................................................................................................... ...............150
I. ISSUES CONCERNING PANEL PROC EDURES...........................................................150
A. T HE BURDEN OF PRESENTING A PRIMA FACIE  CASE....................................................150
1. Anti-Dumping Measures Are a Derogation from the Main Thrust
of the WTO, But that Does Not Affect the Burden to Establish aPrima Facie  Case............................................................................................150
2. Korea Has Met its Burden to Establish a Prima Facie  Case of a
Violation by the United States ......................................................................151
B. T
HE STANDARD OF REVIEW ..........................................................................................152
1. Article 17.6(i) Requires the Panel to Review Factual Conclusions to
Determine Whether the Facts Were Both Properly Established andEvaluated Objectively and Without Bias.....................................................152
2. Article 17.6(ii) Requires the Panel to Construe the Anti-Dumping
Agreement in Accordance with Customary Rules of Interpretationof Public International Law ..........................................................................153
II. THE FLAWS IN THE US ANTI-DUMPING DETERMINATIONS AND IN
THE RESULTING ANTI-DUM PING MEAS URES.........................................................155
A. U
NPAID SALES ..............................................................................................................155
1. The US Adjustment for the Actual Costs of Non-Payment Violated the
Requirements of Article 2.4 ..........................................................................156
(a) The Post-Sale Costs of Non-Payment Do Not Affect Price
Comparability and, As a Result, They Cannot Form the Basis for
an Adjustment Under Article 2.4 .............................................................156
(b) The US Adjustment for the Costs of Non-Payment Was Based on
the Unreasonable Assumption that Those Costs Affected the Price
Comparability of US Sales that Were Paid in Full, But Not of
Sales in Other Markets that Were Also Made on Credit..........................156
(c) The Adjustment for the Actual Costs of Non-Payment Violates the
Fair Comparison Requirement of Article 2.4...........................................157
(d) The Defenses Offered by the United States Do Not Justify the
Adjustment It Made..................................................................................157
(i) The US Arguments under Article 2.3 of the Anti-Dumping
Agreement Are Irrelevant...............................................................158WT/DS179/R
Page 146
Page
(a) The Panel Must Consider Korea’s Responses to the
Article 2.3 Defence Offered by the United States under
the Terms of Reference for this Proceeding ..............................158
(b) Because the Adjustment for Non-Payment Was Made to
Direct "Export Price" Sales, It Cannot Also Have Been
Made to "Construct" an Export Price under Article 2.3 .........159
(c) Article 2.3 Does Not Permit an Adjustment for the
Actual Costs of Non-Payment .....................................................161
(ii) The US Has Effectively Conceded that an Adjustment for
the Actual Cost of Non-Payment Is Not Consistent
with Article 2.4 ......................................................................................164
(a) A Customer’s Actual Failure to Pay Is Not a "Condition
or Term of Sale"...........................................................................164
(b) The United States Has Conceded that an Adjustment
under Article 2.4 Is Appropriate Only for Differences in
the "Risk" of Non-Payment, and the United States Did
Not Make Such an Adjustment...................................................164
(iii) Although the United States Has Contended that Non-Payment Is
Like Warranty, It Did Not Calculate the Adjustment for the Costs
of Non-Payment in the Manner Used to Calculate the Adjustment
for Warranty Costs ................................................................................166
(iv) The Decision by the US Court of International Trade in the
Daewoo Case Does Not Justify the US Treatment of the Costs ofNon-Payment in the SSPC and SSSS Cases...........................................167
(v) The US Interpretation of the "Fair Comparison" Requirement
Would Improperly Render the Relevant Provision "Inutile", and
Would Frustrate the Clearly Expressed Intent of the Anti-
Dumping Agreement ..............................................................................168
2. The Inclusion of the Unpaid Sales in the Calculation of the Dumping
Margins Was Inconsistent with Established US Practice and the "Fair
Comparison" Requirements of Article 2.4 ..................................................170
B. M
ULTIPLE AVERAGING .................................................................................................171
1. The Multiple-Averaging Methodology Is Inconsistent with
Article 2.4.2 of the Anti-Dumping Agreement ............................................171
2. The Multiple-Averaging Methodology Is Inconsistent with
Article 2.4.1 of the Anti-Dumping Agreement ............................................171
3. The Multiple-Averaging Methodology Deprived POSCO of the
"Fair Comparison" Required by Article 2.4 of the
Anti-Dumping Agreement.............................................................................172
4. The Arguments Presented by the United States Do Not Justify
Its Departure from the Methodology Required by theAnti-Dumping Agreement.............................................................................172
(a) Although Article 2.4.2 Requires the Investigating Authorities to
Limit Averages to "Comparable Transactions," A Currency
Depreciation Does Not Make Transactions Non-Comparable.................172WT/DS179/R
Page 147
Page
(i) The Meaning of the Term "Comparable Transactions" Must
Be Understood in Light of the Rules Concerning
"Comparisons" Establishe d by the Anti-Dumping
Agreement ......................................................................................173
(ii) A Currency Depreciation Does Not Make Transactions
"Non-Comparable" under the Anti-Dumping Agreement..............174
(iii) The Provision in the Chapeau of Article 2.4 Requiring that
Comparisons Be Made "At As Near As Possible the SameTime" Does Not Justify a Multiple-Averaging Methodology
to Account for Cu rrency Movem ents .............................................174
(b) Article 2.4.1 Describes the Permissible Modifications to the
Dumping Calculations for Exchange Rate Movements; It Is Not
Limited to Defining the Appropriate Exchange Rates to Be Usedin Dumping Calculations..........................................................................175
(c) A Comparison of a Single Average Normal Value to a Single
Average Export Price Does Not "Disguise" Dumping Margins...............176
(i) The Notion of "Disguised" Dumping Margins Is Inherently
Circular and Fundamentally Contrary to the BargainReflected in the Anti-Dumping Agreement.....................................176
(ii) The Multiple-Averaging Methodology Improperly Assumes
that an Over-Valued Exchange Rate Is More Correct than
an Under-Valued Exchange Rate...................................................177
C. D
OUBLE -CONVERSION OF LOCAL SALES .....................................................................178
1. The Double-Conversion of the Dollar Prices for the "Local Sales"
Violated Article 2.4.1 of the Anti-Dumping Agreement, Which
Permits Currency Conversions Only When Such ConversionsAre "Required................................................................................................178
2. The Double-Conversion Methodology Employed by the United States
Was Inconsistent with the Fair Comparison Requirement of
Article 2.4........................................................................................................179
3. The Justifications Offered by the DOC for Adopting the
Double-Conversion Methodology Were Unreasonable, Unfair andOtherwise Inconsistent with the Requirements of the Anti-Dumping
Agreement.......................................................................................................179
4. The US Arguments Before this Panel Concede that the
Double-Conversion Methodology Was Flawed ...........................................180
(a) The United States Has Conceded that Its Decision to Adopt the
Double-Conversion Methodology Was Based on a Factual Error ...........180
(b) The United States Has Conceded that the First Conversion from
Dollars to Won Did Not Comply with the Requirements of
Article 2.4.1..............................................................................................182
5. The Other Defenses Offered by the United States Do Not Provide
a Basis for Upholding the Double-Conversion Methodology.....................182WT/DS179/R
Page 148
Page
(a) The Facts Concerning the Local Sales Were Never in Dispute, and
the Decision by the United States to Apply the Double-Conversion
Methodology to the Local Sales Was Not a Factual Finding that IsEntitled to Spec ial Deference...................................................................183
(b) The Issue Is Not Whether the DOC Used Exchange Rates on the
Date of Some Sale....................................................................................184
(c) The Anti-Dumping Agreement Only Permits Currency Conversion
under the Situations Described in Article 2.4.1........................................184
(d) The DOC’s Adoption of the Won Amounts that Had Been
Calculated by POSCO for Internal Accounting Purposes
Constitutes an Imprope r Double-Conversion...........................................185
(e) The United States Cannot Justify the Unfair Results Caused by the
Double-Conversion Methodology............................................................185
D. P
ROCEDURAL ERRORS IN THE US D ETERMINATIONS ...................................................186
1. The United States Failed to Admi nister Its Laws in a "Uniform" and
"Reasonable" Manner, As Required by Article X:3(a) of GATT 1994 ....186
(a) Article X:3(a) Requires Investigating Authorities to Implement
Domestic Law Consistently, in a Uniform and Reasonable Manner .......186
(b) The Unjustified US Departures from Established Practice Violated
the Requirements of  Article X:3(a)..........................................................187
(i) The Failure to Exclude Unpaid Sales from the Dumping
Analysis Was Inconsistent with the DOC’s EstablishedPractice..........................................................................................187
(ii) The Multiple-Averaging Methodology Was Inconsistent with
the DOC’s Established Practice ....................................................187
(iii) The Double-Conversion of Local Sales Was Inconsistent
with the DOC’s Established Practice ............................................189
2. The Incorrect and Incoherent Explanations Offered by the
United States Were Inconsistent with the Requirements Set Forth in
Article 12.2 of the Anti-Dumping Agreement .............................................191
3. The Sharp and Unwarranted Reversals in US Methodology on
These Issues Between the Preliminary and Final DeterminationsEffectively Deprived POSCO of the "Full" and "Ample"
Opportunity to Defend Its Interests Required by Article 6
of the Anti-Dumping Agreement ..................................................................192
III. REMEDY..................................................................................................................... ..........193
CONCLUSION ..................................................................................................................... .............194WT/DS179/R
Page 149
INTRODUCTION
1. This submission by the Republic of Korea ("Korea") responds to the arguments presented by
the United States in its First Submission and during the first meeting of the Panel, as well as to thearguments presented by the third parties in their written submissions and oral presentations,
concerning the anti-dumping measures imposed by the United States against the Pohang Iron and
Steel Co., Ltd. ("POSCO") as a result of the investigations of Stainless Steel Plate in Coils ("SSPC")
and Stainless Steel Sheet and St rip in Coils ("SSSS") from Korea.
2. As an initial matter, it should be noted that the first round of written submissions, and the first
meeting of the Panel, have narrowed the issues in this proceeding considerably — as the United States
has retreated significantly from a number of the positions it had taken previously.  In particular,
• With respect to the "unpaid" sales issue, the United States has conceded that the
adjustment for the cost of unpaid sales was made to both direct "export price" and
indirect "constructed export price" sales — which means that the adjustment has to be
justified, if at all, under Article 2.4 of the Anti-Dumping Agreement.  The Article 2.3
defense advanced earlier by the United States is therefore clearly insufficient, because
Article 2.3 does not apply at all to direct "export price" sales.
The United States has also conceded that an adjustment under Article 2.4 is
appropriate only for differences in the risk of non-payment in each market — because
only the risk is known at the time the "conditions and terms of sale" are fixed.  This
concession is fatal to the US case, because the United States did not purport to
measure differences in the risk of non-payment in the SSPC and SSSS cases.  Instead,
the United States simply made an adjustment for the actual cost of the non-payment
that POSCO happened to experience during the investigation period — despite
evidence indicating that this non-payment was unanticipated and disproportionate to
POSCO’s normal experience on US sales.  Once it is conceded that an adjustment is
appropriate only for the risk of non-payment, it is clear that the adjustment for actual
non-payment costs was flawed.
• With respect to the "multiple averaging" issue, the United States has conceded that
Article 2.4.2 requires the calculation and comparison of a single average normal valueto a single average export price for all "comparable transactions" — which means that
the multiple-averaging methodology is permissible only if the sales before and after
the depreciation of the Korean won were not "comparable transactions."
Significantly, the United States has also conceded that the exchange-rate provisionsof Article 2.4.1 (which are the only provisions of the Anti-Dumping Agreement
addressing changes in exchange rates) do not "establish a limit on which sales may be
considered ‘comparable’ within the meaning of Article 2.4.2."  Thus, the
United States has effectively conceded that there is no basis under the Agreement for
treating pre- and post-depreciation sales as non-comparable transactions.  Themultiple-averaging methodology cannot, therefore, be consistent with the
requirements of Article 2.4.2.
• And, finally, the United States has conceded  that its double-conversion methodology for the
"local sales" would only have been appropriate if the sales had been denominated in Korean
won, and not in US dollars.  The United States also has conceded that the information verified
by the US Department of Commerce (the "DOC ") confirmed that the economic substance of
these sales was fixed in dollars, and that the initial conversion of these dollar amounts to won
(which was done by POSCO for internal accounting purposes) was not consistent with theWT/DS179/R
Page 150
exchange-rate methodology required by the Anti-Dumping Agreement.  These concessions
necessarily mean that the DOC’s final determinations — which relied on extraneous factors
such as the differences between POSCO’s "internal" exchange rates and the official US
exchange rates — failed to address the fundamental issue.  Instead, because the orders,invoices and payments were all fixed in dollars, and the initial conversion to won was
inconsistent with the Agreement’s requirem ents, the DOC’s double-conversion methodology
cannot be upheld.
3. In short, the concessions the United States has made are fatal to its case. The anti-dumping
measures on SSPC and SSSS should not, therefore, be allowed to remain in effect.
ARGUMENT
I. ISSUES CONCERNING PANEL PROCEDURES
4. In its submissions, the United States has argued that the Panel’s role in this proceeding should
be narrowly circumscribed to essentially shield the US anti-dumping measures from meaningful
review.  Thus, the United States argues that the Panel is not even permitted to consider the merits of
Korea’s claims, because, it contends, Korea allegedly failed to meet the burden of proof in some as-
yet unspecified manner.  The United States also argues that the Panel should accept the US decisions
under some extreme rule of deference — in part because it contends that the issues raised by Koreainvolve "factual" questions (even though there actually are no facts in dispute) and in part because it
has decided that its own interpretations of the Anti-Dumping Agreement on the relevant issues are
"permissible."
5. These procedural arguments by the United States are, however, off the point.  They misstate
the requirements of the Anti-Dumping Agreement, and they mischaracterize the claims Korea has
actually made.  As discussed below, they certainly do not provide a basis for the Panel to ignore the
substantive claims Korea has presented.
A. T
HE BURDEN OF PRESENTING A PRIMA FACIE  CASE
1. Anti-Dumping Measures Are a Derogation from  the Main Thrust of the WTO, But that
Does Not Affect the Burden to Establish a Prima Facie  Case
6. The First Submission of the United States asse rted that a complaining party "bears the initial
burden of coming forward with evidence and argument that establishes a prima facie  case of a
violation."1  Significantly, the US Submission did not argu e that Korea had failed to meet its burden.
Instead, it seems that the United States had a different purpose for making this statement:  To set up a
phantom argument that Korea did not make in an attempt to obscure a key point in this case.
7. The US Submission argued that Korea’s burden is not affected by the fact that anti-dumping
measures are a derogation from the trade-liberalization purposes of the WTO.2  T h e  U S  a r g u m e n t
                                                     
1 US First Submission, para. 36.
2 US First Submission, paras. 37, 39.
    The US Submission denied that anti-dumping m easures are a derogation from the main thrust of the
WTO regime.  Naturally, the United States failed both to provide any alternative to Korea’s view that the main
thrust of the WTO regime is to liberalize and promote tr ade and to reconcile tariff-raising measures with the
liberalization and promotion of trade.  Instead, the United States hid behind a tangential legal argument.According to the United States, the Appellate Body found in Wool Shirts  that the transitional safeguard
mechanism in the Agreement on Textiles and Clothing ("ATC") was not an "exception" and that the "reasoning"of that finding "applies with equal force to anti-dumping measures."  US Submission, para. 38, discussingWT/DS179/R
Page 151
implies that Korea argued that it is exempt from the initial burden of presenting a prima facie  case.
But Korea never made such an argument.  To the contrary, Korea introduced considerable evidence
and argument to meet its initial burden.
8. The true significance of the fact that anti-dumping measures are a derogation from the main
thrust of the WTO lies in the nature of WTO disciplines on anti-dumping measures.  As Korea
explained in its First Submission, the authority to  impose anti-dumping duties is narrowly limited to
circumstances where there is injurious dumping, and anti-dumping duties cannot exceed the dumping
margin.  This has always been the rule under GATT 1947, and it is very explicit in Articles 1 and 9.3of the Anti-Dumping Agreement.
3
9. These limitations are essential to the proper functioning of the WTO regime.  Without these
limitations, Members could readily circumvent their tariff bindings and most-favoured-nation
commitments simply by labeling any new duties as "anti-dumping duties" without regard to whetherthere was any dumping to offset.  Dumping calculations thus play a vital role in preserving the
integrity of other WTO obligations — and so these calculations are themselves subject to detailed
substantive and procedural disciplines.  The object and purpose of these detailed rules, then, is to
restrict the use of anti-dumping measures to ci rcumstances where (among other conditions) dumping
has been fairly established.  These detailed rules must, of course, be interpreted in accordance withthat object and purpose.
2. Korea Has Met its Burden to Establish a Prima Facie  Case of a Violation by the
United States
10. It was only in its Oral Statement that the United States argued for the first time that Korea
"failed to meet its burden of proof."  Specifically, the United States argued as follows:
It is obvious that Korea believes the United States should have weighed the
evidence differently and taken different approaches to certain issues in the
underlying investigations.  It has simply failed to demonstrate that the
United States was required by the Anti-dumping Agreement to do so.  There is
much rhetoric in Korea’s submission about the United States "penalizing"POSCO, underscored by the insinuation that  the United States ignored its own
legal precedent to do so.  But legally and factually there is no case.
4
It is readily apparent that these conclusory assertio ns by the United States are insufficient to establish
that Korea failed to produce sufficient evidence and argument to present a prima facie  case.  The US
                                                                                                                                                                    
United States - Measure affecting Imports of Woven Wool Shirts and Blouses from India , WT/DS33/AB/R,
Report of the Appellate Body, adopted 23 May 1997, at 16.  That argument is flawed.  The Appellate Body didnot in fact rule on whether the transitional safeguard mechanism is an "exception."  Rather, it simply found thatthe GATT cases regarding the burden of production for GATT "exceptions" did not apply in the context of the
ATC.  That is, it ruled that the normal rules applied:  the complaining party had the initial burden and, when that
was satisfied, the defending party had the burden to respond.  (The latter point is noticeably missing from theUS discussion of burden issues generally and Wool Shirts  in particular.  It is quite ironic that the United States
heavily relies on Wool Shirts  when that decision held that the complaining party (India) met its initial burden,
but the defending party (the United States) failed its later burden .)  Moreover, the reasoning of the Appellate
Body was strictly focused on the unique aspects of the ATC as a transitional arrangement within the WTO and
there is absolutely nothing about the Wool Shirts  decision that suggests that anti-dumping measures should not
be regarded as a derogation from basic GATT norms.  See Wool Shirts , at 16.
3 See Korea’s First Submission, para. 4.2.
4 US Oral Statement, para. 3.WT/DS179/R
Page 152
Oral Statement did not point to a single concrete example of a missing piece of required evidence or
argument.
11. Nor could the United States have done so.  Korea bore its burden by providing ample
evidence and argument in its First Submission to demonstrate the United States’ substantive violations
concerning each of the three key issues, as well as the various procedural violations.  For example,
with regard to the unpaid sales issue, Korea provided evidence and argument showing that there were
unpaid sales, that the United States made an adjustment for those unpaid sales, that the United States
included the unpaid sales in its calculation of export price, and that the adjustment and the inclusion inthe dumping calculation were improper, unfair, and inconsistent with WTO procedures.  If anything
more than that is required to make a prima facie  case, the United States has failed to suggest what that
might be.  Korea, therefore, clearly met its burden of presenting a prima facie  case.
B. T
HE STANDARD OF REVIEW
1. Article 17.6(i) Requires the Panel to Review Factual Conclusions to Determine Whether
the Facts Were Both Properly Established and Evaluated Objectively and Without Bias
12. In an effort to avert legitimate Panel scrutiny of the DOC’s factual conclusions, the US
Submission mischaracterized Korea’s position.  Specifically, the US Submission complained that
"Korea invites the Panel to step into the shoes of the DOC and engage in a de novo  review of the
facts."5  That statement has no basis.  Korea never invited de novo  review.
13. To the extent that there are facts in dispute, Korea expects that this Panel will assess the facts
of this matter in accordance with Article 17.6(i) of  the Anti-Dumping Agreement.  Under that Article ,
factual conclusions are to be rejected by the Panel if the facts were not established properly or if theywere not evaluated objectively and without bias.  Thus, contrary to the United States’ suggestion, the
Anti-Dumping Agreement does not preclude the Panel from reviewing factual conclusions altogether.
To the contrary, Article 17.6(i) expressly contemplates Panel "assessment of the facts of the matter"
and requires that factual conclusions be reviewed under an appropriate standard.  Decisions of other
panels demonstrate that the appropriate standard of review is "whether a reasonable, unprejudiced
person could have" made the factual determinations at issue "based on the evidence relied upon."
6
                                                     
5 US First Submission, para. 27.
6 See Mexico — Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United
States , Report of the Panel, WT/DS132/R, adopted 24 Feb. 2000, paras. 7.94 - 7.95  ("whether the evidence
before SECOFI at the time it initiated the investigation was such that an unbiased and objective investigating
authority evaluating that evidence, could properly have determined that sufficient evidence of dumping, injury,and causal link existed to justify initiation").  The HFCS  decision applied the standard of review announced in
Guatemala — Anti-Dumping Investigation regarding Portland Cement from Mexico , Report of the Panel,
WT/DS60/R, adopted 25 Nov. 1998, as modified by the Appellate Body on other grounds, paras. 7.54 - 7.57,which in turn applied the standard of review in United States — Initiation of a Countervailing Duty
Investigation into Softwood Lumber Products from Canada , Report of the Panel, 34S/194, adopted 3 June 1987,
paras. 332-35.
Although it pre-dates the Uruguay Round, the observation of the Electrical Transformers  Panel about
the importance of reviewing factual conclusions under an appropriate standard still rings true today:  That Panelrejected the defending party’s argument that its factual determinations were not reviewable, because that "would
give governments complete freedom and unrestricted discretion in deciding anti-dumping cases without any
possibility to review the action taken in the GATT.  This would lead to an unacceptable situation under theaspect of law and order in international trade relations as governed by the GATT."  New Zealand — Imports of
Electrical Transformers from Finland , Report of the Panel, L/5814 -32S/55, adopted on 18 July 1985, para. 4.4.WT/DS179/R
Page 153
14. In any event, the US argument is largely irrelevant.  There actually are very few, if any, facts
in dispute — especially in light of the significant concessions made by the United States at the first
Panel meeting.  To be precise,
• On unpaid sales, there is no dispute that there were unpaid sales, that the DOC included the
unpaid sales in its analysis, and that the DOC also made an adjustment for the cost of non-payment in its analysis of all US sales (including the direct sales made by POSCO and the
indirect sales through POSAM).
• On multiple-averaging, there is no dispute that the Korean won depreciated significantly
against the US dollar late in 1997, that th e DOC split the investigation periods into
sub-periods, that the DOC calculated separate averages for each sub-period, and that for those
sub-periods with "negative margins" the DOC "zeroed" those "negative margins" when
calculating the overall margin.
• On double-conversion, there is no dispute that the orders for the "local sales" were placed in
US dollars (and not in won), that the invoices showed both the agreed-upon dollar price and
an amount in won calculated by applying the Korean Exchange Bank’s exchange rate in
Seoul on the date of invoice, that the won amount on the invoice was recorded in POSCO’s
accounting records, that the customer paid in  won by converting the dollar price using the
Korean Exchange Bank’s exchange rate in Seoul on the date of payment, that the won amount
of the payment did not correspond to the won amount on the invoice, that the DOC chose tocalculate normal value based on the won amount s recorded in POSCO’s accounting records
instead of the actual dollar prices of the sales and to convert that amount back into dollars at a
different exchange rate announced by a different bank (the New York Federal Reserve) on a
different date (the date of the US sale ), and that the double conversion in fact caused
distortions in calculation of the normal value.
For none of the substantive issues, therefore, are there any key facts in dispute.  There are only legal
questions concerning the propriety, fairness, and reasonableness of the US methodology.
2. Article 17.6(ii) Requires the Panel to Construe the Anti-Dumping Agreement in
Accordance with Customary Rules of Interpretation of Public International Law
15. The United States repeats in this case its now-familiar attempt to import a concept of extreme
deference from US domestic law into the WTO regime.
7  Specifically, the US First Submission
contended, "[T]he relevant question in every case is not whether the challenged determination rests
upon the best or the ‘correct’ interpretation of the Anti-Dumping Agreement, but whether it rests upon
a ‘permissible interpretation’ (of which there may be many).  If it does then this Panel must uphold
the determination."8
                                                     
7 The so-called Chevron  doctrine of US law — which requires the courts to defer to an agency’s
interpretation of the laws it administers — is based on concepts of governance peculiar to the US domestic
system (such as the "separation of powers" among the three branches of the federal government).   See Adams
Fruit Co. v. Barrett , 494 US 638, 649 (1990) ("A precondition to deference under Chevron is a congressional
delegation of administrative authority.") (ROK Ex. 59), superseded by statute on other grounds as stated in
Deck v. Peter Romein’s Sons, Inc. , 109 F.3d 383 (7th Cir.  1997).  Chevron  deference has no application in the
WTO context.  The US attempt to bring Chevron  to the WTO was not successful in the Uruguay Round
negotiations, it was not successful in past cases such as DRAMS , and it should not succeed here.
8 US First Submission, para. 35.  In an oral aside at the first meeting of the Panel, the United States
clarified its position, indicating that it meant to say that any "permissible interpretation" of the Anti-DumpingAgreement is "correct" and "must be sustained."  This clarification is the high-water-mark of the US demand fordeference, revealing the extreme, unquestioning deference the United States seeks.WT/DS179/R
Page 154
16. That assertion (which is unsupported by any argument) misstates the rule for construing the
Anti-Dumping Agreement in Article 17.6(ii).  Article 17.6(ii) provides:
[T]he panel shall interpret the relevant provisions of the Agreement in accordance
with customary rules of interpretation of public international law.  Where the panel
finds that a relevant provision of the Agreement admits of more than one permissible
interpretation, the panel shall find the author ities’ measure to be in conformity with
the Agreement if it rests upon one of those permissible interpretations.
The US view virtually ignores the first sentence of Article 17.6(ii),9 while distorting the meaning of
the second.
17. In fact, this Panel is expressly charged with interpreting the Anti-Dumping Agreement in
accordance with customary rules of treaty interpretation (such as Articles 31 and 32 of the ViennaConvention on the Law of Treaties).  If that process leads the Panel to conclude that there is one
correct interpretation of a particular provision, then an anti-dumping measure based on a different
interpretation cannot stand.  Only in those rare circumstances where the customary interpretative
process leads the Panel to conclude that there is "more than one permissible interpretation," does the
second sentence of Article 17.6(ii) apply.  That is, Article 17.6(ii) only provides for deference to adefending party’s interpretation of a provision after  the Panel has already completed the interpretative
process and affirmatively found "more than one permissible interpretation."  Thus, the US view has it
backwards.  It is not the Panel’s role to ask fi rst (and only) whether the US interpretations of the
Anti-Dumping Agreement are "permissible" — instead, that question only arises at the end of the
customary interpretative process.  Any other interpretation would render the first sentence ofArticle 17.6(ii) "inutile," and would undo the carefully wrought balance of interests that is reflected in
Article 17.6(ii) as negotiated.
18. In DRAMS , another case arising under the Anti-Du mping Agreement between the same two
parties as in this case, the parties argued at length  about the US claim for special deference to its legal
interpretations.
10  The DRAMS  Panel found it possible to rule for Korea without making a definitive
"general" statement about the meaning of Article 17.6(ii).  Nevertheless, the Panel’s comment onArticle 17.6(ii) is highly instructive:
In arriving at our finding, we examined the matter in accordance with the terms of
Article 17.6, including 17.6 sub-para (ii).  In interpreting the relevant provisions of
the AD Agreement in the course of addressing the claims and arguments before it, wehave done so in accordance with customary rules of interpretation of public
international law.  We note that, in making certain of its arguments in response to the
claims of Korea, the United States characterised those arguments as constituting a
"permissible interpretation" of the terms of the AD Agreement.  As a matter of fact,
where we failed to find these arguments persuasive, we rejected them on the basisthat they were not consistent with the AD Agreement and, in reaching such a view,
                                                     
9 Indeed, in its oral statement, the United States w holly ignored the first sentence, describing the second
sentence alone.  US Oral Statement, para. 50.
10 Korea commends the relevant portion of the descriptive part of the DRAMS  Panel report to this Panel
for further discussion of this issue.  See United States - Anti-Dumping Duty on Dynamic Random Access
Memory Semiconductors (DRAMS) of One Megabit or Above from Korea , Report of the Panel, WT/DS99/R,
adopted on 19 Mar. 1999, at paras. 4.44 - 4.74.  Korea further commends to the Panel’s attention the excellent
Article on this subject by the eminent WTO scholar John Jackson, which (as discussed further in DRAMS )
completely undercuts the intellectual basis for the US position.  See Steven P. Croley & John H. Jackson, WTO
Dispute Procedures, Standard of Review, and Deference to National Governments , 90 Am. J. Int’l L. 193
(1996) (ROK Ex. 60).WT/DS179/R
Page 155
we did so on the basis of the customary rules of interpretation of public international
law.  The fact that the arguments concerned had been presented as a "permissible
interpretation" did not, in the circumstances of this case, alter the legal basis upon
which we were able to, and did, evaluate them, viz. the customary rules ofinterpretation of public international law.  We further observe that, as a consequence,
there is neither warrant nor need in this case to enquire further as to whether the AD
Agreement "more generally," as it were, admits of further interpretation.
Thus, in the course of rejecting interpretations adva nced by the United States as "permissible," the
DRAMS  Panel made two important points about how Article 17.6(ii) functions.  First, it re-affirmed
the primacy of customary rules of interpretation in construing the Anti-Dumping Agreement.  Second,
it clearly rejected the notion that mere invocation of the phrase "permissible interpretation"
automatically "alter[s] the legal basis" upon which a panel may evaluate a legal argument.
II. THE FLAWS IN THE US ANTI-DUMPING DETERMINATIONS AND IN THE
RESULTING ANTI-DUMPING MEASURES
A. U
NPAID SALES
19. As explained in Korea’s First Submission, the "ABC Company," which was one of the
customers of POSCO’s US affiliate POSAM, fail ed to pay POSAM for certain purchases of SSPC
and SSSS.  In its preliminary determinations, the United States excluded the sales to the ABC
Company from its analysis on the grounds that they were "atypical," and it made no adjustment for the
costs arising from the ABC Company’s failure to pay.  In its final determination, however, the
United States reversed course:  It included the sales to the ABC Company in its analysis, and it made
an adjustment to the price comparisons for all of  POSCO’s US sales (inclu ding sales through POSAM
and direct sales from POSCO to other customers) based on the allocated "cost" of non-payment.  The
adjustment for the non-payment costs substantially increased the dumping margins found on
POSCO’s sales.11
20. Korea has challenged the revised US methodology on two basic grounds: First , Korea
contends that the adjustment made to the price comparisons is not permissible under Article 2.4 of the
Anti-Dumping Agreement — which permits only adju stments for differences between the export and
home-market sales that are demonstrated to affect price comparability, and which also requires that
any adjustments be consistent with a "fair comparison."  Second , Korea contends that the inclusion of
these atypical sales in the dumping calculations constitutes a separate violation of the "fair
comparison" requirement of Article 2.4.
21. In its responses, the United States has essentially conceded Korea’s case.  The United States
contends, in essence, that it was appropriate to make adjustments for differences in the risk of non-
payment in the two markets, and that the inclusi on of these sales did not distort the results because
their terms and conditions (when judged before the non-payment) were not atypical.  But these
defences do not relate to the methodology actually employed by the United States.
22. Contrary to the US suggestions before this Panel, the United States did not make an
adjustment for differences in the risk of non-payment, and it did not include the sales in its analysis
based solely on the terms and conditions set before the non-payment.  Instead, the United States made
an adjustment for the actual event of non-payment — even though it has admitted that POSCO had noreason to know the ABC Company would not pay at the time the sales were made — and it included
the sales in its analysis as unpaid sales.  The United States has not offered any defense for that
methodology.  Its determinations must, therefore, be overturned.
                                                     
11 See Korea’s First Submission, paras. 3.30 - 3.39.WT/DS179/R
Page 156
1. The US Adjustment for the Actual Costs of Non-Payment Violated the Requirements of
Article 2.4
(a) The Post-Sale Costs of Non-Payment Do Not Affect Price Comparability and, As a Result,
They Cannot Form the Basis for an Adjustment Under Article 2.4
23. As described in Korea’s First Submission, Article 2.4 permits adjustments only for certain
specified items.  In particular, Article 2.4 allows adjustments only for "differences in conditions and
terms of sale, taxation, levels of trade, quantities [and] physical characteristics," and for "other
differences which are also demonstrated to affect price comparability."  No other adjustments are
permitted under Article 2.4 for comparisons of the export price to normal value.
24. The adjustment for the actual costs of non-payment does not fall within any of the
adjustments specified in Article 2.4.  The actual non-payment by the ABC Company on some sales
did not reflect a difference  in the "conditions and terms of sale," because sales with identical
conditions and terms clearly can have different actual payment experience.  (Indeed, the ABCCompany itself paid in full for some purchases that had the same conditions and terms as the sales for
which it did not pay.)
12  Actual non-payment also clearly does not reflect a difference in "taxation,
levels of trade, quantities [and] physical characteristics."
25. Finally, actual non-payment cannot be considered a reflection of an "other difference[] ...
demonstrated to affect price comparability" for both procedural and substantive grounds.  As a
procedural matter, there was no "demonstration" in either the DOC determinations or the underlying
administrative record that the difference in actual non-payment experience affected price
comparability.  As a substantive matter, the actual non-payment could not have affected price
comparability, because the prices were fixed well before it was known that the ABC Company wouldnot pay.  Thus, the actual cost of non-payment is not a permissible adjustment under Article 2.4.
(b) The US Adjustment for the Costs of Non-Payment Was Based on the Unreasonable
Assumption that Those Costs Affected the Price Comparability of US Sales that Were Paid in
Full, But Not of Sales in Other Markets that Were Also Made on Credit
26. As a separate matter, Korea’s First Submission also explained that the method used by the
United States to adjust for the costs of non-pa yment was inconsistent with the requirements of
Article 2.4, because it made an adjustment to the comparisons for all US sales (including US sales for
which POSCO was paid in full).  As Korea noted in its First Submission, it was unreasonable to
assume that the costs of non-payment affected the prices of all US sales (including sales that were
paid in full) but not the prices of sales made on credit in other markets.
13  If an adjustment was to be
made, it should have been made either only to the unpaid sales or to all sales in all markets on whichPOSCO extended credit.
27. The United States apparently agrees that, if  an adjustment for the costs of non-payment is
made, it should be made to all sales on which POSC O extended credit.  Thus, the US First Submission
contended that:
[W]hile bad debt is a normal, anticipated expense, specifically what transactions, or
even what customer, will generate a bad debt is not known in advance.  All
transactions and customers sold on credit are a potential source of bad debt .
                                                     
12 See Korea’s First Submission, para. 3.30.
13 See Korea’s First Submission, paras. 4.20 - 4.23.WT/DS179/R
Page 157
Therefore, it is reasonable to reflect an allocated portion of that expense in all
prices.14
This statement provides a succinct explanation why, if an adjustment for the cost of non-payment wasto be made to sales that were paid in full, it should have been made to all sales that were made on
credit, and not just to the sales in the US market.
(c) The Adjustment for the Actual Costs of Non-Payment Violates the Fair Comparison
Requirement of Article 2.4
28. As Korea has explained previously, the first sentence of Article 2.4 provides that "A fair
comparison shall be made between the export price and the normal value."  This "fair comparison"
requirement by its terms is not conditioned on any other provision of the Agreement; it is not tied to
particular adjustments; and it is not limited to specific situations.  Instead, it is a free-standing
obligation that requires that any comparisons between export price and normal value be "fair."
29. A "fair comparison" requires, at a minimum, that the exporter be held accountable only for
events that are within its control.  As the domestic judicial decisions of the United States have held, it
is "unreal, unreasonable and unfair " for a finding of dumping to be based on "a factor beyond the
control of the exporter."
15
30. The adjustment made in the SSPC and SSSS cases for the actual cost of non-paymentincreased POSCO’s dumping margins by either reducing the export price or increasing the normal
value (depending on the channel through which the sale was made and the adjustments made by the
DOC).  The factor that gave rise to that adjustme nt — that is, the failure of the customer to pay —
 was plainly beyond POSCO’s control, as the United States has itself conceded.
16  Consequently, the
adjustment effectively penalized POSCO for an event beyond its control, in violation of the "fair
comparison" requirement of Article 2.4.
31. The consequences of the US methodology on this issue are particularly troubling.  In effect,
the US methodology will subject any exporter to the risk of substantial anti-dumping duties, no matter
how carefully the exporter monitors its sales to ensure that its export prices are above its home-marketprices.  Even in such cases, if one of the exporter’s customers happens not to pay, the United States
would find dumping and impose substantial duties.  Such a result cannot be reconciled with any of the
purposes of the Anti-Dumping Agreement, and it is patently unfair.
(d) The Defences Offered by the United States Do Not Justify the Adjustment It Made
32. The United States has offered five defences to justify the adjustment it made.  First , it
contends that the adjustment for the actual costs of non-payment was authorized by Article 2.3 of the
Anti-Dumping Agreement as an adjustment to "construct" the export price for a sale through an
affiliated importer.  Second , it asserts that the adjustment was proper under Article 2.4, because the
"risk" of non-payment is a "condition" of sale.  Third , it claims that its adjustment for the
unpredictable after-sale costs of non-payment is consistent with its treatment of warranty expenses,
which, it claims, are similarly unpredictable.  Fourth , it argues that the adjustment was required by a
past decision by a US domestic court (in the Daewoo  case) — which, the United States claims, held
that bad debt expenses must be treated as "direct" expenses. And, fifth, it claims that the "fair
                                                     
14 US First Submission, para. 89 (emphasis added).
15 Melamine Chemicals v. United States , 732 F.2d 924, 933 (Fed. Cir. 1984) (emphasis added) (ROK
Ex. 56).
16 See US First Submission, para. 86 ("Many selling expenses, in addition to bad debt, are not within
the exporter’s control and the amount of the associated expense is not known at the time of sale.").WT/DS179/R
Page 158
comparison" requirement of Article 2.4 does not impose an independent constraint on anti-dumping
methodologies.  These arguments are, in the end, unpersuasive.
33. As described more fully below, the defense offered by the United States under Article 2.3 is
both irrelevant and wrong: It is now undisputed that the United States made the adjustment not only to
sales through an affiliated importer, but also to direct sales to unaffiliated importers (for which the
United States could not have been "constructing" an export price under Article 2.3).  Moreover, even
if the adjustment had been made only to sales thro ugh an affiliated importer, the adjustment was not
consistent with the "object and purpose" of Article 2.3 and thus cannot be justified under Article 2.3.
34. The defense offered by the United States under Article 2.4 — that an adjustment must be
made for differences in the risk of non-payment in the two markets — is inconsistent with the
adjustment actually made by the United States.  It might indeed have been appropriate to make an
adjustment for differences in the risk of non-payment.  But, as described more fully below, the
United States did not make such an adjustment.  Instead, the United States ignored the evidence
regarding the risks of non-payment in the two markets, and made an adjustment for the actual amount
of non-payment that happened to have occurred.  Because the actual non-payment experience is not
an appropriate measure of the risk of non-payment, the US methodology cannot be reconciled with
the arguments the United States has made before this Panel.
35. The US analogy to the treatment of warranty expenses is also unpersuasive, because the
United States did not treat the costs of non-payment in the same manner as it treats warranty
expenses.  As discussed more fully below, the DOC’s normal practice is to estimate the warranty
expenses on the sales under investigation based on historical experience for a longer period (as muchas four or five years).  Where the current experience departs from the historical norm, the DOC will
base its adjustment on the historical experience.  By contrast, the DOC did not request data on
POSCO’s historical bad debt experience, and it made no effort to determine whether the non-payment
by the ABC Company was consistent with that experience.  In short, its approach to non-payment was
not consistent with its normal treatment of warranty expenses.
36. The US reliance on the US judicial decision in the Daewoo  case is also misplaced. To begin
with, the Daewoo  decision only addressed the treatment of "bad debt" under US law:  It did not
purport to resolve the issue whether an adjustment for bad debt is consistent with the Anti-Dumping
Agreement.  Moreover, even if Daewoo  were relevant, it would not support the US claims.  Both the
US courts and the DOC have held consistently that the Daewoo  decision does not  require that bad
debt expenses be treated as "direct" selling expenses in all cases.  And, significantly, the DOC hassteadfastly refused to treat bad debt expenses as "direct" selling expenses in numerous cases after  the
Daewoo  decision.
37. Finally, the US interpretation of the "fair comparison" requirement of Article 2.4 cannot be
correct.  The "fair comparison" requirement of Article 2.4 is set forth in a separate, and mandatorysentence — which stands in stark contrast to the more conditional "fair comparison" language of the
prior Tokyo Round Anti-Dumping Code.  Thus, th e US interpretation of the "fair comparison"
language of Article 2.4 would not only render the entire first sentence of Article 2.4 "inutile," it would
also frustrate the clear intent of the Anti-Dumping Agreement.
(i) The US Arguments under Article 2.3 of th e Anti-Dumping Agreement Are Irrelevant
(a) The Panel Must Consider Korea’s Responses to  the Article 2.3 Defense Offered by the
United States under the Terms of Reference for this Proceeding
38. As mentioned, Korea’s First Submission demonstr ated that the US adjustment for the costs of
non-payment was inconsistent with the requirements of Article 2.4.  Korea focused its arguments onWT/DS179/R
Page 159
Article 2.4 for two reasons: First , the adjustment could not be justified under any other provision of
the Anti-Dumping Agreement, because it was made to both direct "export price" and indirect
"constructed export price" sales.  And, second , the US determinations had referred to this adjustment
as an adjustment for a "direct selling expense," which, under US law, signified that the DOC haddetermined that a "circumstance of sale adjustment" (the US law equivalent of an adjustment under
Article 2.4) was appropriate.
39. In its First Submission, the United States responded that Korea’s arguments under Article 2.4
were irrelevant, because the adjustment for the co st of non-payment was made under Article 2.3, and
not under Article 2.4.
17  In its Oral Statement, the United States also suggested that any responses to
that argument cannot be considered by the Panel, because "Korea has not made a claim under
Article 2.3."18  Before turning to the merits of the US arguments under Article 2.3, it may be useful
first to touch briefly on the US assertion that responses to its arguments are irrelevant.
40. As a logical matter, it simply is not possible for the Panel to consider the merits of Korea’s
arguments under Article 2.4 without first deciding whether the US defense under Article 2.3 has
merit.  If the US is correct that its adjustment was properly made solely under Article 2.3, then
Korea’s claims under Article 2.4 are flawed, because the adjustment was not made under Article 2.4.
On the other hand, if the US assertion is not correct, then the adjustment must (as Korea has claimed)be considered under the provisions of Article 2.4.  Thus, the Panel must decide whether the US
defense under Article 2.3 has merit before it can decide Korea’s claims under Article 2.4.  The
responses to the US arguments under Article 2.3 are, therefore, plainly relevant to a determination of
whether the adjustments were properly made under Article 2.4.
41. Indeed, the US suggestion to the contrary is patently absurd.  If adopted, the US suggestion
would mean that any defending party in a disput e could avoid meaningful Panel review simply by
claiming that its methodology was justified under so me entirely separate provision of the Agreement.
In such cases, the US interpretation would prevent a Panel from even considering whether the
separate provision invoked by the defense actually applied.
42. In short, the effective functioning of the dispute settlement system requires that Panels be
permitted to consider not only the defences offered by the defending party, but also the responses by
the complaining party that demonstrate the inapplicability of those defences.  For that purpose,
consideration of Article 2.3 is plainly within the Panel’s terms of reference.
(b) Because the Adjustment for Non-Payment Was Made to Direct "Export Price" Sales, It
Cannot Also Have Been Made to "Construct" an Export Price under Article 2.3
43. As mentioned, the United States has argued that the requirements of Article 2.4 do not govern
its adjustment for the cost of non-payment, because, it claims, the adjustment was actually made
under Article 2.3.
19
44. Article 2.3 provides that, when merchandise is sold by the exporter to an affiliated importer,the investigating authority is permitted to "construct" an export price based on the resale price from
the affiliated importer to its unaffiliated customer.
20  Article 2.3 does not provide concrete guidance
                                                     
17 See US First Submission, paras. 74 - 80.
18 US Oral Statement, para. 20.
19 See US First Submission, paras. 74 - 80.
20 Article 2.3 provides that:WT/DS179/R
Page 160
regarding the adjustments that can be made to construct an export price in such situations.  Instead,
that guidance is provided by the fourth sentence of Article 2.4 , which provides the following
clarification:
In the case referred to in paragraph 3 of Article 2, allowances for costs, includingduties and taxes, incurred between importation and resale, and for profits accruing,
should also be made.
45. In its prepared statement for the Panel’s first meeting, the United States initially suggested
that it had made the adjustment for the costs of non-payment only to construct an export price for the
sales that POSCO made through its affiliated importer POSAM.
21  After some prompting, however,
the United States finally conceded that this suggestion was erroneous.  In fact, the United States made
the same  adjustment both to the indirect "constructed export price" sales and to the direct "export
price" sales.
46. In these circumstances, the adjustment made to comparisons involving direct "export price"
sales for the cost of non-payment cannot be justified under Article 2.3, because Article 2.3 only
applies to indirect "constructed export price" sale s through an affiliated importer.  Consequently, the
adjustment to the comparisons involving direct "export price" sales must be justified, if at all, under
Article 2.4.
47. The most charitable interpretation, then, is that the United States now intends to argue that the
adjustment to the indirect "constructed export price" sales was made under Article 2.3, while the
adjustment to the comparisons involving direct "export price" sales (which was calculated in the same
manner based on the same  factual situation as the adjustment to indirect sales) was made under
Article 2.4.  Such an argument is, however, untenable.
48. The language of Article 2.4 addressing the normal adjustments for "differences affecting price
comparability" does not make any distinction between direct "export price" sales and indirect
"constructed export price" sales.  The adjustment are, in both circumstances, the same.  Consequently,
the special adjustments required to "construct" the export price do not replace the normal adjustments.
Instead, they are made in addition to  the normal adjustments.
49. This conclusion is reinforced by a close analysis of the language of the third and fourth
sentences of Article 2.4.  The adjustments for "differences affecting price comparability" are
described in the third sentence of Article 2.4.  The fourth sentence of Article 2.4 then describes
                                                                                                                                                                    
where it appears to the authorities concerned that the export price is unreliable because of association
or a compensatory arrangement between the exporter and the importer or a third party, the export price may be
constructed on the basis of the price at which the imported products are first resold to an independent buyer.
21 In summary, the description provided by the United States indicated that it had adjusted export price
and normal value as follows:
· For indirect sales through POSAM, the United States "deducted all expenses
associated with that sale, including an allocated portion of the US bad debt
expense.
· For the direct sales (not made through POSAM), "there was no deduction from
that export price for any selling expenses, including bad debt.
· For the comparisons to the indirect sales through POSAM, "there was no upward
adjustment to normal value.
See Revised US Oral Statement, paras. 8-12.
Incredibly, the US description made absolutely no mention of any adjustment to normal value for comparisonsto the direct US sales.  In fact, as the United States wa s subsequently forced to admit, an upward adjustment was
made to normal value for those comparisons as an adjustment for the cost of the non-payment on US sales.  Ofcourse, this upward adjustment to normal value had the same effect as reducing the export price.WT/DS179/R
Page 161
additional adjustments that are made only when constructing an export price ( i.e., for comparisons
involving the indirect "constructed export price" sales).  Significantly, the fourth sentence does not
state that the special constructed export-price adjustments are to be made in lieu  of the normal
adjustments described in the third sentence.  Instead, the fourth sentence states that, for comparisonsinvolving the indirect "constructed export price" sales, the special adjustments are "also" to be made.
22
In other words, the normal adjustments described in the third sentence of Article 2.4 are made for allcomparisons (including both direct "export price" sales and indirect "constructed export price" sales),
and then, for the indirect "constructed export pric e" sales, the special adjustments described in the
fourth sentence are "also" made.  Consequently, the adjustments made to construct the export priceare in addition to, and not a replacement for, the adjustments made for "differences affecting price
comparability."
50. Because the United States made the adjustment for the actual costs of non-payment to the
direct sales by POSCO, it has effectively taken the position that this adjustment was intended as anormal adjustment under the third sentence of Article 2.4 for "differences affecting price
comparability."  It cannot, therefore, also assert that the same costs are an appropriate adjustment to
construct the export price, because the fourth sentence of Article 2.4 explicitly states that the
adjustments to construct the export price are made in addition to, and not in lieu  of, the normal
adjustments under the third sentence of Article 2.4 for "differences affecting price comparability."
51. The United States must, therefore, defend its adjustment under the third sentence of
Article 2.4.  Its arguments concerning the permissibl e adjustments to construct an export price under
Article 2.3 are, therefore, irrelevant.
(c) Article 2.3 Does Not Permit an Adjustment for the Actual Costs of Non-Payment
52. The US argument that it made the adjustment for the actual costs of non-payment under
Article 2.3 suffers from a further flaw: Such an adjustment is not authorized by Article 2.3, and it is
not consistent with the object and purpose of Article 2.3.
53 As mentioned, the concrete guidance regarding the adjustments permitted to construct an
export price under Article 2.3 is set forth in the fourth sentence of Article 2.4, which provides that:
In the case referred to in paragraph 3 of Article 2, allowances for costs, including
duties and taxes, incurred between importation and resale, and for profits accruing,
should also be made.
54. The failure of the final customer to pay for its  purchases does not fall within the adjustments
described in this provision.  The non-payment cannot occur in either the chain of events or the
functions performed until after the resale transaction has been made.  In other words, non-payment
does not occur between  importation and resale.  Instead, payment (or non-payment) by the final
customer occurs only after  the resale.
                                                     
22 The relevant language is as follows.  The third sentence of Article 2.4 provides that:
Due allowance shall be made in each case, on its merits, for differences which affect pricecomparability, including differences in conditions and terms of sale, taxation, levels oftrade, quantities, physical characteristics, and any other differences which are also
demonstrated to affect price comparability.
The fourth sentence of Article 2.4 then states that:
In the cases referred to in paragraph 3 of Article 2, allowances for costs, including dutiesand taxes, incurred between importation and resale, and for profits accruing, should also
be made.
(Emphasis added.)WT/DS179/R
Page 162
55. In this regard, it should be noted that the additional argument advanced by the European
Communities — which attempts to define the limitations inherent in the word "between" in a
functional rather than temporal sense — does not alter the analysis.23  Costs that are incurred as a
result of resale are not "between" importation and resale in either a "functional" or "temporal" sense.Instead, the customer’s failure to pay can occur, as a functional matter, only after  the resale
transaction has been made.  Thus, an adjustment for non-payment by the final customer is not a
permissible adjustment (as defined by the fourth sent ence of Article 2.4) for purposes of constructing
an export price under Article 2.3.
56. More generally, an adjustment for the non-payment by the final customer is not consistent
with the object and purpose of Article 2.3.  The purpose of the adjustments under Article 2.3 is, of
course, to "construct" an export price for sales made through an affiliated importer based on the re-
sale price charged by the affiliated importer to its unaffiliated customer.  In other words, the goal is to
calculate what the exporter would have charged an unaffiliated importer acting at the same level oftrade as the affiliated importer, by deducting an appropriate "mark-up" from the price the affiliated
importer charges its customers.
57. The basic purpose of the calculation may be illustrated as follows:  Suppose that an exporter
(POSCO) sells to an affiliated importer (POSAM), which re-sells to an unaffiliated customer (ABCCompany) at a price of B. The idea of the adjustments under Article 2.3 is to determine what the
exporter (POSCO) would have charged a hypothetical  unaffiliated importer (Hypothetical Importer)
that re-sold the merchandise to the same unaffiliated customer (ABC Company) at a price of B.  The
following diagram depicts what is supposed to happen:
                                                     
23 According to the EC,
The formula "between importation and resale" does not refer to a certain period of time. Ifso, it would be very easy for related importers to circumvent the rules on the constructionof the export price by either advancing or delaying the payment of expenses. Rather, that
formula purports to define the scope of the expenses that are attributable to the functions
performed by a typical related importer. "Bad debt" expenses would not be incurred if theimported goods were not re-sold and therefore belong to that function.
EC Oral Statement, para. 10.  In short, the EC contends that the word "between" in the fourth sentence ofArticle 2.4 must be understood in a "functional," and not "temporal," sense.WT/DS179/R
Page 163
The purpose of the adjustments under Article 2.3 is to calculate A in this diagram — that is, the pricefrom the exporter to a hypothetical unaffiliated company operating at the same level of trade as theactual affiliated importer.  In other words, Article 2.3 assumes that the price to the final, unaffiliated
customer (price B in the diagram) will be the same whether the sale is made through an affiliated or
unaffiliated importer.  It then instructs the investig ating authorities to construct the price (A) that the
hypothetical unaffiliated importer would have paid to the exporter by deducting a reasonable mark-up
from the actual resale price.
58. To determine whether an item may properly be included in the adjustments under Article 2.3,
therefore, it is necessary to determine whether it is  the type of item that might reasonably be included
in an unaffiliated importer’s mark-up.  It is clear that an unaffiliated importer would try to include in
its mark-up any duties, freight costs, salesmen sa laries and overhead expenses that it incurred in
connection with the re-sales.  It is also clear that the importer would try to include a reasonable profit
in its mark-up.  However, an importer would not be able to include the actual costs of any non-
payment by its customers in the mark-up, because th e price for the sale from the exporter to the
importer (A) and the price for the sale from the importer to its customer (B) would have been fixed
before the importer could know that the customer would fail to pay.
59. To put this another way, if the final customer failed to pay, there is no question that the
hypothetical unaffiliated importer would incur a loss.  But, it is equally clear that the unaffiliated
importer would not be able to pass this loss on to the exporter, because the importer’s sale to its
customer is a distinct transaction from the exporter’s sale to the importer.  Consequently, it is notappropriate to deduct the actual costs of non-payment on the importer’s re-sales from the re-sale price
(B) for purposes of calculating the hypothetical price (A) from the exporter to an unaffiliated
importer.  An adjustment for actual costs of non- payment is, therefore, inconsistent with the object
and purpose of Article 2.3.WT/DS179/R
Page 164
(ii) The US Has Effectively Conceded that an Adjustment for the Actual Cost of Non-Payment Is
Not Consistent with Article 2.4
(a) A Customer’s Actual Failure to Pay Is Not a "Condition or Term of Sale"
60. In its First Submission, the United States has asserted that the adjustment it made for the
failure of the ABC Company to pay was an appropriate adjustment under Article 2.4 of the Anti-
Dumping Agreement, because non-payment is part of the "conditions and terms of sale" for which an
adjustment is explicitly permitted.24  In support of this argument, the United States relied on one
possible dictionary definition of the word "condition" as meaning "mode or state of being."25  I t
therefore contended that the "conditions of sale" include "the mode or circumstances under which the
sales are made in each market."26
61. As explained more fully in its response to the questions posed by the United States, Korea
does not believe that the US interpretation of the phrase "conditions and terms of sale" is correct.27
However, even under the definition proposed by the United States, the actual non-payment by the
customer is not a "condition" of sale.
62. As mentioned, the United States has proposed that the phrase "conditions and terms of sale"
be interpreted to include "the mode or circumstances under which the sales are made  in each market."
Under this interpretation, it may be appropriate to include market conditions under which "the sales
are made."  But the actual non-payment by a customer is not a market condition when "the sales are
made," because the seller does not know at that time that the customer actually will not pay.  The
seller can only find out that the customer will not pay after  the sale has been made.  Thus, even under
the US interpretation, it is not proper to make an adjustment for actual non-payment.
(b) The United States Has Conceded that an Adjustment under Article 2.4 Is Appropriate
Only for Differences in the "Risk" of Non-Payment, and the United States Did Not
Make Such an Adjustment
63. In its prepared statement during the Panel’s first meeting, the United States modified its
position with respect to the permissible adjustments for non-payment.  The United States did not
contend that an adjustment for actual non-payment was appropriate.  Instead, it argued only that anadjustment was permissible for "the risk of non-payment as a condition of sale."
28
                                                     
24 In its First Submission and Oral Statement, the United States did not dispute Korea’s arguments that
the cost of non-payment could not be an "other differen ce[] ... demonstrated to affect  price comparability."  Nor
could it.  For the reasons set forth in paragraphs 4.17 to 4.23 of Korea’s First Submission, there simply is nobasis for any claim that the actual cost of non-payment wa s an "other difference[] ... demonstrated to affect price
comparability."
25 US First Submission, para. 83.
26 Id.
27 As noted in Korea’s response to the US questions , the phrase "conditions and terms of sale" must be
interpreted as a single phrase, and not through a tortured construction of the individual words.  Moreover, if aseparate definition of the word "condition" is required, that word should be interpreted in accordance with itsnormal meaning in the context of sales agreements.  In such contexts, the word "condition" is generallyunderstood to refer to a prerequisite that must be met before a contingent contractual provision comes into force.
28 As the United States explained,
It is equally true, however, that payment terms are part of the contract and can influence
the purchaser’s decision.  Therefore, a seller’s agreement to sell on credit is no differentfrom an agreement to provide a warranty.  In one case, the seller agrees to provide awarranty and accepts the risk of having to repair or replace the merchandise under that
warranty.  In the other case, rather than demanding payment on delivery, the seller agreesWT/DS179/R
Page 165
64. This revised interpretation does not, however, pr ovide a basis for affirming the adjustment the
United States made for the unpaid sales.  Quite simply, the United States did not make an adjustment
for the risk of non-payment.  It made an adjustment for the actual costs of the actual non-payment —
which is a very different thing.
65. In the SSPC and SSSS cases, the United States  did not identify any evidence indicating that
sales to US customers were inherently more risky than sales to home-market customers.  The
United States did not request or examine data conc erning POSCO’s historical bad debt experience in
the two markets, from which an analysis of the risk of non-payment might be discerned.29  Instead, the
United States simply made an adjustment for the "actual" costs of non-payment by the ABC
Company.
66. The evidence on the record of these investigatio ns indicated that prior to the unpaid sales to
the ABC Company, POSAM had never experienced any non-payments on any sales in the
United States.30  The record evidence also showed th at POSCO did not have any non-payments on
subject merchandise during the investigation peri ods for sales through channels other than POSAM.
Nor was there any evidence that POSCO had ever experienced any non-payments in the United States
through any channel.31
                                                                                                                                                                    
to sell on credit – for example, agreeing to accept payment in 30 days – and the seller
accepts a credit expense, including the risk of non-payment.  In the case of both selling
under warranty and selling on credit, the seller accepts the risk of incurring the expense as
part of the bargain.
Also, Korea makes a point of saying that bad debt is outside the exporter’s control and,therefore, is not a proper adjustment under Article 2.4.  Bad debt expense is not entirelyoutside the seller’s control.  The seller can decline to sell on credit and establish soundcredit practices.  This is analogous to the se ller’s control over what, if any, warranty is
offered and establishing sound quality control measures to minimize warranty claims.  In
both cases – selling on credit and selling under warranty – there is some control, and
some inherent risk.  This type of contingency expense is routinely accounted for in
company books and records – including bad debt expense.
*            *            *
POSCO agreed to sell to its US custom er on credit and in doing so accepted the risk of
non-payment as a condition of sale .  As I stated previously, that in itself is sufficient to
warrant including bad debt in an Article 2.4 adjustment.
US Oral Statement, paras. 16-19 (emphasis added).
29 If the United States had intended to make an ad justment for the differences in the costs of credit
insurance (or for some other measure of the differences in risk of non-payment) in the two markets, it wasrequired by the last sentence of Article 2.4 of the Anti-Dumping Agreement to "indicate to the parties inquestion what information [was] required."  The record of the SSPC and SSS cases does not contain any requestfrom the DOC for information regarding either the diffe rences in the costs of credit insurance or any other
measures of the differences in the risks of non-payment in the two markets.
30 See POSAM Verification Report (SSSS), at 7 (ROK Ex. 61) ("We also examined the accounts where
other such negative invoices would have been recorded for both 1997 and 1998, and found no indication thatPOSAM had negated other sales invoices or recorded bad debt in these accounts.  We also spoke with theaccounting staff and reviewed the accounts on POSAM’s computer system.  We found no indication of theexistence of a bad debt account, and no discrepancies with POSAM’s response.").  Korea provides as ROKEx. 62 (SSPC) and ROK Ex. 63 (SSSS) copies of the exhibits to POSCO’s responses and supplemental
responses to Section B of the DOC’s questionnaire in which POSCO provided information about the Korean-
market bad debt expenses for POSCO and POSTEEL.
31 During the Panel’s first meeting, the United St ates asserted that POSCO’s affiliate POSTEEL had
recorded bad debt expenses on US sales prior to the sale to the ABC Company.  See US Oral Statement,
para. 17.  That assertion is, however, flatly incorrect.  It is true that POSTEEL had reported general bad debtWT/DS179/R
Page 166
67. The United States apparently assumed that the mere fact that the ABC Company’s failure to
pay imposed large costs on POSCO demonstrated that the risk of non-payment was higher in the
United States than in Korea.32  Such an assumption is, however, plainly absurd.  In simple terms, the
adjustment made by the United States confused the small risk of being hit with lightning with the
large damage that is caused if one happens to be one of the few people so hit.  As a statistical matter,
risk cannot be measured by a single occurrence — because there is no way to tell whether a single
occurrence is part of a common pattern or is a one-in-a-million long-shot that just happens to come
in.33
68. In any event, it is clear that the DOC’s determinations made no effort to quantify the risk of
non-payment in the United States or Korea prior to the sale to the ABC Company.  Those
determinations are, therefore, plainly inadequate to  support the adjustment that the United States now
claims to have made for the risk of non-payment.
(iii) Although the United States Has Contended that Non-Payment Is Like Warranty, It Did Not
Calculate the Adjustment for the Costs of Non-Payment in the Manner Used to Calculate the
Adjustment for Warranty Costs
69. As mentioned, the United States has argued to this Panel that the risk of non-payment is
analogous to the risk of warranty expenses — since a seller clearly can predict that there is a risk of
incurring such expenses in the future, but cannot a ccurately predict the amounts that will be incurred
on individual sales at the time the sales terms are fixed. But this analogy to warranty illustrates the
precise flaw in the US approach to the costs of non-payment in this case.
70. Under its normal practice, the DOC does not simply allocate current warranty expenses over
current sales to determine the amount of the warranty adjustment for the sales under investigation.
Instead, the DOC has explained that:
The Department’s normal practice in computing warranty expenses is to use historical
data over a four- or five-year period preceding the filing of the petition to estimate the
likely warranty expenses on POI [ i.e., period of investigation] sales.34
                                                                                                                                                                    
expenses in its questionnaire responses as "common" indirect selling expenses which could not be segregated by
market.  However, there was no indication that these reported POSTEEL bad debt expenses reflected actual or
expected US expenses (rather than expenses on other export sales to other markets, or a "reserve" determined
based on the overall level of POSTEEL’s sales in all markets).
    Finally, it is important to note that the US determinations did not rely on, or even mention, the
existence of prior bad debt on US sales to justify its adjustment. The US suggestion that POSTEEL actually hadbad debt expenses is therefore, a post-hoc  rationalization that cannot provide a basis for upholding the US
determinations.
32 This assumption is implicit in the fact that the United States made the "bad debt" adjustment by
allocating the actual "bad debt" expenses to all US sales during the period.
33 It is fundamental to the field of statistics that one cannot accurately judge probabilities without a
sufficiently large sample.  See, e.g.,  David Freedman, et al., Statistics  at 355; Robert E. Megill, An Introduction
to Risk Analysis , at (2d ed.) (ROK Ex. 64).
34 Large Newspaper Printing Presses from Germany , 61 Fed. Reg. 38166, 38185 (July 23, 1996) (ROK
Ex. 65).  See also  Koenig & Bauer-Albert AG v. United States , 15 F. Supp. 2d 834, 855 (Ct. Int’l Trade 1998)
("Commerce’s normal practice in computing warranty expenses is to use historical data from a four- or five-yearperiod preceding the filing of the petition to estimate the probable warranty expenses on POI sales.") (ROKEx. 66).WT/DS179/R
Page 167
The DOC has also explained that, if the warranty expenses incurred during the investigation period do
not correspond to historical experience, the DOC will rely on historical experience to calculate the
warranty adjustment.35
71. In short, the DOC’s methodology for calculating the warranty adjustment includes safeguardsto ensure that the adjustment reflects the exporter’s historical experience, and not just the aberrant
data for a single year.  Such safeguards are essential to the calculation of an adjustment for the risk of
warranty expenses that the seller accepted when it agreed to the warranty terms of the sale.
72. The DOC failed to employ such safeguards, however, when calculating the adjustment for
non-payment costs in the SSPC and SSSS cases.  As a result, the United States cannot argue that those
adjustments provided a proper measure of the risk of non-payment in the US and Korean markets.
(iv) The Decision by the US Court of International Trade in the Daewoo  Case Does Not Justify
the US Treatment of the Costs of Non-Payment in the SSPC and SSSS Cases
73. In its final determinations in the SSPC and SSSS cases, and in its Submission and Oral
Statement to this Panel, the United States has asse rted that its treatment of "bad debt" as a direct
selling expense was required by US domestic judicial decisions — in particular, the decision by the
US Court of International Trade in Daewoo v. United States.
36  That decision is, however, irrelevant to
the proceedings before this Panel — and, if it were relevant, it does not support the US position.
74. To begin with, Daewoo  is an interpretation of US domestic law made by a US domestic
judicial authority.  It did not purport to decide whether an adjustment for bad debt was permissible
under Article 2.4 of the Anti-Dumping Agreement.  And, even if it had, its decision would not bebinding on this Panel.
75. Moreover, contrary to the US suggestion, the issue in Daewoo  was not whether bad debt must
always be treated as a direct expense.  Instead, the issue in Daewoo  concerned the DOC’s practice of
treating the estimated  future bad debt relating to the sales during the review period differently than the
actual  bad debt already experienced on those sales.  The Court of International Trade held in Daewoo
that it was unlawful for the DOC to refuse to treat the estimated future bad debt and the actual baddebt on current sales in the same manner.
37  Daewoo  did not hold that bad debt was a direct selling
                                                     
35 See Bicycles from the People’s Republic of China , 61 Fed. Reg. 19026, 19042 (Apr. 30, 1996) ("Our
examination of Motiv’s historical warranty costs in dicate that the reported POI warranty costs may not be
reflective of what Motiv’s true warranty expenses will be on its POI sales.  Accordingly, we have used thehistorical warranty expenses.") (ROK Ex. 67); Television Receivers from Japan , 56 Fed. Reg. 38417, 38421
(Aug. 13, 1991) ("Although we generally use warranty expenses incurred during the period of the review, the
Department will consider longer historical periods to pr ovide a more accurate estimate of the eventual warranty
expenses for the merchandise under review.") (ROK Ex. 68).
36 See SSPC Final Determination at 15448-49 (ROK Ex. 11); SSSS Final Dete rmination at 30674
(ROK Ex. 24); US First Submission, para. 58 n. 58; US Oral Statement, para. 25.
37 Prior to Daewoo , the DOC would classify bad debt expenses as direct or indirect selling expenses
depending on the timing of the bad debt write-off.  If the bad debt written off during the relevant period related
to sales during the relevant period, the DOC would treat the bad debt expense as a direct expense.  If the baddebt written off during the period related to prior sales, the DOC would classify the bad debt expense as anindirect selling expense.  The DOC at that time made no attempt to estimate the bad debt that might be writtenoff in the future on the sales during the review period.  Daewoo Electronics Co., Ltd. v. United States , 712 F.
Supp. 931, 938-40 (Ct. Int’l Trade 1989) (US Ex. 11).
    The Court of International Trade held in Daewoo  that it was improper for the DOC to refuse to treat
the future bad debt on current sales as a direct expense, when it had conceded that the current bad debt oncurrent sales was direct.  In this regard, the Court explained that:WT/DS179/R
Page 168
expense in all cases — because that issue was never before the Court in Daewoo .  This conclusion is
confirmed by several subsequent decisions by the US courts, which have observed that " Daewoo  does
not completely foreclose the ITA from treating bad debt expenses as indirect."38
76. Finally, a review of the DOC’s practice since Daewoo  reveals that the DOC has continued to
classify bad debt expenses as indirect  expenses in numerous cases — including a case decided as
recently as November of last year.39  At a minimum, then, one must question the accuracy of the US
statement to this Panel that "it is now standard practice to include US and home market bad debt in
the circumstance of sale adjustment."40
(v) The US Interpretation of the "Fair Comparison" Requirement Would Improperly Render the
Relevant Provision "Inutile," and Would Frustrate the Clearly Expressed Intent of the Anti-
Dumping Agreement
77. As discussed above, Korea has contended throug hout this proceeding that the adjustment for
the costs of non-payment was inconsistent with the "fair comparison" requirement of Article 2.4,
because the adjustment would result in a finding of dumping based on an event beyond POSCO’s
control.
                                                                                                                                                                    
Commerce does not dispute that bad debt losses do qualify as selling expenses, arguing only that  bad
debt losses, as opposed to warranty expenses, are not  direct  selling expenses, unless they are incurred with
regard to the sales under review.  Absent any reasonable indication as to why the estimation of  bad debtexpenses based on past experience is any less reliable than the use of past experience for  warranty expenses,
this distinction between them is not proper.
The Court finds that the ITA administrative practice disregarding the selling expenses for  bad debt
losses, while granting adjustments for warranty expenses which are not incurred with regard to the sales under
review, is arbitrary and is likely to result in distorted calculations of FMV.
Id. at 940.
38 See Zenith Electronics Corp. v. United States, 18 C.I.T. 882, 888 (1994) (ROK Ex. 69); Samsung
Electronics Co., Ltd. v. United States, 18 C.I.T. 891, 894 (1994) (ROK Ex. 70).
39 See, e.g., Porcelain-on-St eel Cookware from Mexico , 64 Fed. Reg. 60417, 60419 (Nov. 5, 1999)
("We recalculated CIC’s indirect selling expenses to  include bad debt and depreciation expenses.") (ROK
Ex. 71); Stainless Steel Wire Rod from Korea , 63 Fed. Reg. 40404, 40406 (July 29, 1998) ("We increased
Changwon’s reported indirect selling expense by the unreported recognized bad debt expenses.") (ROK Ex. 72) ;
Extruded Rubber Thread from Malaysia , 61 Fed. Reg. 54767, 54767 (Oct. 22, 1996) ("We disregarded sales to
the United States and third countries which were written off as bad debt because bad debt was accounted for inrespondent’s reported indirect selling expenses.") (ROK Ex. 73); Bicycles from the People’s Republic of China ,
at 19041 ("We have classified bad debt  as an indirect selling expense and have treated it as such for purposes of
the final determination.") (ROK Ex. 67); Cut to Length Carbon Steel Plate from Germany , 61 Fed. Reg. 13834,
13836 (Mar. 28, 1996) ("Write-off’s of receivables are ba d debt expenses.  The Department considers these to
be ordinary operating expenses because they are by th eir very nature indirect selling expenses, since under
Generally Accepted Accounting Principles bad debt is recovered by future price increases.") (ROK Ex. 74);
Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate fromCanada , 60 Fed. Reg. 42511, 42513 (Aug. 16, 1995) ("We made deductions from ESP for... US indirect selling
expenses such as technical services, inventory carrying costs, warehousing expenses, and bad debt.") (ROKEx. 75); Fresh Cut Roses from Columbia, at 7014 ("We consider bad debt, by its very nature, to be an indirect
selling expense since under Generally Accepted Accounting  Principles, bad debt is recovered over time by
future price increases. ") (ROK Ex. 52); Gray Portland Cement and Clinker from Japan , 59 Fed. Reg. 6614,
6614 (Feb. 11, 1994) ("We also deducted indirect  selling expenses, where appropriate, which included Onada’s
reported indirect selling expenses plus technical services, advertising, bad debt..."  (ROK Ex. 76).
40 See US Oral Statement, para. 25.WT/DS179/R
Page 169
78. In its First Submission, the United States conceded that the actual non-payment by the ABC
Company was beyond POSCO’s control.41  In its Oral Statement, however, the United States
suggested that the risk of non-payment was actually within POSCO’s control, because POSCO could
have avoided that risk by refusing to sell on credit.79. This revised argument misses the point.  As discussed above, the United States did not make
an adjustment for the risk of non-payment that POSCO assumed when it made its sales on credit.
Instead, it made an adjustment for POSCO’s bad lu ck in having one major US customer fail to pay
during the relevant period.  Because the United States tied the adjustment not to the risk of non-
payment, but to the fortuity that one customer fail ed to pay, it unfairly penalized POSCO for a factor
beyond POSCO’s control.  The US adjustment canno t, therefore, be reconciled with the "fair
comparison" requirement of Article 2.4.
80. Faced with this difficulty, the United States  has attempted to read the "fair comparison"
requirement out of the Anti-Dumping Agreement altogether.  Thus, it accuses Korea of attempting touse the "fair comparison" requirement to "add to or diminish the rights and obligations provided in the
[Anti-Dumping] agreement[]."
42  In other words, the United States apparently objects to any
interpretation of the "fair comparison" requirement that would impose additional disciplines on
investigating authorities beyond those elsewhere specified in the Anti-Dumping Agreement.
81. This argument is absurd on its face.  Korea is not attempting to "add to or diminish" the rights
and obligations created by the Anti-Dumping Agreement.  Instead, it is seeking to enforce the rights
and obligations that are expressly created by the first sentence of Article 2.4, which states
unequivocally that "[a] fair comparison shall be made between the export price and the normal value."
82. In this regard, a comparison of the current "fair comparison" language with the predecessor
provision in the Tokyo Round Anti-Dumping Code is striking.  The Tokyo Round Code did not
contain a separate sentence commanding that "[a] fair comparison shall be made between the export
price and the normal value," as the current Anti-Dumping Agreement provides.  Instead, the Tokyo
Round Code explicitly tied the "fair comparison" requ irement to the requirements that the comparison
be made between sales at the same level of trade and at the same time.43  The conditional language of
the Tokyo Round Code led to the conclusion th at, prior to the Uruguay Round negotiations, a
comparison that complied with the other aspects of the predecessor provision of Article 2.4 was
deemed to be "fair."44
83. As a result of the Uruguay Round negotiations, however, the "fair comparison" requirement
of the current Anti-Dumping has been elevated to a separate sentence that is independent of the otherrequirements of Article 2.4.  It follows, then, that the "fair comparison" requirement of the first
sentence of Article 2.4 must be construed as imposing disciplines other than those required by the
other provisions of Article 2.4.  Any other interpretation would render the first sentence of Article 2.4
                                                     
41 See US First Submission, para. 86 ("Many selling expenses, in addition to bad debt, are not within
the exporter’s control and the amount of the associated expense is not known at the time of sale.").
42 See US First Submission, para. 62.
43 The Tokyo Round Code provided that,
In order to effect a fair comparison ... the two prices  shall be compared at the same level of trade ... and
in respect of sales made at as nearly as possible the same time.
Tokyo Round Anti-Dumping Code, Article 2:6.
44 See EC — Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil , Report of the
Panel, ADP/137, adopted on 30 Oct. 1995, para. 492 ("the wording of Article 2:6 [of the Tokyo Round Code]"in order to effect a fair comparison" made clear that if the requirements of that Article were met, anycomparison thus undertaken was deemed to be ‘fair.’").WT/DS179/R
Page 170
"inutile," and would frustrate the purpose inhere nt in the Uruguay Round’s modification of the
conditional language found in the Tokyo Round Code.
2. The Inclusion of the Unpaid Sales in th e Calculation of the Dumping Margins Was
Inconsistent with Established US Practice and the "Fair Comparison" Requirements of
Article 2.4
84. As a general matter, Article 2.4.2 of the Anti-Dumping Agreement provides that "all
comparable export transactions" must be included in the calculation of the dumping margins.
However, that provision is expressly subject to the fair comparison requirement — which is set forthin the introductory clause to the first sentence of Article 2.4.2 and in the first sentence of the chapeau
of Article 2.4 as well.  Thus, the Anti-Dumping Agreement does not permit atypical export sales to be
included when inclusion would distort the results and lead to an unfair comparison.
85. The United States does not dispute that it has the authority to disregard "atypical" US sales.
However, it contends that the unpaid sales were not "atypical" — because non-payment is a common
fact of life in everyday business, and because the prices and other terms for the unpaid sales did not
differ from the prices and terms of paid sales.
45  In addition, the United States also argues that these
sales did not meet the criteria for exclusion under US law, because its normal practice is to exclude
"atypical" sales from its analysis only when those sales are so small that their inclusion would have aninsignificant effect on the margin.
46
86. Korea concedes that, if the unpaid sales had been paid, their prices and other terms would not
have been atypical.  The fundamental point, however, is that the unpaid sales were not paid.  The
failure of the customer to pay was clearly not "typical" of POSCO’s business practices — as the DOCitself conceded in its preliminary determinations.  To the extent that the non-payment affected the
DOC’s calculations (through the bad-debt adjustment  or through other means), then the inclusion of
the unpaid sales did distort the results, and the sales should have been excluded.
87. Finally, the description offered by the United St ates of its normal practice concerning atypical
sales is misleading.  There is no question that US law permits atypical US sales to be included in the
analysis if the inclusion of the sales would not distort the results.  But it is equally clear that the DOCis not permitted to include atypical US sales when inclusion would distort the results.  In such cases,
the DOC must either make an adjustment to eliminate the distortion or exclude the sales.
47
88. In the SSPC and SSSS cases, the DOC did precisely the opposite of what both US law and the
"fair comparison" provision of Article 2.4 require: The DOC did not make an adjustment to eliminate
the distortion caused by the atypical unpaid sales, and it did not exclude those sales from its analysis.
Instead, it included the sales in its analysis, and it made an adjustment that created precisely the
distortion it was supposed to try to avoid.  Its me thodology was, therefore, unfair and inconsistent
with the "fair comparison" requirement of Article 2.4.
                                                     
45 US First Submission, para. 71.
46 US First Submission, para. 71.
47 As one of the cases cited by the United States explains:
... whether sales are in or out of the ordinary course of trade is not the determinative
factor on the US sales side of the equation.  Fairness, distortion representativeness are
the issues to be examined.   The goal is to include the sales but to utilize whatever
methodology is needed to ensure a fair comparison.
American Permac, Inc. v. United States , 783 F. Supp. 1421, 1423-24 (Ct. Int’l Trade 1992) (emphasis added)
(US Ex. 15).WT/DS179/R
Page 171
B. MULTIPLE AVERAGING
1. The Multiple-Averaging Methodology Is Incons istent with Article 2.4.2 of the Anti-
Dumping Agreement
89. As explained in Korea’s First Submission, Article 2.4.2 of the Anti-Dumping Agreement
requires that dumping margins be calculated "on the basis of a comparison of a weighted average
normal value with a weighted average  of prices of all comparable export transactions or by a
comparison of normal value and export prices on a transaction-by-transaction basis." Article 2.4.2
repeatedly uses the distinctly singular phrase " a weighted average."  Moreover, it also refers to "a
weighted average of all comparable export transactions."  Consequently, the text of Article 2.4.2
clearly requires that the dumping margins be calculated by comparing a single average including all
comparable transactions.48
90. It is undisputed that the United States did not compare a single average of all comparable
transactions, as Article 2.4.2 requires.  Instead, the United States divided the investigation periods inboth the SSPC and SSSS cases into separate sub-periods, and calculated separate dumping margins
for each sub-period (based on the average normal values and export prices for the sub-period).  It then
determined the overall dumping margin by comb ining the separate dumping margins for each sub-
period.
91. As a practical matter, this multiple-averaging methodology would not have had a significant
effect on the dumping margins if the United States had combined the separate dumping margins for
each sub-period in a manner that fully offset any negative margins for one sub-period against positive
dumping margins for the other.  However, the United States did not permit such offsets.  Instead,
employing the process known as "zeroing," the United States treated any negative dumping marginsas if they were zero margins, and then calculated the overall dumping margin by averaging these
"zero" margins with any positive margins found.  As a result, the US methodology resulted in
significantly higher dumping margins than the methodology prescribed by Article 2.4.2.  The US
methodology cannot, therefore, be reconciled with the requirements of Article 2.4.2.
2. The Multiple-Averaging Methodology Is Inconsistent with Article 2.4.1 of the Anti-
Dumping Agreement
92. The United States claimed that its departure from the requirements of Article 2.4.2 was
necessary to account for the depreciation of the Korean won during the investigation periods.
However, as explained in Korea’s First Submissi on, this modification of the comparison methodology
to account for an exchange rate movement was inconsistent with Article 2.4.1 of the Anti-Dumping
Agreement.
49
93. Article 2.4.1 is the only provision of the Anti-Dumping Agreement that addresses exchangerates or the permissible modifications to the dumping calculation methodology to account for
exchange rate movements.  Significantly, Article 2.4.1 sets forth special rules that apply to situations
in which the exporting country’s currency has been appreciating .  However, Article 2.4.1 does not
permit any adjustment to the dumping calculations to account for a depreciation  of the exporting
country’s currency.
94. Consequently, because the multiple-averaging methodology was adopted to account for the
depreciation of the Korean won, it was inconsistent with the requirement of Article 2.4.1 that the pricecomparisons not be modified to account for depreciation in the exporting country’s currency.
                                                     
48 Korea’s First Submission, paras. 4.45 - 4.48.
49 Korea’s First Submission, paras. 4.49 - 4.53.WT/DS179/R
Page 172
3. The Multiple-Averaging Methodology Depr ived POSCO of the "Fair Comparison"
Required by Article 2.4 of the Anti-Dumping Agreement
95. Because the multiple-averaging methodology does not comply with the requirements of
Articles 2.4.1 and 2.4.2, it is always inappropriate.  In the circumstances of the SSPC and SSSS cases,
however, it was particularly unfair.
96. As explained in Korea’s First Submission, the US industry’s claims for relief in the SSPC and
SSSS cases were predicated on the claim that anti-dumping orders were needed to protect the USindustry from an increase in imports after the devaluation of the Korean won.
50  Because these cases
were predicated on the effects of the devaluation, a fair analysis of whether POSCO was truly
engaged in dumping necessarily should have focused on pricing data after the devaluation.  Yet, it
was precisely that data that the multiple-averaging methodology effectively "walled off" from the
DOC’s price comparisons.
97. The result was a dumping determination based solely on pre-devaluation data in a case that
was predicated on post-devaluation imports.  Such a result is plainly unfair.  Consequently, the US
multiple-averaging methodology cannot be reconciled with the "fair comparison" requirement of
Article 2.4.
4. The Arguments Presented by the United Stat es Do Not Justify Its Departure from the
Methodology Required by the Anti-Dumping Agreement
98. The United States does not deny that it created the multiple-averaging methodology
specifically to increase the dumping margins found.  Rather, it contends that this results-oriented
methodology not only was permitted under Articles 2.4.2  and 2.4.1, but also was necessary to prevent
dumping margins from being "disguised" by the won’s depreciation.51
99. As discussed more fully below, the arguments presented by the United States under
Articles 2.4.2 and 2.4.1 do not comport with the actual  provisions or the purpose of the Anti-Dumping
Agreement.  To the contrary, the US arguments ar e inherently circular: Having decided unilaterally
that the multiple-averaging methodology was appropriate to prevent "disguised" dumping, theUnited States now argues that the methodology prescribed by the Anti-Dumping Agreement had to be
modified simply because it would have resulted in lower dumping margins.
(a) Although Article 2.4.2 Requires the Investigating Authorities to Limit Averages to
"Comparable Transactions," A Currency Depreciation Does Not Make Transactions Non-Comparable
100. The United States appears to concede Korea’s argument that Article 2.4.2 requires the
calculation and comparison of a single average normal value and a single average export price for
comparable transactions.  It argues, however, that its multiple-averaging methodology is consistent
with this interpretation, because the prices before the devaluation of the Korean won were not"comparable" with the prices after the devaluation of the Korean won.
52
101. As discussed more fully below, this interpretation does not withstand scrutiny.  Because a
currency depreciation does not preclude the compar ison of home-market and export sales under the
rules established by the Anti-Dumping Agreement, there is no basis for considering the pre-
                                                     
50 See Korea’s First Submission, para. 3.48 and 4.61.
51 See, e.g., US First Submission, para. 137.
52 See, e.g.,  US First Submission, para. 145.WT/DS179/R
Page 173
depreciation sales to be non-comparable to the post devaluation sales.  Article 2.4.2 therefore required
that the pre- and post-depreciation sales be included in the calculation of the single weighted-average
normal value and export price.
(i) The Meaning of the Term "Comparable Transactions" Must Be Understood in Light of the
Rules Concerning "Comparisons" Establ ished by the Anti-Dumping Agreement
102. The word "comparable" means, in essence, "capable of being compared."53  Under this
definition, sales are "comparable" if they can be compared, and non-comparable if they cannot.
103. Ordinarily, of course, any two prices can be "compared" — in the sense that one can examine
the two prices and determine whether one is higher than the other.  However, such a comparison does
not provide a basis for a determination of dumping, unless the comparison complies with the
requirements of the Anti-Dumping Agreement.  To give a simple example, one can compare the
prices of apples and oranges.  If the price of apples is $1 per fruit and the price of oranges is $1.50 perfruit, one can examine the prices and determine that the price of apples per fruit is lower than the price
of oranges.  But one cannot use that comparison to determine that apples have been "dumped" unless
the comparison conforms to the Anti-Dumping Agreem ent’s requirements.  Transactions that can be
compared under the provisions of the Anti-Dumping Agreement are "comparable" transactions.
Transactions that cannot be compared under the provisions of the Anti-Dumping Agreement are not"comparable" transactions.
104. There are, of course, a number of substantive limitations on the transactions that may be
compared under the Anti-Dumping Agreement:
First , Article 2.1 of the Anti-Dumping Agreement only permits comparisons of products with
identical (or, in the absence of identical, the most similar) physical characteristics.
54  Sales of
products with less similar physical characteristics are, therefore, not "comparable transactions."
Second , the second sentence of the chapeau  of Article 2.4 only permits comparisons at the same
level of trade.  This means that sales at different levels of trade are not "comparable
transactions."
Third , the second sentence of the chapeau  of Article 2.4 also requires that comparisons be made
"in respect of sales at as nearly as possibly the same time."  This may mean that when the
transaction-to-transaction methodology is used, sales in different parts of the investigation
period may not be "comparable transactions."  Similarly, when the average-to-averagemethodology is used, the sales in each market should, on average , have been made at the same
time in order to be considered "comparable transactions."
                                                     
53 The dictionary defines "comparable" as:
1:  capable of being compared: a: having enough like characteristics or qualities to make
comparison appropriate — usu. used with ... b: permitting or inviting comparison often in or
two salient points only — usu. used with to ... 2: suitable for matching, coordinating or
contrasting : EQUIVALENT, SIMILAR ....
Webster’s Third New International Dictionary,  461.
54 Article 2.1 provides that "a product is to be considered as being dumped . . . if the export price of the
product exported from one country to another is less than the comparable price, in the ordinary course of trade,
for the like product  when destined for consumption in the exporting country."  As the United States has
recognized in its implementation of this provision, the phrase "like product when destined for consumption inthe exporting country" means the product that is identi cal (or, in the absence of an identical product, most
similar) in physical characteristics to the exported product.   See  Tariff Act of 1930, as amended, § 771(16), 19
USC. § 1677(16) (definition of "foreign like product.") (ROK Ex. 1).WT/DS179/R
Page 174
Fourth , the first sentence of the chapeau  of Article 2.4 — which requires that a "fair
comparison" be made — only permits comparisons of transactions that may fairly be compared.
This mean that transactions whose comparison would lead to unfair results are not "comparable
transactions."
These substantive limitations define the transactions that are "comparable" within the meaning of the
Anti-Dumping Agreement.  If transactions may be included in the comparisons under these rules, then
they are "comparable" ( i.e., "capable of being compared") under the Agreement.
105. Under the Anti-Dumping Agreement, then, the sales prior to the depreciation of the Korean
won would not be "comparable transactions" to sales after the won’s depreciation only if there were
some provision of the Agreement that would prohibit the comparison of such transactions.  In the
absence of a prohibition on comparison, the transactions are "comparable" within the meaning of the
Agreement, and it would be plain error to exclude the transactions from the calculations of theweighted-average normal value and export price that must be compared.
(ii) A Currency Depreciation Does Not Make Transactions "Non-Comparable" under the Anti-
Dumping Agreement
106. In this regard, there are no provisions in the Anti-Dumping Agreement that limit the
transactions that may be included in comparisons due to movements in exchange rates.  Article 2.4.1
is the only provision of the Anti-Dumping Agreement addressing exchange rates.  The first sentence
of Article 2.4.1 sets forth the basic rule — which is that the exchange rate on the date of sale should
normally be used.  The second sentence of Article 2.4.1 then addresses situations in which exchange
rates have "fluctuated" or have been the subject of a "sustained movement."
107. Significantly, these provisions do not in any way limit the ability of the investigating
authority to compare transactions before and afte r the currency fluctuation or sustained movement.
They do not indicate that sales before the fluctuation or sustained movement cannot be compared to
sales during or after the fluctuation or sustained movement.  As the Cotton Yarn  panel observed, "The
exchange rate in itself is not a difference affecting price comparability."
55  Indeed, the United States
has specifically recognized this fact.  In its Firs t Submission, it specifically rejected the argument that
Article 2.4.1 "establishes a limit on which transactions may be considered ‘comparable’ within the
meaning of ... Article 2.4.2."56  Consequently, the United States cannot now contend that the
provisions of Article 2.4.1 make "non-comparable" any transactions made when different exchange
rates were in effect.
(iii) The Provision in the Chapeau of Article 2.4 Requiring that Comparisons Be Made "At As
Near As Possible the Same Time" Does Not Justify a Multiple-Averaging Methodology to
Account for Currency Movements
108. In the absence of any provision that explicitly authorizes the use of a multiple-averaging
methodology to account for currency movements, th e United States has suggested that such a
methodology might be justified under the second sentence of the chapeau  of Article 2.4, which
requires, inter alia , that comparisons be made "in respect of sales at as nearly as possibly the same
time."57  This argument is, however, without merit.
109. The timing requirement of the second sentence of Article 2.4 applies equally to all cases,
whether or not there has been a currency depreciation.  And, in all cases, a single period average
                                                     
55 Cotton Yarn , para. 494 (construing the Tokyo Round Code’s predecessor provision of Article 2.4).
56 US First Submission, para. 142.
57 See US Oral Statement, para. 29.WT/DS179/R
Page 175
necessarily includes sales that are made at opposite ends of the period and thus are not "at as nearly as
possibly the same time."  Consequently, a comparison of an average normal value with an average
export price in all cases necessarily encompasses individual home-market and export sales
transactions that were not made at the same time.
110. Nevertheless, the timing requirement of the second sentence of Article 2.4 does not prevent a
single period average.  The reason derives from the nature of an average: When a series of sales
spread throughout the investigation period is combined to make an average, the result is an average
sale that was made, on average , at the mid-point of the investigation period.  Consequently, when the
average export price is compared to the average normal value, the comparison is between average
sales made, on average, at the mid-point of the investigation period.  The comparison is, therefore,
made in respect to average sales that are made, on average, at the same time, in accordance with the
requirements of the second sentence of Article 2.4.
111. Significantly, this effect is precisely the same whether or not there has been a currency
depreciation.  As long as the sales are spread evenly throughout the period, the averaging process
results in an average sale that was made, on average, at the mid-point of the investigation period.
Thus, currency depreciation does not provide a basis for finding that the single period averages are
failing to compare sales at as near as possible the same time.
(b) Article 2.4.1 Describes the Permissible Modifications to the Dumping Calculations for
Exchange Rate Movements; It Is Not Limited to Defining the Appropriate Exchange Rates to
Be Used in Dumping Calculations
112. As mentioned, Korea’s First Submission argued that the multiple-averaging methodology is
inconsistent with Article 2.4.1, because Article 2.4.1 does not permit modifications to the dumping
calculations to account for a depreciation in the exporting country’s currency, while the multiple-
averaging methodology was explicitly intended to account for the depreciation of the Korean won.
113. In response, the United States argues that the scope of Article 2.4.1 is extremely narrow.
According to the United States, Article 2.4.1 simply describes the methods that are to be used to select
exchange rates in investigations.  In the US view, Article 2.4.1 does not otherwise describepermissible modifications to the no rmal dumping calculation methodology.
114. The US argument cannot, however, be reconciled with the actual language of Article 2.4.1.  It
is true that the first sentence of Article 2.4.1 specifically describes the methods that are to be used to
select exchange rates in investigations.  However, the second sentence of Article 2.4.1 —  whichaddresses situations in which exchange rates have "fluctuated" or been the subject of a "sustained
movement" — does not describe any method for selecting exchange rates in such situations.  Instead,
it prescribes specific results  that the investigating authorities must achieve:  When there has been a
currency "fluctuation," Article 2.4.1 directs the investigating authority to ignore the fluctuation.
When there has been a "sustained movement," Article 2.4.1 directs the investigating authority to"allow exporters at least 60 days to have adjusted their export prices to reflect [the] sustained
movements."
115. The United States has apparently confused its own implementation of Article 2.4.1 with the
actual requirements of that provision.  It is undeniable that the United States has implemented therequirements of the second sentence of Article 2.4.1 by adopting a convoluted mechanism for
selecting exchange rates.
58  However, the fact that the United States has implemented the
                                                     
58 See 19 USC. § 1677b-1 (ROK Ex. 1); DOC Notice: Change in Policy regarding Currency
Conversions (ROK Ex. 49).WT/DS179/R
Page 176
requirements of the second sentence of Article 2.4.1 with a mechanism for selecting exchange rates
does not mean that the second sentence of Article 2.4.1 only addresses the selection of exchange rates.
116. In short, the US attempt to reduce Article 2.4.1 to a set of rules for choosing exchange rates
reflects only the US implementation of that provis ion, and not the actual language of the Agreement.
The language of Article 2.4.1 is broader than the US admits.  And, contrary to the US arguments,
Article 2.4.1 does specifically require modifications  to the normal dumping calculation methodologies
when there has been an appreciation  in the exporting country’s currency, but it does not permit such
modifications when the exporting country’s currency has depreciated .  The adoption of a special
methodology by the United States to account for the Korean won’s depreciation was, therefore,
inconsistent with the provisions of Article 2.4.1.
(c) A Comparison of a Single Average Normal Valu e to a Single Average Export Price Does Not
"Disguise" Dumping Margins
117. In the end, the arguments put forth by the United States boil down to a simple proposition:
The United States believes that the use of a single-averaging methodology would have "disguised"
dumping margins, because it would offset the positive dumping margins before the depreciation with
the negative dumping margins after the depreciation.  This notion does not, however, withstand
scrutiny.
(i) The Notion of "Disguised" Dumping Margins Is Inherently Circular and Fundamentally
Contrary to the Bargain Reflecte d in the Anti-Dumping Agreement
118. As an initial matter, it should be noted that the notion of "disguised" dumping margins is
inherently circular.  Dumping margins are "disguised" by a single average methodology only if one
assumes that the "correct" dumping margins are those calculated using multiple sub-period averages.If, by contrast, one assumes that the Anti-Dumping Agreement requires a comparison of single
averages, then the results of the single average calculation are correct (not "disguised"), and the
multiple-averaging methodology "inflates" the dumping margins.  In short, whether a particular
methodology "disguises" or "inflates" the dumping margins depends on one’s assumption regarding
the "correct" methodology.
119. In this regard, it should be noted that the provisions of Article 2.4.2 represent a carefully
negotiated bargain among the WTO Members concerning the methodology that is to be used to
calculate dumping margins.  For example, prior to the negotiation of the current Anti-Dumping
Agreement, a number of major users of anti-dumping laws (including the United States) regularly
calculated dumping margins by comparing an average normal value to the export prices for individual
transactions and then "zeroing" any negative margins found.  This methodology was challenged underthe Tokyo Round Anti-Dumping Code, and a number of WTO Members sought to prohibit this
methodology in the Uruguay Round negotiations.
59
120. The result of these efforts was a compromise.  The average-to-transaction methodology was
not entirely prohibited by the Article 2.4.2; however, it was restricted to exceptional situations inwhich export prices differ significantly among purchasers, regions or time periods.
60  At the same
time, the general rule was established that, for non-exceptional cases, dumping margins should be
calculated based on the comparison of "an average" normal value to "an average" export price (unless
the transaction-to-transaction methodology was used).
                                                     
59 Terence P. Stewart, ed., II The GATT Uruguay Round: A Negotiating History, 1986-1992 , at 1537-43
(1993) (ROK Ex. 77).
60 In such exceptional circumstances, Article 2.4.2 permits investigating authorities to calculate
dumping margins by comparing an average normal value to the prices for individual export transactions.WT/DS179/R
Page 177
121. By arguing that the single-average methodology "disguises" dumping margins, the
United States is essentially asking the Panel to undo the bargain reflected in Article 2.4.2.  In other
words, the United States is asking the Panel to ignore the language of Article 2.4.2 (which requires a
comparison of single averages) and instead affirmatively determine that "zeroing" is permitted even innon-exceptional cases, when there is no claim that export prices differed significantly among
purchasers, regions or time periods.  The Panel plainly should not accept that invitation.
(ii) The Multiple-Averaging Methodology Improperly Assumes that an Over-Valued Exchange
Rate Is More Correct than an Under-Valued Exchange Rate
122. The notion of "disguised" dumping margins also ignores the nature of exchange rates.  As
noted in Korea’s Oral Statement, exchange rates are not conditions of sale; they are tools for
converting amounts from one currency to another.
61  Moreover, they are necessarily volatile and
imperfect tools.
123. In hindsight, one might say that the Korean  won was over-valued (at roughly 900 won per
dollar) throughout much of 1997, until it "crashed" in November.  The won then overshot the proper
exchange rate and remained under-valued (at a rate as high as 1960 won per dollar in December
1997), until it finally rebounded to a mid-point of around 1400 won per dollar at the end of March
1998.
124. Throughout all of these exchange rate shifts , the prices for POSCO’s Korean and US sales
changed little.62  However, the results of a comparison of those prices using the shifting exchange
rates changed dramatically.  Prior to November 1997, when the won was apparently over-valued, the
Korean prices seemed higher than the US prices.  In November and December 1997, when the wonwas apparently under-valued, the Korean prices seemed lower than the US prices.
125. The US arguments regarding "disguised" dum ping margins implicitly assume that the
dumping margins calculated when the won was ov er-valued are more probative than the dumping
margins calculated when the won was under-valued.  The multiple-averaging methodology also
reflects the same bias: It calculates one dumping margin for the period when the won was over-valued
and a separate margin for the period when the won was under-valued — and then effectively ignoresthe latter through "zeroing."
126. A fair comparison would not allow such a bias.  It would not base a finding of dumping solely
on an analysis of a period in which the won was ov er-valued, just as it would not base a finding of no
dumping based solely on an analysis of a period in which the won was under-valued.  Instead, a fairanalysis would have given both periods equal weight, to avoid the distortions inherent in an analysis
that examined only a period in which the exchange rate was biased in one direction.
127. In short, the distortions caused by these exchange rate movements could have been minimized
by the use of an averaging period that included both the period of over-valuation and the period ofunder-valuation. By contrast, the multiple averaging period effectively included only the period of
over-valuation.  It thus allowed the imperfections in the exchange rate movements to cause the
distorted results that it claimed that it was trying to avoid.
                                                     
61 See Cotton Yarn , para. 494 (an exchange rate "is a mere instrument for translating into a common
currency prices that have previously been rendered  comparable in accordance with the second sentence of
[Tokyo Round Code] Article 2:6," the predecessor of Article 2.4 of the Anti-Dumping Agreement).
62 See POSCO Rebuttal Brief (SSPC), at 20-21 (ROK Ex. 9);  POSCO Case Brief (SSSS), at 21-22
(ROK Ex. 20).WT/DS179/R
Page 178
C. DOUBLE -CONVERSION OF LOCAL SALES
128. The facts concerning POSCO’s "local sales" were as follows: The orders for these sales were
placed in dollars (not won).  The invoices for these sales set forth both the original order price in
dollars and an amount in won calculated by applying the exchange rate on the date of invoice to thedollar price.  The payments for these sales were made in won, with the payment amount calculated by
applying the exchange rate on the date of payment to the agreed-upon dollar price.  When the
exchange rates on the dates of invoice and payment were not the same, the won amount of the
payment did not match the won amount on the invoice (and the resulting exchange gain or loss was
recorded in POSCO’s accounting records).  All of these facts were verified by the DOC.  Based onthose facts, the DOC’s verification report concluded that "local sales are dollar denominated."
63
129. The issue in this case concerns the methodology used by the United States to include these
"local" sales in the calculation of normal value.  As described in Korea’s First Submission, the
United States decided to base its calculations on  the won amounts shown on the invoices for these
sales (which were calculated by applying the exchange rate on the date of the home-market  invoice to
the agreed-upon dollar price).  These won amounts were then included in the calculation of an average
normal value in won.  The average normal value in  won was then converted into dollars using the
exchange rate on the date of the US sales.
130. In essence, then, the dollar prices for these sales were converted into won at one rate (the rate
on the date of the home-market  invoice) and then converted back into dollars at another rate (the rate
on the date of the US sale).  Not surprisingly, this methodology resulted in substantial distortions.
Indeed, Korea’s First Submission identified one instance where this methodology inflated normal
value by more than 70 percent.64
131. The issue before the Panel is whether, given the undisputed facts, the US methodology andthe justifications given for adopting it were consistent with the requirements of the Anti-Dumping
Agreement.
1. The Double-Conversion of the Dollar Prices for the "Local Sales" Violated Article 2.4.1
of the Anti-Dumping Agreement, Which Permits Currency Conversions Only When
Such Conversions Are "Required
132. As explained in Korea’s First Submission, th e methodology for converting currencies in anti-
dumping investigations is governed by Article 2.4.1 of the Anti-Dumping Agreement.  That provision
is, however, by its terms applicable only "[w]hen the price comparison under this paragraph [ i.e.,
Article 2.4] requires  a conversion of currencies."  The provisions of Article 2.4.1 do not apply,
therefore, when a conversion of currencies is not "required."
65
133. In the circumstances of the SSPC and SSSS cases, it was clear that the conversion of the
dollar-denominated prices for the local sales was not required.  The United States could have included
those sales in its normal value calculations based on the dollar prices, without using the convertedwon amounts.  And, if the United States had used  the dollar-denominated prices, then there would
have been no need for the second conversion from won back to dollars.  Thus, neither leg of the
double-conversion was "required."  The US methodology cannot, therefore, be reconciled with the
requirements of Article 2.4.1.
                                                     
63 SSSS Sales Verification Report, at 14 (ROK Ex. 19).
64 See Korea’s First Submission, para. 3.58.
65 See Korea’s First Submission, paras. 4.66 - 4.69.WT/DS179/R
Page 179
2. The Double-Conversion Methodology Employed by the United States Was Inconsistent
with the Fair Comparison Requirement of Article 2.4
134. The double-conversion methodology employed by the United States suffered from a further
problem: Because the United States used the exchange rate at the time of the home-market invoice to
convert the dollar prices into won, while using the exchange on the date of the comparable US sales to
convert the won amounts back into dollars, it pena lized POSCO for any changes in exchange rates
between those two dates.  This effect was not merely theoretical.  In fact, as demonstrated in Korea’s
First Submission, the use of the inconsistent exchange rates actually increased normal value by more
than 70 percent for one product comparison.66
135. The changes in the exchange rate between the date of the home-market invoice and the dateof the comparable US sales was not within POSCO’ s control. Consequently, the use of a methodology
that penalized POSCO for these changes was patently unfair.  The double-conversion methodology
was, therefore, inconsistent with the "fair comparison" requirement of Article 2.4.
3. The Justifications Offered by the DOC for Adopting the Double-Conversion
Methodology Were Unreasonable, Unfair and Otherwise Inconsistent with the
Requirements of the Anti-Dumping Agreement
136. As mentioned, the DOC’s determinations indi cated that the double-conversion methodology
was adopted for three reasons:  (1) the payments for the sales were made in won, (2) the sales were
recorded in POSCO’s accounting ledgers in won, and (3) the exchange rates used to convert the dollar
amounts into the won amounts reflected on the invoices did not correspond to the exchange rates
normally used by the DOC.
67  Of these, the United States regards the exchange rate differences as the
"primary basis" for its decision.68
137. Significantly, none of these rationales explains why the double-conversion was "required."Thus, they do not provide a basis for finding that the double-conversion was consistent with
Article 2.4.1 of the Anti-Dumping Agreement, which permits currency conversions only when
"required."
138. Moreover, the rationales offered by the DOC are irrelevant to the critical issue in this case.  In
its preliminary oral responses to the Panel’s questions, the United States has conceded that, if the sales
in question had been denominated in dollars,  its double-conversion methodology would have been
inappropriate.  Thus, the DOC’s decision to a pply the double-conversion methodology could only be
justified by evidence establishing that the sales in question were not dollar-denominated.  But the
three justifications offered by the United States do not address that issue.
139. First , the fact that the payments were actually made in won does not contradict the fact that
the basic terms of the sales were fixed in dollars, not won.  As discussed above, the verified facts
demonstrated that the purchase orders showed only a dollar price and that this agreed-upon dollar
price was used to determine first the won amount set forth on the invoice (in addition to the dollar
price) and later the different won amount of the customer’s payment. It is also undisputed that the
won amounts set forth on the invoice were not used  to determine the won amount of the customer’s
payment.
                                                     
66 See Korea’s First Submission, para. 3.58.
67 SSPC Final Determination, at  15456 (ROK Ex. 11) ; SSSS Final Determinatio n, at 30678 ("the local
sales were paid in won and recorded in POSCO’s accoun ting records in won, and the exchange rates used by
POSCO were dissimilar from those used by the Department") (ROK Ex. 24).
68 US First Submission, para. 173.WT/DS179/R
Page 180
140. In this regard, the DOC’s reliance on the fact that the payments were actually made in won is
somewhat ironic. The DOC did not use the amount in w on that the customer actually paid as the price
for these sales.  Instead, the DOC used the amount in won shown on the invoice as the price for these
sales — despite the fact that the won amounts shown on the invoice did not correspond to thecustomer’s payments.  In short, the DOC justified its use of one won amount as the price for these
sales based on the fact that the customer paid a different won amount.  That result is plainly illogical.
The only rational conclusion to be drawn from the verified facts is that "local sales are dollar
denominated," which is precisely what th e DOC’s own Verification Report stated.
69
141. Second , the fact that local sales are recorded in won in POSCO’s accounting ledgers is
apropos  of nothing.  In accordance with generally accepted accounting principles, POSCO keeps its
accounting ledgers in a single currency, the won.  Thus, all of POSCO’s sales — regardless of the
currency in which they are denominated — are record ed in won.  Indeed, POSCO’s export sales to the
United States — which the United States accepted as being denominated in dollars — are recorded inPOSCO’s accounting records in won.
70
142. Third , the differences between official US and Korean exchange rates had no bearing on the
question whether the sales prices were fixed in dollars.  The fundamental point is that the won
amounts shown on the invoices and the won amounts paid were calculated based on the agreed-upondollar prices, and were not based on some agreed-upon won amount.
143. Finally, it should be noted that the reliance by the United States on the differences between
US and Korean exchange rates was fundamentally unfair.  In effect, the United States penalized
POSCO by applying the distortive double-conver sion methodology simply because the US Federal
Reserve and the Korean Exchange Bank did not set the same exchange rates.  The differences
between the Federal Reserve and Korean Exchange Bank plainly were not within POSCO’s control,
and they could not be predicted by POSCO (since, among other things, the Federal Reserve rates each
day were set long after the close of business in Korea).  By penalizing POSCO for events beyond its
control, the United States failed to make the "fair comparison" required by Article 2.4.
4. The US Arguments Before this Panel Con cede that the Double-Conversion Methodology
Was Flawed
144. In the proceedings before this Panel, the United States has offered a number of alternate
justifications for the double-conversion methodol ogy.  As discussed below, those additional
justifications are without merit.  Before turning to those justifications, however, it is worth noting a
somewhat separate point: A close examination of the US arguments before this Panel reveals that theUnited States has, in fact, conceded that  its double-conversion methodology was flawed.
(a) The United States Has Conceded that It s Decision to Adopt the Double-Conversion
Methodology Was Based on a Factual Error
145. As mentioned, the DOC claimed that the use of the Korean won amounts recorded in
POSCO’s accounting system was justified because the exchange rates used to calculate those amounts
(which were based on official Korean Exchange Bank rates) differed significantly from the Federal
Reserve exchange rates normally used by the DOC for its currency calculations.  The exchange rate
comparison presented by the DOC as evidence of this difference was, however, deeply flawed.  The
comparisons of POSCO’s exchange rates to the Federal Reserve rates that were actually relied by theDOC showed differences of less than 1 percent in all cases.  The only comparisons where the DOC
identified a difference of more than 1 percen t involved situations where the DOC mistakenly
                                                     
69 SSSS Sales Verification Report, at 14 (ROK Ex. 19).
70 See Korea’s First Submission, paras. 3.49 - 3.54.WT/DS179/R
Page 181
compared POSCO’s exchange rates to modified exchange rates calculated by the DOC, and not to the
actual Federal Reserve exchange rates.71
146. In its First Submission, the United States concedes that the DOC made this error.Footnote 161 of its Submission admits that "Korea is correct that the Department mistakenly used
adjusted exchange rates in the SSPC  case."  It is clear, then, that the DOC’s determination was based
on a factual error and, as a result, it cannot be sustained.
147. The United States argues that the factual error in the SSPC case was harmless, because its
post hoc  comparison of exchange rates also identifies four dates in November for which there were
differences of more than 1 percent between the Fe deral Reserve rate and the rates used by POSCO.
But this post hoc  argument does not cure the defect in the DOC’s determination.  The DOC based its
argument on the fact that the exchange rates actua lly used by POSCO to convert specific local sales
differed from the Federal Reserve rates.  By contrast, the United States has not pointed to anyevidence that the exchange rates on the four dates it has identified were actually used by POSCO to
convert local sales prices.  For example, if there were no local sales on those dates, the comparisons
presented by the United States in its brief would have no bearing on the manner in which the sales
under investigation were actually recorded in POSCO’s accounting records.
148. Finally, it should be noted that the comparisons offered by the United States in its First
Submission are flawed, because they ignore the significant time differences between the United States
and Korea.  The Federal Reserve rates are based on a survey of New York banks at 12:00 noon on
each date.  But 12:00 noon in New York on any given day is 2:00 in the morning the next day in
Korea.  Or, to put it the other way, 12:00 noon in Korea on any date is 10:00 at night the previous day
in New York.  Thus, a comparison that matches exchange rates on the "same" date actually compares
exchange rates determined 14 hours apart.
72
149. When exchange rates are shifting rapidly, as they were in November 1997, this 14-hour
difference can be critical.  Indeed, if one compares the exchange rates at the same time (rather than
the same date), the differences identified in the US brief simply disappear.  The following table
illustrates this point:
Date of Sale
In KoreaDate in
New York at
Time of Sale
in KoreaKorean
Exchange Bank
Rate on
Date of SaleFederal Reserve
Bank Rate
at Time of Sale
in KoreaPercentage
Difference
10 Nov. 1997 9 Nov. 1997 975.5 985 0.97%
18 Nov. 1997 17 Nov. 1997 986.7 992 0.54%
20 Nov. 1997 19 Nov. 1997 1031.4 1040 0.83%
21 Nov. 1997 20 Nov. 1997 1134.5 1139 0.40%
In short, the differences in exchange rates identified in the US First Submission are the function of the
time zone between New York and Korea, and not a reflection of any "inaccuracy" in the Korean rates.
                                                     
71 See Korea’s First Submission, para. 3.60.
72 As noted in Korea’s First Submission, the 14-hour time difference between Korea and New York
means that the Federal Reserve rates determined at 12:00 noon in New York are not announced until nine hoursafter the close of business (5:00 p.m.) in Korea.WT/DS179/R
Page 182
(b) The United States Has Conceded that the First Conversion from Dollars to Won Did Not
Comply with the Requirements of Article 2.4.1
150. In its First Submission, the United States also conceded that the first step in the double
conversion — that is, the initial conversion from dollars to won — was made using a methodologythat did not comply with the requirements of the Anti-Dumping Agreement.  Thus, it contended that:
Korea argues, in effect, that the United States acted inconsistently with Article 2.4.1
when it converted these won-sales into dollars using the exchange rates determined
under the requirements of Article 2.4.1 because POSCO had already made the
conversions.  However, the conversion form ula used by POSCO does not satisfy the
rules set forth in Article 2.4.1.  For example, POSCO’s formula does not account for
fluctuations.
73
Of course, the United States blames POSCO for failing to follow the requirements of Article 2.4.1 in
the initial conversion from dollars to won.  But POSCO was making that conversion solely for itsinternal accounting purposes, and not for purposes of calculating dumping margins under the Anti-
Dumping Agreement.  It was the United States that adopted POSCO’s internal conversion from
dollars to won as the starting point for the dumping margin calculations.
151. In any event, whatever flaws there may have  been in POSCO’s internal conversion cannot
possibly justify the US decision to reject the actual dollar prices for the local sales — because the
actual dollar prices were not affected by POSCO’s internal conversion.  In this regard, it must be
remembered that the only conversions made by  POSCO converted the dollar-prices shown on the
purchase orders for the local sales into won .  POSCO never converted from won into dollars.  Indeed,
the fact that POSCO’s conversions were made from dollars into won was explicitly conceded by theDOC’s verification report.
74
152. Thus, when the United States complains about the flaws in POSCO’s  currency conversions, it
is, in fact, complaining about the conversions that  were used to determine the won amounts shown on
the invoices.  The won amounts shown on the invoices were, of course, the amounts the United States
used as the starting point for its calculation of normal value.  Consequently, the United States has
conceded that the won amounts it used for the starting  point of its calculations were determined in a
manner that is inconsistent with the requirements of Article 2.4.1 of the Anti-Dumping Agreement.
The violation of the Anti-Dumping Agreement is, therefore, manifest.
5. The Other Defences Offered by the United States Do Not Provide a Basis for Upholding
the Double-Conversion Methodology
153. The United States has offered four basic responses to the arguments presented by Korea on
the double-conversion methodology:  First , it asserts that these arguments raise factual issues on
which the Panel should defer to the DOC’s determinations.  Second , it claims that it complied with the
requirements of Article 2.4.1 by making the currency conversions for the local sales using the
exchange rates on the "date of sale."75   Third , it contends that, while Article 2.4.1 "presupposes" that
a conversion will be required, it does not prevent investigating authorities from making conversions
when no conversion is required.76  And, fourth , it suggests that there was no double-conversion by the
DOC, because the first conversion from dollars into won was made by POSCO for internal accounting
purposes and merely adopted by the DOC.  As disc ussed below, none of these arguments provides a
basis for upholding the double-conversion methodology.
                                                     
73 US First Submission, para. 178.
74 See SSSS Sales Verification Report, at 14 (ROK Ex. 19).
75 See, e.g.,  US First Submission, para. 175.
76 See US First Submission, para. 177.WT/DS179/R
Page 183
(a) The Facts Concerning the Local Sales Were Never in Dispute, and the Decision by the
United States to Apply the Double-Conversion Methodology to the Local Sales Was Not a
Factual Finding that Is Entitled to Special Deference
154. The United States has attempted to shield its decision to double-convert the dollar amounts
for the local sales by claiming that its decision is entitled to special deference because it is a "factual
determination."77  That argument is, however, misplaced.
155. The facts concerning the "local sales" are not in dispute.  The undisputed facts demonstrate
that:
• The orders from the customers were denominated in dollars (and not won).78
• The invoices showed the agreed-upon dollar prices (as well as a won amount calculated
by applying the exchange rate on the date of invoice to the dollar price).79
• The shipping lists sent to the customer listed the agreed-upon dollar prices (but not any
won amounts, except for a separate charge for freight in won).80
• The customer paid the agreed-upon dollar price (as converted into won by applying the
exchange rate on the date of payment).81
• The won amounts were not fixed in the initial agreement with the customer, and they
were not consistent from invoice to payment.82
• The only amount that was consistent from order to invoice to payment was the dollar
amount.
One might argue about the effect these undisputed facts should have on the dumping calculations.
But the facts themselves are not, and never have been, in dispute.83
156. The US decision to apply the double-conversion methodology was, of course, based on anassessment of the facts of the case.  It was not, however, based on a factual findings that differed from
those advanced by POSCO.  For example, the DOC di d not dispute that the orders for the local sales
were denominated solely in dollars (and not in won).  It did not dispute that the won amounts on theinvoices for the local sales did not correspond to  the won amounts actually paid.  And it did not
dispute that the won amounts in all cases were calculated by applying exchange rates fixed by the
official Korean Exchange Bank to the dollar-denomin ated prices for the local sales.  Indeed, it would
                                                     
77 See US First Submission, para. 180.
78 Provided as ROK Exhibit 78 is a sample order sheet  from a verified local sale.  In the order sheet,
one can see clearly that the transaction is denominated in dollars because there is a "D" for dollars in the
currency box (Number 10).  Also provided is a guide to reading the order sheet from the DOC Verification
Report.
79 Provided as ROK Exhibit 79 is a sample invoice from a verified local sale.
80 Provided as ROK Exhibit 80 is a sample shipping list from a verified local sale.
81 SSSS Sales Verification Report, at 14 (ROK Ex. 19).
82 Id.
83 The United States has belatedly made in its Oral Statement the argument that POSCO did not
provide sufficient, timely evidence to the DOC demonstrat ing that the economic value of the "local sales" was
fixed in US dollars and not in won.  US Oral Statement, paras. 35-40.  For the reasons provided in Korea’sresponse to the Panel’s Question No. 3 regarding double-conversion, Korea believes that this US argument isuntimely and meritless.WT/DS179/R
Page 184
have been plain error for the DOC to dispute these facts, because there was absolutely no evidence on
the record refuting them.
157. Given these undisputed facts, the question befo re the DOC was whether, in its calculation of
normal value, it was appropriate to use the actual dol lar prices for these sales, or to use won amounts
that (the undisputed facts showed) were calculated by multiplying the agreed-upon dollar prices by
the official exchange rates for the date of invoice.  The DOC made the decision that the appropriate
methodology was to use the converted won amounts.  According to the DOC’s determinations, this
decision was based on three considerations:  (1) the payments for the sales were made in won, (2) thesales are recorded in POSCO’s accounting ledgers in  won, and (3) the exchange rates used to convert
the dollar amounts into the won amounts reflected on the invoices did not correspond to the exchange
rates normally used by the DOC.
84
158. The question before the Panel is whether the three grounds identified by the DOC aresufficient to justify the methodology the DOC adopted.  This is not a factual issue, and it does not
require the Panel to resolve any factual questions.
(b) The Issue Is Not Whether the DOC Used Exchange Rates on the Date of Some Sale
159. As mentioned, the United States has repeatedly claimed that it complied with the
requirements of Article 2.4.1 by making the currency conversions for the local sales using the
exchange rates on the "date of sale."
85   This argument is, however, utterly irrelevant.
160. The problem in this case is not that the United States selected the wrong exchange rate.
Rather, the problem is that the United States used a double conversion, applying different exchangerates to convert the same sale in an inconsistent manner.  The inconsistency arose because the
United States made the final conversion from won to dollar using the exchange rate on the date of the
US sale, while the initial conversion from dollars to won had been made using the exchange rate on
the date of the home-market invoice.  Because the exchange rate on the date of the US sale could (and
did) differ dramatically from the exchange rate on the date of the home-market invoice, the double-
conversion created significant distortions.
(c) The Anti-Dumping Agreement Only Permits Currency Conversion under the Situations
Described in Article 2.4.1
161. As mentioned, the United States also claims that, while Article 2.4.1 "presupposes" that a
conversion will be required, it does not prevent investigating authorities from making conversions
when no conversion is required.
86  This interpretation is without merit.
162. Article 2.4.1 is the only provision in the entire Anti-Dumping Agreement that addresses
currency conversion issues.  If that provision does not apply to a particular currency conversion, then
there are no rules in the Agreement governing the conversion.
163. Article 2.4.1 by its terms does not apply when the conversion is not "required."
Consequently, if the Anti-Dumping Agreement does permit conversions when a conversion is not
required (as the US contends), then those non-required conversions would not be subject to the
disciplines of Article 2.4.1.  Moreover, since there are no other provisions of the Agreement
                                                     
84 SSPC Final Determination, at  15456 (ROK Ex. 11) ; SSSS Final Determinatio n, at 30678 ("the local
sales were paid in won and recorded in POSCO’s accoun ting records in won, and the exchange rates used by
POSCO were dissimilar from those used by the Department") (ROK Ex. 24).
85 See, e.g.,  US First Submission, para. 175.
86 See US First Submission, para. 177.WT/DS179/R
Page 185
addressing currency conversions, these non-required conversions would not be subject to any
disciplines at all.  Thus, the US argument leads inevitably to the conclusion that (while required
conversions are closely regulated by the Agreement) the Agreement grants the investigating
authorities unfettered discretion to make non-required  conversions and to use any conversion
methodology at all when they do so.  Such a result is plainly absurd.
164. In short, it is apparent that the Anti-Dumping Agreement permits currency conversions only
when such conversions are "required."
165. The United States cannot meet that test in this case.  As explained in Korea’s First
Submission, POSCO had submitted the dollar-denominat ed prices for the local sales to the DOC.  The
DOC was able to verify that the reported dollar prices matched the dollar amounts on the order sheets
and invoices, and it was also able to verify that the customers’ actual payments in won were
calculated by multiplying the dollar prices by the official exchange rate for the date of payment.
Accordingly, there was no reason the DOC could not have used the dollar-denominated prices.
Consequently, the use of the converted won amounts was not "required" — and thus was not
permitted under Article 2.4.1 of the Anti-Dumping Agreement.
(d) The DOC’s Adoption of the Won Amounts that Ha d Been Calculated by POSCO for Internal
Accounting Purposes Constitutes an Improper Double-Conversion
166. The United States has also suggested that Article 2.4.1 does not apply to its double-
conversion methodology, because the initial conversion from dollars to won was actually made in the
first instance by POSCO for internal accounting purposes.87  It appears that the United States believes
that, because it did not itself actively convert the dollar prices into won, it is not "guilty" of a double-conversion.  That position is, however, untenable.
167. In the SSPC and SSSS investigations, the United States chose to use the converted won
amounts (which were calculated figures that did not represent the fixed prices for the sales) rather
than the actual dollar amounts (which were the fixed prices for the sales).  The United States then
chose to convert those won amounts back into dollars using the exchange rate on the date of the US
sale — which was not the same as the exchange rate that had been used previously to convert thedollar amounts into won.  The overall methodology th erefore involved a double-conversion of the
dollar amounts using inconsistent exchange rates.  This double-conversion methodology is
improper — regardless of whether the initial conversion was "made" by the United States or simply
adopted by the United States from the figures in POSCO’s accounting records.
(e) The United States Cannot Justify the Unfair Results Caused by the Double-Conversion
Methodology
168. As demonstrated in Korea’s First Submissi on, the "double-conversion" methodology distorted
the results of the DOC’s comparisons — inflating the dumping margins for one comparison by more
than 70 percent.  This distortion occurred because the exchange rates on the dates of the home-marketinvoices (which were used to convert the dollar pr ices into won) could differ significantly from the
exchange rates on the dates of the US sales (whi ch was used to convert the won amounts back into
dollars).
169. The inflation of the dumping margins in this manner was plainly unfair.  It penalized POSCO
for changes in the exchange rates that were beyond its control.
88  Consequently, as Korea explained in
                                                     
87 See US First Submission, para. 183.
88 Moreover, because the adoption of the double- conversion methodology was predicated on the
differences between the official Federal Reserve and Korean Exchange Bank rates, POSCO was unfairlyWT/DS179/R
Page 186
its First Submission, the double-conversion methodol ogy violated the "fair comparison" requirements
of Article 2.4.
170. The United States has not even attempted to respond to these points, because there is simply
no justification for the unfair results caused by its double-conversion methodology.  Its silence on this
point is striking confirmation of Korea’s claims.
D. PROCEDURAL ERRORS IN THE US D ETERMINATIONS
1. The United States Failed to Administer Its Laws in a "Uniform" and "Reasonable"
Manner, As Required by Article X:3(a) of GATT 1994
(a) Article X:3(a) Requires Investigating Authorities to Implement Domestic Law Consistently,
in a Uniform and Reasonable Manner
171. As demonstrated in Korea’s First Submission, numerous aspects of the DOC’s actions in the
SSPC and SSSS cases reflected a failure to administer the anti-dumping laws and regulations "in auniform, impartial and reasonable manner," as required by Article X:3(a) of GATT 1994.  In
particular, Korea demonstrated that the SSPC and SSSS decisions departed from previous decisions of
the DOC and the US courts without a sound rationale — factors that clearly go to the "uniformity"
and "reasonableness" of the DOC’s administration of the anti-dumping laws and regulations.
172. As a general matter, the United States (with support from the EC) has offered several
arguments suggesting that Article X:3(a) does not require an investigating authority to follow its
precedents.  As discussed below, however, these arguments are without merit, and the failure of the
United States to administer US law uniformly from case to case is a violation of Article X:3(a).
173 First , the United States argued that this claim belongs in a US court and not before a Panel,
going so far as to imply that the claim is not based on a "covered agreement" under the Dispute
Settlement Understanding ("DSU").
89  That argument is demonstrably false.  It is undeniable that
GATT 1994 (including Article X:3(a) thereof) is a "covered agreement."90
174. Second , the United States, relying on the Bananas  case, argued that "Article X:3 does not
address the consistency of particular administrative rulings, but rather the administration of suchrulings."
91  That argument misses the point.  Bananas  addressed a claim about the administration of
"rulings."  Korea’s claim is based on a different aspect of Article X:3(a).  It is undeniable that, in
conducting the SSPC and SSSS investigations, the DOC was engaged in the "administration" of US
anti-dumping "laws [and] regulations."
175. Third , the United States argues that "reasonable" administration of the anti-dumping laws
requires changes from past practice "where facts properly established and objectively assessed reveal
flaws or gaps in prior practice."92  This argument actually supports Korea’s position.  Korea agrees
that it is reasonable for an investigating authority to depart from its prior practice in a particular case
when there is a sound rationale for doing so.  However, when the reasons proffered in a final
                                                                                                                                                                    
penalized for the existence of those differences and for th e fact that it used the official Korean Exchange Bank
rates in the normal course of business.
89 See, e.g.,  US First Submission, paras. 42, 51; US Oral Statement, para. 48.
90 See DSU, art. 1, Appendix 1 (identifying among the "covered agreements" the "Multilateral
Agreements on Trade in Goods" in Annex 1A to the Marrakesh Agreement Establishing the WTO, which in turnexpressly includes GATT 1994).
91 US First Submission, para. 43.
92 US First Submission, para. 48.WT/DS179/R
Page 187
determination for the departure from precedent are nonsensical, irrelevant, and internally inconsistent,
as happened here, then the departure plainly evidences "unreasonable" and "non-uniform"
administration of the anti-dumping laws and regulations.
176. Finally , the United States argues, again based on Bananas , that "where a measure is found to
be reasonable under the Antidumping Agreement, the panel should find it to be reasonable also for
purposes of Article X:3."93  This argument is a fiction.  If the Anti-Dumping Agreement had a
provision, like Article X:3(a), which required reas onable administration of the anti-dumping laws,
then of course one would expect panels to construe  such a provision consistently with Article X:3(a).
But there is no such provision in the Anti-Dumping Agreement.
177. Thus, the condition precedent for the US argument can never be met.  Instead, the WTO
regime leaves it to GATT Article X:3(a) to fill in  this gap in the Anti-Dumping Agreement.  Contrary
to the US argument, the Appellate Body’s decision in Bananas  supports this supplemental role for
Article X:3(a).  When confronted with the question whether the procedural requirements of a specific
WTO Agreement should be considered before or instead of Article X:3(a), the Appellate Body held
"before."94  It is ironic that the United States, which prevailed on this point in Bananas , has now
conveniently changed its view.
(b) The Unjustified US Departures from Established Practice Violated the Requirements of
Article X:3(a)
(i) The Failure to Exclude Unpaid Sales from the Dumping Analysis Was Inconsistent with the
DOC’s Established Practice
178. As demonstrated in Korea’s First Submis sion, the DOC’s failure to exclude POSCO’s
"atypical" unpaid sales from the dumping analysis was inconsistent with its established practice.  The
DOC itself initially recognized the "atypical" nature of these unpaid sales.  The reasons given for the
departure are inherently inconsistent:  In Plate, th e DOC deemed it significant that the unpaid sales as
a percentage of total US sales were too "large" to "be dismissed as abnormalities."  But in Sheet the
DOC found POSCO’s arguments about the small percentage of unpaid sales to be "inapposite."95
179. Confronted with this glaring lack of unifor mity in the DOC’s administration of the anti-
dumping laws, the United States now seeks to divert the Panel’s attention by arguing that other factors
were more important to its analysis.96  But that attempt should not be allowed to succeed.  The DOC’s
own words clearly demonstrate its inconsistency.
(ii) The Multiple-Averaging Methodology Was Inconsistent with the DOC’s Established Practice
                                                     
93 US Oral Statement, para. 47.
94 European Communities — Regime for the Im portation, Sale and Distribution of Bananas , Report of
the Appellate Body, WT/DS27/AB/R, AB-1997-3, at paras. 203-04 ("We agree, therefore, with the Panel that
both the Licensing Agreement  and the relevant provisions of the GATT 1994, in particular, Article X:3(a), apply
to the EC import licensing procedures. . . .  [T]he Panel, in our view, should have applied the Licensing
Agreement  first, since this agreement deals specifically, and in detail, with the administration of import licensing
procedures.") (emphasis in original).  Having established this sequential approach to consideration ofArticle X:3(a), and in light of its separate finding that the language of Article X:3(a) is "interchangeable" with
the language of the relevant provision of the Licensing Agreement, the Appellate Body also stated that in those
particular circumstances "there would have been no need for [the Panel] to address the alleged inconsistencywith Article X:3(a). . . ."  Id. at para. 204.
95 See Korea’s First Submission, paras. 3.35 - 3.36,  4.38 - 3.42.
96 See US First Submission, para. 105.WT/DS179/R
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180. The DOC has an established practice of using single-averaging, even in cases where the
exporter’s home currency depreciates against the dollar during the investigation period.  The DOC
initially adhered to that practice in the SSPC and SSSS cases, calling the petitioners’ request for
multiple-averaging "unwarranted" and rejecting as inapplicable "the one case cited by petitioners insupport of averaging multiple periods."  The DOC maintained that consistent policy in the Preserved
Mushrooms from Indonesia  case, saying "we have declined to alter our methodology in this case."
97
181. In the SSPC and SSSS cases, of course, the DOC did depart from its previous practice by
adopting the multiple-averaging methodology.  Moreover, the DOC failed to even articulate a reasonfor its departure from its then three-month-old precedent in Preserved Mushrooms , when the
similarities between the depreciations of the w on and the Indonesian rupiah clearly demanded the
same treatment.
98  That departure from established practice, especially when combined with the
failure to provide an explanation, clearly evidences "unreasonable" and "non-uniform" administration
of the anti-dumping laws.
182. The United States now claims that the depreciation of the won was "unprecedented" and
raised a "novel set of issues."  It seeks to distinguish the depreciation of the won from the roughly
contemporaneous depreciation of the rupiah on the grounds that the depreciation of the won was
somewhat steeper and less deep than the depreciation of the rupiah. It also denies that the DOC has anestablished practice regarding the use of single-averaging methodology, claiming that Preserved
Mushrooms  is only one case, which in the US view is insufficient to create an established practice.
99
That argument must fail.
183. First , the argument is post hoc .  As mentioned, the DOC final determinations made no
attempt to articulate a difference between the facts of the SSPC and SSSS cases from the facts of
Preserved Mushrooms .  Indeed, far from having regarded the depreciation of the won and of the
rupiah as being significantly different, the DOC previously referred to them as raising the same
issue.100   In any event, if the DOC considered it significant that the won’s depreciation had somewhat
different contours than the rupiah’s depreciation, then it was required to have said so in its
determinations.  Not having articulated these supposed differences at the time, the United States is
precluded from raising them now.
184. Second , there is no question that the DOC has confronted the issue of currency depreciations
many times before.  Such depreciations seem to have become a regular feature of the international
economic landscape.  In recent years, the rupiah, baht, peso, real, and other currencies have all
experienced sharp declines against the dollar.  (Indeed, even so-called "stable" currencies like the yenand the euro have at times declined markedly against the dollar.)  When the DOC was faced with
those other depreciations, it consistently used the single-average methodology.  Yet, the DOC applied
multiple-averaging for the first time in the SSPC and SSSS cases.  In this context, the belated claim
that the won’s depreciation was "unprecedented" is unpersuasive.  While the precise facts of the
won’s decline may have differed somewhat from the precise facts of previous depreciations, that doesnot make the won’s depreciation "unprecedented" in any meaningful sense.  Moreover, factual details
aside, the United States has failed to provide (e ither in the final determinations or in its First
Submission) any basis for believing that the won’s depreciation raised a "novel set of issues ."  To the
contrary, as mentioned, DOC itself regarded the SSPC and SSSS cases as raising the same issue as
Preserved Mushrooms .
                                                     
97 See Korea’s First Submission, paras. 3.43 - 3.44.
98 See Korea’s First Submission, paras. 4.54 - 4.58.
99 See US First Submission, paras. 107, 113, 155, 164 & n. 150.
100 SSSS Preliminary Determination, at 145 (ROK Ex. 16).WT/DS179/R
Page 189
185. Third , there is no merit to the claim that Preserved Mushrooms  is insufficient to establish a
practice.  Even leaving aside the value of "one case" as precedent under US law, there are actually
many cases that establish the relevant practice.  Indeed, single-averaging has been the standard US
methodology since the US implementation of the Uruguay Round amendments.  Any departure from
single-averaging should be tested against that standard practice.
186. The United States also claims that Preserved Mushrooms  is different from the SSPC and
SSSS cases, because multiple-averaging would have had little effect on the calculation of the dumping
margins in Mushrooms  while it had a significant effect in SSPC and SSSS.101  This is not a
justification for multiple-averaging; it is the precise reason why the DOC should not have used
multiple-averaging in the cases at issue.  Indeed, in the context of the Anti-Dumping Agreement, the
role of Article X:3(a) is to prevent investigatin g authorities from administering their domestic laws
inconsistently from case to case for the sole purpose of achieving the highest possible dumping
margin.
187. Therefore, the DOC’s departure from its established single-average methodology was
"unreasonable" and the United States has even now failed to provide a justification for it.
(iii) The Double-Conversion of Local Sales Was Inconsistent with the DOC’s Established Practice
188. As discussed in Korea’s First Submission, the double-conversion of POSCO’s local sales
from dollars to won and back to dollars at a different exchange rate was an unprecedented departure
from the established DOC policy of "accept[ing] charges in the currency in which the charges are
made."  Neither the petitioners in the SSPC and SSSS investigations nor the DOC final determinations
cited a single case before these two at issue where the DOC treated a home-market sale priced indollars as if it had been priced in the local currency.  By contrast, there are several cases (most
notably, Fresh Cut Roses from Colombia ) where the United States has accepted home-market sales as
being priced in dollars.  The reasons given by the DOC to depart from that practice for SSPC and
SSSS are unreasonable, and they effectively amount to a decision to hold POSCO responsible for
differences between the exchange rates announced by the Korean Exchange Bank and the New York
Federal Reserve.
102  Therefore, the decision to depart from established policy without providing an
adequate reason was inconsistent with the requirement that anti-dumping laws must be administeredin a "reasonable" and "uniform" manner.
189. In response, the United States describes its view of the issue raised by double-conversion as
follows:
the fundamental issue for the Panel in these cases is not a question of which source
for exchange rates is more accurate.  Rather, it is a question of whether the exchange
rates used by the United States in these cases satisfy the requirements of
Article 2.4.1.
103
That description is, however, inaccurate.  Neither of the DOC’s statements reflects the true problemwith the DOC’s double-conversion.  As discussed abov e, the substantive issue is whether or not the
double-conversion was "required."  The procedural issue is whether the double-conversion, as an
inadequately explained departure from established DOC practice, evidences "unreasonable" and "non-
uniform" administration of the anti-dumping laws.
                                                     
101 See US First Submission, para. 163.
102 See Korea’s First Submission, paras. 4.72 - 4.82.
103 See US First Submission, para. 190.WT/DS179/R
Page 190
190. The United States also contends that Roses from Colombia  is irrelevant because it "pre-dates
the Uruguay Round Agreements Act of the United States in which the new Article 2.4.1 was first
implemented" and so "none of the requirements of Article 2.4.1 were considered in the context of that
case."104  This argument is misleading.  It implies that Korea is relying on Roses from Colombia  to
support Korea’s substantive claim under Article 2.4.1.  That, of course, is not the case.
191. Korea is properly relying on Roses from Colombia  as representative of the established
practice from which the DOC unreasonably deviated in the cases at issue.  The relevant practice is not
the DOC’s exchange rate policy, which had to be and was changed in response to Article 2.4.1.Instead, the relevant practice is "accept[ing] charges in the currency in which the charges are made,"
which was not required to be and was not changed in response to Article 2.4.1.  Moreover, nothing in
the DOC final determinations cited Article 2.4.1 as the basis for the departure from Roses from
Colombia.   This is yet another post hoc  and ultimately baseless argument by the United States.
192. The United States also makes the unsupported and unexplained assertion that " Roses
represented an exception to the United States’ practice, not the rule."
105  This statement could not
possibly be correct.  If Roses from Colombia  were the "exception," then the "rule" would be that the
DOC does not accept charges in the currency in which they are made.  But, in fact, the DOC’s
questionnaire specifically instructs respondents to "report the sale price, discounts, rebates and allother revenues and expenses in the currency in which they were earned or incurred."
106
193. Korea’s First Submission described in great detail the arguments made by the DOC to
distinguish Roses from Colombia  and the inadequacies of those arguments.107  T h e  U S  r e s p o n s e  i s
simply non-responsive.  The United States does not attempt to reconcile its rulings in SSPC and SSSSwith Roses from Colombia , but merely to demonstrate the technical accuracy of its statements in
SSPC and SSSS.
108  In other words, the United States has still failed to show the relevance  of the
DOC’s statements in SSPC and SSSS to the question whether it was reasonable to depart from Roses
from Colombia  in the cases at issue.
194. Since the United States has confused the picture by raising various irrelevant arguments, it
may be clarifying to present here in full the relevant passage from Roses from Colombia :
During respondent’s verification, we established that respondent invoiced its home
market customers in US dollars and received the equivalent value in pesos at the date
of payment.  We were able to trace the payments to the company’s records and
establish that the payments made to the company in pesos reflected the prevailingexchange rates at the time of payment.
It is the Department’s practice to accept ch arges in the currency in which the charges
are made.  In this instance, the home market prices were charged in dollars.
Therefore, the Department found it appropriate that respondent’s home market saleswere reported in dollar value since the dollar value was the currency in which the
sales transactions were made.  Furthermore, since home market sales were transacted
in dollars and the payments made, although in pesos, were based on constant dollar
                                                     
104 See US First Submission, para. 191.
105 See US First Submission, para. 192.
106 Stainless Steel Sheet and Strip in Coils from Taiwan , 64 Fed. Reg. 30592, 30614 (June 8, 1999)
(ROK Ex. 81).
107 See Korea’s First Submission, paras. 4.72 - 4.76.
108 See US First Submission, para. 192.WT/DS179/R
Page 191
value, there is no distortion.  Using respondent’s dollar borrowing rate in the
calculation of the home market imputed credit, is, therefore, appropriate.109
From this passage, it is apparent that there were two — and only two — factors that were relevant todetermining whether the home-market sales were "charged in dollars" or pesos. First, they were
invoiced in dollars.  Second, they were paid in pesos "at the prevailing exchange rates at the time of
payment."  These two factors alone showed that the home-market prices were at a "constant dollar
value" and thus were "charged" in dollars and should be accepted in dollars.
195. The final determinations indicated three reas ons why the DOC treated POSCO’s local sales as
won-denominated, notwithstanding that they were in voiced in dollars and that payment was made in
won at the prevailing exchange rates at the time of payment:  (1) POSCO was paid in won; (2)
POSCO’s accounting records are kept in won; and (3) the Korean Exchange Bank rate used to
determine the amount of won due differed from the New York Federal Reserve rate.
110  As discussed
further above, it is apparent that none of these three reasons can serve to differentiate SSPC and SSSS
from Roses from Colombia.   In Roses , the respondent was also paid in the local currency.  There is no
mention of accounting records or exchange rate differences in Roses from Colombia , precisely
because those factors were alien to the decision.  Moreover, it is exceedingly likely that if one were to
consider the unstated facts of Roses from Colombia , one would find that Colombian producers
maintain their accounting ledgers in the local curren cy (which is in keeping with Generally Accepted
Accounting Principles) and that there were differe nces between the peso-dollar exchange rates in
Bogota and in New York (which is a fact of life, even without significant time differences).
196. Therefore, the double-conversion reflects un reasonable and non-uniform administration of the
anti-dumping laws, in violation of GATT Article X:3(a).
2. The Incorrect and Incoherent Explanations Offered by the United States Were
Inconsistent with the Requirements Set Forth in Article 12.2 of the Anti-Dumping
Agreement
197. Article 12.2 of the Anti-Dumping Agreement requires, inter alia , that a final determination
"shall set forth . . . in sufficient detail the findings and conclusions reached on all issues of fact and
law considered material by the investigating authoritie s."  It further specifies that a final affirmative
determination:
shall contain . . . all relevant information on the matters of fact and law and reasons
which have led to the imposition of final measures . . . .  In particular, the notice . . .shall contain ["a full explanation of the reasons for the methodology used in the
establishment and comparison of the export price and the normal value under
Article 2"] as well as the reasons for the acceptance or rejection of relevant arguments
or claims made by the exporters and importers. . . .
111
198. The final determinations regarding SSPC and SSSS fail to comply with this standard.  On theunpaid sales issue, DOC failed to provide in th e final determinations an internally consistent
explanation regarding the relevance of the percentage of US sales that are unpaid to whether unpaid
                                                     
109 Roses from Colombia , at 7006 (ROK Ex. 52).
110 SSPC Final Determination, at 15456 (ROK Ex. 11); SSSS Final Determina tion, at 30678 (ROK Ex.
24).  Of these, the United States refers to the differences in exchange rates as "the primary basis" for the DOC’sdecision to double-convert.  See US First Submission, para. 173.
111 Anti-Dumping Agreement, art. 12.2.2, incorporating 12.2.1(iii) by reference.WT/DS179/R
Page 192
sales are "atypical."112  On the multiple-averaging issue, the DOC failed to explain the departure from
the three-month-old decision in Preserved Mushrooms  in several key respects.  Finally, on the double-
conversion issue, the DOC failed to provide in the final determinations a reasonable justification for
departing from the established practice (embodied in Roses from Colombia ) of accepting charges in
the currency in which they are made.
199. As a result of these failures, the final determinations do not "contain . . . all relevant
information on the matters of fact and law," "all reasons which have led to the imposition of final
measures," "a full explanation of the reasons for the methodology used" and "a full explanation of the. . . reasons for the acceptance or rejection of relevant arguments." Consequently, they are not
consistent with the requirements of Article 12.2.
200. Perhaps as a result of the fact that these arguments are not concentrated in one place in
Korea’s First Submission, the United States seems to have largely avoided responding to them.  Whilereferences to Article 12.2 are sprinkled generously around the US Submission, there does not appear
to be much substance to the remarks.  The only c oncrete argument that Korea can identify (other than
general procedural arguments discussed with respect to Article X:3(a)) is a defense of the
inconsistency on "atypical" sales between the determinations in SSPC and SSSS.  The United States
argues essentially that Article 12.2 allows the DOC to be as inconsistent as it would like to be withoutany need for coherent explanations of those inconsistencies.
113  Korea submits that the US position
cannot be a correct interpretation of the Anti-Dumpin g Agreement.  For the requirement of providing
explanations to have any meaning, the explanations provided must be coherent.
3. The Sharp and Unwarranted Reversals in US Methodology on These Issues Between the
Preliminary and Final Determinations Effectively Deprived POSCO of the "Full" and
"Ample" Opportunity to Defend Its Interests Required by Article 6 of the Anti-
Dumping Agreement
201. Article 6 of the Anti-Dumping Agreement contains various rules that are intended to ensure
that respondents in an anti-dumping investigation know all of the elements of the case against them
and have a full and ample opportunity to respond thereto.  Korea has argued that the United States
violated Article 6 by not announcing several key aspects of the case against POSCO until the finaldetermination, when it was too late for POSCO to defend itself.
202. In response, the United States agrees (as it must) that "under Articles 6.1, 6.2, and 6.9 parties
should be afforded a full and ample opportunity to defend their interests."  Nevertheless, the
United States argues that POSCO was afforded that opportunity in the investigations at issue, because
it was permitted to submit and receive information and to make written and oral arguments and
because it received a preliminary determination.
114
203. The United States proposes an overly mechanical view of Article 6.  Contrary to the US
claim, it is not enough simply to go through the motions of observing all of the procedural formalities.Rather, whether a respondent was afforded the full and ample opportunity that Article 6 requires must
be judged by the Panel in light of all the facts and the totality of the circumstances.
204. As the history of the SSPC and SSSS cases reveals, this is a case where a respondent
submitted information that showed it was not dumping under the prevailing law, where the petitioner
                                                     
112 See Polyacetal Resins , paras. 222-24 (finding that the investigating authority did not provide an
"adequate statement of reasons" under Article 8:5 of the Tokyo Round Anti-Dumping Code, which is thepredecessor provision of Article 12.2, where its statement was "internally contradictory .").
113 See US First Submission, para. 100.
114 See US First Submission, para. 161.WT/DS179/R
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made meritless legal arguments to attempt to distort the dumping calculation (and the respondent
submitted a written response to those arguments), where the investigating authorities issued a
preliminary determinations indicating agreement with the respondent on all key legal issues, where
verification confirmed the accuracy of the info rmation submitted by the respondent, where the
petitioner failed to submit any significant new information or argument after the preliminary
determination, and where the investigating authority  then issued a final affirmative determination
reversing the preliminary determination and departing from established practice in several key
respects.  In such a case, while the procedural formalities may have been respected, the respondent
was nevertheless denied the full and fair opportunity to defend its interests in the proceeding requiredby Article 6.
205. In its First Submission, the United States has argued that Korea’s reading of Article 6 would
require investigating authorities to publish prelim inary determination after preliminary determination
over and over again until all the factual and legal issues in a case were resolved.
115  T h a t
characterization of Korea’s position is plainly not correct.  Article 6 does not require investigating
authorities to revise their preliminary determin ations each time they change a factual or legal
conclusion.  But it does require them to ensure that the opportunities the parties are given to comment
on the issues are meaningful.  The arbitrary decisions made by the DOC in the SSPC and SSSS cases
indicate that the DOC simply did not conform to that standard.  As a practical matter, the DOC failedto provide POSCO a full and ample opportunity to defend its interests in the cases at issue, in
violation of Articles 6.1, 6.2, and 6.9 of the Anti-Dumping Agreement.
III. REMEDY
206. Korea concluded its First Submission by asking the Panel (1) to "recommend that the
United States bring its anti-dumping measures against SSPC and SSSS from Korea into conformity
with the WTO Anti-Dumping Agreement and GATT 1994" and (2) to "suggest that the United States
revoke the anti-dumping duty orders concerning SSPC and SSSS from Korea."
116
207. This request was consistent with the provisions of Article 19.1 of the DSU, which states that:
Where a panel or the Appellate Body concludes that a measure is inconsistent with a
covered agreement, it shall recommend that the Member concerned bring the measure
into conformity with that agreement.  In addition to its recommendations, the panel or
Appellate Body may suggest ways in which the Member concerned could implement
the recommendations.
208. The United States appears to accept Korea’s first request for a "recommendation." However,
the United States objects to Korea’s second request for a "suggestion."  This objection is curious,
because Korea’s request for a "suggestion" by the Panel is clearly authorized by the plain text of the
second sentence of Article 19.1.
209. In any event, there is no basis for the United States to oppose Korea’s request for a
suggestion.  Although the heading of the US argument  baldly asserts that "the panel suggestion sought
by Korea is inconsistent with established panel practice and the DSU,"117 the United States has failed
to provide any panel practice or DSU text to support that naked assertion.  And, in fact, there are
ample precedents in which panels have suggested revocation of an anti-dumping order.118
                                                     
115 US First Submission, para. 166.
116 Korea’s First Submission, para. 5.9.
117 US First Submission, heading III.G.
118 See New Zealand - Imports of Electrical Transformers from Finland , Report of the Panel, adopted
on 18 July 1985, L/5814 - 32S/55, para. 4.11 ("The Panel proposes to the Council that it addresses to NewWT/DS179/R
Page 194
210. A suggestion that the anti-dumping measures be revoked is particularly appropriate in light of
Article 1 of the Anti-Dumping Agreement.  The first sentence of that Article provides, "An
anti-dumping measure shall be applied only under the circumstances provided for in Article VI ofGATT 1994 and pursuant to investigations initiated and conducted in accordance with the provisions
of this Agreement."  If the Panel finds that the anti-dumping investigations on SSPC and SSSS were
not "conducted in accordance with the provisions of [the Anti-Dumping] Agreement," then the
United States would lack the authority to maintain the measures and revocation would be the only
appropriate means of bringing itself into conformity with Article 1.
211. In other words, if Article 1 did not exist and the United States violated a provision of the
Anti-Dumping Agreement, it might be possible to bring the anti-dumping measures into conformity
without revocation.  But Article 1 precludes that po ssibility.  An anti-dumping measure applied
pursuant to an investigation that was not "conducted in accordance with the provisions of [theAnti-Dumping] Agreement" must be revoked.  Thus, a suggestion of revocation is entirely appropriate
here.
CONCLUSION
212. As discussed above, there actually are very few, if any, facts in dispute.  To be precise,
• On unpaid sales, there is no dispute that there were unpaid sales, that the DOC included the
unpaid sales in its analysis, and that the DOC also made an adjustment for the cost of non-
payment in its analysis of all US sales (including the direct sales made by POSCO and the
indirect sales through POSAM).
• On multiple-averaging, there is no dispute that the Korean won depreciated significantly
against the US dollar late in 1997, that th e DOC split the investigation periods into
sub-periods, that the DOC calculated separate averages for each sub-period, and that for those
sub-periods with "negative margins" the DOC "zeroed" those "negative margins" when
calculating the overall margin.
• On double-conversion, there is no dispute that the orders for the "local sales" were placed in
US dollars (and not in won), that the invoices showed both the agreed-upon dollar price andan amount in won calculated by applying the Korean Exchange Bank’s exchange rate in Seoul
on the date of invoice, that the won amount  on the invoice was recorded in POSCO’s
accounting records, that the customer paid in  won by converting the dollar price using the
Korean Exchange Bank’s exchange rate in Seoul on the date of payment, that the won amount
of the payment did not correspond to the won amount on the invoice, that the DOC chose to
calculate normal value based on the won amount s recorded in POSCO’s accounting records
instead of the actual dollar prices of the sales and to convert that amount back into dollars at a
different exchange rate announced by a different bank (the New York Federal Reserve) on a
                                                                                                                                                                    
Zealand a recommendation to revoke the anti-dumping determination and to reimburse the anti-dumping duty
paid."); United States - Anti-Dumping Duties on Gray Portland Cement and Cement Clinker from Mexico ,
Report of the Panel, ADP/82, 7 Sept. 19992, unadopted, para. 6.2 ("The Panel recommends that the Committeerequest the United States to revoke the anti-dumping duty order on grey portland cement and cement clinker
from Mexico and to reimburse any anti-dumping duties paid or deposited under this order."). Guatemala — Anti-
Dumping Investigation regarding Portland Cement from Mexico , Report of the Panel, WT/DS60/R, adopted 25
Nov. 1998, as modified by the Appellate Body on other grounds, para. 8.6. ("Therefore, we suggest thatGuatemala revoke the existing anti-dumping measure on imports of Mexican cement, because, in our view, this
is the only appropriate means of implementing our recommendation.").WT/DS179/R
Page 195
different date (the date of the US sale ), and that the double conversion in fact caused
distortions in calculation of the normal value.
For none of the substantive issues, therefore, are there any key facts in dispute.  There are only legal
questions concerning the propriety, fairness, and reasonableness of the US methodology.
213. Moreover, with respect to those legal questions, the proceedings before this Panel have
narrowed the issues considerably.  The United States has retreated significantly from the positions it
had taken previously, and has conceded virtually all of the critical points of Korea’s case.  Forexample, on the "unpaid sales" issue, the United States has conceded that the adjustment for the costs
of non-payment could only be justified if it was based on differences in the risk of non-payment in the
two markets (when the adjustment the United States actually made undeniably did not measure
differences in that risk).  On the "multiple-averaging" issue, the United States has effectively
conceded that there is no basis under the Anti-Dumping Agreement for treating pre- and post-devaluation sales as non-comparable transactions (under the provisions of Article 2.4.2 that require
the calculation of a single average for all "compara ble" transactions), since it has admitted that the
exchange-rate provisions of the Anti-Dumping Agreement do not "establish a limit on which sales
may be considered ‘comparable’ within the meaning of Article 2.4.2."  And, finally, on the "double-
conversion" issue, the United States has effectively conceded that the rationales offered by the DOCwere irrelevant, since they manifestly had no bearing on the issue that the United States now admits
was critical — that is, whether the sales prices were in fact fixed in US dollars.  Given these
concessions, the US determinations in the SSPC and SSSS cases cannot be sustained.
214. In any event, a review of the facts and the relevant legal principles confirms that the US anti-
dumping measures are inconsistent with numerous provisions of the Anti-Dumping Agreement and
GATT 1994.  Korea therefore requests that the Panel find that: (i) the United States has nullified or
impaired a benefit accruing to Korea, directly or indirectly, under the WTO Agreements; and (ii) the
United States is impeding the achievement of the objectives of the WTO Agreements.
215. Korea therefore requests that the Panel recommend that the United States bring its anti-
dumping measures against SSPC and SSSS from Korea into conformity with the Anti-DumpingAgreement and GATT 1994.  Specifically, Korea requests that the Panel suggest that the
United States revoke the anti-dumping orders concerning SSPC and SSSS from Korea.WT/DS179/R
Page 196
ANNEX 1-6
ORAL STATEMENT OF KOREA
SECOND MEETING OF THE PANEL
(12-13 July 2000)
CONTENTS
Page
A. U NPAID SALES ........................................................................................................................198
1. Permissible Allowances for Differences Affecting Price Comparability
under the Third Sentence of Article 2.4....................................................................198
(a) Article  2.3 ........................................................................................................199
(b) Allowances for Differences in Conditions and Terms of Sale and Other
Differences Affecting Price Compar ability .....................................................201
(c) Bad Debt and Warranty....................................................................................203
2. The Fair Comparison Requirement..........................................................................204
B. M ULTIPLE AVERAGING ...........................................................................................................205
1. Article 2.4.2................................................................................................................ ..205
2. Article 2.4.1................................................................................................................ ..206
3. "Fair Comparison" Requirement of Article 2.4 ......................................................2064. The US Justifications..................................................................................................207
(a) Comparable Tr ansactions.................................................................................207
(b) The Timing Requirement of Article 2.4...........................................................207
(c) Zeroing and Mult iple Averaging......................................................................208
(d) "Disguised" Dumping ......................................................................................208
C. D
OUBLE -CONVERSION ............................................................................................................209
1. Article 2.4.1................................................................................................................ ..209
2. The Fair Comparison Requirement of Article 2.4...................................................210
3. The DOC’s Justifications ...........................................................................................2104. Revised US Justifications ...........................................................................................211WT/DS179/R
Page 197
1. I have the honour to present the Republic of Korea’s response to the arguments that have been
made in the United States’ oral and written submissi ons.  I should start with the usual caveats:  I will
not address today every issue in the case, but will instead rely on the written submissions for a more
comprehensive presentation of Korea’s views.  I also reserve the right to make further comments asnecessary.
2. As with Korea’s previous oral statement, I shall divide my presentation by the three main
subjects that gave rise to the US errors at issue: unpaid sales, multiple averaging, and double
conversion.  Before turning to the substantive issu es before the Panel, however, I would like to make
a few introductory observations.
3. I have always thought that the issues in this case are fairly straightforward.  I would like to
use my time today to cut through all of the distractions and try as much as possible to crystallize the
points that are really in dispute.
4. Unfortunately, this task is more difficult than I had hoped, because the US arguments in this
case have been a constantly moving target.  In our initial submission, we addressed the reasoning
actually relied upon by the US Department of Commerce in its final determinations and in the
underlying record of the Plate and Sheet investigations. Then, in reading the first US submission, Ifound that the United States had more or less abandoned the DOC’s reasoning, and was offering
entirely new justifications for the DOC’s actions.  When I received the second round of submissions, I
found that the US had shifted ground once again.  Their new arguments in many instances contradict
their earlier assertions and the reasoning originally offered by the DOC.  By this point, I am quite
confused as to what the United States really is arguing.
5. I hope that the Panel does not share this confusion.  But, in the end, whatever confusion there
may be in the US arguments is irrelevant.  The issue before this Panel is not whether the United States
can now come up with creative new explanations for the DOC’s actions.  Those explanations are
nothing more than post hoc  justifications that should be ignored.  In keeping with the standard of
review applied by Panels in past anti-dumping cases such as Corn Syrup  and Polyacetal Resins , the
Panel should base its analysis of the issues in this case on the reasons announced in the DOC’s finaldeterminations.
1  I will do my best, therefore, to focus my attention on the DOC’s final
determinations, and not on the subsequent rationalizations the US has offered.
6. In the same vein, I would offer another intr oductory observation.  Throughout the final round
of US submissions, there is a suggestion that POSCO is somehow to blame for the unfair actions
taken by the DOC.  The United States seems to im ply that, if POSCO had only been a little more
forthcoming in providing certain critical informat ion, the DOC’s determinations might well have been
different.  This is an improper argument to make post hoc , when it is too late for POSCO to do
anything about it.  It would have been a very di fferent thing if the DOC had informed POSCO during
the investigation of these alleged deficiencies in  its information.  The truth is that POSCO itself
identified the key issues in this case to the DOC.  It told the DOC what the issues were and how it
thought the issues should be resolved.  It provided to the DOC all of the information that the DOC had
deemed relevant in addressing similar situations in past cases.
7. The final sentence of Article 2.4 of the Anti-Dumping Agreement specifically provides that
"The authorities shall indicate to the parties in question what information is necessary to ensure a fair
comparison and shall not impose an unreasonable burden of proof on those parties."2   Having failed
                                                     
1 See Responses of the Republic of Korea to the Questions Posed by the Panel at the First Meeting, at
1-2 ("Korea’s Responses to Panel Questions").
2 See also  Anti-Dumping Agreement, art. 6.1 ("[a]ll inte rested parties in an antidumping investigation
shall be given notice of the information which the authorities require....").WT/DS179/R
Page 198
to do so, the United States cannot now argue at the very final stages of a Panel proceeding that it was
the respondent that did not submit sufficient information.
8. Let me turn now to the substantive issues in the case.A. U
NPAID SALES
9. I will begin with the US treatment of POSAM’s unpaid sales to the "ABC Company."  To
begin with, it should be noted that there are no facts in dispute with regard to this issue.  It is
undisputed that POSAM made sales to the ABC Co mpany, that POSAM was not paid for some of
those sales, and that the Commerce Department accounted for these unpaid sales by either reducing
POSCO’s export price or increasing POSCO’s normal value — which have exactly the same effect on
the dumping analysis — for all of POSCO’s US sales.
10. The Commerce Department’s treatment of the unpaid sales was flawed in numerous respects.
Of these, I shall focus on two.  First , as we have shown previously, the US treatment of the unpaid
sales was inconsistent with the rules governing allowances for differences affecting price
comparability.  And, second , the US treatment of the unpaid sales was inconsistent with the "fair
comparison" requirement of the Anti-Dumping Agreement.
1. Permissible Allowances for Differences Affecting Price Comparability under the Third
Sentence of Article 2.4
11. In its final determinations in the Plate and Sheet cases, the DOC classified the cost of the non-
payment for the unpaid sales as a "direct selling expense."  Under US law, this meant that the
expenses would be included in the "circumstance- of-sale adjustment."  (And, I would note here that
the United States has since told this Panel that a "circumstance-of-sale adjustment" is the US law
equivalent of an allowance for "differences affecting price comparability" under the third sentence of
Article 2.4.)  The DOC explained that its treatment of the cost of non-payment as a "direct" expense
was appropriate because "but for the sale made to the bankrupt customer, the bad debt expense would
not have been incurred."3  Significantly, the DOC did not indicate that the so-called "bad debt" was a
consequence of any of the "conditions and terms" of the sale.
12. Korea’s first submission addressed the permissibility of the adjustment for the cost of non-
payment under the third sentence of Article 2.4, because that is the provision logically connected to
the DOC’s final determinations.  By calling the co st of non-payment a "direct" selling expense, the
DOC implicitly invoked that provision.  And, because the DOC’s final determination had not
identified any differences between the home-market sales and the US unpaid sales in the "conditionsand terms of sale, taxation, levels of trade, quantities, [or] physical characteristics," Korea specifically
addressed the applicability of the final phrase of the third sentence of Article 2.4 — which permits
adjustments for "any other differences which are also demonstrated to affect price comparability."
13. In its first submission, Korea demonstrated that the adjustment for the cost of the unpaid sales
was not permissible under that standard for two reasons: First , as a procedural matter, the cost of the
unpaid sales had not been demonstrated  to affect price comparability.  Second , as a substantive
matter, it was simply not possible for such a demonstration to be made.  Because the prices for the
sales were fixed before POSCO knew that the custom er would not pay, the cost of the unpaid sales
could not have affected the prices or price comparability of the sales under consideration.
4  A s  I
mentioned at the outset, these are straightforward issues.
                                                     
3 SSSS Final Determination , at 30674 (ROK Ex. 24); see also  SSPC Final Determination , at 15448-49
(ROK Ex. 11).
4 See Korea’s First Submission, paras. 4.17 - 4.19.WT/DS179/R
Page 199
14. The United States did not choose to defend the DOC’s determination on the grounds actually
stated by the DOC.  Instead, it has raised a variety of post hoc  arguments.  Let me try to summarize
them:
• First , in its first submission and in its first oral statement, the US argued that the adjustment
for the cost of non-payment was not an adjustment for a direct selling expense as a"circumstance of sale adjustment," but was instead an adjustment made to construct an export
price under Article 2.3 of the Anti-Dumping Agreement.  In response to Korea’s questions,
however, the United States belatedly admitted that it had made the same adjustment for the
direct sales to unaffiliated US customers.  With that admission, the US argument simply fallsapart.
• Second , the United States also argued in its first submission that, if the adjustment for the cost
of non-payment had to be analyzed under the third sentence of Article 2.4, it could be justifiedas an adjustment for a difference in the conditions  and terms of sale in the two markets.  In its
oral statement, the United States revised its position and argued that, although the actual non-payment was not a condition or term of sale, the risk of non-payment was a direct
consequence of the decision to grant sales terms that allowed the customer to delay its
payment.  This position was modified yet again in the most recent US submissions, where the
United States argued that the actual current cost of unpaid sales was the only practical
measure of the risk of non-payment — and that, in any event, POSCO was to blame if therecord of the Plate and Sheet investigations did not contain any further information on the risk
of non-payment in the two markets.
• Third , in its first oral statement, the United Stat es argued that the adjustment for the cost of
unpaid sales was analogous to the adjustments normally made for warranty expenses.
5
However, after we pointed out in our questions that the DOC normally makes the adjustment
for warranty expenses based on historical experience, the analogy to warranty expenses
disappeared from the US second submission.
15. I will address each of these issues in turn as briefly as possible.  In the end, however, I would
hope that the complications of these arguments will not distract the Panel from the fundamental point:No matter how convoluted the US arguments may be, they are ultimately irrelevant.  They do not
address the fundamental issues — that is, whether the DOC’s determinations and the rationales given
by the DOC  for those determinations are consistent with the requirements of the Anti-Dumping
Agreement.
(a) Article 2.3
16. I will start with the contention that the adjust ment for the cost of non-payment was justified as
an adjustment to "construct" an export price under Article 2.3 of the Anti-Dumping Agreement.
17. Let me begin by recapping the key undisputed facts. In both the Plate and Sheet cases,
POSCO made some "indirect" sales to US customers through its affiliated US importer POSAM.  It
also made some "direct" sales that were sold directly to unrelated US customers without theinvolvement of POSAM.  The adju stment for the cost of unpaid sales was made for comparisons
involving both categories of sales: The adjustment was deducted from the final US sales price for
comparisons involving the sales through POSAM.  For comparisons involving the direct sales, the
adjustment was not deducted from the US price, but was instead added to normal value.  The amount
of the adjustment was in both cases calculated in precisely the same manner .  And, because a
                                                     
5 US First Oral Statement at paras. 14-15.WT/DS179/R
Page 200
deduction from US price has the same effect on the dumping margins as an addition to normal value,
the net effect of both adjustments was the same.
18. I know I keep returning to the fact that the US made the same adjustment for the cost of non-
payment to both the direct export price sales and the indirect constructed export price sales.  I
apologize for the repetition.  But the point is fundamentally important.
19. To begin with, at the absolute minimum, the fact that the DOC made the adjustment for the
cost of non-payment to the direct sales means that the Article 2.3 defense is at best incomplete.  Theadjustment made to the direct export price sales cannot possibly be justified under Article 2.3, because
Article 2.3 only applies to indirect sales through an affiliated importer, and it does not apply to  direct
sales.  The adjustment made to the direct sales mu st, therefore, be justified, if at all, under the
provisions of the third sentence of Article 2.4 addressing "allowances for differences affecting price
comparability."
20. Moreover, the fact that the adjustment was made to the direct sales also eliminates the
viability of the Article 2.3 defense for the adjustment made to the indirect  sales as well.
21. In this regard, three important points should be noted:
• First , the third sentence of Article 2.4 (which describes the allowances for "differences
affecting price comparability") does not distinguish between direct and indirect export sales.
Instead, the third sentence applies equally to all export transactions.
• Second , the fourth sentence of Article 2.4 (which provides concrete guidance on the
adjustments permitted when constructing an export price under Article 2.3) is not independent
of the third sentence.  It does not describe an entirely separate scheme for making
adjustments.  Instead, it describes adjustments that should "also" be made to construct an
export price for sales through an affiliated importer.  The use of the word "also" in this
sentence is highly significant.  It means that  the adjustments for differences affecting price
comparability under the third sentence of Article 2.4 are to be made to all export sales,
including both the direct sales and the indirect sales.  Only after those adjustments have been
made, should the additional adjustments to construct the export price "also" be made.
• Third ,  the fourth sentence of Article 2.4 does not permit adjustments for all costs incurred by
the affiliated importer.  Instead, it permits an adjustment only for costs incurred between
importation and resale.  The cost of non-payment does not occur between  importation and
resale.  As both a temporal and functional matter, payment (or non-payment) cannot occur
until after  the resale has been made.  I certainly am not aware of any definition of the term
"between" that would encompass events that occur after  resale.
Thus, a careful review of the text of the Agreement reveals that the cost of non-payment cannot be an
appropriate adjustment to construct the export price under the fourth sentence of Article 2.4.
22. It should also be noted that the US defense cannot be reconciled with the objective and
purpose of Article 2.3.  As explained in Korea’s second submission, where the exporter sells to an
affiliated importer, Article 2.3 permits the investigating authorities to construct what an arm’s-length
price would be from the exporter to a hypothetical importer standing in the same point in the
transaction as the actual affiliated importer.  (A diagram illustrating this idea was provided atparagraph 57 of Korea’s second submission.)WT/DS179/R
Page 201
23. The purpose of the Article 2.3 adjustments, then, is to use the affiliated importer’s resale price
as the basis for constructing this hypothetical arm’s-length price to a hypothetical unaffiliated
importer.  (In the diagram, the concept is to construct price A from the known price B.)  Only costs
that the hypothetical unaffiliated importer could have passed back to the exporter should be includedin this calculation.  If the hypothetical unaffiliated importer would have had to "eat" the costs, then it
is not consistent with the purpose of Article 2.3 to deduct those costs from the resale price to construct
the export price.
24. The actual non-payment by the resale customer is the type of cost that the hypothetical
unaffiliated importer would have to "eat."  The cost of the non-payment would not affect the price that
the exporter charged this hypothetical importer, because that price would have been fixed before the
non-payment could ever have occurred.  Since the export price from the exporter to the hypothetical
unaffiliated importer would not have been affected by the final customer’s ultimate non-payment,
there is no basis for deducting the cost of non-payment by the final customer when constructing theexport price.
(b) Allowances for Differences in Conditions and Terms of Sale and Other Differences Affecting
Price Comparability
25. As mentioned, the United States’ second post hoc  argument is that the adjustment for the cost
of non-payment was permissible as an allowance for differences in the "conditions and terms of sale."
In particular, the first US initial submission asserted that the non-payment itself was the relevant
"condition or term of sale."
6  That argument was plainly absurd:  No contract contains terms
authorizing a customer to go bankrupt and refuse to pay.  To the contrary, contracts require payment
in accordance with specified terms and conditions.  Non-payment is a breach  of the sales contract.
26. In its first oral statement, the United States retreated from this ludicrous position.  Its revised
position was that, by agreeing to extend credit to the customer, POSCO accepted a risk of non-
payment.  The US asserted that, because this risk was a direct consequence of the contractual terms
that allowed the customer to delay payment, the risk could be included in the allowance for the
delayed payment terms of the sale.
27. This fallback position is also flawed.  Even if one assumes that the risk of non-payment is part
of the "conditions and terms of sale," this new US argument faces an insuperable obstacle:  The
Commerce Department did not make an adjustment for differences in risk of non-payment.  Instead,
the Commerce Department adjusted for the full costs of the actual non-payments by the ABC
Company — which is a very different thing.7
28. So, how does the United States attempt to reconcile its legal argument with the adjustment itactually made?  In its very latest round of submissions, the United States now contends, in essence,
that the difference in "actual bad debt expenses" is a proxy for differences in risk.  It even claims that
adjusting for actual non-payments is "the only practical means of making due allowance for anydifference in bad debt risk."
8  This latest argument by the United States does not withstand scrutiny.
• To begin with, this latest US argument is entirely a post hoc  rationalization.  The DOC did not
make any finding that the risk of non-payment was higher in the United States than in Korea.Instead, its decision to treat the cost of non-payment as a direct selling expense was based
solely on the fact that the non-payment in the United States was a direct consequence of the
                                                     
6 See US First Submission, para. 82 ("The United States interprets differences in ‘conditions and terms
of sale’ as including differences in selling expenses such as bad debt .") (emphasis added).
7 See US Responses, para. 78; Korea’s Second Submission, paras. 60-68.
8 See US Responses, paras. 78, 80.WT/DS179/R
Page 202
fact that POSCO sold to the ABC Company.  As I noted at the outset, the Panel should not
allow the United States now to substitute new reasoning for that actually employed by the
investigating authority.
• Moreover, this post hoc  rationalization has absolutely no support in the record of the
investigations.  There was no evidence of any difference in the terms of the home-market andUS sales that made it more likely that US customers would default.  Furthermore, there was
no evidence that, at the time POSCO set its prices during the investigation period, it had any
reason to believe that its risk of non-payment was higher in the United States than in Korea.
• More generally, there is no reason to believe that the actual non-payments in a single market
in a single year will correspond to the risk of non-payment.  In any given year a large defaultby a single customer in one market could lead to a large difference in actual non-payments.  A
deduction for differences in "actual bad debt expenses" in a given year may grossly overstate
the true differences in risk.  Simply put, the adjustment made by the DOC confused the small
risk of being hit by lightning with the large damage that is caused if one happens to be one ofthe few people hit.  The United States essentially adjusted for differences in actual ex-post
insurance claims for lightning damage during a single year, when it should have adjusted for
differences in the premiums to buy a lightning insurance policy ex-ante  for that year.
• The US confusion about actual occurrences and risks is well illustrated by the following US
argument:
"during the period of investigation, POSCO actually recognized
greater bad debt expenses, as a proportion of sales, in the US market
than in the Korean market.  This evidence would indicate that
POSCO should be charging higher prices in the US market due to thegreater proportion of bad debt expenses."
9
This argument plainly confuses the fact that an event actually happened with the question
whether it was known beforehand to be likely to happen (or, in this case, relatively more likely
to happen in the United States than in Korea).  The United States assumed that becausesomething happened, POSCO should have known that it was going to happen and raised its
prices accordingly.  In fact, however, as the United States concedes, "there was no evidence in
either case that POSCO had any knowledge at the time of sale that ABC Company was in
precarious financial condition."
10  This is simply a case of 20-20 hindsight.
• Finally, I note that the latest US submissions offer a new argument based on accounting
principles to support its use of "actual bad debt expenses" as a proxy for risk of non-payment.
The United States claims that:
"[I]n accordance with GAAP, companies normally  account for bad
debt through a reserve accounting method that is based on the
company’s experience.  Therefore, the bad debt expenses reflected in
a company’s accounting records for a particular market provides areasonable measure of the price effect of the risk of bad debt in that
market....
                                                     
9 See US Responses, para. 24.
10 See US Responses, para. 12.WT/DS179/R
Page 203
"As discussed above, companies normally account for bad debt using
a reserve accounting method that is based on the company’s
historical experience .  Under a reserve accounting method, the bad
debt expense recognized in a given period reflects that experience."11
This argument does not support the US case.  It is true that many companies do use "baddebt reserves" — which are based on estimates in light of historical experience.  But the
United States has expressly conceded that " POSAM did not use a bad debt reserve "
12 and
"POSAM’s accounting methodology was not based on experience."13  This was consistent
with the fact that POSAM had never before  had a non-payment in the United States.14
On the other hand, POSCO  did use a bad debt reserve and it did calculate the amount of the
reserve based on historical experience.  Nevertheless, the DOC refused to make an
adjustment for differences in terms and conditions of sale based on POSCO’s  records.15  In
other words, the accounting principles the United States now cites would have required the
DOC to make an adjustment for POSCO’s ba d debt reserve but not for POSAM’s actual
costs.  That is, of course, precisely the opposite of what the DOC did.
29. Thus, an adjustment for an actual non-payment cannot be accepted as a proxy for differences
in the risk of non-payment.
(c) Bad Debt and Warranty
30. In its first oral statement, the United States al so made the argument that the adjustment for the
cost of unpaid sales was analogous to the adjustments normally made for warranty expenses.16
However, after Korea pointed out that the DOC normally makes the adjustment for warranty expenses
based on historical experience, the analogy to warranty expenses was very much down-played in the
second US submission.
31. I must confess that I was very sorry to se e this analogy withdrawn.  To me, it describes
precisely what was wrong with the US claim that its adjustment measured differences in the risk of
non-payment in the two markets.
32. The United States has asserted that it used the cost of non-payment during the current year as
a "slice of time" to determine the risk of non-payment.17  It asserts that this approach is "the only
practical means" of measuring risk.18  And, it suggests that POSCO is  to blame if more complete
information was not available.  But the analogy to warranty expenses demonstrates that these USassertions are simply false.
33. For your reference, I have handed you pages on which I have reproduced the instructions the
DOC gave POSCO regarding the reporting of warranty expenses and bad debt expenses.
19   As you
can see, the DOC explicitly asked POSCO to provide historical warranty expenses data for a three
                                                     
11 See US Responses, para. 80-81 (emphasis added).
12 See US Responses, para. 82.
13 US Second Submission, para. 35.
14 See Korea’s Responses Panel Questions, at 9-10 (Response C.3).
15 See US Second Submission, para. 37.
16 US First Oral Statement, paras. 14-15.
17 See US Second Submission, para. 34; US Responses, paras. 81-82.
18 See US Responses, paras. 78, 80.
19 These passages are taken directly from the DOC questionnaires to POSCO in the SSPC and SSSS
cases, which were reproduced in POSCO’s questionnaire responses.  See SSPC Questionnaire Responses, at B-
34, and C-38 to C-39 (ROK Ex. 87); SSSS Questionnaire Responses, at B-35 and C-38 (ROK Ex. 88).WT/DS179/R
Page 204
year period.  By contrast, the DOC simply did not  ask POSCO to provide information on the risks of
non-payment in the two markets.  So, when the US st ates that it had no information to make a proper
adjustment for the risk of non-payment in this case , it is only reflecting the fact that it gave POSCO
absolutely no instructions on what information was required.
34. The United States implicitly seeks to reverse the applicable burden here, by asserting that
POSCO never provided any historical data.20  It is plain, however, that the burden was on the
United States to ask for the data needed to determine what adjustments to make.21  Since the
United States did not ask for historical data on non-payments, it cannot now justify its use of actualnon-payment as a proxy for risk of non-payment by claiming that the record was insufficient to allow
it to measure the risk of non-payment in any other way.
2. The Fair Comparison Requirement
35. As explained in Korea’s previous submissions, the "fair comparison" requirement of the first
sentence of Article 2.4 establishes a separate and free-standing obligation.  Moreover, while the
precise contours of this "fairness" requirement may be difficult to draw in the abstract, two points at a
minimum are undisputable: First , it is not fair to penalize an exporter by including "atypical" sales
that distort the results in the analysis.  Second , it also is not fair to penalize an exporter for an event
that it could not have anticipated and that was beyond its control.   Indeed, as noted in Korea’ssubmissions, the US courts have defined the "fairnes s" required in the dumping analysis under US law
in precisely this manner.
36. The DOC’s treatment of the unpaid sales plainly was not consistent with these standards.  It
unfairly included in the analysis US sales that we re, by the DOC’s own admission, "atypical" and that
distorted the calculations.  Moreover, its adjustment for the cost of the unpaid sales unfairly penalized
POSCO for an event that was beyond its control.
37. In response, the United States has attempted to read the "fair comparison" requirement out of
the Anti-Dumping Agreement altogether.  It argues th at the fair comparison requirement of the first
sentence of Article 2.4 must be deemed to be met whenever the methodologies described in the
remaining sentences of that Article have been followed.
38. That argument is, however, without merit.  The first sentence of Article 2.4 explicitly
provides that "A fair comparison shall be made between the export price and the normal value."  That
sentence must have substance and meaning.  Any other interpretation would improperly render that
sentence "inutile."
22
39. In the interests of time, I will not address the US arguments concerning the relationshipbetween the Tokyo Round Code and the current version of Article 2.4 in detail.  Let me just say that
the argument presented by the United States is absurd on its face.  To accept the US argument, one
would have to believe that all of the provisions of Article 2:6 of the Tokyo Round Code werediscretionary — including those requiring allowanc es for differences affecting price comparability.
23
                                                     
20 See US Responses, at para. 82.
21 See Anti-Dumping Agreement, art. 2.4 ("....  The authorities shall indicate to the parties in question
what information is necessary to ensure a fair comparison...."); Id., art. 6.1 ("All interested parties in an anti-
dumping investigation shall be given notice of the information which the authorities require....").
22 See Korea’s Second Submission, paras. 77-83.
23 See US Responses to Panel Questions, para. 3 ("One possible reading of this language was that the
fair comparison was not required, but if a member wi shed to make one, it should do so as instructed in
Article 2.6.  Thus, all of Article 2.6 could have been read as non-mandatory ."  (emphasis added)).WT/DS179/R
Page 205
Such an interpretation cannot be correct, because it contradicts the provisions of GATT Article VI,
which made such allowances mandatory.
B. MULTIPLE AVERAGING
40. I shall turn now to the second of the three main subjects at issue:  The US decision to split the
period of investigation, calculate separate averages for each sub-period, "zero out" the averages for
sub-periods with "negative margins," and then combin e the multiple averages into a distorted overall
average.
41. There are no facts in dispute with respect to this issue.  It is undisputed that the United States
engaged in "multiple averaging."  It is also undisputed that this methodology led to a higher dumping
margin than would have been calculated under a single-average methodology.  Finally, it is
undisputed that the United States adopted this methodology because it concluded that, without
multiple-averaging, the depreciation of the Korean won during the period would have resulted in thecalculation of dumping margins that were too low.
42. The only question is whether that methodology is permitted under the provisions of the Anti-
Dumping Agreement.  I believe, once more, that the issue is straightforward.  For the reasons set forth
in our previous submissions, this multiple-averaging methodology is directly contrary to therequirements of Article 2.4.2.  It is also inconsistent with the provisions of Article 2.4.1.  And, it
violates the fair comparison requirement of Article 2.4.
24
1. Article 2.4.2
43 Let me start with Article 2.4.2.  As we have discussed previously, Article 2.4.2 of the Anti-
Dumping Agreement requires that dumping margins be calculated "on the basis of a comparison of a
weighted average  normal value with a weighted average  of prices of all comparable export
transactions or by a comparison of normal value and export prices on a transaction-by-transaction
basis." This language clearly indicates that only one average normal value and one average export
price is contemplated for each comparison.
44. In its questions during the first meeting, the Panel asked us to explain how this interpretation
of Article 2.4.2 can be reconciled with the common practice of calculating separate dumping margins
for individual products or different levels of trade.   While we have set forth our answer at length in
our written submissions, let me try to summarize our position here:  The key is in the phrase
"comparable transactions."  Article 2.4.2 does not require one average of every single home-market
sale and another average of every single export sale.  Rather, it requires a single average for allcomparable transactions.  Thus, to properly understand Article 2.4.2, it is necessary to analyze the
factors that affect whether transactions are comparable.
45. As we have noted before, the word "comparable" means "capable of being compared."  In the
context of Article 2.4.2, this means that transactions that can be compared under the provisions of theAnti-Dumping Agreement are "comparable" transactions.  Transactions that cannot be compared
under the provisions of the Anti-Dumping Agre ement are not "comparable" transactions.
46. There are, of course, a number of substantive limitations on the transactions that may be
compared under the Anti-Dumping Agreement — which we have listed in our submissions.Significantly, there is no provision in the Anti-Dumping Agreement that says that sales made when
the exchange rate is at one level cannot be compared to sales when the exchange rate was at another
level.  The only provision of the Agreement that addresses exchange rates is Article 2.4.1.  And, the
                                                     
24 See Korea’s First Submission, paras. 4.43 - 4.63.WT/DS179/R
Page 206
United States has specifically recognized that Article 2.4.1 does not "establish[] a limit on which
transactions may be considered ‘comparable’ within the meaning of ... Article 2.4.2."25
47. Korea’s position is also consistent with the past Panel decision in the Cotton Yarn  case.  In
that case, the Panel specifically concluded that "[ t]he exchange rate in itself is not a difference
affecting price comparability."  That Panel reasoned that an exchange rate "is a mere instrument for
translating into a common currency prices that have previously been rendered comparable" under
other rules.26   The Panel explained that determinations of price comparability occur at a different,
earlier stage of a dumping analysis than do the actual comparisons of export price to normal value.27
The Cotton Yarn  Panel stated that the exchange rate’s function arose "subsequently" to determinations
of price comparability.28
2. Article 2.4.1
48. There is another problem with the multiple-averaging methodology adopted by the DOC:
That methodology is inconsistent with the framework established by Article 2.4.1 of the Agreement
for dealing with currency movements.
49. As mentioned, Article 2.4.1 is the only provision of the Anti-Dumping Agreement that
addresses exchange rates or the permissible modifications to the dumping calculation methodology toaccount for exchange rate movements.  Significantly, Article 2.4.1 sets forth special rules that apply to
situations in which the exporting country’s currency has been appreciating .  However, Article 2.4.1
does not permit any adjustment to the dumping calculations to account for a depreciation  of the
exporting country’s currency.   Consequently, because the multiple-averaging methodology was
adopted to account for the depreciation  of the Korean won, it was inconsistent with the framework
established by Article 2.4.1.
3. "Fair Comparison" Requirement of Article 2.4
50. Finally, as we have noted previously, the multiple-averaging methodology was particularly
unfair in the unique circumstances of the SSPC and SSSS cases.  The US industry’s claims for relief
in these cases were predicated on the claim that anti-dumping orders were needed to protect the US
industry from an increase in imports after the devaluation of the Korean won.
29  Because these cases
were predicated on the effects of the devaluation, a fair analysis of whether POSCO was truly
engaged in dumping necessarily should have focused on pricing data after the devaluation.  Yet, it
was precisely that data that the multiple-averaging methodology effectively "walled off" from the
DOC’s price comparisons.
51. The result was a dumping determination based solely on pre-devaluation data in a case that
was predicated on post-devaluation imports.  Such a result is plainly unfair, and it therefore violates
the "fair comparison" requirement of Article 2.4.
                                                     
25 US First Submission, para. 142.
26 See EC — Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil , Report of the
Panel, ADP/137, adopted on 30 Oct. 1995, para. 494.
27 See Cotton Yarn , para. 501; accord United States — Imposition of Anti-Dumping Duties on Imports
of Fresh and Chilled Atlantic Salmon from Norway , Report of the Panel, ADP/87, adopted on 27 Apr. 1994,
para. 480.
28 See Cotton Yarn , para. 494.
29 See Korea’s First Submission, paras. 3.48 and 4.61.WT/DS179/R
Page 207
4. The US Justifications
52. The United States agrees that Article 2.4.2 requires the calculation of a single average normal
value and a single average export price for each "group of comparable transactions."30  I t  a l s o
concedes that changes in exchange rates by themselves do not "establish[] a limit on whichtransactions may be considered ‘comparable’ within the meaning of ... Article 2.4.2."
31
53. Instead, the United States offers four arguments to justify the adoption of the multiple-
averaging methodology.  First , it contends that the word "comparable" in Article 2.4.2 is so
ambiguous that the investigating authorities are free to interpret it in essentially any manner they see
fit.  Second , it contends that the multiple-averaging methodology was properly adopted to ensure that
the comparisons were made "in respect of sales at as nearly as possible the same time."  Third, it
argues that Korea’s arguments about multiple averaging are an impermissible attack on the practice of
"zeroing."  And, fourth , it contends that the multiple averaging methodology was needed to prevent
the exchange rate shifts from "disguising" dumping.  Let me address each of these arguments in turn.
(a) Comparable Transactions
54. I will turn first to the US arguments regarding the meaning of "comparable transactions" in
Article 2.4.2.  The US argues that its interpretation of the word "comparable" is entitled to
deference.32  As we have noted previously, this claim for deference is inconsistent with the provisions
of Article 17.6(ii) of the Anti-Dumping Agreement.33
55. In any event, the US claim for deference is part icularly strained in this context:  There is no
US interpretation of the word "comparable" to which the Panel could defer.  Korea has submitted that
the word "comparable" means, in essence, "capable of being compared."34  The United States has
neither disputed that interpretation nor offered any interpretation of its own.  The meaning of the word
"comparable" is simply not in dispute.
(b) The Timing Requirement of Article 2.4
56. Let me turn now to the US arguments regarding the timing requirement of Article 2.4.  In its
first oral statement, the United States for the first time suggested that the multiple-averaging
methodology was adopted to implement the requirement of Article 2.4 that sales be compared at "asnearly as possible the same time."  In its second submission, this has become the principal US defense
for its methodology.  This post hoc  defense is, however, without merit.
57. The multiple-averaging methodology in these cases did not purport to limit the comparisons
to sales made at the same time.  Indeed, that methodology did not take the amount of time between thesales into account at all.  It did not say that the only sales that could be compared were the sales made
within the same month or week or day.  Instead, it said that all sales prior to October 31 could be
included in one comparison and that all sales after November 1 could be included in another
comparison.  In the Plate case, for example, this meant that sales as much as ten months apart (from
January 1 to October 31) might be included in the same comparison, but that sales one day apart (fromOctober 31 to November 1) could not.  Such a methodology might limit the comparisons to sales
made under similar exchange rates.  However, it si mply does not limit the comparisons to sales at the
                                                     
30 See US Second Submission, para. 42.
31 US First Submission, para. 142.
32 See US Second Submission, paras. 44-45.
33 See Korea’s First Oral Statement, para. 77; Korea’s Second Submission, paras. 15-18.
34 See Korea’s Responses to Panel Questions, at 4 (Response B.1) (quoting Webster’s Third New
International Dictionary).WT/DS179/R
Page 208
same time.  Consequently, the timing requirement of Article 2.4 cannot justify the multiple-averaging
methodology.
58. Moreover, the US arguments regarding the timing requirement of Article 2.4 ignore the nature
of a comparison that is based on an average normal value and export price.  An average-to-average
methodology does not compare the individual transacti ons that are included in the calculation of the
average.  Rather, the comparison is made only after the average has been calculated.  When a series of
home-market sales is averaged, the result is an average home-market sale made, on average, at the
mid-point of the period.  When a series of export sales is averaged, the result is an average export salemade, on average, at the mid-point of the period.  As  long as the sales in both markets are spread in a
similar manner throughout the period, the averaging process will result in an average home-market
sale and an average export sale made, on average, at the same time.  Thus, the averaging process
necessarily takes care of the timing requirement of Article 2.4 (unless the sales in the two markets are
weighted disproportionately in different parts of the period).
(c) Zeroing and Multiple Averaging
59. The United States has also suggested that Korea’s arguments about multiple averaging are a
surreptitious attack on the practice of "zeroing" — which, the United States, contends, is explicitly
permitted by the Anti-Dumping Agreement.
35  This argument is, however, off target.
60. It is true, of course, that a finding that the Anti-Dumping Agreement does not permit
"zeroing" as a general matter would require that the DOC’s multiple-averaging methodology be
overturned — because "zeroing" was an essential part of that methodology.  Korea has, therefore,
challenged the practice of zeroing as applied thro ugh the multiple-averaging methodology in this case.
Moreover, as described in Korea’s previous submissions, it was the zeroing aspect of the multiple-
averaging methodology that led to the inflation of the dumping margins and the unfair bias in the
DOC calculations.
61. Of course, the issue of "zeroing" is not critical to Korea’s position — because the provisions
of Article 2.4.2 requiring a comparison of single averages are independent of any zeroing issues.
Nevertheless, we note for the record that Korea does  not believe that zeroing is permitted as a general
matter in dumping calculations under the Anti-Dumping Agreement.
(d) "Disguised" Dumping
62. Finally, let me turn to the real basis for the US decision — which was the DOC’s sense that
the depreciation of the Korean won would "disguise" dumping margins unless a multiple-averagingmethodology were adopted.
63. As an initial matter, I would note that the negotiating history underlying the averaging
provisions suggests that the Panel should be wary about accepting notions of "disguised" margins to
overrule the actual language of the provisions.  As noted in our second submission, the provisions ofArticle 2.4.2 represent a carefully negotiated bargain among the WTO Members on issues that were
highly contentious during the Uruguay Round negotiations.
36  By arguing that the single-average
methodology which is required by those provisions should be disregarded because it "disguises"
dumping margins, the United States is essentially asking the Panel to undo the careful bargain
reflected in Article 2.4.2.  The Panel plainly should not accept that invitation.
                                                     
35 See US Responses, para. 97.
36 See Korea’s Second Submission, paras. 119-21, citing Terence P. Stewart, ed., II The GATT Uruguay
Round: A Negotiating History, 1986-1992 , at 1537-43 (1993) (ROK Ex. 77).WT/DS179/R
Page 209
64. Moreover, the idea of "disguised" dumping margins in the Plate and Sheet cases is highly
biased — because it overemphasizes the higher dumpi ng margins that result from an over-valued
currency, and ignores the lower dumping margins that result from an under-valued currency.
Throughout all of the exchange rate shifts in these cases, the prices for POSCO’s Korean and US sales
changed little.37  However, the results of a comparison of those prices using the shifting exchange
rates changed dramatically.  Prior to November 1997, when the won in hindsight was over-valued, the
Korean prices seemed higher than the US prices.  By contrast, in November and December 1997,
when the won was apparently under-valued, the Kor ean prices seemed lower than the US prices.
65. The multiple-averaging methodology is biased, therefore, because it calculates one dumping
margin for the period when the won was over-value d and a separate margin for the period when the
won was under-valued — and then effectively ignores the latter through "zeroing."  A fair comparison
would not allow such a bias.  Instead, a fair anal ysis would have given both periods equal weight, to
avoid the distortions inherent in an analysis that examined only a period in which the exchange ratewas biased in one direction.
C. D
OUBLE -CONVERSION
66. I shall now turn to the third and final subject gi ving rise to the US errors in dispute:  The
double-conversion of local sales from dollars to won and back to dollars at a different exchange rateannounced by a different bank on a different date.
1. Article 2.4.1
67. POSCO made certain sales in Korea which are known as "local sales."  The orders for these
sales were fixed in dollars.  In fact, the order sheets for these sales showed only a dollar amount andnot a Korean won amount.  The invoices for these sales also showed a dollar amount.  This dollar
amount was the same as the dollar amount shown on the order sheet.  It is also true that the invoices
showed a Korean-won equivalent of the dollar price as an accounting convenience (since the amounts
had to be recorded in the Korean accounting records of both POSCO and the customer in Korean
won).  This Korean-won equivalent shown on the in voices was determined by converting the dollar
price from the order sheet into won using the official Korean Exchange Bank rate on the date of the
invoice.
68. In its final determinations, the DOC chose to  ignore the dollar prices that were reported by
POSCO.  Instead, it chose to begin with POSCO’s converted won data — which had been calculated
by POSCO by applying the Korean Exchange Bank’s exchange rate on the date of invoice to the
dollar price.  The DOC then converted those amounts back to dollars using a different exchange rateon a different date — specifically, the DOC’s official exchange rate based on the New York Federal
Reserve’s exchange rate for the date of the US sale .  This methodology was virtually guaranteed to
distort the normal value of the local sales.  In fact, Korea has provided an example where there was a
distortion of more than 70% .
38
69. As Korea has argued throughout this proceeding, Article 2.4.1 of the Anti-Dumping
Agreement only permits currency conversions to be made when they are "required."39  And, although
the United States objected to that argument at first, it now appears to concede the point.40  Thus, the
only question for the Panel is whether the second conversion from won to dollars was "required."  If
                                                     
37 See POSCO Rebuttal Brief (SSPC), at 20-21 (ROK Ex. 9);  POSCO Case Brief (SSSS), at 21-22
(ROK Ex. 20).
38 See Korea’s First Submission, para. 3.58.
39 See Korea’s First Submission, paras. 4.66 - 4.69; Korea’s Second Submission, paras. 161-65.
40 See US Responses, paras. 63, 102.WT/DS179/R
Page 210
this conversion was not "required," then the US treatment of POSCO’s local sales must be found
inconsistent with WTO disciplines.
70. This is another straightforward issue:  POSCO reported US dollar prices.  There is no dispute
that the reported US dollar prices matched the amounts shown on the order sheets and the invoices to
the customers.  There is no dispute that the payment was based on those US dollar prices.
Consequently, a currency conversion was not "require d."  The DOC’s decision to base its calculations
on converted-won amounts and then convert them back  to US dollars using a different exchange rate
violated Article 2.4.1.
2. The Fair Comparison Requirement of Article 2.4
71. As we have noted previously, the DOC’s met hodology was also unfair.  It penalized POSCO
by inflating the normal value and hence the dumping margins for comparisons involving local sales.
And, it did so simply because the exchange rates on the date of the home-market sales (which hadbeen used to convert the dollar prices for these sale s into won) were different from the exchange rates
on the date of the US sales (which the DOC subseq uently used to convert the converted-won amounts
back into dollars).
72 As I mentioned previously, the "fair comparison" requirement of the first sentence of
Article 2.4 requires, at a minimum, that exporters not be punished for events beyond their control.
The DOC’s methodology plainly does not meet that  standard, because it punished POSCO for a
change in exchange rates that was obviously bey ond POSCO’s control.  Again, the issue here is very
straightforward.
3. The DOC’s Justifications
73. The United States has offered a number of explanations for the DOC’s decision to use the
converted won amounts, and not the reported dollar prices, as the starting point for its calculations.
However, as I noted at the outset, the issue is not whether the United States can now come up with
creative post hoc  explanations to justify the DOC’s decision.  In order to assess the validity of the
DOC’s methodology, it is necessary to examine the reasons the DOC  gave for ignoring the reported
dollar prices.
74. In the final determination in Plate, the DOC gave three reasons for using the converted won
amounts:  (1) POSCO recorded the sales in its acc ounting system in won, (2) the exchange rate used
by POSCO to convert the dollar prices into the w on amount recorded in its accounting system differed
from the exchange rate used by the DOC, and (3) POSCO was paid in won.
41   In fact, however, none
of these factors explains why the double-conversion was "required."  They fail, therefore, to provide
any basis for the Panel to find the double-conversion consistent with Article 2.4.1.
75. Let us start first with the purported differen ce in exchange rates.  To begin with, the
differences were much smaller than the DOC suggested.  As demonstrated in Korea’s submissions,the supposed differences result principally from the fact (which the United States admits) that the
DOC mistakenly based its comparison on the wrong exchange rate.  Under a proper comparison, the
                                                     
41 See SSPC Final Determination (ROK Ex. 11) at 15456.  In Sheet, the final determination also
mentioned two other factors, but they are clearly irre levant and the United States has not raised them as
justifications before this Panel.  See SSSS Final Determination, at 30678 (ROK Ex. 24) ("local sales are the only
sales made in the home market that are expressly linked to a dollar value" and "the vast majority of the costsincurred for home market and US sales are denominated and paid by POSCO in won").WT/DS179/R
Page 211
supposed differences essentially vanish.42  Thus, the factual underpinning s for the DOC’s justification
have no merit.
76. But even if the DOC had been correct, what difference would it have made?  The exchange
rate POSCO used to record won amounts in its a ccounting system had no bearing on the accuracy of
the reported US dollar prices — and it did not prevent the DOC from using the reported dollar prices
and avoiding the currency conversions altogether.  Moreover, there was no basis for concluding that
POSCO had manipulated the won amounts recorded in  its accounting system for any purpose.  After
all, POSCO did not just make up the exchange rates it used.  Instead, it used official exchange ratesset by the Korean Exchange Bank.  In the end, the DOC’s decision reduces to a kind of economic
chauvinism, which penalized POSCO because it used official Korean rates that differed slightly from
rates published by the New York Federal Reserve.  That result is patently unfair, and it cannot
possibly be reconciled with the requirements of the Anti-Dumping Agreement.
77. The second justification offered by the DOC wa s that the sales were recorded in POSCO’s
accounting system in won.  That justification is, however, equally irrelevant.  It is a basic accounting
principle that all of POSCO’s sales and costs worldwide, whatever currency they are denominated in,
must be recorded in POSCO’s books in the same currency.
43  For example, POSCO’s US sales  were
recorded in its accounting system in won.  Yet,  the DOC did not use those converted won amounts to
determine the export price.  Why, then, should it matter that the local sales were also recorded in
POSCO’s accounting records in won?  Indeed, even the United States has now backed away from any
reliance on this factor: It now says that "The United States did not base its factual determination on
whether a currency conversion was made for ‘accounting purposes.’"44
78. This brings us to the DOC’s third and final justification — the fact that the sales were paid inKorean won.  Again, this factor has no rational nexus to the DOC’s decision to base its calculations
on the won amounts shown on POSCO’s invoices.  Most fundamentally, the won amounts of the
payments did not match the won amounts on the invoices.  It is plainly absurd to use one won amount
as the price for the sale, simply because the customer paid a different won amount — and especially
where both won amounts simply reflected the fixed dollar price converted using official exchange
rates.
79. Therefore, none of the three reasons given in the final determinations provide any rational
basis to conclude that the reported won amounts for th e local sales had to be used as the basis for the
DOC’s calculations and that the subsequent re-conversion of those won amounts into dollars was
"required."
4. Revised US Justifications
80. The United States has once more attempted to muddy the waters by invoking a whole series
of alternative justifications for the DOC’s determinations.  I could simply dismiss them all as
irrelevant post hoc  rationalizations.  However, I feel constrained at least briefly to explain why these
justifications are wrong as well as irrelevant.
81. First , the United States claims that the DOC’s decision to choose the converted won data over
the actual dollar prices was a "factual determination" entitled to extreme deference.
45  That assertion is
plainly wrong, because there were no facts in dispute.  Please allow me a moment to review the key,undisputed facts:
                                                     
42 See Korea’s First Submission, paras. 3.60, 4.77 - 4.88; Korea’s Second Submission, paras. 145-49.
43 See Korea’s First Submission, paras. 3.49 - 3.54.
44 See US Responses, para. 108.
45 See US First Submission, para. 175.WT/DS179/R
Page 212
• The orders for these sales were placed in dollars, and not in won.
• The invoices set forth the order price in dollars.
• The invoices also showed an amount in won, which was calculated by applying the exchange
rate on the date of invoice to the dollar price.
• Payment was made in won.  The amount due was calculated by applying the exchange rate on
the date of payment to the dollar price.
• When the exchange rate on the date of invoice differed from the exchange rate on the date of
payment, the won amount of the payment did no t match the won amount of the invoice.  In
such circumstances, a resulting exchange gain or loss was recorded in POSCO’s accounting
records to balance the two.
All of these facts were verified by the DOC.  Ba sed on those facts, the DOC’s verification report in
Sheet  concluded that "local sales are dollar denominated."46   At no point in any of its determinations
did the DOC point to any factual disput es between it and POSCO on this issue.
82. Second , the United States argues that the DOC could not have used the dollar prices of the
local sales, because POSCO did not use the me thodology for currency conversions specified in
Article 2.4.1.47  This argument is, frankly, backwards.  The dollar price was the price that was actually
fixed by the sales agreement between POSCO and the customer.  POSCO did not make any currencyconversions to produce the dollar price.  Rather, the only currency conversions made by POSCO
converted the actual dollar prices into won.  Th e DOC then used that converted won amount as the
basis for its calculations and effectively adopted POSCO’s exchange-rate conversions.  The only way
the DOC could have avoided using POSCO’s conversions would have been to use the original
unconverted dollar prices.  Thus, this new US argume nt does not justify the decision to use converted
won data instead of the original dollar prices.  To the contrary, it shows why the DOC should have
used the dollar prices.
83. Third , the United States now argues that "the customer is charged (invoiced) in won."
48  This
argument directly contradicts the final determinations themselves.  The final determinations clearlyand repeatedly stated that the local sales were invoiced in dollars .  They noted that the shipping
invoice for some  of the local sales ( i.e., those sold through POSTEEL in "Home-Market Channel 2")
"also shows the won price," but the use of the word  "also" reinforces that the won amount was
secondary to the dollar price on the invoices.
49  In any event, the mere appearance of converted won
amounts on invoices does not justify the DOC’s choice to use the won amounts instead of the dollar
prices — since the dollar prices were on the invoices as well.
84. Fourth , the United States now alleges that POSCO failed to provide it enough information
quickly enough to demonstrate that the local sales were denominated in dollars, particularly in the
                                                     
46 See SSSS Sales Verification Report, at 14 (ROK Ex. 19); Korea’s Responses to Panel Questions,
at 21-23 (Responses D.2 - D.3).
47 See US First Submission, para. 178; US Second Submission, para. 65.
48 See US Second Submission, para. 64.
49 See SSPC Final Determination, at 15456 (ROK Ex. 11) (emphasis added).  Although the DOC noted
the won information on the invoices, it did not rely on that in its reasoning.  See id.; see also  SSSS Final
Determination, at 30678 (ROK Ex. 24) (citing only the three factors mentioned above as the basis of thedecision in Plate).WT/DS179/R
Page 213
Plate case.50  Again, this is another of the post hoc  rationalizations that is noticeably absent from the
final determinations.  The DOC it self did not determine that POSCO’s factual submissions on this
issue were insufficient.  And it is clear from th e undisputed facts that such a claim would have been
baseless:
• In both cases, POSCO told the DOC that the local sales were denominated in dollars.51
• In both cases, POSCO showed the DOC order shee ts for local sales proving that the orders
were placed in dollars only.52
• In both cases, the DOC verified that the won amounts shown on POSCO’s invoices and sales
ledgers were converted from the dollar price using the exchange rate on the date of invoice.53
• In Sheet, POSCO informed the DOC more than one month before the preliminary
determination that POSCO’s accounting for paym ents of local sales reflected "the difference
in the exchange rate on the date of sale and the date of payment."54  The DOC later verified
that the won amounts paid were not the won am ounts shown on the invoice, but were instead
the won equivalents of the dollar price.  It further verified that differences due to exchangerate movements were recorded as exchange gains or losses.  The Verification Report
concluded that "local sales are dollar denominated."
55
POSCO’s factual submissions plainl y put the DOC on notice that the prices for these sales were fixed
in dollars and not in won.  If the DOC had further factual questions, it could have requested additionalinformation from POSCO during the investigation  — and, indeed, it was required to do so by
Articles 2.4, 6.1, and 6.9 of the Anti-Dumping Agreement.  Having failed to seek information it
claims to have needed, the United States cannot blame POSCO for the alleged deficiencies in the
record.
                                                     
50 See US Responses, paras. 35-59.
51 See US Responses, paras. 48, 58 (admitting that, in both cases, POSCO told the DOC that the
amounts due in won were "based on the US dollar invoiced price").
52 See Korea’s Responses to Panel Questions, at 20-21, 22-23 (Responses D.1, D.3) (and ROK Exhibits
cited therein).
53 See SSPC Sales Verification Report, at Ex. 6 (ROK Ex. 6), Ex. 23-24 (ROK Ex. 84); SSSS Sales
Verification Report, at Ex. 17, 20 (ROK Ex. 46, 86).
54 See US Responses, para. 55 (admitting that POSCO so informed the DOC on November 23, 1998).
55 See SSSS Sales Verification Report, at 14 (ROK Ex. 19); Korea’s Responses to Panel Questions,
at 21-23 (Responses D.2 - D.3).WT/DS179/R
Page 214
ANNEX 1-7
RESPONSES OF KOREA TO QUESTIONS POSED BY THE PANEL
SECOND MEETING OF THE PANEL
(28 July 2000)
CONTENTS
Page
I. CURRENCY CONVE RSION..............................................................................................215
II. UNPAID SALES ................................................................................................................ ...217
III. MULTIPLE AVERAGING .................................................................................................225
NOTE:  In this submission, including the exhibits, Korea has placed information which POSCO has
previously designated as business proprietary information in brackets ("{ }").  This information has
been omitted and the brackets left in the text."{ }"WT/DS179/R
Page 215
I. CURRENCY CONVERSION
1. As an initial matter, Korea notes that the Panel has asked several questions concerning the
state of the record regarding the local sales issue.  Korea respectfully submits that it is not necessary
for the Panel to examine the record in the manner suggested by the Panel’s questions.  As mentioned
at the Second Meeting, "for a panel to review a determination by reference to considerations not
actually reflected in a public statement of reasons accompanying such determination would also be
inconsistent with the requirements of an orderly and efficient conduct of the dispute settlement
process...."1
2. The DOC’s final determinations provided thr ee reasons for the decision to ignore the dollar
prices provided by POSCO:  (1) POSCO was paid in  won; (2) POSCO recorded the local sales in its
ledgers in won; and (3) there were differences between the exchange rates used by POSCO and those
used by the United States.2  No other factors were relied upon in the final determinations.  Thus, the
question before the Panel is whether a determination based on those factors — and those factorsalone — was consistent with the requirements of the Anti-Dumping Agreement.
3. Significantly, the DOC did not rely on any fail ure by POSCO to provide relevant information
in a timely manner.  (If the DOC had relied on such a claim, it would have been required by the last
sentence of Article 2.4 and the provisions of Article 6.1 to indicate to POSCO what additional
information was required.)  Moreover, the DOC also did not rely on the fact that the invoices for thelocal sales showed prices in Korean won.  (To the c ontrary, the final determinations specifically stated
that all local-sales invoices showed the prices in  U.S. dollars, while only some of the local-sales
invoices "also" showed prices in Korean won.)  Thus, the effort by the United States to inject those
issues into the Panel’s consideration is improper, because those issues were not relied upon by the
DOC when it made its determination.
4. In addition, as mentioned at the Second Meeting, Korea respectfully submits that it is possible
for the Panel to resolve the local sales issue without deciding whether the local sales were
denominated in dollars or won.  The question for the Panel is whether or not the currency conversion
made by the DOC was "required."
3  The DOC ignored the dollar prices provided by POSCO, and
instead converted the converted won amounts into dollars.  That conversion was not required.  There
is no reason to believe that the dollar prices provided by POSCO were unreliable or that the DOC had
to ignore them for some reason, such as to eliminate or reduce some type of distortion.  The
conversion was, therefore, inconsistent with Article 2.4.1 of the Anti-Dumping Agreement.
Significantly, nothing in the DOC’s final determinations (or even in the U.S. arguments before the
Panel) explains why that conversion was required .  That should be the end-point of the Panel’s
review.
5. The answers provided to the individual questions below are without prejudice to Korea’s
position that the Panel should limit its review of U.S. treatment of POSCO’s local sales to the reasons
provided in the DOC’s final determinations.
                                                     
1 Korea — Anti-Dumping Duties on Imports of Polyacetal Resins from the United States , Report of the
Panel, ADP/92, adopted on 27 Apr. 1993, para. 210; see also Mexico — Anti-Dumping Investigation of High
Fructose Corn Syrup (HFCS) from the United States , Report of the Panel, WT/DS132/R, adopted 24 Feb. 2000,
paras, 7.104, 7.192.
2 SSPC Final Determination, at 15456 (ROK Ex. 11); SSSS Final Determina tion, at 30678 (ROK
Ex. 24).
3 Korea notes that, in both the SSPC and SSSS invest igations, POSCO expressly argued the local sales
issue in terms of whether or not the double-conversion was "required."  See POSCO’s SSPC Case Brief, at 5
(ROK Ex. 7); POSCO’s SSSS Case Brief, at 4 (ROK Ex. 20).WT/DS179/R
Page 216
Q.1. For the United States.  In the Plate case, did you verify any "dollar-denominated" sales
local sales?  If so, did you verify the amou nt actually paid in respect of those sales?
6. The DOC verified three dollar-denominated local sales in the Plate case.  This is evident from
Exhibits 6, 23, and 24 of the SSPC Sales Verification Report.4  Because the Plate customers paid on a
rolling basis, the DOC did not verify the amount actuall y paid in respect of particular local sales.  The
DOC did, however, verify other information suffic ient to demonstrate that the local sales are
denominated in dollars, including the fact that the order sheets are denominated solely in dollars and
the fact that the won amount shown on the invoice was calculated from the dollar price.5  The DOC
also verified POSCO’s accounting system, which includes an account for exchange gains and losses.6
Q.2. For Korea.  It is the understanding of the Panel that the initial questionnaire responses
in both the Plate and Sheet cases reported the "loc al dollar-denominated sales" at issue at the
invoiced price in won, rather than the amount of won actually paid.  In the Plate case, the Panel
is unaware that POSCO at any point informed  the USDOC that the amount paid in won
differed from the amount invoiced in won, nor th at any evidence in the record so indicates.  If
Korea considers that the Panel’s understanding is incorrect, please provide relevant evidence
from the record in support of Korea’s view.
7. Korea agrees that POSCO initially repo rted the converted won amounts shown on the
invoices for the local sales.  In its supplementa l responses, however, POSCO corrected that mistake
and reported the actual dollar prices.  POSCO explained that the local sales were denominated in
dollars, and argued that the United States should use the dollar price.7
8. Korea is unaware of any evidence in the record of the Plate case that indicates that POSCOspecifically informed th e DOC that the amount paid in won differed from the converted won amounts
shown on the invoice.  However, as discussed in response to the previous question, Korea believes
that there is considerable evidence showing that the local sales were denominated in dollars.  From
that evidence, it follows that the amount of won actually paid would not be the same as the converted
won amount shown on the invoice — unless it so happ ened that the exchange rate on the date of
invoice was exactly the same as the exchange rate on the date of payment.
9. Furthermore, the United States should not be allowed to defend its anti-dumping measures on
the ground (not mentioned in the final determinati ons) that POSCO should have provided additional
proof that the local sales are denominated in dollars, when the Anti-Dumping Agreement squarely
places the burden on the DOC to ask for all necessary information.
8  POSCO informed the DOC that
the local sales were denominated in dollars and provided proof in support of that fact and the DOC
did not ask POSCO for any additional proof during the proceedings at issue.  In these circumstances,
it would be unfair to allow the United States to contend now that POSCO should have submitted more
information when it is too late for POSCO to do so.
Q.3. For Korea.  Please identify where, in the course of your argumentation in the Plate and
Sheet investigations regarding whether "dollar denominated" local sales were in fact dollar or
won sales, you drew the attention of the USDOC to the fact that the order sheets indicated "D"
for dollar sales.
                                                     
4 See ROK Ex. 6, Ex. 84.
5 See id.  Note in particular the hand-written calculations based on the exchange rate for the date of
invoice, which was provided in the exchange rate chart on the last page of SSPC Sales Verification Exhibit 6
(ROK Ex. 6).
6 See SSPC Sales Verification Report, at 3-4 (ROK Ex. 6).
7 See Korea’s Responses to Panel Questions at the First Meeting, at 22-22 (Response D.3).
8 See Anti-Dumping Agreement, art. 2.4 ( chapeau , last sentence); id., art. 6.1.WT/DS179/R
Page 217
10. At the verifications in both the Plate and Sh eet investigations, POSCO drew the attention of
the DOC to the fact that the order sheets indicated "D" for dollar sales.  This is evident from the
Exhibits to the Sales Verification Reports that concern the local sales.  Each Exhibit contains not onlythe order sheet itself, but also the "translation key" which explained in considerable detail how to read
the order sheet.  Indeed, the Sales Verification Reports in both investigations expressly noted that the
DOC’s examination of the local sales began with POSCO’s order sheet.
9
11. POSCO then argued in its case briefs in SSPC  that the DOC should accept the dollar prices of
local sales because, inter alia , POSCO " negotiates  prices and invoices its customers in US dollars."
POSCO cited Exhibit 6 of the SSPC Sales Verificati on Report as "demonstrating that the sales price
was negotiated  in US dollars and invoiced in US dollars."10  Likewise, POSCO argued in its SSSS
Case Brief that, for local sales, "it negotiates  prices and invoices its customers in .US dollars."11  The
references to the negotiations in dollars are references to the verified fact that POSCO’s order sheetsindicated that the price was set in dollars.  (The order sheets are the only evidence of the sales
negotiations in the verification reports.  Consequently, the references to sales negotiations are
necessarily references to the order sheets.)
II. UNPAID SALES
Q.1. For Korea.  Korea characterizes the United States’ "constructed export price defense"
as a post hoc argument.  The United States has however indicated places in the record that it
considers to indicate that, in respect of sales through POSAM, the United States deducted anallocated portion of the US bad debt expenses as part of the construction of the export price (USanswer to question 4 from the Panel regarding unpaid sales).  The portions of the record cited
by the United States seem to suggest that the adjustments in respect of POSAM sales were
conducted under a legal provision applicable only to adjustments relating to a constructed
export price and using a different methodolog y than is used for circumstance of sale
adjustments.  If you disagree, please explain, citing to the relevant portions of the record.
12. The final determination in Plate gives the following explanation for the DOC’s decision to
make adjustments to POSCO’s prices for the unpaid sales (omitting the intertwined discussion of the
decision to include POSCO’s atypical sales in the dumping analysis):
It is the Department’s practice to . . . treat the bad debt as a direct selling expense
when the expense is incurred on sales of subject merchandise.  See Color Televisions
at 4412.  As stated above, at verification, the Department found that POSAM
reversed the sales in its books at year-end by issuing negative invoices to the
customer for the unpaid merchandise in question.  Thus, although POSAM does not
maintain separate bad debt accounts, these sales have been effectively classified as a
type of bad debt. . . .  However, these sales led to a bad debt expense which is directlyrelated to sales of the subject merchandise.  See, AOC International v. US , 712 F.
Supp. 931 (CIT 1989).  For calculation, see Analysis Memorandum .
12
                                                     
9 See SSPC Sales Verification Report, at 4 (ROK Ex . 6); SSSS Sales Verification Report, at 14 (ROK
Ex. 19).
10 See POSCO’s SSPC Case Brief, at 4 (ROK Ex. 7) (emphasis added).
11 See POSCO’s SSSS Case Brief, at 4 (ROK Ex. 20) (emphasis added).
12 SSPC Final Determination, at 15448-49 (ROK Ex. 11).WT/DS179/R
Page 218
Likewise, the final determination in Sheet give s essentially the same explanation, although the
discussion is somewhat longer (as it addresses various related issues that do not affect the
fundamental rationale for the decision).  Indeed, Sheet expressly follows Plate in this respect.13
13. It is apparent, therefore, that the DOC gave only one reason for its decision to adjustPOSCO’s prices to account for the unpaid sales:  The non-payment gave rise to a "bad debt expense"
which is a "direct selling expense" for which adjustments are made under US practice.  No other
explanation was provided in the final determinations. Specifically, no mention is made in the final
determinations that the adjustment was necessary to construct export price for sales through POSAM(while simultaneously making effectively the same adjustment for sales made directly by POSCO).
Thus, the US argument to that effect before this Panel is post hoc  and should be ignored.
14. In support of its post hoc  argument, and in response to the Panel’s Question Number 4 at the
First Meeting, the United States has argued (or, at  least, implied) that the codes at the end of the
DOC’s Final Analysis Memoranda show that the adjustments were made in the calculation of the
"constructed export price."  That argument is misleading in several respects:
• First , what matters to this Panel’s review is the reasons given for the DOC’s actions in the
DOC’s final determinations.  The question for the Panel is whether the decisions actually
made by the investigating authority conform with WTO rules, and not whether the defendingparty’s lawyers can now assemble a new rationale from the facts on the record that may or
may not conform with WTO rules.  Since the final determinations show that concerns about
the construction of the CEP did not form any part of the basis of the DOC’s decision to make
adjustments for the unpaid sales to both CEP and non-CEP ( i.e., EP) sales,
14 the fact that the
United States can now point to other information about calculating CEP not mentioned in thefinal determinations is irrelevant.
• Second , the codes do not accurately reflect the DOC’s actual methodology.  For example,
while the codes show that the DOC reduced POSCO’s export price only for CEP sales (andnot for EP sales), they do not show that the DOC increased POSCO’s normal value for EP
sales.
15
                                                     
13 See SSSS Final Determinatio n, at 30674 (ROK Ex. 24).
14 Indeed, Korea submits that it is not logically possi ble for concerns about the construction of the CEP
to form part of the basis of the DOC’s decision to  make adjustments to POSCO’s EP sales, because by
definition concerns about construction of CEP are irrelevant to EP sales.  It follows that concerns about the
construction of the CEP could only form part of the basis for the decision to make adjustments to CEP sales, ifthere were a decision to make the adjustment for CEP sa les that was separate from the decision to make the
adjustment for EP sales.  There is, however, simply no basis in the final determinations for the view that theDOC made two separate decisions.
15 For Plate, Page 8 of the Final Analysis Memorandum (ROK Ex. 12) shows that DOC increased
DIREXPU (Direct Expenses — US) by {  }, the "amount as sociated with unpaid bankrupt sales."  Page 9 shows
that DOC subtracted DIREXPU from NETPRIU (Net Price — US) for CEP sales, but not for EP sales.  By
contrast, Page 13 shows only one method for calculating NETPRIH (Net Price — Home Market, or normalvalue).  No distinction is made between calculating NETPRIH in one way for CEP sales and in another way forEP sales.  Specifically, no indication is given that for EP sales DIREXPU is added to  NETPRIH.  Yet, by the
United States’ own admission, in fact the DOC did add DIREXPU (including the adjustment for unpaid sales) to
NETPRIH for EP sales.
Likewise, for Sheet, Page 9 of the Final Analysis Memorandum (ROK Ex. 25) shows an increase of
{  } to DIREXPU.  Page 10 differentiates between EP and CP sales in the calculation of NETPRIU, but Page 13fails to make the same distinction in the calculation of NETPRIH — notwithstanding the US admission that iteither reduced export price or increased normal value for all sales.WT/DS179/R
Page 219
• Third , the US argument confuses the terminolo gy used under US law with the requirements of
the Anti-Dumping Agreement.  In fact, an analysis of the relevant provisions demonstrates
that US law uses the terms "constructed export price" and "normal value" in a different
manner than the Anti-Dumping Agreement (and Article VI:1 of GATT 1994).
- Under the Anti-Dumping Agreement (and Article VI:1 of GATT 1994), the terms
export price (or constructed export price) and normal value refer to the unadjusted
prices in the markets under consideration.  The "allowances" made under the third
sentence of Article 2.4 (for "differences affecting price comparability") and under the
fourth sentence of Article 2.4 ("in the cases referred to in paragraph 3 of Article 2") aremade as part of the comparison  of export price and normal value, and not as part of the
determination  of export price and normal value.
16
- Under US law, by contrast, all adjustments and allowances are made in the calculation
of the export price (or constructed export price) and normal value.17  Once the export
price (or constructed export price) and normal value have been calculated in this
manner, no further adjustments are made in the comparison itself.
This fundamental difference in the structure of the US law and the Anti-Dumping
Agreement means that the calculation of CEP under US law (based on the price net ofcertain statutory adjustments) is not the equivalent of the "construction" of an export price
under Article 2.3 of the Anti-Dumping Agreement (based on the price before the
"allowances" made in the comparison).
• Fourth , the DOC’s actual practice demonstrates that the adjustments made to calculate
CEP under US law are not necessarily appropriate allowances to construct an export price
within the meaning of the Anti-Dumping Agr eement.  The DOC does not, in practice, limit
the adjustments made to calculate CEP to items that relate to the affiliated US importer’s
operations in the United States.  Instead, the DOC deducts all "direct" selling expenses
from the CEP, even if those selling expenses relate solely to the foreign producers’
                                                     
16 The relevant provisions under GATT 1994 are as follows:  The second sentence of Article  VI:1 of
GATT 1994 provides that the existence of dumping is to be determined by comparing the "price of the product
exported from one country to another" to the normal value — where normal value is essentially defined to be
the domestic price (or, "in the absence of such domestic price," third-country prices or constructed value).  Thethird sentence of Article  VI:1 then provides that "due allowances shall be made in each case for differences inconditions and terms of sale, for differences in taxation, and for other differences affecting price comparability."Significantly, Article  VI:1 does not describe these allowances as adjustments made in calculating the export
price or normal value.  To the contrary, the allowances are described only after the export price and normal
value have been defined. See GATT 1994, Art. VI:1.
The Anti-Dumping Agreement adopts a similar structure.  Article  2.1 provides, again, that the
dumping margins are to be calculated based on a comparison of the export price to the domestic price.Article  2.2 sets forth detailed rules for determining normal value.  Article  2.3 provides that, when themerchandise is exported to an affiliated importer, a constructed export price based on the importer’s resale price
may be used in lieu of the export price.  Finally, Article  2.4 describes the manner in which the price comparison
is to be made, and specifies certain "due allowances" and other adjustments that are required for the comparison.Once more, the allowances and adjustments do not affect the determination of export price or normal valueunder the Anti-Dumping Agreement.  Instead, the allowances and adjustments are made as part of thecomparison, after the export price and normal value have been determined.
17 Thus, the US statute indicates that the "export price" or "constructed export price" mean "the price at
which the subject merchandise is first sold ... as adjust ed under" the applicable subsections of the US statute.  See
Tariff Act of 1930, as amended, § 772(a) and (b), 19 USC. § 1677a(a) and (b) (ROK Ex. 1).  Similarly, the USstatute defines normal value (in the first instance) as the price for home-market sales — and then indicates thatthis "price" is to be "increased," "reduced" or "increased or decreased" for various adjustments.  See Tariff Act
of 1930, as amended, § 773(a)(1)(B) and (a)(6), 19 USC. § 1677b(a)(1)(B) and (a)(6) (ROK Ex. 1).WT/DS179/R
Page 220
operations.18  Expenses that relate solely to a foreign producers’ operations plainly do not
fall within any of the allowances permitted to  construct an export price within the meaning
of the Anti-Dumping Agreement.  It follows, then, that the mere fact that expenses are
deducted from CEP under US law does not, by itself, make them adjustments to "constructan export price" within the meaning of the Anti-Dumping Agreement.
15. In the end, however, it does not matter whether the United States believed that it was
calculating a "constructed export price" under US law when it deducted the cost of non-payment from
the US sales prices.  The issue before this Panel is whether the United States acted in accordance withthe requirements of the Anti-Dumping Agreement.  As explained in Korea’s previous submissions, an
analysis of both the text of the fourth sentence  of Article 2.4 and the objective and purpose of
Article 2.3 demonstrate that the US adjustment for the cost of non-payment is not permitted under
Article 2.3
16. Finally, Korea disagrees with the suggestion that the DOC used "a different methodology" to
calculate the adjustment to CEP sales than it used to calculate the adjustment to EP sales.  POSCO
had one customer go bankrupt.  That customer  owed POSCO one amount for Plate sales and one
amount for Sheet sales.  In each case, DOC calculated one amount that was the cost of the unpaid
sales.  The DOC then divided that amount by POSCO’ s total exports (measured in metric tons).  Thus,
the DOC used one methodology to calculate one adjustment amount (for both direct EP and indirect
CEP sales).  It then simply subtracted that one amount from export price for the indirect CEP sales
and added that one amount to normal value for the direct EP sales.
Q.2. For the United States.  The United Stat es argues that, "[b]ecause Korea has made no
claim under Article 2.3, the United States’ decision to construct export price and the
methodology it employed to do so are not issues  before this Panel."  US rebuttal submission,
para. 22.  Article 2.4 provides that "[I]n the cases referred to in paragraph 3, allowances for
costs incurred between importation and resale, and of profits occurring, should also be made."
Thus, it could be argued that the guidelines governing the construction of an export price
pursuant to Article 2.3 may be found in Article 2.4.  Please comment.
17. Moreover, as explained during the Panel’s Second Meeting, the fact that Article 2.4
specifically refers to Article 2.3 should be sufficie nt to bring Article 2.3 within the terms of reference
for this proceeding.  Indeed, the decision by the Appellate Body in the Argentine Footwear  case
indicates that the provisions of Article 2.3 could properly be considered by the Panel to the extent that
they are relevant to Korea’s claims.
19
                                                     
18 For example, where a foreign producer  pays royalties on its sales of the merchandise, the DOC will
deduct the amount of the royalties paid on exports from the constructed export price.  See, e.g., Certain Fresh
Cut Flowers From Ecuador , 64 Fed. Reg. 18878, 18882 (Apr. 16, 1999) (Preliminary Determination); Stainless
Steel Plate from Sweden , 63 Fed. Reg. 36877 (July 18, 1998) (Preliminary Determination); Dynamic Random
Access Memory Semiconductors of one Megabit or Above from Korea , 63 Fed. Reg. 11411, 11413 (Mar. 9,
1998) (Preliminary Determination); Static Random Access Memory Semiconductors from Korea , 63 Fed. Reg.
8934, 8935-36 (Feb. 23, 1998) (Final Determination).  Ther e clearly is no basis for claiming that royalties paid
on production in the foreign country constitute an appropriate adjustment to "construct" an export price.
19 In Argentine Footwear , the Appellate Body observed that:
We note that the very terms of Article  4.2(c) of the Agreement on Safeguards  expressly
incorporate the provisions of Article  3.  Thus, we find it difficult to see how a panel could
examine whether a Member had complied with Article  4.2(c) without also referring to the
provisions of Article  3 of the Agreement on Safeguards ....  What is more, we fail to see how
any panel could be expected to make an "objec tive assessment of the matter," as required by
Article  11 of the DSU, if it could only refer in its reasoning to the specific provisions cited bythe parties in their claims.WT/DS179/R
Page 221
18. A proper analysis demonstrates, however, that Article 2.3 is not relevant to Korea’s claims ,
because Korea has not claimed that Article 2.3 establishes a separate basis for finding that the U.S.
actions violated the requirements of the Anti-Dumping Agreement.  Instead, Korea has addressedArticle 2.3 simply to refute a defense offered by the United States.  The Panel plainly would be
permitted to consider Korea’s refutation of the US de fence, in order to address the merits of Korea’s
claims under Article 2.4 — even if Article 2.3 were not within the terms of reference.
20
19. Finally, to the extent that it is necessary to consider the relationship between Articles 2.3 and
2.4, Korea believes that the following points are relevant:
20. First , it is important to view Article 2.3 in context.  Contrary to the US claims, Article 2.3
does not purport to address the permissible methodologies for "constructing an export price."  Instead,
Article 2.3 establishes only that, when exports are made to an affiliated importer, the investigatingauthorities may base their analysis on the importer’s resale price.
21. In this regard, it should be recalled that the default rule under the Anti-Dumping Agreement is
that the dumping calculations should be based on the "export price of the product exported from one
                                                                                                                                                                    
Argentina — Safeguards Measures on Imports of Footwear , Report of the Appellate Body, AB-1999-7, adopted
12 Jan. 2000, para. 74.
20 In this connection, it should be noted that the US argument that Article  2.3 is outside the terms of
reference for this proceeding ignores the established distinction between "claims" (which must be specified inthe request for establishment of a panel) and "arguments" (which do not have to be so specified).  As theAppellate Body has explained,
In European Communities — Bananas , we stated: "Article  6.2 of the DSU requires that the
claims , and not the arguments , must all be specified sufficiently in the request for
establishment of a panel in order to allow the defending party and any third parties to know
the legal basis of the complaint.Korea — Definitive Safeguards Measures on Imports of Certain Dairy Products , Report of the
Appellate Body, AB-1999-8, para. 125 (footnote omitted).  In this case, Korea’s "claim" is that the USadjustment for the cost of non-payment is not permitted by Article  2.4.  In support of that claim, Korea hasprovided "arguments" to demonstrate that the defences proposed by the United States are without merit.  Under
the Appellate Body’s past decisions, such "arguments" do not have to be specified in the request for
establishment of the panel.
As a separate matter, it should also should be noted that the US argument that Article  2.3 is not within
the terms of reference is inconsistent with the actual language of the terms of reference in this proceeding.Contrary to the US view, the terms of reference actually instruct the Panel to consider all "relevant provisions"
of the Anti-Dumping Agreement.   In particular, the terms of reference for this Panel’s review are defined as
follows:
To examine, in the light of the relevant provisions of the covered agreements cited by Korea
in document WT/DS179/2, the matter referred to the DSB by Korea in that document, and tomake such findings as will assist the DSB in making the recommendations or in giving therulings provided for in those agreements.
See WT/DS179/3.  A careful reading indicates that the phrase "cited by Korea" modifies the term "covered
agreements."  In other words, the Panel may only consider the covered agreements cited by Korea.  However,once the Panel concludes that a particular agreement is  one of the "covered agreements cited by Korea in
document WT/DS179/2," then the Panel is permitted to consider "the relevant provisions" of that agreement.This interpretation of the terms of reference is also consistent with the terms of Korea’s request for panel
review, which provided a summary of its legal arguments and then specifically noted that:
Th[is] ... summary is designed to briefly describe the legal basis of the complaint sufficient topresent the problem clearly, but is not to be taken as restricting the arguments that Korea may
develop before the Panel.
WT/DS179/2 (emphasis added).WT/DS179/R
Page 222
country to another."21  If this rule were applied in all cases without exception, then the dumping
analysis for sales from an exporter to an affiliated importer would have to be based on the transfer
price between them — because that transfer price is the "export price of the product exported from
one country to another."  Moreover, if there were no  export price, it would not be possible to calculate
dumping margins at all.
22. Article 2.3 of the Agreement establishes the permissible exceptions to this default rule.  It
provides that the default rule does not apply "where there is no export price or where it appears to the
authorities concerned that the export price is unreliable because of association of a compensatoryarrangement between the exporter and the importer or  a third party."  Instead, in such situations,
Article 2.3 provides that "the export price may be constructed on the basis of the price at which the
imported products are first resold to an independent buyer." Significantly, that is all that Article 2.3
provides.  The sole purpose of Article 2.3, then, is to authorize the investigating authorities to base
their analysis on the resale price — and not on the "export price of the product exported from onecountry to another."
23. Second,  as discussed in Korea’s previous submissions, the rules governing the methodology
used to construct an export price are found in the fourth sentence of Article 2.4 — and not in
Article 2.3.
22  That sentence describes certain "allowances" that "should also be made" in "the cases
referred to in paragraph 3 of Article 2" ( i.e., when there is no export price or the export price is
unreliable because of association of compensatory arrangement between the exporter and the importer
or a third party).  There are no other provisions of the Agreement that describe the permissible
allowances.
24. Moreover, the structure of the Anti-Dumping Agreement dictates that any provisions
concerning the permissible adjustments would have to  be found in Article 2.4.  Put simply, Article 2.4
is the only provision of the Agreement that addresses the mechanics of the comparisons and the rules
governing appropriate allowances.  Consequently, it is logical that, when the rules governing
adjustments to construct an export price were drafted, they were incorporated in Article 2.4.  That
Articles should, therefore, be interpreted as providing exclusive guidance on the adjustments that are
permissible in the dumping comparisons — including the adjustments that are permitted to construct
an export price in "the cases referred to in paragraph 3 of Article 2."  Adjustments that do not conform
with the requirements of Article 2.4 are not permissible in any circumstances.23
                                                     
21 See Anti-Dumping Agreement, Art. 2.1.
22 See, e.g.,  Korea’s Second Submission, para. 44.
23 The United States has argued that the language of the fourth sentence of Article  2.4 is not, by its
terms, exclusive.  In other words, the United States contends that the language of the fourth sentence of
Article  2.4 describes allowances that "should be made," but does not explicitly state that these are the onlyallowances that may be made to construct the export price.
In this regard, it should be noted that the same argument could be made about the third sentence of
Article  2.4.  That sentence explicitly requires that allowances for differences affecting price comparability
"shall be made."   However, like the fourth sentence, it does not specifically forbid the investigating authorities
from making other allowances for other items that are not different or that do not affect price comparability.
Under the US interpretation, then, investigating authorities are free to make whatever adjustments they desirefor any reason at all — as long as they also make the specific allowances described in the third and fourthsentences of Article  2.4.  Thus, if the US position were adopted, investigating authorities could, for example,make completely arbitrary adjustments to increase the dumping margin to a level they find appropriate, withoutany justification at all, as long as they also have ta ken care first to make the specific adjustments described in
the third and fourth sentences of Article  2.4.
Such an interpretation cannot be correct.  It pl ainly was the understanding of the WTO Members that
the provisions of Article  2 of the Anti-Dumping Agreement would circumscribe the methodologies used todetermine dumping margins — in order to ensure that anti-dumping measures are, as Article  1 requires,"applied only under the circumstances provided for in Article  VI of the GATT 1994 and pursuant toWT/DS179/R
Page 223
Third , the arguments about the applicability of Article 2.3 should not obscure the obvious
relevance of the first sentence of Article 2.4, which requires a "fair comparison" for all transactions —
whether based on "export price" or "constructed export price."  If the US treatment of the unpaid salesresulted in an unfair comparison, then that methodology was inconsistent with the "fair comparison"
requirements of the first sentence of Article 2.4.  Thus, even if the adjustment for the cost of non-
payment had been made solely under Article 2.3 (and not under the third or fourth sentences of
Article 2.4), the Panel would still have to consider whether the comparison that resulted was fair.
25. As discussed in detail in Korea’s previous submissions, the US treatment of the unpaid sales
was unfair — because it penalized POSCO for an event beyond its control, and created dumping
margins due to the inclusion of atypical sales.  Thus, the US methodology violated the "fair
comparison" requirement of Article 2.4.
Q.3. For the United States.  Is there anything in  the record of the investigations indicating
whether POSAM extended the credit in respect of the unpaid sales and thus bore the risk of
non-payment, or whether, to the contrary, the ri sk of loss was borne by the exporter?  Where in
the record does the USDOC make such a determ ination in respect of its treatment of unpaid
sales as a cost incurred by POSAM between importation and resale.
26. The risk of non-payment was borne by PO SAM.  The DOC verified that POSAM paid
POSTEEL (which in turn paid POSCO) for the goods that were then re-sold to the ABC Company,
and that POSAM was not subsequently reimbur sed by POSTEEL or POSCO for the non-payment.
24
27. Korea believes that the question of which entity bore the risk of non-payment was not
relevant to the DOC’s decision to make adjustments for the non-payments.
28. Moreover, the fact that POSAM bore the ri sk of non-payment does not mean that the risk
constituted a cost incurred between importation and resale for which an adjustment was appropriate
under the fourth sentence of Article 2.4.  To begin with, the risk of non-payment is not a cost; it is a
probability.  Moreover, the risk exists only after  there has been a resale — and not between
importation and resale.
29. Finally, as discussed in Korea’s previous su bmissions, the DOC did not make an adjustment
for the risk of non-payment that existed at the time of resale.  Instead, it made an adjustment for the
actual cost of non-payment that occurred only after the resale.  Thus, the DOC’s adjustment cannot be
justified as an adjustment for a cost incurred between importation and resale.
Q.4. For the United States.  If unpaid sales were a cost incurred by POSAM between
importation and resale in respect of those sales handled by POSAM, why did the USDOC
consider that those sales should be allocated ove r all sales of the subject merchandise in the
United States, irrespective of whether or not those sales were handled by POSAM?
30. As discussed in Korea’s previous submissi ons, the allocation methodology chosen by the
DOC was plainly arbitrary.  An allocation of the actual costs of non-payment over all US sales would
have been appropriate only if the evidence demonstrated that all US sales had the same risk of non-
payment, and that no other sales in other markets had a similar risk.  In these cases, however, there
                                                                                                                                                                    
investigations ... conducted in accordance with the provisions of [the Anti-Dumping] Agreement."  In order to
give effect to Article  2, the provisions of Article  2.4 must be understood to be exclusive.  In other words, noadjustments can be permitted other than those described in Article  2.4.
24 See Korea’s Responses to the Panel’s Questions at the First Meeting, at 19 (Response C.12).WT/DS179/R
Page 224
was no such evidence.  As discussed in Korea’s previous submissions, there was no evidence
indicating that the risk of non-payment was different for US sales than for sales in other markets.
31. The error in the US methodology might be seen from the following example:  Suppose that an
automobile insurer covers ten cars — five of which are black and five of which are navy blue.  Now
suppose that one of the blue cars has an accident for which the insurer must pay.  When analyzing the
future risk of accidents, it plainly would be absurd for the insurer to assume that blue cars have a one-
in-five risk of accidents, while black cars have a zero risk of accidents.  Yet that is essentially what
the DOC did in this case.  It took the fact that one US customer did not pay as evidence that UScustomers had a high risk of non-payment, and th at Korean customers had no risk of non-payment.
32. As explained in Korea’s previous submissions, the only reasonable methodology for
analyzing the risk of non-payment would have been  to consider the historical experience of non-
payment in the two markets.  In the absence of such an analysis, there simply is no basis forconcluding that the risk of non-payment in the United States was any different from the risk of non-
payment in any other markets in which POSCO exte nded credit.  And, to the extent that the non-
payment was simply the result of a risk of non-payment that was the same in all markets, there was no
basis for allocating the cost of the non-payment solely to sales in one market.
Q.5. For the United States.  Without prejudice to your position that the construction of the
export price is not within the Panel’s terms of reference, please respond to Korea’s argument in
paragraphs 56-59 of Korea’s rebuttal submission.
33. In Korea’s view, this question is uniquely directed to the United States.
Q.6. For both parties.  It is a generally accepted principle that certain costs are to be
expensed while others are to be allocated over time or over product.  See, e.g., ADP Agreement,
Article 2.2.1.1.  In respect of the treatment of unpaid sales, for example, the United States
allocated the "cost" of unpaid sales incurred by POSAM over all subject merchandise.
Assuming for the sake of argument that the unpaid sales were "costs . . . incurred between
importation and resale," it could be argued that those costs should be allocated over a period oftime longer than the POI.  Please comment.
34. In Korea’s view, an amortization of the actual costs of non-payment over an extended period
of time would not constitute an acceptable substitute for a proper measurement of the risk of non-
payment.  As explained in Korea’s previous submissions, a proper adjustment would have to reflectdifferences in the risk of non-payment that were known at the time the sale was made — and not the
actual costs of non-payment that could not have  been known until after the sale occurred.
35. In any event, even if an amortization methodology were acceptable, the amortization period
would have to reflect the risk of the non-payment.  If too short an amortization period were used, theresult would be to inappropriately overstate the costs assigned to the initial years and understate the
costs assigned to subsequent years.
25
                                                     
25 Suppose, for example, that a proper risk analysis concluded that an event could be expected to occur
only once every ten years.  A proper methodology would then have to amortize the costs of that event (when itdoes occur) over a ten-year period.  An amortization over a five-year period, for example, would overstate thecosts of the first five years by a factor of 2, and then understate the costs in the remaining five years (byassigning no costs to them).  Such a methodology would not be permissible.WT/DS179/R
Page 225
III. MULTIPLE AVERAGING
Q.1. Korea acknowledges that "zeroing" per se is outside this Panel’s terms of reference.  It
argues however that it does claim that th e "multiple averaging" methodology used by the
United States violates the AD Agreement, and that , to the extent that "zeroing" is an integral
part of that methodology, it is properly within  the Panel’s terms of reference.  Korea’s request
for establishment (WT/DS179/2), however, states that
"[I]n the final determinations of sales at less than fair value . . . the DOC divided
the period of investigation into two sub-periods and calculated separate
weighted average normal values for each sub-period.  That methodology,
however, is inconsistent with Article 2.4.2. . . ." (emphasis added).
It could be argued that "zeroing" is not part of the "methodology" regarding which Korea
complains in its request for establishment of a panel.  Please comment.
36. As mentioned at the Second Meeting, Korea believes that it is possible for the Panel to decide
the multiple-averaging issue without addressing zero ing.  If the Panel finds that it was improper for
the United States to split the investigation periods to account for the devaluation of the won during theperiods, then zeroing simply disappears from this case.  In other words, because splitting the periods
was itself a violation of the Anti-Dumping Agreement and the zeroing at issue necessarily occurred
after the periods were split, the DOC never should ha ve been in the position to engage in the zeroing
at issue in the first place.  As stated by the Panel in the Audio Tapes  case, "the issue of ‘zeroing’
would not arise in cases where the comparison made was between an average normal value and anaverage export price."
26
37. That is not to say, however, that zeroing (as applied in the multiple-averaging methodology)
is outside the Panel’s terms of reference.  To the contrary, Korea has brought the DOC’s multiple-
averaging methodology before the Panel and zeroing is an inherent part of that methodology.
38. The Panel has observed that it is arguable that zeroing is not part of the methodology
described in the request for establishment of a Pane l.  Apparently, the argument would be that the
"methodology" at issue stops after the period-splitting and the calculation of separate averages.  In
other words, under that view, the "methodology" at issue would not include anything after the
calculation of separate averages, including the recombination of those separate averages into one
overall average.  Korea does not believe that would be a reasonable interpretation of the"methodology" at issue.
• First , splitting the period, calculating separate averages for the sub-periods, "zeroing out" the
negative averages, and recombining the separate averages into an overall average were all partof a single methodology.  It would not have been possible for the DOC to split the
investigation period without later recombining the separate averages; they are simply two
parts of a unitary whole.  From the decision to split the period, all the rest followed.  The US
methodology should not be artificially divided into its component stages.
• Second , even the US arguments show the integral  link between zeroing and the decision to
engage in multiple-averaging (and all that entailed).  The US argues that the key distinction
between Preserved Mushrooms from Indonesia  and the Plate and Sheet cases is that period-
splitting would have had no effect in Mushrooms  but it did have an effect in the cases at
                                                     
26 EC- Anti-Dumping Duties on Audio Tapes in Cassettes Originating in Japan , Report of the Panel,
ADP/136, 28 Apr. 1995, unadopted, para. 349.WT/DS179/R
Page 226
issue.27  That distinction can mean only one thing:  In Mushrooms , neither potential sub-
period had a negative margin to be zeroed, so there was no reason to split the investigation
period.  This shows that the DOC split the peri ods in Plate and Sheet precisely in order to
engage in zeroing.28  It would be artificial indeed to exclude zeroing from Panel consideration
of the methodology of which it is not only an integral part, but was in fact the motivating
force.
• Third , beyond being the motivating force for the DOC’s decision to split the investigation
period, zeroing is also the motivating force for Korea’s decision to challenge the period-
splitting before this Panel.  But for zeroing, splitting the period would not have had asignificant effect on the dumping margin.  Splitting the period still would have been
inconsistent with WTO rules, to be sure, but there would have been no practical reason to
challenge it.  It would be an odd interpretation of the Panel request indeed if it excluded
consideration of the factor motivating a claim.
• Finally , Korea considers that it is important that the terms of reference should be understood
in light of the entirety of Korea’s request for the establishment of this Panel.  After identifyingin detail the measures at issue, Korea listed ten paragraphs of reasons why the US measures
are inconsistent with WTO rules.  Korea expressly stated at the outset that those ten
paragraphs were "without limitation."  Then, Korea reinforced the point as follows:  "The
above summary is designed to briefly describe the legal basis of the complaint sufficient to
present the problem clearly, but is not to be taken as restricting the arguments that Korea may
develop before the Panel."
29
Q.2. For the United States.  Do you agree that multiple averaging is permitted by
Article 2.4.2 only to the extent it enhances th e comparability of the normal value and export
prices being compared?
39. In Korea’s view, Article 2.4.2 does not permit multiple averaging to "enhance" the
comparability of normal value and export price.  Instead, Article 2.4.2 requires that a single average
export price and a single average normal value be calculated for each set of comparable transactions
(unless a transaction-to-transaction methodology is employed, or the exceptional circumstances
authorizing the use of an average-to-transaction methodology exist).  The determination whethertransactions are "comparable" must be made before constructing the appropriate averages under
Article 2.4.2.
                                                     
27 See US First Submission, para. 163.
28 This view is confirmed by the decision in Extruded Rubber Thread from Indonesia , which the
United States discussed in its Second Submission. US Ex. 34, at 14693.  Extruded Rubber  concerned the exact
same investigation period as Mushrooms .  That meant that the facts of the rupiah’s devaluation were exactly the
same in both cases.  Yet, the DOC split the period in Extruded Rubber  when it had not done so in Mushrooms.
The DOC’s decision in Extruded Rubber  makes plain that the key difference is that splitting the period affected
(i.e., raised) the dumping margins in Extruded Rubber , when it would not have done so in Mushrooms.
29 WT/DS179/2, at 2, 4.WT/DS179/R
Page 227
40. For these purposes, the "comparability" of transactions is to be determined based on the
provisions of the Agreement governing permissible comparisons.  Since movements in exchange rates
do not provide a basis for considering transactions non-comparable under any provisions of theAgreement, exchange-rate movements do not justify the division of the investigation period into
separate averaging periods.
30
                                                     
30 See Korea’s Second Submission, paras. 102-107.WT/DS179/R
Page 228
ANNEX 2-1
FIRST SUBMISSION OF THE UNITED STATES
(26 May 2000)
CONTENTS
Page
I. INTRODUCT ION ................................................................................................................2 30
II. STATEMENT OF  THE CASE............................................................................................231
A. P ROCEDURAL BACKGROUND ........................................................................................231
B. F ACTUAL BACKGROUND ...............................................................................................231
1. Initiation, Fact-Gathering, and the Preliminary Determination ...............232
2. Verification, Opportunity for Commen t, and the Final Determination ...234
III. ARGUMENT................................................................................................................... ......235
A. S TANDARD OF REVIEW .................................................................................................235
B. A S THE COMPLAINING PARTY , KOREA HAS THE BURDEN OF ESTABLISHING A
VIOLATION OF A WTO A GREEMENT ............................................................................237
C. T HE ACTIONS OF THE UNITED  STATES WERE NOT INCONSISTENT WITH
ARTICLE  X:3 OF GATT 1994 .......................................................................................238
D. T HE UNITED  STATES ’ TREATMENT OF SALES TO A US C USTOMER THAT WENT
BANKRUPT AND FAILED TO PAY WAS CONSISTENT WITH ARTICLES 2.4 AND
12.2 OF THE AGREEMENT AND ARTICLE  X:3 OF GATT 1994 ......................................240
1. Statement of Relevant Facts..........................................................................240
2. Introduction to the Argument.......................................................................2423. Article 2.4 Does Not Require Exclus ion of Sales from Export Price.........243
4. The United States’ Treatment of Bad Debt Expense in the
Calculation of Constructed Export Price Was Consistent With the
Requirements of the Agreement ...................................................................245
5. Allowance For Differences in Selling Expenses Such as
Bad Debt in The Comparison of Export Price And Normal Valueis Consistent With Article 2.4........................................................................246
6. The United States' Decision to Include The Sales to ABC Company
in the Dumping Analysis And th e Rationale Provided for That
Decision Was Consistent With the Requirements of Article 12.2of the Agreement and Article X:3 of GATT 1994. ......................................248
E. T
HE UNITED  STATES PERMISSIBLY CONCLUDED THAT PRICES ESTABLISHED
PRIOR TO A SEVERE DEVALUATION OF THE KOREAN WON SHOULD NOT BE
AVERAGED WITH PRICES ESTABLISHED AFTER SUCH A DEVALUATION IN
ACCORDANCE WITH ARTICLES 2.4, 2.4.1, 2.4.2, 6.1, 6.2, 6.9 AND 12.2.......................251
1. Introduction....................................................................................................251WT/DS179/R
Page 229
Page
2. Statement of Relevant Facts..........................................................................252
(a) The Situation of the Korean Won in 1997-1998 ......................................252
(b) The United States’ Conduc t of the Inve stigatio n .....................................252
3. The Exchange Rate Policy Applied in This Case Is Consistent With
Article 2.4.1 of The AD Agreement ..............................................................257
(a) Article 2.4.1 Does Not Address Construction of Averages in Light
of Sudden and Precipitous  Currency Devaluations..................................257
(b) The United States’ Actions in Creating Two Averaging Periods Is
in Accordance with the Purpose of Article 2.4.1 .....................................260
(c) Korea’s Arguments Regarding Article 2.4.1 are Without Merit..............261
4. The Exchange Rate Policy Applied in This Case Is Consistent With
Article 2.4.2 of The AD Agreement ..............................................................262
5. The Procedures Used in Reaching The Decision to Apply Multiple
Averages Were Consistent With Articles 6.1, 6.2, 6.9, And 12.2of The AD Agreement....................................................................................265
F. T
HE UNITED  STATES ’ TREATMENT OF HOME MARKET SALES TO LOCAL
CUSTOMERS WAS CONSISTENT WITH ARTICLES 2.4, 6.1, 6.2, 6.9 AND 12.2 ...............269
1. Statement of Relevant Facts..........................................................................269
2. The United States Converted Won-Denominated Sales By Using
Exchange Rates Established Under a Methodology Consistent WithArticle 2.4........................................................................................................270
3. The United States’ Establishment of the Facts Was Proper, and
Its Evaluation Unbiased and Objective........................................................271
4. The Procedures Used In Reaching Its Decision To Apply The
Currency of the Transaction Are Consistent With the Requirements
of Article 6.1, 6.2, 6.9, and 12.2 of the Agreement and Article X:3 ofGATT 1994 .....................................................................................................272
G. T
HE PANEL SUGGESTION SOUGHT BY KOREA IS INCONSISTENT WITH
ESTABLISHED PANEL PRACTICE AND THE DSU ...........................................................274
IV. CONCLUSION .................................................................................................................. ...274
NOTE:  In this submission, including the exhibits, the United States has placed information which
POSCO has previously designated as business proprietary information in brackets ("{ }").  This
information has been omitted and the brackets left in the text."{ }"WT/DS179/R
Page 230
I. INTRODUCTION
1. The Republic of Korea ("Korea") contests two determinations by the United States
Department of Commerce (the "Department") establis hing dumping by Korean producers of stainless
steel plate in coils ("SSPC" )and stainle ss steel sheet and strip ("SSSS") in coils.1  According to
Korea, the United States erred in three general re spects:  1) by including in the determination of
export price sales for which the customer never paid, even though those sales were made in
accordance with the producer’s normal selling practices and the company recognized the bad debt
expense in its accounting records for the period of investigation;  2) by establishing different
weighted-average export prices and normal values for periods in which market conditions differedsignificantly;  and 3) by treating as Korean won transactions sales which, although invoiced in both
won and US dollars, were actually paid in Korean won.
2. Korea contends that the errors of the United States resulted in an overstatement of the
dumping margin found for Pohang Iron & Steel Co., Ltd. ("POSCO").
2  As a result, according to
Korea, these actions of the United States are incons istent with the obligations of a Member of the
World Trade Organization ("WTO"), including certain obligations contained in Articles VI and X of
the General Agreement on Tariffs and Trade 1994 ("GATT 1994") and Articles 1, 2, 6, and 12 of the
Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the
"AD Agreement").3
3. As the United States demonstrates below, Korea’s claims are without foundation.
4. With respect to the issue of sales to a cust omer that failed to pay due to bankruptcy, the
Department included those sales in the determination of export price, consistent with Article 2.1 of the
Agreement.  Based on the evidence of record, the Department concluded that the sales were
representative of POSCO’s normal selling practices and, therefore, they did not distort the
determination of export price.  Moreover, POSCO recognized the bad debt expense generated bythose sales in its accounting records for the period of investigation.  Therefore, the Department took
account of that expense in the construction of export price for sales through POSCO’s US affiliate,
consistent with Article 2.3 of the Agreement.  Moreover, before comparing export price and normal
value, the Department made due allowance for differences in selling expenses such as bad debt,
consistent with Article 2.4.  Through an appropriate adjustment to normal value, the United States
ensured that differences in such expenses had no impact on the dumping analysis.
5. With respect to the United States’ conclusion that transactions made prior to a currency
devaluation of almost 50 per cent were not "comparable" to transactions made during that
devaluation, and thus that separate averages should be created with respect to sales during the
different periods, the United States’ action is in accordance with Articles 2.4, 2.4.1 and 2.4.2.
Specifically, this action is most pertinently addressed by the provision of the AD Agreement
governing averaging, Article 2.4.2.  This provision contemplates averages of only those normal value
and export price transactions which are "comparable."  Further, 2.4 confirms that comparability
includes such concepts as levels of trade, physical characteristics, and time.  The United States
reasonably concluded that a significant devaluation of a currency rendered sales in that currency made
                                                     
1 See Notice of Final Determination of Sales at Less Than Fair Value:  Stainless Steel Plate in Coils
("SSPC") from the Republic of Korea , 64 Fed. Reg. 15444 (31 March 1999) (hereinafter SSPC Final
Determination ) (ROK Ex. 11);  and Notice of Final Determination of Sales at Less Than Fair Value:  Stainless
Steel Sheet and Strip in Coils From the Republic of Korea , 64 Fed. Reg. 30664 (8 June 1999) (hereinafter SSSS
Final Determination ) (ROK Ex. 24).  The Federal Register  is the United States’ official publication of notices
by all government agencies and organizations, including the Department.
2 First Submission by the Republic of Korea, 5 May 2000 ("ROK First Submission") at para. 1.2.
3 ROK First Submission, at para. 1.1.WT/DS179/R
Page 231
prior to the devaluation not comparable to sales made after such a devaluation.  Establishing separate
averages ensured that the devaluation did not distort the dumping analysis.
6. With respect to the issue of the United States’ treatment of home market sales to local
customers, the United States made a factual determination that the sales at issue were transactionsmade in Korean won based upon the evidence of record that the sales were paid in won, and the won
amount on the invoice was recorded in the respondent company’s accounting records, notwithstanding
a US dollar figure separately listed on the invoice.  Based upon its well-established practice of using
the currency of the transaction, the United States converted these won-sale prices into US dollars in
accordance with Article 2.4.1 of the Anti-dumping Agreement.
7. Finally, with respect to all three issues, the United States afforded POSCO a full and adequate
opportunity to defend its interests.  This opportu nity included an extensive period in which POSCO
submitted any factual information which it believed was relevant to the determination of dumping.
Moreover, POSCO was given full access to the administrative record which contained all factual
information on which the United States based its determination.  Finally, POSCO was given theopportunity to present legal arguments, as well as rebuttal to arguments raised by other parties, and
could participate in a hearing at which POSCO could address the United States’ officials in charge of
the investigation in person.  These procedures, of wh ich POSCO took full advantage, provided a level
of transparency and a full opportunity for POSCO to  defend its interests which more than met the
obligations of Article 6 of the AD Agreement.  Moreover, all of the United States’ determinationswere published in notices that met all of the requirements of Article 12.2.
II. STATEMENT OF THE CASE
A. P
ROCEDURAL BACKGROUND
8. For purposes of this first submission, the United States does not take exception to Korea’s
statement concerning the  "procedural background" of this case.4
B. FACTUAL BACKGROUND
9. In this section the United States will review the procedures undertaken by the Department, the
investigating authority in the United States charged with determining whether sales to the
United States are sold at less than normal value ( i.e. whether such sales are "dumped").  This review
will demonstrate the transparency, and full opportunity to participate enjoyed by all parties.  Because
Korea has alleged three unrelated deficiencies of the US anti-dumping measures against Korean SSPC
and SSSS, rather than discussing the facts pertinent to each of those claims in this section, theUnited States will introduce, prior to each issue-specific discussion, the facts most pertinent to that
claim.  In doing so, the United States will review the evidence contained in the administrative record
that was before the Department with regard to each of the three contested issues demonstrating that
the facts were properly established and reasonably supported the United States’ determination.
10. Korea begins its discussion by describing generally the anti-dumping law and practice of the
United States.
5  For purposes of this first submission, the United States does not take exception to
Korea’s description of this general law and practice discussed in paragraphs 3.2 through 3.10 of
Korea’s first submission, except with respect to footnote 2, as discussed further below.6
                                                     
4 ROK First Submission, at para. 2.1 - 2.4.
5 ROK First Submission at para. 3.2 - 3.10.
6 See, discussion in section III.D., below.WT/DS179/R
Page 232
1. Initiation, Fact-Gathering, and the Preliminary Determination
11. The investigation of SSPC was initiated on 20 April 1998 pursuant to a petition brought by
domestic producers of a like product and workers in that industry.  The United States announced that,
in order to determine the existence of dumping, it would examine imports during calendar year 1997.7
12. The investigation of SSSS was initiated on 30 June 1998 pursuant to a petition brought by
domestic producers of a like product and workers in that industry.  The United States announced that,
in order to determine the existence of dumping, and in accordance with its regulations, it would
examine imports during the period 1 April 1997 through 31 March 1998.8
13. Upon filing of the petitions, the United States  International Trade Commission (USITC), the
investigating authority in the United States ch arged with determining whether dumped imports have
caused material injury or a threat of material injury, began its investigations.  USITC issued a
preliminary finding of material injury or threat of  material injury to the domestic industry by reason of
dumped imports of SSPC and SSSS.
14. After initiation of the SSPC investigation and the preliminary finding of material injury by
USITC, the United States proceeded to gather in formation regarding sales to the United States by
POSCO for purposes of calculating a margin of dum ping.  In this regard, the United States issued
POSCO an initial questionnaire in the SSPC investigation on 27 May 1998.9  After having received an
extension of time from the United States, POSCO provided information in response to the initial
questionnaire on 1 July 1998 and 20 July 1998.  After reviewing POSCO’s responses, the
United States identified specific areas about which it required further clarification.  POSCO provided
further information and clarification as requested on such issues from August through October 1998.10
15. After initiation of the SSSS investigation and the preliminary finding of material injury byUSITC, the United States proceeded to gather in formation regarding sales to the United States by
POSCO for purposes of calculating a margin of dumpi ng.  In this regard, the United States issued an
initial questionnaire in the SSSS investigation on 3 August 1998.
11  After having received an
extension of time from the United States, POSCO provided information in response to the initial
questionnaire on 2 September 1998 and 23 September 1998.  After reviewing POSCO’s responses,
the United States identified specific areas about which it required further clarification.  POSCO
provided further information and clarification as  requested on such issues from October through
December 1998.12
16. The United States published its preliminary determination in the SSPC case on
4 November 1998, preliminarily finding dumping by the only known Korean producer of SSPC,
POSCO, at a rate of 2.77 per cent.13  The United States published its preliminary determination on
                                                     
7 Notice of Initiation of Antidumping Investigations:  Stainless Steel Plates in Coils form Belgium,
Canada, Italy, South Africa, South Korea and Taiwan , 63 Fed. Reg. 20580 (27 April 1998) (" SSPC Initiation ")
(ROK Ex. 3).
8 Initiation of Antidumping Duty Investigations:  Stainless Steel Sheet and Strip in Coils from France,
Germany, Italy, Japan, Mexico, South Korea, Taiwan and the United Kingdom , 63 Fed. Reg. 37521
(13 July 1998) (" SSSS Initiation ") (ROK Ex. 15).
9 (US Ex. 1).
10 ROK First Submission, at para. 3.12.
11 (US Ex. 2).
12 ROK First Submission, at para. 3.20.
13 Notice of Preliminary Determination of Sales at Less Than Fair Value:  Stainless Steel Plate in Coils
("SSPC ") from the Republic of Korea , 63 Fed. Reg. 59535 (1998) (hereinafter " SSPC preliminary
determination ") (ROK Ex. 4).WT/DS179/R
Page 233
SSSS on 4 January 999.14  Subsequent to issuance of this pre liminary determination in the SSSS case,
and in accordance with the United States’ regulations, at 19 C.F.R. § 351.224, POSCO alleged that
the United States had made certain ministerial errors in the calculation of POSCO’s antidumping
margin.  Commerce carefully reviewed POSCO’s allegations and concluded that POSCO was correct.Accordingly, on 26 January 1999 the United States published a notice which corrected POSCO’s
antidumping duty rate to 3.92 per cent.
15
17. With regard to sales to the bankrupt customer, in the SSPC investigation the issue arose justbefore the Department’s preliminary determination.  Therefore, for purposes of the preliminary
determination, the United States accepted POSCO’s argument that the sales should be excluded fromthe dumping analysis.  The United States also excluded the sales in the SSSS preliminary
determination but, based on a more complete record, took account of the bad debt expense in the
dumping analysis.
16  As will be discussed below, both POSCO and the US domestic industry
commented on this issue throughout the proceedings.  As explained fully in the notices of the final
determinations, the United States ultimately concluded that the sales should be included in thedumping analysis, with appropriate adjustments to account for the bad debt and other selling
expenses.
18. With regard to the depreciation of the won during November and December 1997, in the
preliminary determinations, as in the final determinations, the United States accepted arguments
advanced by POSCO, over the objections by the dom estic industry, that the depreciation was so large
and precipitous that Commerce should apply daily exchange rates during the period, rather than 40-
day rolling average exchange rates, as it ha d in all prior cases involving depreciation.
17  T h e
United States explicitly requested comments on whether, in the final determination, it should divide
its POI such that pre- and post-devaluation sales would not be compared.18  This issue is also
discussed in further detail below.
19. With regard to the issue of home market sales to "local customers" in Korea (which were
invoiced in both US dollars and Korean won, but paid in won), in the preliminary determination of
SSPC the United States excluded these sales from its analysis of sales in the home market because it
was under the mis-impression at the time that these sales were destined for export, and thus not sales
"for consumption in the home market".19  For the preliminary determination in the SSSS case, the
United States accepted POSCO’s argument that the sales were "consumed" by its customer in the
home market.  Therefore, the United States included such sales in its analysis of home market sales.
20. Finally, in the preliminary determinations in both cases, parties were notified that they had an
opportunity to submit briefs addressing the issues raised by the preliminary determination.  Further,
parties were notified that they had the opportunity to respond to briefs filed by other parties.  Finally,
the United States notified the parties that, if they so requested, the United States would hold a hearing
                                                     
14 Notice of Preliminary Determination of Sales at Less Than Fair Value:  Stainless Steel Sheet and
Strip in Coils from South Korea , 64 Fed. Reg. 137 (1999) (hereinafter " SSSS preliminary determination ") (ROK
Ex. 16).
15 Notice of Amended Preliminary Determination of Sales at Less Than Fair Value:  Stainless Steel
Sheet and Strip in Coils From Korea , 64 Fed. Reg. 3928 (1999) (ROK Ex. 18).
16 SSPC preliminary determination,  63 Fed. Reg. at 59536-37 (ROK Ex. 4);  SSSS Preliminary
Determination , 64 Fed. Reg. at 140 (ROK Ex. 16).
17 SSPC preliminary determination  63 Fed. Reg. at 59539 (ROK Ex. 4);  SSSS preliminary
determination , 64 Fed. Reg. at 145 (ROK Ex. 16).  The United States’ general rules for conversion of currency
are discussed in detail below.
18 Id.
19 SSPC Preliminary Determination , 63 Fed. Reg. at 59536 (ROK Ex. 4) ("we are disregarding home
market local sales because there is knowledge that thes e sales are not consumed in the foreign market"). The
United States’ designation of these sales as "local sales" was a terminology adopted from POSCO.WT/DS179/R
Page 234
so that the parties could address their arguments re garding the preliminary determination to an official
in charge of making the final determination.20
21. Subsequent to the preliminary determination, the United States began imposing provisionalmeasures on those companies found to be dumping in the form of a cash deposit requirement uponimportation based upon the weighted-average dumping margin calculated in the preliminary
determination.
2. Verification, Opportunity for Comment, and the Final Determination
22. After the preliminary determination was issued, the United States continued to receive factual
information from POSCO in response to requests for clarification on various issues.  Departmentpersonnel visited POSCO from 9 November until 13 November 1998, and verified the accuracy of
POSCO’s responses submitted in the SSPC investigation.  Department personnel again visited
POSCO from 1 March until 5 March 1999, and verified the accuracy of POSCO’s responses in the
SSSS investigation.  As will be discussed further below, during verification the United States was able
to clarify a number of issues raised during the investigation.  For example, in the SSPC investigation,an examination of the records of POSCO’s US affiliate revealed that the sales that were not paid due
to the customer’s bankruptcy were written off and the bad debt expense was recognized in the
company’s accounting records for the period of investigation.  The United States published its factual
findings from its verification trips in reports available to all parties.
21
23. Subsequent to verification, all parties were afforded an opportunity to present written
arguments on all issues which they considered relevant to the United States in reaching its final
determination.22  Parties were also permitted to provide a written rebuttal to any written argument
raised by another party.23  Notwithstanding Korea’s suggestion in the current dispute that it did not
have an opportunity to comment on the United States’ determination with respect to the three issues it
raises, an examination of the briefs reveals that POSCO did, in fact, provide extensive argumentsrelating to each of the issues which are the subject of this dispute.
24. The United States also afforded all parties an opportunity for a hearing at which they could
make an oral presentation of their arguments to Department officials in charge of making the final
determination, and could respond orally to arguments raised by other parties.  Although the US
domestic industry requested such a hearing in the SSPC case, POSCO did not request a hearing to
address the issues.  The domestic industry subsequently withdrew its request and the hearing was
cancelled.
24  In the SSSS case both parties requested a hearing, and one was held on 26 April 1999.25
25. The United States published its final determination in the SSPC investigation on
31 March 1999, finding dumping by POSCO at a rate of 16.26 per cent.26  The United States published
                                                     
20 SSPC Preliminary determination , 63 Fed. Reg. at 59539 (ROK Ex. 4);  SSSS preliminary
determination , 64 Fed. Reg at 147 (ROK Ex. 16).
21 (ROK Ex. 6) and (ROK Ex. 19).
22 POSCO presented its written arguments in the SSPC case to the United States on 26 January 1999.
See POSCO SSPC Brief  (ROK Ex. 7).  POSCO presented its wr itten arguments in the SSSS case to the
United States on 15 April 1999.  See POSCO SSSS Brief  (ROK Ex. 20).
23 POSCO presented its written rebuttals in the SSPC case to the United States on 2 February 1999.
See POSCO SSPC Rebuttal Brief  (ROK Ex. 9).  POSCO pres ented its written rebuttals in the SSSS case to the
United States on 21 April 1999.  See POSCO SSSS Rebuttal Brief  (ROK Ex.22).
24 See SSPC Final Determination  ("Case History"), 64 Fed. Reg. at 15444 (ROK Ex. 11).
25 See SSSS Final Determination  ("Case History"), 64 Fed. Reg. at 30665 (ROK Ex. 24).
26 SSPC Final Determination , 64 Fed. Reg. at 15456 (ROK Ex. 11).  Note that in addition to POSCO,
the United States also investigated Inchon Iron and St eel Co., Ltd. ("Inchon"), and Taihan Electric Wire Co.,
Ltd. ("Taihan").  The United States found that Inchon was not dumping, in both the preliminary and finalWT/DS179/R
Page 235
its final determination in the SSSS investigation on 8 June 1999 finding POSCO’s margin of dumping
to be 12.12 per cent.  The substance of these final determinations is discussed in greater detail below,
with respect to each of the three issues raised by Korea.
26. Subsequent to these final determinations, a nd the affirmative injury determinations, POSCO
challenged the United States’  determinations before the United States Court of International Trade on
15 June 1999.  However, POSCO voluntarily abandoned its judicial challenges on 22 October 1999.27
III. ARGUMENT
A. STANDARD OF REVIEW
27. With respect to its challenge to the Redetermination Results, Korea seeks to retry several
factual issues that were before the DOC.  To accompli sh this, Korea invites the Panel to step into the
shoes of the DOC and engage in a de novo  review of the facts.  However, under Article 17.6(i) of the
AD Agreement and GATT and WTO jurisprudence, the Panel is precluded from engaging in such an
exercise.
28. It is well-established as a general matter that panel review is not a substitute for proceedings
conducted by national investigating authorities.  Numerous panels – both GATT and WTO – have
recognized that the role of panels is not to conduct a de novo  review of the factual findings of a
national investigating authority.28  In describing the role of panels when reviewing factual issues, the
panel in the Korean Resins  case stated, in part:
The Panel . . . should [not] substitute its own judgment for that of the KTC as to the
relative weight to be accorded to the facts before the KTC.  To do so would ignore
that the task of the Panel was not to make its own independent evaluation of the facts
before the KTC to determine whether there was material injury to the industry in
Korea but to review the determination as made by the KTC for consistency with the
Agreement, bearing in mind that in a given case reasonable minds could differ as tothe significance to be attached to certain facts.
29
29. Similarly, in the Softwood Lumber  case, the panel described the appropriate standard of
review as follows:
The Panel considered that in reviewing the action of the United States authorities in
respect of determining the existence of suff icient evidence to initiate, the Panel was
not to conduct a de novo  review of the evidence relied upon by the United States
                                                                                                                                                                    
determinations, and thus no antidumping duties have been required on exports by Inchon.  Taihan did not
provide any information in response to the United States’ questionnaire, nor did it participate in any othermanner in the investigation;  consequently, Taihan’s antidumping margin was based upon the facts availableunder 19 USC. § 1677e.  See, SSSS preliminary determination  64 Fed. Reg. at 146-147.  None of the issues
raised by Korea relate either to Inchon or Taihan.
27 (US Ex. 4).
28 See, e.g., United States – Restrictions on Imports of Cotton and Man-Made Fibre Underwear ,
WT/DS24/R, Report of the Panel, as modified by the Appellate Body, adopted 25 February 1997, para. 7.12.,citing Korea – Anti-dumping Duties on Imports of Polyacetal Resins from the United States , Report of the Panel
adopted 27 April 1993, BISD 40S/205, para. 227 (hereinafter " Korean Resins ");  United States – Initiation of a
Countervailing Duty Investigation into Softwood Lumber Products from Canada , BISD 34S/194, Report of the
Panel adopted 3 June 1987, BISD 34S/194, para. 335 (hereinafter " Softwood Lumber ");  United States – Anti-
Dumping Duties on Imports of Stainless Steel Plate from Sweden , ADP/117, Report of the Panel issued
24 February 1994 (unadopted), para. 284 and 387 (hereinafter " Plate from Sweden ").
29 Korean Resins , para. 227.WT/DS179/R
Page 236
authorities or otherwise to substitute its judgment as to the sufficiency of the
particular evidence considered by the United States authorities.  Rather, in the view of
the Panel, the review to be applied in the present case required consideration of
whether a reasonable, unprejudiced person could have found, based upon theevidence relied upon by the United States at the time of initiation, that sufficient
evidence existed of subsidy, injury and causal link to justify initiation of the
investigation.
30
30. More recently, the panel in the Argentina Footwear  case declared as follows:
In our view, we have no mandate to conduct a de novo  review of the safeguard
investigation conducted by the national authority.  Rather, we must determine
whether Argentina has abided by its multilateral obligations under the Agreement on
Safeguards . . . in reaching its affirmative finding of injury and causation in the
footwear investigation.31
The Appellate Body concluded that the panel "s tated the standard of review correctly ... ."32
31. In the case of anti-dumping measures, any doubt on this score is eliminated by Article 17.6 of
the AD Agreement, which expressly sets forth the standard of review to be applied by this Panel.  In
subparagraph (i), panels are instructed not to substitute their judgment for that of the national
investigating authorities, but instead to proceed as follows:
in its assessment of the facts of the matter, the panel shall determine whether the
authorities’  establishment of the facts was proper  and whether their evaluation of
those facts was unbiased and objective .  If the establishment of the facts was proper
and the evaluation was unbiased and objective, even though the panel might have
reached a different conclusion, the evaluation shall not be overturned ... . (Emphasis
added).
32. In interpreting subparagraph (i), the panel in the Guatemala Cement  case found the standard
articulated by the Softwood Lumber  panel to be consistent with the standard of review under
Article 17.6(i), concluding as follows:  "Thus, we  agree with the Panel in Softwood Lumber that our
role is not to evaluate anew the evidence and information before the Ministry at the time it decided to
initiate."33  Although the Appellate Body reversed the panel in Guatemala Cement  on other grounds,
the panel ’s articulation of the appropriate standard of review was subsequently followed by the panelin the HFCS  case.
34
33. In addition to establishing the standard of review for factual issues, the AD Agreement also
establishes the "scope" of that review.  Specifically, Article 17.5(ii) of the AD Agreement directs the
                                                     
30 Softwood Lumber, para. 335.
31 Argentina - Safeguard Measures on Imports of Footwear , WT/DS121/R, Report of the Panel as
modified by the Appellate Body adopted 12 January 2000 (hereinafter " Argentina Footwear "), para. 8.117.
32 Argentina - Safeguard Measures on Imports of Footwear , WT/DS121/AB/R, Report of the Appellate
Body adopted 12 January 2000, para. 117.
33 Guatemala - Anti-Dumping Investigation Regarding Portland Cement from Mexico , WT/DS60/R,
Report of the Panel, as reversed on other grounds by the Appellate Body, adopted 25 November 1998,para. 7.57.
34 Mexico - Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States ,
WT/DS132/R, Report of the Panel adopted 24 February 2000, paras. 7.94-7.95 (hereinafter " HFCS ").WT/DS179/R
Page 237
Panel to limit its review to the facts that were before the DOC when it made its determination ( i.e., the
evidence contained in the administrative record).35
34. Finally, in reviewing legal questions that turn  on the proper meaning to be ascribed to the AD
Agreement, subparagraph (ii) of Article 17.6 states as follows:
the panel shall interpret the relevant provisions of the Agreement in accordance with
customary rules of interpretation of public international law.  Where the panel finds
that a relevant provision of the Agreement admits of more than one permissible
interpretation, the panel shall find the author ities’ measure to be in conformity with
the Agreement if it rests upon one of those permissible interpretations.
35. Thus, the relevant question in every case is not whether the challenged determination rests
upon the best or the "correct" interpretation of the AD Agreement, but whether it rests upon a
"permissible interpretation" (of which there may be many).  If it does, then this Panel must uphold the
determination.
B. AS THE COMPLAINING PARTY , KOREA HAS THE BURDEN OF ESTABLISHING A VIOLATION OF
A WTO A GREEMENT
36. A complainant bears the initial burden of co ming forward with evidence and argument that
establishes a prima facie  case of a violation.36  In addition, if the balance of evidence is inconclusive
with respect to a Korean claim, Korea must be held to have failed to establish that claim.37
Accordingly, the burden is on Korea to demonstrate that the United States’ actions are inconsistent
with United States’ WTO obligations.
37. This principle is not affected by Korea’s incorrect assertion that anti-dumping measures
constitute "derogations" from alleged free-trade principles of the WTO.  To the contrary, the right
conferred by Article VI and the AD Agreement to impose anti-dumping measures forms part of the
carefully drawn balance of rights and obligations in the WTO Agreement.
38. The principle that trade remedies authorized by the WTO agreements do not constitute
"exceptions" was endorsed by the Appellate Body in the Wool Shirts  case, which involved the US
application of a special safeguard restraint under the WTO Agreement on Textiles and Clothing
(ATC).  In challenging the US measure, India made the same argument that had been made in the past
with respect to anti-dumping measures.  Specifically, India argued that because the special safeguard
remedy in the ATC allegedly is an "exception" to other "free trade" provisions of the ATC, the burdenof proof shifted from India to the United States.  The Appellate Body roundly rejected this argument,
holding that India, as the complainant, bore the burden of presenting a  prima facie  case of a violation.
The Appellate Body reasoned that rather than bein g an "exception," the special safeguard restraint
provisions of the ATC constituted part of an overall balance of rights and obligations.  This reasoning
applies with equal force to anti-dumping measures;  namely, the right to impose anti-dumping
                                                     
35 See HFCS , para. 7.43 ("[W]e are required to consider this dispute on the basis of the facts before the
investigating authority, pursuant to Article 17.5(ii) of the AD Agreement.").
36 See, e.g., United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India ,
WT/DS33/AB/R, Report of the Appellate Body adopted 23 May 1997, page 14 (hereinafter " Wool Shirts ");  and
European Communities - Measures Affecting Livestock and Meat  (Hormones ), WT/DS26/AB/R,
WT/DS48/AB/R, Report of the Appellate Body adopted 13 February 1998, para. 104 (hereinafter " EC
Hormones ").
37 India - Quantitative Restrictions on Imports of  Agricultural, Textile and Industrial Products ,
WT/DS90/R, Reports of the Panel and the Appellate Body adopted 22 September 1999, para. 5. 120.WT/DS179/R
Page 238
measures constitutes part of an overall balance of rights and obligations contained first in GATT
1947, and now in the WTO.
39. Even if anti-dumping measures could be characterized as a derogation from, or an "exception"
to, alleged free-trade principles, this would not af fect the assignment of the burden of producing
evidence of a violation.  As the Appellate Body stated in the EC Hormones  case:
The general rule in a dispute settlement proceeding requiring a complaining party to
establish a prima facie  case of inconsistency with a provision of the SPS Agreement
before the burden of showing consistency with that provision is taken on by the
defending party, is not avoided by simply describing that same provision as an
"exception".  In much the same way, merely characterizing a treaty provision as an
"exception" does not by itself justify a "stricter" or "narrower" interpretation of that
provision than would be warranted by examination of the ordinary meaning of the
actual treaty words, viewed in context and in the light of the treaty's object and
purpose, or, in other words, by applying the normal rules of treaty interpretation.38
40. In summary, the burden of proving that the United States has acted inconsistently with its
WTO obligations rests with Korea as the complaining party.
C. THE ACTIONS OF THE UNITED  STATES WERE NOT INCONSISTENT WITH ARTICLE  X:3 OF
GATT 1994
41. Korea contends throughout its arguments that the actions of the United States were not in
accordance with Article X:3 of GATT 1994.  In essence, Korea argues that Article X:3 provides for
panel review of the consistency of any action by a Member with its own domestic law, regulation and
practice.  That reading cannot be found in Article X:3.
42. The task of a panel is to review the consistency of a Party’s actions with the Agreement and
not with that Party’s domestic laws, regulations or practices.  Throughout its submission, Koreaargues that various actions of the United States were inconsistent with some precedent under
United States practice, or with the holding of some domestic court of the United States.  However,
this Panel’s mandate is set forth in its terms of reference and DSU Article 7.2, which requires panels
to "address the relevant provisions in any covered agreement or agreements cited by the parties to the
dispute."  Further, under Article 3.2 of the DSU, the purpose of the dispute settlement system of theWTO is to:  "preserve the rights and obligations of members under the covered agreements, and to
clarify the existing provisions of those agreements. . . ."  Finally, Article 3.7 of the DSU provides that
". . .the first objective of the dispute settlement mechanism is usually to secure the withdrawal of themeasures concerned if these are found to be inconsistent with the provisions of any of the covered
agreements."  Thus, the clear focus of the dispute settlement system is consistency of an action with
the covered agreements.
43. The panels which have addressed the meaning of Article X:3 have, as Korea asserts, held that
Article X:3 established some minimum standards of transparency and fairness.  However, as observed
by the Appellate Body in Bananas , Article X:3 does not address the consistency of particular
administrative rulings, but rather the administration  of such rulings.
The text of Article X:3(a) clearly indicates that the requirements of "uniformity,
impartiality and reasonableness" do not apply to the laws, regulations, decisions andrulings themselves , but rather to the administration  of those laws, regulations,
decisions and rulings.  The context of Article X:3(a) within Article X, which is
                                                     
38 EC Hormones , para. 104 (emphasis added).WT/DS179/R
Page 239
entitled "Publication and Administration of Trade Regulations", and a reading of the
other paragraphs of Article X, make it clear that Article X applies to the
administration  of laws, regulations, decisions and rulings.  To the extent that the
laws, regulations, decisions and rulings themselves are discriminatory, they can beexamined for their consistency with the relevant provisions of the GATT 1994.
39
44. In the present case, Korea is not arguing that the United States, having issued anti-dumpingadministrative rulings on SSPC  and SSSS  otherwise in accordance with GATT 1994 and the AD
Agreement, is administering  those rulings in an unfair manner.  Rather, Korea’s complaints focus on
the rulings themselves.  As the panel observed in Bananas , to the extent those rulings are inconsistent
with a covered agreement, the Panel can addre ss the issues without reference to Article X:3.
40
45. This understanding of Article X:3 is reinforced by the fact that the disputes in which panels
applied that provision relate to situations in which the overall administration of some program was
alleged to be arbitrary.  For example, the allegation addressed under Article X:3 by the Appellate
Body in United States - Import Prohibition of Certain Shrimp and Shrimp Products41 was that the
entire procedure under review was "non-transparent and ex-parte," that there was no formal notice of
or reasons provided for actions, and that there was no opportunity for review of or appeal from an
action.
46. Such cases, in which the allegation is one of overall arbitrary application addressed by
Article X:3 are very different from the purpose for which Korea uses Article X:3 in the present case.Korea has not alleged that the overall procedure of the anti-dumping law of the United States is
applied arbitrarily, or that Members are otherwise deprived of basic due process, such as notice and
opportunity for review in anti-dumping proceedings.
47. Consistency is an important feature of a transparent anti-dumping procedure.  In fact, as
discussed in the following sections, each allegation of inconsistency made by Korea is without merit.Moreover, it is a fundamental principle of all administrative law in the United States that a
government agency must follow its prior practice, or give a reasoned explanation for its departure.
42
Thus, the United States operates an anti-dumping system which meets the general transparency, due-process and consistency parameters of Article X:3.
48. However, a "uniform, impartial and reasonable" system is not necessarily one in which each
decision looks like the one before.  The benefits of consistency do not always outweigh the need of
investigating authorities to allow their policies to evolve to suit new factual scenarios.  Consistency
with prior cases is a laudable goal, to the extent the actions taken in such cases were themselves
consistent with the AD Agreement, in that it enhances predictability and transparency.  However,
                                                     
39 European Communities - Regime for the Importation, Sale and Distribution of Bananas ,
WT/DS27/AB/R, Report of the Appellate Body, 9 September 1997 (hereinafter " Bananas "), at para. 200
(emphasis in original).
40 Id.
41 United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, Report
of the Appellate Body, 12 October 1998 (hereinafter " Shrimp "), at para. 188.
42 The United States Supreme Court explained this rule under the law of the United States:  an agency
"must be given ample latitude to adapt [its] rules and policies to the demands of changing circumstances," but"an agency changing its course . . . is obligated to supply a reasoned analysis for the change beyond that whichmay be required when an agency does not act in the first instance." Motor Vehicle Mfrs. Ass'n of United States,
Inc. v. State Farm Mut. Auto. Ins. Co. , 463 US 29, 42 (1983), (US Ex. 5).  In the antidumping context, the
United States Court of International Trade has stated that "well established principles of administrative lawprovide that an administrative agency has the authority to change or revoke its policies and practices, if a
reasonable explanation is provided for such a change."  Sanyo Electronics v. United States , 86 F. Supp. 2d 1232,
1241 (Ct. Int’l. Trade, 4 June 1999) (US Ex. 6).WT/DS179/R
Page 240
where facts properly established and objectively assessed reveal flaws or gaps in prior practice,
reasonableness requires that the practice be changed or supplemented.
49. Moreover, while Article X:3 establishes broad due process parameters for all areas of trade
subject to a covered agreement, the AD Agreemen t establishes specific due process requirements
applicable to antidumping proceedings.  In this regard,  Article 6 provides exporters opportunities to
defend their interests, and Article 12 requires public notice and explanation of determinations.
Further, under Article 17.6 a panel may review whether an investigating authority has properly
established and objectively evaluated the facts, and interpreted relevant provisions of the AD
Agreement reasonably.  These specific provisions demonstrate that the panel should look first to theAD Agreement, which deals specifically with antidumping inquiries.
43
50. Finally, domestic judicial review retains an important function under the dispute settlementsystem.  In the antidumping context in particular, Article 13 of the AD Agreement requires that
members maintain independent judicial, arbitral or administrative tribunals or procedures for the
resolution of disputes relating to antidumping actions.
51. The United States notes that in the cases before the panel, POSCO had the right, under
United States law, to bring before domestic courts its arguments about the consistency of the actions
taken with United States law, regulations, practice, and prior court holdings.
44  Indeed, POSCO
brought such challenges before the United States Court of International Trade.  However, POSCO
voluntarily dismissed those cases one we ek after Korea requested panel review.45  Thus, Korea has
elected not to bring its allegations of inconsistency with US law and practice before the domestic
tribunal which is charged with deciding such issues, and which the United States is required to make
available to POSCO under Article 13 of the AD Agreement.  Moreover, to the extent the arguments
presented to this panel rely on judicial holdings in the United States, POSCO has declined to bring its
arguments to the very body which issued those holdings.
52. Thus, the panel should disregard Korea’s various arguments that some alleged inconsistency
by the United States with domestic law or practice constitutes a violation of Article X:3.
D. THE UNITED  STATES ’ TREATMENT OF SALES TO A US C USTOMER THAT WENT BANKRUPT
AND FAILED TO PAY WAS CONSISTENT WITH ARTICLES 2.4 AND 12.2 OF THE AGREEMENT
AND ARTICLE  X:3 OF GATT 1994
1. Statement of Relevant Facts
53. As noted above, in the SSPC and SSSS investigations, the United States examined POSCO's
US sales of the subject merchandise during the periods 1 January through 31 December 1997, and
1 April 1997 through 31 March 1998, respectively.46  During these periods, POSCO made sales
primarily through two affiliated companies:  (1) POSCO Steel ("POSTEEL"), a trading company in
Korea;  and (2) Pohang Steel America Corporation ("POSAM"), a wholly-owned subsidiary located in
the United States.
54. The United States requested that POSCO report all sales of the subject merchandise to the
United States made during the period of investigation.  In its response to the United States’ initial
questionnaires, POSCO stated
                                                     
43 Bananas , at para. 204.
44 See, 28 USC. § 1581(c) which vests the United States Court of International Trade with jurisdiction
over all civil actions relating to the anti-dumping statute.  (US Ex. 3).
45 See, (US Ex. 4).
46 SSPC Final Determination , 64 Fed. Reg. at 15444 (ROK Ex. 11);  SSSS Final Determination , 64
Fed. Reg. at 30666 (ROK Ex. 24).WT/DS179/R
Page 241
"The reported amounts ... include sales to a now bankrupt US company, [...].  That
company did not pay POSCO for certain sales but did take possession of some of
POSCO’s merchandise in the POI.  POSCO wrote the unpaid sales off in the POI  and
expects to exclude them from its US database."47
55. It is the United States’ treatment of those sales to ABC Company48 that Korea now
challenges.  Although the issue arose in a similar manner in both investigations, how the record and
the issue developed differed.
56. In the SSPC investigation, POSCO initially referred to these sales as having been written off,
as noted above, and then subsequently stated merely that they were unpaid.49  POSCO also claimed
that they were insignificant and atypical and, therefore, should be excluded.50  Approximately one
week before the United States’ preliminary analysis, petitioners submitted comments in which they
argued, on the basis of legal precedents, that these sales should be treated as a direct selling expense
for bad debt.51  POSCO also submitted rebuttal comments.52  For purposes of the preliminary
determination, the United States accepted POSC O’s argument and excluded the sales to ABC
Company.53
57. The issue arose in a similar manner in the SSSS case except that, prior to the preliminarydetermination, the United States obtained additional accounting information that demonstrated that
the sales had been written off.
54  Based on that information, in the preliminary determination, the
United States accounted for the bad debt as an indirect selling expense, although it continued toexclude the sales, as it had in the SSPC case.
55  Thus, as of 4 January 1999, three months prior to the
SSPC final determination and six months before the SSSS final determination, POSCO was on notice
that the United States viewed the customer’s failure to pay as a bad debt expense.
58. The verification in both investigations confirmed the write off of these sales,56 and the parties
continued to comment on this issue in their case and rebuttal briefs.57  The United States then
reviewed the evidence in light of the parties’ co mments and the applicable legal precedent.  For the
final determinations, the United States determined  that the sales to ABC Company should be included
in the calculation of export price and constructed export price.  The United States allocated the bad
debt expense over all US sales of the subject merchandise.58
                                                     
47 SSPC POSCO Response to Section A of Initial Questionnaire dated 2 July 1998, at A-3, (US Ex. 7);
SSSS POSCO Response to Section A of Initial Questio nnaire dated 3 September 1998, at A-3, (US Ex. 8)
(emphasis added).
48 We have adopted the designation for this company chosen by Korea for reasons of confidentiality.
ROK First Submission, at para. 3.30.
49 SSPC Supplemental Questionnaire Response, Sections B and C, at 15 (ROK Ex. 28).  As the
United States noted in its final determination, POSCO requested exclusion based on its belief that the saleswould be treated as unpaid and that the credit expense would be distortive.  SSPC Final Determination, 64 Fed.Reg. at 15448 (ROK Ex. 11).
50 Id.
51 Letter of 19 October 1998 from US Petitioners to Department of Commerce at 2-3, (ROK Ex. 31).
52 Letter of 22 October 1998 from POSCO to Department of Commerce at 2-5, (ROK Ex. 32).
53 SSPC Preliminary Determination , 63 Fed. Reg. at 59536-37, (ROK Ex. 4).
54 SSSS Preliminary Determination , 64 Fed. Reg. at 140, (ROK Ex. 16).
55 Id.
56 SSPC POSAM Verification Report, at 8-9 and Exhibit 5 (US Ex. 9);  SSSS POSAM Verification
Report, at 8, (US Ex. 10).
57 US Petitioners’ SSPC Case Brief at 1-9, (ROK Ex. 8);  POSCO’s SSPC Rebuttal Brief at 3-11,
(ROK Ex. 9).
58 SSPC Final Determination , 64 Fed. Reg. at 15448-49, (ROK Ex. 11);  SSSS Final Determination , 64
Fed. Reg. at 30673-74, (ROK Ex. 24).  The change in the United States’ methodology to treat bad debt as aWT/DS179/R
Page 242
59. As demonstrated below, the United States’ final determinations were entirely consistent with
Articles 2.4, and 12.2 of the Agreement and Article X:3 of GATT 1994.
2. Introduction to the Argument
60. In challenging the United States' treatment of  POSCO's US bad debt expense, Korea presents
four lines of argument:  (1) these sales are "atypical" and the fair comparison requirement of
Article 2.4 requires the exclusion of atypical export sales from the determination of export price;  (2)
an adjustment for bad debt expense is inconsistent with Article 2.4 because such expenses do not
affect price comparability;  (3) if an adjustment for bad debt expense is consistent with Article 2.4, themanner in which the United States made the adjustment in this case is not;  and (4) the United States'
treatment of these sales was inconsistent with the procedural requirements of Article 12.2 of the
Agreement and Article X:3 of GATT 1994.
61. Moreover, the theme that runs through all of Korea’s arguments is that the United States ’
treatment of POSCO’s US bad debt expense is not only an issue of a fair comparison, but an issue offairness in some broader sense.  Korea urges this panel to develop rules to govern the conduct of anti-
dumping investigations and, in doing so, to look beyond the substantive and procedural requirements
of the Agreement.
59  The panel should reject such arguments.
62. Articles 3.2 and 19.2 of the DSU state explicitly that the panel’s role is to "clarify" the
agreements and in so doing the panel "cannot add to or diminish the rights and obligations provided inthe covered agreements."  Moreover, the role of the panel in reviewing anti-dumping measures is
more explicitly circumscribed in Article 17.4 of the Agreement, which states
the panel shall interpret the relevant provisions of the Agreement in accordance with
customary rules of interpretation of public international law.  Where the panel finds
that a relevant provision of the Agreement admits of more than one permissibleinterpretation, the panel shall find the authorities measure to be in conformity with
the Agreement if it rests upon one of those permissible interpretations.
63. Therefore, whether the United States’ determinations are consistent with the Agreement may
only be judged by reference to the terms of the Agreement itself, as interpreted in accordance with
customary rules of international law.  If those dete rminations rest on a permissible interpretation, they
are in conformity with the Agreement.
64. The rules embodied in the Vienna Convention on the Law of Treaties  have attained the status
of customary rules of international law.  In accord ance with those rules, terms must be given their
                                                                                                                                                                    
direct selling expense, rather than an indirect selling ex pense, was necessary to conform the determination to US
law and practice.  See, e.g., Daewoo Electronics Co. v. United States , 712 F. Supp. 931, 938-40 (Ct. Int’l. Trade
1989) (the court agreed with Korean producers of color te levision receivers that bad debt is a direct selling
expense that must be included in the circumstance of sale adjustment to normal value (then called "foreignmarket value" or "FMV")), (US Ex. 11);  Notice of Final Determination of Sales at Less Than Fair Value:
Foam Extruded PVC and Polystyrene Framing Stock from the United Kingdom , 61 Fed. Reg. 51411, 51417
(2 October 1996), (US Ex. 12);  Color Television Receivers from the Re public of Korea:  Final Results of
Administrative Review , 61 Fed. Reg. 4408, 4412 (6 February 1996) (hereinafter "CTVs from Korea"), (US
Ex. 13).
59 Korea’s First Submission, paragraph 4.26, footnote 104.WT/DS179/R
Page 243
ordinary meaning in their context, and in light of the object and purpose of the treaty.  It is those
principles that must guide the panel in making its rulings and recommendations.60
3. Article 2.4 Does Not Require Exclusion of Sales from Export Price
65. Korea argues that the United States violated Article 2.4 by failing to exclude certain sales that
it alleges to be "atypical" from the export price.  However, Article 2.4 does not address the issue of
what sales establish export price and normal value.  That matter is addressed in Article 2.1.61
66. It is evident that, in drafting Article 2.1, limitations on the sales used to determine export
price and normal value were considered.  Article 2.1 expressly limits the determination of normalvalue to sales "in the ordinary course of trade."  It is significant that there is no such limitation in
Article 2.1 on the determination of export price.
62  The absence of a limitation on sales used to
determine export price must be interpreted as intentiona l.  It is also logical in that it is the export sales
that are alleged to be dumped and causing injury.  The fact that dumped sales may be atypical in some
respect does not alter their potential to injure.
67. While it is Article 2.1 that addresses the sales used to determine export price and normal
value, Korea bases its argument on Article 2.4 which addresses the comparison  of export price and
normal value.  Specifically, the second and third sentences of Article 2.4 require that the comparison
of export price and normal value
shall be made at the same level of trade, normally at the ex-factory level, and in
respect of sales made at as nearly as possible the same time.  Due allowance shall be
made in each case, on its merits, for differences which affect price comparability,
including differences in conditions and terms of sale, taxation, levels of trade,quantities, physical characteristics, and any other differences which are also
demonstrated to affect price comparability.
68. Article 2.4 explicitly recognizes that sales may differ in many respects that affect the
comparability of their prices.  Where such differences exist, it is "due allowance," not exclusion, that
Article 2.4 requires.
63  Establishing price comparability through appropriate adjustments is all that is
necessary to achieve the object and purpose of the Agreement, which is to determine dumping through
a comparison of export price and normal value.
69. In an attempt to support its argument that Article 2.4 requires more than "due allowance" for
differences affecting comparability, Korea presents a distorted view of US legislative history and
                                                     
60 United States - Standards for Reformulated and Conventional Gasoline , WT/DS2/AB/R, adopted
20 May 1996 (hereinafter " Reformulated Gasoline ") at 23;  Japan - Taxes on Alcoholic Beverages ,
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996 (hereinafter " Taxes on Alcoholic
Beverages ") at 12;  Australia - Subsidies Provided to Producers and Exporters of Automotive Leather
(WT/DS126) - Recourse to Article 21.5 of the DSU by the United States , WT/DS126/RW, 14 January 2000
(hereinafter " Automotive Leather ") at para. 6.25.
61 Article 2.1 defines dumping as existing where, "the export price of the product exported from one
country to another is less than the comparable price, in the ordinary course of trade, for the like product when
destined for consumption in the exporting country."
62 As discussed below, Article 2.3 addresses the construction of export price in special circumstances.
As in Article 2.1, there is no limitation in Article 2.3 on the sales used to establish export price.
63 The contrary interpretation asserted by Korea ignores the customary rules of treaty interpretation.  In
attempting to read a limitation on export price sales into  Article 2.4, Korea directly contradicts Article 2.1,
where such limitations are addressed and applied only to normal value.  The "fundamental principle of effet utile
is that a treaty interpreter is not free to adopt a meaning that would reduce parts of a treaty to redundancy orinutility."  Automotive Leather , at para. 6.25.WT/DS179/R
Page 244
judicial precedent and of US practice.  Citing to the Statement of Administrative Action
Accompanying the Uruguay Round Agreements Act ("SAA") and judicial decisions, Korea asserts
that the United States routinely excludes atypical sales from its analysis of "both export price  and
normal value."64  However, the language quoted from the SAA refers solely to the exclusion  from
normal value  of sales not in the ordinary course of trade.   It has nothing to do with the determination
of export price.  Furthermore, US courts have repeatedly recognized that US law, like Article 2.1,
does not require the exclusion of sales from export price.65  Rather, the US courts have recognized
that the goal is to include all export sales, but to utilize appropriate adjustments to ensure a fair
comparison.66  Thus, contrary to Korea’s assertion, US law and practice reflects the interpretation of
Articles 2.1 and 2.4, discussed above.
70. Although the goal is to include all export sales, the United States may exclude export sales in
certain situations.  Exclusion of export sales is a narrow exception, not the rule.  Generally, the
United States will only exclude US sales if they are (1) not representative of the seller’s normalselling behaviour, and (2) are so small that they would have an insignificant effect on the dumping
analysis.
67 In these situations, providing for allowances to establish a fair comparison can be difficult,
impossible or unduly burdensome.68
                                                     
64 Korea’ s First Submission at paragraph 4.32.  (Emphasis added).  Korea argues that the United States
acted inconsistently with Article X:3 of GATT 1994 by failing to follow the alleged contrary US legalprecedent.  As discussed above, Korea misreads and misapplies Article X:3.  Nevertheless, as discussed below,
Korea’s assertion that the United Stat es failed to follow precedent is false.
65 In Chang Tieh Industry Co., Ltd. v. United States , 840 F. Supp. at 145, (ROK Ex. 35), a case cited by
Korea, the court stated
if Congress intended to require [ITA] to exclude all sales made outside the ‘ordinary course oftrade’ from its determination of United States price it could have provided for such anexclusion in the definition of United States price, as it has in the definition of foreign market
value.
66 American Permac, Inc. v. United States , 783 F. Supp. 1421, 1423-24 (Ct. Int’l. Trade 1992).  (US
Ex. 15).  In holding that US sales outside the ordinary course of trade should normally be included, the court
stated:
... whether sales are in or out of the ordinary course of trade is not the determinative factor onthe US sales side of the equation.  Fairness, distortion, representativeness are the issues to be
examined.  The goal is to include the sales but to utilize whatever methodology is needed to
ensure a fair comparison.
67 IPSCO, Inc. v. United States , 714 F. Supp. 1211, 1216-17 (Ct. Int’l. Trade 1992), (US Ex. 16).
68 See, e.g.,  Circular Welded Non-Alloy Steel Pipe from the Republic of Korea:  Final Determination
of Sales at Less Than Fair Value , 57 Fed. Reg. 42942, 42949 (17 September 1992), (US Ex. 17) (resale of
damaged or defective merchandise excluded);  Preliminary Determination of Sales at Less Than Fair Value:
Polyethylene Terephthalate Film, Sheet, and Strip from the Republic of Korea , 55 Fed. Reg. 49668, 49669
(30 November 1990), (US Ex. 18) (sales of subject merchandise further manufactured in the United Statesexcluded because of small volume and added burden on respondents and the United States).  The United Stateshas also excluded US sales where it has determined that the sales are not bona fide.  Manganese Metal from the
Peoples’ Republic of China:  Final Determination of Sales at Less Than Fair Value , 60 Fed. Reg. 56045
(6 November 1995), (US Ex. 19).
Korea cites one determination in which it alleges the United States excluded sales as unrepresentative
solely because the customer failed to pay.  However, in  that case the United States stated that it was excluding
the sales for which payment was not received "because we were not able to calculate an accurate creditadjustment for them at this time."  Fabric and Expanded Neoprene Laminate from Taiwan:  Final
Determination of Sales at Less Than Fair Value , 52 Fed. Reg. at 37194, (ROK Ex. 37).  That statement implies
that, were such an adjustment possible, the sales could have been included.  The United States went on to note
that the sales represented less than one per cent of the total value of US sales during the period of investigationand that unusual circumstances surrounding the sales indicated that they were not representative of therespondent's selling practices.  However, the primary reason given for the exclusion was the inability to makethe credit adjustment.WT/DS179/R
Page 245
71. The sales to ABC Company were not so small that they would have an insignificant effect on
the dumping analysis.  Furthermore, they are not unrepresentative of POSCO’s normal selling
practices.  Bad debt is a normal cost of doing business.  Far from being an atypical event, companies –
including POSCO –  routinely establish reserve accounts for bad debt, in accordance with GenerallyAccepted Accounting Principles.
69  Thus, a sale is not atypical simply because it generates a bad debt
expense, even if it is the first bad debt experienced in a particular channel of trade.  Moreover, there is
nothing about the prices, products or terms of sale for these transactions that is unrepresentative of
POSCO’s normal selling practices.  Therefore, there is nothing distortive or unfair about including
POSCO’s sales to ABC Company in the determination of export price.
72. Although differences in selling expenses such as bad debt may affect the comparability of
export price and normal value, allowance for such differences can be made, and such allowance is all
that Article 2.4 requires.  Korea acknowledges that Article 2.4 requires due allowance for differences
that affect price comparability, but asserts that an adjustment for POSCO's US bad debt expense – thevery condition that Korea argues renders the sales incomparable –  was prohibited.  Having assumed
away any possible adjustment, Korea then argues that, unless the sales are excluded, the dumping
comparison is unfair.  However, Korea's premise, i.e., that an adjustment for bad debt expense is
prohibited, is incorrect;  therefore, the argument is fatally flawed.
73. As discussed below, the United States’ allowance for  POSCO’s US bad debt expense, both in
constructing export price and in comparing export price to normal value, was entirely consistent with
Articles 2.3 and 2.4.
4. The United States’ Treatment of Bad Debt Expense in the Calculation of Constructed
Export Price Was Consistent With the Requirements of the Agreement
74. During the period of investigation, POSCO made some sales through its US associate,
POSAM.  For these sales, the United States constr ucted the export price, consistent with Article 2.3.
70
Despite the obvious relevance of Article 2.3, Korea ignores it entirely, focusing solely on Article 2.4.
75. While the export price is normally the price first charged by the exporter to a buyer in the
importing country,71 Article 2.3 of the Agreement states:
where it appears to the authorities concerned that the export price is unreliable
because of association or a compensatory arrangement between the exporter and the
importer or a third party, the export price may be constructed on the basis of the price
at which the imported products are first resold to an independent buyer. . . .
76. To construct the export price for POSCO’s sales through POSAM, the United States started
with the price to the first independent buyer in th e United States, consistent with Article 2.3.  The
United States then deducted expenses, including an allocated portion of the bad debt expense,72
incurred in connection with the sale from POSAM to the independent buyer, and an amount for profit.
By deducting from the price to the independent purchaser the expenses and profits associated with thetransaction between that purchaser and the associated importer, a constructed price from the exporter
                                                     
69 See, e.g., Exhibit 23 to SSPC Supplemental Response to Section A, 17 July 1998, (US Ex. 20).
70 Korea does not challenge the United States’ use of constructed export price for sales through
POSAM.
71 See Article 2.1.
72 The United States allocated the bad debt expense over all US sales of the subject merchandise.  The
United States then deducted the allocated portion of  the bad debt expense from POSAM’s price to the
independent US buyer in constructing the export price.  The allocation of the bad debt expense is discussedmore fully below.WT/DS179/R
Page 246
to the associated importer, i.e., the export price, was created.  Therefore, for the sales through
POSAM, the bad debt expense was not an adjustment to  export price under the "due allowance"
provision of Article 2.4, but rather a deduction made to construct  the export price.
77. Article 2.4 specifically envisions the type of constructed export methodology employed by
the United States.  In particular, Article 2.4 envisions the deduction of the selling expenses associated
with the sale by the affiliated importer.  The fourth and fifth sentences of Article 2.4 state
In the cases referred to in paragraph 3, allowances for costs, including duties and
taxes, incurred between importation and resale, and for profits accruing, should also
be made.  If in these cases price comparability has been affected, the authorities shall
establish the normal value at a level of trade equivalent to the level of trade of the
constructed export price, or shall make due allowance as warranted under this
paragraph.
78. Based on the fifth sentence of Article 2.4, it is evident that the allowances for costs and profits
contemplated in the fourth sentence are not those which establish comparability, but rather are
adjustments made to construct export price.  In the fifth sentence, Article 2.4 recognizes that such
adjustments might render the constructed export price and the normal value incomparable, giving rise
to the need for "due allowances" to establish comparability.
79. As discussed above, the United States’ construction of the export price for POSCO’s sales
through POSAM, including the deduction of an alloca ted portion of the bad debt expense incurred in
connection with POSAM’s resale to the unaffiliated customer, was consistent with Article 2.3 of the
Agreement.  Further, before comparing that co nstructed export price to normal value, the
United States made a downward  adjustment to normal value to account for differences in the
circumstances of sales in the home market which affect price comparability.
80. Korea gives the false impression that the United States' adjustment is entirely one-sided, i.e., a
downward adjustment to export price.  That is not th e case.  In fact, the United States' adjustment for
differences in circumstances of the sales that affect price comparability are always made to normal
value, not export price.  Moreover, the adjustment is neutral, i.e., it may either raise or lower normalvalue, depending on the facts of the case.  The United States' circumstance of sale adjustment is
further described below.
5. Allowance For Differences in Selling Expenses Such as Bad Debt in The Comparison of
Export Price And Normal Value is Consistent With Article 2.4
81. During the period of investigation, POSCO also made sales of the subject merchandise
directly to independent buyers in the United States.  For those sales the United States used the price
charged by POSCO to the independent buyer as the export price.
73  When comparing that export price
to normal value, the United States made an adju stment to normal value to account for differences
affecting price comparability that was consistent with Article 2.4.
82. Article 2.4 contains a general requirement to make due allowance for differences that affect
price comparability as well as an illustrative list of such factors, e.g., conditions and terms of sale,
taxation, physical characteristics, quantities.  Korea asserts that selling expenses such as bad debt do
not fall within any of the factors explicitly listed in Article 2.4.  The United States disagrees.Allowance for differences in conditions and terms of sale is among the adjustments specifically
                                                     
73 Transportation, brokerage and handling expenses were deducted, where appropriate, to determine the
ex-factory export price.  This is consistent with Article 2.4, which states that comparisons will normally bemade at the ex-factory level.WT/DS179/R
Page 247
contemplated by Article 2.4.  The United States interprets differences in "conditions and terms of
sale" as including differences in selling expenses such as bad debt.  That is a permissible
interpretation based on the ordinary meaning of the words.
83. An ordinary meaning of "terms" of sale is the stipulations and conditions that define the
nature and extent of the sales contract ( e.g., quantity, delivery).74  An ordinary meaning of
"conditions" of sale is the "mode or state of being" of sales.75  Thus, it is permissible to interpret
conditions of sale to include the mode or circumstances under which sales are made in each market.
For example, in the domestic market a producer may sell directly to consumers and provide awarranty, while in an export market the product may be sold to distributors with no warranty.
Similarly, the nature of the customer base in the domestic market may generate more bad debt than
the customer base in the export market.  These differences in the selling conditions in each market
would be reflected in the additional warranty or bad debt expenses in the export market.
84. Selling expenses such as warranty costs and bad debt not only reflect conditions of sale in the
market, they are also an element of price.
76  Therefore, differences in such selling expenses affect
price comparability.  Requiring "due allowance" for such differences ensures that any positive
difference between export price and normal value reflects dumping rather than differences in the
selling conditions in each market.
85. Korea asserts that due allowance for differences in selling conditions cannot be made unless
the condition is one within the exporter’s control and known at the time of sale.77  Article 2.4 contains
no such limitation.
86. Many normal selling conditions, in addition to bad debt, are not within the exporter’s control
and the amount of the associated expense is not known at the time of sale.  For example, warranty,
technical assistance and credit expenses are not en tirely within the exporter’s control and the exporter
does not know at the time of sale whether or to what extent such expenses will be incurred.
Nevertheless, sellers, including POSCO, anticipate such costs and they are an element of price.  Most
importantly, as discussed above, Article 2.4 recognizes that differences in conditions of sale may
affect price comparability.  Therefore, making allowance for such differences is consistent withArticle 2.4.
87. To ensure that the expenses associated with conditions of sale in each market are neutralized,
the United States deducts the home market expenses from normal value and then adds to normal value
the US expenses.
78  As a result, both export price and normal value reflect identical conditions of sale.
The adjustment neither inflates nor deflates margins;  it neutralizes differences in selling conditions in
the two markets.79  By virtue of this adjustment, consistent with Article 2.4, differences in conditions
of sale do not have an effect on the dumping analysis.
                                                     
74 Webster’s II New Riverside University Dictionary (1984), definition of "terms."  Some terms of sale,
such as quantity, are also listed separately in Article 2.4.  Because of the potential overlap, Article 2.4 requires
that there be no duplicate adjustments.  Footnote 7 to Article 2.4.
75 Id., definition of  "condition."
76 See, e.g., Article 2.2, which provides for constructing normal value on the basis of the cost to
produce the product plus "a reasonable amount for administrative, selling  and general costs."  (Emphasis added)
77 ROK First Submission, paragraphs 4.8, 4.18 and 4.29..
78 The United States refers to this as a "circumstance of sale" adjustment.
79 For example, in the hypothetical situation describe above, the net result would be to lower normal
value because the home market selling expenses that would be deducted from normal value would be higherthan the US expenses added to normal value.  In such situations, exporters routinely insist on the circumstanceof sale adjustment.  See, e.g. CTVs from Korea , 61 Fed. Reg. at 4412 (United States agreed with exporter that
adjustment for difference in home market bad debt expense was required).  (US Ex. 13).WT/DS179/R
Page 248
88. Finally, Korea asserts that, even if an allowance for differences in selling conditions such as
bad debt is permitted under Article 2.4, the means by which the United States made the adjustment in
this case is not.  Specifically, Korea argues that Article 2.4 only permits the allocation of such
expenses on a transaction-specific basis.80
89. Nothing in Article 2.4 requires the allocation of selling expenses on a transaction-specificbasis.  What constitutes a reasonable allocation may depend on the nature of the expense or the
particular facts of the case.  For example, it may be reasonable to allocate transportation costs on a
transaction-specific or customer-specific basis because there are known variances in distance.  Incontrast, while bad debt is a normal, anticipated expense, specifically what transactions, or even what
customer, will generate a bad debt is not known in  advance.  All transactions and customers sold on
credit are a potential source of bad debt.  Therefore, it is reasonable to reflect an allocated portion of
that expense in all prices.
90. For the reasons discussed above, the United States’ calculation of this adjustment is consistent
with Article 2.4.
6. The United States' Decision to Include The Sales to ABC Company in the Dumping
Analysis And the Rationale Provided for That Decision Was Consistent With theRequirements of Article 12.2 of the Agreement and Article X:3 of GATT 1994.
91. Article 6 of the Agreement requires that interested parties be given a full opportunity to
defend their interests throughout an anti-dumping investigation
81 and sets forth certain procedural
obligations in the conduct of anti-dumping investigations.82  US law and practice, both generally and
in the investigations at issue here, demonstrate the United States' strong commitment to fulfilment ofthose obligations.
92. The United States issues written questionnaires to exporters, including supplemental
questionnaires to clarify or supplement information previously submitted.  Throughout US anti-
dumping investigations the parties are afforded timely access to all information provided to or
obtained by the United States, including confidential information made available under administrative
protective order, all comments and legal arguments presented by the parties and the United States’internal memoranda.
83
93. Normally, within 75 days before its final determination, the United States issues a preliminary
determination, which sets forth the United States’ preliminary conclusions and the evidence relied
upon in reaching those conclusions, consistent with Article 12.2 of the Agreement.  The parties arethen given the opportunity to comment on the preliminary determination, both in writing and at a
public hearing.
84
94. The United States is required by law to consider the comments of the parties and address
them in its final determination.  Upon considerin g the parties’ comments, the United States may
determine that a change in the methodology used in the preliminary determination is warranted, or
                                                     
80 ROK First Submission, paragraph 4.22.
81 Article 6.2.
82 Those cited by Korea are Article s 6.1, 6.2 and 6.9.
83 The United States also maintains a publicly available website on the internet which contains the US
anti-dumping and countervailing duty laws and regulations, the United States' policy bulletins and the
United States' anti-dumping and countervailing duty determinations.  These can be viewed at:
http://www.ita.doc.gov/import_admin/records .
84 Although parties can and often do submit arguments prior to the preliminary determination,
following the preliminary determination the parties submit a "case brief" that presents all of the arguments theywish the United States to consider for the final determination.WT/DS179/R
Page 249
that its preliminary determination was correct.  In eith er event, the United States is required to explain
the reasons for its decisions in the public notice of its final determination.
95. These procedures ensure that all interested parties are informed of the essential facts and
issues under consideration and  have a full opportunity to defend their interest.  The fact that it is not
uncommon for the United States to change its methodology in response to comments by the parties
proves that these procedures are meaningful and effective tools that, in fact, fulfill the requirements of
the Agreement.
96. As discussed above, in these investigations  the parties, including POSCO,  took full
advantage of these procedures to defend their interests, vigorously arguing numerous issues before the
United States, including the treatment of POSCO’s US sales to ABC Company.  Nevertheless, Korea
claims that the United States failed to meet the minimum standards of transparency and procedural
fairness required by Article X:3 of GATT 1994 and Article 12.2 of the Agreement.
97. Korea’s claim under Article X:3 is based on essentially three allegations:  (1) it is
unreasonable to include atypical sales in the dumping analysis;  (2) the United States failed to follow
US legal precedent regarding the exclusion of US sales, and (3) the United States gave inconsistent
explanations in the notices of final determination.85  Korea also argues that the third allegation gives
rise to a violation of Article 12.2 of the Agreement.86
98. The United States has demonstrated above that these sales were not atypical and that
including them in the dumping analysis was reasonable and consistent with the Agreement.
Moreover, the United States’ decision to change its treatment of the sales to ABC Company in itsfinal determinations was neither abrupt nor inconsistent with the United States’ practice, as Korea
asserts.
87  To the contrary, we have demonstrated above that the change was made as a result of a
thorough examination of the facts, in light of the comments of the parties, and to conform  the
United States’ final determination to US law and practice.
99. Quoting selectively from the United States’ final determinations, Korea also asserts that the
reasons given in the notices of the final determinations for the treatment of the sales to ABC Companywere "inherently contradictory."
88  Therefore, Korea claims that the explanations are unreasonable
and, as such, inconsistent with the requirements of Article X:3 of GATT 1994 to administer the law in
a uniform, impartial and reasonable manner.  Korea further argues that these allegedly contradictory
explanations are an inadequate statement of the reasons for the decision and, therefore, inconsistent
with Article 12.2 of the Agreement.
100. As discussed above, the United States agrees that Article X:3 requires that the United States
cannot be arbitrary in its administration of its anti-dumping determinations.  However, this does not
require complete consistency with all prior cases.  Similarly, Article 12.2 requires an explanation of
the factual and legal basis for a dumping determination.  However, Article 12.2 does not impose anyrequirements across  cases.  Article 12.2 requires that each  public notice of a dumping determination
contain "the findings and conclusions reached on all issues of fact and law considered material by the
investigating authorities."  As long as each decision is adequately explained, the requirements of
Article 12.2 are met.  There are many reasons why the explanation in one case may differ from the
explanation in another ( e.g., a difference in the facts;  a change in policy).  Such differences do not
render the decision arbitrary or the explanation inadequate.  As long as the investigating authority
                                                     
85 ROK First Submission, paragraph 4.40.
86 ROK First Submission, paragraph 4.41.
87 ROK First Submission, paragraphs 4.39 and 4.40.
88 ROK First Submission, paragraph 4.41.WT/DS179/R
Page 250
provides a rational explanation for its determination the requirements of Article X:3 and Article 12.2
are fulfilled.
101. Moreover, when the United States’ explanations for these decisions are read in their entirety,
the inconsistency alleged by Korea disappears.  In both notices, the United States discussed the
criteria the United States normally uses in determining whether to exclude US sales from its analysis,
i.e., (1) whether the sales were representative of the POSCO’s behaviour, and (2) whether they were
so small that they would have an insignificant effect on the margin.89  A failure to meet either
criterion could result in a decision not to exclude the sales.  Therefore, a discussion of both criteria isnot necessary to explain adequately a decision not to exclude US sales.  Nevertheless, both criteria
were discussed in these cases.
102. In the SSPC Final Determination , the United States explained its decision not to exclude the
sales to ABC Company, stating that
the sales account for such a large percentage of POSCO’s US sales that they cannot
be dismissed as abnormalities.  Moreover, the price of the sales themselves is not
necessarily distortive because, at the time they were made, POSCO was not aware
that the customer would declare bankruptcy.
90
103. Thus, in addition to finding that the volume of sales was not insignificant, the United States’
explanation included a finding that the sales to ABC Company were not unre presentative of POSCO’s
selling practices, i.e., when POSCO set the prices it was acting in accordance with its normal selling
practices, not based on the subsequent bankruptcy.  Therefore, using those prices did not distort the
dumping analysis.
104. Similarly, in the SSSS Final Determination , with respect to whether the sales were
representative of POSCO’s selling practices the United States stated
There was nothing atypical about the sales at the time they were made;  we agree with
petitioners that there is an inherent risk, when selling to customers on a credit basis,
that the customer might not make full or even partial payment.  Moreover, the price
of the sales themselves is not necessarily distortive because, at the time they were
made, POSCO was not aware that the customer would declare bankruptcy.91
105. With respect to whether the sales were too small to have an impact on the dumping analysis,
the facts in the SSSS case were not as clear cut as in SSPC.  The discussion in the SSSS notice
focused on a particular argument raised by POSCO, which it could not raise in the SSPC case becauseof the difference in the quantities involved in the sa les at issue.  Specifically, POSCO argued in the
SSSS case that it was the United States’ practice to treat 5 per cent as the threshold for determining
that the volume of sales is significant.
92  In response, the United States explained that the 5 per cent
threshold was not generally used in determining whether to exclude US sales.93  The United States
then chose not to make an explicit finding on th e issue of whether the sales were insignificant,
explaining that it was relying instead on the fact that the sales were not unrepresentative.94  Because
that finding provided a sufficient basis for the decision not to exclude the US sales, it was unnecessary
                                                     
89 This practice is discussed more fully above.
90 SSPC Final Determination , 64 Fed. Reg. at 15449 (emphasis added) (ROK Ex. 11).
91 SSSS Final Determination , 64 Fed. Reg. at 30673-74 (emphasis added) (ROK Ex. 24).
92 Id. at 30672.
93 Id. at 30674.
94 Id.WT/DS179/R
Page 251
for the United States to address the question of whether the volume of the sales at issue was
significant in order to adequately explain its decision.
106. Thus, when read in their entirety, it is evident that the United States’ explanations in these
two cases are complete and entirely consistent with each other and with the United States’ established
practice.  Therefore, Korea has no basis for its claim that the United States’ determinations are
inconsistent with Article 12.2 of the Agreement and Article X:3 of GATT 1994.
E. THE UNITED  STATES PERMISSIBLY CONCLUDED THAT PRICES ESTABLISHED PRIOR TO A
SEVERE DEVALUATION OF THE KOREAN WON SHOULD NOT BE AVERAGED WITH PRICES
ESTABLISHED AFTER SUCH A DEVALUATION IN ACCORDANCE WITH ARTICLES 2.4, 2.4.1,
2.4.2, 6.1, 6.2, 6.9 AND 12.2
1. Introduction
107. In the cases which are the subject of this dispute, the United States was faced with an
unprecedented situation:  during the period being examined by the United States in order to determine
dumping, the value of the historically reliable and stable Korean won fell over 40 per cent in a two-
month period, and entered a prolonged phase of instability.
108. As illustrated by the facts described in the following section, the United States provided all
parties t o the two investigations in question, including POSCO, ample opportunity to present in
writing all evidence which it considered relevant  regarding this situation in accordance with
Article 6.1 of the AD Agreement.  Moreover, the Korean producers were given access to the complete
administrative record and provided extensive opportunities to present arguments and defend their
interests in accordance with Articles 6.2 and 6.9 of the AD Agreement.  Significantly, with respect tothe issue of the devaluation of the won, and the issue of whether the United States should avoid
comparison of pre-devaluation prices with post-devaluation prices, POSCO, as well as domestic
interested parties, made full use of such opportunities to present evidence and legal arguments both
during the information-gathering phase of the investigation, as well as during the argument phase.
109. In light of all of the evidence gathered, and arguments presented, the United States made a
reasonable conclusion, which it fully explained to all parties.  The United States concluded that itagreed with POSCO that the United States should deviate from its normal practice in light of the
serious devaluation, and use daily exchange rates throughout the devaluation period rather than the
average exchange rates which would otherwise be called for.  However, the United States also
reasonably concluded that prices which were set in the home market in Korean won during a period in
which the won was experiencing historically extreme devaluation were not comparable to exporttransactions the prices of which were established prior to such period, and that the two could not be
compared without risking serious distortion to the dumping margin being calculated.  To prevent such
comparisons, the United States created separate averages for each period.
110. In the section below, the United States will first outline the facts surrounding the devaluation
of the Korean currency beginning in the last two months of 1997, and the procedures undertaken by
the United States in establishing and evaluating the relevant facts, and reaching a reasonable
conclusion.  The United States will then discuss the consistency of its action with Articles 2.4.1 and
2.4.2 of the AD Agreement.  Finally, the United States will address Korea’s arguments, demonstrating
that they mis-apprehend the actions taken by the United States, and misinterpret the obligationsestablished by the AD Agreement.WT/DS179/R
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2. Statement of Relevant Facts
(a) The Situation of the Korean Won in 1997-1998
111. Throughout the first ten months of 1997, the Korean won, although experiencing a moderate
overall decline, remained remarkably stable relative to the US dollar.  Throughout this period thewon/dollar exchange rate remained at approximatel y 900 won to the dollar.  To be more specific,
during this period the won ranged from approximately 850 won to the dollar in January, 1997,
gradually decreasing to a low of approximately 918 won to the dollar in mid-October, 1997.
95  This
decrease in value of roughly 8 per cent occurred slowly and steadily over the ten month period.  This
general stability during 1997 reflected the stabilit y in the relationship between the two currencies
which had existed for many years.
112. By contrast, the months of November and December 1997, were, by any measure, a time of
dramatic changes in the value of the Korean won.  During this period the won/dollar exchange rate
fell from a high of 965 won to the dollar on 4 November  1997 to a low of 1960 won to the dollar on23 December 1997.
96  Thus, the value of the won, an historically stable currency, dropped by 50 per
cent in a period of two months. This dramatic drop was followed by an extended period of currency
instability.97
(b) The United States’ Conduct of the Investigation
113. As noted previously, the United States initiated its investigations of alleged dumping of
Stainless Steel Plate in Coils from Korea on 20 April 1998.98  This investigation covered sales to the
United States during the period 1 January 1997 through 31 December 1997.99  The United States
initiated its investigation of alleged dumping of Stainless Steel Sheet and Strip from Korea on
30 June 1998.100  This investigation covered imports during the period 1 April 1997 through
31 March 1998.101  In other words, the collapse in the value of the Korean won happened to coincide
with the periods in which the United States was attempting to determine whether dumping had
occurred.  This situation presented a novel set of  issues in the calculation of dumping margins.
114. The circumstances of the collapse of the won were first brought to the United States’ attention
in the SSPC investigation by POSCO in its response to the United States’ questionnaire.102  I n that
response, POSCO requested that the United Stat es vary its normal methodology, and apply daily
exchange rates throughout the fourth quarter of 1997, i.e. during the period of the won’s collapse.  In
response, the domestic industry argued that the United States should apply the same methodology for
a sustained decrease in a currency that it applies in the face of a sustained increase.103  As discussed
further below, in essence the domestic industry argued that the United States should ignore the daily
exchange rates, and use the high exchange rate in  effect prior to the collapse of the won for some
                                                     
95 The exchange rates cited herein are derived from the United States Federal Reserve Bank weekly
statistical release for Foreign Exchange Rates which can be found on the Internet athttp://www.bog.frb.fed.us/releases/H10/hist.   (ROK Ex. 50).  These are the official rates used by the Department
of Commerce in its antidumping proceedings.
96 (ROK Ex. 50).
97 (ROK Ex. 50).  See also (US Ex. 21), a chart supplied to the Department by POSCO, which
dramatically illustrates the fundamental shift in the value of the won during the POI.
98 SSPC Preliminary Determination , 63 Fed. Reg. at 59535 (ROK Ex. 4).
99 Id. at 59536
100 SSSS Preliminary Determination , 64 Fed. Reg. at 137 (ROK Ex. 16).
101 Id. at 139.
102 See, POSCO Response to Section B of Antidumping Questionnaire, dated 21 July 1998 (US
Ex. 21).
103 (ROK Ex. 38).WT/DS179/R
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unspecified period.  Such a methodology would increase normal value and the resulting margin of
dumping.  In response, POSCO argued that the United States’ stated policy required it to use daily
exchange rates during periods of "precipitous and large" declines in the value of a foreign currency.
According to POSCO, the co llapse of the won at the end of 1997 met this test.
115. In the preliminary determinations in both cas es, the United States agreed with POSCO that
the decline in the value of the won was precipitous and large, and thus that the United States should
use daily exchange rates during the period of the won’s collapse:
Our preliminary analysis of Federal Rese rve dollar-won exchange rate data shows
that the won declined rapidly at the end of  1997, losing over 40% of its value between
the beginning of November and the end of December. The decline was, in both speed
and magnitude, many times more severe than any change in the dollar-won exchange
rate during the previous eight years. Had the won rebounded quickly enough torecover all or almost all of the initial lo ss, the Department might have been inclined
to view the won's decline at the end of 1997 as nothing more than a sudden, but only
momentary drop, despite the magnitude of th at drop. As it was, however, there was
no significant rebound. Therefore, we have preliminarily determined that the decline
in the won at the end of 1997 was so precipitous and large that the dollar-wonexchange rate cannot reasonably be viewed as having simply fluctuated during this
time, i.e., as having experienced only a momentary drop in value. Therefore, in
making this preliminary determination, the Department used daily rates exclusively
for currency conversion purposes for HM sales matched to US sales occurring
between 1 November and 31 December 1997.
104
116. The United States elaborated on this conclusion in its preliminary determination in the  SSSScase:
Our preliminary analysis of Federal Rese rve dollar-won exchange rate data shows
that the won declined rapidly at the end of 1997, losing over 40 per cent of its value
between the beginning of November and the end of December.  The decline was, inboth speed and magnitude, many times more severe than any change in the
dollar-won exchange rate during the previous eight years.  Had the won rebounded
quickly enough to recover all or almost all of the initial loss, the Department might
have been inclined to view the won's decl ine at the end of 1997 as nothing more than
a sudden, but only momentary drop, despite the magnitude of that drop.  As it was,however, there was no significant rebound.
We have preliminarily determined that the decline in the won at the end of 1997 was
so precipitous and large that the dollar-won exchange rate cannot reasonably be
viewed as having simply fluctuated during this time, i.e., as having experienced onlya momentary drop in value.  Therefore, in making this preliminary determination, the
Department used daily rates exclusively for currency conversion purposes for home
market sales matched to US sales occurring between 1 November 1997 and
31 December 1997.
For sales occurring after 31 December, but before 1 March 1998, the Department
relied on the standard exchange rate model, but used a modified benchmark.  In
calculating a benchmark rate, the Department's standard practice is to incorporate
rates extending back 40 days from the date of sale. However, using such a benchmark
rate would incorporate rates during November and December of 1997, when the
                                                     
104 SSPC Preliminary Determination , 63 Fed. Reg. at 59539 (ROK Ex. 4).WT/DS179/R
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dollar-won exchange rate dropped, and hence would result in apparent significant
fluctuations in the dollar-won exchange rates used in the Department's margin
calculation.
In order to ensure that rates used are more indicative of the exchange rate climate
during January and February 1998, the benchmark was modified to include rates
extending back only to 1 January 1998.  Therefore, we have applied an up-to-date
(post-precipitous drop) benchmark, while at the same time we have avoided making
sales comparisons using exchange rates with excessive day-to-day fluctuations.  By 1March 1998, the dollar-won exchange rate had stabilized sufficiently so that the
Department's standard model could be employed.  For sales occurring after 1 March
the standard model and benchmark rate were used.
Petitioners have suggested that the Department segregate the current POI into
multiple periods to account for the effect of the devaluation of the Korean won during
the last portion of the POI.  See petitioners' submission of 2 December 1998.
Petitioners state that the Department has examined this question in a recent
preliminary determination involving the same POI and Korea, namely, EmulsionStyrene-Butadiene Rubber from the Republic of Korea. See Notice of Preliminary
Determination of Sales at Less Than Fair Value and Postponement of Final
Determination:  Emulsion Styrene-Butadiene Rubber from the Republic of Korea, 63
FR 59514 (4 November 1998).  However, the Department used the same currency
conversion methodology described above in that case, and for the preliminarydetermination, did not average margins based on multiple periods within the POI. In
the one case cited by petitioners in support of averaging multiple periods, PVA from
Taiwan, the Department used multiple periods when there was a significant change in
pricing.  However, in that case, the decl ine in pricing was due to a company-specific
change in selling practices made at a particular point in the POI (i.e., the use of long
term contracts versus purchase orders), rather than a devaluation of the local
currency. See Notice of Final Determination of Sales at Less Than Fair Value:Polyvinyl Alcohol from Taiwan, 61 FR  14064 (29 March 1996).  The Department
preliminarily determines that the modification of currency conversion reasonably
accounts for the devaluation of the won, and that the use of multiple periods for
averaging purposes is unwarranted.
105
117. This last statement notwithstanding, in both cases the United States also recognized that, in
addition to the effects on the exchange rates it used, the collapse of the won may also have affected
the comparability of sales before and after the collapse.  Although it did not take action on this issue
in the preliminary determinations, the United States specifically advised all of the parties that it was
considering the issue, and asked for comment.  In both cases the United States included the followingstatement inviting comments on this issue:
The Department makes this determination without the benefit of extensive case
precedent dealing with this area of our currency conversion policy. The Department
therefore welcomes comments from interested parties on all aspects of our analysisand the time period-specific exchange rates used.  For the purposes of the final
determination, the Department will continue to  analyze the implications, if any, of the
                                                     
105 SSSS Preliminary Determination , 64 Fed. Reg at 145 (ROK Ex. 16).WT/DS179/R
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decline in the won during 1997 for price averaging and whether multiple averages are
warranted.106
118. After the preliminary determinations, the United States gave all parties an opportunity to
provide arguments regarding any issue they wished the United States to address in the finaldeterminations.  Parties also had the opportunity to reply to arguments raised by other parties.
107  The
domestic interested parties commented that they believed that multiple averages were warranted.
POSCO responded to these comments.
119. The United States also afforded all parties an opportunity for a hearing at which they could
make an oral presentation of their arguments to Department officials in charge of making the final
determination, and could respond orally to arguments raised by other parties.108  Although the US
domestic industry requested such a hearing in the SSPC investigation, POSCO declined to request a
hearing to address the issues.  The domestic indus try subsequently withdrew its request and the
hearing was cancelled.109  In the SSSS case both parties requested a hearing, and one was held on
26 April 1999.110
120. The United States made its final determination in the SSPC case on 31 March 1999.  In its
final determination, the United States addressed the arguments made by POSCO and the domestic
industry on a point-by-point basis.
121. The United States continued to agree with POSCO that it should use daily exchange rates
throughout the period of devaluation as it had in the preliminary determination.  However, the
United States decided to adopt for the final determination the proposal on which it had asked for
comments in the preliminary determ ination:  the United States concluded that the severe devaluation
of the won could have a distortive effect on the calculation of dumping margins, and thus that the
United States should not consider sales made prior to the devaluation period to be comparable to sales
made during that period.
122. In the public notice in the Federal Register announcing its position on the devaluation which
was applied in calculating the final dumping margins, the United States stated:
We have continued to use daily exchange rates in this case, for the reasons explained
in the preliminary determination. However, we agree with petitioners that separate
averaging periods should be used. Under section 777A(d)(1)(A) of the Act, the
Department has wide latitude in calculating the average prices used to determine
whether sales at less than fair value exist. More specifically, under 19 CFR351.414(d)(3), the Department may use averaging periods of less than the POI when
normal value, export price, or constructed export price varies significantly over the
POI. In the instant case, NV (in dollars) in the last two months of the POI differs
significantly from NV earlier in the POI due primarily to a significant change in the
underlying dollar value of the won. In this case, the change is evidenced by theprecipitous drop in the won's value that began in November 1997 and continued
through the end of the POI, without a quic k, significant rebound. In the span of two
months, the won's value decreased by more than 40 per cent in relation to the dollar.
                                                     
106 SSPC Preliminary Determination , 63 Fed. Reg. at 59539 (ROK Ex. 4) and SSSS Preliminary
Determination , 64 Fed. Reg. at 145 (emphasis added) (ROK Ex. 16).
107 The United States is required to provide this opportunity to all parties to anti-dumping investigations
under 19 C.F.R. § 351.309 (ROK Ex. 2).
108 Hearings are provided for under the Department’s regulations at 19 C.F.R. § 351.310 (ROK Ex. 2).
109 See SSPC Final Determination  ("Case History") 64 Fed. Reg. at 15444 (ROK Ex. 11).
110 See SSSS Final Determination  ("Case History ") 64 Fed. Reg. at 30665 (ROK Ex. 24).WT/DS179/R
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Consequently, it is appropriate to use two averaging periods to avoid the possibility
of a distortion in the dumping calculation.  Moreover, we disagree with respondent's
claim that the use of averaging periods is dependent upon a change in a respondent's
selling practices.  In the final determination of certain preserved mushrooms fromIndonesia, the Department stated that "in addition to changes in selling practices, we
believe that we should also consider other factors, such as prolonged large changes in
exchange rates, in determining whether it is appropriate to use more than one
averaging period.'' See Notice of Final Determination of Sales at Less Than Fair
Value:  Certain Preserved Mushrooms from Indonesia, 63 FR 72268, 72272(31 December 1998). Therefore, we have used two averaging periods for the final
determination:  January through October and November through December 1997.
111
123. In reaching its final determination in the SSSS case, the United States reiterated its conclusionthat, while it agreed with POSCO’s position th at the appropriate methodology for addressing
precipitous and large depreciations in a foreign currency relative to the US dollar is to use daily ratherthan average exchange rates, it agreed with the domestic industry that comparisons of prices
established prior to the devaluation prices established during the devaluation period could result in a
distorted calculation.  The United States explained:
In the preliminary determination, the Depart ment determined that the decline in the
won at the end of 1997 was so precipitous a nd large that the dollar-won exchange rate
cannot reasonably be viewed as having simply fluctuated during this time, i.e., as
having experienced only a momentary drop in value. Therefore, the Department used
daily rates exclusively for currency conversion purposes for HM sales matched to US
sales occurring between 1 November and 31 December 1997, and the standardexchange rate model with a modified benchmark for sales occurring between
1 January 1999 and 28 February 1999. See Preliminary Determination, 64 FR at 145.
As discussed in Comment 2, the Department  continues to find that use of daily
exchange rates and modified benchmarks are warranted during the periods noted
above.  In addition, as discussed in Comment 2 and Analysis Memo:  POSCO, we
have determined that the severe and precipitous drop in the value of the won from
November 1997 through February 1998 necessitates the use of two averaging periods,under 19 CFR 351.414(d)(3).
* * * * *
We agree with petitioners. Given the economic situation in Korea during the POI, it is
most appropriate to use daily and modified exchange rates in this case, for the reasons
explained in the preliminary determination, and to employ two averaging periods in
calculating the dumping margin. Under se ction 777A(d)(1)(A) of the Act, the
Department has broad authority to use a number of methodologies in calculating the
average prices used to determine whether sales at less than fair value exist. Morespecifically, under 19 C.F.R. 351.414(d)(3), the Department may use averaging
periods of less than the POI when normal value, export price, or constructed export
price varies significantly over the POI. In this investigation, in the last five months of
the POI, NV (in dollars) differed significantly from NV earlier in the POI, due
primarily to a significant change in the underlying dollar value of the won, evidenced
by the precipitous drop in the won's value that began in November 1997 and
continued through December 1997. In the span of two months, the won's value
decreased by more than 40 per cent in relation to the dollar. Consequently, it is
                                                     
111 SSPC Final Determination , 64 Fed. Reg. at 15452 (ROK Ex. 11).WT/DS179/R
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appropriate to use two averaging periods to avoid the possibility of a distortion in the
dumping calculation. Moreover, we disagree with respondent's claim that the use of
averaging periods is dependent upon a change in a respondent's selling practices.  In
the final determination of Preserved Mushrooms, the Department stated that "inaddition to changes in selling practices, we believe that we should also consider other
factors, such as prolonged large changes in  exchange rates, in determining whether it
is appropriate to use more than one averaging period.'' See Notice of Final
Determination of Sales at Less Than Fair Value:  Certain Preserved Mushrooms from
Indonesia, 63 FR 72268, 72272 (31 December 1998). Therefore, for both POSCO andInchon, we have used two averaging periods for the final determination:  January
through October 1997 and November 1997 through March 1998.
112
124. In the preceding discussion the United States described the factual background concerning theKorean won during 1997 and 1998 which led to the conclusion with which Korea takes issue, i.e. that
prices established prior to a currency devaluation of unprecedented magnitude should not becompared with prices established after such a devaluation.  Following, the United States will
demonstrate that the United States’ action was fully consistent with both the language and purpose of
the relevant provisions of the AD Agreement, Articles 2.4.1 and 2.4.2, and that Korea’s arguments
represent a misunderstanding of the United States’ actions and the requirements of the AD
Agreement.  Finally, the United States will discuss how the procedures used in reaching this decisionwere consistent with Articles 6.1, 6.2, 6.9 and 12.2 of  the AD Agreement, as well as Article X:3 of
GATT 1994.
3. The Exchange Rate Policy Applied in This Case Is Consistent With Article 2.4.1 of The
AD Agreement
(a) Article 2.4.1 Does Not Address Construction of Av erages in Light of Sudden and Precipitous
Currency Devaluations
125. Article 2.4.1 is the section of the AD Agreement which provides guidance to Members in
selecting the exchange rates for use in antidumping  investigations.  Importantly, however, the issue
addressed by Korea, although precipitated by a currency situation, actually relates to the
United States’ construction of averages under Article 2.4.2, rather than its selection of exchange rates
under Article 2.4.1.  In other words, Article 2.4.1 does not address the currency conversion problemfaced by the United States in the investigations of SSPC  and SSSS , and is not relevant to the issue
raised by Korea.
126. Article 2.4.1 is structured in terms of a general rule, with several exceptions, all of which
relate to the selection of an exchange rate .  The general rule is that investigating authorities should
convert currency using the exchange rate in effect on the date of sale.  The provision makes exception
for three situations in which a different exchan ge rate should be selected:  forward exchange
contracts, currency fluctuations, and sustained movements.  Article 2.4.1 states:
When the price comparison under this paragraph requires a conversion of currencies,
such conversion should be made using the rate of exchange on the date of sale,
provided that when a sale of foreign currency on forward markets is directly linked to
the export sale involved, the rate of exch ange in the forward sale shall be used.
Fluctuations in exchange rates shall be ignored and, in an investigation the authorities
shall allow exporters at least 60 days to have adjusted their export prices to reflectsustained movements during the period of investigation.
                                                     
112 SSSS Final Determination  , 64 Fed. Reg. at 30670 and 30675-76 (ROK Ex. 24).WT/DS179/R
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127. Upon completion of the Uruguay Round, the United States adopted the currency conversion
rules of Article 2.4.1 into the antidumping statute with little change.  Thus 19 USC. § 1677b-1
provides:
(a) In General -- In an antidumping proceeding under this title, the administering
authority shall convert foreign currencies into United States dollars using the
exchange rate in effect on the date of sale of the subject merchandise, except that if it
is established that a currency transaction on forward markets is directly linked to an
export sale under consideration, exchange rate specified with respect to such foreigncurrency in the forward sale agreement shal l be used to convert the foreign currency.
Fluctuations in exchange rates shall be ignored.
(b) Sustained Movement in Foreign Currency Va lue.  -- In an investigation under subtitle
B, if there is a sustained movement in the value of the foreign currency relative to theUnited States dollar, the administering authority shall allow exporters at least 60 days
to adjust their export prices to reflect such sustained movement.
128. In presenting the amendments to the antidumping law to the legislature, the executive branch
also presented the " SAA" describing the intent of the changes.  Regarding the currency conversion
provisions, the SAA states:
Section 225 of the bill adds new section 773A to implement the requirements
of the Agreement regarding currency conversions.  Typically in antidumping
proceedings, the prices or costs used to determine normal value are denominated in aforeign currency.  To determine whether dumping exists, these prices or costs must be
converted to US dollars.  To a large extent, the Agreement tracks existing practice,
the goal of which is to ensure that the process of currency conversion does not distort
dumping margins.  The Administration intends that Commerce will promulgate
regulations implementing the requirements of section 773A.  To the extent that the
requirements of the Agreement apply only to investigations, as opposed to reviews,
the regulations will reflect this distinction.
Under new section 773A, the general rule will be to convert foreign
currencies based on the dollar exchange rate in effect on the date of sale.  Under
current practice, Commerce utilizes a quarterly rate, unless the daily rate varies by
more than five per cent from the rate in effect on the first day of the quarter.  Some
firms, including US firms, commonly engage in hedging on forward currency marketsto minimize their exposure to exchange rate losses.  Therefore, as under existing
practice, where a company demonstrates that a sale of foreign currency on forward
markets is directly linked to a particular export sale, Commerce will use the rate of
exchange in the forward currency sale agr eement.  Group sales of foreign currency on
forward markets will be allowed, provided that sufficient documentation to establishthe link between the currency purchase and the particular export sale is provided.
Section 773A also provides that Commerce will ignore fluctuations in
exchange rates.  In addition, in an investigation, Commerce will allow exporters at
least sixty days in which to adjust their prices to reflect a sustained increase in the
value of a foreign currency relative to the US dollar.
113
129. In drafting its new regulations, the United States recognized that Article 2.4.1 and the new
statutory provision, provided very little concrete guidance in selection of exchange rates.  Indeed, the
                                                     
113 SAA at 841-42.  (US Ex. 14).WT/DS179/R
Page 259
language of Article 2.4.1 raises more questions than it answers.  Thus, rather than adopt a regulation
which might produce unexpected and unintended consequences, the United States announced a policy
which it would apply to cases on an "experimental" basis.  This policy was announced in policy
bulletin number 96-1 entitled "Import Administration Exchange Rate Methodology."114
130. The fundamental principle of the United States’ exchange rate policy is normally to use thedaily exchange rate in effect on the date of sale for converting currencies, rather than an average rate.
According to the policy bulletin, the United States concluded that the phrase "rate in effect on the date
of sale" contained in Article 2.4.1 and the US statute should be interpreted to refer to a daily rate,rather than an average rate, for example a monthly or quarterly rate.
115  As noted previously, for South
Korea the United States uses the daily exchange rate published by the Board of Governors of the US
Federal Reserve System, as it does for many other countries.116  The United States’ published policy
also reflects the three exceptions to the general requirement to use daily exchange rates which are
established by Article 2.4.1 and adopted in the United States antidumping statute:  1) forwardcurrency contracts;  2) fluctuations in exchange rates;  and 3) sustained movements in exchange rates.
However, as discussed below, the United States concluded that none of these exceptions is relevant to
the circumstances surrounding the precipitous decline in the value of the Korean won in 1997.
131. With respect to the first exception, the United States’ policy provides that it will use the rate
of exchange in a forward exchange rate contract directly linked to the sale, rather than the daily
exchange rate in effect on the relevant day.  The United States has rarely been asked to apply this
exception.
117  It has never been argued that this exception is relevant to the present case.
132. With respect to the second exception to th e use of daily exchange rate, i.e. that the
United States shall ignore fluctuations in such exchange  rates, the main difficulty has been to define a
"fluctuation."  This is because a fluctuation can onl y be identified by comparison to some baseline.
Under the United States’ policy, the requirements of Article 2.4.1 and of the US statute with respect to
this exception are accomplished as follows:
The model classifies each daily rate as "normal'' or "fluctuating'' based on a
"benchmark'' rate. The benchmark is a moving average of the actual daily exchangerates for the eight weeks immediately prior to the date of the actual daily exchange
rate to be classified.  Whenever the actual daily rate varies from the benchmark rate
by more than two-and-a-quarter per cent, the actual daily rate is classified as
fluctuating. If within two-and-a-quarter per cent, the actual daily rate is classified as
normal.
Actual daily rates classified as normal are the official exchange rate for that day. However, when an
actual daily rate is classified as fluctuating, the benchmark rate is the official rate for that day.
118
                                                     
114 The policy bulletin was published in Federal Register under the title Notice:  Change in Policy
Regarding Currency Conversion , 61 Fed. Reg. 9434 (8 March 1996) (ROK Ex. 49).
115 This interpretation is not challenged by Korea.  Indeed, during the investigations POSCO argued
that daily rates should be used throughout the devaluation period.  However, the United States notes that theremay be other reasonable interpretations of the phrase "rate in effect on the date of sale."
116 The United States uses the Federal Reserve exchange rates for most countries for which such rates
are available.
117 See, e.g., Notice of Final Determination of Sales at Less Than Fair Value:  Certain Preserved
Mushrooms from India , 63 Fed. Reg. 72246, 72252 (31 December 1998) (US Ex. 22) ("[A]ccording to the
Departments' practice, in the final determination we have used the exchange rate specified in the forward salesagreement instead of the actual exchange rate on the date of sale in making all currency conversions.").
118 Notice:  Change in Policy Regarding Currency Conversions , 61 Fed. Reg. at 9435 (ROK Ex. 49).WT/DS179/R
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133. As noted, the Korean won was highly stable during the first ten months of 1997, with very
few fluctuations.119  By contrast, the devaluation of the Korean won during November and December
1997, which rapidly dropped the actual daily rate more than two-and-a-quarter per cent below the
average of the previous eight weeks, met the United States’ definition of a "fluctuation," which, underArticle 2.4.1, the United States should ignore.
120  The United States, however, agreed with the Korean
producer POSCO that, although the United States’ technical definition of a "fluctuation" had been
met, i.e. daily rates more than two-and-a-quarter per cent below the average, the size and precipitous
nature of the drop, as well as the lack of any significant rebound precluded the possibility that the won
was merely "fluctuating.121  Consequently, the United States c oncluded, in accord with POSCO, that
this exception was simply not relevant.
134. The third exception to use of normal daily exchange rates, under Article 2.4.1 and the US
statute, requires the United States in an investigation to give exporters 60 days to adjust their export
prices to reflect "sustained movements" in exchan ge rates.  The United States also agreed with
POSCO, contrary to arguments by the domestic industry in the United States, that this exception was
not relevant in the case of the devaluation of the Korean won.122
135. As demonstrated by the above discussion, none of the exceptions contained in Article 2.4.1,
and implemented through the United States’ exchange  rate policy, apply in the situation presented by
the investigations of SSPC and SSSS from Korea.  More importantly, however, the above discussion
demonstrates that all of the language of Article 2.4.1 deals with selection of exchange rates for
converting prices in a foreign currency prior to comparing those prices with export prices.
Article 2.4.1 does not deal with the comparison itself, including any averaging of prices.  Rather, this
topic is addressed under Article 2.4.2.
(b) The United States’ Actions in Creating Two Averaging Periods Is in Accordance with the
Purpose of Article 2.4.1
136. As discussed above, Article 2.4.1 deals with selection of exchange rates, rather than
comparison of prices after currencies have been converted.  However the purpose of Article 2.4.1 is to
ensure that calculated margins of dumping are not simply a function of exchange rates;  this purpose
was furthered by the United States’ action in avoiding comparison of pre-devaluation prices withprices established during the devaluation.
123
                                                     
119 See, graph of won/dollar exchange rate supplied by POSCO in its questionnaire response, (US
Ex. 21).
120 Id.
121 Note that, had the United States agreed with the US domestic industry that the "fluctuation"
exception to the use of daily rates applied in the present cases, the margins of dumping found would have beensignificantly higher.  That is because the rolling average eight week benchmark rate was partially made up ratesfrom before the drop in the value of the won, or from early in the drop.  Thus, the benchmark rate wassignificantly higher than the daily rate on any given day.  For example, the daily rate in effect on23 December 1997 was 1960 won to the dollar, while the eight-week rolling average benchmark rate on that day
was 1109 won to the dollar.  See, (ROK Ex. 50) and (ROK Ex. 51).  Consequently, had the benchmark rate been
used, the value in dollars of home market sales denominated in won would have been significantly higher, andthus the margin of dumping found when comparing such sales to exports to the US, would have beensignificantly greater as well.
122 The United States agrees with that portion of the ROK First Submission, at para. 4.50 - 4.53, and
accompanying footnotes, to the extent it asserts that this provision of Article 2.4.1 should be interpreted to apply
to appreciating currencies.  However, as noted below, Ko rea is not really arguing that the United States selected
the incorrect exchange rate under Article 2.4.1, but rather that it averaged improperly under Article 2.4.2.
123 As observed previously, the Vienna Convention , Article 31, requires that a treaty be interpreted "in
light of its object and purpose."  However, the United States notes that, while recourse to a treaty's object andpurpose is permissible, it may not override the clear meaning of the text.  As the Appellate Body in the JapanWT/DS179/R
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137. In its final determinations, the United States made two decisions in light of the devaluation.
First, under Article 2.4.1, in accordance with ar guments advanced by POSCO, the United States
employed daily rates throughout the period of depreciating currency;  in essence, it suspended its rulewhich would have identified the exchange rates during this period as fluctuations.  Second, under
Article 2.4.2, the United States determined that transactions prior to the depreciation period were not
comparable to transactions during that period.  In this way, the United States prevented the vagaries of
exchange rate movement from completely disguising  the fact that POSCO had engaged in substantial
dumping throughout most of the period of investigation.
124
138. The purpose behind Article 2.4.1 is to ensure that the calculation of dumping margins is not
driven by currency movements.  This purpose can be seen, for example, in the requirement of
Article 2.4.1 that investigating authorities ignore fl uctuations in exchange rates, to ensure that
unpredictable spikes do not generate a dumping margin on a particular day, even though prices havenot changed.  Similarly, Article 2.4.1 requires investigating authorities to give exporters a period of
time to adjust their prices in the face of sustai ned increases in the value home market currency to
avoid creating a dumping margin solely due to currency movements.
139. The United States’ action complained of by Korea in this case was not addressed by
Article 2.4.1 because the action involved averaging under Article 2.4.2, rather than selection of an
exchange rate under Article 2.4.1.  Nevertheless, the United States’ action was consistent with the
purpose of Article 2.4.1.  Had the United States compared post-devaluation prices with pre-
devaluation prices, POSCO’s substantial dumping ma rgin would have been disguised solely due to
exchange rate movement.  By creating two averages, the United States ensured that exchange ratemovements did not dominate the calculation of dumping margins, in accordance with the purpose of
Article 2.4.1.  Thus, the United States’ action, althoug h not governed by the language of Article 2.4.1,
was fully consistent with the purpose of 2.4.1.  By contrast, had the United States not created separate
averages, as now urged by Korea, the resulting margin would largely have been a function of the
devaluation of the won rather than a reflection of POSCO’s pricing practices.
125
(c) Korea’s Arguments Regarding Article 2.4.1 are Without Merit
140. Korea argues that "departures from normal price comparisons to account for changes in
exchange rates are permitted only when the currency of the exporting country was appreciating in
relation to the currency of the importing country."126  This statement takes a narrow exception to a
rule set forth in Article 2.4.1 out of context, and uses it as a general rule prohibiting actions in
unrelated parts of the AD Agreement, specifically Article 2.4.2.
141. Article 31 of the Vienna Convention  requires that a treaty be interpreted in accordance with
"the ordinary meaning to be given to the terms of  the treaty in their context" (emphasis supplied).
Read in context, the language to which Korea refers in Article 2.4.1 normally requires the use of daily
exchange rates, but requires use of a different fo rm of exchange rate when the currency of the
exporting country is undergoing a sustained increase.  Thus it addresses the exchange rate which must
be used prior to the comparison.  It has no bearing on how the comparison should be made, and does
                                                                                                                                                                    
Taxes case recognized, a "treaty's ‘object and purpose' is to be referred to in determining the meaning of the
‘terms of the treaty' and not as an independent basis for interpretation."   Japan Taxes , at 12 n. 20.
124 As discussed in more detail below, this action is actually governed by the averaging provision of
Article 2.4.2 rather than by the exchange rate selection provision of Article 2.4.1.
125 In the following section, the United States demonstrates by example that in a situation of rapidly
devaluing currency, the same comparison of a price in the home market with the price of an export transactioncould produce radically different margins depending on the timing of those transactions relative to one another.
126 See, ROK First Submission, para. 4.49.WT/DS179/R
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not prohibit an investigating authority from concluding that prices established prior to a fundamental
shift in the value of the currency should not be compared with prices established after such a shift.127
142. In effect, Korea is arguing that the phrase "authorities shall allow exporters at least 60 days tohave adjusted their export prices to reflect sustained movements during the period of investigation"
contained in Article 2.4.1 establishes a limit on which transactions may be considered "comparable"
within the meaning of the phrase "the existence of margins of dumping during the investigation phase
shall normally be established on the basis of a comparison of a weighted average normal value with a
weighted average of prices of all comparable export transactions" contained in Article 2.4.2.
However, these two phrases appear in separate provisions of the AD Agreement, and have nothing to
do with one another.
143. The fundamental reason Article 2.4.1 has so little bearing on the issue raised by Korea is that
2.4.1 provides guidance on the exchange rate which should be used.  However, Korea is notcomplaining that the United States used the wrong ex change rate.  Indeed, the United States used the
daily exchange rates urged by POSCO itself.  Rather, Korea is arguing about the United States’
method of averaging.  Such issues are addressed under Article 2.4.2, and not under Article 2.4.1.
144. In light of the above, the antidumping measures against SSPC and SSSS are consistent with
Article 2.4.1 of the AD Agreement.
4. The Exchange Rate Policy Applied in This Case Is Consistent With Article 2.4.2 of The
AD Agreement
145. As noted in the previous section, Article 2.4.1 does not specifically address large and
precipitous declines in the value of a foreign currency.  Article 2.4.2 similarly does not specifically
address this subject.  However, Article 2.4.2 does authorize Members to determine which transactions
are " comparable," and to limit their comparisons to  such transactions.  With this authority, the
United States determined that prices set prior to the period of such a drop in the home market
currency were not comparable to prices established during that period, and thus that it should create
separate averages for comparison purposes.
146. Article 2.4.2 addresses the bases which may be used for comparison of normal value with
export price or constructed export price.  It is not disputed that in this case, the United States used
average-to-average comparisons.  Such comparisons are governed by the following phrase of
Article 2.4.2:
Subject to the provisions governing fair comparison in paragraph 4, the existence of
margins of dumping during the investigation phase shall normally be established on
the basis of a comparison of a weighted-average normal value with a weighted
average of prices of all comparable export transactions. . . .
147. This provision requires that margins of dumping be based upon a comparison of an average of
normal value prices with an average of the prices for export transactions, but requires that the
transactions included in these averages be comparable.
128  The reason for this limitation is clear:
                                                     
127 Although not directly relevant, Korea’s argument does not explain why it has singled out the
sustained increase provision as the only exception in Article 2.4.1.  As discussed above, the language of
Article 2.4.1 clearly contains thr ee exceptions to the general rule.
128 Article 2.4.2 also permits comparisons of individual transactions with individual transactions, or, in
certain situations, of individual export transactions with an average of normal values.  However, neither of thesemethodologies is relevant in the cases before the panel.WT/DS179/R
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including merchandise in the averages to be compared which is not comparable could result in a
dumping margin based upon factors which are not related to dumping.
148. For example, an investigating authority may conduct an investigation of a product which
comes in high quality and low quality forms.  If producers tend to sell more of the high quality
merchandise in the home market, while exporting more of the low quality product, creating a single
average normal value and a single average of prices for export transaction might result in a dumping
margin solely because the exported merchandise is of lower quality and commands a lower price for
that reason.  While it may be possible to make an adjustment to the prices to approximate the effect ofsuch a difference, the AD Agreement recognizes that  it may be better not to make such a comparison
in the first place.
149. The concept of comparability is expressed in the AD Agreement not only by the use of the
word "comparable" in Article 2.4.2, but also by the fact that application of Article 2.4.2 is explicitlysubject to the provisions of Article 2.4.  As discussed elsewhere, Article 2.4 details that the
comparison of normal value and export price is to be made "at the same level of trade. . . in respect of
sales made at as nearly as possible the same time," and requires that due allowance be made, inter alia,
for differences in physical characteristics."
150. The considerations of levels of trade, time and physical characteristics, inter alia , illustrate
that Article 2.4 contemplates that comparisons normally must be made on a level-of-trade  basis, a
product-specific basis (to account for differences in  physical characteristics) and a time-period basis.
Thus, the mandate of Article 2.4 contemplates that there may be several to several thousand export
prices and normal values which are compared within an investigation for a respondent company,depending on such factors as the variety of products, levels of trade, selling conditions involved, and
the time periods chosen.
151. The significance of the concept that transactions included in the averages be "comparable,"
and thus that such averages should not encompass all transactions taking place during the period of
investigation, can also be seen from the negotiating history of Article 2.4.2.
129  During the Uruguay
Round negotiations, it was proposed that averages should encompass all transactions, with fewexceptions.
130  Significantly, the only difference between the language of Article 2.4.2 contained in
the Dunkel Draft, and the final version of Article 2.4.2 is the addition of the word "comparable."131  It
is a fundamental principle that an interpretation of a provision should not render a word a nullity.132
This is particularly true where, as here, the only change negotiators made to a draft provision was toinsert a single qualifying word.  In such a situation it is plain that the word was carefully considered.Moreover, seen in light of the proposals that averages should encompass all transactions, an
interpretation which might have been reflected had no modification of earlier drafts been made, the
addition of the qualifier "comparable" can only have been intended to limit the transactions which
were to be averaged together.
                                                     
129 Under Article 32 of the Vienna Convention , where the meaning of a provision is not clear from the
language of the provision itself, read in context, and in light of its object and purpose, then the "preparatorywork of the treaty and the circumstances of its conc lusion" may be considered to confirm the meaning.
130 The GATT Uruguay Round:  A Negotiating History ( 1986-1992):  Antidumping, Stewart, T., Ed.
(1993, Kluwer) at 157, (US Ex. 23).
131 Id. at 159.
132 As noted above, the "fundamental principle of effet utile  is that a treaty interpreter is not free to
adopt a meaning that would reduce parts of a treaty to redundancy or inutility."  Automotive Leather , at
para. 6.25.  Further, in Reformulated Gasoline , the Appellate Body noted that "[o]ne of the corollaries of the
'general rule of interpretation' in the Vienna Convention  is that interpretation must give meaning and effect to all
the terms of the treaty" (emphasis supplied).  Reformulated Gasoline , at 23.WT/DS179/R
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152. In light of the requirement of Article 2.4.2 that averages be limited to "comparable"
transactions, the United States, in every case, creates numerous averages to ensure that comparisons
are not distorted by averaging of non-comparable transactions.  As an example of the identification of
comparable transactions, the United States created multiple averages in the present case to account fordifferences in physical characteristics among different types of the merchandise under investigation.
Early in the case, the United States gathered, based upon suggestions from the parties,
133 a list of the
most significant physical characteristics which should be used to identify individual models of the
merchandise.134  Each unique set of physical characteristics is considered a "model" of the
merchandise.  All sales of a model in the United States are averaged, and the resulting average iscompared to an average of sales of the same model in the home market, or, if the identical model is
not sold in the home market, with the most similar model which is sold in the home market.  In this
way, the United States ensures that averages of normal values are only compared to averages of
comparable export transactions.
153. Contrary to the position Korea now advances  before the panel, POSCO argued that the
United States was not only permitted to, but should, create multiple averages.  For example, during
the SSPC investigation POSCO filed a submission with the United States fully endorsing the
"hierarchy" of physical characteristics which the United States would use to create its various average
normal values and export prices.135  In the SSSS investigation POSCO affirmatively argued that
certain physical distinctions not identified by the United States should be used in creating multiple
averages for comparison purposes.136  In both cases, POSCO argued in its legal brief to the
United States that the United States should create separate averages for prime and secondary quality
merchandise.137  In other words, POSCO argued that th e United States should not create a single
weighted-average normal value and export price, but rather should create numerous such averages.
This position is inconsistent with the argument advanced now by Korea that Article 2.4.2 prohibits
creation of more than one average normal value and export price.138
154. Although in every case the United States creates multiple averages based on the
"comparability" of the physical characteristics of the models of merchandise, the United States also
identifies transactions as not comparable based upon factors other than the physical characteristics of
the merchandise being compared.  For example, in or der to fulfill the requirement of Article 2.4 that
the "comparison shall be made at the same level of trade," in all cases in which the United States
identifies more than one level of trade, it creates average normal  values and average export prices for
sales at each level of trade.139  In this way, the United States avoids having to make an adjustment for
differences in levels of trade whenever possible.  Further, when conducting an investigation of sales
from a country suffering from high levels of inflation, the United States typically divides the averagesby month to ensure that the effect of inflation on prices does not distort the comparison.
140
                                                     
133 See, e.g. Letter from POSCO to the Department in the SSSS Investigation, dated 27 July 1998, (US
Ex. 24).
134 The list of physical characteristics on which the United States would base its averages, and, in turn,
its matches of normal value transactions with export transactions was set forth in the questionnaire issued toPOSCO.  See, (US Ex. 1), and (US Ex. 2).
135 Letter from POSCO to the Department in the SSPC Investigation, dated 21 May 1998, (US Ex. 25).
136 Letter from POSCO to the Department in the SSSS Investigation, dated 27 July 1998, (US Ex. 24).
137 (ROK Ex. 7), at 7-8;  (ROK Ex. 20), at 6-7.
138 See ROK First Submission, at para 4.48 ("The US practice of comparing "multiple averages" to
"multiple averages" finds no support in Article 2.4.2.").
139 In both SSPC  and SSSS  , the Department stated that "to the extent practicable, we determine NV [i.e.
"normal value"] based on sales in the comparison market at the same level of trade ( "LOT") as the EP [i.e.
"export price"] or constructed export price . . . transaction."  SSPC Preliminary Determination , 63 Fed. Reg. at
59537 (ROK Ex. 4);  SSSS Preliminary Determination , 64 Fed. Reg. at 142 (ROK Ex. 16).
140 See, e.g. Notice of Preliminary Results of Antidumping Duty Administrative Review:  Certain Pasta
from Turkey , 64 Fed. Reg. 43157, 43158 (9 August 1999) (US Ex. 26) (in light of annual inflation of over 60 perWT/DS179/R
Page 265
155. Although the United States had not previously been faced with the situation of a sudden
plummet in the value of a foreign currency of the magnitude presented by the facts of SSPC and
SSSS, the United States reasonably determined that this characteristic had as much of an effect oncomparability of transactions as did physical characteristics, levels of trade or high inflation.  This is
because comparison of a given amount of dollars received for an export transaction with a given
amount of won on a normal value transaction produc es a dramatically different margin of dumping
depending on whether the sales occurred before or during the devaluation period.
156. Because of this exaggerated effect on the margin  in this case of the timing of the sales used
for comparison, the United States reasonably concluded that the timing of the sales, before or during
the devaluation period, should be a factor used to determine whether sales are comparable for
purposes of constructing averages within the meaning of Article 2.4.2, and for purposes of making a
fair comparison under Article 2.4.
157. Korea’s contention that the United States acted in a manner not in accordance with
Article 2.4.2 is without merit.
141  Korea argues that a simple textual analysis reveals that Article 2.4.2
is written in the singular.  This, according to Korea, requires the conclusion that all sales in the home
market must be averaged together, and that all sales in the US market must be averaged together.However, the fact that Article 2.4.2 uses singular terms only indicates that, once an investigating
authority has identified which transactions are "comparable," it may only create a single average from
those transactions.  It does not require creation of a single average of all transactions.
158. In light of the above, the antidumping measures against SSPC and SSSS are consistent with
Article 1 and Article 2.4.2 of the AD Agreement.
142
5. The Procedures Used in Reaching The Decision to Apply Multiple Averages Were
Consistent With Articles 6.1, 6.2, 6.9, And 12.2 of The AD Agreement
159. Korea further argues that the United States acted in a manner inconsistent with the procedural
requirements of GATT 1994 and the AD Agreement.  Specifically, Korea argues that the
United States, in reaching its determination to create separate averages for sales made prior to and
                                                                                                                                                                    
cent during the period of review, the Department limited its comparisons to sales made in the same month).
Note that in the preliminary determination in the SSSS  case, the domestic interested parties alleged that the
inflation rate in Korea during three months of the period of investigation warranted use of these special inflation
procedures.  However, the United States responded that it looks for an annual  inflation of over 25 per cent for
purposes of determining whether the special procedures for highly inflationary economies should be applied.
The United States noted that the actual inflation in Korea for the period of investigation was only 17.06 per cent.
SSSS Preliminary Determination , 64 Fed. Reg. at 139 (ROK Ex. 16).
141 ROK First Submission, at para. 4.45 - 4.48
142 Finally, in several places Korea mentions the issue of "zeroing," that is, measurement of dumping
according to the amount by which subject merchandise is sold at less than fair value under Article 2.1, withoutoffsetting that amount by the amount by which other models of subject merchandise may be sold at more than
fair value.  ROK First Submission, at para. 3.46 and 4.43.  However, the issue of zeroing is not directly relevant
to creation of separate averages for prices established before and during the depreciation of the won.  In otherwords, the panel can address the issue of whether investigating authorities may calculate more than one averagenormal value and export price without addressing the entirely separate issue of whether, after such averages areconstructed, and after comparisons are made, investigating authorities are required to offset dumping foundunder such comparisons with "negative dumping," i.e. sa les at greater than normal value.  According to the
Appellate Body's report in Wool Shirts  the normal practice of WTO and GATT panels has been to "address[ ]
only those issues that such panels considered necessary for the resolution of the matter between the parties, and[to] decline[ ] to decide other issues."  Thus, panels "have refrained from examining each and every claim madeby the complaining party and have made findings only on those claims that such panels concluded werenecessary to resolve the particular matter."  Wool Shirts , at 19 (emphasis in original).WT/DS179/R
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during the devaluation period was not in accordance with the requirements of Articles 6.1, 6.1, 6.9
and 12.2 of the AD Agreement.  According to Korea,  taken together these provisions "establish a
broad requirement that the investigating authorities interpret the relevant laws in a reasonable and
consistent manner – and that they provide private parties of an explanation of their proposedinterpretation of the relevant laws in a manner that will allow the private parties a "full" and "ample
opportunity" to defend their interests.
160. The United States agrees that the AD Agreement requires investigating authorities to interpret
the Agreement in a reasonable manner.  Indeed, this understanding is at the heart of Article 17.6(ii).
143
161. Further, the United States agrees that under Articles 6.1, 6.2 and 6.9 parties should beafforded a full and ample opportunity to defend their interests.  Access to all information before the
investigating authority, issuance of a preliminar y determination including all matters covered in
Article 12.2.1,
144 and establishment of a period for argument provides such an opportunity.  As noted
above, the United States provided POSCO with access to its complete factual record, issued a detailed
preliminary determination, and provided an opportuni ty to present arguments and to request a hearing.
POSCO, in fact, availed itself of such opportunities.
162. Korea argues that because the United States did not create separate averages in the
preliminary determination, POSCO did not have a full and ample opportunity to defend its interests
with respect to this issue.  Korea neglects to me ntion, however, that in its preliminary determination,
although the United States did not create separate averages for sales prior to and during the
devaluation period, it specifically notified all parties that it was considering adopting such a policy for
the final determination, and requested parties comment on this issue.145  Articles 6.1, 6.2, and 6.9
require investigating authorities to provide an opportuni ty for a party to defend its interests.  In this
case, the United States not only provided an oppor tunity for POSCO to comment on this issue, it went
                                                     
143 Although the United States agrees that a panel should determine, in situations in which the AD
Agreement permits more than one possible interpretation, whether the investigating authority has offered areasonable interpretation, the United States disagrees wi th the suggestion in Korea’s submission that the panel
should determine whether a Member has interpreted all "relevant laws" in a reasonable manner.  This statementsuggests that the panel could engage in the exercise of determining, notwithstanding consistency with the ADAgreement, whether the actions of a member represented reasonable interpretations of that member’s national
legislation.  Such an exercise is decidedly not the province of a panel formed under Article 17 of the Agreement
and the Dispute Settlement Understanding.  Indeed the terms of reference of this panel relate to consistency withthe AD Agreement, and not to consistency with national legislation.  If Korea wanted review of the consistencyof the United States’ actions with the domestic laws of the United States, POSCO was free to pursue judicialremedies before the Federal Courts of the United States.  As noted elsewhere, POSCO elected not to pursue
such remedies.
144 Article 12.2.1 requires preliminary determinations to include:  "(i) the names of the suppliers, or
when this is impracticable, the supplying countries involved;  (ii) a description of the product which is sufficientfor customs purposes;  (iii) the margins of dumping established and a full explanation of the reasons for themethodology used in the establishment and comparison of the export price and the normal value under Article 2;(iv) considerations relevant to the injury determination as set out in Article 3;  [and] (v) the main reasons leading
to the determination."
145 As noted previously, in both preliminary determinations, the United States included the following
statement:
The Department makes this determination without the benefit of extensive case precedentdealing with this area of our currency conversion policy. The Department therefore welcomescomments from interested parties on all aspects of our analysis and the time period-specific
exchange rates used.  For the purposes of the final determination, the Department will
continue to analyze the implications, if any, of the decline in the won during 1997 for priceaveraging and whether multiple averages are warranted. SSPC Preliminary Determination , 63
Fed. Reg. at 59539 (ROK Ex. 4);  SSSS Preliminary Determination , 64 Fed. Reg. at 145
(ROK Ex. 16).WT/DS179/R
Page 267
well beyond its obligations and provided an explicit invitation to do so.  Therefore, the United States
acted in accordance with Article 6.1, 6.2 and 6.9 in this regard.
163. Korea also argues that the United States failed to address the determination in Preserved
Mushrooms from Indonesia146 in which, according to Korea, the United States "rejected the
petitioners’ request for multiple averaging, and maintained the established practice of declining to
deviate from its standard methodology because of a currency devaluation."147  However, Korea again
neglects to mention that in  Preserved Mushrooms the United States did not find that creation of
multiple averages in light of a fall in the value of the currency was improper.  Rather, the
United States found that creation of multiple averaging periods, under the specific facts of that case,
had no effect on the overall margin of dumping.  In light of that fact, the United States declined to
address the issue of whether creation of multiple averages was proper or not.148  However, in a
foreshadowing of SSPC and SSSS, the United States warned that large changes in exchange rates
might result in the use of multiple averaging periods.  The determination in that case reads, in relevant
part:
Whether the Department should use shorter averaging periods where there is a
significant decline in the value of the foreign currency over the POI is a complex
issue.  In such cases, we are concerned that using a single average NV for the POIcould mask significant dumping during the period prior to the devaluation.
Consequently, it may be necessary to use two or more averaging periods to avoid a
distortion in the dumping analysis.  However, we note that using two averaging
periods in this case, as proposed by the petitioners, would have virtually no effect and
therefore this issue is without consequence.  Thus, we have declined to alter our
methodology in this case.  We will continue to examine in future cases whether it is
appropriate to use two or more averaging periods, or some other method, to avoiddistortion in the dumping analysis.  We note that we have given further consideration
to the reasons stated in the preliminary determination for using one averaging period.
Although we continue to find that there are distinctions between PVA from Taiwan
and this case, we believe that consideration of those distinctions is not sufficient.  In
addition to changes in selling practices, we believe that we should also consider other
factors, such as prolonged large changes in  exchange rates, in determining whether it
is appropriate to use more than one averaging period.149
164. Further, even assuming arguendo  that  Preserved Mushrooms  did address the issue of
whether multiple averages should be created in lig ht of a falling currency, such a decision hardly
would represent an "established policy." First, the Preserved Mushrooms  case would represent only a
single decision, and admittedly a case of first impression, and thus hardly constitutes an established
"practice."  Second, the issue of whether the fall of a currency’s value warrants use of multiple
averages turns on the facts surrounding that fall:  how significant was the drop, and how quickly did it
occur.  Thus any conclusion in Preserved Mushrooms  about whether a decline in the value of the
Indonesian Rupiah of a certain magnitude over a certain period warrants separate averages does notnecessarily determine whether a decline in the value of the Korean won of a different magnitude and
over a different period warrants separate averages.
150
                                                     
146 Final Determination of Sales at Less Than Fair Value:  Certain Preserved Mushrooms from
Indonesia, 63 Fed. Reg. 72268, 72272 (31 December 1998) (Preserved Mushrooms) (ROK Ex. 40).
147 ROK First Submission, at para. 3.44.
148 Note that this decision by the United States is similar to the policy discussed elsewhere that
adjudicating bodies should not address issues not necessary for resolution of the dispute before them.
149 Preserved Mushrooms , 63 Fed. Reg. at 72272 (emphasis supplied) (ROK Ex. 40).
150 Korea repeatedly asserts that the similarities be tween the decline of the Indonesian rupiah addressed
in Preserved Mushrooms   and the devaluation of the Korean won demanded the same treatment.  ROK FirstWT/DS179/R
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165. In any event, the benefits of consistency do not always outweigh the need of investigating
authorities to allow their policies to evolve to suit new factual scenarios.  Consistency with prior cases
is a laudable goal, to the extent the actions taken in such cases were themselves consistent with theAD Agreement, in that it enhances predictability and transparency.  Moreover, consistency with prior
cases reinforces the conclusion that publication of a notice in accordance with Article 12.2.1 has given
parties a full and ample opportunity to defend their interests.  However, investigating authorities may
change their policies, to the extent the new policies are consistent with the AD Agreement.  Given this
authority, parties who wish a policy applied in a prio r case to be either adopted or abandoned in the
instant case, should be afforded an opportunity to present such arguments.  However, the obligation of
members to provide a full and ample opportunity for parties to defend their interests does not equate
to a prohibition on changes in policy.
166. Korea cites Article 6.9 for the proposition that any decision to change policy between the
preliminary and final determination constitutes an "essential fact" which must be disclosed to parties
prior to issuance of the final determination.  This position would amount to a requirement that, if the
investigating authority decides to change any aspect of the preliminary determination, it must issue a
new preliminary determination, and seek new legal arguments.  This process would continue until all
aspects of the preliminary determination would remain unchanged for the final determination, at
which point the investigating authority could issue the final determination.
167. The AD Agreement contains no support for this proposed procedure;  indeed Articles 7.1 and
12.2 only contemplate a single preliminary determination.  Moreover, the requirements contained in
Article 6 that parties be given a full and ample opportunity to defend their interests implies that, if theinvestigating authority is persuaded by such arguments, it will change its decision in the final
determination.  Finally, a decision to change policy by the investigating authority is not a " fact under
consideration  which form[s] the basis for the decision" within the meaning of Article 6.9.  Rather,
such a change in policy is the decision.
151
168. In light of the above considerations, the panel should conclude that the United States’
decision that transactions prior to the period of devaluation and transactions during that period werenot comparable within the meaning of Article 2.4.2, and the resulting use of separate averages for
those transactions, was based upon properly established and objectively evaluated facts and
represented a permissible interpretation of the AD Agreement.
                                                                                                                                                                    
Submission, at para. 3.45 and 4.56 - 4.58.  However, while the 50 per cent devaluation of the won occurred over
a two month period, the 60 per cent devaluation of the rupiah occurred over a seven month period.  See,Preserved Mushrooms , at 72272 (noting a 60 per cent decrease in the value of the rupiah between July and
December 1997),  (ROK Ex. 40).  Although the United States has not been required to address the devaluation
of the rupiah, it has stated that the " precipitousness" of the devaluation is a relevant consideration.  Thus, thesituations may not be as similar as asserted by Korea.
151 Korea also argues that, while "dumping [was] based solely on pre-devaluation sales," injury was
based primarily on the "Asian economic crisis that accompanied the devaluation of the Korean won."  ROKFirst Submission at para. 4.61 - 4.63.  This argument, however, has no bearing on the question of whether the
United States properly constructed averages for comparison purposes under Article 2.4.2, or even whether the
United States made a fair comparison under Article 2.4.  Even if Korea’s argument were relevant to the issue of
the consistency of the measured with Article 3 of the AD Agreement, Korea did not raise a claim under Article 3in its request for panel review.  Consequently, this issue is outside the panel’s terms of reference, and must bedisregarded.WT/DS179/R
Page 269
F. THE UNITED  STATES ’ TREATMENT OF HOME MARKET SALES TO LOCAL CUSTOMERS WAS
CONSISTENT WITH ARTICLES 2.4, 6.1, 6.2, 6.9 AND 12.2
1. Statement of Relevant Facts
169. Pursuant to its obligations under the Urugua y Round Agreements, and specifically Article 2.4
of the Anti-Dumping Agreement, the United States enacted into law a specific provision on currency
conversion, as discussed in the preceding section.152  Consistent with Article 2.4.1 of the Agreement,
the United States converts foreign currencies into US dollars on the date of sale for purposes of its
anti-dumping analysis.  The United States’ well-established practice is to accept the currency of the
transaction ( i.e., to use the currency in which the sales price is earned or incurred).153
170. The sales at issue here are sales between POSCO and a customer in Korea, which POSCO
reported as home market sales.  POSCO reported the won amount of the sale154 and stated that the
sales were paid in won.  The won amount on th e invoice was recorded in POSCO’s accounting
records.155  Later in the proceeding, POSCO volunteered dollar-denominated amounts for these sales
and argued that these domestic sales should be treated as transactions in dollars.156
171. In its preliminary determination in the SSPC case, the United States had excluded these home
market sales from its calculation of normal value based upon its mis-impression that the sales were
not sold for consumption  in the home market and therefore did not qualify as home market sales.157  In
case briefs before the Department, POSCO pointed out that the United States erred in its conclusion
and that, in fact, the merchandise was consumed in the home market by POSCO’s customers.158
172. In its final determinations, the United States accepted POSCO’s argument that the sales were
in fact for consumption in the home market and therefore included the sales in its calculation of
                                                     
152 19 USC. 1677b-1 (1994).  (ROK Exh.1).  See also  Notice:  Change in Policy Regarding Currency
Conversions , 61 Fed. Reg. 9434 (8 March 1996). (ROK Exh.49).
153 See, e.g.,  3 August 1998 Questionnaire in SSSS, at B-20, (US Ex. 2).  See also  Final Determination
of Sales at Less Than Fair Value:  Fresh Cut Roses From Colombia , 60 Fed. Reg. 6980, 7006 (6 February 1995)
(ROK Ex. 52)  ("It is the Department’s practice to accept charges in the currency in which the charges are
made.") (" Roses from Colombia ").  In rare instances, the Department has used something other than the currency
of the transaction.  See, e.g. Roses from Colombia , discussed further below.  In Final Determination of Sales At
Less Than Fair Value:  Silic on Metal From Argentina , 56 Fed. Reg. 37891, 37896 (9 August 1991) (ROK Ex.
53), also addressed by Korea, the Department used a dollar amount;  however, this determination was based
upon its finding at verification that "the Argentine economy is indeed dollarized."
154 SSSS 23 September 1998 Section B Response, at B-22, (US Ex. 27);  see also  SSPC Section B
Response, at B-22, (US Ex. 21).  POSCO stated that it has "reported the actual invoiced price per metric ton inKorean won" and further reported that "[a]ll sales ha ve been recorded in Kor ean Won in the database."
155 See SSPC Final Determination, 64 Fed. Reg. at 15456.  (ROK Ex. 11).  The won amount is listed on
the tax invoice issued to the customer.  The won amount is also listed on the invoice (known as the shipping
invoice or shipping list) for channel 2 sales. See  SSSS Sales Verification Report, E xhibit 17, (US Ex. 28);  see
also  SSPC Sales Verification Report, Exhibit 6, and Exhibit 23, (US Ex. 29).
156 SSSS 23 November 1998 Supplemental Sales Response, at 19, (ROK Ex. 45);  see also  POSCO's
SSPC Case Brief, at 4.  (ROK Ex. 7).
157 SSPC Preliminary Determination , 63 Fed. Reg. at 59536 (4 November 1998).  (ROK Ex. 4).
158 POSCO’s SSPC 26 January 1999, Case Brief, at 4. (ROK Ex. 7);  see also POSCO’s SSSS Case
Brief, at 3-5 (ROK Ex. 20).  In the preliminary determination in SSSS, the Department included the sales in its
calculation of normal value.  The Department, however, mistakenly converted the dollar-denominated amountinto won for the preliminary determination, but corrected the error for the final determination, using instead thewon amount reported by POSCO.  See Preliminary Analysis Memorandum for SSSS , at 9.  (ROK Ex.17).WT/DS179/R
Page 270
normal value.159  The United States also concluded, based upon the facts discussed above, that these
home market sales were in Korean won, not US dollars.160
173. Having determined that these home market sales were made in Korean won, the United Statesnext considered whether the situation that led to the exception in Roses From Colombia  was present
in these cases, as POSCO had claimed.  In both SSSS and SSPC, the United States cited  "a disparity
between the exchange rates reflected in POSCO’s accounting records and those [rates] used by the
Department" as the primary basis for finding that the exception did not apply.
161
174. Because there was no need to deviate from the standard methodology for determining normalvalue, the United States used the currency in wh ich the transaction occurred, i.e. Korean won, and
made a single conversion from won into dollars in its determination of normal value.
162
2. The United States Converted Won-Denomin ated Sales By Using Exchange Rates
Established Under a Methodology Consistent With Article 2.4
175. The principal issue in this section is whether Article 2.4.1 mandates that the United States
accept POSCO’s exchange rates in lieu of exchange rates determined under the rules of Article 2.4.1.
Korea believes that Article 2.4.1 obligates an investigating authority to avoid a currency conversion
where a "reasonable alternative" is available.163  However, Article 2.4.1, when interpreted in
accordance with the fundamental rules of treaty interpretation, contains no such requirement.164
176. Article 2.4.1 sets out rules governing the use of exchange rates.  It does not in any way
address the issue of how to determine the currency in which a sale is transacted.  Article 2.4.1 states:
When the comparison under paragraph 4 [of export price and normal value] requires a
conversion of currencies, such conversion should be made using the rate of exchange
on the date of sale, provided that when a sale of foreign currency on forward markets
                                                     
159 SSPC Final Determination , 64 Fed. Reg. at 15456.  (ROK Ex. 11).
160 Id.;  see also  SSSS Final Determination , 64 Fed. Reg. at 30678.  (ROK Ex. 24).
161 Id.  The factual data on exchange rates supports the United States’ conclusions that the exchange
rates varied.  For example, in the month of November 1997, which is an "overlap" month ( i.e., a month included
in both investigations) the exchange rates are as follows:
Date of Sale Federal Reserve Rate s Rates POSCO Used Per cent Difference
{
}
Although Korea is correct that the Department mi stakenly used adjusted exchange rates in the SSPC
case, correction of the error does not alter the conclusion that POSCO's rates did not mirror the official rates, as
demonstrated by the table above.  The table reflects sale dates within the periods of investigation of both SSSS
and SSPC .  For a listing of such exchange rates, see, e.g ., SSPC Sales Verification Report, Exh. 6 (US Ex. 29).
See also, New York Federal Reserve Daily Exchange Rates (ROK Ex. 50), and Korean Exchange BankExchange Rates, (ROK Ex. 44).
162 SSSS Final Determination , 64 Fed. Reg. at 30678;  see also SSPC Final Determination , 64 Fed.
Reg. at 15456.
163 ROK First Submission, at para. 4.66-4.67.
164 As discussed above, Article 31 of the Vienna Convention  provides that the words of a treaty must
form the starting point for the process of interpretation.  In this regard, words must be interpreted according to
their "ordinary meaning" taking into account their "context" ( i.e., other provisions of the treaty) and the "object
and purpose" of the agreement.WT/DS179/R
Page 271
is directly linked to the export sale involved, the rate of exchange in the forward sale
shall be used.  Fluctuations in exchange ra tes shall be ignored and in an investigation
the authorities shall allow exporters at least 60 days to have adjusted their export
prices to reflect sustained movements in exchange rates during the period ofinvestigation.
177. When read in context and given its ordinary meaning, the phrase "[w]hen the comparison
under paragraph 4 requires a conversion of currencies" establishes the condition under which the rules
that follow will apply.  Article 2.4.1 presupposes  that the condition exists;  it does not define when the
condition exists.  Therefore, Article 2.4.1 cannot be read to require that currency conversions beavoided in any particular circumstances, particularly where the transaction occurs in a foreign
currency.
178. Nevertheless, Korea argues, in effect, that the United States acted inconsistently with
Article 2.4.1 when it converted these won-sales into dollars using exchange rates determined underthe requirements of Article 2.4.1 because POSCO had already made the conversions.  However, the
conversion formula used by POSCO does not satisfy the rules set forth in Article 2.4.1.  For example,
POSCO’s formula does not account for fluctuations.  In effect, therefore, Korea asks the panel to read
into Article 2.4.1 an obligation to use a conversion methodology that is inconsistent with the rules
otherwise set out in that provision.  Such a read ing has no basis in the customary rules of treaty
interpretation.
179. As discussed above, the "object and purpose" of Article 2.4.1 is to provide explicit rules for
currency conversions.  Those rules require the use of (1) the exchange rate on the date of sale,
provided that rate does not constitute a "fluctuation;" (2) the exchange rate of a forward contractdirectly linked to the sale;  or (3) a special exchange rate in the event of a sustained movement, as
discussed in the preceding section.  The United States has established an exchange rate methodology
that selects an exchange rate consistent with the re quirements of Article 2.4.  Using that exchange rate
methodology, the United States converted the w on price for POSCO’s local sales into dollars to
establish normal value.  Therefore, its methodology was consistent with the Agreement.
3. The United States’ Establishment of the Facts Was Proper, and Its Evaluation Unbiased
and Objective
180. Korea attempts to have the Panel retry the Department’s factual determination that the
currency of the transactions were Korean won, not US  dollars.  In the alternative, Korea seeks to have
the Panel find it "unfair" to convert the won amount to dollars because the currency conversion causes
a "distortion."  These arguments are without merit.
181. First, panel review is not a substitute for proceedings conducted by national investigating
authorities.
165  Numerous panels have recognized that the role of panels is not to conduct a de novo
review of factual issues.166  As set forth in Article 17.6(i), the panel’s review of findings of fact is
limited to determining whether the establishment of the facts was proper, and whether the evaluationof the facts was unbiased and objective.
182. The United States’ determination that these sales were transacted in won is supported by a
proper assessment of the facts.  As discussed above, POSCO reported these transactions as home
market sales and stated that the sales were paid in won.  The reported won amounts were reflected on
                                                     
165 United States - Restrictions on Imports of Cotton and Man-Made Fibre Underwear , WT/DS24/R,
Report of the Panel, as modified by the Appellate Body, adopted 25 February 1997, para. 7.12.
166 See, e.g., Id., citing Korea Resins , at para. 227;  and Softwood Lumber , at para. 335.  See also,  Plate
from Sweden , at para. 284 and 387 and the panel report in Argentina Footwear  , at para. 8.117.WT/DS179/R
Page 272
POSCO’s invoices and records.  Although the invoi ces also reflected dollar amounts, when viewed as
a whole, the facts provide a reasonable basis for the United States’ conclusion that these were won
transactions.
183. Moreover, there is no "unfairness" in converting sales in foreign currencies into US dollars in
the manner provided for under Article 2.4.1.  Contrary to Korea’s claims, the United States made no
"double-conversion" of currencies in these investigations.  In each case, POSCO reported the invoiced
won amount  for each transaction.  As a factual matter, the United States made one currency
conversion.  The United States simply converted the won amount reported by POSCO in its responseinto dollars consistent with the methodology established under Article 2.4.1 of the Agreement.
184. Korea argues that use of the dollar amount is necessary to avoid distortions caused by
currency conversions.  The premise underlying that argument appears to be that the parties have
locked in a dollar price, and therefore, any differences due to currency conversion constitute a"distortion" which is eliminated if no currency conversion takes place.  However, this argument is
simply another way of saying that the appropriate conversion formula is the one established by
POSCO, rather than the method established by the United States consistent with Article 2.4.1.  As we
have demonstrated above, this argument is without foundation.
4. The Procedures Used In Reaching Its Decision To Apply The Currency of the
Transaction Are Consistent With the Requirements of Article 6.1, 6.2, 6.9, and 12.2 of
the Agreement and Article X:3 of GATT 1994
185. Korea further argues that the United States acted in a manner inconsistent with the minimum
standards for transparency and procedural fairness under Article X:3(a) which is amplified by theprocedural requirements of Article 6.1, 6.2, 6.9 and 12.2.  Taken together, Korea argues, these
provisions establish a broad requirement that investigating authorities interpret the relevant laws in a
reasonable and consistent manner, and provide parties with an explanation that will allow for a full
and ample opportunity to defend their interests.
186. As discussed above, the United States agre es that the Anti-dumping Agreement requires
investigating authorities to interpret the agreement in a reasonable manner.  Indeed, this understanding
is at the heart of Article 17.6(ii).
187. Further, the United States agrees that under Articles 6.1, 6.2, and 6.9 parties should be
afforded a full and ample opportunity to defend their interests.  As noted above, issuance of a
preliminary determination including all matters covered in Article 12.2.1, followed by a period forwritten and oral argument, provides ample opportunity for the parties to defend their interests.  In both
proceedings before the Department, POSCO availed itself of these opportunities.  In addition, as
discussed above, throughout US anti-dumping investigations the parties are afforded timely access to
all information provided to or obtained by the Department, including confidential information made
available under administrative protective order, all comments and legal arguments presented by theparties and the Department’s internal memoranda.
188. Korea argues that the United States’ decision to convert the won amount into dollars was an
unprecedented departure from established policy of accepting the charges in the currency in which the
charges are made.
167  Korea concludes, therefore, that the United States acted inconsistently with
Article X:3 of GATT 1994 by failing to follow its established methodology and by providing
                                                     
167 ROK First Submission, at para. 4.72.WT/DS179/R
Page 273
incorrect and incoherent justifications.168  Moreover, Korea claims that the United States violated
Article 12.2 by failing to provide an adequate statement of reasons as required by that Article .
189. Korea specifically alleges that there is no distinction between the facts in these cases and
those of  Roses from Colombia ;  that the rates from the Korean Exchange Bank were actual market
rates;  and that the actual differences between the Federal Reserve rates and the Korean Exchange
Bank rates were, in fact, quite small.169  Finally, Korea claims that use of the Federal Reserve
exchange rate "unreasonably penalized" POSCO, and asserts that the United States failed to explain
why its rates should be considered more accurate than the rates used by POSCO.
190. The fundamental issue for the Panel in these cases is not a question of which source for
exchange rates is more accurate.  Rather, it is a question of whether the exchange rates used by the
United States in these cases satisfy the requirements of Article 2.4.1.  As demonstrated above, the
exchange rates applied by the United States in the instant investigations were specifically selected in
accordance with the requirements of Article 2.4.1.
191. Moreover, as discussed above, consistency with domestic law is not for the panel to
determine.  Nevertheless, the United States’ decision in these cases was entirely consistent with its
established practice.  In arguing to the contrary, Korea relies upon Roses from Colombia .  However,
that case pre-dates the Uruguay Round Agreements Act of the United States in which the new
Article 2.4.1 was first implemented.170  Accordingly, none of the requirements of Article 2.4.1 were
considered in the context of that case.
192. In addition, Roses  represented an exception to the United States’ practice, not the rule.  In the
proceedings at issue, the United States fully explained and properly distinguished the instant cases
from its determination in Roses from Colombia .  The United States reasoned that, unlike Roses from
Colombia,   where "the exchange rates reflected in the dollar-to-peso conversion coincided with the
exchange rates used by the Department," in this case "there is a disparity between the exchange rates
reflected in POSCO’s accounting records and those used by the Department."171  The evidence
concerning exchange rates supports that determination.  Contrary to Korea’s claim, a comparison of
the exchange rates demonstrates that during the month of November 1997, the rates varied by as muchas { } per cent. Thus, assuming arguendo that Roses from Colombia  is relevant, the facts of the present
cases differ significantly.  The evidence in these cases fully supports the United States’ determination.
193. Korea’s argument that companies are "penalized" because the exchange rates are not the rates
used in Korea and are not used in the company’s accounting system also misses the mark.  Nocompany is "penalized" when an investigating authority  (a) sets forth rules that are designed to ensure
that the exchange rates used in its dumping analysis are consistent with the Agreement, and (b)
adheres to those rules in the course of its proceedings.  The United States’ exchange rate methodology
is transparent.  The United States has publicly announced, for purposes of anti-dumping analysis, that
it will use its official exchange rates for curr ency conversions.  The methodology used by the
United States to select the exchange rates for its dum ping analysis have also been published.  Indeed,
the United States has taken several steps to "ensure that all exporters, when they set their prices and
whether under order or not, can know with certainty the daily exchange rate the Department will use
in a dumping analysis."
172  For example, companies know that the United States relies upon the
                                                     
168 As discussed previously, it is the position of the United States that Korea has mis-interpreted the
scope of Article X:3 of GATT 1994.
169 ROK First Submission, at para. 4.74.
170 Similarly, the other case Korea also relies upon, Silicon Metal from Argentina , also pre-dates the
Uruguay Round Agreements Act of the United States.  56 Fed. Reg. 37891 (9 August 1991).  (ROK Ex. 53).
171 SSSS Final Determination , 64 Fed. Reg. at 30678.  (ROK Ex. 24).
172 Notice:  Change in Policy Regarding Currency Conversions, 61 Fed. Reg. at 9435. (ROK Ex. 49).WT/DS179/R
Page 274
Federal Reserve rates,173 and that fluctuations in the exchange rate, in accordance with Article 2.4.1,
"shall be ignored" (i.e., that the average exchange rate for the last 40 days will be applicable).  To
ensure that companies can ascertain the applicable exchange rate, the United States has taken the
unusual step of publishing on the Internet the computer code to allow parties to reproduce theUnited States’ calculations and thus "monitor exchange rates.
174
194. While there are some natural and inherent constraints to ascertaining the exchange rate for the
day on which a transaction occurs, the rules adopted by the United States are highly transparent ones.
These rules, and the monitoring tools provided by the United States, enable companies to obtain theapplicable exchange rate with a high degree of precision and certainty.  Companies can, with the
knowledge of the United States’ rules, reasonably determine the daily exchange rate.  These rules are
as transparent as they can be.  Thus, the suggestion by Korea that the United States violated the
transparency requirements of the Agreement is without merit.
G. T
HE PANEL SUGGESTION SOUGHT BY KOREA IS INCONSISTENT WITH ESTABLISHED PANEL
PRACTICE AND THE DSU
195. In its first submission, Korea requests the Panel suggest that the United States "revoke the
anti-dumping duty orders concerning SSPC and SSSS from Korea.".175  In so doing, Korea seeks to
turn the Panel’s discretionary mechanism of sugge sting ways that the Member could implement its
recommendations under Article 19.1 of the DSU into a device for obtaining a specific remedy that is
inconsistent with established GATT/WTO practice and the DSU.  Therefore, should the Panel agree
with Korea on the merits, the Panel nonetheless should reject Korea’s request, and instead, make a
general recommendation and any suggestions for implementation, consistent with the DSU and
established GATT/WTO practice.
196. Furthermore, Korea’s request that the Panel suggest revocation far exceeds what would be
necessary to bring these measures into conformity with the Agreement.  There is simply no basis upon
which the Panel could conclude that revocation of the anti-dumping duty orders is necessary for the
United States to bring its measures into conformity  with the Agreement.  Even if the panel were to
agree with Korea on the merits, it is impossibl e for the panel even to know whether a dumping
analysis that conformed to the panel’s decision would result in a de minimis  margin for POSCO.
197. In sum, specific remedies are at odds with established GATT and WTO practice and the
express terms of the DSU.  Moreover, revocation of the anti-dumping orders on SSSS and SSPC far
exceeds what would be necessary to bring these measures into conformity with the Agreement.
Therefore, regardless of how the merits of this case are decided, Korea’s request for revocation of theanti-dumping duty orders on SSSS and SSPC should be rejected.
IV. CONCLUSION
198. For the reasons discussed above, the actions of the United States in conducting the subject
investigations were in conformity with the requirements of the AD Agreement and GATT 1994.
                                                     
173 Id. at 61 Fed. Reg. 9435, n. 3.
174 Id. at 61 Fed. Reg. 9435.
175 ROK First Submission, at para 5.9WT/DS179/R
Page 275
ANNEX 2-2
ORAL STATEMENT OF THE UNITED STATES
FIRST MEETING OF THE PANEL
(13 June 2000)
CONTENTS
Page
I. INTRODUCT ION ................................................................................................................2 76
II. BAD DEBT .................................................................................................................... ........276
III. WEIGHTED AVERAGES...................................................................................................280IV. LOCAL LETTER OF  CREDIT SALES ............................................................................281
V. PROC EDURE .................................................................................................................... ...282
VI. ARTICLE X:3 AND ST ANDARD OF RE VIEW ..............................................................283
VII. SUMMARY .................................................................................................................... .......284
VIII. CONCLUSION ................................................................................................................ .....284WT/DS179/R
Page 276
I. INTRODUCTION
1. The United States welcomes the opportunity to appear before you today to present its views
on the matters raised in this proceeding.  Although our arguments are presented fully in itssubmission, we wish to highlight some  key points.  I would like to state at the outset that I will largely
follow the statement before you.  However, I will  briefly add some points in response to Korea's
statement.  In the interest of time, I will address only a few of the issues raised by Korea's statement
today; we will respond more fully in our future submissions.
2. It is now well settled that it is the complainant's burden to establish a prima facie  case of a
WTO violation.  From that perspective, this case is simple.  Korea has failed to meet its burden.  That
is not to say that this case does not involve complex methodological issues arising out of the particular
facts gathered during these investigations.  Nevertheless, the complexity of those issues cannot
obscure the simple fact that Korea has failed to make its case.
3. It is obvious that Korea believes the United States should have weighed the evidence
differently and taken different approaches to certain issues in the underlying investigations.  It has
simply failed to demonstrate that the United States was required by the Anti-dumping Agreement to
do so.  There is much rhetoric in Korea's submi ssion about the United States "penalizing"  POSCO,
underscored by the insinuation that the United States ignored its own legal precedent to do so.  But
legally and factually there is no case.
4. Trying to make Korea's claim fit into the Agreement is somewhat like trying to put a square
peg in a round hole.  To do so, it is necessary to ignore relevant provisions of the Agreement andmisinterpret the meaning and purpose of others.  At times, Korea argues more about whether the
United States acted consistently with its own law and practice than whether its actions were consistent
with the Anti-dumping Agreement.  Of course, the panel is charged with deciding the latter, not the
former.
5. With respect to each of the issues challenged in this case, the actions of the United States are
in fact based on an objective assessment of the information presented by the exporter and are wellgrounded in the rules of the Agreement.  I would li ke now to summarize a few points with respect to
each issue.
II. BAD DEBT
6. POSCO incurred a bad debt expense on US sale s of the subject merchandise during the period
of investigation.  We identified the expense because POSCO itself had recognized it in its accounting
records for the period.  I would like to note that Korea made the claim this morning that POSCO had
no other experience with bad debt on sales to the United States.  That is inconsistent with what
POSCO reported in these cases.  While POSCO claimed that its US affiliate, POSAM, had neverbefore incurred a bad debt, POSCO reported US bad debt expense with respect to its sales to the
United States.
7. POSCO sought to have those sales excluded from the determination of export price, not
because there was anything unusual about the prices, terms of sale, or products, but simply becausethe sales resulted in a bad debt expense.  Bad debt is a normal selling expense that is routinely
accounted for as part of normal business practice – and, as I mentioned, POSCO accounts for bad debt
in its normal accounting records –  and is accounted for as part of a normal, Agreement-consistent
dumping analysis.WT/DS179/R
Page 277
8. Korea argues that, effectively, the United States took account of bad debt by simply lowering
all export prices.  We would like to take a brief moment to clarify what adjustments were actually
made and the basis for them.
9. Korea has suggested that all adjustments are accounted for in Article 2.4.  However, a
dumping analysis involves a two-step process: first, it is necessary to determine the export price and
the normal value.  It is only after they have been determined that the comparison required by
Article 2.4 is made.  Article 2.3 addresses certain situations in which an export price is not available
or, as in the present case, is unreliable because of  an affiliation between the exporter and the importer.
In effect, Article 2.3 allows you to ignore the unreliable export price and construct the export price
between the exporter and the affiliated importer.  Article 2.3 provides that, in such cases, export price
may be constructed on the basis of the price to the first unaffiliated party.  The export price must be
constructed before the Article 2.4 comparison can be made.  It is only after determining export price
and normal value that one reaches the step of comparing prices.  Then we turn to Article 2.4 to ensurea fair comparison through the adjustments provided for there.
10. POSCO made sales during the period of inve stigation both through a US affiliate, POSAM,
and directly to unrelated customers in the United States.   For the sales through POSAM, the United
States constructed the export price, consistent with Article 2.3.  I would note here that Korea has notraised any claim under Article 2.3.  In constructing export price, the United States started with the
price at which POSCO’s US affiliate sold merchandise to the first unaffiliated customer, then we
deducted all expenses associated with that sale, including an allocated portion of the US bad debt
expense.  That was the method used to determine the constructed export price prior to the comparison
under Article 2.4.
11. For the remaining sales made directly to unaffiliated customers in the United States, the
United States based export price on the invoice pri ce from POSCO to the unaffiliated US customer.
There was no deduction from that export price for any selling expenses, including bad debt.
12. Once the export price and constructed export price had been determined, the United States
made an adjustment to normal value to eliminate any differences in the conditions and terms of sale inthe United States and Korea, consistent with Articl e 2.4.  That adjustment – which the United States
refers to as a circumstance of sale adjustment –  is achieved by first deducting  from normal value all
expenses associated with conditions and terms of sale in Korea and then adding to normal value the
expenses associated with conditions and terms of the export or constructed export sales.  In these
investigations, for comparison to constructed export price sales, the Korean expenses were deductedfrom normal value, but there was no upward  adjustment to normal value.  Because all expenses
associated with conditions and terms of sale in the United States had been deducted in order to
construct the export price, there were no US expenses to add to normal value.
13. Did those adjustments affect PO SCO’s dumping margin?  Yes.  Were they unfair?  No.  Why
does Korea think they were unfair?  Korea argues that they were unfair because the bad debt was
unprecedented and unpredictable, but as I noted ear lier, the record established that POSCO has, in
fact, incurred bad debts and accounts for bad debt in its normal accounting records.  Therefore,
POSCO is no stranger to bad debt.  Korea also argues that it is unfair to assume that differences in bad
debt expense affect price comparability because, for example, POSCO might have elected to cover theUS expense by raising prices in Korea.  Unde r that reasoning, POSCO could exploit the Korean
market in order to finance low prices in the United States.  But, if POSCO made such a choice, that is
dumping as defined in the Agreement, and the United States is entitled to grant its domestic industry
relief when, as in this case, it is injured by the dumped imports.
14. Judging from the submission of the European Union (EU) and Korea's statement today, there
also appears to be a misunderstanding of our interpretation of the phrase “conditions and terms ofWT/DS179/R
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sale” in Article 2.4.  The United States agrees with the EU and Korea that not every SG&A expense
represents a condition of sale within the meaning of Article 2.4.  We stated in our submission that,
based on an ordinary meaning, it is permissible to interpret “conditions” of sale to include the
“circumstances under which the sales are made.”  By that we mean the circumstances directlyconnected to the sales under investigation, not general conditions.  The United States also agrees that
there is a close relationship between the word “conditions” and the word “terms.”   But, it would be
contrary to customary rules of treaty interpretation to render one or the other redundant.  Although
both relate to the contract between the parties, it is  the view of the United States that together they
encompass the terms of the contract and all expenses that are incurred as a direct result of the salestransactions under investigation – including bad debt.
15. Where the United States disagrees with Korea and the EU is when they attempt to distinguish
bad debt from other conditions and terms of sale, such as credit and warranty expenses.  The EU
appears to concede that credit and warranty expenses represent “conditions and terms of sale” withinthe meaning of Article 2.4.  The EU also acknowledges that, like bad debt, the eventual cost of
extending a warranty is not known at the time of sale.  However, the EU would distinguish warranty
expense on the grounds that the warranty is part of the contract and influences the purchaser’s
decision.
16. It is equally true, however, that payment terms are part of the contract and can influence the
purchaser ’s decision.  Therefore, a seller’s agreement to sell on credit is no different from an
agreement to provide a warranty.  In one case, the seller agrees to provide a warranty and accepts the
risk of having to repair or replace the merchandise under that warranty.  In the other case, rather than
demanding payment on delivery, the seller agrees to sell on credit –  for example, agreeing to acceptpayment in 30 days – and the seller accepts a credit expense, including the risk of non-payment.  In
the case of both selling under warranty and selling on credit, the seller accepts the risk of incurring the
expense as part of the bargain.
17. Also, Korea makes a point of saying that bad debt is outside the exporter's control and,
therefore, is not a proper adjustment under Article 2.4.  Bad debt expense is not entirely outside the
seller's control.  The seller can decline to sell on credit and establish sound credit practices.  This isanalogous to the seller's control over what, if any, warranty is offered and establishing sound quality
control measures to minimize warranty claims.  In both cases – selling on credit and selling under
warranty – there is some control, and some inherent risk.  This type of contingency expense is
routinely accounted for in company books and records – including bad debt expense.
18. Japan also concedes that anticipated expenses affect price and, therefore, can affect price
comparability within the meaning of Article 2.4.  Japan even acknowledges that bad debt expense
may be reflected in POSCO’s future US prices.  In its view, however, there is no evidence that
POSCO should have anticipated the bad debt expense at issue here.  That is not the case.
19. POSCO agreed to sell to its US customer on credit and in doing so accepted the risk of non-
payment as a condition of sale.  As I stated previously, that in itself is sufficient to warrant including
bad debt in an Article 2.4 adjustment.  In addition, the evidence before the United States showed that
POSCO has previously incurred bad debts and mainta ins bad debt accounts.  In fact, POSCO reported
bad debt expense for US sales through its Korean affiliate, POSTEEL, as well as the bad debt incurredby its US affiliate, POSAM.  Therefore, even under Japan’s analysis, the evidence is more than
adequate to provide a reasonable basis to conclude that POSCO should anticipate bad debt expense as
a condition of sale and to take that expense into account in the price comparison.
20. Korea, and Japan as well, also argues that the United States was required to establish a
“difference” in bad debt expense in the US and Korean markets in order to justify the adjustment.
That argument simply makes no sense given the manner in which the adjustment is made.  As IWT/DS179/R
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explained previously, all expenses related to the conditions and terms of sale in the home market are
deducted  from normal value, then the expenses related to conditions and terms of sale in the United
States are added to normal value.  There is no need to compare each individual expense before
making the adjustment.  If there is no difference between the two markets with respect to a particularexpense, the adjustment has no effect because the deduction and the addition attributable to that
expense are identical.  Mathematically, an aggregate adjustment and an expense-by-expense
adjustment are identical; in either case only differences  in conditions and terms of sale in the two
markets are eliminated.
21. In sum, although reasonable minds may differ on what constitutes “conditions and terms of
sale ” within the meaning of Article 2.4, there is no rational basis for finding that the interpretation of
the United States is not permissible.  The evidence provides more  than adequate support for including
bad debt in the adjustment for differences in conditions and terms of sale, and the adjustment was
performed in a manner consistent with Article 2.4.  Therefore, in accordance with Article 17.6, thepanel must find the United States’ treatment of bad debt to be in conformity with the Agreement.
22. I would also like to address briefly Japan’s argument that the United States' deduction of the
allocated portion of the bad debt expense in constructing export price was inconsistent with
Article 2.3.  I believe that argument was echoed by  Korea today.  Because Korea has not made a
claim under Article 2.3, Japan’s argument is obviously irrelevant.  It is notable, however, that it also
has absolutely no basis in the text of Article 2.3.
23. As I have explained here this morning, and we  explained in our submission, the United States
constructed export price by starting with the price to the first unaffiliated purchaser and deducting allof the expenses incurred in connection with the resale by POSCO’s US affiliate, POSAM, including
an allocated portion of POSAM’s bad debt expense, and an amount for profit.  The result is a
constructed price between the exporter and the affiliated importer.  That methodology is reasonable
and consistent with the object and purpose of Article 2.3.
24. In explaining this methodology the United States also noted that the fourth sentence of
Article 2.4 envisions such a methodology, although the language of Article 2.4 is neither mandatorynor exclusive, as Japan suggests.  Nevertheless, the methodology used by the United States is
consistent with the guidance provided in Article 2.4.
25. Finally, the United States would like to respond to Japan’s allegation of bias in the US
methodology, which is also implied, perhaps more gently, in Korea's argument that the United Statesdeparted from its prior practice .  Aside from the fact that Japan's allegation is baseless, it is also
underscores the irony of this case.
26. The basis for Japan's allegation is a distorted reading of a US decision in a case concerning
imports of Brazilian steel.  In the Brazilian case, the exporter claimed that an interest expense shouldnot be imputed on certain unpaid sales because there was no basis to assume that the exporter would
ever be paid.  The burden was on the exporter to prove its claim that the sales were uncollectible.  The
exporter’s claim was contradicted by evidence that it continued to sell to this customer on credit,
unlike the present cases where the evidence established that POSCO had ceased selling to the
bankrupt customer on credit.  In the Brazilian case there was also no accounting evidence of a baddebt, such as we have in the present cases.  I would like to make a point about Korea's repeated
reference to these as "unpaid sales."  The evidence shows that POSCO took a direct write-off for these
sales.  Assuming that POSCO keeps its accounting records in accordance with generally accepted
accounting principles, it could not write off the debt unless it deemed it to be uncollectible.  In the
Brazilian case, the United States ultimately determined that, absent additional evidence to support theexporter’s claim that this was an uncollectible debt, we had no basis to conclude that these were bad
debts.  A fair and objective reading of that case, therefore, demonstrates that the result was based onWT/DS179/R
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the facts, not a biased methodology, and that the facts differed significantly from the cases at issue
here.
27. The irony in the present case is the fact that the United States’ current methodology for
treating bad debt expense dates back to a 1989 decision by the US Court of International Trade in
which the court agreed with Korean producers of color television receivers that bad debt was a direct
selling expense for which a circumstance of sale adjustment must be made.  It is now standard
practice to include US and home market bad debt in the circumstance of sale adjustment.  In many
cases, some of which are cited in our submission, that adjustment has benefitted the exporter.  Onecannot fail to see the irony in the fact that Korea is now asking this panel to invalidate the very
practice its exporters fought for and won in US court.
III. WEIGHTED AVERAGES
28. I would like now to turn to the issue of multiple averaging periods.  This issue concerns how
the United States addressed the free fall of the Korean won in late 1997.  The guiding principle
underlying the United States’ ultimate decision was that, consistent with the Agreement, the dumping
analysis should not be distorted by exchange rate volatility.  That principle led to two separate and
distinct methodological decisions.
29. The first methodological decision concerned the selection of exchange rates consistent with
Article 2.4.1.  It was apparent that the United St ates’ normal currency conversion methodology, which
tests daily exchange rates against a rolling average benchmark to detect –  and ignore –  fluctuations,
would have misread the precipitous devaluation as a fluctuation, resulting in the use of the higher,pre-devaluation benchmark rate.  Thus, the United States agreed with POSCO that the normal
exchange rate methodology could have an unintended effect on the dumping analysis that would have
overstated POSCO's dumping margin.
30. To eliminate that unintended effect, the United States altered its normal methodology so that
daily rates were used until rates stabilized, at which point testing for fluctuations was resumed,
although this testing used a benchmark comprised on ly of post-devaluation rates.  That methodology
for determining exchange rates is entirely consistent with Article 2.4.1, and was very favorable to
POSCO.
31. The second methodological issue concerned what transactions were comparable for purposes
of performing a comparison of weighted-average export price and normal value, consistent withArticles 2.4 and 2.4.2.  Article 2.4 recognizes that numerous factors such as physical characteristics of
the merchandise, levels of trade and time can affect the comparability of export price and normal
value.  Thus, taking these factors into account in defining and comparing groups of comparable
transactions is consistent with the object and purpose of Article 2.4.
32. Korea, this morning, has clarified that it agrees that multiple averages are permissible.  Korea,
however, has suggested that multiple averages are only permissible for level of trade and physical
differences, consistent with Article 2.4.  But Korea ignores the fact that Article 2.4 also recognizes
that time is a factor that affects price comparability.  Like physical differences and level of trade, time
can be a factor in constructing weighted average groups.
33. Normally it is reasonable to conclude that the timing of sales transactions during the period of
investigation does not affect their comparability.  However, in certain situations market conditions
may differ so dramatically at different times within the period of investigation that it is necessary --
and certainly reasonable -- to divide the period and compare averages for each sub-period to avoidcreating a distortion in the dumping analysis.  The most common example of such a situation is where
the exporting country is experiencing extremely high  rates of inflation.  Creating monthly or quarterlyWT/DS179/R
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averaging periods eliminates any distortion in the dumping analysis as a result of high inflation over
time.
34. The precipitous devaluation of the Korean won presented an analogous situation.  The United
States determined that the devaluation was a dramatic change that rendered pre- and post-devaluation
transactions incomparable.  Accordingly, separate weighted-averages were warranted.  That decision
ensured that the dumping analysis would accurately reflect whether and to what extent dumping had
occurred during the period of investigation, both before and after the devaluation.  In contrast,
comparing pre- and post-devaluation sales would have presented a picture distorted by exchange ratevolatility.
35. Despite the logic of that decision, Korea argues that it was inconsistent with prior US
administrative decisions.  As noted previously, the purpose of this panel is to address consistency of
the US measures with the Agreement, rather than with domestic law or practice.  Nevertheless, areading of the case relied on by Korea as evidence of this inconsistency reveals that the United States
explicitly declined to address the issue of separate averaging periods in that case because it had no
effect on the dumping analysis given the facts.
36. In sum, as the result of a thoughtful, logical analysis, the United States established a
reasonable methodology, consistent with Articles 2.4,  2.4.1, and 2.4.2, which prevented the
devaluation of the Korean won from distorting the dumping analysis.  The results of that methodology
do not overstate the margin; they accurately reflect the substantial dumping that actually occurred
during the period of investigation.
IV. LOCAL LETTER OF CREDIT SALES
37. The final issue that we are addressing relates to  the local sales.  Korea went on at length this
morning on the facts of this issue.  Those facts differ from what POSCO presented during the
investigation.
38. The issue of local letter of credit sales is a question of fact.  Because the facts supported a
reasonable conclusion that these sales are in won, it is beyond question that the United States' decision
to convert the won price to dollars on the exchange rate in effect on the date of sale is consistent with
Article 2.4.1.  I would like to review the facts and the evidence that was before us, particularly how
the facts unfolded in the investigation.
39. In plate in coil, which was the earlier of the two cases, the United States originally excluded
these sales from normal value because it was unclear whether they were, in fact, domestic sales.  We
subsequently included them in normal value because POSCO reported that they were, in fact, sales
between POSCO and customers in Korea, for consum ption in Korea.  POSCO also stated that the
sales were paid in won and reported the won price on the invoice in its listing of home market sales.
40. Later in the plate in coil investigation, POSCO submitted dollar prices for these sales and
argued that we should use the dollar prices instead of the won prices originally reported.  They
provided no explanation or evidence other than an assertion that the prices were set in dollars.
41. At the plate in coil verification, the United States confirmed that, although the dollar amounts
POSCO had reported were on the invoices, the w on amounts which are also on the invoices matched
what was reported in POSCO’s original sales listing and what was recorded in the company’s
accounts receivable.  In short, POSCO failed to substantiate its claim that the prices for these sales
were set in dollars rather than won.  The United States, therefore, took the verified won price reportedby POSCO and converted it to dollars in accordance with Article 2.4.1.WT/DS179/R
Page 282
42. Similarly, in the later investigation on sheet and strip, POSCO reported the local letter of
credit transactions as sales between POSCO and customers in Korea, for consumption in Korea.
POSCO also stated again that the sales were paid in won and reported the won price, which is on the
invoice, in their listing of home market sales.  Ag ain, it was later that POSCO provided dollar prices
for these sales, as it had in SSPC, but it was not until verification that POSCO attempted to
substantiate its claim that the prices for these sales were set in dollars, not won.
43. At verification – which I will point out is fairly late in the investigation process – the United
States confirmed that the won amounts on the invoices for these sales matched what was reported inPOSCO’s original sales listing and what was recorded in the company’s accounts receivable.  In
addition, POSCO presented for the first time some  evidence that the won amounts reflected on the
invoices and accounts receivable entries did not reflect the actual amount of won received.  The
United States was able to trace a few transactions and confirm separate accounting entries for
exchange rate gains and losses that indicated that  POSCO received an amount of won other than the
amount reflected on the invoice.  However, POSCO ha d not provided any won values other than those
on the invoices.
44. Moreover, it is important to note that the evidence that the won amount received differed
from the won amount on the invoice was never provid ed at all in the plate in coil investigation.
45. The United States weighed all of the evidence presented and concluded that the limited
information POSCO provided at verification did not constitute a sufficient basis to determine that
these sales were made in dollars.  Therefore, the United States used the verified won prices reported
by POSCO as the basis for normal value.  That decision was based on an objective assessment ofproperly established facts and the conversion of those won prices to dollars was consistent with
Article 2.4.1.
46. In contrast, Korea's arguments are inconsistent with both the facts and the Agreement.
Factually, Korea argues -- repeatedly I might add -- that the United States made a double conversion.
There was no double conversion.  There were home market sales for which won prices were reported
and verified.  The United States simply converted the reported won prices into dollars whencomparing export price and normal value, consistent with Article 2.4.1.
47. Korea also argues that Article 2.4.1 required the United States to avoid the currency
conversion because a "reasonable alternative" was available.  There is no support in the text of
Article 2.4.1 for that proposition.  Article 2.4.1 presup poses that a conversion is necessary and sets
forth rules for how that conversion is to be accomplished.
48. The evidence in these investigations supported the United States conclusion that these sales
were in won and, therefore, a conversion was necessary.  The United States made the necessary
conversion consistent with Article 2.4.1.  Therefore,  there is no basis for Korea's claim of a violation.
V. PROCEDURE
49. I would also like to address briefly Korea's cl aims of procedural violations.  Any objective
review of the record and procedural history of these investigations must lead to the conclusion that the
United States fully complied with its procedural obligations under the Agreement.
50. The parties had timely access to all information, including confidential information provided
under an Administrative Protective Order.  They commented on, briefed and argued all of these issues
during the course of the investigations and the United States addressed those arguments in the notice
of its final determination, providing the rationale for its decision.WT/DS179/R
Page 283
51. The fact that the United States changed its preliminary determination in certain respects does
not indicate a lack of process, but rather that the process works.  It demonstrates that the parties have a
meaningful opportunity to defend their interests and influence the outcome.  On some issues, the
United States agreed with POSCO -- a fair number of issues I might add.  On these particular issues,the United States simply found POSCO’s arguments unpersuasive.
VI. ARTICLE X:3 AND STANDARD OF REVIEW
52. Finally, with respect to Korea's argument on Article X:3 and standard of review --  Korea also
asserts a number of its claims under Article X:3 of GATT 1994, as well as under provisions of the
Agreement.  The Appellate body has recognized, however, that where a covered agreement
specifically addresses matters covered by a claim under Article X:3, the panel should consider the
more specific agreement first.  The panel should not presume that the antidumping agreement
authorizes unreasonable actions.  Thus, where a measure is found to be reasonable under theAntidumping Agreement, the panel should find it to  be reasonable also for purposes of Article X:3.
53. Throughout its submission, Korea strays from the language of the Agreement to discuss
consistency with US law, regulations, administrative practice and decisions by domestic courts.
Korea uses Article X:3 of GATT 1994 to justify these forays into domestic law.  To the extent Koreadesired rulings on the consistency of the decisions in these cases with US law, it was free to pursue
those claims in the US judicial system.  It is inappropriate to attempt to circumvent domestic review
through the WTO dispute settlement process.
54. Finally, Korea alludes to, and Japan ponders at length the now familiar arguments about
whether Article VI of GATT 1994 constitutes a derogation of other provisions of the GATT.  It is the
view of the United States that Article VI is an integral part of the rights and obligations embodied in
the GATT, and not an exception.  However, this argument is one which produces more heat than light.
As the Appellate Body noted in the EC Hormones case: “merely characterizing a treaty provision as
an ‘exception’ does not by itself justify a ‘stricter’ or ‘narrower’ interpretation of that provision than
would be warranted by examination of the ordinary meaning of the actual treaty words, viewed in
context and in the light of the treaty's object and purpose, or, in other words, by applying the normalrules of treaty interpretation.”  Moreover, one cannot brush aside the standard of review mandated by
Article 17.6 simply by characterizing Article VI as an exception.
55. If the United States' establishment of the facts was proper, and their evaluation unbiased and
objective, then the evaluation shall not be overturne d.  Further, to the extent there is any ambiguity in
a provision of the Agreement, that is, if the language of the Agreement could be read in more than one
way, the panel shall find a measure to be in conformity with the Agreement if it rests on any one of
the permissible interpretations.
56. I would like to clear up one point of confusion caused by our reference to a "correct"
interpretation.  A "correct" interpretation is a permissible interpretation.  The point we were
attempting to make – perhaps inartfully – is that if a determination is based on a permissible
interpretation, it must be sustained.WT/DS179/R
Page 284
VII. SUMMARY
57. In summary, Korea has failed to meet its burden to make a prima facie  case of a violation.
The United States' final decisions on these issues were based on objective assessments of the facts andpermissible interpretations of the Agreement.  Therefore, there is no basis for the panel to find the
measures at issue inconsistent with the Agreement.
VIII. CONCLUSION
58. We look forward to answering any questions the panel may have.WT/DS179/R
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ANNEX 2-3
QUESTIONS FROM THE UNITED STATES TO KOREA
FIRST MEETING OF THE PANEL
(13 June 2000)
Q.1. In paragraph 26, Korea states that the words "conditions" and "terms" are largely
synonymous, implying that there are some distincti ons.  Please confirm whether, in Korea’s view,
there is a difference in meaning between the word "conditions" and the word "terms" as used in
Article  2.4.
Q.2. In its oral statement, in reference to the second table on page 27 of Korea’s First Submission,
Korea stated that the United States calculated "invoice price in won" (i.e., column D of the table).
Please confirm whether the United States calculated this figure, or whether this figure was reported to
the United States by POSCO in its questionnaire  response, and recorded in POSCO’s books and
records.WT/DS179/R
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ANNEX 2-4
RESPONSES OF THE UNITED STATES TO QUESTIONS
POSED BY THE PANEL AND BY KOREA
FIRST MEETING OF THE PANEL
(29 June 2000)
CONTENTS
Page
I. RESPONSES OF THE UNITED STATES TO QUESTIONS
POSED BY TH E PANE L.....................................................................................................287
A. GENERA L....................................................................................................................28 7
B. MULTIPLE AV ERAGING..........................................................................................288
C. TREATMENT OF UNPAID SA LES...........................................................................288
D. CURRENCY CO NVERSI ON......................................................................................294
(a) The SSPC investigation......................................................................................295(b) The SSSS Investigation ......................................................................................298
II. RESPONSES OF THE UNITED STATES TO QUESTIONS POSED BY KOREA.....305
A. UNPAID SALES ..........................................................................................................305
B. MULTIPLE AV ERAGING..........................................................................................308
C. DOUBLE C
ONVERSION OF LOCAL SALES ...................................................................311
NOTE:  In this submission, including the exhibits, the US has placed information which POSCO has
previously designated as business proprietary information in brackets ("{ }").  This information has
been omitted and the brackets left in the text."{ }"WT/DS179/R
Page 287
I. RESPONSES OF THE UNITED STATES TO QUESTIONS POSED BY THE PANEL
A. GENERAL
Q.1.  For the United States .  Does the United States agree with Korea that the first sentence of
Article 2.4 represents a "free-standing and substantial" rule?  If not, please explain your view,taking into account the differences between the Tokyo Round AD Code and the WTO AD
Agreement  in this respect.
1. The United States does not agree with Korea.  It is the view of the United States that the first
sentence of Article 2.4 cannot be divorced from the context of the remainder of Article 2.4.  While thefirst sentence of Article 2.4 establishes the requirement to make a "fair comparison", the remainder of
Article 2.4 defines  how "this comparison" is made.
2. The predecessor to Article 2.4, Article 2.6 of the Anti-dumping Code, also defined what was
required " [i]n order to effect  a fair comparison" (emphasis added).  The "in order to effect" language
of this provision was ambiguous.  One possible readin g of this language was that the fair comparison
was not required, but if a Member wished to make one, it should do so as instructed in Article 2.6.
Thus, all of Article 2.6 could have been read as non-mandatory. In other words, Article 2.6 clearly
mandated how to make a fair comparison, but the fair comparison itself was not clearly mandated.
3. That ambiguity was eliminated in the current Agreement by adding the first sentence of
Article 2.4, which makes explicit the requirement to make a fair comparison.  However, the remainder
of Article 2.4, like its predecessor, defines the comparison.  Thus, Article 2.4 of the current
Agreement is clearly mandatory – it requires members to make the fair comparison, and instructs
them how to do it.  This interpretation of Article 2.4 is also consistent with its drafting history.  Inwhat is known as the "Dunkel Draft", Article 2.4 read:
"A fair comparison shall be made between the export price and the normal value.  The
two prices shall be compared  at the same level of trade. . . ." (Emphasis added).
4. Arguably, that formulation was ambiguous as to whether the requirement to make a fair
comparison was free standing.  In the final draft, however, the language was amended to read:
"A fair comparison shall be made between the export price and the normal value.
This comparison  shall be made  at the same level of trade. . . ."  (Emphasis added).
5. Substitution of the phrase "this comparison" establishes a reference back to the subject of the
prior sentence, i.e., a fair comparison, which is what is being defined.
6. Further support for this reading of Article 2.4 is found in the first sentence of Article 2.4.2
which refers to "the provisions governing fair comparison in paragraph 4."  The plural term
"provisions," as well as the reference to "paragraph 4," rather than "the first sentence of paragraph 4,"
make clear that this clause refers to the entirety of Article 2.4.  Further, this clause clarifies that the
entirety of Article 2.4, and not just the first sentence, constitutes the provisions which "govern fair
comparison."
7. In light of the object and purpose of the AD Agreement, there is no basis for an interpretation
of Article 2.4 that divorces the obligation in Article 2.4 to make a fair comparison from the
allowances required to establish price comparability.  In accordance with Article 2.1, a dumping
analysis is based on a comparison of prices for sales in the export market to prices for sales in the
home market.  By requiring due allowance for all factors affecting price comparability, Article 2.4
assures that the prices used to establish dumping in Article 2.1 are "comparable," i.e. a comparison ofWT/DS179/R
Page 288
such prices is fair.  There is simply no logic in asserting that even where transactions in the two
markets are rendered comparable in all respects affecting price, comparing them in a dumping
analysis could be unfair.1  The concept of fairness and the concept of comparability are inseparable.
B. MULTIPLE AVERAGING
Q.4. For the United States .  Please explain how, in the view of the United States, exchange
rates can affect the comparability of export pric es and prices in the market of the exporting
country.
8. Prices can only be compared when they are expressed in a common currency.  Therefore,
when comparisons of prices are made in respect of sales made in different currencies, exchange rates
are an essential element in establishing prices in one of the markets for purposes of comparison with
prices in the other market.  Converting to a common currency, however, does not automatically render
comparable all prices in the two markets irrespective of the time at which those sales were made.Even if no conversion of prices is necessary, it does not follow that it would be appropriate to
compare prices without regard to the timing of the sales being compared.  Regardless of whether the
comparisons involve prices originally denominated in the same currency in both markets or the
comparisons involve converted prices in one of the markets, comparisons can be affected greatly by
the relative timing of the sales compared.  Therefore, time must be a factor considered by authoritiesin determining what prices should be compared.  Indeed, Article 2.4 requires that time be taken into
account when comparing prices by requiring that comparisons be as contemporaneous as possible.
9. All price comparisons, whether made on an average to average basis or on a transaction to
transaction basis, must take into account the provisions of Article 2.4.  In particular, Article 2.4requires that comparisons be made in respect of sales made at as nearly as possible the same time.
Hence, Article 2.4 recognizes that time is a factor that authorities must consider in determining what
prices should be compared.  Moreover, not only does Article 2.4 recognize that time affects price
comparability, it further requires that comparisons be made between sales separated by as short a
period of time as possible.  Therefore, in general, comparisons between sales separated by a short
period of time are preferred  over comparisons between sales separated by a longer period of time.
10. Neither Article 2.4 nor any other Article of the AD Agreement specifies an amount of time
between sales that is appropriate or allowable for price comparison purposes.  Accordingly,
authorities are obligated to determine how best to implement the "same time" provision of Art. 2.4.  In
light of Article 2.4's preference for comparisons between prices in respect of sales made as nearly as
possible the same time, if authorities choose to co mpare sales made more distant in time when it is
otherwise possible to make comparisons that are more contemporaneous, they must ensure that the
intent of Article 2.4 is not violated, that is, that time itself is not a factor that affects the price
comparisons.  Nonetheless, while authorities may determine under appropriate circumstances to
compare sales across wider, rather than narrower, spans of time, this does not mean that authorities
are obligated to make comparisons between sales further apart in time rather than between sales madecloser in time.
C. T
REATMENT OF UNPAID SALES
Q.1. For both parties .  Were all of the sales to ABC Company in the plate and sheet
investigations made through POSAM?  If not, please provide details.
                                                     
1 Similarly, holding the requirement of a fair comparison separate from the requirement of
comparability implies that a comparison of two prices which are not comparable could be fair, clearly an absurdresult.WT/DS179/R
Page 289
11. Yes, in both cases all of the sales to  ABC Company were made through POSAM.
Q.2. For both parties .  Was there any evidence/argument in  the record of the plate and/or
sheet investigations relating to whether POSCO had any knowledge of ABC company’sprecarious financial condition at the time it made  the sales in question?  If so, please specify.
12. There was no evidence in either case that PO SCO had any knowledge at the time of sale that
ABC Company was in precarious financial condition.  There was, however, evidence that POSCO had
prior bad debt experience.  See response to question 3.
Q.3. For both parties .  Does the record in the plate and/or sheet investigations contain any
information regarding non-payment by either US or Korean customers other than ABC
company?  If so, please specify.
13. The records of these cases contain substantial evidence of bad debts in POSCO’s books and
records.  First, POSCO’s chart of accounts contains a number of bad debt accounts, including
accounts for "allowance for bad debt accounts re ceivable" and "allowance for bad debt long term
receivable."
2  Also, both POSCO and POSTEEL have an account called "bad debt expenses".3
Although POSCO provided no explanation of these accounts, it is reasonable to conclude, based on
generally accepted accounting principles (GAAP), that these are reserve accounts which reflect
POSCO's experience with bad debt in the form of unc ollectible accounts receivable.  In fact, POSCO
specifically reported that it has incurred bad debts both on its own domestic and export sales, as well
as on domestic and export sales made through its Korean affiliate, POSTEEL.4
14. In the SSPC investigation, in POSCO’s response to the supplemental questionnaire, filed on26 August 1998, POSCO reported that, during the period of investigation, it incurred bad debt
expenses of {  } on its export and domestic sales.
5  Further, in the same supplemental response
POSCO reported that POSTEEL had incurred bad debt expenses on its export sales in the amount of
{  } during the period of investigation.6    That amount does not include the bad debt incurred as a
result of non-payment by ABC company. Finally, in its response to section B of the questionnaire,
submitted on 20 July 1998, POSCO reported that POSTEEL had incurred bad debt expenses on itshome market sales in the amount of {  } during the period of investigation.
7
15. The amounts of bad debt expenses reported in the SSSS  case differ slightly from those
reported in the SSPC  case because the periods of investigation were not the same, and thus the periods
for which POSCO reported bad debt were not the same.  In its questionnaire response in the SSSSinvestigation, dated 23 September 1998, POSCO repo rted that its own bad debt expenses for the
period of investigation on both domestic and export sales were {  }.
8  In the same response, POSCO
reported that the bad debt expense of POSTEEL on domestic sales was {  }.9  Finally, in its response
                                                     
2 See, US Ex. 20.
3 US Ex. 37.  Chart of Accounts from sec. A
4 Note that POSCO was unable to separately identify the source of its bad debts.  Consequently, the
figures reported by POSCO and discussed in the response to this question are for all products.  POSCO did,however allocate a portion of these expenses to US and home market sales of the subject merchandise.
5 US Ex. 38.  POSCO reported a single figure for both export and domestic sales.  POSCO's records
gathered at verification reveal the actual amount of this bad debt expense to be {  } won.  US Ex. 39.
6 US Ex. 38.  The POSTEEL records gathered at verification reveal that the actual amount of
POSTEEL's bad debt expense on export sales, which are designated as POSTRADE sales, was {  } won.  US
Ex. 39.
7 US Ex. 40.
8 US Ex. 41.
9 Id.WT/DS179/R
Page 290
to the supplemental questionnaire, filed on 23 November 1998, POSCO reported that POSTEEL’s bad
debt expense on export sales was {  }.10
Q.4. For the United States .  The United States contends that, in respect of sales through
POSAM, the United States deducted an allocated portion of the US bad debt expenses as part of
the construction of the export price.  Please indicate where in the reco rd of the investigations
this statement can be verified.
16. Although the SSPC final determination does not specifically mention this deduction, the
SSSS final determination specifically stated with respect to constructed export price sales: "we
deducted a per unit direct selling expense to account for bad debt losses incurred by POSAM for sales
made to a bankrupt customer."11
17. The actual deduction itself can be seen in the analysis memoranda prepared for the finaldeterminations.  The analysis memorandum prepared for the final determination in SSPC is dated
19 March 1999.
12  Attachment 1 to this memorandum lists the unpaid sales of SSPC, and includes a
total amount of the bad debt.13  The total amount of bad debt is divided by the total quantity of US
sales to arrive at a per-unit expense of {  }.  This is the portion of the bad debt expense allocated to
each sale, whether export price or constructed export price.  On page 8 of the memorandum, thisallocated amount is added to other direct selling expenses to arrive at a total per-unit amount of direct
selling expenses on US sales.  This amount is assigned the variable DIREXPU.  On page 9 of the
memorandum, under the designation  Constructed Export Price ("CEP") Calculation , in calculating
constructed export price, the DIREXPU variable, which, as noted above, included the allocated
amount of bad debt, is one of the variables deducted from the gross unit price (designated as"GRSUPRU") to arrive at the net price ("NETPRIU"), i.e. the constructed export price.
18. Note that the variable DIREXPU is not one of the variables deducted in the Export Price (EP)
Calculation , also on page 9 of the memorandum.  This is because, as the United States has explained
in its First Submission and oral statement, the export price for sales made directly to independent US
buyers was based on POSCO's actual invoice price to its independent customers;  there were no
deductions from that price for selling expenses, including bad debt.  Thus, Korea’s assertion that theUnited States reduced all export prices to account for bad debt is incorrect.  For the comparison of the
export price for these direct sales, direct selling expenses, including the bad debt, were part of the
"circumstances of sale" adjustment made to normal value.
                                                     
10 US Ex. 42.
11 SSSS Final Determination , at 30668.
12 See, Memorandum to the File from Carrie Blozy, Case Analyst, entitled Analysis for the final
determination in the investigation of stainless steel plate in coils from Korea - Pohang Iron & Steel Company ,
dated 19 March 1999 (US Ex. 35).
13 The United States calculated the amount of the bad debt expense in accordance with the method used
by POSAM in its accounting records.  Because of  the method used by POSAM to account for these
uncollectible receivables – the reversing entries to acc ounts receivable and sales – the actual expense recognized
by POSAM was the cost of the goods sold, i.e, the transfer price from POSTEEL to POSCO, rather than the
amount of the receivable.  SSPC POSAM Verification Report at 8 (US Ex. 9);  SSSS POSAM Verification
Report at 6-7 (US Ex. 10).  The United States also based the calculation of the bad debt expense on the cost of
the goods sold.  However, because transfer prices betw een associated companies are deemed to be unreliable,
the United States constructed the value of the merchandise POSAM purchased from POSTEEL.  The result wasa reasonable valuation of the bad debt expense as accounted for in POSCO’s records, which POSCO did notcontest.WT/DS179/R
Page 291
19. The analysis memorandum for SSSS tells a similar story.14  Attachment 1 to this
memorandum lists the unpaid sales of SSSS, and includes a total amount of the bad debt.  The total
amount of bad debt is divided by the total quantity of US sales to arrive at a per-unit expense of {  }.
On page 9 of the memorandum, this allocated portion of bad debt is added to other direct sellingexpenses to arrive at a total per-unit amount of direct selling expenses on US sales (again referred to
by the variable "DIREXPU."  On page 10 of the memorandum, under the designation Constructed
Export Price ("CEP") Calculation , the DIREXPU variable is one of the variables deducted from the
gross unit price to arrive at the net price, i.e. the constructed export price.
Q.5. For the United States .  Korea states (oral statement at the first meeting, para. 25) that
the United States does not argue in its first submission that unpaid sales were an "other
difference []. . . demonstrated to affect price comparability".  Is Korea correct that the
United States does not advance such an argument?
20. Because it is the view of the United States that bad debt falls within the meaning of
"conditions and terms of sale" in Article 2.4, we have not relied on the reference in Article 2.4 to
"other differences" affecting price comparability.  That does not constitute a concession that bad debt
could not be treated as an  "other difference" demonstrated to affect price comparability, consistent
with Article 2.4.
Q.6. For both parties .  Article 2.4 provides that "[d]ue allowance shall be made in each case,
on its merits, for differences which affect price comparability, including differences in
conditions and terms of sale . . . ."  The use of the term "on its merits" could be taken to suggest
that differences in conditions and terms of sale will not always affect price comparability.  Doyou agree?  Please explain your answer.
21. It is the view of the United States that the phrase "on its merits" does not suggest that
differences in conditions and terms of sale will not always affect price comparability.  Article 2.4
defines the phrase "differences which affect price comparability" to "include" those in the illustrative
list that follows.  Thus, the differences expressly listed – such as differences in conditions and terms
of sale – are differences which affect price comparability.  What must be determined and quantified
"on the merits" of each case is what allowances are necessary to account for such differences ( e.g., it
is necessary to determine whether there are physical differences and, if so, what is the proper
adjustment to account for such differences), not whether such differences affect price comparability.
Q.7. For the United States .  The United States states in its first submission (para. 84) that
"[s]elling expenses such as warranty costs and bad debt not only reflect conditions of sale in the
market, they are also an element of price.  Th erefore, differences in such selling expenses affect
price comparability."  Please provide furth er elaboration of the US view regarding when
differences "affect price comparability".
22. As clarified in our opening statement, it is the view of the United States that the conditions
and terms of sale are reflected in expenses that are directly related to the sale, i.e., but for the sale the
expense would not be incurred  – what the United States refers to as "direct" selling expenses.  Some
of these expenses relate directly to the terms of sale ( e.g., installation expense), others relate directly
to conditions generated by the terms of sale ( e.g., selling on credit generates bad debt expense).
Examples of direct selling expenses include expenses for warranty, credit (including bad debt) and
technical assistance.  Article 2.4 expressly includes differences in conditions and terms of sale in the
illustrative list of differences that affect price comparability.  The United States, therefore, always
                                                     
14 See, Memorandum to the File from Maria Dybczak, Case Analyst, entitled Analysis for the final
determination in the Investigation of Stainless Steel Sheet and Strip in Coils from Korea - Pohang Iron & SteelCompany (“POSCO”) , dated 19 May 1999 (US Ex. 36).WT/DS179/R
Page 292
makes allowance for differences in direct selling expenses when comparing export price and normal
value.
Q.8. For the United States .  Article 2.4 of the ADP Agreement  requires that a Member make
due allowances for "differences which affect price comparability".  It could be argued that this
means that, where there are differences that shou ld affect the relative prices charged by an
exporter in his home market and export ma rket, the Member should make appropriate
adjustments.  Applying this approach to the case at hand, the logic of the United States’
adjustments in  respect of unpaid sales is that POSCO should be charging higher prices in theUS market than in the Korean market becaus e defaults are more likely for US purchasers than
for Korean purchasers.  Please comment.
23. Article 2.4 addresses differences between export price and normal value that affect price
comparability, including, inter alia,  differences in conditions and terms of sale.  In essence,
Article 2.4 requires that, if the transactions bein g compared are not identical in such respects,
allowance must be made to neutralize the differences.  When the differences affecting price
comparability have been eliminated, any amount by which the normal value exceeds the export price
is, by definition, dumping.
24. As we have explained in our submissions and our statement before this Panel, bad debt is a
direct selling expense, i.e., part of the conditions and terms of sale.  Sales made on credit carry an
inherent risk of non-payment.  Such risk may differ between the two markets being compared and
thus have different effects on prices in the two mark ets.  Because it is the only practical means – and a
method as reasonable as any other – of making a due allowance for any such difference, we base theallowance on the company’s actual bad debt experience in the two markets during the period of
investigation.
15  That is, we rely on the actual bad debt expenses the company recognizes with respect
to each of the two markets being compared.  The ev idence placed on the record in the cases at issue
showed that, during the period of investigatio n, POSCO actually recognized greater bad debt
expenses, as a proportion of sales, in the US market than in the Korean market.  This evidence would
indicate that POSCO should be charging higher pric es in the US market due to a greater proportion of
bad debt expenses.  Likewise, greater bad debt expenses in the home market would account for higherprices in the home market;  therefore the difference attributable to bad debt would not be attributable
to dumping.  That conclusion is implicit in the Article 2.4 requirement to adjust for such differences to
ensure price comparability.  As explained previously, through the circumstance of sale adjustment, the
United States neutralized any difference in bad debt expense and ensured that the price comparison
reflected whether dumping existed, not differences in the conditions and terms of sale.
Q.9. For both parties.  In its first submission (para. 65), the United States asserts that it is
Article 2.1 of the ADP Agreement, and not Article 2.4, that addresses what sales may be used to
establish the export price and normal value.  The United States further notes Article 2.1
expressly limits the determination of normal value to sales in the ordinary course of trade, that
there is no such limitation in respect of the export price, and that this absence of a limitation
must be interpreted as intentional. It could be argued that it follows that Article 2.1 precludes a
Member from excluding any export sales.  The United States however contends (para. 70) that it
may exclude export sales in certain circumstances.  Please comment.
25. Article 2.1 defines export price, without limitation, as "the price of the product exported from
one country to another."  It is the view of the United States that the absence of a limitation on the
determination of export price nevertheless permits exclusion of export sales in certain situations.  For
                                                     
15 This type of "snap shot" analysis is also us ed for other expenses that cannot be specifically
determined for the sales during the period of investigation because of the nature and timing of the expense, e.g.,
warranty and research and development.WT/DS179/R
Page 293
example, it would be inconsistent with the object and purpose of the AD Agreement to interpret
Article 2.1 to override Article 2.4.  Thus, if it would be virtually impossible or impracticable to
establish a normal value that is comparable, within the meaning of Article 2.4, to certain export sales,
it is necessary and appropriate to exclude those export sales from the dumping analysis.16  I t  i s ,
therefore, permissible to interpret Article 2.1 as permitting the exclusion of export sales in certain
situations.
Q.10. For Korea .  Korea argues that the "fair comparison" requirement of Article 2.4 of the
AD Agreement  requires a Member to exclude "atypical sa les" where the inclusion of those sales
would "distort the results" by increasing the ma rgin.  In Korea’s view, would a Member also be
entitled to exclude "atypical" export sales wh ere those sales would "distort the results" by
decreasing the margin?
26. As discussed in response to question 9, above, it is the view of the United States that export
sales may be excluded in certain circumstances.  The issue of whether a sale should be excluded
depends on the particular facts – not whether the exclusion of the sale increases or decreases the
margin of dumping.
Q.11. For Korea .  In the context of its "multiple averaging" claims, Korea emphasizes that the
language " all comparable export prices" precludes "multiple averaging".  Can this view be
reconciled with Korea’s position that the US DOC was required to exclude certain "atypical"
export prices from its dumping margin calculations altogether?
27. The United States does not agree with Korea’s interpretation of the cited language from
Article 2.4.2.  However, if the Panel were to conclude, as urged by Korea, that Article 2.4.2 requires
"one average" which takes into account "all data", logical consistency would dictate that the allegedly
"atypical" sales should not be excluded from the analysis.
Q.12. For the United States .  The United States observes (first submission, para. 71) that
companies, including POSCO, routinely establish reserve accounts for bad debt.  Did the
United States have before it in the record of the plate or sheet investigations any information
regarding precisely how POSCO and/or POSAM treated bad debt for accounting purposes?
Specifically, did POSCO and/or POSAM establish a reserve for bad debt?  If so, how was that
reserve calculated?  Did any such reserve distinguish between anticipated levels of unpaid sales
in different markets?
28. The record established that POSCO and POSTEEL,  which is responsible for all export sales,
maintain bad debt accounts for both domestic and export sales (see response to question 3), indicating
that the companies use a reserve accounting method.  Although POSCO did not provide specific
information about these accounts, such as how the reserves were calculated, under GAAP the reserves
should be based on POSCO’s bad debt experience.  POSCO had the ability to distinguish bad debt
expense on home market sales from bad debt expense on export sales, but it did not have the ability to
tie specific bad debt expense recognized during the period of investigation to particular products or
export markets.
29. With respect to POSAM, the record reveals that the company did not establish a bad debt
account.  Rather, when POSAM deemed the receivable s at issue to be uncollectible, it reversed the
accounting entries, effectively "writing off" the sales.
                                                     
16 In its first submission, the United States provided examples of such cases which involved small
volumes of defective merchandise, or further manufactur ed products.  See US First Submission, at footnote 68
and accompanying text.WT/DS179/R
Page 294
Q.13. In its oral statement, the United States  argued that POSCO effectively wrote off the
unpaid sales. Is the US referring to the issuing of negative invoices by POSAM (thereby
cancelling the sales made to the company that went bankrupt) or does the US have in mind
another event? In the view of the US, does the cancellation of the sales concerned preclude the
possibility that repayment of the amounts outstanding is obtained by POSCO through
bankruptcy proceedings?
30. In the view of the United States, POSAM's issuance of "negative invoices", represents the
write off of a receivable the company deems uncollectible, i.e., a bad debt.  We note that, although
POSAM used negative invoices as the accounting mechanism, these do not constitute "cancelled"
sales.  Generally, cancellation of a sale occurs before the transaction has been completed.  Once
delivery has been made, the obligation to pay arises, creating a debt.  Thus, by reversing the
accounting entries after the debt was established, POSAM was recognizing that the debt was
uncollectible, i.e., recognizing a bad debt expense.
31. In accordance with GAAP, a company must recognize and account for receivables that are
uncollectible.  A receivable may be deemed uncollectible, even though there is some possibility that
all or part of the amount owed may ultimately be recovered.  Bankruptcy of the debtor is generally
grounds for treating an unsecured debt as uncollectible.
D. CURRENCY CONVERSION
Q.1. For both parties .  The United States suggests (first submission, para. 182) that the
invoices for what Korea refers to as POSCO’s "dol lar-priced local sales" reflect a price both in
dollars and in won ("The reported won amo unts were reflected on POSCO’s invoices and
records").  See also  Final Determination in SSSS , p. 59536 (indicating that "for HM channel 2
sales the shipping invoice also shows the won pr ice").  Korea (first submission, para. 3.52) by
contrast suggests that the sales in question were invoiced only in dollars and that the invoice did
not reflect an amount in won.  In its oral statement at the first meeting, however, Korea
acknowledged that both dollars and won appeared on the invoices.  Please clarify whether the
invoices reflected a price in dollars only, or pr ices in both dollars and won, or whether this
varied depending on the invoices in question.
32. Korea’s initial statement contained in its first submission (para. 3.52) misstates the facts for
both cases.  No information on the record of the investigations supports the statement that the sales at
issue were invoiced solely in dollars.  All tax in voices issued to POSCO’s customers with respect to
local sales list both a won and dollar amount.17  Shipping invoices for local sales made to "channel 2"
customers also list both a won and dollar amount.18  The invoicing of the won amount is consistent
with the undisputed evidence in both investigations that POSCO is paid in won.
Q.2. For both parties .   To the extent that the some or all of the invoices reflected won as well
as dollar amounts, was the amount actually paid in won the same as the amount reflected in the
invoice?  Please provide details.
                                                     
17 5 January 1999 Sales Verification Report for POSCO in SSPC, at Exhibit 6. (ROK Ex. 6).  See also
6 April 1999 Sales Verification Report for POSCO in SSSS, at 14 (ROK Ex. 19) and Exhibit 17 (ROK Ex. 46).
18 5 January 1999 Sales Verification Report for POSCO in SSPC, at Exhibit 23. (US Ex. 50). (For sales
in home market channel 1, POSCO’s customers contacted  POSCO directly to make purchases.  POSCO issued
both the shipping invoice and the tax invoice to these customers.  For sales in home market channel 2, customers
contacted POSCO’s subsidiary, POSTEEL, to make  purc hases.  For these sales, POSCO issued the shipping
invoice to the customer, while POSTEEL issued the tax invoice to the customer.  For home market sales inchannel 2, POSCO’s shipping invoice lists both a won and dollar amount.)  See 2 September 1998 Section AResponse in SSSS, at A-17 and A-18 (US Ex. 46);  See also 1 July 1998 Section A Response in SSPC, at A-14
and A-15. (US Ex. 37).WT/DS179/R
Page 295
33. In the SSPC investigation, POSCO reported the actual won amount listed on the invoice.
POSCO never claimed during the SSPC proceeding that the won amount listed on the invoice was not
the amount actually paid by the customer.  To the contrary, POSCO’s statements indicated just the
opposite.  POSCO stated that the "price in effect  on the date of shipment is the price for the
shipment."  Nothing on the record of the SSPC investigation indicates that the won amount paid by
the customer differs from the won amount on the invoice, which was the amount reported by POSCO
in its response.19
34. In the SSSS proceeding, the original information provided by POSCO was consistent with theinformation it provided and positions it took in SSPC.  Later in the proceeding POSCO provided other
information about local sales that was ambiguous or vague.  At verification in SSSS, the United States
examined one local sale and discovered a differ ence between the won amount on the invoice and the
won amount actually paid, which reflected the diff erence between the dollar/won exchange rates
between the date of sale and date of payment.
20
Q.3. For both parties .  Please provide a comprehensive st atement, supported by citations to
relevant portions of the record, as to exactly what evidence and arguments were put before the
USDOC and at what time in each investigation in  respect of the issue whether the "local sales"
were dollar or won sales.  Please address, inter alia , what evidence was placed before the
USDOC in each investigation regarding the rec eipt by POSCO of won amounts that differed
from any won amounts reflected in the invoices.
35. The following is a comprehensive review of the evidence and arguments placed before the
United States in each investigation.
(a) The SSPC investigation
36. From the evidence placed before it, the United States properly determined in the SSPC
investigation that the currency of POSCO’s local sales transactions was Korean won, not US dollars.
Throughout the course of the investigation POSC O never claimed that the won amounts received by
POSCO differed from the won amounts reflected in th e invoices and reported to the United States in
its response, and there was no evidence on the reco rd to suggest that was the case.  The evidence
unfolded as follows:
37. In its first questionnaire issued to POSCO, the United States requested that the company
report "all expenses and revenues in the currenci es in which they were incurred or earned."21  Th e
United States also requested information pertaining to, inter alia , the date of sale for home market
sales and the unit price for such home market sales.  Specifically, the United States stated that POSCO
is to "[r]eport the unit price recorded on the invo ice for sales shipped and invoiced in whole or in
part."22  The United States stated that "[t]his value should be the gross price for a single unit of
measure."23
                                                     
19 See the United States’ response infra , at question 3  for a complete examination of the evidence and
arguments on the record in the SSPC investigation.
20 See the United States’ response infra  at question 3 for a comprehensive examination of the evidence
and arguments on the record of the SSSS investigation.
21 Anti-dumping Questionnaire, at B-20. (US Ex. 2).
22 20 July 1998 Section B-D Response, at B-22 (repeating the question from the original questionnaire).
(US Ex. 40)
23 Id.WT/DS179/R
Page 296
38. The United States also requested that POSCO report the "terms of payment" for its home
market sales and to "indicate whether the payment terms are stated or coded on each invoice or,
otherwise, how customers agree to payment terms."24  With respect to prices, the United States also
asked POSCO to report "any price adjustments made for reasons other than discounts or rebates" andto "[s]tate whether these billing adjustments are reflected in your gross unit price."
25
39. In its 1 July 1998 response, POSCO stated that "[t]he date of sale for all domestic sales is the
date of the shipping invoice, whether categorized as a domestic or local sale."26  POSCO further stated
that the [t]he price in effect on the date of shipment is the price for the shipment."27  I n  i t s
20 July 1998 response where it reported transaction prices for home market sales, POSCO stated that
it has "reported the actual invoiced price per metric ton in Korean Won.  In the home market, POSCO
made local letter of credit sales ("local sales") and domestic sales.  All sales were paid in Korean Won
and have been recorded in Korean Won on the database."28
40. In this investigation, the company consistently presented these as won sales.  In discussing thepayment terms, POSCO simply stated that "P OSCO’s home market customers pay on an open ( i.e.,
revolving) account basis that is the normal method of payment in the Korean domestic market."
29  In
response to the question about billing adjustments, POSCO noted generally that the adjustments were
made "to correct the price on the original invoice."30  POSCO, however, reported no adjustment to the
local sales price for any difference between the invoice price and the amount of payment.
41. On 26 August 1998, POSCO submitted revised computer databases to reflect changes in
response to the United States’ supplemental que stions.  POSCO also made "minor corrections" to
errors discovered by the company in preparing th e supplemental response.  In that response, POSCO
noted that it "has also added the US dollar sales price for local sales, as reflected on the invoice, for
reference purposes ."31
42. Later in the proceeding, POSCO began to change its story.  On 16 October 1998, POSCO
submitted another revision of its databases to make corrections to cost information.  POSCO stated in
this submission that it also modified the home market sales to report local sales and related charges
"in the currency in which the sales and associated charges were incurred, i.e., US dollars."32  POSCO
stated that in prior submissions both the won and the US dollar prices were reported for local sales.
POSCO explained that "[a]ll charges, however, were calculated and reported based on the won."33  In
the October 16 submission, POSCO recalculated and reported all associated charges, such as indirect
selling expenses, "on the basis of a dollar price," rather than the won price earlier reported.34  In this
response, POSCO claimed that "the won price and the billing adjustments (also shown in won) are
included for reference purposes ."35  However, POSCO did not claim that the sales were not paid in
won, or that it received an amount other than wh at was reflected on the invoice.  In fact, POSCO
argued that "Won amounts should be converted to US dollars based on the daily exchange rate."36
                                                     
24 Id. at B-18.
25 Id. at B-23.
26 See, 1 July 1998 Section A Response, at A-14. (US Ex.37).
27 Id.
28 20 July 1998 Section B-D Response, at B-22 (footnote pertaining to duty drawback omitted). (US
Ex. 40).
29 Id. at  B-17 and B-19.
30 Id. at B-23.
31 26 August 1998 Section B-C Supplemental Response, at 1, n. 2 (emphasis added). (US Ex. 38).
32 16 October 1998 Section D Supplemental Response, at 1. (US Ex. 43)
33 Id.
34 Id. at D-2.
35 Id. at n. 3 (emphasis added)
36 Id.WT/DS179/R
Page 297
POSCO claimed that the changes were made "to allow the [United States] to properly analyze local
sales on a dollar basis in line with its practice,"37 apparently a reference to the Roses  exception, which
the United States found inapplicable.  POSCO further suggested that the United States "maintain the
dollar value of the local sales until the final steps of the calculation,"38 a statement which appears to
urge the United States to convert the dollar figures into won.
43. In its preliminary determination, the United States excluded POSCO’s local sales from the
calculation of normal value because it was unclear whether the sales were in fact, domestic sales, or
export sales.39  The United States preliminarily decided to disregard the sales because it found that
POSCO had "knowledge that these sales ar e not consumed in the foreign market."40
44. The US domestic industry immediately sought to have the United States’ preliminary
determination amended, arguing that the exclusion of local sales was a ministerial error.41  POSCO
agreed that the sales should be included in the normal value calculation, but noted, inter alia , that the
impact on the margin was roughly one percent and, therefore, was not considered to be "significant"as defined by the Department’s regulations for purposes of amending preliminary determinations.
42
The United States did not amend its preliminary de termination, but noted that it would consider this
issue further for the final determination.43
45. The United States conducted verification of POSCO’s home market sales response from9 November, through 13 November 1998.
44  At the outset of the verification, the United States’
normal practice is to request that a company state any corrections to its response.45   POSCO notified
the United States of six corrections to its response at the outset of verification.46  It said nothing to
suggest that the won amount on the invoices and reported to the United States was not the amount
paid by the customer.47
46. The United States informed POSCO that it would conduct verification of specific sales by
tracing the sale "from initial inquiry/order through to payment by the customer."48  The United States’
verification is a spot check of the information subm itted by the company designed to test the accuracy
and adequacy of the response.  Following its norma l practice, the United States informed POSCO that
it would trace documentation for five home market sales and would select additional sales to test
during the course of verification.49   The United States verified that POSCO received payment for the
home market sales selected, and noted no discrepancies in the verification of POSCO’s response.50
47. One home market sale selected for verification was a local sale.  The United States examined
the order sheet, mill certificate, invoice, shipping list, tax invoice and the first quarter 1997 price sheet
for the customer.51  None of these documents indicated that the won price listed on the invoice and
                                                     
37 Id.
38 Id.
39 SSPC Preliminary Determination , 63 Fed. Reg. at 59536 (4 Nov. 1998).  (ROK Ex. 4).
40 27 October 1998 Preliminary Analysis Memorandum for POSCO, at 2. (ROK Ex. 5).
41 5 November 1998 Comments filed by the US domestic industry, at 3. (ROK. Ex.47).
42 6 November 1998 Response by POSCO to US domestic industry, at 3-4. (US Ex. 48).  See also
23 November 1998 Memorandum on Ministerial Error Allegation, at 2-3. (US Ex. 44).
43 Id. at 2-3.
44 5 January 1999 Sales Verification for POSCO, at 1. (ROK Ex. 6).
45 2 November 1998 Verification Outline for POSCO, at 2. (US Ex. 45).
46 5 January 1999 Sales Verification Report for POSCO, at 1-2 (summarizing POSCO’s pre-
verification corrections to its response). (ROK Ex. 6).
47 See generally, Id. at 1-2.
48 2 November 1998 Verification Outline for POSCO, at 4. (US Ex. 45).
49 Id. at 4 and Appendix I
50 5 January 1999 Sales Verification Report for POSCO, at 21, para.12, and 14. (ROK Ex. 6).
51 Id. at 4 and Ex. 6.WT/DS179/R
Page 298
reported by POSCO differed from the paymen t amount, nor did POSCO at any time during the
investigation make any claim to the contrary.
48. In its case brief, POSCO contended that the information collected at verification demonstrates
that local sales were negotiated and invoiced in US dollars.52  POSCO argued that "[l]ocal customers
pay POSCO in Korean won based on the US dollar invoiced price."53   POSCO argued that it made
changes to its database consistent with the United States’ questionnaire which requests respondents to
report all expenses and revenues in the currency in which they were incurred or earned.54   Although
POSCO opposed the use of won prices generally, at no time did it argue that the won price on the
invoice was not the final won price.
49. In its final determination for SSPC, the United States weighed the evidence and determined
that the currency of the local sales transactions was Korean won.  The United States, relying on the
record developed during the investigation, stated that although the invoice includes a price in USdollars, the customers pay for the sales in won, not US dollars, and the sales value of the merchandise
is charged to the sales ledger in won.
55
(b) The SSSS Investigation
50. In the SSSS investigation, POSCO provided similar responses to the United States’ questions.
From the evidence placed before it, the United States properly determined in the SSSS investigation
that the currency of POSCO’s local sales transactions  was Korean won, not US dollars.  In this case,
as in the prior investigation, there was no evidence indicating that dollars ever changed hands between
POSCO and its customers for the sales at issue.  The evidence unfolded as follows:
51. In its first questionnaire issued to POSCO, as in the prior case, the United States requested
that the company report "all expenses and revenues in the currencies in which they were incurred or
earned."56  The United States also requested information pertaining to, inter alia , the date of sale for
home market sales and the unit price for such home market sales.  Specifically, the United States
stated that POSCO is to "[r]eport the unit price recorded on the invoice for sales shipped and invoiced
in whole or in part."57  The United States stated that "[t]his value should be the gross price for a single
unit of measure."58
52. As in the prior case, the United States also requested that POSCO report the "terms ofpayment" for its home market sales and to "indicate whether the payment terms are stated or coded on
each invoice or, otherwise, how customers agree to payment terms."
59  The United States also
requested, again in its first questionnaire, that POSCO report "any price adjustments made for reasonsother than discounts or rebates" and to "[s]tate whether these billing adjustments are reflected in your
gross unit price."
60
53. In its 2 September 1998 response, POSCO stated that "[t]he date of sale for all domestic sales
is the date of the shipping invoice, whether categorized as a domestic or local sale."61  POSCO further
                                                     
52 26 January 1999 POSCO Case Brief, at 4. (ROK Ex. 7)
53 Id.
54 Id. at 5.
55 SSPC Final Determination , 64 Fed. Reg. at 15456 (31 Mar. 1999). (ROK Ex. 11).
56 Anti-dumping Questionnaire, at B-20. (US Ex. 2).
57 23 September 1998 Section B-D Response, at B-21 (repeating the question from the original
questionnaire). (US Ex. 41).
58 Id. at B-21 and B-22.
59 Id. at B-18.
60 Id. at B-23.
61 2 September 1998 Section A Response, at A-16. (US Ex. 46).WT/DS179/R
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stated that "[t]he price in effect on the date  of shipment is the price for the shipment."62  I n  t h a t
response, POSCO reported transaction prices for home market sales, and stated that it has "reported
the actual invoiced price per metric ton in Korean Won.  In the home market, POSCO made local
letter of credit sales ("local sales") and domestic sa les.  All sales have been recorded in Korean Won
on the database."63  POSCO further noted that a US dollar amount has also been reported for local
sales "[f]or ease of verification."64
54. In discussing the payment terms, POSCO stat ed, as in the prior case, that "POSCO’s home
market customers pay on an open ( i.e., revolving) account basis that is the normal method of payment
in the Korean domestic market."65  For the billing adjustments, POSCO stated that it has provided "the
billing adjustments that are reflected in the gross price"  and that price adjustments were "generally
issued to correct a data entry error or to correct the price on the original invoice."66  But for local
sales, POSCO again reported no adjustment to the won invoice price that was reported to the
United States.
55. On 23 October 1998, the United States issued a supplemental questionnaire to POSCO
requesting that POSCO provide a copy of an invoice for a home market sale and specifically
instructed the company that "[i]f any of your sale s are invoiced in dollar amounts, please indicate how
payment was received. If payment was received in won, please indicate what exchange rate wasused."
67   In response, POSCO stated that it "invoices local sales in dollars, and books the sale in its
sales ledgers in won using the daily exchange rate in effect on the date of sale."  POSCO provided
sample documentation for a local sale and stated that "[t]he details on the per ton price are noted on
the shipping list detail which is sent to the customer, with the total dollar amount recorded on the tax
invoice." POSCO indicated that "[p]ayment is received on a local letter of credit basis in dollars aswell.  Payment is booked in won with the difference in the exchange rate on the date of sale and the
date of payment."
68  POSCO submitted a modified sales listing to report local sales and the related
charges in dollars.69  POSCO indicated that the won amount s were now provided for reference
purposes, and suggested that the United States "maintain the dollar value of the local sales until the
final steps in the [anti-dumping] calculation."70   POSCO did not claim that the won amount reported
earlier was not the won amount paid by the cust omer and received by POSCO for such sales.
56. In its 4 January 1999 preliminary determination, based upon POSCO’s arguments, the
United States concluded that POSCO’s local sales were, in fact, consumed in the home market and
therefore included the sales in its normal value calculations, as POSCO requested.  However, in
including those sales in its normal value calculations, the United States mistakenly applied a currency
conversion to the dollar-denominated amount of the sale.71
57. The United States conducted verification of POSCO’s home market sales response from22 February, through 26 February 1999.
72  At verification, POSCO explained that while domestic
sales are made on an open account, local sales are made on a contract basis, with a local letter of
credit.  The United States examined a local letter of credit involved in a local sale and determined
                                                     
62 Id. at A-17.
63 23 September 1998 Section B-D Response, at B-22. (US Ex. 41).
64 Id.
65 23 September 1998 Section B-C Response, at  B-16 and B-18 . (US Ex. 41).
66 Id. at B-23.
67 23 October 1998 Supplemental Questionnaire, at Attachment I, at no. 11. (US Ex. 47).
68 23 November 1998 Supplemental Response, at 19 (ROK Ex. 45), and Ex. B-26. (US Ex. 42).
69 Id.
70 Id. at 20, n. 7. (US Ex. 42).
71 17 December 1999 Preliminary Analysis Memorandum for POSCO, at 9. (US Ex. 48).
72 6 April 1999 Sales Verification for POSCO, at 1. (ROK Ex. 19).WT/DS179/R
Page 300
there were no discrepancies.73  The United States traced a local sale and tied the sale from POSCO’s
order sheet to a cumulative shipping list/invoice and tax invoice.  The United States also verified that
POSCO recorded the sale in its book s in won as reflected in the tax invoice to the customer.  For that
sale, the United States found that the won amount li sted on the invoice and reported by POSCO in its
response was not the won amount actually paid by  POSCO’s customer and that differences between
the recorded sales amounts and payment amounts are reflected in the company’s "Foreign Exchange
Currency Loss of Transaction for Local Sales" account.74
58. In its case brief, POSCO once again argued that because it negotiates and invoices itscustomers in dollars, the United States should use the dollar amount in its calculations.  However,
POSCO also stated once again that local customers " pay POSCO in Korean won  based on the US
dollar invoice price."
75
59. Although the record in SSSS contained more information concerning the dollar prices on theinvoices, much of that information was vague or contradictory and was obtained late in theproceeding.  For its final determination, the United States weighed all of the evidence and determined
that the currency of the local sales transactions wa s Korean won.  As in the prior case, relying on the
record developed during the investigation, the United States based its stated  determination on the fact
that the customer pays in won, not US dollars, and the sales value of the merchandise is charged to the
sales ledger in won.
76
Q.4. For both parties .  Is there anything in the record of the investigations indicating why
these sales were paid in won if, as argued by Korea, they were in fact denominated in dollars?
60. Although POSCO repeatedly stated that it was paid in won for these sales, nothing in the
record of these investigations indicates why, if these were in fact dollar sales, they were paid in won.
Q.7. For the United States .  Do you agree that the exchange rates that you refer to as
POSCO’s "internal exchange rates" are the ma rket exchange rates announced by the Korean
Exchange Bank’?
61. Yes.  Although the United States made no factual determination as to whether POSCO’s
"internal exchange rates" are in fact the same exchange rates announced by the Korean Exchange
Bank for Inward Remittances, POSCO has stated that it used the daily exchange rates provided by the
Korean Exchange Bank for Inward Remittances.77
Q.8. For the United States .  The United States asserts (first submission, para. 192) that,
"[c]ontrary to Korea’s claim, a comparison of the exchange rates demonstrates that during the
month of November 1997, the rates varied by as much as { } percent."  Please state the source
for this statement.  Is the United States h ere comparing POSCO’s "internal" exchange rate to
the US Federal Reserve’s daily exchange rate or to the USDOC’s "official exchange rate"?
62. The United States is comparing POSCO’s internal exchange rate to the daily exchange rate
provided by the US Federal Reserve.  The chart in footnote 161 of the United States’ first submission
sets out the calculation. The source for the data used in the calculation is as follows:
                                                     
73 Id. at 11.
74 Id. at 14.
75 15 April 1999 POSCO Case Brief, at 4. (ROK Ex. 20).
76 SSSS Final Determination , 64 Fed. Reg. at 30678 (8 June 1999). (ROK Ex. 24).
77 See, e.g., 6 April 1999 Sales Verification Report for POSCO in SSSS, at 14. (ROK Ex. 19).WT/DS179/R
Page 301
1. For the dates of sales for the local sales: the United States obtained the dates of sale for the
local sales set forth in the chart using  POSCO’s home market database for both SSPC and
SSSS.
2. For the exchange rates from the Korean Exchange Bank for Inward Remittances: the
United States used the exchanges rates listed in the SSPC Sales Verification Report, Exh. 6
(US Ex. 29).78
3. For the exchange rates from the US Federal Reserve: the United States used the rates included
in the computer databases for both SSPC and SSSS.79
Q.9. For the United States .  The United States asserts (first submission, para. 177) that
"Article 2.4.1 cannot be read to require that curr ency conversions be avoided in any particular
circumstances."  In the view of the United States, would a Member be permitted by the AD
Agreement  to engage in currency conversion in a ca se where all the sales in both markets were
indisputably both invoiced and paid in the sa me currency?  If not, what provision of the AD
Agreement  would regulate such behaviour?
63. No. Article 2.4.1 establishes the rules to be applied in converting foreign currencies,
whenever a Member determines that the comparison of export price and normal value requires a
conversion.  A conversion is required only if the sales to be compared were transacted in different
currencies.  Article 2.4.1 presupposes that a conversion is necessary, i.e., that the transactions were
made in different currencies and that a currency conversion is therefore necessary.  The issue of
whether a currency conversion is necessary rests upon the facts of each case that demonstrate thecurrencies in which the sales are transacted.   In the hypothetical scenario posited by the Panel, where
all relevant sales in both markets were "invoiced and paid" in the same currency, there would be no
need to engage in any currency conversion because the condition for a currency conversion would not
have been satisfied in that case.
Q.10. For the United States .  Assume that the United States had determined that the sales in
question were dollars sales, not won sales, and that there was no dispute among the parties onthis point.  Would it in the view of the United  States have been consistent with Article 2.4.1 of
the AD Agreement  to nevertheless convert those sales into won and then back into dollars?
Would any other provision of the AD Agreement  be implicated?
64. Assuming arguendo  that the sales in question were dollar sales, the United States would use
the dollar amount of such sales and make no currency conversion.  In the United States’ view, if both
the export and domestic sales are in the same currency, the comparison under paragraph 4 does not
require a conversion within the meaning of Article 2.4.1.
Q.11. For the United States .   Please clarify how USDOC established the exchange rate applied
to the sales which it found were won-denominated.  Did it use the "official exchange rate" or
daily exchange rates?  Did it convert as of the date of sale of the "local sales" or as of some other
date?  Please address specifically Korea’s statem ents in footnote 142 to its first submission and
para. 58 of its oral statement, referring to  the exchange rate on the date of the US sale.
65. Although there may be some confusion in term inology, the "official exchange rate" simply
refers to the exchange rate actually used by the United States for a given day.  This term is contrasted
with the raw "daily rates" provided by the Federal Reserve which have not been modified, for
example to ignore "fluctuations" pursuant to Article  2.4.1.  Thus, the "official exchange rate" for a
                                                     
78 See also ROK Ex. 44.
79 See also ROK Ex. 50.WT/DS179/R
Page 302
particular day will usually be a daily rate, although it may be an average benchmark rate if the daily
rate on that day is a "fluctuation."
66. As in most cases, in the cases before the Pane l, for all won sales, including "local sales," the
official exchange rate used by the United States was the daily rate, except on those occasional dates
on which it identified an exchange rate "fluctuation" pursuant to Article 2.4.1 (in which the rate used
was a rolling-average "benchmark" rate).  As discussed elsewhere, however, unlike most cases, during
the period of severe devaluation, November and December 1997, the United States used daily rates,
even though its normal methodology would have id entified the daily rates during this period as
fluctuations and applied the benchmark rate.80
67. In accordance with Article 2.4.2, the United States first established weighted-average of
normal values for comparison with weighted-average export prices of all comparable transactions.
For each weighted-average normal value, after identifying the comparable export transactions, theUnited States calculated a weighted-average exchange rate based upon the dates of those comparable
US transactions.  The weighted-average normal value was then converted into US dollars using that
weighted-average exchange rate.
68. Korea has not challenged the methodology of converting each normal value average based on
the exchange rates in effect on the dates of the comparable export sales. Thus, the Panel need not
address that issue.  Rather, Korea argues, in footnote 142, that the "double-conversion" of currencies
was inconsistent with Article 2.4.1 and was distortive.  As the United States has argued, there was no
"double conversion" in this case.  The United States made one currency conversion - from Korean
won into US dollars.  No other conversion was necessary, or made, for the sales at issue.  The singleconversion was based upon a factual determination that the sales at issue were made in won, not
dollars.  Accordingly, the United States currency conversion in these investigations is consistent with
Article 2.4.1.
Q.13. For the United States .  In respect of the differences between POSCO’s "internal"
exchange rate and that of the NY Federal Reserve, Korea notes (first submission, para. 4.74) the
existence of a time-lag between Korea and New York which it considers explain thosedifferences.  Please comment.
69. The United States does not know the cause of the difference in exchange rates between the
Korean Exchange Bank and the US Federal Reserve.  In the United States’ view, the issue before the
Panel is not a question of which source for exchange rates is more accurate.  Rather, it is a question ofwhether the United State’s determination that these were won sales was based on an objective
assessment of properly established facts and whether the exchange rates used by the United States
satisfy the requirements of Article 2.4.1.
70. Korea has raised a "time-lag" issue in the context of its transparency argument.  In the view of
the United States, the exchange rate methodology applied by the United States - which includes the
use of the NY Federal Reserve rate - is highly transparent.  While there are some natural and inherent
constraints to ascertaining the exchange rate on the day in which a transaction occurs, companies can
                                                     
80 In the First Submission of the United States, at footnote 161, the United States stated that it
inadvertently used “adjusted exchange rates” in the SSPC case solely for purposes of determining, pursuant toRoses from Columbia , whether POSCO’s exchange rate mirrored the rate the United States would have used, i.e.
the “official exchange rate.”  The “adjusted exchange rates” referred-to are the rates produced by the normal
methodology which did not take into account the devaluation during November and December 1997, i.e. whichused benchmark rates rather than daily rates during this period.  However, as demonstrated by the table in thatfootnote, use of the daily rates for this comparison still reveals that POSCO’s rates differed substantially fromthe rates being used by the United States.WT/DS179/R
Page 303
ascertain with certainty the daily exchange rate to be applied in an anti-dumping calculation.  As
discussed in its first submission, the United States has publicly announced, for purposes of anti-
dumping analysis, that it will use its official exchange rates for currency conversions.  The
methodology used by the United States to ascertai n the exchange rates for its dumping analysis has
also been published.  The purpose of these and other actions is to "ensure that all exporters, when they
set their prices and whether under [an anti-dumping] order or not, can know with certainty the daily
exchange rate the Department will use in a dumping analysis."81  As noted earlier, along with
knowledge of the source of rates and the rules to be applied, the United States has taken the unusual
step of publishing on the Internet the computer code to allow parties to reproduce the United States’calculations and thus "monitor exchange rates" to ensure that companies can ascertain the applicable
exchange rate.  Companies can, with the knowledge of the United States’ rules, reasonably determine
the daily exchange rate. The rules, and the tools for monitoring and determining the exchange rates,
are published and available to all companies.
Q.14. For the United States .  In its oral statement (para. 41) , the US asserts that the USDOC
did not engage in a "double conversion" becaus e it took directly the won amounts reported by
POSCO for the so-called "local" sales. However, in the "preliminary analysis memorandum"
for sheet & strip, the USDOC recognized that "for  all sales in the home market involving dollar
denominated transactions, we have applied a currency conversion to Korean won on the date ofthe home market sale" (item L., at page 9). Is this not an indication that the USDOC converted
the "local" dollar sales into won prior to converting them into dollars and that in so doing the
USDOC did undertake a "double conversion"?
71. The methodology used in the SSSS final determination differed from the preliminary
determination;  there was no double conversion in the final determination. In its first submission to the
Panel, the United States indicated that in SSSS it "mistakenly converted the dollar-denominated
amount into won for the preliminary determination."
82  The United States, however, corrected the
error in the final determination in SSSS.  For the final determinations in both SSPC and SSSS, the
United States made one currency conversion from Korean won into US dollars.  No other currency
conversions were made in these cases.
Q.15. For the United States.  In its oral statement  (para. 39), the US explains that the USDOC
was not provided enough evidence by POSCO at testing the fact that POSCO received won
amounts other than the amounts reflected in the invoices. The US seems to suggest that this is
one of the reasons why the USDOC refused to consider the "local" sales as dollar sales. Could
the US explain why this important argument appears to be omitted from the determinationsand memoranda relevant to the case?
72. The picture Korea presented to the Panel in this matter differs from what POSCO presented to
the United States during the course of the investigations.  In SSPC, there was no evidence at any time
during the investigation that the won amounts listed  on the invoices and reported by POSCO varied
from the won amounts actually paid by the customer.  In SSSS, as discussed above, there was
additional information about these transactions, but it was insufficient to persuade the United States
that there was a basis to treat these sales as dollar transactions.
                                                     
81 Notice: Change in Policy Regarding Currency Conversions , 61 Fed. Reg. at 9435. (ROK Ex. 49).
82 First Submission of the United States , at 51, n. 158.WT/DS179/R
Page 304
73. The final determinations were based on the positive evidence that these were won sales – not
on a lack of evidence.  The determinations and analysis memoranda reflect the basis for the
determinations.  The status of the record only became an issue in this proceeding before the Panel.
The United States raised this evidentiary issue in response to Korea’s repeated statements that
customers did not pay "the won amount on the invoice" in support of its argument that the prices were
set in dollars.  In light of the standard of review, it was necessary for the United States to point out
that this fact was never asserted or established on the SSPC record and was asserted but inadequately
supported on the SSSS record.WT/DS179/R
Page 305
II. RESPONSES OF THE UNITED STATES TO QUESTIONS POSED BY KOREA
A. UNPAID SALES
Q.1. In its oral statement, the United States describes that it classified POSCO’s US sales
through POSAM as constructed-export-price ("CE P") sales, while it classified POSCO’s direct
sales to US customers as export-price ("EP") sales.83  The United States then describes that it
made (or did not make) the following adjustments for "bad debt" expenses:
For the CEP sales, the United States deducted the allocated US "bad debt"
expense from the price to the first unaffiliated customer.84
For the CEP sales, the United States did not add the allocated US "bad debt"
expense to the normal value that wa s compared to the constructed export
price.85
For the EP sales, the United States did not deduct the allocated US "bad debt"expense from the sales price to the first unaffiliated customer.
86
The United States did not address the fourth circumstance, however.  In other words, the
United States did not state whether, for those sale s classified as EP sales, the allocated US "bad
debt" expense was added to the normal value that was compared to the export price.  Would the
United States please confirm whether the allocated US "bad debt" expense was added to the
normal value that was compared to the export price for the sales classified as "EP" sales?
74. As the United States explained in its first s ubmission and oral statement, the circumstance of
sale adjustment for direct selling expenses was made by deducting from normal value the direct
selling expenses for domestic sales in Korea and adding to normal value the US direct selling
expenses.  The United States further explained that the allocated portion of bad debt was treated as a
direct selling expense.  Therefore, for POSC O's sales directly to independent US buyers – i.e., EP
sales – the addition to normal value included an allocated portion of the US bad debt expense.87
Q.2. If the allocated US "bad debt" expense was added to the normal value that wascompared to the export price for EP sales, is it the position of the United States that this
adjustment was authorized by Article 2.3 of the Anti-Dumping Agreement?
75. As the United States explained in its first s ubmission and oral statement, the circumstance of
sales adjustment was made to allow for differences in conditions and terms of sale, consistent with
Article 2.4 of the AD Agreement, not as a deducti on to  construct export price, consistent with
Article 2.3. of the AD Agreement.  Therefore, in the comparison of EP sales and normal value, the
addition to normal value that was made as part of the circumstance of sale adjustment, and which
included an allocated portion of bad debt, was an Article 2.4 allowance.
88
Q.3. Is it the US position that there are no limits on adjustments that may be made under
Article 2.3 of the Anti-Dumping Agreement?   If there are limits, what are they?
                                                     
83 See US Oral Statement, paras. 9 and 10.
84 See US Oral Statement, para. 9.
85 See US Oral Statement, para. 11.
86 See US Oral Statement, para. 9.
87 First Submission of the United States, paragraphs 82-84 and 87;  Oral Statement of the United States
at the First Panel Meeting, paragraph 12.
88 US First Submission, at para. 8;  US  First Oral Statement, at para. 9-12.WT/DS179/R
Page 306
76. Korea has not asserted a claim under Article 2.3 of the AD Agreement, therefore, this issue is
not before the Panel.  Nevertheless, it is the view of the United States that deductions to construct
export price must be consistent with the object and purpose of Article 2.3, which is to construct theexport price between the exporter and the associated importer.  Beginning with the price to the first
independent buyer and deducting all expenses related to the resale by the associated importer is a
reasonable methodology for constructing export price, which is consistent with the object and purpose
of Article 2.3.
Q.4. The United States contends that, if "the se ller agrees to sell on credit ... [it] accepts a
credit expense, including the risk of non-payment."
89  It also states that, in this case, "POSCO
agreed to sell to this US customer on  credit and in doing so accepted the risk of non-payment as
a condition of sale."90  The United States contends that POSCO’s acceptance of this risk  " i s
sufficient to warrant including bad debt in an Article 2.4 adjustment."91  In light of these
assertions,
a. What evidence was there in the Plat e and Sheet cases regarding the risk
of non-payment at the time that POSCO made its US sales to the ABC Company
(and, according to the United States, agreed to accept the risk of non-payment)?
77. As the United States explained in its first subm ission and oral statement, the risk of bad debt
is inherent in an agreement to sell on credit rather than demand payment on delivery.  The fact that
these sales were made on credit establishes that POSCO accepted the risk of non-payment at the time
of sale.
b. Was there any evidence in the Plate and Sheet cases demonstrating that,
at the time POSCO made its sales to the ABC Company, there was a difference
in the risk of non-payment for sales to customers in the United States and for
sales to customers in Korea?
78. As discussed above, when a seller sells on credit there is an inherent risk of non-payment.
That risk may differ between the two markets and th us have different effects on prices in the two
markets.  Accordingly, the United States makes an adjustment to eliminate such differences.  Because
it is the only practical means of making due allowance for any difference in bad debt risk, we base the
allowance on the company’s actual experience in each of the two markets during the period of
investigation.  That is, we rely on the actual bad debt expenses the company recognizes with respect
to each of the two markets being compared.  The ev idence placed on the record in the cases at issue
showed that, during the period of investigatio n, POSCO actually recognized greater bad debt
expenses, as a proportion of sales, in the US market than in the Korean market.
c. If there was no difference in the risk of non-payment for sales in Korea
and the United States at the time POSCO made its sales, what is the basis forclaiming that there was a difference in the conditions and terms of sale?
79. As discussed above, the evidence placed on the record in the cases at issue showed that,
during the period of investigation, POSCO actually recognized greater bad debt expenses, as a
proportion of sales, in the US market than in the Korean market.
Q.5. Does the actual bad debt experience that o ccurs after a sale is made provide an accurate
measure of the risk of bad debt before the sale was made?
                                                     
89 US Oral Statement, para. 15 (emphasis added).
90 US Oral Statement, para. 17 (emphasis added).
91 US Oral Statement, para. 17.WT/DS179/R
Page 307
80. As discussed above, because it is the only practical means of making a due allowance for that
difference, we base the allowance on the company’s actual bad debt experience in the two markets
during the period of investigation.  That is, we rely on the actual bad debt expenses the companyrecognizes with respect to each of the two markets being compared.  Furthermore, in accordance with
GAAP, companies normally account for bad debt through a reserve accounting method that is based
on the company’s experience.  Therefore, the bad debt expenses reflected in a company’s accounting
records for a particular market provides a reasonable measure of the price effect of the risk of bad
debt in that market.
Q.6. The United States asserts that the risk of non-payment is equivalent to the risk that a
warranty expense will be incurred.  The past d ecisions by the United States have recognized
that warranty expenses may fluctuate from year  to year and that, where there are fluctuations
in warranty expenses, the use of a historical average is appropriate to avoid distortions.  Thestandard questionnaire used by the Department of Commerce therefore requests information
on the historical warranty expense experien ce for sales in the home market and the
United States.  Did the Department of Commerce request information on POSCO’s historical
bad debt experience in the home market or the Un ited States in the Plate and Sheet cases?  Did
the United States evaluate whether the bad de bt experience during the investigation periods in
those cases was consistent with POSCO’s historical experience?
81. As discussed above, companies normally account for bad debt using a reserve accounting
method that is based on the company’s historical experience.  Under a reserve accounting method, the
bad debt expense recognized in a given period reflects that experience.  Therefore, unlike warrantyexpense, the bad debt expense reported by an exporter normally reflects the company’s historical
experience and no additional historical evidence is necessary.
82. The United States learned at verification that POSAM did not use a bad debt reserve.
Therefore, the actual amount of bad debt recognized during the period was the only reasonable basis
for the adjustment.  Furthermore, POSCO only argued that the sales to ABC company should be
excluded or, in the alternative, that the bad debt should be allocated over a broader category of sales.POSCO never argued that the amount of bad debt r ecognized during the period should be adjusted to
reflect experience and never provided any data establishing that such an adjustment was appropriate
and which could be used as a basis for making such an adjustment.
Q.7. The United States has contended that, under US law, adjustments for differences in
"conditions and terms of sale" are referred to as "circumstance-of-sale" adjustments.
92  T h e
Department of Commerce’s regulations state that circumstance-of-sale adjustments will
normally be made only for "direct selling expenses" (or for expenses that the seller assumes on
behalf of the buyer).93  In these circumstances, what is th e significance of the finding by the
Department of Commerce that the "bad debt" expense on POSCO’s US sales was a "direct"selling expense?
83. As explained previously, "direct" selling expenses are those related to the conditions and
terms of sale, which are the basis for the circumstan ce of sale adjustment to normal value.  Because
bad debt is a direct selling expense, it is included in the circumstance of sale adjustment.
Q.8. What evidence is there on the records of the Plate and Sheet investigations to indicate
that POSCO (or any of its affiliates) experienced actual bad debt expenses on any sales of Plate
or Sheet to the United States prior to the sale to the ABC Company?
                                                     
92 See US Oral Statement, para. 11.
93 See 19 C.F.R. § 410(b).WT/DS179/R
Page 308
84. See the United States’ response to question 3 (Treatment of Unpaid Sales) from the Panel.
Q.9. Is it the position of the United States that investigating authorities may include any
export sales in the calculation of export price, no matter how aberrational they are and no
matter how much their inclusion distorts the calc ulation of the dumping margins?  Is it the US
position that there are no limits at all on the investigating authorities’ discretion to include
export sales in the price comparison, in cluding the "fair comparison" requirement of
Article 2.4?
85. See the United States’ response to question 9 (Treatment of Unpaid Sales) from the Panel.
B. MULTIPLE AVERAGING
Q.1. In employing its "multiple-av eraging" comparison methodology ( i.e., comparing sub-
period averages to sub-period averages and comb ining the results) in the Plate and Sheet cases,
did the Department of Commerce treat the dump ing margins for sub-periods that had negative
margins as if they were zero margins?  In other words, did the United States employ the
practice known as "zeroing"?
86. Yes.  The United States measured the amount  of dumping as the amount by which "the export
price of the product exported from one country to an other is less than the comparable price, in the
ordinary course of trade, for the like product wh en destined for consumption in the exporting
country," in accordance with Article 2.1 of the AD Agreement.  After measuring that difference, the
United States did not offset the amount calculat ed under Article 2.1 by an amount by which some
products may have been sold at greater than the normal value.
87. The United States first notes, as did third party Japan,94 that this issue is not properly before
the Panel, and should not be addressed by the Panel.  Korea never mentioned this issue in its request
for panel review, nor did it do so during consultations.  Indeed, Korea has never directly asserted that
the practice it refers to as "zeroing" is not authorized by the AD Agreement.  Consequently, this
question is simply irrelevant for purposes of determining whether the United States properly usedmultiple averaging in the cases before the Panel.
88. In any event, the practice referred to as "zer oing" is not inconsistent with the AD Agreement.
Consequently, should the Panel conclude that the issue is properly before it, the Panel should uphold
the action of the United States with respect to this issue.  An interpretation of Article 2.4.2 whichprohibited "zeroing," if taken to its logical conclusion, would distort many of the requirements of
Article 2.4 for a fair comparison and the making of due allowances for differences which affect price
comparability.
89. All that Article 2.4.2 requires is that, in making comparisons between the export price and the
normal value of the like product in an investigation, each comparison shall be made either on a
weighted-average-to-weighted-average basis or a transaction-to-transaction basis.  This requirement
of comparing weighted-average-to-weighted-average figures or transaction-to-transaction figures is
explicitly made subject to the requirements of Article 2.4.  Thus, it is clear that the considerations
discussed in Article 2.4 may be relevant in determining whether sales are comparable, and thus shouldbe included in the same weighted-average.
90. The considerations of time, levels of trade and physical characteristics addressed in
Article 2.4 illustrate that if adjustments are not made to eliminate such differences, then comparisons
                                                     
94 See, Third Party Oral Statement by Japan.WT/DS179/R
Page 309
normally must be made on a level-of-trade  basis, a product-specific basis (to account for differences
in physical characteristics) and a time-period basis.  Thus, there may be several to several thousand
export prices and normal values which are compared within an investigation for a respondent
company, depending on, inter alia , the variety of products, levels of trade, and selling conditions over
time.  In the cases before the Panel, the United States not only created different averages based on
whether the transactions occurred before or after the devaluation, but also based on the physical
characteristics of the products.  Thus, these cases involved a multitude of average normal values and
average export prices.  This multitude of comparisons resulted in the calculation of varying dumping
amounts for some US sales, and no dumping for other US sales.
91. It is worth recognizing that Article 2.4.2 was newly introduced with the Uruguay Round of
negotiations to address a specific concern of certain Members with respect to the conduct of
investigations.  Previously, the practice of some Members, including the EC and the United States,
was to compare individual export price transactions to weighted-average normal values.  Article 2.4.2was included in the AD Agreement to provide that, except in the case of targeted dumping, margin
calculations in an investigation would be made on a consistent basis, i.e., weight-average to weight-
average or transaction to transaction.
95  Thus, the intent was to eliminate transaction-to-average
comparisons in investigations, not to alter the manner in which authorities calculated overall margins
after all appropriate comparisons were made.
92. As discussed above, Articles 2.4 and 2.4.2 provide for a fair comparison between export price
and normal value and further provide that such comparisons in investigations should normally be on a
weight-average-to-weight-average basis or on a transaction-to-transaction basis.  The "zeroing"
practice is not covered by Articles 2.4 and 2.4.2 because it arises at a step subsequent to thecomparison of export price and normal value.  The "zeroing" took place at the stage when the margins
from each comparison of comparable weighted-average normal values and export prices were
combined into an overall average rate of dumping for the entire investigation.
96  The lack of guidance
on the "zeroing" practice is confirmed by the fact that Article 2.4.2 explicitly permits transaction-to-
transaction comparisons without providing a methodology for combining margins calculated pursuant
to that methodology.
93. When this stage is reached, the individual, product-specific differences between normal value
and export price may be positive or negative.  If positive, they represent the aggregate amount of
dumping duties that the importing country is permitted to collect for that product or group of
transactions.  If negative, they represent the amount by which the export price exceeded the normal
value;  however, the AD Agreement imposes no liability on the importing country to make paymentsto the importer or anyone else involved in the transaction for not dumping the merchandise in
question.  The negative difference between normal value and export price simply means there is no
dumping;  i.e., the dumping margin for that product or group of transactions is zero.  Thus, for such
products with no dumping margins, the amount of  dumping duties which the importing country is
permitted to collect is zero.
94. Equally important, when the investigating authority calculates an overall, average rate of
dumping, neither Article 2.4.2 nor any other Article of the AD Agreement requires that more credit be
given for negative dumping amounts than if the dumping duties were to be collected on a product-
specific basis.  Nevertheless, that would be the result if Article 2.4.2 were interpreted to prohibitzeroing.  This problem may be illustrated with the following example:
                                                     
95 See generally, The GATT Uruguay Round: A Negotiating History (1986-1992): Antidumping ,
Stewart, T., Ed. (1993, Kluwer) at 155-61, (US Ex. 23).
96 See e.g., EC - Imposition of Anti-dumping Duties on Imports of Cotton Yarn from Brazil, ADP/137,
(4 July 1995) paras. 500-501 (finding the practice of “zeroing” not to be inconsistent with the Anti-dumpingCode).WT/DS179/R
Page 310
Aggregate
Domestic Market
Value in Currency
Units (CU)Aggregate
Importing
Country Value in
CUAggregate Dumping
Amount Calculated
in CUProduct-specific
Aggregate
Dumping Duties
Which May be
Collected in CU
Product 1 5500 5000 500 500
Product 2 1800 2000 -200 0
Product 3 3300 3000 300 300
Product 4 4500 5000 -500 0
Product 5 2200 2000 200 200
TOTAL 17300 17000 300 1000
95. Based on the above figures, the overall, average rate of dumping is 5.88 percent(1000/17000).  Moreover, the application of that dumping margin to the total import value
(5.88 percent * 17000) would result in the collection of 1000 CU in dumping duties – no more and noless than the importing country is permitted to collect on a product-specific basis.
96. By contrast, if this calculation were to be performed by offsetting aggregate dumping
amounts by negative amounts, the overall, average rate of dumping would be 1.76 percent
(300/17000).  Even if we were to ignore the fact that this is a de minimis  margin, the application of
that margin of dumping to the total import value (1.76 percent * 17000) would result in the collection
of only 300 CU in dumping duties.  Stated anot her way, there would be an additional 700 CU in
dumping which the importing country would not be permitted to remedy.  Moreover, because, as
noted above, this methodology would result in the calculation of a de minimis  dumping margin, the
importing country would actually be unable to place any dumping duties on these products, despitethe fact that the majority of the products (on a value and volume basis) were dumped at an average
rate of 10 percent (1000/10000).
97
97. Similarly, Article 2.4.2 does not require positive margins to be offset by negative margins
because it would fail to give meaning to the requirements of Article 2.4, which, as noted above,
contemplate that comparisons be made at least on a product-specific basis in order to account for
differences in physical characteristics.  This failure may be observed utilizing the above example bynoting that the difference between the total aggregate home market prices and the total aggregate
importing country prices (17300-17000) is 300 CU.  In other words, a methodology in which positive
margins had to be offset by negative margins necessarily obscures the results of the product-specific
comparisons and is equivalent to simply aggregating normal values and export prices regardless of
comparability.  In other words, if zeroing is not permitted by Article 2.4.2, then the limitation ofaveraging to "comparable" transactions provided for in Article 2.4.2 has no meaning.
98. For these reasons, the United States believes that treating negative differences between
normal values and export prices, calculated on a product-specific basis, as simply zero dumping is a
permissible interpretation of Articles 2.4 and 2.4.2.
                                                     
97 The 10000 CU denominator is the aggregate value of the imports for which there were positive
dumping duties.WT/DS179/R
Page 311
Q.2. Article 2.4 specifically refers to a number of "differences" for which adjustments are
permitted because they affect "price comparabil ity."  This list includes differences in physical
characteristics and differences in levels of trade.  Where does Article 2.4 indicate that
differences in the timing of sales constitute  "differences affecting price comparability"?
99. Article 2.4 specifically states that comparisons shall be made in respect of sales made at as
nearly as possible the same time.  Thus, sales which are not made at as nearly as possible the same
time are not to be compared;  that is, they are not "comparable" within the meaning of Article 2.4.
This requirement of Article 2.4 could be read to mean that comparisons must be limited to sales made
on the same day, if possible.  However, the United States believes that this provision can also
reasonably be read to mean that multiple-day aver ages are permitted, provided that investigating
authorities adopt approaches which limit the maximum amount of time which could occur between
sales in the two averages being compared.
100. In most cases, where no evidence has been presented to contradict this conclusion, the
United States determines that sales made within the same year are comparable.98  Under this reading,
in general, normal value transactions made during one year, would not be considered comparable to
export transactions made in a different year.  Similarly, averaging together sales made during a five-
year period of investigation would not achieve comparability.101. Although the United States normally applies a one-year standard for determining that sales
have been made at the same time, it applies a shorter period when circumstances warrant.  For
example, in situations of high inflation, the United States uses one month averages in order to prevent
the inflation from distorting the comparison.  Similarly, in the present case the United States
constructed two averaging periods in order to prevent the 50 percent devaluation from distorting thecomparison.
C. D
OUBLE CONVERSION OF LOCAL SALES
Q.1. If the prices for the "local sales" were fixed in dollars, as POSCO contended, would it
have been appropriate for the Department of Commerce to base its normal-value calculations
on won amounts shown on the invoices that di d not correspond to the amounts actually paid?
Would it have been appropriate in such circumsta nces to base the normal-value calculations on
the US dollar prices set forth on the invoices?
102. The principal issue is whether the currency of the transaction is Korean won or US dollars.  If
the currency of the transaction were US dollars, then it would be appropriate to base normal value
calculations on the US dollar amount and no currency conversion would be required or appropriate.  If
the evidence, however, indicates that the transaction was made in Korean won, then it is appropriate
under the AD Agreement to convert the sales into US dollars through the application of the currency
conversion rules prescribed in Article 2.4.1, as was done in these investigations.
Q.2. When the United States reviewed the local sales during the verifications in the Plate and
Sheet cases, did it confirm that the dollar prices  shown on the invoices matched the dollar prices
reported by POSCO?
103. In both investigations, the United States verified that both the dollar and won amounts
reported to the United States reflected the amounts on the invoices.99
                                                     
98 Technically, the United States uses the four most r ecently completed fiscal quarters prior to the filing
of the petition.  See, 19 C.F.R. § 351.204(b).
99 See 6 April 1999 Sales Verification Report for POSCO in SSSS, at 14. (ROK Ex. 19).  See also
5 January 1999 Sales Verification Report for POSCO in SSPC, at 4-5. (ROK Ex. 6).WT/DS179/R
Page 312
Q.3. The United States admits that POSCO told it during the course of both the Plate and
Sheet investigations that the prices for its "loc al sales" were fixed in dollars and not in won.100
The United States also admits that, in the ve rification in the Sheet case, the Department of
Commerce obtained evidence confir ming that the amount the customer actually paid for these
"local sales" was based on the dollar prices sh own on the invoices, and not on the won amounts
shown on the invoices.101  Was there any evidence indicating that any Korean customer who
purchased Plate or Sheet in a "local sale" actually paid the won amount shown on the invoice?
If there was no evidence that any Korean customer who purchased Plate or Sheet in a "local
sale" actually paid the won amount shown on the invoice, what evidence was there to refute
POSCO’s testimony that the prices for these sales were fixed in dollars, and not in won?
104. POSCO reported these sales in won based on w on prices on its invoices and recorded in its
accounting records.  Although POSCO later claimed th at the prices were fixed in dollars, POSCO did
not present, and the United States did not discover, sufficient evidence to substantiate this claim.   Tothe contrary, the weight of the evidence provided by POSCO indicated that these were won
transactions, as POSCO originally reported.  As explained in response to question 15 from the Panel,
there was no evidence in SSPC to suggest that the won amount paid was anything other than the
amount reported by POSCO.  The verification in SSSS provided some evidence that the won amounts
on the invoices did not reflect the amounts actually paid but the evidence was very limited and camelate in the proceeding.
Q.4. Is it the normal practice of the Department of Commerce to verify that the amounts
shown on the invoices to home-market customers correspond to the amounts actually paid by
those customers?  Is there any ev idence that the Department of Commerce departed from that
practice in the Plate and Sheet investigations?
105. The United States verifies information to the extent practicable.  The United States’ normal
practice is to spot check the accuracy and adequacy of a company’s response by, inter alia ,
conducting sales traces of the company’s documentation pertaining to selected sales, as was done in
these cases.  In these cases, the United States conducted three comprehensive verifications of
POSCO’s response in each investigation (one for home market sales, one for home market costs, and
one for constructed export price sales in the United States).  For local sales, POSCO stated that it waspaid on a revolving account basis and thus there was no way to tie the payment directly to a particular
sale.
102  Thus, further verification was not practicable.  Accordingly, there is no evidence to indicate
that the United States departed from its normal practices in these cases.  However, even if the
United States had conducted no verification in these cases, it would not have violated any of the
requirements of the AD Agreement.
Q.5. Were the Plate and Sheet investigations th e first anti-dumping investigations where
some of the home-market sales were dollar-denom inated local sales?  Does the United States
agree or disagree with the statement on para 4.72 of Korea’s First Submission that "neither the
United States nor the petitioners in the [Plate and Sheet] investigations cited a single case beforethe investigations at issue where the United Stat es treated a home-market sale priced in dollars
as if it had been priced in the local currency"?
106. In this question, Korea attempts to create the false impression that the United States treated a
sale actually priced in dollars, as if it had been priced in Korean won.  As discussed above, these aresimply not the facts.   The United States’ actions were fully consistent with a long and well-
established practice to use the currency in which the revenue or expense was earned or incurred.
                                                     
100 See US Oral Statement, paras. 36 and 38.
101 See US Oral Statement, para. 39.
102 See, e.g., 5 January 1999 Sales Verification Report for POSCO in SSPC, at 14 (ROK Ex. 6), and
Exhibit 39 (US Ex. 49).WT/DS179/R
Page 313
Q.6. Does the United States agree that the records of the Plate and Sheet cases show that
POSCO’s "internal exchange rate" was the rate published by the Korean Exchange Bank?  If
not, please describe the evidence  to the contrary in the record.
107.S e e  the United States’ response to Panel Question # 7.
Q.7. Is it the US position that the fact that the currency conversion was made for accounting
purposes in a home-market sale is determinative of, or relevant to, whether that sale was valuedin dollars or won?  If so, please explain the basis for that position.
108. No.  The United States did not base its factual determination on whether a currency
conversion was made for "accounting purposes."  The United States weighed all of the evidence and
concluded that these were won sales based upon the undisputed fact that the sales were invoiced andpaid in won and were reported by POSCO as won sales.WT/DS179/R
Page 314
ANNEX 2-5
SECOND SUBMISSION OF THE UNITED STATES
(29 June 2000)
TABLE OF CONTENTS
Page
I. INTRODUCT ION ................................................................................................................3 15
II. PRELIMINARY ISSUES.....................................................................................................316
A. A RTICLE   X:3 OF GATT 1994 I S NOT RELEVANT TO THE DISPUTE BEFORE THE
PANEL ...........................................................................................................................316
B. T HE FINDINGS BY THE UNITED  STATES WERE NOT “RESULTS ORIENTED ".................317
III. THE DETERMINATION OF THE UNITED STATES WITH RESPECT TO
POSCO’S BAD DEBT  WAS PROPER ..............................................................................317
A. K OREA HAS FAILED TO STATE A CLAIM WITH RESPECT TO THE
UNITED  STATES TREATMENT OF BAD DEBT EXPENSE IN THE CONSTRUCTION
OF EXPORT PRICE ..........................................................................................................318
B. T HE UNITED  STATES ’ TREATMENT OF BAD DEBT EXPENSE IN COMPARING
EXPORT PRICE AND NORMAL VALUE WAS CONSISTENT WITH ARTICLE   2.4.............319
IV. THE UNITED STATES PROPERLY CREATED MULTIPLE AVERAGES IN
LIGHT OF THE 50 PER CENT DEVAL UATION OF THE KOREAN WON .............323
V. THE UNITED STATES PROPERLY DETERMINED THAT THE “LOCAL
SALES” WERE TRANS ACTED IN WON........................................................................327
VI. THE REMEDY REQUESTED BY KOREA IS INAP PROPRIATE...............................329
VII. CONCLUSION ................................................................................................................. ....330
LIST OF EXHIBITS............................................................................................................... ...........331WT/DS179/R
Page 315
I. INTRODUCTION
1. The United States will devote the majority of this second submission to rebutting Korea’s
arguments regarding the primary issues involved in this dispute – whether the United States properly
adjusted for certain bad debt expenses recognized by POSCO in its accounting records for the periodof investigation, whether the United States properly determined that sales before and after a 50 per
cent devaluation of the Korean won should not be averaged together, and whether the United States
properly treated sales invoiced and paid in Korean won as won transactions.
2. Before addressing the substantive issues before the Panel, the United States must correct
certain misstatements contained in Korea’s oral statement at the first meeting of the Panel.
1
Specifically, the United States will address the issues of the applicability of Article  X:3 of the
General Agreement on Tariffs and Trade 1994 ("GATT 1994"), and the allegation, made repeatedly
by Korea, that the determinations in question were “result oriented”.
3. Next, the United States will address the issue of its treatment of bad debt expenses recognized
by POSCO during the period of investigation.  The United States will demonstrate that those expenseswere deducted in the construction of the export price for sales through POSAM, which is governed by
Article  2.3 of the Agreement on Implementation of Article  VI of the General Agreement on Tariffs
and Trade 1994 (the "AD Agreement").  Korea has not asserted any claim under Article  2.3.  The
United States will further establish that its treatment of the bad debt expense in the comparison of
export price and normal value was consistent with the obligation under Article  2.4 to make allowancefor differences in conditions and terms of sale.   Finally, we will demonstrate that the allowance for
bad debt expense was based on an objective assessment of the facts presented by POSCO, as reflected
in its normal accounting records for the period of investigation.
4. The United States will also address the issue of use of two averaging periods within the
period of investigation to account for the 50 percent devaluation of the Korean won.   TheUnited States will demonstrate that the language of Article  2.4.2 clearly limits averaging to
transactions which are “comparable,” an undefined term with a broad range of permissible
interpretations.  The United States will show that Article  2.4 establishes that time is a factor to be
considered in determining comparability in that it re quires that comparisons be made at as nearly as
possible the same time.  Consequently, in light of the 50 percent devaluation in the home market
currency, the United States reasonably concluded that sales before and after such a depreciation
should not be considered to have been made at the “same time” within the meaning of Article  2.4, norto have been “comparable” within the meaning of Article  2.4.2.  Finally, the United States will show
that Korea has presented a highly selective picture of the past practice of the United States on this
issue, and that the position of the United States in the cases before the Panel is consistent with its
position in similar cases.
5. The United States will also show that its determination that “local sales,” which were
invoiced in Korean won, paid in Korean won, reco rded in POSCO’s internal records in Korean won,
and reported in POSCO’s questionnaire response in Korean won, were won transactions is based on
an objective assessment of the information provided by POSCO, including limited information
concerning dollar values reflected on the invoices.
6. This second written submission concludes by refuting Korea’s peculiar assertion that, if the
Panel finds any error in the determinations by the United States, regardless of how small the effect of
such error on the ultimate margin of dumping may be, Article  1 of the AD Agreement requires the
                                                     
1 Oral Statement of the Republic of Korea, made at the First meeting of the Panel on 13-14 June 2000
(hereinafter ROK First Oral Statement ).WT/DS179/R
Page 316
panel to suggest that the entire antidumping measure be revoked, rather than merely that the measure
be brought into conformity with the AD Agreement.
7. Together with this second written submission, the United States is submitting its responses to
the questions presented to the United States by the Panel and by Korea on 13 June 2000.  To themaximum extent possible, the United States has sought to provide complete answers that do not
repeat statements in this submission or depend on this submission for support.  Nonetheless, the Panel
may find certain aspects of the present submission to be germane to the matters covered in the
responses, and vice-a-versa.
II. PRELIMINARY ISSUES
A. A
RTICLE   X:3 OF GATT 1994 I S NOT RELEVANT TO THE DISPUTE BEFORE THE PANEL
8. Korea continues to assert its expansive reading of Article  X:3 which threatens to swallow the
entire DSU, as well as Article  17 of the AD Agreem ent.  According to Korea’s reading, Article  X:3
authorizes a panel to look into domestic precedent regardless of whether an action is otherwise
consistent with the covered agreements, and strike down that action if it has not followed the panel’sdetermination of what that precedent is.
2  This expansive reading is without foundation.
9. As pointed out in the first submission of the United States, Article  X:3 addresses overall
administration  of the law, rather than specific administrative rulings.  The Appellate Body in
Bananas  recognized that Article  X:3(a) does not apply to “laws, regulations, decisions  and rulings ,”
but only to the administration of such matters.3  Thus, if Korea were asserting that the United States
had issued an administrative ruling in which it found dumping for several countries, but was only
collecting duties for some of them, then it might be able to raise a claim under Article  X:3 that the
administration of the ruling was inconsistent.  However, as the Appellate Body recognized in
Bananas , to the extent a party is complaining about the ruling itself, a panel can address that claim
under the covered agreement.
10. This understanding of Article  X:3 is further reinforced by the finding of the Appellate Body
in Shrimp .4  In that case, the Appellate body applied Article  X:3 not because one particular decision
was inconsistent with a prior decision, but rather because it had been alleged that the entire procedure
under review was “non-transparent and ex-parte,” that there was no formal notice of or reasons
provided for actions, and that there was no opportunity for review of or appeal from an action.  In the
present case, although Korea has complained about two particular rulings, it has not argued that some
aspect of the system of enforcement of anti-dumping decisions in the United States is arbitrary.  Inlight of this, Korea’s reliance on Article  X:3 is misplaced.
11. The use to which Korea is putting Article  X:3 is as transparent as it is improper.  Lacking
persuasive arguments that the actions of the Unit ed States are inconsistent with the AD Agreement,
Korea has attempted to bolster its claim by alleging that the United States’ actions were inconsistent
with its domestic precedent.
5  As has been shown, this is simply not the case.  More significantly,
however, the Panel should make clear that this attempt to expand the WTO dispute resolution process
into the role of a reviewing court for domestic law is inappropriate.
                                                     
2 ROK First Oral Statement, at para. 80.
3 See the discussion of the Bananas  decision in the First Submission of the United States of America,
dated 26 May 2000, (hereinafter US First Submission), at para. 43.
4 See the discussion of the Shrimp  decision in the US First Submission, at para. 45.
5 Indeed, Korea goes so far as to assert that th e opinions issued by a US Federal Court which refer
solely to US law, and contain no mention of the AD Ag reement, provide “interpretive guidance” to the Panel
regarding provisions of the AD Agreement.  ROK First Oral Statement at para. 36.WT/DS179/R
Page 317
B. THE FINDINGS BY THE UNITED  STATES WERE NOT “RESULTS ORIENTED "
12. In its statements to the Panel, Korea has gone beyond its earlier allegations that the
United States took actions inconsistent with a proper reading of the AD Agreement.  Korea has now
alleged that this misapplication of the AD Agreement was a deliberate and intentional effort to reach a
certain result —  in Korea’s words, the determinations at issue were “results oriented.”
13. Korea has failed to support this allegation with a single piece of evidence.  Moreover, a
simple review of the facts of the cases before the Panel demonstrates that the United States sided withthe Korean producers on numerous controversial issues.
14. For example, in the preliminary determinations, the United States included sales of non-prime
merchandise in its analysis.  Subsequent to the preliminary determinations POSCO argued that this
action distorted the test for whether sales have been made below the cost of production.6  I n
accordance with POSCO’s arguments, and over the objections of the domestic industry, theUnited States altered its methodology for purposes of the final determinations.
7  Thus, changes made
in the final determination did not solely serve to raise POSCO’s margin of dumping.
15. More significant than the issues on which the United States changed its policy between the
preliminary and final determinations are the number of issues on which the United States sided with
POSCO from the beginning.  For example, as discussed in the first submission of the United States,the United States agreed with POSCO in the preliminary and final determinations, over the opposition
of domestic producers, that the United States should alter its normal currency conversion
methodology so that daily exchange rates were used throughout the period of severe devaluation.
8
Indeed, a review of the final determinations reveals that there are many more issues on which theUnited States agreed with POSCO than on which it  disagreed.  POSCO has taken three issues out of
context, and attempted to portray the entire procedure as “results oriented.”  The facts reveal
otherwise.
16. Finally, in the SSSS  determination, the United States found that another Korean producer,
Inchon, was not dumping at all.
9  Consequently, the United States excluded Inchon from coverage
under the anti-dumping duty order entirely.  Thus, the facts demonstrate that the United States’
determinations were not “results oriented,” but, in fact, were the product of a transparent proceeding
in which the United States accorded producers a meaningful opportunity to participate and made anobjective assessment of the facts and argument presented by the parties in that proceeding.  The fact
that POSCO’s records and responses indicated that it had been dumping in the United States does not
mean that the proceeding was “unfair” or “results oriented.”
III. THE DETERMINATION OF THE UNITED STATES WITH RESPECT TO POSCO’S
BAD DEBT WAS PROPER
17. Throughout this proceeding, Korea has attempted to blur the distinction between deductions
made to construct an export price consistent with Article  2.3 of the AD Agreement, and adjustments
to account for differences between export price (constructed or otherwise) and normal value that
                                                     
6 ROK Ex. 7, at 7-8; ROK Ex. 20, at 6-7.
7 See Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Plate in Coils
(“SSPC”) from the Republic of Korea , 64 Fed. Reg. 15444, 15455 (31 March 1999) (hereinafter SSPC Final
Determination) (ROK Ex. 11); and Notice of Final Determination of Sales at Less Than Fair Value: Stainless
Steel Sheet and Strip in Coils From the Republic of Korea , 64 Fed. Reg. 30664, 30679 (8 June 1999)
(hereinafter SSSS Final Determination ) (ROK Ex. 24).
8 US First Submission, at para. 114 - 117.
9 SSSS Final Determination , at 30688.WT/DS179/R
Page 318
affect price comparability, as required by Articl e  2.4 of the AD Agreement.  It is, of course, in
Korea’s interest to do so because it has not brought a claim under Article  2.3.
18. Understanding the distinction between Articles 2.3 and 2.4 is essential to understanding the
United States’ treatment of the bad debt expense incurred in connection with the sales to ABC
company.  We will demonstrate below that, for sale s through POSAM, this bad debt expense was part
of the construction of  export price, which is governed by Article  2.3.  Further, although Korea has not
made a claim under Article  2.3, the United States will show that the deduction of the bad debt
expense in constructing export price was consistent with Article  2.3.  In contrast, for the remainder of
POSCO’s sales, this bad debt expense was part of an adjustment to neutralize differences inconditions and terms of sale, which is governed by Article  2.4.  The United States will also
demonstrate below that this adjustment was consistent with Article  2.4.
19. In sum, the United States will show that Korea has failed to establish a prima facie  case that
the treatment of this bad debt expense was in violation of the AD Agreement.
A. K
OREA HAS FAILED TO STATE A CLAIM WITH RESPECT TO THE UNITED  STATES TREATMENT
OF BAD DEBT EXPENSE IN THE CONSTRUCTION OF EXPORT PRICE
20. As noted above, Articles 2.3 and 2.4 deal with  separate and distinct aspects of a dumping
analysis.  There is nothing “novel” about this argument, as Korea asserts.10  To the contrary, it is well-
grounded in the AD Agreement, which reflects the f act that, methodologically, export price must be
established before  it can be compared to normal value or the amount of any due allowance for
differences that affect price comparability can be determined.  Article  2.3 addresses how export price
may be established in certain situations.  In particular, Article  2.3 provides that when the export price
is unreliable because of an association between the exporter and the importer, rather than use the
unreliable export price, the export price may be  constructed based on the price to the independent
buyer.
21. During the period of these investigations, POSCO made sales to the United States through its
US affiliate, POSAM.  For those sales, consistent with Article  2.3, the United States constructed the
export price between POSCO and PO SAM.  The United States constructed the export price by
deducting from POSAM’s price to independent buyers all expenses incurred in connection with
POSAM’s sales to independent buyers, including an allocated portion of the bad debt expense
incurred in connection with the sales to ABC company.
22. Because Korea has made no claim under Article  2.3, the United States’ decision to construct
export price and the methodology it employed to do so are not issues before this Panel.  Nevertheless,
it is the United States’ view that its construction of the export price for sales through POSAM was
entirely consistent with Article  2.3.
23. Article  2.3 provides generally that export price may be constructed on the basis of the price at
which the merchandise is first sold to an independent buyer, but provides no other methodologicaldetail.  Additional guidance on the construction of export price is found in Article  2.4,
11 which states
that “in the cases referred to in paragraph 3, allowances for costs, including duties and taxes, incurred
between importation and resale, and for profits accruing, should also be made.”12  The United States
                                                     
10 ROK First Oral Statement, at para. 29.
11 As noted in the United States oral statement, the language in Article  2.4 on construction of export
price is neither mandatory nor exclusive.  Oral Statement of the United States, made at the First meeting of the
Panel on June 13-14, 2000 (hereinafter US First Oral Statement ), at para. 24.
12 This reference in Article  2.4 to allowances made pursuant to Article  2.3 also provides context for
the sentence that follows, which addresses the comparison of constructed export price and normal value.  ThatWT/DS179/R
Page 319
interprets the reference to costs “incurred between  importation and resale” as distinguishing between
costs incurred in connection with the import transaction and those incurred in connection with the
resale. 13  Only the latter are deducted in constructing export price.
24. The United States deduction from POSAM's pri ce to the independent buyer of all expenses
related to that resale was consistent with the guidance in Article  2.4, and with the object and purpose
of Article  2.3, which is to construct a price between the exporter and affiliated importer.   Therefore,
even if Korea had made a proper claim unde r Article  2.3, that claim would fail.
B. THE UNITED  STATES ’ TREATMENT OF BAD DEBT EXPENSE IN COMPARING EXPORT PRICE
AND NORMAL VALUE WAS CONSISTENT WITH ARTICLE   2.4
25. The claims by Korea relate solely to the cons istency of the United States’ treatment of ABC
Company’s bad debt with Article  2.4.  Article  2.4 governs the comparison of export price and
normal value.  Therefore, the issue befo re the Panel is limited to whether, in comparing  export price –
not constructing  it – and normal value, the United States accounted for POSCO's bad debt expense in
a manner consistent with the AD Agreement.
26. Article  2.4 requires a “fair comparison” – it also defines it.  The predecessor to Article  2.4,
Article  2.6 of the Anti-dumping Code, also defined the allowances necessary "[i]n order to effect  a
fair comparison" (emphasis added).  Therefore, how to make a fair comparison was clear.  What was
ambiguous was whether Members were required  to make the fair comparison described in Article 2.6.
That ambiguity was eliminated in the current AD Agreement.  The first sentence of Article  2.4 makesexplicit the requirement to make a fair comparison.  The remainder of Article  2.4, like its
predecessor, defines how “this comparison” is made.
14
27. In light of the object and purpose of the AD Agreement, there is no basis for an interpretation
of Article  2.4 that divorces the obligation to make a fair comparison from the allowances required to
establish price comparability.  In accordance with Article  2.1, a dumping analysis is based on acomparison of prices for sales in the export market to prices for sales in the home market.  By
requiring due allowance for all factors affecting pr ice comparability, Article  2.4 assures that the
prices used to establish dumping in accordance with Article  2.1 are “comparable,” i.e. a comparison
of such prices is fair.  There is simply no logic in asserting that even where transactions in the two
markets are rendered comparable in all respects affecting price, comparing the prices in a dumping
analysis could be unfair.  The concept of fairness and the concept of comparability are inseparable.
                                                                                                                                                                    
sentence states that, if the Article  2.3 allowances affect price comparability, normal value shall be established at
a level of trade equivalent to the constructed export price or due allowance shall be made as warranted.
13 Price is equal to cost plus profit.  After deductin g from the resale price all costs and profit associated
with the resale transaction, the remaining costs and profit represent a construction of the price between the
exporter and the associated importer.  The suggestion th at “incurred between importation and resale” should be
interpreted as a temporal limitation is inconsistent with the object and purpose of Article  2.3 and elevates form
over substance.   Under such an interpretation, whether a cost is accounted for would depend on when the cost is“incurred,” which is ambiguous.  Moreover, whether a cost was accounted for would be based solely on timing;for one transaction the cost would be deducted because the merchandise happened to arrive the day before thecost was deemed to have been “incurred”, and for anot her transaction the identical cost would not be deducted
because the merchandise happened to arrive the day after the cost was incurred.   In contrast, the US
interpretation, which focuses on the transactions – the sale between the exporter and associated importer and the
resale – is consistent with the object and purpose of Article  2.3, which is to construct a price for the formertransaction based on the price for the latter.
14 For a further discussion of the history and interpretation of Article  2.4, see Response to Panel
Question 1 (General).WT/DS179/R
Page 320
28. As explained in our first submission,15 POSCO’s sales to ABC company were comparable to
the normal value transactions, as adjusted in accordance with Article  2.4.  There was nothing unusual
about the merchandise, terms of the contract, distribution channel or any other aspect of the
transactions.  Nevertheless, Korea asserts that it was unfair to include these sales in the dumpinganalysis because they resulted in a bad debt, even though bad debt is a normal selling expense.
Although differences in selling expenses such as bad debt may affect the comparability of export price
and normal value, allowance for such differences can  be made, and such allowance is all that Article 
2.4 requires.
29. The United States’ comparison of export price and normal value in the cases at issue was
consistent with the requirements of Article  2.4 and, therefore, was fair.  To establish a fair
comparison, Article  2.4 requires that due allowance shall be made for differences affecting price
comparability including, inter alia , differences in the "conditions and terms of sale."  A permissible
interpretation of differences in "conditions and terms of sale" encompasses differences in costs
associated with the terms of the sales contract and ot her expenses that are directly related to the sale,
i.e, but for the sale the expense would not be incurred.  The United States refers to such expenses as
"direct selling expenses" and bad debt is such an expense.
30. As discussed in the United States' first submission and its oral statement before this Panel, bad
debt is an expense that is directly related to the payment terms in the sales contract.
16 Whenever a
seller sells on credit, rather than demanding immediate payment, the seller accepts a credit expense,including any bad debt that may result from the sale.  There is no meaningful distinction between bad
debt and other selling expenses, such as warranty, which Korea concedes constitute conditions and
terms of sale within the meaning of Article  2.4.  Selling under warranty directly generates warranty
expense and selling on credit directly generates credit expenses, including bad debt.  In both cases, the
expense is part of the bargain and but for the sale the expense would not be incurred.  Therefore, likewarranty, it is reasonable to treat bad debt as a condition or term of sale within the meaning of
Article 2.4.
17
31. As explained previously, the United States made allowance for differences in direct selling
expenses, including bad debt, through its normal methodology, which is known as the “circumstance
of sale” adjustment.18  This adjustment was made by deducting direct selling expenses on Korean
sales from normal value and adding to normal value the US direct selling expenses.19  As a result, the
effect on the dumping analysis of any differences in  direct selling expenses in the United States and
Korea was neutralized.20
                                                     
15 US First Submission, para. 65-71.
16 US First Submission, at para. 83-86; US First Oral Statement, at para. 14-16.
17 Because bad debt falls within the meaning of “conditions and terms of sale”,  we have not relied on
the reference in Article  2.4 to “any other differences” demonstrated to affect price comparability.  That does notconstitute a concession that bad debt could not fall within "other differences."  See also, Response to PanelQuestion 5 (Treatment of Unpaid Sales).
18 US First Submission, at para. 87; US  First Oral Statement, at para. 12.
19 As the United States noted in its oral statement, for comparison to constructed export price sales
there was no increase  to normal value because there were no direct selling expenses related to the sale between
POSCO and POSAM and all selling expenses related to the resale by POSAM were deducted in constructing theexport price.  US First Or al Statement at para. 12.
20 See also, US First Oral  Statement, at para. 20.WT/DS179/R
Page 321
32.  The allowances required under Article  2.4 must be determined on a case-by-case basis.
Thus, the only remaining issue is whether the United States’ determination of the allowance for
differences in bad debt expenses in this case was based on an objective assessment of the facts.21
33. Korea concedes that whether the unpaid sales are bad debts is not really an issue.  That
concession is not surprising in light of the evidence, discussed below.  Nevertheless, Korea contends
that an adjustment for bad debt is unfair because it is unpredictable and occurs after the price is set.
This argument is difficult to reconcile with the fact that bad debt is, in fact, a normal business expense
that is routinely accounted for in accordance with generally accepted accounting principles (GAAP).
Moreover, as discussed below, POSCO has recognized other bad debts, and accounts for this expensein its normal accounting records.
22
34. In the present cases, the United States based the circumstance of sale adjustment for bad debt
on POSCO’s questionnaire response and its accounting records, as verified, for the period of
investigation.23  In a dumping analysis, it is not possible or practicable to match all expenses with
particular sales because of the nature of the expense and the available information.  The onlypracticable method for making allowance for such expenses is based on the exporter’s actual expenses
during the period of investigation.  In the case of certain contingent expenses, such as warranty,
24 the
United States will also confirm that the expenses recognized during the period of investigation are
consistent with the company’s recent experience.  This is not necessary in the case of bad debt
because, in accordance with GAAP, companies normally account for bad debt using a reserve
accounting method that is based on the company’s experience.  In such cases, the bad debt expense
recognized in a given period reflects that experience.
35. As noted above, in the present cases, the United States based the circumstance of sale
adjustment for bad debt on POSCO’s questionnaire  response and its accounting records.  POSCO
reported the sales to ABC Company and originally stated that they had been “written-off” during theperiod of investigation.
25  Although POSCO later stated th at the sales were simply “unpaid",
POSAM’s accounting records examined at verification were consistent with POSCO’s original
statement that the receivables had been written of f.  POSAM did not maintain a bad debt reserve
account,26 but its records showed a credit to accounts receivable and a debit to sales, which reversed
the entries that recorded the sales.27  POSAM would only make such  entries if it deemed the
receivables to be uncollectable.  Furthermore, there was evidence that POSCO claimed the bad debt
                                                     
21 Article  2.4 states that “[d]ue allowance shall be made in each case, on its merits, for differences
which affect price comparability, including differences in conditions and terms of sale. . . .”  The phrase “on itsmerits” does not suggest that differences in conditions and terms of sale may have no effect on pricecomparability in a given case.  The phrase “differences which affect price comparability” is defined to “include”
those in the illustrative list that follows.  Thus, the differences expressly listed – such as differences in
conditions and terms of sale – are differences which affect price comparability.  What must be determined on
the merits of each case are what allowances are necessary and how they should be quantified, not whether thedifferences affect price comparability.  See also, Res ponse to Panel Question 6 (Treatment of Unpaid Sales).
22 See also, Response to Panel Question 3 (Treatment of Unpaid Sales).
23 Although not controlling in this case, the United States notes that Article  2.2.1.1 states that costs
shall "normally be calculated on the basis of records kept by the exporter or producer under investigation,
provided that such records are in accordance with generall y accepted accounting principles...."
24 This type of "snap shot" analysis is also used fo r expenses that cannot be specifically determined for
the sales during the period of investigation because of the nature and timing of the expense, e.g., research and
development.
25 SSPC POSCO Response to Section A of Initial Questionnaire dated 2 July 1998, at A-3, (US Ex. 7);
SSSS POSCO Response to Section A of Initial Questionnaire dated September 3, 1998, at A-3, (US Ex. 8)
26 In contrast, POSCO and its Korean affiliate, POSTEEL, do maintain bad debt accounts.  See
Response to Panel Question 3 (Treatment of Unpaid Sales).
27 SSPC POSAM Verification Report, at 8-9 and Exhibit 5 (US Ex. 9); SSSS POSAM Verification
Report, at 8, (US Ex. 10).WT/DS179/R
Page 322
expense as a direct write-off for tax purposes.  To do so, POSCO must have deemed the debt
worthless.28  The United States merely relied on POSCO’s determination, as reflected in the evidence,
that these receivables were uncollectible.29  Furthermore, although POSAM did not use a reserve
accounting method for bad debt, the United States based the adjustment for bad debt on theaccounting method used by POSAM.  While PO SAM’s accounting methodology was not based on
experience, it provided the only reasonable means of calculating the bad debt expense.
30
36. Finally, the United States included bad debt expense in the circumstance of sale adjustment
only where there was sufficient evidence to demonstrate that the expense was directly related to sales
of the subject merchandise.  The evidence concerning the bad debt incurred on sales to ABC companydemonstrated that the expense was directly related to US sales of the subject merchandise.  Therefore,
consistent with Article  2.4, the expense was allocated to all US sales and the allocated amount was
included in the circumstance of sale adjustment.
37. In contrast, other bad debt expense recognized by POSCO during the period of investigation
was not included in the circumstance of sale adjustment because the available evidence wasinsufficient to treat the bad debt as a selling expense directly related to US sales of the subject
merchandise.  POSCO and its Korean affiliate, PO STEEL, which is responsible for all export sales,
maintain bad debt accounts.  However, POSCO did not have the ability to tie specific bad debt
expense recognized during the period of investigation to particular products or export markets.  As a
result, it was not possible to determine precisely what portion of the expense was associated with USsales of subject merchandise.  Therefore, although POSCO allocated a portion of the bad debt expense
to its sales to the United States, it reported the bad debt expense as an indirect selling expense and the
United States treated it as such, i.e., the United States did not include this additional bad debt expense
in the circumstance of sale adjustment.
31
38. The foregoing demonstrates that the United States' treatment of POSCO's bad debt expense in
the comparison of export price and normal value was based on a permissible interpretation of Article 
2.4 and an objective assessment of the facts.  Therefore, when rhetoric is put aside in favor of a legal
analysis, it is evident that there is no basis on which to find a violation of the AD Agreement.
                                                     
28 SSSS Response to Supplemental Questionnaire (4 December 1998) at 3 (US Ex. 30).  POSCO stated
that POSAM was required under US tax law to cancel the unpaid sales.  POSAM would only be required by UStax law to recognize the bad debt expense if it was taking the expense as a tax deduction.  To take the deduction,US tax law requires that the debt be worthless.  Bankruptcy of the debtor is generally considered good evidencethat an unsecured debt is worthless.   Publication 535, US Department of Treasury, Internal Revenue Service at
52-53 (US Ex. 31).  Therefore, POSAM must have deemed the debt to be worthless.
29 We note that, although POSAM used negative invoices as the accounting mechanism, this does not
constitute “cancellation” of the sales.  Generally, cancellation of a sale occurs before  the transaction has been
completed.  Once delivery has been made, as in the pr esent cases, the obligation to pay arises, creating a debt.
Thus, by reversing the accounting entries after the debt was established, POSAM was writing off a bad debt, notcancelling the sales.
30 Neither POSCO nor Korea has ever contested the calculation of the bad debt expense, only how that
expense was accounted for in the dumping analysis.
31 Where the evidence is insufficient to tie a direct selling expense such as bad debt to the sales under
investigation it is standard practice to treat the expense as  indirect and, therefore, exclude the expense from the
circumstance of sale adjustment.  For this reason, POSCO also reported its home market bad debt expense asindirect, and the United States treated it as such.  Nevertheless, the evidence reported by POSCO confirms that
POSCO, in fact, has had experience with bad debt, other than the sales to ABC Company, and that POSCO
accounts for such expense in its normal records.  Furt hermore, POSCO deemed a portion of that expense to be
associated with sales to the United States.  See Respon se to Panel Question 3 (Treatment of Unpaid Sales).
Finally, POSCO never claimed that it had no other bad debt related to US sales.  See e.g., SupplementalQuestionnaire Response (US Ex. 30), at 2 (stating only that POSCO had never had a customer go bankrupt).WT/DS179/R
Page 323
IV. THE UNITED STATES PROPERLY CREATED MULTIPLE AVERAGES IN LIGHT
OF THE 50 PER CENT DEVALUATION OF THE KOREAN WON
39. In its first submission, the United States explained that, due to the unprecedented fifty percent
devaluation of the Korean won during the periods of investigation of the cases before the Panel, theUnited States properly determined, under Article  2.4.2 of the AD Agreement, that separate pre-and
post-devaluation averages should be created in order to avoid comparing prices established prior to
the devaluation with prices established after.
32  Korea continues to argue that Article  2.4.2 permits
only a single average of all normal values and expor t prices.  Korea also argues that the fundamental
collapse of the currency in which normal values were denominated was not an event of sufficientsignificance to warrant finding sales before and after the devaluation not “comparable” within the
meaning of Article  2.4.2.  As will be shown below, these arguments are without foundation.
40. Korea’s primary argument is that the text of Article  2.4.2 is “unambiguous.”
33  Korea relies
on what it refers to as the “distinctly singular phrase ‘a weighted average’” contained in Article 
2.4.2.34  According to Korea, this language requires in all cases that, in calculating dumping margins,
Members only create “one average  —  not two averages”.35
41. The United States agrees that, with respect to the number of averages which may be created,
the text of Article  2.4.2 is unambiguous, although its clear meaning is not that asserted by Korea.
Rather, Article  2.4.2 clearly states that averages must be limited to “comparable” transactions.  In
other words, in conducting an anti-dumping investigation, where an investigating authority identifiestwo transactions which are not comparable, and are not made so, for example, through an adjustment
pursuant to Article  2.4, then under Article  2.4.2 they must not be included in a single average.  Thus,
the assumption underlying Article  2.4.2 is that most investigations will involve multiple average-to-
average comparisons.  Indeed, it will only be in the rare case in which every transaction is comparable
to every other transaction, that the investigating authority will be permitted to construct a single
average normal value and a single average export price.
42. Korea’s focus on the use of the singular in the first sentence of Article  2.4.2 (e.g. “ a
weighted-average of prices of all comparable export transaction”) misapprehends the meaning of that
provision.  The sentence presumes that comparability has already been determined prior to
construction of the average.  Thus, to the extent that the investigating authority has identified a group
of comparable transactions, the use of the singular in Article  2.4.2 requires the investigating authority
to calculate only one average of those comparable transactions.  However, it does not require theinvestigating authority to average together transactions which it has found not to be comparable to
begin with.
43. As discussed above, Article  2.4.2 clearly permits creation of multiple averages where
transactions are not comparable.  Thus, the only issue before the Panel is whether the United States’
determination that a collapse of the currency of 50 per cent in two months rendered transactionsbefore and after the devaluation not “comparable” was a permissible interpretation of that term as
used in Article  2.4.2.  In light of this unprecedented situation, the United States acted in accordance
with the Article  2.4.2 in determining that sales prior to the devaluation should not be compared with
sales after the devaluation.
                                                     
32 US First Submission, at para. 107 - 168.
33 ROK First Oral Statement, at para. 46.
34 Id. at para. 45
35 Id.WT/DS179/R
Page 324
44. The term “comparable” is not itself defined in the AD Agreement.  Indeed, the WTO panel in
United States - Measures Affecting the Importation, Internal Sale and Use of Tobacco36 explicitly
found that the word comparable is inherently ambiguous.  As stated in the panel report, “it appeared to
the Panel that the term ‘comparable’, including the ordinary meaning thereof, was susceptible of arange of meanings.”
37  Although the panel in US - Tobacco was looking at the word in a different
context, the fundamental finding is no less relevant in the present case: the ordinary meaning of the
word “comparable” is subject to a range of permissible interpretations.
45. In light of this range of permissible interpretations of the term “comparable,” Article  17.6
squarely governs the Panel’s examination of this issue: “Where the panel finds that a relevantprovision of the Agreement admits of more than one permissible interpretation, the panel shall find
the authorities’ measure to be in conformity with the Agreement if it rests upon one of those
permissible interpretations.”  Given these circumstances, Korea’s burden before the Panel is a heavy
one, for it must establish that the interpretation adopted by the United States is effectively precluded
by the AD Agreement.  This Korea has failed to do.
46. Although Article  2.4.2 does not define the term comparable, leaving the term subject to a
range of permissible interpretations, Article  2.4 does address the issue of comparability.
38  Article  2.4
supports the conclusion that sales before and after a 50 percent devaluation of the currency should not
be considered “comparable,” is a permissible interpretation.
47. Article  2.4 expressly states that comparisons should be “in respect of sales made at as nearly
as possible the same time.”  Thus, Article  2.4 recognizes that time is a fundamental aspect of
comparability.  In light of this requirement, far from the year-long average proposed by Korea, the
AD Agreement presumes that multiple averages of shorter periods typically result in a preferable
comparison.  Indeed, one could view the cited language of Article  2.4 as expressing a preference for
daily averages (i.e. average normal values or export prices made up solely of sales made on the sameday), because sales made on the same day are “made at as nearly as possible the same time.”  Further
support for such a methodology is found in the fact that comparisons of daily averages would be very
similar to the transaction-to-transaction methodology, which is expressly approved by Article  2.4.2.
48. In most cases, absent any allegation or evidence to the contrary, the United States considers
sales made within a one-year period to be sufficiently close in time to satisfy the “same time”
requirement of Article  2.4.  However, where facts indicate that changes within the year have the
potential to affect comparability of the transactions, for example high inflation in the exportingcountry in question,
39 the United States will divide the period of investigation into shorter periods.40
Indeed, the “same time” requirement of Article  2.4 should lead Members to create multiple averaging
                                                     
36 Panel Report on United States -- Measures Affecting the Importation, Internal Sale and Use of
Tobacco , adopted 4 October 1994, BISD 41S/131 ( “US -- Tobacco” ).
37 Id., 41S/176, para. 123.
38 Article  2.4.2 is expressly made subject to “the provisions governing fair comparisons in paragraph 4
of this Article .”
39 See, US First Submission, at para. 154, and cases cited therein.
40 The United States has long contemplated the possibility that facts may arise which would call for
averaging periods of less than the full period of investigation when it adopted section 351.414(d)(3) of itsregulations, 19 C.F.R. § 351.414(d)(3), which reads as follows:
Time period over which weighted average is calculated.   When applying the
average-to-average method, the Secretary normally will calculate weighted averages for the
entire period of investigation or review, as the case may be.  However, when normal values,export prices, or constructed export prices differ significantly over the course of the period ofinvestigation or review, the Secretary may calculate weighted averages for such shorter periodas the Secretary deems appropriate.WT/DS179/R
Page 325
periods whenever time may have affected the comparability of prices.  In other words, Members
should not presume that a year-long average is necessarily preferable, as urged by Korea.
49. The above indicates that a Member could interpret the “same time” requirement of Article 2.4
and the “comparable” requirement of Article  2.4.2 as authorizing an interpretation that two groups oftransactions are not comparable ( i.e. not made at as nearly as possible the same time) merely because
they were made on different days (when same-day comparisons can be made).  In light of this
permissible interpretation, it is clearly permissible for the United States to conclude that periods
distinguished from each other by a much greater difference, i.e. a 50 percent devaluation, should also
not be considered comparable.
50. It is also significant to note that POSCO is no worse off under the methodology adopted by
the United States than it would have been had the United States used the transaction-to-transaction
methodology (or a comparison of daily averages).  Under Article  2.4.2, the United States is free to
employ a transaction-to-transaction comparison met hodology, although it does not do so in most cases
for practical reasons.
41  Had the United States adopted a transaction-to-transaction comparison
methodology there would have been few, if any, comp arisons of transactions prior to the devaluation
with transactions after the devaluation.  Conseque ntly, the permissible outcome of a transaction-to-
transaction analysis would have been the same as the multiple averaging periods used in the cases
before the Panel.  An outcome which is permissible under the transaction-to-transaction methodology
should not be deemed unreasonable when reache d through an average-to-average methodology.
51. Korea has argued that sudden dramatic shifts in exchange rates cannot affect the
comparability of transactions in the home market and the United States.42  According to Korea,
differences in levels of trade and differences in physical characteristics of the products sold may result
in transactions which are not comparable, but dramatic differences in the value of the home market
currency in which transactions are denominated do not.43  Korea offers no argument to support this
assertion.44  As discussed previously, the term “comparable” in Article  2.4.2 is subject to a range of
permissible interpretations.  Further, Article  2.4 contemplates that time, no less than levels of trade
and physical characteristics, should be taken into account when making comparisons.
52. Moreover, Korea’s argument that physical characteristics and levels of trade may make
transactions not comparable within the meaning of Article  2.4.2 appears to conflict with the argument
that Article  2.4.2 is clear on its face in only allowing “one average — not two averages.”45  While
                                                     
41 Indeed, such a transaction-to-transaction approach is  also authorized under US  law.  See, 19 USC. §
1677f–1(d)(1).
42 ROK First Oral Statement, at para. 48.
43 Id.
44 Korea even appears to assert that the devaluatio n was not a particularly remarkable event: merely an
“overvaluation” in one part of the year offset by an “undervaluation” in another part until it settled on a “mid-point” of approximately 1400 won to the dollar.  ROK First Oral Statement, at para. 49.  First, the United Statesassumes that it is not the position of the Government of Korea that the won would be “overvalued” at 900 won
to the dollar.  Second, describing an exchange rate of 1400 won to the dollar as a “mid-point” is somewhat like
describing the Alps as hills of average size because they are not as high as the Himalayas.  The daily won/dollarexchange rate never reached 900 won to the dollar, let alone 1400 won to the dollar, for at least several decades
prior to the period of investigation.  See, the Federal Re serve Bank’s listing of historical exchange rates reaching
back to January 1, 1990.  (US Ex. 32).  See also, listing of historical daily exchange rates for 1981 through 1990maintained on the Internet by the Pacific Exchange Rate Service of the University of British Columbia at
http://pacific.commerce.ubc.ca/xr.  (US Ex. 33).  See also, the graph of exchange rates during the period of
investigation which POSCO supplied during the SSPC  investigation.  (US Ex. 21).
45 ROK First Oral Statement, at para 45, states un equivocally that Article  2.4.2 only permits “one
average.”  However ROK Oral Statement, at para. 54, st ates that multiple averages for products with different
physical characteristics are permitted.WT/DS179/R
Page 326
Korea has described it as “obfuscation,”46 the confusion of the United States on this point is genuine:
If the “unambiguous” language of Article  2.4.2 only permits “one average,” how can it also permit
multiple averages by level of trade and product?  The United States agrees with Korea that
transactions may be considered “not comparable” based on differences in their levels of trade orphysical characteristics.  Similarly, transactions can be considered not comparable based on
differences in the time at which the sales are made.
53. Moreover, contrary to Korea’s assertion, the value of the currency in which a transaction is
conducted is a fundamental characteristic of a transaction.  For example, a person who is asked how
many units of an unidentified currency (“currency X”) they would be willing to pay for a automobilewould be unable to answer the question until they had some information about the value of currency
X in the economy and, in the final analysis, relative to other currencies.  Thus, a 50 percent
depreciation of the currency in which a transaction is denominated represents a fundamental change in
the comparability of that transaction with transaction prior to the devaluation.
54. Korea has also asserted that the United States action was inconsistent with its prior practice
with respect to rapidly declining exchange rates.
47  According to Korea, the United States, in Certain
Preserved Mushrooms from Indonesia48 found that it would be improper to create two averages in
response to a currency devaluation.49  However, as pointed out in the First Submission of the
United States, the Mushrooms decision was based on a finding that the ultimate dumping margin in
that case would not change regardless of whether the United States used a single period-long average,or created two averages.
50  In light of this fact, the United States declined to address the issue.
55. Moreover, Korea overlooks the fact that in the very next investigation to address the
devaluation of the Indonesian rupiah, the United States did create two averaging periods.  Three
months after the Preserved Mushrooms  determination cited by Korea, in the same month in which the
SSPC  final determination was issued, the United States was again faced an investigation in which the
devaluation of the Indonesian rupiah was an issue.  In Extruded Rubber Thread from Indonesia51 the
United States concluded, as it did in the cases before the Panel, that a severe devaluation could create
a situation in which multiple averaging periods would be warranted.  The final determination in
Extruded Rubber Thread  states:
We agree with petitioners that separate averaging periods should be used.  Under
section 777A(d)(1)(A) of the Act , the Department has wide latitude in calculating the
average prices used to determine whether sales at less than fair value exist.  Morespecifically, under 19 C.F.R. 351.414(d)(3), the Department may use shorter
averaging periods where normal value varies significantly over the POI.  In this case,
such a change is evidenced by the steady, si gnificant decline in the rupiah’s value that
began about August 1997 and continued through the end of the POI.  From August
through December, the end of the POI, the rupiah’s value decreased by more than 50per cent in relation to the dollar.  Conseque ntly, it is appropriate to use two averaging
periods to avoid the possibility of a distortion in the dumping calculation.  We
disagree with Globe’s claim that the use of averaging periods is not warranted
because the POI is the same as the POI in Preserved Mushrooms.  Whereas we
                                                     
46 ROK First Oral Statement, at para. 54.
47 ROK First Submission, at para. 3.43 - 3.45.
48 Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from
Indonesia , 63 Fed. Reg. 72268, 72272 (December 31, 1998) (Preserved Mushrooms) (ROK Ex. 40).
49 ROK First Submission, at para 4.56.
50 US First Submission, at para. 163.
51 Final Determination of Sales at Less Than Fair Value: Extruded Rubber Thread from Indonesia , 64
Fed. Reg. 14690 (26 March 1999) ( Extruded Rubber Thread ) (US Ex. 34).WT/DS179/R
Page 327
declined to use two averaging periods in that case because doing so would have had
no effect, thus rendering the issue moot, in this case the use of two averaging periods
would affect our determination.  As noted above, in our view, using a single
averaging period would result in a distortion of the dumping calculation.52
56. Thus, on the one hand Korea has represented as a substantive decision a prior determination
(Preserved Mushrooms ) in which the United States explicitly declined to address multiple averages.
On the other hand, Korea has ignored a prior decision ( Extruded Rubber Thread ) in which the
United States reached a decision on the multiple averages issue which is fully consistent with thecases before this Panel.  This selective use of prior determinations demonstrates a fundamental
problem with Korea’s approach: absent a showing that the entire anti-dumping regime in the
United States is pervasively arbitrary, the Panel’s attention should be focused on consistency with the
AD Agreement, rather than on consistency with th is or that prior administrative determination.
POSCO is free to refer the issue of consistency with domestic law to a domestic court which is well-suited to determining what the prior practice is, and whether a given action is consistent with that
practice, or the reasons for departure sufficient.
53
57. In sum, the language of Article  2.4.2 clearly limits averaging to transactions which are
“comparable,” an undefined term with a broad range of permissible interpretations.  Article  2.4.2 is
specifically made subject to the fair comparison provisions of Article  2.4.  Article  2.4 states thatcomparisons should be made at as nearly as possible the same time.  Consequently, in light of the
50 per cent devaluation in the home market currency, the United States reasonably concluded that
sales before and after such a depreciation should not be considered to have been made at the “same
time” within the meaning of Article  2.4, and therefore not “comparable” within the meaning of
Article  2.4.2.  Finally, the position of the United States in the cases before the Panel is consistent withsimilar cases, notwithstanding Korea’s claims to the contrary.
54
58. In light of the foregoing, the Panel should find that the United States’ use of multiple
averaging periods is in conformity with the AD Agreement.
V. THE UNITED STATES PROPERLY DETERMINED THAT THE “LOCAL SALES”
WERE TRANSACTED IN WON
59. With respect to the issue of “local sales,” Korea has failed to prove its claim that the
United States’ establishment of the facts was improper, and its evaluation of the facts was biased andnot objective.
60. The United States and Korea agree that when the sales used to establish normal value and
export price are in different currencies, a conversion of currencies is required, consistent with
Article 2.4.1.  With respect to POSCO’s “local sale s”, Korea claims that no conversion was necessary
because the sales were made in dollars.  On the other hand, the United States determined, based on an
                                                     
52 Id., 64 Fed. Reg. at 14693.
53 Korea has also repeatedly discussed the issue of refusing to offset dumping by the amount by which
certain sales may exceed normal value, which Korea refe rs to as “zeroing,” as if that practice were an
independent reason for finding the actions of the United States inconsistent with the AD Agreement.  See, e.g.ROK First Oral Statement, at para. 42.  Yet Korea has not provided any argument to support such a position, nor
even clearly asserted whether it believes that “zeroing” is not in accordance with the AD Agreement.  In any
event, as Korea made no mention of the issue of “zeroing” in its request for panel review (nor during
consultations), the Panel should conclude that the issue is not within its terms of reference, and consequently
should decline to address the issue.  This issue is discussed further in response to Korea’s question 1 regarding“Multiple Averaging.”
54 The incomplete picture presented by those claims only serves to demonstrate why the focus of WTO
panels should be on consistency with WTO agreements, rather than on the consistency with domestic law.WT/DS179/R
Page 328
assessment of all the information provided by POSCO, that the sales were made in won and,
therefore, converted the won prices reported by PO SCO to dollars, consistent with Article  2.4.1.  In
short, the central issue in dispute is a question of fact, i.e., whether these local sales were in won or
dollars.
61. Over the course of these anti-dumping investig ations the facts asserted by POSCO concerning
the local sales issue changed.55  The information was, at times, contradictory or vague, and some was
provided late in the proceeding.  Further, some was provided in one proceeding, but not the other.
Nevertheless, the United States evaluated the facts in the SSPC and SSSS investigations objectively
and without bias.  The facts established on the record of these investigations support theUnited States’ conclusion that the currency of “local” sales was Korean won.  Nothing Korea has
presented to this Panel in its attempt to retry the facts substantiates its claim that the establishment of
the facts was improper, or that the United States’ evaluation of the facts was biased and not objective.
Therefore, the Panel must uphold the United States’ determination, even though the Panel may have
reached a different conclusion.
62. In these investigations, the United States confirmed that the won amounts originally reported
by POSCO in its response were on the invoices  and matched the won amounts recorded in the
company’s accounts receivable, although the dollar amounts later reported by POSCO also were listed
on the invoices.  Further, it is beyond dispute in both SSPC and SSSS that POSCO received payment
in Korean won for all local sales.
63. In its oral statement to the Panel, Korea boldly asserted that “the United States converted the
dollar value into won at one exchange rate, calcul ated normal value in won, and then converted the
won normal value into dollars at a different exchange rate.”
56  That statement is a literal half-truth.  It
is well-established on the record of both investigations that in its final determination the United States
made a single conversion of won to dollars for all sales that were transacted in won currency.57  The
United States converted the actual won amount on POSC O’s invoices to its customers, the same won
amount that POSCO reported in its home market sale s listing in both investigations, and the same won
amount recorded in the company’s accounts receivable.
64. Korea’s claim of a double conversion is not based on the actual methodology used by the
United States, but rather on the premise that the currency of the transaction was actually dollars, not
won.  However, as discussed above, the properly established facts surrounding these sales do not
support that premise.  The facts showed that no dollars change hands, the customer is charged(invoiced) in won, pays in won, and POSCO enters the won amount into its accounts receivable.
Given those facts, the United States’ determination that these are won-sales cannot be found to be
anything but unbiased and objective.
65. Korea also reiterates its argument that use of the dollar amount is necessary to avoid
distortions caused by currency conversions.  Once again, the premise of the argument is that theparties locked in a dollar price, and therefore, any differences due to currency conversion constitute a
“distortion.”  As discussed in the United States’ first submission, this argument is simply another way
of saying that the transactions were in dollars, and the appropriate conversion formula is the one
established by the POSCO, rather than the method established under Article  2.4.1.  The conversion
formula used by POSCO does not satisfy the rules set forth in Article  2.4.1.
                                                     
55 For a detailed discussion of these changing assertions by POSCO, see Response to Panel Question 3
(“Currency Conversion”).
56 Korea’s 13-14 June  Oral Statement , at para. 26.
57 Note that in the preliminary determination in SSSS the United States did inadvertently convert the
dollar figure into won, then back into dollars.  However, it corrected this error in the final determination.  Thispreliminary error is further discussed in response to Panel Question 14 (Currency Conversion).WT/DS179/R
Page 329
66. Finally, Korea claims that the United States admits error in “its stated rationale for making the
double conversion.”58  Korea claims that hidden in footnote 161 of the US submission is an admission
in which the United States “concedes” that the anti-dumping measures are based upon a faulty
rationale.  Although the error occurred only with respect to the SSPC investigation, Korea hasmisinterpreted the United States’ statement contained in the footnote.
67. In the First Submission of the United States, at footnote 161, the United States stated that it
inadvertently used “adjusted exchange rates” in the SSPC case solely  for purposes of determining,
pursuant to Roses from Colombia , whether POSCO’s exchange rate for converting won prices to
dollars mirrored the rate the United States would use.  These were not the rates used to convert
POSCO’s won sales to dollars.  The “adjusted exchange rates” referred-to are the rates produced by
the United States’ normal currency conversion methodology, which did not take into account the
devaluation during November and December, 1997, i.e. which used benchmark rates rather than daily
rates during this period.  The table in that footnote demonstrates that use of the daily rates for this
comparison still reveals that POSCO’s rates differed substantially  from the rates being used by the
United States.  Thus, the error did not erode in any way the United States’ rationale for declining to
apply the Roses  exception.
68. Moreover, Korea’s continued reliance upon Roses from Colombia  as a reflection of the
United States’ practice is flawed.  As the United States has stated, Roses  is a single-case exception to
the United States’ practice, not the rule.  The facts of the cases before the Panel differ significantlyfrom Roses , and no subsequent case has followed the position taken in Roses . Moreover, it is
important to recognize that Roses  pre-dates the Uruguay Round Agreements Act of the United States
and thus none of the requirements of Article  2.4.1 were considered in that case.  By contrast, in SSPC
and SSSS, the exchange rates applied by the United States satisfied the requirements of Article  2.4.1.
69. The foregoing demonstrates that the United States establishment of the facts concerning
POSCO’s local sales was proper, and its evaluation unbiased and objective.  These were local won
transactions that were converted to dollars in accordance with Article  2.4.1.  Accordingly, there is no
basis upon which to find a violation of the AD Agreement.
VI. THE REMEDY REQUESTED BY KOREA IS INAPPROPRIATE
70. Korea continues to argue that, should the Panel agree with it on the merits, the Panel may
suggest revocation of the anti-dumping measures.
59  Korea relies upon Article  1 of the AD
Agreement, which it claims, plainly dictates th at anti-dumping measures may be applied only
pursuant to investigations initiated and conducted in accordance with the provisions of the AD
Agreement.  Korea claims that if the investigations were not conducted in accordance with the AD
Agreement, then the Member does not have authority to maintain the anti-dumping measures.
71. Korea’s broad interpretation of Article  1 of the AD Agreement cannot withstand scrutiny.
Under that reading, the only permissible remedy available, regardless of the nature or magnitude ofthe violation, would be to eliminate the measure in its entirety.  Such an interpretation would render
meaningless the provision under Article  19.1 of the DSU that a panel recommend that the Member
“bring the measure  into conformity with that agreement.”
60  If the drafters had intended that a measure
be eliminated based upon any violation, the drafters could have so stated.  They did not.  Further,
there would be no need to provide panels with the discretion to make suggestions if the intent weresimply to eliminate the measure upon a finding of a violation. Therefore, even if the Panel were to
agree with Korea on the merits, Article  19.1 mandates the recommendation that the Panel is to make.
                                                     
58 Korea’s 13 June Oral Statement , at para. 36.
59 ROK First Oral Statement, at para. 84.
60 Article  19.1 of the DSU (emphasis added).WT/DS179/R
Page 330
VII. CONCLUSION
72. In light of the foregoing, the Panel should conclude that the measures undertaken by the
United States are consistent with the AD Agreement in all respect.WT/DS179/R
Page 331
LIST OF EXHIBITS
Exhibit Description
US Ex. 30 SSSS – POSCO Response to Supplemental Questionnaire dated Dec. 4, 1998
(excerpts)
US Ex. 31 US Internal Revenue Service Publication 535 (excerpts)
US Ex. 32 Federal Reserve Daily Won/US$ Exchange Rates 1990 - 2000
US Ex. 33 Pacific Exchange Rate Service Daily Won/US$ Exchange Rates 1981 - 1990
US Ex. 34 Notice of Final Determination of Sales at Less Than Fair Value: Extruded Rubber
Thread from Indonesia, 64 Fed. Reg. 14690 (March 26, 1999)
US Ex. 35 SSPC – Final Analysis Memorandum for POSCO
US Ex. 36 SSSS – Final Analysis Memorandum for POSCO
US Ex. 37 SSPC – POSCO Response to Section A of Initial Questionnaire, dated July 1, 1998
(excerpt from POSCO Chart of Accounts and Narrative)
US Ex. 38 SSPC – POSCO Response to Supplemental Section B & C Questionnaire, dated
August 26, 1998 (excerpts)
US Ex. 39 SSPC – Verification Exhibit 41:  Brea kdown of POSCO’s Reported Indirect Selling
Expense Figures for POSCO and POSTEEL
US Ex. 40 SSPC – Exhibit B-16 and Narrative from  POSCO’s Response to Section B of Initial
Questionnaire, dated July 20, 1998 (excerpt)
US Ex. 41 SSSS – POSCO Response to Sections B & C of Initial Questionnaire, dated
September 23, 1998 (excerpts)
US Ex. 42 SSSS – POSCO Response to Supplemental Section B & C Questionnaire, dated
November 23, 1998 (excerpts)
US Ex. 43 SSPC - POSCO Response to Supplemental Section D Questionnaire, dated October
16, 1998 (excerpts)
US Ex. 44 SSPC - Ministerial Error Allegation Memorandum, dated November 23, 1998
US Ex. 45 SSPC - Verification Outline, dated November 2, 1998 (excerpts)
US Ex. 46 SSSS - POSCO Response to Section A Questionnaire, dated September 2, 1998
(excerpts)
US Ex. 47 SSSS - Department Supplemental Questionnaire, dated October 23, 1998 (excerpt)
US Ex. 48 SSSS - Preliminary Analysis Me morandum, dated December 17, 1998 (excerpt)
US Ex. 49 SSPC - Exhibit 39 from Sales Verification Report for POSCO, dated January 5, 1999
US Ex. 50 SSPC - Exhibit 23 from Sales Verification Report for POSCO, dated January 5, 1999WT/DS179/R
Page 332
ANNEX 2-6
ORAL STATEMENT OF THE UNITED STATES
SECOND MEETING OF THE PANEL
(12 July 2000)
CONTENTS
Page
I. INTRODUCT ION ................................................................................................................3 33
II. FAIR COMPARISON..........................................................................................................334III. BAD DEBT ................................................................................................................... .........334
IV. MULTIPLE AVERAG ING PERIODS...............................................................................338
V. LOCAL SALES.................................................................................................................. ...340
VI. CONCLUSION .................................................................................................................. ...341WT/DS179/R
Page 333
I. INTRODUCTION
1. Thank you Mr. Chairman and members of the Panel.  The United States is pleased once again
to have the opportunity to appear before you to present its views on the issues raised in this
proceeding and to address any issues on which the Panel would like further clarification.  TheUnited States has presented its views in its prior submissions and during the first panel meeting and,
at this stage in the proceedings, the issues are in sharper focus.
2. There are, however, some new aspects to Korea’s arguments that we would like to address.
In fact, you can well imagine my surprise when I opened Korea’s rebuttal brief and read that theUnited States had sounded a full retreat and conceded the entire case.  To be precise, the word
"conceded" appears 27 times in Korea’s submission, not including the table of contents.  Thus, you
can also imagine my relief when, upon further examination, it was evident that we had only
"conceded" arguments never made and retreated from positions never taken.
3. Of course, the United States has not conceded this case.  We continue to be of the view that,
despite the fact that Korea is unhappy with the resu lts, the investigations at issue were conducted in
complete conformity with the requirements of the Anti-dumping Agreement.  As discussed in our
prior submissions, all of Korea's attempts to find a basis for its complaints in the provisions of the
Agreement fail.
4. Of course, one way Korea might prevail is if the United States were precluded from
presenting a defense.  To that end, Korea argues th at, in this proceeding, any arguments made or facts
cited by the United States that were not addressed in its notices and decision memoranda in the
underlying investigations constitute post hoc  rationalizations.  Korea relies on the panel's decision in
High Fructose Corn Syrup , but a review of that case reveals that it addressed an entirely different
issue and does not support Korea's argument.  In Corn Syrup , the panel found that there was no
evidence that Mexico had made the findings and conclusions necessary to impose duties retroactively,
and the panel concluded that it was not its task to attempt to discern them from the record.
5. In contrast, the United States' findings and conclusions on the issues before this Panel are set
forth in its notices and decision memoranda, and we have stood by those decisions during thisproceeding.  Of course, as Korea has acknowledg ed, arguments concerning consistency with WTO
obligations were not an issue in the domestic proceeding.  Therefore, the absence of any arguments
concerning WTO consistency in the notices is not surprising.  A rationale that was never required in
the first place is not post hoc .   I would like to use as an example, the Article 2.3/2.4 issue.  This is not
an issue under domestic law.  The notices and decision memoranda show that we calculated twoseparate adjustments, one for constructing export price for sales through POSAM and one for the
circumstance of sale adjustment.  Those adjustments are covered under two separate provisions of US
law.  In its first submission, Korea described the bad debt deduction as a single adjustment to all
export prices.  In response, the United States pointed out that there were two adjustments covered
under different provisions of the Agreement, Articles 2.3 and 2.4, which brought us to the currentdiscussion of those two provisions.  This example demonstrates that this not a case of post hoc
rationale, but merely point/counter point.
6. Moreover, as required by the Agreement, the United States discussed in the notices and
decision memoranda the facts relied upon in reaching its conclusion.  Nothing in the Agreementsuggests that the United States is now precluded fr om addressing Korea’s arguments, in which they
re-weigh the facts and argue that the United States should have reached a different conclusion.  In
arguing to the contrary, Korea is essentially asking the Panel to require the United States to defend its
position with one hand tied behind its back.WT/DS179/R
Page 334
II. FAIR COMPARISON
7. Korea also hopes to find a cure for the flaws in its legal arguments in the first sentence of
Article 2.4.  Putting aside for the moment the textual problems with Korea’s argument that the "fair
comparison" requirement in the first sentence of Article 2.4 is a separate obligation, independent ofthe remainder of Article 2.4, take a moment and simply consider the issue logically.  Under Korea’s
interpretation, the United States (or any other Member) could perform a dumping analysis that
compares identical products at the same levels of trade, makes all allowances necessary to ensure
price comparability, converts currencies in accordance with Article 2.4.1 and constructs weighted
average export prices and normal values in accordance with Article 2.4.2 and yet would still besubject to a claim that the analysis was unfair.  However, Korea has failed to explain what could
possibly be unfair about a dumping analysis that meets the methodological requirements set out in
Article 2.4.
8. In effect, Korea’s interpretation of the first sentence of Article 2.4 renders the remainder of
Article 2.4 meaningless.  It also presumes that th e Members, after the painstaking process of reaching
consensus on the basic rules for conducting a dumping analysis, then accepted a virtually limitless
number of undefined rules that override that consensus.  However, an analysis of the text of
Article 2.4 and its history demonstrates to the contrary.
9. Contrary to Korea's assertion, the US is not reading "fair comparison" out of the Agreement.
While the first sentence of Article 2.4 establishes an obligation to make a fair comparison, the
remainder of Article 2.4 defines that comparison.  As we explained in response to the Panel’s
question, the predecessor to Article 2.4, Article 2.6 of the Anti-Dumping Code, also defined what was
required " [i]n order to effect  a fair comparison" (emphasis added).  However, there was no language
in Article 2.6 that clearly made that comparison mandatory.  "In order to effect" was ambiguous.  It is
not the United States' view that the provisions were discretionary, only that the language was
ambiguous and the change removed that ambiguity.
10. The ambiguity was eliminated in the current Agreement by adding the first sentence of
Article 2.4, in which the requirement to make  a fair comparison is explicit.  However, the remainder
of Article 2.4, like its predecessor, defines the comparison.  In fact, the version of Article 2.4contained in what is known as the "Dunkel Draft" was specifically amended to begin the second
sentence of Article 2.4 with the words "this comparison", thereby explicitly establishing that the rules
that follow defined the fair comparison.  Further, the first sentence of Article 2.4.2 explicitly refers to
the provisions of paragraph 4 as "governing fair comparison", which is consistent with the view that
Article 2.4 defines a fair comparison.
11. Thus, whether the price comparison performed by the United States in the underlying
investigations was "fair" can only be judged in light of the explicit methodological requirements of
Article 2.4.  Because the comparison performed by the United States in the cases at issue was
consistent with those requirements, Korea's claims of  a violation of Article 2.4 must fail.  I would like
to review briefly the key points that inevitably lead to that conclusion.
III. BAD DEBT
12. With respect to the treatment of bad debt ex pense, the issue before the Panel boils down to
two questions: (1) can you adjust for bad debt expense under Article 2.4; and (2) if an adjustment ispermitted, how do you calculate it?
13. With respect to the first question, Korea has a problem because – as the United States has
consistently explained – with respect to POSCO's sales through POSAM, the allocated portion of the
bad debt expense was part of the deductions the United States made to construct export price pursuantWT/DS179/R
Page 335
to Article 2.3.  This was not an Article 2.4 adju stment.  However, Korea's claim concerning the
United States' treatment of bad debt expense is  based solely on Article 2.4.  Therefore, any
adjustments for bad debt made pursuant to Article 2.3 of the Agreement are not before the Panel.
Korea's attempts to overcome this problem are transparent and the fallacies in their argumentsobvious.
14. First, Korea argues that Article 2.3 is within the Panel's terms of reference.  As a general
matter, that argument is, without question, incons istent with the DSU and prior panel decisions.
More specifically, it is inconsistent with the terms of reference established by this Panel.  The terms ofreference for this proceeding state that the Panel is to examine this matter "in the light of the relevant
provisions of the covered agreements cited by Korea " (emphasis added).  Therefore, the Panel may
only consider the United States' treatment of bad debt expense in light of Article 2.4 because that is
the only provision cited by Korea as the basis for its claim.
15. Korea does not dispute the fact that the United States constructed export price for POSCO's
sales through POSAM and that in doing so the United  States deducted an allocated portion of the bad
debt expense.  Moreover, Korea does not claim that Article 2.4 governs the construction of export
price.  Rather, Korea argues that by virtue of the fact that we have noted that the construction of
export price is addressed in Article 2.3, the United States has, in effect, amended the terms ofreference to include Article 2.3.
16. That argument turns the DSU on its head.  Under Korea's theory, the terms of reference are no
longer defined by the claims asserted, but rather by the defences raised.  That position is inconsistent
with Articles 6.2 and 7.1 of the DSU.  In accordance with the DSU, the issue before the Panel iswhether Korea can establish that the deduction of an allocated portion of bad debt expense made to
construct the export price was inconsistent with Article 2.4, which is the only provision cited by
Korea.  To decide that issue, it is unnecessary and inappropriate to consider Article 2.3.  A simple
reading of Article 2.4 demonstrates that nothing in  that provision precludes the United States from
deducting the allocated bad debt expense in constructing export price.
17. That brings me to Korea's fallback argument.  Korea argues that Article 2.3 is irrelevant, even
in the case of the constructed export price sales through POSAM.  The logic of this argument is
essentially as follows:  the United States adjusts for differences in direct selling expenses under
Article 2.4; therefore, because the United States  considers bad debt a direct selling expense, any
adjustment for bad debt must be justified under Article 2.4.  This is analogous to arguing that all
houses are buildings; therefore, because we are now in a building we must be in a house.
18. As explained in our prior submissions, the United States, in fact, made two different types of
adjustments.  The difference in the adjustments was based on the difference in the types of
transactions being examined, i.e., POSCO's sales through its affiliate POSAM and POSCO's sales
directly to independent US buyers.  In the case of the sales through POSAM, an allocated portion of
the bad debt expense was part of the adjustments made to construct export price, as provided for in
Article 2.3.; no further adjustment for bad debt was made for these transactions.  Only in the case of
POSCO's direct sales to independent buyers was an allocated portion of the bad debt expense made
part of the adjustment to account for differences in conditions and terms of sale, as required by
Article 2.4.
19. The fact that there were two different adjustments made pursuant to two different provisions
of the Agreement is a problem for Korea because, as discussed previously, the Panel can only review
the consistency of the measures at issue with respect to one of those provisions, Article 2.4.   To
overcome this problem, Korea attempts to convert the Article 2.3 adjustment to construct export priceinto an Article 2.4 adjustment.WT/DS179/R
Page 336
20. In that regard, Korea searches for some he lp in the statement in the fourth sentence of
Article 2.4 that certain adjustments should "also" be made in constructing export price.  Korea states
that the term "also" makes it evident that adjustments to construct export price are not a replacement
for adjustments to account for differences affecting price comparability.
21. The United States agrees that adjustments made to construct export price in accordance with
Article 2.3 serve a different purpose than Article 2.4 adjustments.  In fact, the fifth sentence of
Article 2.4 recognizes that the Article 2.3 adjustments can render prices incomparable, whereas
Article 2.4 adjustments establish comparability.  Because the two types of adjustments are separateand distinct, it is obvious that Article 2.3 adjustments do not replace Article 2.4 adjustments.  By the
same token, Article 2.4 adjustments do not replace Article 2.3 adjustments.  In fact, it is necessary to
make the Article 2.3 adjustments – that is, to construct export price – before  determining what
Article 2.4 adjustments are necessary.
22. The real key to Korea's attempts to resolve its Article 2.3 problem is its theory that there can
be only one adjustment – what they consistently refer to as "the" adjustment – for what Korea appears
to view as a total, indivisible bad debt expense.  Based on that premise, Korea argues that, because the
United States included bad debt expense in the Article 2.4 adjustment made for the comparison of
POSCO's direct sales, all adjustments for bad debt expense must be justified under Article 2.4.  The
adjustment made to construct export price is thereby, in Korea’s view, converted into an Article 2.4
adjustment, rendering Article 2.3 irrelevant, which would solve their problem.
23. The fundamental flaw in this argument is that the premise is false – the total bad debt expense
is not indivisible.  In a dumping analysis, first the amount of selling expenses for each transaction isdetermined, then appropriate adjustments are made based on those expenses, as necessary.  Because
the necessary adjustments may vary, depending on whether the transaction at issue is a direct export
sale or a resale through an associated importer, the treatment of the selling expenses may also vary,
depending on the type of transaction.  In other words, it is not only the type of expense that
determines how that expense is taken into account; it also depends on the type of transaction.
24. As the United States discussed in its prior submissions, the bad debt at issue was allocated to
all US sales of the subject merchandise.  Once the allocated expense for each transaction was
determined, the United States made the adjustments appropriate for each particular type of
transaction.  Accordingly, the portion of the bad debt expense allocated to POSCO's sales through
POSAM fell within the Article 2.3 adjustments to construct export price – as discussed in paragraph
17 of our response to the Panel’s questions – and only the portion allocated to POSCO's direct salesfell within the Article 2.4 adjustment for differences in conditions and terms of sale.
25. Since there were, in fact, two distinct adjust ments that involved an allocated portion of the
bad debt expense, and only one of those adjustme nts was made pursuant to Article 2.4, the issue
before the Panel is whether that adjustment – and only that adjustment –  was consistent withArticle 2.4.  The issue of the adjustment for bad debt  made to construct export price is outside the
Panel’s terms of reference.
26. With respect to the Article 2.4 adjustment made to normal value for comparison to direct
export sales, Korea’s claim must also fail.  In prior submissions, the United States has explained atlength why it believes that differences in direct selling expenses, such as bad debt and warranty,
constitute differences in the "conditions and terms of sale", within the meaning of Article 2.4.  At this
point, I would like to assure Korea that we have not abandoned our analogy to warranty expenses.  In
asserting that bad debt is not a condition and term of sale, Korea argued that a delayed payment term
does not authorize non-payment.  By the same token, selling under warranty does not authorize theseller to provide defective merchandise.  A warranty term creates the possibility of a warranty
expense and a delayed payment term creates the possibility of bad debt expense.  Even Korea agrees,WT/DS179/R
Page 337
in response to question 7 from the Panel concerning unpaid sales, that the conditions and terms of sale
include payment terms and that some adjustment for differences in expenses related to payment terms,
including bad debt, may be consistent with Article 2.4.   It is now apparent that the crux of Korea's
claim is not that an adjustment for bad debt is per se  inconsistent with Article 2.4, but rather how the
United States measured that adjustment in these cases.
27. The Agreement does not provide any guidance on the measurement of differences that affect
price comparability.  In the case of bad debt, in Korea's view, the United States should have measured
any difference in bad debt risk on the basis of any difference in insurance premiums, although there isno evidence in these investigations that POSCO had insurance against bad debt.  Korea also seems to
accept that using the exporter's bad debt experience could provide a reasonable measurement as well.
28. As discussed in response to the Panel's questions, it is the view of the United States that a
reasonable method – and in fact the only practical method – for calculating an adjustment fordifferences in conditions and terms of sale is to use the expenses reflected in the exporter's normal
accounting records.  However, in the case of contingent expenses such as warranty and bad debt, it is
reasonable to factor into that measurement the seller ’s experience.  Therefore, in the case of warranty
expense, the United States does request information concerning past experience to determine whether
the actual warranty expenses incurred during the period of investigation were normal for the particularexporter being examined.  In the case of bad debt, companies normally recognize bad debt expense on
a reserve account basis, which is based on prior bad debt experience.  Therefore, because reported bad
debt expense normally reflects the exporter's experience, the United States does not normally request
historical information.
29. POSAM did not maintain a bad debt reserve – a fact that POSCO did not point out until the
verification in the plate case.  Now, by saying that, Korea claims that the United States is trying to
pass the buck.  We are not passing the buck, we are simply stating a fact.  The antidumping
questionnaire requests everything we would normally expect to need in a dumping analysis.  We had
no way of knowing that POSAM used unusual accounting methods.  POSAM recognized ABC
company's entire bad debt as an expense during the period of the investigations.  Moreover, POSCO
did not argue that the bad debt expense recognized during the period of investigation should beadjusted to reflect its experience, and did not propose any methodology for making such an
adjustment.  Again, I am sure Korea will say that the US is passing the buck.  However, it is standard
in a dumping investigation, when an exporter has a problem meeting the normal reporting
requirements, to propose a reporting methodology.  In fact, there is a provision of US law that
requires parties to promptly notify the Department if there is a problem and propose an alternative.Since we had no forewarning and no proposed methodology, in accordance with its established
practice, the United States relied on the expe nse reflected in the company's accounting records.
30. It is only now – in this proceeding – that Korea has argued that it was incumbent upon the
United States to decipher some means of calculating the bad debt adjustment on the basis ofinformation never submitted by POSCO, despite the fact that all of the relevant information was in
POSCO's control.  We disagree.
31. POSCO knew from the outset of these investig ations that ABC Company’s bad debt would be
a factor in the dumping analysis.  Rather than provide a basis for adjusting this bad debt expense toreflect experience – based on POSCO's knowledge of its own accounting practices (not ours) –
POSCO opted to argue that the sales should be tr eated as "atypical" and excluded from the analysis.
As the United States explained in its final determinations and prior submissions in this proceeding,
there was nothing atypical about these transactions.  Thus, the only issue was how to measure the bad
debt expense in light of the information provided by POSCO.WT/DS179/R
Page 338
32. With respect to the measurement of the bad debt expense, the only argument made by
POSCO in the underlying investigations was that the bad debt expense should be allocated over a
broader category of sales.  In this proceeding, Korea originally argued that the United States should
have allocated the expense only to the unpaid sales.  Korea now asserts that it should be allocated overeither the unpaid sales or all of POSCO's credit sales in all ma rkets.  Thus, Korea has acknowledged
that it would be appropriate to allocate the bad debt expense beyond the unpaid sales.
33. The positions expressed by POSCO and Korea demonstrate that reasonable minds may differ
concerning what constitutes an appropriate allocation of bad debt expense.  As we discussed in priorsubmissions, the market-specific allocation of bad debt expense made by the United States in its
dumping analysis was reasonable.  There is no basis in the Agreement for Korea’s "all or nothing"
allocation argument.  Moreover, as the United States explained in its first submission, to the extent
that argument suggests that POSCO may exploit its domestic market to sell at lower prices in the
United States – that is dumping.
34. In sum, including an allocated portion of POSCO's bad debt expense in the adjustment to
account for differences in the conditions and terms of sale was entirely consistent with Article 2.4.
Moreover, the United States made a reasonable calculation of that adjustment in the cases at issue,
based on the evidence provided by POSCO.
IV. MULTIPLE AVERAGING PERIODS
35. I will now turn to the issue of the use of multiple averaging periods in response to the sudden
devaluation of the Korean won.
36. After sorting through Korea’s various arguments on the issue, and with the assistance of the
insightful questions from the Panel, it is now evident that there is one and only one relevant question
with respect to this issue: whether the United St ates permissibly determined not to compare sales
made prior to and after a 50 percent devaluation of the won, based on its conclusion that such sales
were not "comparable" within the meaning of Article 2.4.2.
37. The term "comparable" is not defined in the context of Article 2.4.2.  Further, the period of
sales to be covered by the averages described in Article 2.4.2 is also not defined.  However, the term
"comparable" cannot be understood outside of its context in the Agreement.  In a broad sense, it is
possible to compare any two sales regardless of how far apart in time they have been made, and
regardless of any other differences between them; in  other words such sales are "comparable" in a
general sense.  However, the results of such a comparison would not be particularly meaningful forthe purpose of determining whether dumping exists.  Thus, the United States fully agrees with the
statement by Korea that "the meaning of the term ‘comparable transactions’ must be understood in
light of the rules concerning ‘comparisons’ established by the anti-dumping agreement".
38. The only relevant guidance the Agreement gives to investigating authorities on this particular
issue is the statement in Article 2.4 that the comparison shall be made "in respect of sales made at as
nearly as possible the same time".  In the cases before the Panel, two sub-periods within the period of
investigation were separated by a severe devaluation of the home market currency relative to the
currency of export price sales.  Due to this situation, although the nominal home market prices in won
remained relatively stable, sales at the end of the period of investigation were worth only half as muchwhen compared to the export sales, as the sales at the beginning of the period.  In light of this fact,
and in accordance with the guidance provided in Article 2.4, the United States chose to compare sales
made closer in time, rather than sales made more distant in time.
39. Korea continues to argue that the plain language of Article 2.4.2 requires a single weighted-
average.  However, Korea’s position that multiple averages are permitted for different levels of tradeWT/DS179/R
Page 339
and physical characteristics reveals that the dispute in this case is not the issue of multiple averages
per se , but rather over the interpretation of the term "comparable," a term the panel in Tobacco  found
to be "susceptible of a range of meanings."
40. Korea begins its discussion of the meaning of the term "comparable" with the statement that
"the meaning of the term ‘comparable transactions’ must be understood in light of the rules
concerning ‘comparisons’ established by the anti-dumping agreement", but then Korea quickly loses
sight of its own principle.  The Agreement explicitly states that comparisons shall be made in respect
of sales made at as nearly as possible the same time.  Korea advances the novel interpretation of thislanguage that, so long as the average of the dates covered by the relevant periods are the same, all
sales within the period should be considered to have been made at the same time, and thus are
"comparable" for purposes of averaging under Article 2.4.2.
41. That interpretation would lead to the conclusi on that it was appropriate to investigate sales
made over a five-year or ten-year period, so long as the periods for the export price and normal value
sales were the same, and thus the average date the same.  Yet it seems clear to the United States that
sales made five or ten years apart should not be considered to have been made at the same time.
Moreover, the averages which the United States constructed in these cases meet Korea’s test: the
average date of each home market sub-period is the same as the average date of the US sub-period.Thus, Korea’s test for whether sales have been made at the "same time" does not establish that a
single average must be created for a year-long period of investigation.  Korea’s test could be met with
much longer averages, and is also met by the multiple averages created in these cases.  I would also
note with respect to Korea's argument that transactions in two different periods are closer in time than
some transactions within the same period, that is a fact inherent in determining an average periodbased on time.  Obviously, if you create, for example, monthly averages in a hyperinflationary period,
some sales in different averaging groups are separated by only a day, while some sales within the
same group are separated by as much as 30 days.  However, this is normal whenever averaging groups
are used.  The issue is whether you have defined a reasonable averaging group that reflects different
conditions in the market at different times.
42. The United States notes the statement in Korea’s second submission that "the sales prior to
the depreciation of the Korean won would not be ‘comparable transactions’ to sales after the won’s
depreciation only if there were some provision of  the Agreement that would prohibit the comparison
of such transactions."  However, as discussed above, Article 2.4 does contain a provision which
presumes changes over time may affect comparability, and thus that comparisons between sales closer
in time are preferable to comparisons between sales further apart in time.
43. Korea also argues that any issue related to currency must be addressed under Article 2.4.1 or
not at all.  However, Article 2.4.1 does not have such a broad purpose as that suggested by Korea.  On
its face, Article 2.4.1 only provides guidance with respect to which exchange rate an investigating
authority should apply.  It does not address the comparability of sales included in the averages beingcompared; rather, this issue is addressed in Article 2.4.2.
44. In an even less tenable position, Korea argues that because prices in won remained roughly
even, they should be considered comparable, even though their values in dollars, which is the
currency in which the comparison was made, are sharply different.  The problem with this argument isthat the home market prices are stated in dollars before they are compared with the export prices.  By
separating the sales made prior to the devaluation from those made after the devaluation, the
United States has ensured that comparability of the prices in dollar terms is maintained.
45. Finally, Korea’s reliance on statements by the panel in Cotton Yarn  is misplaced.  In that case,
Brazil argued that the EC should have excluded from normal value sales made during a period in
which the Government of Brazil held exchange rates stable, or should have adjusted the prices ofWT/DS179/R
Page 340
those sales.  Thus, the panel in Cotton Yarn  was addressing the question of whether a "due allowance"
or "compensatory adjustment" under the second sent ence of Article 2.6 of the Antidumping Code
must be made to certain exchange rates.  Brazil did not argue that sales during the period of fixed
exchange rates were not made "at the same time" as other sales.  Therefore, the effect of time oncomparability was not before the panel.  Nor was the panel presented with the question of whether
separate averages could be created in light of a severe devaluation of the home market currency for
the simple reason that the concept of average-to-average comparisons did not exist under the Code.
46. In light of the fact that the United States permissibly concluded that a 50 percent devaluation
in the home market currency rendered sales before and after the devaluation not comparable within
the meaning of Article 2.4.2, the Panel should find the measures taken by the United States to be in
conformity with the Agreement with respect to this issue.
V. LOCAL SALES
47. Finally, I will address the issue of local sales.
48. A review of the submissions confirms that there is no real disagreement over the meaning of
the relevant provisions of Article 2.4.1.  Korea and the United States agree that if the sales used to
establish normal value are in a different currency than the export price sales, conversion at the rate ineffect on the date of sale was appropriate, and if the sales are in the same currency, no conversion is
necessary or appropriate.
49. In these investigations, the United States found, based on the evidence provided by POSCO,
that the local sales were made in won.  Therefore, Korea’s claim rests on whether that finding wasbased on an unbiased and objective assessment of the facts.  In this regard, there is a dispute about the
finding of fact.  The United States concluded that the sales were in won.  Korea's premise is that these
sales are dollar sales, based on its review of the facts.  Thus, there is a dispute about the finding of
fact, which Korea confuses with the underlying data.  Korea’s legal argument starts from its finding of
fact that these were dollar sales, then applies the US reasoning that starts from a different factual
premise, that these were won sales.  Korea then concludes that the US’ argument fails.  That
conclusion is not surprising since they start from a different factual premise.  Thus, notwithstandingKorea’s assertion that there are no facts in dispute, this issue is primarily a question of fact.
50. In analyzing that issue, the Panel should examine how the facts were presented by POSCO in
the investigations – not how they were presented by Korea in this proceeding.  It is also important to
keep in mind that Korea’s claim is asserted with respect to two separate investigations conducted overdifferent time periods and on the basis of different evidentiary records.  Thus, the United States’
assessment of the facts in each case must be reviewed independently.
51. The facts and arguments presented in each of these investigations are set out in detail in
paragraphs 36-59 of the United States response to the Panel’s questions.  Again, I emphasize, if youreview that analysis of the facts in the record, it is readily apparent that how the facts were presented
by POSCO differs significantly from how the f acts have been presented by Korea here.  To
summarize, in the plate case, POSCO originally reported these sales prices in won and stated that the
sales were paid in won, and the invoices refl ected the won amounts repor ted by POSCO.  POSCO
subsequently claimed that these sales were made in dollars and reported dollar amounts that were alsoreflected on the invoices.  At verification, the United States confirmed that the reported invoiced won
amounts were consistent with the amounts recorded in POSCO’s accounts receivable.  There was no
evidence in that case that the won amounts report ed were different from the won amounts actually
paid and POSCO did not make such a claim.WT/DS179/R
Page 341
52. The sales at issue were sales made in Korea, between two Korean companies, for
consumption in Korea.  In light of the fact that the sales were invoiced, paid and recorded in won, it
was not only reasonable for the United States to determine that the sales were made in won, it is
difficult to image how it could have reached a contrary conclusion.
53. In the sheet case, POSCO also reported these sales in won and stated that the sales were paid
in won, and that the amounts reported were "the actual invoice price per metric ton in Korean won."
Once again, POSCO claimed later in the proceeding that these sales were made in dollars and reported
dollar amounts that were also reflected on the invoi ces.  In that case, POSCO also provided evidence
at verification that the won amounts actually paid differed from the amounts on the invoices.  The
verification report indicates that a local sale was examined and POSCO provided accounting entries
showing that the won amount paid for that sale  differed from the won price on the invoice.
54. Korea’s suggestion that the statements in the verification report constitute findings of fact is
incorrect.  Verifiers do not make findings of fact or conclusions of law.  The verification report
records what the verifier saw and what she was told by POSCO.  After verification, the United States
weighed all of the evidence and again concluded that the local sales were made in won, as explained
in the notice of final determination.  I would like to point out that the United States is not passing the
buck.  Korea has failed to point to one piece of information that we did not ask POSCO to provide.We addressed the record as POSCO presented it.
55. Was there conflicting evidence on that record?  Yes.  Nevertheless, based on the record, an
unbiased and objective person could reach the conclusion that these Korean sales were made in won.
Therefore, the United States’ determination was consistent with its obligations under the Agreement.The fact that Korea may now sift through the record, re-weigh the facts, and argue that it would have
reached a different conclusion is irrelevant.
56. Given that the United States determined, based on an unbiased and objective assessment of
the information provided by POSCO, that these lo cal sales were made in won, the conversion of the
won prices into dollars was consistent with the Agreement and Korea’s claim to the contrary must
fail.
VI. CONCLUSION
57. In sum, the United States has amply demonstrated that Korea’s claims are unfounded.  The
dumping analyses in the cases at issue were consistent with Agreement.  In closing, I believe it is
appropriate to return briefly to the topic with which I began.  It is important to recognize that the fair
comparison requirement of Article 2.4 is not one-sided.  One purpose of the Agreement is, of course,
to establish rules to govern the conduct of anti-dumping proceedings, and the particular purpose of
Article 2.4 is to establish rules for how to measure – fairly – the existence of dumping.  However, the
fundamental purpose of the Agreement is to implement Article VI of the GATT in which "the
contracting parties recognize that [injurious] dumping. . . is to be condemned", and establish that aMember whose domestic industry is injured by dumping has a right to take a remedial measure.  Thus,
the requirement to make a fair comparison exists not only for the benefit of the exporters alleged to be
dumping, but also for the benefit of the domestic industries alleged to be injured by dumped imports.WT/DS179/R
Page 342
ANNEX 2-7
RESPONSES OF THE UNITED STATES TO QUESTIONS POSED BY THE PANEL
SECOND MEETING OF THE PANEL
(28 July 2000)
CONTENTS
Page
I. CURRENCY CONVE RSION..............................................................................................343
II. UNPAID SALES ................................................................................................................ ...344
III. MULTIPLE AVERAGING .................................................................................................351
LIST OF EXHIBITS............................................................................................................... ...........354WT/DS179/R
Page 343
I. CURRENCY CONVERSION
Q.1. For the United States.  In the Plate case, did you verify any "dollar-denominated" local
sales?  If so, did you verify the amount actually paid in respect of those sales?
1. In the Plate  case, the United States examined documentation pertaining to local sales during
its verification in Korea.1  In its examination, the United States verified that the won amount listed on
the invoice was the same amount recorded in the co mpany’s sales ledger, as reported by POSCO in its
questionnaire response.2   As discussed below, POSCO did not inform the United States, during the
verification or at any time during the Plate  investigation, that the invoiced amount that was recorded
in the company’s accounts and reported to the United States differed from the amount actually paid
for the sales at issue.3  In particular, during the verification POSCO did not direct the United States to
any records that would indicate a difference be tween the invoice amount and the payment amount.
Indeed, all of the information examined at verification was consistent with the United States’
understanding that the invoice and payment amounts were the same.  Finally, we note that POSCO’shome market sales were paid on a revolving account basis.
4  The United States, therefore, was unable
to tie payments directly to a particular sale.  Accordingly, it was not possible to verify the actual
payment for a particular invoice.5
Q.2. For Korea.  It is the understanding of the Panel that the initial questionnaire responsesin both the Plate and Sheet cases reported the "loc al dollar-denominated sales" at issue at the
invoiced price in won, rather than the amount of won actually paid.  In the Plate case, the Panel
is unaware that POSCO at any point informed  the USDOC that the amount paid in won
differed from the amount invoiced in won, nor th at any evidence in the record so indicates.  If
Korea considers that the Panel's understanding is  incorrect, please provide relevant evidence
from the record in support of Korea's view.
2. The evidence indicates that the Panel’s understanding is correct.  In both cases, POSCO
reported only the invoice price for the local sales at issue.  In neither case did POSCO report the
actual won amount paid by POSCO’s customer.
6  In the Plate  case, POSCO did not inform the
United States at any time during the proceeding that the amount paid differed from the amount
invoiced and reported by POSCO in its response .  Moreover, no other information on the record
indicates the existence of a difference between the invoiced amount and payment amount.7
3. In the Sheet  case, the only suggestion that these amounts differed came late in the proceeding
amid conflicting information.  In that case, once again POSCO only reported the invoice price and
never reported that the won amount actually paid by  the customer differed.  Further, POSCO neither
                                                     
1 SSPC Sales Verification Report (5 Jan. 1999) at  4 and 10 (ROK Ex. 6).
2 See, e.g., id.  at Exh. 6 (ROK Ex. 6) and Exh. 23 (US Ex. 50) (where the amount listed on the tax
invoice and shipping invoice is the same amount entered into the company’s sales ledger).
3 See Responses of the United States to Questions from the Panel (29 June 2000), paras. 36-49.
4 Section B-D Response (20 July 1998), at B-17, and B-19 (US Ex. 40) (stating that "POSCO’s home
market customers pay on an open ( i.e., revolving) account basis that is the normal method of payment in the
Korean domestic market.").
5 See Responses of the United States to Questions from the Panel (29 June 2000), para. 105.
6 See Responses of the United States to Questions from the Panel (29 June 2000), paras. 36-42 and
50-54.
7 See generally , SSPC Sales Verification Report (5 Jan. 1999), at Exh. 6 (ROK Ex.6) and 23 (US
Ex. 50).  The United States examined the order sheet, the mill certificate, the shipping invoice, the monthly
shipping list by customer, the tax invoice, the freight expense ledger, the sales ledger, the summary of accountspayable, the tax invoice for freight and the application for duty drawback.  None of these documents indicatethat the won amount paid by POSCO’s customers differed  from the invoiced amount recorded in the company’s
sales ledger.WT/DS179/R
Page 344
informed the United States nor claimed  in any of its responses in the Sheet  case that the amount paid
and amount invoiced were different.  US verifiers only uncovered this information during the
verification.  Similarly, in its arguments to the United States in the Sheet  case, POSCO never
indicated nor argued that the won amount paid differed from the amount invoiced.
Q.3. For Korea.  Please identify where, in the course of your argumentation in the Plate and
Sheet investigations regarding whether "dollar denominated" local sales were in fact dollar or
won sales, you drew the attention of the USDOC to the fact that the order sheets indicated "D"
for dollar sales.
4. In its arguments made to the United States during the course of both the Plate  and Sheet
investigations, neither POSCO nor Korea ever raised, argued, nor drew attention to the letter "D" on
the order sheets.8   Indeed, in all of its arguments concerning local sales, neither POSCO nor Korea
ever referred to, or relied upon, the order sheets as relevant to establish that the sales were dollar-
denominated sales.9
5. Korea appears to assume that all POSCO had to do was claim that these sales were
denominated in dollars and the United States would have to accept that claim unless it could sift
through the voluminous record and disprove it.  To the contrary, the party asserting a claim must
support it.  All of the relevant information was known to and in the control of POSCO.  It is evident
from the records of these investigations that POSCO did not view the order sheets as relevant to itsclaim that these sales were made in dollars or won.  This underscores the fact that, in this proceeding,
Korea has presented a different view of the facts than was presented to the United States by POSCO
in the underlying investigations.
II. UNPAID SALES
Q.1. For Korea.  Korea characterizes the United States' "constructed export price defense"
as a post hoc argument.  The United States has however indicated places in the record that it
considers to indicate that, in respect of sales through POSAM, the United States deducted an
allocated portion of the US bad debt expenses as part of the construction of the export price (US
answer to question 4 from the Panel regarding unpaid sales).  The portions of the record cited
by the United States seem to suggest that the adjustments in respect of POSAM sales were
conducted under a legal provision applicable only to adjustments relating to a constructedexport price and using a different methodolog y than is used for circumstance of sale
adjustments.  If you disagree, please explain, citing to the relevant portions of the record.
6. Korea’s suggestion that, under US law, any adjustment for direct selling expenses must be a
circumstance of sale adjustment is simply inaccu rate.  The United States’ arguments to the contrary
are not post hoc  as Korea claims.  As stated in the final determinations in both cases, for POSCO’s
sales through POSAM, the United States constr ucted export price based on POSAM’s prices to
unaffiliated customers in the United States.  With respect to the construction of export price (CEP),
the notices specifically state that "[i]n accordance with section 772(d)(1) of the Act, we deducted
those selling expenses associated with economic activity in the United States, including direct selling
                                                     
8 See generally , POSCO SSPC Case Brief (26 Jan. 1999) at 3-6 (ROK Ex. 7);  POSCO SSSS Case
Brief (15 April 1999) at 3-6. (ROK Ex. 20).  Indeed, this  fact was raised for the first time in Korea’s Second
Submission to the Panel, 29 June 2000, at n. 35;  and in its Oral Statement of 13 July 2000 at para. 78.
9 See generally , POSCO SSPC Case Brief (26 Jan. 1999) at 3-6 (ROK Ex. 7);  POSCO SSSS Case
Brief (15 April 1999) at 3-6. (ROK Ex. 20).  See also POSCO SSPC Rebuttal Brief (2 Feb. 1999) at 28 (ROK
Ex. 9);  and see generally  POSCO SSSS Rebuttal Brief (21 Apr. 1999). (ROK Ex. 22).WT/DS179/R
Page 345
expenses  (credit costs, bank charges and US comm issions) and indirect selling expenses."10 (Emphasis
added).  As we have explained previously, under US  law, CEP is calculated by deducting all expenses
(direct and indirect selling expenses;  further manufacturing costs) related to the resale by the
associated importer, plus an amount for profit.  Those deductions are required by section 772(d)(1) ofthe US antidumping law, which is applicable only to CEP transactions.
11
7. The deductions made to calculate CEP are separate and distinct from the adjustment made to
normal value to account for differences in the circumstances of sale ( i.e., conditions and terms of
sale).  Although the circumstance of sale (COS) adjustment is calculated based on direct selling
expenses, it is governed by a separate provision of US law, section 773(a)(6)(C)(iii) of the Act.12  The
COS adjustment is made for the purpose of comparing  export price and normal value, not
constructing  export price.  The COS adjustment is performed by deducting home market direct selling
expenses from normal value and adding US direct selling expenses (excluding direct selling expenses
that were deducted in calculating the CEP).  Thus, while both the CEP and COS provisions deal with
the treatment of direct selling expenses, such as bad debt, the adjustments are distinct and servedifferent purposes.
8. As discussed in our prior submissions, the bad debt expense at issue here was allocated across
all US sales of the subject merchandise during the period of investigation.  How the allocated portion
of the bad debt expense was then treated depended on whether the transactions were sales through
POSAM ( i.e., CEP sales) or sales direct to independent US customers.  As noted by the Panel in its
question, the United States’ response to the Panel’s first set of questions (question 4, Unpaid Sales)
explains where the CEP adjustments, including an allocated portion of bad debt, are reflected in the
record.
9. The COS adjustments to normal value are also reflected in the analysis memoranda.  For the
Plate  case, the analysis memorandum at page 8 shows that the allocated portion of bad debt expense
was included in the US direct selling expenses (DIREXPU).  At page 13, the memorandum shows that
for EP sales the home market direct selling expenses were deducted from normal value and, at
page 14, shows that the US direct selling expenses shown on page 8 were added to normal value.  In
contrast, the CEP calculation on page 15 of the memorandum shows that US direct selling expenses
were deducted from CEP, but there was no addition to NV for US direct selling expenses ( i.e., the
direct selling expenses were not part of a COS adjustment).
13
10. In the Sheet  case, the final analysis memorandum at page 9 shows that the allocated amount of
the bad debt expense was included in the US direct selling expenses.  At page 13, the memorandum
shows that for EP sales the home market direct selling expenses were deducted from normal value
and, at page 15, shows that the US direct selling expenses shown on page 9 were added to normal
value.  In contrast, the CEP calculation on page 10 of the memorandum shows that there was no
                                                     
10 SSPC Final Determination, 64 Fed. Reg. 15444, 15445 (ROK Ex. 11);  SSSS Final Determination,
64 Fed. Reg. 30664, 30668 (ROK Ex. 24).  The phrase "expenses associated with economic activity in theUnited States" is used to distinguish expenses associat ed with the transaction between the associated importer
and the independent buyer from the expenses associated with the transaction between the exporter and theassociated importer.
11 The Tariff Act of 1930, as amended (the Act) (ROK Ex.1), 19 USC. § 1677a(d).
12 Id. 19 USC. § 1677b(a)(6)(C).
13 SSPC Final Analysis Memorandum (19 March 1999) (US Ex. 35);  see also SSPC Model Match
Program Log at line 4059 and SSPC Margin Program Log at lines, 5246 and 5669-74 (US Ex. 54);  see alsoResponses of the United States to Questions from the Panel (29 June 2000), paras. 16-19.WT/DS179/R
Page 346
addition to NV for US direct selling expenses ( i.e., the direct selling expenses were not part of a COS
adjustment).14
Q.2. For the United States.  The United Stat es argues that, "[b]ecause Korea has made no
claim under Article 2.3, the United States' decision to construct export price and themethodology it employed to do so are not issues  before this Panel."  US rebuttal submission,
para. 22.  Article 2.4 provides that ""[I]n the cases referred to in paragraph 3, allowances for
costs incurred between importation and resale, and of profits occurring, should also be made."
Thus, it could be argued that the guidelines governing the construction of an export price
pursuant to Article 2.3 may be found in Article 2.4.  Please comment.
11. Article 2.3 provides for the construction of export price when the export price appears
unreliable because the exporter and importer are associated.  Article 2.3 also contains the only
mandatory provisions with respect to the methodology that may be employed to construct export
price.  Specifically, in accordance with Article 2.3, export price must be constructed on the basis ofthe price at which the merchandise is first sold to an independent buyer or, in certain situations, on
such other reasonable basis as the authorities may determine.
12. Although Article 2.3 provides only general requirements for the construction of export price,
any methodology used must be reasonable and consistent with the object and purpose of Article 2.3.
Moreover, as we have stated previously, the United States agrees that the third sentence of Article 2.4provides guidance on how to construct export price.  However, that sentence refers to what
adjustments "should" be made in constructing export price pursuant to Article 2.3;  the language is not
mandatory.  Thus, while the third sentence of Article 2.4 would be relevant in considering whether a
methodology employed to construct export price was reasonable and consistent with the object and
purpose of Article 2.3, it does not provide a basis for a claim of a violation.  A claim that the
construction of export price was in violation of  the Agreement must be based on Article 2.3.
Therefore, because Korea’s claim with respect to the treatment of bad debt expense is based on
Article 2.4, that claim does not encompass the adjustment for selling expenses, including the allocated
portion of bad debt, made to construct the export price for sales through POSAM.
13. The United States also notes that Korea’s reliance on the Appellate Body’s decision in
Argentine Footwear  
15 is misplaced.  Korea argues, based on a misreading of that case, that the
reference to Article 2.3 in the third sentence of Article 2.4 brings Article 2.3 within the Panel’s termsof reference.
14. Argentine Footwear  involved a claim that Argentina failed to comply with its obligations of
Article 4.2(c) of the Agreement on Safeguards.  Article 4.2(c) of the Agreement on Safeguards
provides that:
The competent authorities shall publish promptly, in accordance with the provisions
of Article 3 , a detailed analysis of the case under investigation as well as a
demonstration of the relevance of the factors examined.  (Emphasis in original)
Article 3 of the Agreement on Safeguards provides that:
                                                     
14 SSSS Final Analysis Memorandum (19 May 1999) (ROK Ex. 25);  see also SSSS Model Match
Program Log at line 1122 and SSSS Margin Log Program at lines 2565 and 3002-4 (US Ex. 55);  see also
Responses of the United States to Questions from the Panel (29 June 2000), paras. 16-19.
15 Argentina - Safeguard Measures on Imports of Footwear , WT/DS121/AB/R, Report of the Appellate
Body adopted 12 January 2000.WT/DS179/R
Page 347
The competent authorities shall publish a report setting forth their findings and
reasoned conclusions reached on all pertinent issues of fact and law.
The panel’s decision that it had not exceeded its terms of reference in considering provisions of
Article 3 was based on the fact that Article 4.2(c) of the Agreement on Safeguards expressly
incorporated the requirements of Article 3 in a manner that mandated compliance with Article 3 as a
requirement of Article 4.2(c).  The Articles at issue here are not so related.
15. Article 2.4 of the Antidumping Agreement merely contains a reference back to "cases referred
to in paragraph 3" followed by a description of allowances that "should" be made in such cases.  The
language of Article 2.4 does not require allowances "in accordance with" Article 2.3.  In fact, as noted
above, the allowances themselves are not mandated by Article 2.4.  Therefore, there is no basis for
sweeping the constructed export price methodology empl oyed by the United States into Korea’s claim
under Article 2.4.
16. Moreover, as discussed below in response to question 5, even if the Panel were to conclude
that it was appropriate to consider whether the CEP methodology employed by the United States is
consistent with the guidance provided in Article 2.4, it must answer that inquiry in the affirmative.
Q.3. For the United States.  Is there anything in  the record of the investigations indicating
whether POSAM extended the credit in respect of the unpaid sales and thus bore the risk of
non-payment, or whether, to the contrary, the ri sk of loss was borne by the exporter?  Where in
the record does the USDOC make such a determ ination in respect of its treatment of unpaid
sales as a cost incurred by POSAM between importation and resale?
17. The questionnaire responses and verification reports in both cases indicate that POSAM sold
to ABC Company on credit.  Although POSAM did not receive payment for the transactions at issue,
POSAM had paid its Korean affiliate, POSTEEL, for the merchandise.  Thus, the bad debt was
recognized in POSAM’s accounting records.
18. Specifically, in the Plate  case, Exhibit 5 to the POSAM verification report includes a copy of
POSAM’s invoice to ABC company, which shows the future date on which payment is due.16  I n
addition, the POSAM verification re port states that wh en POSAM purchases from POSTEEL, it pays
POSTEEL immediately and records the transaction as a pre-paid purchase.  As a result, when
POSAM wrote-off the sales to ABC Company, the amount paid to POSTEEL for that merchandise
remained in POSAM’s "cost of goods sold" account.17
19. Similarly, in the Sheet  case, the record contains a copy of POSAM’s invoice to ABC
Company, which requires payment on a specified future date.18  The record also indicates that, prior to
ABC Company’s bankruptcy, POSAM had paid PO STEEL, which in turn paid POSCO, for the
merchandise.  Therefore, the loss was recognized in POSAM’s accounting records.19
20. With respect to the second part of the Panel’s question, the phrase "incurred between
importation and resale" is ambiguous and susceptible of more than one reasonable interpretation.  As
                                                     
16 SSPC POSAM Verification Report (14 Jan. 1999), Exhibit 5 (excerpt) (US Ex. 52) (see "Due Date"
at bottom of the invoice).
17 SSPC POSAM Verification Report at 9 (US Ex. 52);  see also, SSPC POSCO Verification Report at
20 (ROK Ex. 6) (POSCO stated that, although POSAM did not receive payment, POSAM paid POSTEEL).
18 SSSS POSAM Verification Report (2 April 1999), Exhi bit 6 (excerpts) (US Ex. 53).  In addition to
the invoice, this exhibit includes copies of accounti ng records showing how the sales were entered and then
written off by POSAM.  The same documents are on the SSPC record.
19 SSSS POSAM Verification Report at 7 (US Ex. 10);  POSCO Supplemental Questionnaire Response
(4 Dec. 1998) at 2-3 (US Exhibit 30).WT/DS179/R
Page 348
explained previously, the United States interprets that phrase to include all costs incurred in
connection with the transaction between the affiliated importer and the independent buyer.
21. The suggestion that "incurred between importation and resale" should be interpreted as a
temporal limitation is inconsistent with the object and purpose of Article 2.3 and elevates form oversubstance.  Under such an interpretation, whether a cost was accounted for in constructing export
price would be determined solely by timing, rather than the nature of the expense and the object and
purpose of Article 2.3.  For example, Korea concedes that the cost of salaries for the affiliated
importer’s sales force is a legitimate Article 2.3 deduction.
20  However, some salary expense may be
incurred after importation ( e.g., sales from inventory) and some may be incurred before  importation
(e.g., drop shipments).  There is no rational reason to deduct the salary expense in one case but not the
other.  In fact, under a temporal interpretation, even though estimated expenses, such as bad debt or
warranty, are recognized by the associated importer, no such expenses could not be taken into account
in constructing export price because by their nature they arise after resale.21
22. In contrast, the US interpretation of the third sentence of Article 2.4, which focuses on the
transactions – the sale between the exporter and associated importer and the resale – is consistent with
the object and purpose of Article 2.3, which is to construct a price for the former transaction based on
the price for the latter.  Accordingly, for CEP tran sactions, section 772(d)(1) of the US anti-dumping
law requires the deduction of all selling expenses related to the US affiliate’s sales to independent US
buyers.  Because the United States interpretation of "between importation and resale" is incorporatedinto the statutory requirements for the construction of  export price, the only determination required in
each case is the identification of the expenses related to the transaction between the US affiliate and
the independent US buyer.
23. As discussed further below, in the cases at issue, the United States allocated the bad debt
expense for the sales to ABC Company across all US sales of the subject merchandise.  In accordancewith US law, the portion of the expense allocated to the sales through POSAM became part of the
pool of expenses deducted to construct export price.  The citations to the record that demonstrate the
allocation of the bad debt expense, the inclusion of an allocated portion of that expense in the pool of
US direct selling expenses, and the deduction of t hose expenses in the construction of export price,
were provided in response to question 4 (Unpaid Sales) of the Panel’s first set of questions.
Q.4. For the United States.  If unpaid sales were a cost incurred by POSAM between
importation and resale in respect of those sales handled by POSAM, why did the USDOCconsider that those sales should be allocated ove r all sales of the subject merchandise in the
United States, irrespective of whether or not those sales were handled by POSAM?
24. What constitutes a reasonable allocation may depend on the nature of the expense or the
particular facts of the case.  For example, it may be reasonable to allocate transportation costs on atransaction-specific or customer-specific basis because there are known variances in distance.  In
contrast, while bad debt is a normal, anticipated expense, specifically what transactions, or even what
customer, will generate a bad debt is not known in  advance.  All transactions made on credit in a
particular market are a potential source of bad debt, regardless of the channel of trade or customer.
Therefore, it is reasonable to allocate a portion of that expense to all transactions in that market.
22
                                                     
20 See Korea’s Second Submission at para. 58.
21 The term "incurred" is itself ambiguous.  Even un der a temporal analysis, it would be consistent with
the object and purpose of Article 2.3 to treat contingent expenses, such as bad debt and warranty, as "incurred"at the time the terms of sale are established.
22 US First Submission at para. 89.WT/DS179/R
Page 349
25. Accordingly, because the record demonstrated that the bad debt expense at issue was tied to
US sales of the subject merchandise, the United Stat es determined that it was appropriate to allocate
the expense to all of POSCO’s US sales of the subject merchandise.23  All of POSCO’s US customers
that buy subject merchandise on credit, regardless of whether POSCO sells to them directly orthrough POSAM, are a potential source of bad debt expense in the US market. Therefore, it was
reasonable to allocate the bad debt expense across all US sales of the subject merchandise.
Q.5. For the United States.  Without prejudice to your position that the construction of the
export price is not within the Panel's terms of reference, please respond to Korea's argument in
paragraphs 56-59 of Korea's rebuttal submission.
26. The United States does not share Korea’s view of the object and purpose of Article 2.3.
Korea asserts that the purpose of Article 2.3 is the construction of a "hypothetical" price the exporter
would have charged a hypothetical independent importer.
24  Korea argues further that Article 2.3
"instructs" investigating authorities to construct export price by deducting that hypothetic mark-upfrom the resale price.
25  However, there is no basis in the language of Article 2.3 for Korea’s
assertion, and Korea does not support its argument with any analysis of the text of Article 2.3.
27. Article 2.3 provides that when the export price is unreliable because of an association between
the exporter and the importer, rather than use the unreliable export price, the export price may be
constructed.  Thus, the purpose of Article 2.3 is to construct a reliable export price to the associatedimporter to use in lieu of the unreliable price.  Moreover, Article 2.3 explicitly provides that export
price is to be constructed based on the price to the independent buyer.  If the object were to construct
a hypothetical price to a hypothetical independent importer, as Korea suggests, there would be no
need to start with the price to the independent buyer ( e.g., constructed export price could be based on
prices to independent importers).
28. In contrast, a methodology that is based on the price to the independent buyer is consistent
with the purpose of constructing an export price for th e actual transactions at issue, rather than some
hypothetical transaction.  In short, the price to the independent buyer is to be converted to an export
price through appropriate adjustments.
29. Price is equal to cost plus profit.  Thus, by starting with the price to the independent buyer and
deducting all costs and profit associated with that transaction, the remaining costs and profit represent
a construction of the price for the actual export transactions at issue, i.e., the transaction between the
exporter and the associated importer.  In essence,  this represents the effective price between the
exporter and the importer for those transactions, based on the actual data concerning those
transactions.
26
30. Even if the Panel were to agree with Korea’s assertion that the purpose of Article 2.3 is to
calculate a hypothetical mark-up by the US importer, the United States’ methodology is notinconsistent with such a theory.
31. A mark-up is the difference between the reseller’s price and its acquisition cost. Korea asserts
that this hypothetical mark-up should include duties, freight, salaries and overhead.  While Korea
                                                     
23 See SSSS Final Determination, 64 Fed. Reg. at 30674 (ROK Ex. 24) (this issue was not argued in the
parties SSPC case briefs).
24 Korea’s Second Submission at para. 56-59.
25 Korea’s Second Submission at para. 57.
26 The United States sometimes refers to the construction of export price as, essentially, constructing
what is the functional equivalent of an arm’s-length price between the exporter and associated importer, i.e.,
what, based on the resale price, the export price to the associated importer would be if the importer were
independent.WT/DS179/R
Page 350
agrees that price adjustments for expenses such as warranty and bad debt are reasonable, if based on
the seller’s expectations or experience at the time of sale,27 it apparently would not include any direct
selling expenses ( e.g., warranty, credit/bad debt, technical assistance) in the hypothetical mark-up.
Korea simply asserts, without explanation, that it is "clear" that such expenses would not be includedin a reseller’s mark-up.
28  We disagree.
32. In order to stay in business, any rational seller , including resellers, should set its prices to
cover its costs plus profit.  Therefore, a rational hypothetical mark-up should include all the reseller’s
costs.  When selling on credit or under warranty, resellers – like exporters – account for anticipated
warranty and bad debt expenses.  Thus, it is reasonable to conclude that a reseller would establish amark-up that would cover those anticipated expenses.
33. Because the US CEP deductions were comprised of the reseller’s expenses, including an
allocated portion of bad debt – plus profit –  they represent a reasonable hypothetical mark-up.
Therefore, even under Korea’s hypothetical mark-up theory, the methodology employed by the
United States to construct export price is consistent with Article 2.3.
Q.6. For both parties.  It is a generally accepted principle that certain costs are to be
expensed while others are to be allocated over time or over product.  See, e.g., ADP Agreement,
Article 2.2.1.1.  In respect of the treatment of unpaid sales, for example, the United States
allocated the "cost" of unpaid sales incurred by POSAM over all subject merchandise.
Assuming for the sake of argument that the unpaid sales were "costs . . . incurred betweenimportation and resale", it could be argued that those costs should be allocated over a period of
time longer than the POI.  Please comment.
34. Allocating bad debt expense over a period of time longer than the POI would be inconsistent
with Generally Accepted Accounting Principles (GAAP).  Under GAAP, expenses such as bad debtare not amortized over time.  GAAP requires that the expenses be matched with revenues, i.e., the
expense must be recognized in the same period as the revenues to which they are related.
29
35. Because the amount of bad debt expense normally is not known with certainty during the
period in which the revenues are earned, an estimate is made.  The estimated amount is then placed in
a reserve account for uncollectible receivables. When a specific receivable is subsequently deemed
uncollectible, it is written off against the reserve account.
36. Normally, the bad debt expense reported by exporters in a dumping investigation is based on
the estimated expense recognized during the period, but – as explained previously – POSAM did not
have a bad debt reserve.  It wrote off the receivables and effectively recognized the expense during
the period of investigation.  Therefore, the United States based the adjustments for bad debt expense
on the amount reflected in POSAM’s accounting record s.  Although the direct write-off method used
by POSAM is normally not sufficient under GAAP because it results in mismatching of expenses andrevenues, in the case of the bad debt at issue here, there was no mismatching of expenses and
revenues because both the revenue and the expense were realized in the same period.  By recognizing
the expense in this period, POSAM itself determin ed that the expense was appropriately matched to
revenues during the period.  Therefore, using either the direct write-off or a reserve method would be
GAAP consistent.
                                                     
27 Korea’s Response to Questions Posed by the Panel at the First Meeting, question 7 regarding unpaid
sales.
28 Korea’s Second Submission at para. 58.
29 Wiley’s Interpretation and Application of Ge nerally Accepted Accounting Principles 1998 at 106
(US Ex. 51).  The two most common estimation techniques are the "percentage of sales" method and the "agingthe accounts" method, both of which reflect the seller’s bad debt experience.  Id. at 106-7.WT/DS179/R
Page 351
37. As noted above, Korea appears to agree that an adjustment for bad debt expense, like
warranty expense, is reasonable, if it is based on risk, i.e., it must reflect the exporter’s experience.
However, Korea asserts that the burden was on United States to request historical data on bad debt, as
it did on warranty expense.30
38. The United States requested that POSCO report its direct selling expenses.31  With respect to
bad debt expense, the United States’ standard questionnaire does not request historical data on bad
debt because, as discussed abov e, GAAP normally requires that bad debt expense be accounted for
using a methodology that reflects bad debt experience.
39. POSCO knew that POSAM had written off thes e receivables and knew that POSAM did not
use a reserve accounting methodology for bad debt.32  In contrast, the United States did not know and
cannot reasonably be expected to know the specific details of POSAM’s accounting practices.
Therefore, if POSCO believed that any adjustment for bad debt should be determined based on its
experience rather than its accounting records, the burden was on POSCO to make that claim and
provide the necessary information to suppor t it.  POSCO never made such a claim.
III. MULTIPLE AVERAGING
Q.1. Korea acknowledges that "zeroing" per se is outside this Panel's terms of reference.  It
argues however that it does claim that th e "multiple averaging" methodology used by the
United States violates the AD Agreement, and that , to the extent that "zeroing" is an integral
part of that methodology, it is properly within  the Panel' terms of reference.  Korea's request
for establishment (WT/DS179/2), however, states that
"[I]n the final determinations of sales at less than fair value . . . the DOC divided
the period of investigation into two sub-periods and calculated separateweighted average normal values for each sub-period.  That methodology,
however, is inconsistent with Article 2.4.2 . . . ." (emphasis added).
It could be argued that "zeroing" is not part of the "methodology" regarding which Korea
complains in its request for establishment of a panel.  Please comment.
40. Korea has complained about a very specific action: "[division of] the period of investigation
into two sub-periods and [calculation of] separate weighted average normal values for each
sub-period."  According to Korea’s request for establishment (WT/DS179/2), this action alone was
inconsistent with Article 2.4.2.  This limitation on Korea’s complaint is made clear by the phrase "that
methodology," cited in the question.  The Panel can address the issue of whether "that methodology,"
i.e. creation of multiple averages, is consistent with Article 2.4.2 without addressing whether zeroing
is consistent with the Agreement.
                                                     
30 Oral Statement of the Republic of Korea (12-13 July 2000), paras. 31-34.
31 See, e.g., SSSS Questionnaire (3 August 1998), page C-34 (Other Direct Selling Expenses) ("Report
the unit cost of other direct selling expenses you incurred on sales of the subject merchandise which are notreported in other fields.").  Appendix I-5 of the Questi onnaire (Direct vs. Indirect Expenses) also states that
"Direct expenses generally must be (1) variable and (2) traceable in a company’s financ ial records to sales of the
subject merchandise . . . .  Direct expenses are typically  variable expenses that are incurred as a direct and
unavoidable consequence of the sale ( i.e., in the absence of the sale these expenses would not be incurred.  (US
Ex. 56).  As explained previously, US administrative an d judicial precedents establis h that, under US law, bad
debt, like warranty, is a direct selling expense. See Fi rst Submission of the United States, para. 58, n. 58.
32 POSCO knew from the beginning of these cases that these sales would be an issue and, in fact, noted
the issue in their first questionnaire response.  See First Submission of the United States, para. 54.WT/DS179/R
Page 352
41. As the United States noted in its response to questions posed by Korea, zeroing occurs at a
separate stage, after the averaging and comparisons under Article 2.4 and 2.4.2 are completed.33  This
was explicitly recognized by the Panel in Cotton Yarn .34  Thus, zeroing is not an integral part of the
averaging methodology;  indeed, it is not a part  of the methodology addressed by Articles 2.4 and
2.4.2 at all.  Thus, the zeroing practice is simply not a part of the methodology regarding which Korea
requested establishment of a panel.
Q.2. For the United States.  Do you agree that multiple averaging is permitted by
Article 2.4.2 only to the extent it enhances th e comparability of the normal value and export
prices being compared?
42. The question appears to proceed from a presumption that is the opposite of that contained in
the Agreement.  The Agreement presumes that most anti-dumping proceedings will require multiple
averages to account for variations in physical characte ristics, levels of trade, and changes over time.
Thus, an investigating authority need not establis h that multiple averages enhance comparability, but
rather that use of a single average has not detracted from comparability.
43. The best comparison for measuring dumping is a transaction-to-transaction comparison of
identical merchandise at the same level of trade a nd sold at exactly the same time.  However, because
of practical problems with such an approach, the Agreement also permits average-to-average
comparisons.  However, with each additional sale which is added to the average on either side, therisk that comparability will be impaired increases to the extent that the additional sale differs in
respect of merchandise characteristics, level of trade or time of sale.  Consequently, averages should
be constructed as narrowly as possible.
44. The Agreement reflects this view.  Article 2.1 and 2.6 establish that a product should only be
compared to an identical or most similar product.   The only way to accomplish this is to create
separate averages for each combination of physical characteristics.  The Agreement recognizes that
comparisons between identical  products are the most appropriate comparisons and that including
similar products in broader averages, where possible, is not necessary or desirable.  Comparisons
between identical products "enhance comparability" only in the sense that they ensure the best
possible comparisons.  Thus, investigating authorities need not establish that comparability will be
enhanced before creating multiple averages to account for different physical characteristics.
45. The second sentence of Article 2.4 also states that products should be compared at the same
level of trade.  Thus, in every case in which there are several levels of trade, investigating authorities
must create multiple averages by level of trade.  The Agreement presumes that averaging together
sales at different levels of trade detracts from comparability.
46. The same sentence of Article 2.4 states that transactions should be compared at as nearly as
possible the same time.  Thus, investigating authorities should only create a single average wherethere is no evidence of a change over time which may have affected comparability.  Although in most
cases the United States is not presented with any evidence to suggest that changes within the one year
period of investigation may have affected comparability, it does create multiple averages for
subperiods in appropriate circumstances.  Moreover , the language of the Agreement could be read to
support a Member which created, for example, monthly averages in every case.
                                                     
33 See, Responses of the United States to Questions from the Panel and Korea, dated 29 June 2000, at
para. 92.
34 See e.g., EC - Imposition of Anti-dumping Duties on Imports of Cotton Yarn from Brazil, ADP/137,
(4 July 1995) paras. 500-501 (finding the practice of "zeroing" not to be inconsistent with the Anti-dumpingCode).WT/DS179/R
Page 353
47. Throughout this proceeding, Korea has argued that the Agreement presumes that averaging
will normally encompass the full period of investigation.  However, there is nothing in the Agreement
to support such a view.  Indeed, the Agreement places a burden on the investigating authority which
creates a single period-long average in the face of facts demonstrating a change over time, to establishthat comparability has not been impaired by use of the single average.WT/DS179/R
Page 354
LIST OF EXHIBITS
Exhibit Description
US Ex. 51 Generally Accepted Accounting Principles (1998)
US Ex. 52 SSPC POSAM Verificati on Report, Exhibit 5 (excerpts)
US Ex. 53 SSSS POSAM Verification Report, Exhibit 6 (excerpts)
US Ex. 54 SSPC Model Match Program Log (line 4059) and Margin Program Log (lines 5246, and
5669-74)
US Ex. 55 SSSS Model Match Program Log (line 1122) and Margin Program Log (lines 2565 and
3002-04)
US Ex. 56 SSSS Questionnaire (Aug. 3, 1998), p. C-34 and Appendix I-5WT/DS179/R
Page 355
ANNEX 3-1
FIRST SUBMISSION OF THE EUROPEAN COMMUNITIES
(5 June 2000)
CONTENTS
Page
I. INTRODUCT ION ................................................................................................................3 56
II. THE "MULTIPLE AVERAGIN G" METHODOLOGY .................................................356
A. A RTICLE  2.4.2 ...............................................................................................................356
B. A RTICLE  2.4.1 ...............................................................................................................357
C. A RTICLE  2.4 ..................................................................................................................358
III. EXPORTS SALES TO A CUSTOMER WHICH  LATER WENT BANKRUPT .........358
IV. CLAIMS UNDER ARTICLE X .3(A) OF TH E GATT .....................................................359WT/DS179/R
Page 356
I. INTRODUCTION
1. The European Communities (hereafter "the EC") makes this third party submission because of
its systemic interest in the correct interpretation of the Agreement on Implementation of Article VI of
the General Agreement on Tariffs and Trade 1994 ("the Anti-dumping Agreement").
2. Many of the issues in dispute involve questions of fact on which the EC is not in a position to
comment.  Accordingly, this submission will address only a number of issues of legal interpretation
which are of particular interest  to the EC.
3. Section II discusses some of the claims raised by Korea in connection with the so-called
"multiple averaging" methodology applied by the United States in calculating the dumping margins.
Section III addresses Korea’s claims under Article 2.4 with respect to the export sales made to a
customer that later went bankrupt.  Finally, Section IV deals with Korea’s claims under Article X.3(a)
of the GATT.
II. THE "MULTIPLE AVERAGING" METHODOLOGY
A. ARTICLE  2.4.2
4. The US authorities divided the period of investigation into two sub-periods and compared the
weighted average normal value for each sub-period to the weighted average export price for the samesub-period.  The resulting dumping margins were then combined into an overall dumping margin for
the entire investigation period.  For that purpose "negative" margins were treated as zero.  Korea
alleges that the use by the United States of multiple averages instead of a single average for the whole
investigation period violates Article 2.4.2.
1
5. Korea’s claim rests on a misunderstanding of the scope of the requirements imposed byArticle 2.4.2.  The first option presented by the first sentence of Article 2.4.2 does not require a
comparison of the weighted average normal value with the weighted average of all export sales of the
product under investigation.  Instead, Article 2.4.2  requires a  comparison «with a weighted averageof prices of all comparable export transactions».
6. Therefore, when all export transactions are not "comparable", Article 2.4.2 allows theinvestigating authorities to calculate separate averages for each set of "comparable" transactions.
7. The two textual arguments derived by Korea from the wording of Article 2.4.2
2 are clearly
without merit:
• it is true that Article 2.4.2 refers to " a weighted average".  At the same time, however,
Article 2.4.2 contemplates that it may be necessary to establish the "existence of margin s of
dumping" (in plural) in those cases where not all transactions are comparable.  Furthermore, it
is significant that Article 2.4.2 alludes to  " a weighted average", rather than to " the weighted
average";
• the argument that Article 2.4.2 requires that all export transactions must be taken into account
in the average is fallacious because, as recalled above, Article 2.4.2 refers to "all comparable
export transactions".  Korea’s argument reads the word "comparable" out of Article 2.4.2.
                                                     
1 Korea’s submission, paras. 4.45-4.48.
2 Ibid. , para. 4.46.WT/DS179/R
Page 357
8. It is obvious that the timing of the sales may affect price comparability.  Indeed, it is precisely
for that reason that Article 2.4 requires that the comparison of normal value with the export price shall
be made "in respect of sales at as nearly as possible the same time".  Thus, the timing of the sales is
one of the factors which, in the EC’s view, may warrant the use of multiple averages when comparingthe normal value to the export price.  (Other fact ors affecting comparability which may require the use
of multiple averages are the existence of different product types or models, or the presence of
different levels of trade).
9. The EC’s experience is that while, under normal circumstances, all sales made within the
period of investigation (normally one year in the EC practice) will be "comparable", there may be
special circumstances (e.g. high inflation rates in the exporting country) which render necessary to
compare quarterly or even monthly averages.
10. The EC is not a in position to express any views on the factual question of whether, in the
case at hand, the US investigative authorities were ju stified in concluding that the sales made in the
first sub-period were not "comparable" to those made in the  second sub-period.  The EC would note,
nevertheless, that Korea does not appear to contend that they were "comparable".  Rather, Korea’s
claim is that Article 2.4.2 does not allow the use multiple averages under any circumstances, a claim
which for the reasons explained above is clearly unfounded.
11. Although Korea’s submission mentions at several points the fact that the US authorities
"zeroed" the negative dumping margins when calculating the overall margin for the entire
investigation period
3, Korea does not appear to contest that practice, but only the use of multiple
averages.4
12. In the event that Korea were challenging also the "zeroing" of negative dumping margins, theEC submits that such practice is not addressed by Article 2.4.2.  Where the investigative authorities
use "multiple averages", it becomes necessary to combine the resulting dumping margins into a single
margin for the product under investigation.  It is at that point that the issue of zeroing arises.  That
stage of the calculation process, however, is not subject to Article 2.4.2.
13. The view that the first sentence of Article 2.4.2 prohibits "zeroing" would upset the finely
balanced compromise achieved by the negotiators of the Anti-dumping Agreement.  As confirmed by
the Audio Cassettes report
5, there is nothing inherently "wrong" or  "unfair" about "zeroing".  It would
be a mistake to assume that simply because Article 2.4.2 now provides for the use of an average-to-
average methodology at the first stage of the dumping margin calculation, the same methodology
should be extrapolated to the entire process
B. ARTICLE  2.4.1
14. Korea contends that by dividing the investigation period into two sub-periods to take into
account the devaluation of the won, the US authorities violated Article 2.4.1.6
15. In the EC’s view, this claim is unfounded.  Article 2.4.1 is concerned exclusively with the
selection of exchange rates for converting normal value and export price into the same currency, prior
to comparing them.  The rules contained in Article 2.4.1 do not preclude the possibility that, after that
conversion, the prices of some export transactions may still not be "comparable" within the meaning
                                                     
3 Korea’s submission, paras. 3.46 and 4.43.
4 Korea’s panel request does not refer to the issue of zeroing (cf. point (d)of the request).
5 Panel report on EC – Anti-dumping Duties on Audio Tapes in Cassettes originating in Japan ,
ADP/136, distributed on 28 April 1995, unadopted, at paras. 347-366.
6 Korea’s submission, paras. 4.49-4.53.WT/DS179/R
Page 358
of Article 2.4.2, due to factors such as the depreciation of the local currency, which would warrant the
use of "multiple averages".
C. ARTICLE  2.4
16. Korea alleges that the "multiple averaging" methodology is inconsistent with the fair
comparison requirement contained in Article 2.4 b ecause it resulted in a finding of dumping based
solely on pre-devaluation sales, while the finding of injury was based  primarily on post-devaluation
sales.7
17. The EC considers that this claim does not concern the comparison between normal value andexport price, which is the only issue governed by Article 2.4, but rather the entirely different issue of
whether there is a causal link between dumping and injury.  Accordingly, the EC is of the view that
this claim should have been brought under Article 3.5, and not under Article 2.4.
III. EXPORTS SALES TO A CUSTOMER WHICH  LATER WENT BANKRUPT
18. The Korean exporter made some export sales to a US customer that later went bankrupt (the
ABC company).  The US authorities treated those sales as "bad debt" and deducted their cost by way
of adjustment from the export price for the remainin g transactions.  Korea alleges that in doing so the
US authorities violated, inter alia , Article 2.4.
8  Korea contends that the US authorities should have
excluded the sales to ABC from the export price calculation.
19. The EC agrees with the United States that it was not required by Article 2.4 to exclude the
sales to ABC from the export price.9  The EC also agrees with the United States that the "bad debt"
expenses incurred by a related importer may be deducted from the resale price when calculating theconstructed export price in accordance with Article 2.3.
10
20. On the other hand, the EC disagrees with the US view that differences in "bad debt" expenses
may give raise to an adjustment under Article 2.4.11  In the EC’s view, "bad debt" expenses do not
"affect price comparability" within the meaning of Article 2.4 because they have no bearing on the
customer’s decision to make a purchase.
21. Contrary to what is argued by the United States, the risk that a customer may go bankrupt is
not a "condition" of sale in the meaning of Article 2.4.12   The word "conditions", as used in
Article 2.4, is largely synonymous with the word "terms".  Both words allude to the conditions agreed
by the seller and the purchaser, and not to the general conditions prevailing in the market in which the
sale takes place.  The US extensive interpretation of the term "condition" would require to make anadjustment for virtually any difference in SGA expenses.
22. The analogy drawn by the United States to warranty expenses and credit costs
13 is inapt.
While it is true that the eventual cost of the warran ty to the exporter is not known at the time where a
sale is made, the provision of the warranty is part of the sales contract (or is required by law) and,therefore, influences the customer’s purchasing decision.  As regards credit costs, the EC practice is to
                                                     
7 Ibid. , paras. 4.59-4.63.
8 Ibid. , para.4.10 et seq.
9 US Submission, paras.65-73.
10 Ibid. , paras. 74-80.
11 Ibid. , paras. 81-90.
12 Ibid.  ,  para. 83
13 Ibid. , paras. 83-86.WT/DS179/R
Page 359
make an adjustment only where the payment terms are expressly agreed in the sales contract or, at
least, in the invoice.
IV. CLAIMS UNDER ARTICLE X.3(A) OF THE GATT
23. The EC considers that  the requirements imposed by Article X.3(a), and in particular the
requirement of "reasonableness", should be interpreted consistently with the requirements imposed
upon the investigative authorities by the Anti-dumping Agreement.
24. The Anti-dumping Agreement contains very detailed substantive and procedural requirements
for the imposition of Anti-dumping measures.  Those rules must be assumed to reflect the Members’
agreement as to what is "reasonable" in that particular field.  Article X.3(a) should not be used in
order to second-guess the drafters of the Anti-dumping Agreement.
25. Many, if not all the claims submitted by Korea under Article X.3(a) concern matters that are
specifically addressed in the Anti-dumping Agreemen t, as evidenced by the fact that those claims
have been submitted together with other claims based on the Anti-dumping Agreement.  In addressing
those claims, the Panel should consider first the re levant provisions of the Anti-dumping Agreement,
in accordance with the Appellate Body’s admonition in EC – Bananas that the more specific WTO
agreement must be applied first.14  If the Panel finds that the measures are in conformity with the
relevant provisions of the Anti-dumping Agreement, it should find that they are "reasonable" also for
the purposes of Article X.3(a).
                                                     
14 Report of the Appellate Body in EC – Regime for the Importation, Sale and Distribution of Bananas ,
WT/DS27/AB/R, at para.204.WT/DS179/R
Page 360
ANNEX 3-2
FIRST SUBMISSION OF JAPAN
(5 June 2000)
CONTENTS
Page
I. BURDEN OF  PROOF ..........................................................................................................361
II. ARTICLE 2.3  OF THE ADA - CONST RUCTION OF EXPO RT PRICE ....................362
A. A DJUSTMENTS ALLOWED UNDER ARTICLE  2.3 ARE NOT WITHOUT LIMITATIONS ........362
B. A RTICLE  2.4 ONLY ALLOWS ADJUSTMENTS ”INCURRED BETWEEN
IMPORTATION AND RESALE ” .........................................................................................363
III. ARTICLE 2.4 - "DIFFERENCES IN CO NDITION AND TERMS OF SALE"............363
A. R EQUIREMENT THAT A CONDITION IS AN "ELEMENT OF PRICE " WAS NOT MET ............364
B. R EQUIREMENT THAT THERE IS A "DIFFERENCE " WAS NOT MET ...................................365
C. T HE US HAS APPLIED INCONSISTENT POLICIES TO DISADVANTAGE FOREIGN
RESPONDENTS ...............................................................................................................365
IV. ARTICLE 2.4.2 - AVERAGE-TO -AVERAGE COMP ARISONS...................................366
A. V ARIATIONS IN PRICING AMONG TIME PERIODS ARE ONLY RELEVANT FOR THE
PURPO SES OF DETERMINING WHETHER TO USE A PREFERRED OR SECONDARY
COMPARISON METHODOLOGY UNDER ARTICLE  2.4.2...................................................367
B. V ARIATIONS IN PRICING AFTER EXCHANGE RATE CONVERSIONS ARE NOT
RELEVANT TO WHETHER A SALE IS "COMPARABLE ".....................................................367WT/DS179/R
Page 361
I. BURDEN OF PROOF
1. It is well-established by panel and Appellate Body decisions that the initial burden of proof is
on the complaining party to establish a prima facie  case.1   Japan believes that Korea has met that
burden in this proceeding.
2. In its submission, the US makes no specific allegations that Korea has failed to meet the
initial burden of establishing a prima facie  case.  Instead, the US simply urges the panel to recognize
the basic principle that the initial burden to establish a prima facie  case lies with the complaining
party.2
3. Although the US makes repeated references to the WTO decisions that have addressed burden
of proof issues, the US fails to acknowledge that  once the complaining party has established its prima
facie  case, the onus then shifts to the responding or defending party to bring forward evidence and
argument.3   Furthermore, in the discussion of the burden of proof in this dispute, the relationship
between Article VI of GATT 1994 and the Anti-Dumping Agreement ("ADA") on the one hand,  and
the other Articles of the GATT that establish primary obligations on the other should be dully
considered.
4. In examining the relationship between Article VI and the primary obligations of the GATT
1994, it is important to recall that GATT 1994 and its associated agreements represent a collection of
"positive rules" and "limited exceptions."  As th e Appellate Body has recently acknowledged, positive
rules establish the basic obligations of any Member.4  Positive rules, such as Article I:1 and II:1,
specify actions that must be taken by Members to ensure the integrity of the WTO.  These obligations
are not dependent on the actions of other Members, but rather are basic obligations that must be
honoured by all Members.  Limited exceptions, on the other hand, represent exceptions from the basic
obligations established by positive rules.
5. Between these two categories, it is clear that Article VI and the ADA do not represent "basic
rights" or "positive rules".5   Article VI and ADA are not positive rules because the disciplines in these
provisions do not apply generally to all imports, and do not require a Member to take positive actionswith respect to those imports.  Article VI is not constructed or drafted to impose any positive
obligation.  Instead, Article VI provides a discreti onary remedy that is allowable as a reaction to
actions taken by particular companies within a Member.  Article VI allows a "reaction" to commercial
conduct of private parties.
6. This stands in contrast to Article I, which obligates Members to bestow most-favoured nation
treatment on imports from WTO Members.  Similarly, Article II is distinct in that the provision
obligates Members to honour the schedule of tariff concessions.  The basic obligations of these
                                                     
1EC - Measures Concerning Meat And Meat Products (Hormones) , WT/DS26/AB/R, WT/DS48/AB/R,
Report of the Appellate Body adopted 13 February 1998 (hereinafter " EC-Hormones "), para. 104.
2 US First Submission , para. 40.
3 United States - Measure Affecting Imports of Woven Wool Shirts and Blouses from India ,
WT/DS33/AB/R, Report of the Appellate Body adopted 23 May 1997 (hereinafter " Wool Shirts ") at 16.
4 Id.
5 The US does not argue affirmatively that Article VI of GATT 1994 and the ADA are positive rules.
However, the US misinterprets the Appellate Body's decision in Wool Shirts  to argue broadly that "trade
remedies authorized by the WTO agreements do not constitu te 'exceptions'.  .  ."  US First Submission, para. 38.
The US fails to recall that the disput e in that proceeding focused on the relationship between Article s within the
WTO Agreements on Textiles and Clothing, and not on the relationship between GATT Article s.  Wool Shirts
at 16.  In fact, the Appellate Body stated in that decision that the previous GATT panel decisions and the
relationship between various GATT Article s was irrelevant in that proceeding.WT/DS179/R
Page 362
Articles are not in any way contingent on the actions of other Members.  They are universal
obligations that may be avoided only if a limited exception is invoked.
7. Thus, based on the architecture of GATT 1994, it is clear that Article VI and the ADA are
distinct from the basic obligations such as those found in Article I, II,  III or XI.  Article VI and the
ADA carve out a "limited exception" from the obligations established by the basic GATT Articles.
8. Taking these nature of Article VI and the ADA into consideration, whether the defending
Member met the burden of justifying a measure under Article VI and the ADA after the complainingMember has established a prima facie  case should be subjected to careful scrutiny.
II. ARTICLE 2.3  OF THE ADA - CONSTRUCTION OF EXPORT PRICE
9. As discussed in this section and in Section III below, Japan believes that the US has failed to
demonstrate that the adjustments made to export price and normal value for the sales to the bad debtcustomer were in accordance with Article 2.3 and Article 2.4 of the ADA.  As a result, the US did not
ensure a fair comparison, as required by Article 2.4.
10. In both the stainless steel plate in coils and the stainless steel sheet and strip sheet
investigations, the US made adjustments to POSCO for bad debt expenses incurred in the US  Withrespect to sales made through POSCO's affiliate - PO SAM-, the US asserts that the adjustment for bad
debt expenses was authorized under Article 2.3.
6  According to the US, it deducted the bad debt
expenses in the US from the "starting export price" to derive a "constructed export price."7  The US
position is that its deduction was permitted by Article 2.3, and the fourth sentence of Article 2.4,
which authorizes deductions for certain costs associated with selling through an affiliated importer.8
A. ADJUSTMENTS ALLOWED UNDER ARTICLE  2.3 ARE NOT WITHOUT LIMITATIONS
11. The US position is untenable for several reasons.  First, the US does not acknowledge that
there are limitations or constraints on investigating Members in making a downward adjustment to
starting export price pursuant to Article 2.3.  Contrary to the US position, Article 2.3 does not
authorize every conceivable adjustment to starting export price in deriving constructed export price.
Instead, Article 2.3 limit the type of downward adjust ments that may be made to the starting export
price.
12. If there were no limitations to Article 2.3, investigating Members would be permitted to make
any adjustment to the starting export price.  In this scenario, there would be no requirement for the
investigating Member, and this means that there would be a basis to infer that the expense wassomehow "included in" or an "element of" the starting export price.  Without any limitations on the
operation of Article 2.3, there would be no analysis of whether the expense was incurred exclusively
because the export was made through an affiliated importer, and not sold directly to an export
customer.
9  In short, the US reading of Article 2.3.  would leave the investigating Member with
                                                     
6 US First Submission, para. 76.
7 For the purposes of this submission, "starting export price" refers to the "price at which the imported
products are first resold to an independent buyer" as used in Article 2.3.  The phrase "constructed export price"is used to refer to the export price derived or constructed from the "starting export price."
8 US First Submission, paras.  74-80.
9 Article 2.3 also allows the construction of expor t price when the exporter price is unreliable because
of a "compensatory agreement" between the exporter and importer.  As this situation was not relevant in theunderlying proceedings, the following discussion addr esses circumstances where there is an "association"
between the exporter and importer.WT/DS179/R
Page 363
unlimited discretion to make any downward adjustme nt to the starting export price, without any
disciplines or restraints.
13. Contrary to the US interpretation, it is clear th at there are some limitations as to what types of
downward adjustments may be made to the starting expo rt price when constructing  export price.  The
position of Japan is that such an adjustment is authorized by Article 2.3 only if the investigating
Member establishes affirmatively that there is a basis to infer that the underlying cost or expense was
included in the composition of starting export price because the sale was made through an affiliated
importer.
14. This interpretation recognizes that the purpos e of Article 2.3 is to enable an authority to
eliminate elements of export price that are attributable to the fact that the sale was made through an
affiliated importer.
15. In this case, there is no evidence that the bad debt expense was included in starting export
price of POSAM, and that a deduction was necessary to construct an export price.  The US never
established a nexus between this theoretical expense and the fact that it was sold through an affiliated
importer.  This deficiency is also demonstrated by the fact that   the US made a similar adjustment for
bad debt expenses for POSCO's sales made directly  to US customers, (in this case, POSAM did not
intervene in the transactions).  The US seemed to conclude that the adjustment of the bad debt could
be done without any particular connection to the fact that the sales were made through an affiliated
importer.  The US decision demonstrates that the US believed the bad debt expense had affected all
US sales, not just those made through the affili ated importer.  Thus the US adjustment was not
authorized or appropriate by virtue of Article 2.3.
B. ARTICLE  2.4 ONLY ALLOWS ADJUSTMENTS ”INCURRED BETWEEN IMPORTATION AND RESALE ”
16. Second, the US argues that the adjustment to starting price in constructing export price was
authorized by the fourth sentence of Article 2. 4.  According to the US, that sentence governs
exclusively adjustments made to starting export price to derive constructed export price.  However,
the US ignores the plain language of that sentence.  The fourth sentence of Article 2.4 allows
adjustments for costs only if the costs are "incurred between importation and resale."
17. In its submission, the US relies on the clause "costs incurred between importation and resale"
in order to justify this deduction.  In particular, the US states that the adjustment was " a deduction
made to construct  the export price."10   However, the US never establishes or even assumes that this
was a cost that was incurred between importation and resale.  In fact, it is clear that the bad debt
expense was an expense incurred after resale.  Given the explicit temporal limitation of the fourth
sentence of Article 2.4, the US was not authorized to make an adjustment to starting export price to
construct an export price for an event that occurred after the resale to the first unaffiliated customer.
18. As such, the panel should find that the US decision to make an adjustment to starting export
price for the unpaid sales was not consistent with the requirements of Article 2.3 and Article 2.4 of the
ADA.
III. ARTICLE 2.4 - "DIFFERENCES IN CONDITION AND TERMS OF SALE"
19. During the period of investigation, POSCO made sales in the US through its affiliated
importer, as well as directly to US customers.  For those sales made directly to US customers, the US
also made an adjustment for the bad debt expenses.  The US asserts that this adjustment was justified
by the third sentence of Article 2.4.  In particular, the US argues that the adjustment for lack of
                                                     
10 US First Submission, para. 76 (emphasis in original).WT/DS179/R
Page 364
payment was permitted under the clause "differences in conditions and terms" of the third sentence of
Article 2.4.  The US states that "it interprets differences in 'conditions and terms of sale' as including
differences in selling expenses such as bad debt."11   Moreover,  the US clarifies that it believes the
bad debt expense is a "condition," implicitly conceding that bad debt expense is not a "term" of sale.12
A. REQUIREMENT THAT A CONDITION IS AN "ELEMENT OF PRICE " WAS NOT MET
20. The US acknowledged that, in order for a condition of sale to qualify for a due allowance
adjustment stipulated in Article 2.4, the condition must be an "element of price"13, because it is fair to
presume that the condition affects price comparability if there is a basis to conclude that a factor  is an"element of price".  According to the US, if a condition affects price comparability, it is eligible for an
Article 2.4, third sentence, due allowance adjustment.
14
21. The critical aspect of the US analysis relates to when there is a basis to conclude that a
condition is an "element of price."  The US and Korea appear to agree that in some cases the sellerwill know of the conditions at the time of sale.
15   In its submission, however, the US argues that there
is a second category of conditions where the conditions, and the cost of the conditions, are not known
precisely to the seller.16  In these circumstances, the US argues, that the seller nevertheless
"anticipates" or should anticipate the cost.  In these cases, the US appears to believe it is fair to
presume that these costs are also an element of price.17
22. The US analysis is generally correct that in order for a cost to affect price comparability, itmust be an element of price.  The US analysis is also correct in concluding that some costs are not
known precisely to a seller at the time of sale.  Last, the US is generally correct that where the
condition is not known to the seller, but there is a basis to conclude the seller "anticipated" the costs, itis reasonable to presume the cost was an element of price.  The important implication of this last
observation is that unless a seller knows of a condition, or is in a position to anticipate the condition,
there is no basis to conclude the condition was an element of price.
23. Japan believes that even based on the analysis advanced by the US, the US has failed to
demonstrate that the bad debt adjustment was warranted under Article 2.4.  In particular, the US
provides no evidence that POSCO anticipated or should have anticipated the bad debt expensesrelated to the US sales during the period of investigation.  Therefore there is no basis to conclude that
POSCO was mindful of this condition in its com position of price to any of its US customers.
24. The US decision that the bad debt expenses were an element of price is unusual given the US
conventional treatment of home market warranty expenses.
18   In its anti-dumping investigations, the
US has a practice of evaluating a company's prior knowledge when addressing warranty expenses in
its home market.  In its investigations, the US requires exporters to provide an overview of their
warranty expenses for three years prior to the period of investigation.19
                                                     
11 Id. at para. 82.
12 Id. at para.84.
13 Id. at paras.  84, 86.
14 Id.
15 Id. at para. 86.
16 Id.
17 Id.
18 In its submission, the US argues that bad debt expense are like warranty expenses in that they are not
known with precision at the time of sale, but instead ar e anticipated by the seller.  US First Submission at
para. 86.
19 See Standard US DOC Anti-dumping Questionnaire, Section B, Field 34, Warranty Expenses
(requiring an exporter to submit a schedule of home market warranty expenses for three calendar years tosupport a request for a warranty adjustment to normal value).WT/DS179/R
Page 365
25. There is no evidence in the proceedings underlying this dispute that the US requested or
considered a history of default expenses in the US relevant in establishing a likelihood of default (and
therefore an impact on price comparability for sales made during the period).  Since there was nobasis to conclude that POSCO anticipated, or should have anticipated, these default expenses in the
US, there is no basis to conclude that these expenses were an "element of price."  Therefore, the
expenses were not a "condition" for the sales made during the period of investigation.
20
B. REQUIREMENT THAT THERE IS A "DIFFERENCE " WAS NOT MET
26. Furthermore, the US analysis fails to consider the important requirement of Article 2.4 that
any adjustment or allowance be based on a finding of a "difference."  Thus, in order for the US to
justify the upward adjustment to normal value for the US bad debt expenses, the US would need to
establish there was some "difference" between the composition of price for US sales related to
potential bad debt, and the composition of price for home market sales related to potential bad debt.
27. The US presumption of a difference at the time the prices were composed in the respective
markets is unsupported by the evidence in the underlying proceedings.
28. The fact remains that the US never established a "difference" in the conditions of sale as an
element of price as between the US market and the Korean market at the time the sales were made in
the respective markets.  Absent some reason to conclude that, at the time POSCO established its
prices with the customers in the two markets, POSCO included a different and exceptional mark-up
for bad debt expenses in the US market, the adjustment proposed by the US is not authorized by
Article 2.4.  The US failed to demonstrate that:  (1) the post-facto bankruptcy of the US customer(ABC company) was a condition of sale at the time the prices for all US sales were established (i.e.,
there was no basis to conclude this condition was an element of price) and (2) there was in fact a
"difference" in the composition of pricing in ei ther market for this element for this condition.
C. T
HE US HAS APPLIED INCONSISTENT POLICIES TO DISADVANTAGE FOREIGN RESPONDENTS
29. In its submission, Korea establishes that the US decision to make a downward adjustment to
US price for the unpaid sales violates Article X:3(a) of GATT 1994.  In particular, Koreademonstrates that the US decision was not a uniform, impartial and reasonable manner in accordance
with the obligation of Article X:3(a).
30. The bias in the US methodology is especially pronounced when one considers how the US
reacts in situations where an exporter had deli nquent customer in the home market, and a downward
direct selling expense adjustment to normal value would have benefited the exporter in the margin
calculations.  In a recent proceeding involving a Brazilian exporter, a Brazilian company had sales in
the home market where it was doubtful that the company would ever be paid by the home market
customers.
21   In the proceeding, the US did not make  a downward "due allowance" adjustment to
normal value for the expense of these sales, consistent with the principles of its decision in the Koreancases underlying this dispute.  Instead, in the underlying proceeding, the US reversed its philosophy
completely to avoid a favorable dow nward adjustment to normal value.
                                                     
20 Japan notes that this does not preclude the possibility that these expenses would be an element of
price for future sales to the US  Given the customer's default, it is plain that POSCO may decide to include in its
composition of price for future US sales a mark-up in anticipation of future bankruptcies.  This would have to beestablished in a subsequent review.  However, the US efforts to designate this default as a condition for sales inthe original investigation are, at best, premature.
21 Certain Cold-rolled Flat-rolled Carbon- Quality Steel Products from Brazil , 65 Fed.  Reg.  5554,
5574 (4 February 2000).WT/DS179/R
Page 366
31. In that proceeding, the US elected to "presume" that the company would ultimately collect
payment from the home market customers, and also that the company would collect penalty interest
for the period between the original due date and the ultimate date payment was received.  Thispresumption was made despite the company's affirmations that it was unlikely to collect the
underlying value for the sale from the customer.
22   
32. In justifying its decision, the US noted that it is reasonable to presume that a company, when
faced with non-paying customers, would take pros pective action.  The US Department of Commerce
("DOC") observed:  "if a company over time does not receive a significant portion of payments, the
company would certainly try to minimize this loss by discontinuing selling to, or altering the level of
business conducted with these customers."23
33. Importantly, the US DOC's decision emphasizes an impact of the non-payment on future
sales.  That is, it is only proper to presume that a seller will take into account this "condition"
prospectively.  Thus, the DOC has recognized the important requirement of knowledge at the time of
sale in order to find an impact on pricing and price comparability.
34. The US DOC's analysis in the Brazilian proceeding reveals that its evaluation of the facts with
respect to POSCO, and whether the facts demonstrated a difference that affected price comparability,
was biased.  Apparently, when faced with non-payment in the home market, the US will make the
adverse assumption that payment and penalty interest will be received.  Said differently, the US will
assume that the anticipation of customer's default in the home market was not an element of price,
because it can be presumed that the seller will eventually be paid for the sales, and recover itsrevenue.
35. On the other hand, when faced with non-payment related to export sales, the US will make
the opposite assumption (i.e., that payment and penalty interest will not be received, and that the
exporter anticipated, or should have anticipated this at the time it made the export sales).  Such
inconsistent policies fails the requirements of the authorities in Article 17.6 (i) that the establishment
of facts be "proper" and the evaluation of those facts be "unbiased and objective."  To the contrary,the US approach reflects an outcome determinative approach to its investigations.  This outcome
determinative approach also violates the requirement of Article X:3(a) that the US administration of
its anti-dumping laws be impartial.
IV. ARTICLE 2.4.2 - AVERAGE-TO -AVERAGE COMPARISONS
36. In its submission, Korea addresses the US decision to split the period of investigation for
purposes of its average-to-average comparisons.
24  In response, the US argues that its decision to split
the period was allowable under Article 2.4.2 because Article 2.4.2.  requires average-to-average
comparisons of only "comparable" transactions.  The US position is that since home market sales
before the devaluation are not comparable to export sales made after the devaluation, it adopted anaverage-to-average comparison methodology that separately compared US sales before the
devaluation with Korean sales before the devaluation.
25
                                                     
22 Id.
23 Id.
24 ROK First Submission, para. 4.45.
25 US First Submission, para. 145.WT/DS179/R
Page 367
A. VARIATIONS IN PRICING AMONG TIME PERIODS ARE ONLY RELEVANT FOR THE PURPOSES OF
DETERMINING WHETHER TO USE A PREFERRED OR SECONDARY COMPARISON METHODOLOGY
UNDER ARTICLE  2.4.2
37. The US position fails to take into account the hierarchy of comparisons within Article 2.4.2.
In addition, the US methodology fails to recognize the limited circumstances in which Article 2.4.2
authorizes investigating Members to depart from the preferred methodologies identified in the first
sentence of Article 2.4.2.
38. Article 2.4.2 creates a plain hierarchy between "preferred" comparison methodologies in the
first sentence (i.e., average-to-average, or transaction-to-transaction), and a "secondary" methodology
in the second sentence (i.e., export sale to average normal value).  Article 2.4.2 is explicit in that it
authorizes the use of the secondary methodology only in certain circumstances.  One of the primary
conditions for the use of the secondary methodology in Article 2.4.2 is if there are variations in export
pricing such that an average-to-average comparison would not take the variations into account.  The
US has not claimed that the circumstances in the underlying investigations warranted the use of this
secondary methodology of Article 2.4.2.  Importantly , Article 2.4.2 does not authorize the use of the
secondary comparison methodology if there are variations in normal value pricing, either before or
after conversion into a particular currency.
39. Recognizing that Article 2.4.2.  authorizes the use of a secondary methodology only in the
particular circumstances in which the preferred comparison methodologies will not account for export
pricing variations over a period, it would be an impermissible interpretation of Article 2.4.2.  to
conclude that a modification to the average-to-average comparison methodology under the first
sentence is permissible when there are variations in  normal value pricing.  That is, the investigating
authority must decide whether an average-to-average approach over the entire period does or does not
capture variations in pricing over the period of investigation.  If the Member decides circumstances do
not justify the use of the secondary methodology, then the Member must use one of the preferred
methodologies, without outcome - determinative modifications.
40. Thus, Article 2.4.2 allows avoidance of the preferred comparison methodologies in one
circumstance:  when export pricing varies among purchasers, regions, or periods of time, and if anexplanation is provided as to why such differences cannot be taken into account by the preferred
methodologies.  Given the clear designation of a specific exception to the preferred methodologies in
Article 2.4.2, common rules of interpretation dictate that Article 2.4.2 does not contemplate other
exceptions to the preferred methodologies.
26  That is, Article 2.4.2 does not authorize a Member to
create exceptions within the categories of preferred methodologies for variations in prices amongdifferent time periods.
41. Despite this clear and transparent structure, the US has taken the position that Article 2.4.2
permits an investigating member to modify the mandate to use average-to-average comparisons in
certain circumstances.  The US average-to-average comparison within split periods is contrary toArticle 2.4.2.
B. V
ARIATIONS IN PRICING AFTER EXCHANGE RATE CONVERSIONS ARE NOT RELEVANT TO
WHETHER A SALE IS "COMPARABLE "
42. The US concludes that a variation in pricing after an exchange rate conversion is a relevant
criterion in determining whether sales are comparable under Article 2.4.2.  However, this position
wrongly confuses the role of the curren cy conversion in the dumping calculation.
                                                     
26 Inclusio unius est exclusio alterius  (the inclusion of one is the exclusion of another).WT/DS179/R
Page 368
43. The structure of the paragraphs of Article 2 of the ADA demonstrates that there are several
steps to a price-to-price dumping comparison.  The steps generally follow the sequential of the
paragraphs within Article 2.  These steps may be generally categorized as follows:27  
Step #1 Identification of comparable sales that will be used in the dumping comparisons.
Article 2.2 and Article 2.4 govern the selection of which sales are comparable.  For
example, Article 2.2.1 permits authorities to exclude normal value sales that are
outside the ordinary course of trade.  In addition, Article 2.4.  demands that the sales
compared be at the same level of trade.
Step #2 Due allowance adjustments to export price and normal value for differences to ensure
fair comparisons pursuant to Article 2.4.  and 2.3
Step #3 Conversion, if necessary, of either e xport price or normal value into a uniform
currency to enable pricing comparisons.28  Article 2.4.1 governs this conversion.
Step #4 Comparison between normal values and export prices using one of the methodologies
identified in Article 2.4.2.
44. Based on this overview of the dumping calculation, it is plain that the conversion of pricing
from one currency to another currency in Step #3 is separate and independent from the identification
of which normal value sales are "comparable" to export price in Step #1.  The conversion of normal
value into the same currency as export price, for example, simply allows a useful numeric comparison
between the export and normal value sales selected in Step #1.  The conversion is subsequent to a
selection of sales for comparison.
45. Article 2.4.1 provides the exclusive rules that govern currency conversions.  However, there
is no support in Article 2.4.1 or any other Article within the ADA for the conclusion that an
investigating authority may determine in step #1 whether a particular group of sales is "comparable"
after the sales are converted into the common currency.  The currency conversion is simply designed
to reflect the current value of a particular sale in another currency as of the date of the sale.  It is a step
and procedure that is entirely disconnected from the process of identifying which sales arecomparable, or even whether there is a variation in pricing.
46. Thus, the US proposal that it may decide which normal value sales are comparable to export
price after the conversion into a common currency is inconsistent with the dumping comparison
methodology contemplated by Ar ticles 2.2, 2.3 and 2.4.  The US proposal to elevate currency
conversion to a step prior to the determination of comparability is inconsistent with the structure of
Article 2 of the ADA.  As such, the US position that it was authorized to assess comparability after
currency conversion violates the disciplines of the ADA.  The panel should conclude that the US
justification for making average-to-average comparisons only within split sub-periods of the period of
investigation violates the rules of the ADA.
                                                     
27 With the apparent exception of the underlying disputes, the US dumping calculations are made
pursuant to the steps in the sequence below.
28 In the underlying investigations, the US converted all normal value (i.e., Korean home market), sales
into US dollars.  US First Submission, para. 122.  However, the same dumping comparisons could be generatedby converting all US sales dollars into Korean currency.  Mathematically, the result of the dumping comparisonwould be the same.  The ADA is silent as to the direction of the conversion.WT/DS179/R
Page 369
ANNEX 3-3
ORAL STATEMENT OF THE EUROPEAN COMMUNITIES
FIRST MEETING OF THE PANEL
(14 June 2000)
CONTENTS
Page
I. BURDEN OF  PROOF ..........................................................................................................370
II. ARTICLE  2.3 ADA: CONSTRUCT ED EXPORT PRICES ...........................................370
III. ARTICLE  2.4.2 ADA: MU LTIPLE AVE RAGES............................................................371WT/DS179/R
Page 370
The EC would like to thank the Panel for the opport unity to submit orally its views in this dispute.
1. In our oral statement today, we will not repeat the points already made in our written
submission. In stead, we will address briefly some of the arguments submitted by Japan, the only
other Third Party in this case.
I. BURDEN OF PROOF
1. Japan attempts to distinguish GATT Article  VI and the ADA from other GATT provisions
such as Articles I and II. According to Japan, those provisions contain "positive rules", whereas
GATT Article  VI and the ADA would "carve out a limited exception"29.
2. Yet, Japan shrinks from stating what would be the logical consequence of that premise,
namely that the burden of proof in this case lies with United States.  Instead, Japan enunciates the
principle that "whether the defending member met the burden of justifying a measure under GATT
Article  VI and the ADA after the complaining member has established a prima facie  case should be
subjected to careful scrutiny"30.  Japan seems to be suggesting that such scrutiny should be more
"careful" than in cases involving the violation of a "positive rule".
3. The EC disagrees with that proposition. GATT Article  VI and the ADA are not a mere
"exception". They recognise the right of Members to impose anti-dumping measures, subject to
certain requirements. Those requirements constitute "positive" rules which,  unlike true exceptions
such as GATT Article  XX,  establish obligations in themselves. Indeed, if Article  VI and the ADAwere but an "exception", the Panel would have to dismiss Korea’s complaint ad limine , since Korea
has not invoked the violation of any of the "positive"  rules to which GATT Article  VI and the ADA
are supposedly an exception.
4. Since GATT Article  VI and the ADA are not exceptions, the burden of proof in this case lies
with Korea, the complaining party, and not with the United States, as indeed has been acknowledgedby Japan itself.  For the same reason, the Panel should reject Japan’s suggestion to the effect that in
disputes involving GATT Article  VI and the ADA the complainant’s burden of proof should be
somehow "mitigated" or, conversely, that the defendant should bear a heavier burden of proof than in
"ordinary" disputes in order to refute the complainant’s prima facie  case.
II. ARTICLE  2.3 ADA: CONSTRUCTED EXPORT PRICES
5. Japan has expressed the view
31 that when constructing the export price in accordance with
Article  2.3, the investigative authorities may deduct only those costs that are "incurred exclusively
because the export was made through an affiliated importer, and not sold directly to an export
customer"32. Thus, according to Japan, since "bad debt" expenses are incurred also in sales to
independent export customers, it would follow that they cannot be deducted from the resale price
charged by the related importer in constructing the export price to that importer.
6. The distinction drawn by Japan between different types of costs incurred by the related
importer has no basis whatsoever in the wording of the fourth sentence of Article  2.4, which provides
that "in the cases referred to in paragraph 3, allowances for costs, including duties and taxes, incurred
between importation and resale, and for profits accruing , should also be made". In the EC’s view, that
wording allows the deduction of all the costs incurred by the related importer.
                                                     
29 Japan’s Third Party Submission, para. 4.
30 Ibid., para. 8
31 Ibid., paras. 11-15.
32 Ibid., para. 12WT/DS179/R
Page 371
7. Japan’s view is based on a misconception of the purpose of Article  2.3. Contrary to Japan’s
assertions, the purpose of Article  2.3 is not "to enable an authority to eliminate elements of export
price that are attributable to the fact that the sale was made through an affiliated importer"33.  The
relevant "export sale" is not the re-sale by the related importer, as wrongly assumed by Japan, butinstead the sale by the exporter to the related importe r. Article  2.3 allows to work back the price for
that export sale from the first re-sale price to an independent customer. The purpose of that exercise is
to arrive at the price that would have been paid by the related importer, had the transaction been made
on a commercial basis, and not at the price that would have been charged by the exporter to an
independent importer. This is confirmed by the fact that Article  2.3 does not require to disregard theprices between the exporter and the related importer. Rather, it allows for the possibility to construct
that price where the invoiced price is not considered to be at arm’s length.
8. The EC disagrees also with Japan’s contention that "bad debts" expenses cannot be deducted
from the re-sale price because they are incurred after the re-sale
34 . The formula "between importation
and resale" does not refer to a certain period of time. If so, it would be very easy for related importersto circumvent the rules on the construction of the export price by either advancing or delaying the
payment of expenses. Rather, that formula purports to define the scope of the expenses that are
attributable to the functions performed by a typical related importer. "Bad debt" expenses would not
be incurred if the imported goods were not re-sold and therefore belong to that function.
III. ARTICLE  2.4.2 ADA: MULTIPLE AVERAGES
9. Japan contends that Article  2.4.2 allows Members to depart from the preferred comparison
methodologies in the first sentence only in the circumstances provided for in the second sentence and,
therefore, does not authorise Members to create other "exceptions"
35.  The EC agrees.  From that
obvious proposition, however, it does not follow that the method applied by the United States in thiscase is in violation of Article  2.4.2. By characterising the US method as an "exception", Japan
assumes what it purports to prove. The US method is not an exception. The use of multiple averages
has been expressly contemplated in the first sentence of Article  2.4.2 by inserting the term
"comparable" before "all export transactions".
10. Japan also asserts that comparability must be determined before the conversion of
currencies
36. The ADA, however, contains no rule to that effect. Exchange rate movements may affect
comparability in ways that are not taken into account by the rules on currency conversion contained inArticle  2.4.1. By definition, those effects on comparability may be assessed only after the currency
conversion has taken place and not before.
                                                     
33 Ibid., para. 14.
34 Ibid, paras. 16-18.
35 Ibid., paras. 37-41.
36 Ibid., paras. 42-46.WT/DS179/R
Page 372
ANNEX 3-4
ORAL STATEMENT OF JAPAN
FIRST MEETING OF THE PANEL
(14 June 2000)
CONTENTS
Page
I. BURDEN OF  PROOF ..........................................................................................................373
II. ARTICLE 2.3 - CONSTRUCTION OF EXPORT PRICE...............................................374
III. ARTICLE 2.4 - "DIFFERENCES IN CO NDITION AND TERMS OF SALE"............374
IV. ARTICLE 2.4.2 - AVERAGE-TO -AVERAGE COMP ARISONS...................................375
V. ZEROING...................................................................................................................... ........376
VI. GATT ARTICLE  X:3(A) .....................................................................................................376WT/DS179/R
Page 373
1. In our presentation today, we wish to focus on four issues set out in our written submission.
In addition, we would like to address two issues ra ised by the European Community in its third party
submission.
I. BURDEN OF PROOF
2. Our first issue relates to the "Burden of Proof"
3. Even before the panel considers the merits of this proceeding, Japan believes it will be
important for the panel to clarify the respective burden s of proof in this proceeding.  The fact that this
proceeding involves an allegation that the US violated its obligations under GATT Article VI, and theAnti-dumping Agreement is highly relevant in clarifying the duties and burdens on the US in this
proceeding.
4. The parties seem to agree that the initial burden to present a prima facie  case is on the
complaining party in a WTO dispute.  In this proceeding, the Korean submission provides the
information and argument necessary to establish its prima facie  case against the US  In particular,
Korea has met this burden by carefully and comprehensively addressing US actions in this
proceedings, and explained how these actions were inconsistent with individual provisions of the
Anti-dumping Agreement and Article VI of the GATT.
5. It is also well-established that once the complaining party has established its prima facie  case,
as Korea has done in this proceeding, the burden then shifts to the responding party.  Thus, the panelmust consider the nature of the burden on the US in its examination of the US justifications for their
actions in the underlying investigations.
6. The nature of this burden is directly related to the type of defense advanced by the US.  In
particular, the US has argued that it is entitled to the application of discriminatory duties on exports
from Korea based on GATT Article VI and the Antidumping Agreement.  It is therefore critical toacknowledge that the US is invoking a limited exception to its basic obligations under the WTO.  This
distinction between basic obligations and limited exceptions in the Articles of the GATT was
embraced by the Appellate Body' in its Wool Shirts from India decision.
7. Japan notes that the US, in its submission, overlooks this important distinction.  Of greater
concern is the US mischaracterization of the holding in Wool Shirts .  In that decision, the Appellate
Body stated plainly that it was addressing the relationship between provisions within the
 Agreement
on Textiles and Clothing.  The Appellate Body expressl y noted that, in that dispute, it was not focused
on the relationship between Articles in the GATT.  Notwithstanding this explicit qualification by the
Appellate Body, the US attempts to take the A ppellate Body's observations about provisions within
the Agreement on Textiles and Clothing and transform them into conclusions about the relationship
between GATT Articles .  The panel should note that the US position on the burden of proof is based
entirely on this misinterpretation.
8. Japan believes that the US must prove and demonstrate that its actions were in accordance
with the strict procedures and requirements associated with the Anti-dumping Agreement after Korea
has established a prima facie  case.  To the extent the US is unable to persuade the panel that its
establishment of facts was proper and that its evaluation of facts was unbiased and objective, the panel
must find that the US actions do not meet the requirements necessary to justify discriminatory duties.
9. In assessing whether the US has met this burden, the panel should recall that the Anti-
dumping Agreement reflects a consensus among the WTO members to enhance and clarify the
disciplines that govern the application of antidumpi ng duties.  The panel should ensure that the US
measures are consistent with the Anti-dumping Agreement which imposes strict disciplines onWT/DS179/R
Page 374
Members that seek to impose antidumping duties.  The objective of these disciplines is to prevent
antidumping duties based on result-oriented methodological decisions that generate or overstate actual
anti-dumping margins.
10. Taking into consideration the nature of Article VI and the Anti-dumping Agreement
described above, careful scrutiny should be undertaken for determining whether the defending
Member met the burden of justifying a measure under Article VI and the Anti-dumping Agreement
after the complaining Member has established a prima facie  case.
II. ARTICLE 2.3 - CONSTRUCTION OF EXPORT PRICE11. Our second issue relates to the downward adjust ment made by the US for bad debt expenses
to export price in the underlying proceedings for sales made through the affiliated US subsidiary of
the Korean exporter.  Japan believes this decision violated US obligations under the Anti-dumping
Agreement.
12. The US appears to believe that Article 2.3 does not define any limitations for adjustments,
and this downward adjustment was thus allowabl e.  However, the US never acknowledges any
limitations as to when such downward adjustment s are appropriate and permissible.  Thus, the
overbroad interpretation of Article 2.3by the US would effectively allow investigating Members to
make any adjustment deemed necessary.
13. The US position is contrary to the plain language of Article 2.  As acknowledged by the US,
the fourth sentence in Article 2.4 governs the circumstances in which an Article 2.3 adjustment is
permitted.  The US completely ignores the plain language of that provision.  The fourth sentence of
Article 2.4 allows a downward adjustment or "allowance " for costs (such as bad debt costs) only if the
costs are "incurred between importation and resale."
14. Based on the US and Korean submissions, it is apparent that the US never established, or
attempted to establish, that the bad debt costs associated with the sales in the US were "incurred
between importation and resale."  As a result, the US explanation for its Article 2.3 downward
adjustment for bad debt expenses does not withstand scrutiny.
III. ARTICLE 2.4 - "DIFFERENCES IN CONDITION AND TERMS OF SALE"
15. Our third issue relates to the bad debt adjustment made by the US for all of POSCO's sales
made directly to US customers.  Japan believes the adjustment made by the US was not authorized bythat clause in Article 2.4.
16. The "terms and conditions" clause in Article 2.4 refers to factors and commercial
circumstances known or anticipated by the seller.  Unless a seller knew or anticipated a factor at the
time of sale, it is inconceivable that the factor or costs could be an element of price.  As the US
correctly points out in its submission, in order for something to affect price comparability, it must bean element of price.  That is, it must have been in volved in the composition of price at the time the
price was negotiated for any given sale.  Yet the US fails to demonstrate or establish that the bad debt
expense was known or anticipated by the POSCO at  the time it made any of its sales into the US
market.
17. Secondly, another requirement of Article 2.4, second sentence, is that there must be a
"difference" to permit a due allowance adjustment.  However, the US never demonstrated that there
was in fact a difference in the composition of prices between the Korean market and the US market
anticipating a higher level of bad debt expenses in the US than it anticipated in the home market.WT/DS179/R
Page 375
18. Instead, the US decision seems to be based on the unsupported presumption that since bad
debt expenses were actually incurred for one cu stomer in the US (but not with respect to any
customers in the Korean market), there were necessarily differences in the composition of price
between the two markets at the time of sale.  However, there is no provision in the Agreement thatallows an investigating authority to make such a presumption.  A "due allowance" adjustment
pursuant to Article 2.4, second sentence, must be based on a finding of an actual difference in terms
and circumstances at the time of sale.  In this case, the US failed to establish this difference.
IV. ARTICLE 2.4.2 - AVERAGE- TO-AVERAGE COMPARISONS
19. With respect to the last issue raised in its written submission, Japan believes that the decision
by the US to split the underlying period of investigation into two sub-periods was not in accordance
with Article 2.4.2.  Article 2.4.2 identifies two categories of comparison methodologies.  The first
category addresses the preferred methodologies of average-to-average or transaction-to-transaction
comparisons.  The second category is the alternative methodology that may be invoked only in certaincircumstances, and if certain conditions are met.
20. Importantly, Article 2.4.2 identifies variations in pricing over the period as relevant only to
the determination of which methodology is appropriate.  Variations in pricing over the period is
relevant only to the extent it justifies the use of the alternative methodology in Article 2.4.2.
Article 2.4.2 does not authorize an investigating Member to consider variations in home market
pricing (after the prices are converted into another currency) as a justification to modify one of the
preferred methodologies.  Yet this is precisely what the US did in the underlying proceedings.  In thiscase, the US modified the average-to-average me thodology to compare averages over sub-periods,
instead of averages over the entire period of investigation.
21. Given the explicit reference in Article 2.4.2 to export pricing variations as relevant factor in
determining whether to use either the preferred or alternative methodologies, the panel should
conclude that variations in normal value were purposefully excluded as a criterion for selecting which
type of comparisons methodology is appropriate.  This explicit reference to variations in export
pricing in Article 2.4.2 demonstrates that Article 2.4. 2 did not contemplate variations in normal value
(after conversion into a foreign currency) to be justification for modifying the average-to-average
comparison methodology identified in Article 2.4.2, first sentence.  Thus, the US actions were
inconsistent with the language and structure of Article 2.4.2.
22. Secondly, the US contends that variations in pricing after conversion into a common currency
are relevant to a determination of whether sales are "comparable" as that phrase is used in
Article 2.4.2.  However, currency conversion has nothing to do with the question of comparability.
As we have mentioned in our written submission, the normal US investigation follows a series of
steps where the step for determining comparability  is clearly separate from the step for currency
conversion.
23. In addition, the US reasoning to justify its deci sion to create two averages for pre-devaluation
period and post-devaluation period is flawed. It maintains in its submission that
… the United States reasonably determined that this characteristic had as much of an
effect on comparability of transactions as did physical characteristics, levels of tradeor high inflation. This is because comparison of a given amount of dollars received
for an export transaction with a given amount of won on a normal value transaction
produces a dramatically different margin of dumping depending on whether the sales
occurred before or during the devaluation period. (para. 155)WT/DS179/R
Page 376
24. This statement is inexact, if not wrong, because price comparability is not affected by a
change in exchange rate. Whether there is actually  a different margin of dumping before and after
devaluation depends on the pricing policy of exporters.1
25. Against this background, the question the panel might want to ask is why the US used the two
average method when this method is not justified by the change in exchange rate.
26. Because a different method leads to a different dumping margin, Japan believes that there
should be a clear guideline for the selection of method, in order to avoid result-oriented selection. The
Anti-dumping Agreement does provide this guideline: the basic rule of single average for the
investigation period.
27. The AD Agreement also provides an exception in the second sentence of Article 2.4.2. But
the application of this exceptional method is allowed only when the authorities find a pattern of export
prices which differ significantly among different time periods, and if an explanation is provided as to
why such differences cannot be taken into account appropriately by the use of the preferred methods.
28. The US did not satisfy either of these conditio ns. The panel should find that the US decision
to split the period of investigation is not authorized by the relevant provision of the Anti-dumping
Agreement.
V. ZEROING
29. In response to the EC third party submission, first, Japan notes that Korea has not directly
raised the issue of zeroing in this dispute.  This issue was not identified in Korea's request for a panel.
As a result, it would be inappropriate and unnecessary for the panel to address zeroing in this dispute.
As a result, the panel need not consider the arguments in the EC third party submission that the act of
"combining" and weight averaging margins is not subject to Article 2.4.2.  The EC contention that the
requirement of an average-to-average comparison only applies to the first stage of the dumpingmargin calculation is not relevant to the issues before the panel.
VI. GATT ARTICLE X:3(A)
30. Secondly, Japan would like also to address a comment raised by the EC in its third party
submission with respect to Korea's GATT Article X:3(a) claim.  Japan, the US and Korea all appear to
agree that the actions of an investigating Me mber are subject to the requirements of GATT
Article X:3.  In its third party s ubmission, however, the EC argues that if a panel finds the US actions
were consistent with the relevant provisions of the Anti-dumping Agreement, then the panel should
automatically determine the actions were also "reasonable" under GATT Article X:3(a).
31. Japan believes the EC position is based on a misreading of the EC - Bananas  decision.  In EC
- Bananas , the Appellate Body indicated that if there is a specific WTO agreement that addresses the
conduct in dispute, the provisions of that agreement and Article X:3(a) both apply.  The AppellateBody's finding in EC- Bananas  was simply that procedurally, a panel should first consider whether a
Member's conduct was inconsistent with the specific agreement.  The implication of this finding,
therefore, is that whether a panel finds a Member's actions were consistent with the specific
agreement or not, it still must examine whether the actions were inconsistent with GATT
Article X:3(a).
                                                     
1 If exporters maintain the export price at a level wh ere they can keep income in Korean won terms, the
dumping margin will be the same. If exporters maintain the export price in US dollar, the dumping margin willdecrease, or the negative dumping margin will increase, after the devaluation.WT/DS179/R
Page 377
32. Based on EC- Bananas , this panel should first consider Korea's claims relevant to the Anti-
dumping Agreement.  Even if the panel finds a particular action by the US is consistent with the
Agreement, then it still must consider whether the action was consistent with GATT Article X:3(a).
33. This concludes our statement.
__________