WORLD TRADE  
ORGANIZATION  RESTRICTED 
TN/RL/M/14 
18 May 2004  
 
(04-2168) 
Negotiating Group on Rules  
   
SUMMARY REPORT OF THE MEETING 
HELD ON 26 & 28 APRIL 2004 
 
Note by the Secretariat 
 
 
1. The Negotiating Group on Rules ("the Group") held a formal meeting on 26 & 28 April 2004. 
A. ADOPTION OF THE AGENDA  
2. The Group adopted the following agenda: 
 A. ADOPTION OF THE AGENDA  B. ANTI-DUMPING 
 C. SUBSIDIES AND COUNTERVAILING MEASURES, INCLUDING 
FISHERIES SUBSIDIES  
 D. OTHER BUSINESS 
- Date of the next meeting of the Group. 
B. 
ANTI -DUMPING  
3. The group considered two new s ubmissions.  The first, entitled "Proposals on 
Determination of Normal Value"  (TN/RL/W/150), was sponsored by 11 Participants.  A co-sponsor 
explained that it set forth four proposals for st rengthening disciplines on the determination of normal 
value under Article 2 of the Anti-Dumping Agreement ("ADA").  
4. The first proposal was to clarify the "suffici ent quantity" or "5% viability" test.  The co-
sponsor explained that, due to a lack of clear ru les, Members' practices in this area varied, and 
discretion given to investigating authorities undermin ed the fairness of the proceedings.  The paper 
proposed that the sufficient quantity test be applied at  the beginning of the investigation with regard to 
sales of the like product as a whole in the domestic market of the exporting country, including sales later determined to be outside the ordinary cour se of trade, as it was essential for both the authorities 
and respondents to know from the outset what data w ould be used in the calculation of normal value.  
It also suggested a clearer definition of what constituted "domestic sales". 
5. The second proposal involved clarification of the phrase "in the ordinary course of trade".  
The paper proposed an exhaustive list of specific exceptional kinds of sales which should be deemed 
to be outside the ordinary course of trade.  In addition, it proposed that the below-cost test be 
performed with respect to the aggregate value an d costs of all sales of the like product during the 
period of investigation and not on a transaction-sp ecific basis.  This proposal was based on the 
business reality that companies do not typically determine profitability of  their operations on a 
transaction-specific basis, but rather on a production-line basis. TN/RL/M/14 
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6. The third proposal was the improvement of di sciplines on the investigating authorities' 
discretion, which had allowed the imposition of an excessive burden on respondents by requiring 
them to recalculate their cost data on a specific categorization different from their normal accounting 
systems.  Taking into account commercial realties , the paper proposed that the period of data 
collection must correspond to the fiscal year or period of respondents and that the authority must 
accept each respondent's data as long as they are in accordance with the generally accepted accounting 
principles ("GAAP") of the exporting country.  
7. Finally, the paper proposed stringent disciplines in calculating construc ted normal value.  The 
paper proposed that the authorities use, in all circ umstances, actual data pe rtaining to the production 
and sales of the respondents, and proposed a specific ru le on the profit level to be used in calculating 
the constructed value in cases where home-market sales failed the aggregate below-cost test.  
8. Other co-sponsors elaborated on the paper. Con cern was expressed about the vagueness of the 
current provisions regarding normal value.  The paper addressed the bias of methodologies that in 
many cases resulted in discarding a potentially large pr oportion of ordinary business transactions.  It 
also proposed to improve disciplines relating to th e methodology to be applied when authorities use 
constructed normal values.  Particip ants were encouraged to discuss the best approach to performing 
the viability test as well as different approaches to cons tructing normal value, for example, what is the 
appropriate level of profit when the selling price is below total cost yet still contributes to recovering a 
certain portion of the fixed cost.  Participants were  requested to suggest what the "Y" per cent referred 
to in the sales-below-cost proposal should be in or der to determine a substantial portion of such sales 
and whether their accounting systems are in accordan ce with GAAP.  It was noted that the sponsors 
would submit additional proposals in the area of fair comparison.      
9. Regarding the period of data collection and i nvestigation ("POI"), one Participant proposed 
that the dumping POI start from the month when the investigation was initiated to exactly 12 months 
back.  Another Participant inquired whether the do mestic industry should have to suffer injury for 
12 months before an investigation could be initia ted and what would happen if dumping only started 
in the last 6 months of the period.  Regarding the proposal to allow respondents to submit production 
and sales data for an entire product cycle, one Partic ipant inquired whether this meant that when the 
world market was in a downturn and the domestic industry was already selling at a loss, it had to 
accept that products sold at prices that did not cover costs had to be admitted.  One participant had no 
problem with the proposed 12-month POI, yet stressed that flexibility should be provided.  Clarifications were also sought regarding whether AD investigations should be limited to cost data for 
the year preceding initiation or whether the data should be the freshest the investigating authority 
could get.  It was also observed that, while an inv estigating authority should use a company's fiscal or 
accounting year where possible, these periods might differ among companies in a country, and it was necessary to use the same period for all companies.  
10. Regarding the "sufficient quantity" test, one Par ticipant recalled that one of the first decisions 
which must be made in any investigation is the market  to be used as a basis for normal value.  In order 
to avoid unnecessary reporting burdens, this deci sion was usually made based on limited initial 
responses indicating aggregate market volumes and va lues and other general information.  For this 
reason, the sufficient quantity test must be made as simple as possible while still producing a valid 
result.  One Participant inquired about the situati on where a determination that there are sufficient 
sales is made, but in conducting the investigation no sal es in the ordinary course of trade were found.  
Another Participant agreed that the viability test s hould be done at the very beginning, including also 
sales which might, in the course of an investigation, turn out not to have been made in the ordinary 
course of trade. 
11. With respect to the use of respondent's books and records, one Participant recalled that 
Article 2.2.1.1 of the ADA established these books and records as the normal basis for accounting 
information if they were consistent with local GAAP.  However, the spons ors mischaracterised the  TN/RL/M/14 
 Page 3 
 
 
usefulness of GAAP in the context of an AD proceed ing.  With the exception of particular costs 
included as "cost of goods sold", GAAP did not addr ess allocation of fixed costs to product units or 
how costs were to be allocated to individual products.  Thus a statem ent that a particular set of books 
and records was in accordance w ith GAAP was no guarantee that costs of production based on those 
records had been properly allocated.  The proposal gave companies wide discretion to misrepresent 
their costs.  The more common problem, whic h was not addressed by the paper, was when a 
respondent asked the investigating authority to accept costs that were allocated on a basis other than 
what the company used in its normal books and record s.  Another Participant concurred, noting that  
the crucial point was that companies suggest specifi c allocations which they often propose only in the 
context of an AD investigation and in fact usually allocate differently.  Another Participant requested 
clarification regarding the terms "unconsolidated  financial statement" and "internal financial 
statement".  Were these statements prepared on the basis of the GAAP of the exporting country?  Were they audited by a certified public accountant?  How would their accuracy be ensured and what 
should be the relevant period for wh ich such statements could be cons idered during the investigation?  
Another Participant indicated that the proposals concerning acceptance of data in accordance with 
GAAP and the level of specificity required failed to take into account the reality of dumping 
determinations. 
12. Regarding sales in the ordinary course of trade, one Participant found merit in improving the 
definition of what should be included and  exclude d regarding sales to employees, taking into account 
that such sales may be an important part of a co mpany's sales.  Another Participant noted that there 
was a question how to define sales in the ordinary course of trade and what to include in or exclude 
from such definition.  With respect to sales to re lated parties, there were different approaches and 
views and the consequences were important.   
13. Regarding the proposal that the authorities seek cost information only where there was 
sufficient information regarding sales below cost in  the complaint, one Par ticipant asked how this 
related to the obligation in Article 5.3 of th e ADA regarding sufficient evidence to justify any 
initiation of an investigation, especially as this provision did not require the petitioner to provide 
detailed information that may be used during the c ourse of the investigation.  Another Participant 
inquired whether the proposal would lead to a situa tion where the investigating authority would not be 
able to ask for cost data at all any more.  It w as also observed that such an approach would require 
company-specific cost data that petitioners were unlikely to have. 
14. With respect to the proposal that a sales-bel ow-cost determination be  made for sales of the 
like product as a whole, one Participant consider ed that the proposal did not address concerns 
regarding selective sales below cost.  Another Particip ant believed that the proposal deviated from the 
Article 2.4 obligation to make a fair comparison.  Th e approach denied the right to establish different 
normal values for different models, types or qualiti es of a subject product and suggested instead one 
global test.  What if the product mix on the domes tic market and the product mix exported were 
completely different?  The proposal would obligate an  investigating authority to compare the price for 
certain export models with loss-making prices in the market of the export country.  
15. Regarding the proposal to eliminate the phrase "p articular market situation", one Participant 
noted that this required a good deal of thought, as th is clause had been used when situations occurred 
which had not been addressed by the Uruguay Round negotiators.  Concerns could arise regarding 
economies in transition, situations where the market  is in a particular situation because there is 
government interference or because there is a m onopoly situation and all these occurrences had to be 
addressed if the general formula of particular market situation was to be delete d.  Another Participant 
considered that participants should indicate case s in which they had relied on the existence of a 
particular market situation to disregard certain sal es.  It believed that the term "particular market 
situation" could not be considered as applying to almost any set of circumstances.  TN/RL/M/14 
Page 4  
 
16. Regarding constructed normal value, one Participant observe d that the proposed changes 
reflected the view that selling costs and profits should be based on the accounts of each company.  
The problem was that the investigating authority migh t not find reliable comp any-specific data for the 
like product, and the company might not have sales of the same general category of products.  In 
addressing these circumstances, the ADA recognized that  for a product there is a market and in this 
market the actors will probably operate under simila r conditions.  As for the proposal to use a zero 
profit figure in some circumstances, a "reasonable" profit could not be zero, as companies that made no profits would stop doing business.  Similarly, why should general and administrative costs be 
excluded in constructing normal value when those co sts existed?  Another Pa rticipant observed that 
Article 2.2.2 did not provide precise guidance on how to use the three alternative methodologies to 
determine SG&A and profits when calculating the cons tructed value. It was thus necessary to enhance 
the legal certainty for application of this provision.    
17. A co-sponsor reacted to some of the comments ma de.  In situations where there were no sales 
of the like product in the ordinary course of trade, th e resort to constructed value was inevitable.  On 
the issue of cyclical markets, if there is a typical pattern then the company will set its price so that it 
can make a profit over the whole cycle.  This had to  be taken into account in  determining whether the 
company is making a profit. Regarding the proposal to require below-cost sales allegations in the 
complaint and how it related to Article 5.3 of the ADA,  there was a relationship and further 
elaboration was required as to what kind of info rmation petitioners had to  submit.  Regarding 
"particular market situations", this issue should be dealt with in the context of what constitutes a sale 
in the ordinary course of trade.  Regarding produc t mix, this issue was important and could certainly 
change the outcome of the calculation of normal va lue and fair comparison.  Nevertheless, even if 
there were different models within the product un der investigation, normally companies determine 
price so that they can make a profit on a production-line basis.  Thus, the below-cost test should be done for the like product as a whole.  
18. The second paper introduced was entitled "Three Issues Identified for Discussion by the 
Negotiating Group on Rules"  (TN/RL/W/153).  The first issue related to small economies and the 
establishment of regional trade remedies authoriti es.  The sponsor reminded the Group that it had 
previously raised the idea of establishing such aut horities in order to take into account the needs of 
developing and least-developed countries.  The s ponsor had suggested that the Group consider how 
such regional authorities could function, and discuss  any changes to the ADA and the Agreement on 
Subsidies and Countervailing Measures ("ASCM") that might be necessary.  The sponsor thus offered 
some initial questions to the Group.  These incl uded: would the regional authorities conduct all 
aspects of trade remedy cases on behalf of individual  Members, would they collect the duties for all 
Members or would national authorities responsible for collection, would investigations filed with such 
an authority examine imports and the domestic indu stry with respect to a single Member or with 
respect to all regional Members, and if measures ar e taken, do they apply to imports into a single 
Member or into all regional Members? 
19. The second issue related to the right of Member s to distribute monies collected from AD and 
CV duties.  This issue has b een addressed in dispute settlement and in reviews of Members' 
legislations in the AD and SCM Committees.  Wh ile it was beyond question that Members had the 
sovereign right to distribute government revenu es as they deemed appropriate, various WTO 
agreements imposed certain disciplines as to the ma nner in which such revenues are distributed.  For 
example, the nature of such disciplines was, in  large measure, the subject of the ASCM.  One 
important question was whether, as indicated by the Appellate Body, monies collected from AD and CV duties should be subject to special constraints not applicable to government revenues collected 
from other sources. In light of this, it believed th at this Group should discuss the recognition of the 
right of Members to distribute such monies. 
20. The third issue related to facts available.  The sponsor observed that the best source of 
information for any determination is the actual da ta of responding parties; however, those data are  TN/RL/M/14 
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within the control of those parties that may choose wh ether, and to what extent, to participate in an 
AD investigation.  Thus, the ADA contained a deli cate balance of rights and obligations between 
importing and exporting Members that encouraged  responding parties to provide all necessary 
verifiable information to the administering author ities to conduct the investigation.  This balance 
would be upset if a respondent was able to pi ck and choose the pieces of information it submitted 
depending on whether or not it thought the actual inform ation was beneficial to is interests.  Members 
should consider whether the ADA should be clarified to insure that respondents have an incentive to 
provide all necessary information, and not to do so selectively or to misrepresent the significance of information.  Members should also consider whet her the rules in this area should be harmonized 
between the ADA and the ASCM.     
21. Various Participants expressed interest in the id ea of regional trade remedies authorities.  It 
was observed that regional authorities could repr esent a practical approach to accommodating small 
economies that lack the resources to maintain a na tional authority.  Such consolidation of efforts 
could lead to efficiencies that would translate in to significant cost-savings.  Small economies were 
invited to share their experiences and interests on th is issue.  Two Participants noted that measures 
could only be applied to more than one Member in  the case of a customs union, and that it was only 
be in this context that an AD or CVD measure shoul d be applied in respect of more than one state. 
22. Regarding the distribution of monies collected from AD and CV duties, various Participants 
observed that the proposal related to the Continue d Dumping Offset and Subsidy Offset Act of 2000, 
the so-called Byrd Amendment, which had been fou nd to be inconsistent with the WTO Agreement.  
They considered that the Negotiating Group was not th e right forum to discuss this issue.  Questions 
were posed regarding the aim of the paper and whether it represente d a deviation from the sponsor’s 
view that any changes should preserve the basic co ncepts and principles of the agreements.  One 
Participant noted that, although the paper stated th at the sponsor intended to comply with its WTO 
obligations, it was not clear whether the sponsor ha d identified this issue with a view to changing 
rules to justify the Byrd Amendmen t.  Such an outcome would never be accepted in this negotiation.  
Another Participant observed that, notwithstanding th e DSB ruling, it was the right of any Participant 
to raise any issue it wished to negotiate in the Group,  without prejudice to the outcome.  If the sponsor 
wished to expend its political capital on th is issue, it was entitled to do so.   
23. Regarding facts available, various Participants agreed that the best source of information for 
an AD determination was that supplied by the r espondent and welcomed discussions on the use of 
facts available.  However, some Participants did not agree that the ADA was balanced, as it allowed 
the authorities to use facts available even though th e respondent may have acted to the best of its 
ability and was fully cooperative.  Attention w as drawn to another proposal, under which facts 
available could only be used to substitute for missing or rejected information and the authorities 
would be required to use any and all necessary in formation submitted by respondents, provided that 
the information was verifiable and appropriately submitted.  Although some Participants  supported 
providing incentives for cooperation, others express ed concern that the proposal could ultimately 
distract respondents from submitting information.  As far as harmonization between the ADA and the 
ASCM was concerned, one Participant was willi ng to look at harmonization to the extent 
circumstances did not differ.  It referred in this respect to private/government contracts, with respect 
to which it might be illegal to reveal information.  
24. The sponsor stated that the purpose of the paper w as to identify topics that could be of interest 
to the Group.  All Members had the right to table i ssues, even if they were controversial.  Regarding 
regional authorities, it noted an overwhelming con sensus to continue discussions.  Regarding the 
distribution of monies, the sponsor referred to f ootnote 6 of the paper confirming its intention to 
comply fully with its WTO obligations.   TN/RL/M/14 
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C. 
SUBSIDIES AND COUNTERVAILING MEASURES , INCLUDING FISHERIES SUBSIDIES  
25. The Group considered a paper entitled “Fisheries Subsidies: Overcapacity and 
Overexploitation”  (TN/RL/W/154).  The sponsor considered  that the Doha mandate on fisheries 
subsidies related to environmenta l, trade and development objectives.  The question was what form 
new disciplines might take.  It was important to get a structure that offered effective rules that would 
genuinely help reform the economics of the sector and was robust in the long term.  There were  
important commonalities in the three submissions by other Participants that offered initial proposals:  
each called for a prohibition as a starting point for new disciplines.  The sponsor took the same position: based on experience, it had serious doubts a bout the value of further developing disciplines 
on actionable subsidies.  It was better to keep it si mple, and simply ban subsidies that contribute to 
problems in the sector.  As to what should be prohibited, previous submissions focused on 
overcapacity and, to some degree, over-fishing an d over-exploitation.  While addressing over-capacity 
was important, it didn't go far enough.  The focus shoul d be on the impact of fishing on fish stocks, 
which was a product of both capacity and activity or fishing effort .  While concern about capacity 
would focus on capital costs, concern about effort mu st focus also on operating costs.  Reform of the 
sector required effective disciplines on both.  The sponsor noted that requiring complainants in a 
WTO panel to show overcapacity and over-fishing woul d be a recipe for trouble.  It thus suggested 
applying cost and revenue impacts as the basis for ne w tests.  It proposed a broadly based prohibition, 
applying in principle to the full range of programmes liable to contribute to over-capacity or over-fishing or other trade distortions, with reduction of fixed or variable costs or enhancement of revenues 
as the basic tests to be applied.  This prohibition would need to be balanced by a set of negotiated 
exceptions along with politically and commercia lly realistic transitional provisions.   
26. Various Participants agreed that fisheries s ubsidies disciplines should focus on prohibitions.  
In terms of the nature and breadth of the prohibiti on, some Participants agre ed that any disciplines 
should prohibit subsidies that reduced costs or in creased revenues, that the prohibitions should be 
broad-based and that any exceptions should be narrowly defined.  Others Participants considered that 
the proposal amounted to a blanket ban that went t oo far.  It was observed that such an approach 
presumed a causal link between subsidies and overc apacity/over-fishing.  One Participant inquired 
whether the proposal presumed that overcapacity/ over-fishing existed in all countries, and whether 
countries not affected by such conditions would be s ubject to disciplines.  Participants asked how a 
cost/revenue test differed from the benefit test in the ASCM, and whether a cost-based test would 
cover both upstream and downstream activities or only relate to fishing capacity.  In terms of the 
structure of the disciplines, some Participants welcom ed the idea of a "negative list" of subsidies that 
would not be prohibited, and remarked that this  would provide an  incentive to notify.  Other 
Participants observed that a negativ e list approach was inconsistent with the basic structure of the 
ASCM, would require Participants to negotiate exceptions for developing countries and poorer areas 
of their territories, and would not accommodate ne w programmes.  It was suggested that hybrid 
approach combining a positive list specifying types of programmes that are most injurious with a 
negative list for other types of programmes was possibl e, and that a decision about this issue need not 
be taken until criteria for which subsidies should be prohibited were determ ined.  One Participant 
observed that the issue of overcapacity and over-fish ing was a matter of resource management rather 
than subsidies.  
27. The sponsor suggested that Par ticipants put forward proposals for what programmes would be 
included/excluded, the characteristics of such progr ammes and the legal basis for including/excluding 
them.  The aim of the negative list was to cover, in a transparent way, th e totality of practices and 
make clear which programmes were  covered by disciplines, the exceptions and transitional periods, 
etc.  Regarding management regimes, although in th eory such regimes could mitigate the impact of  
subsidies on fish stocks, in practice, the vast majo rity of the regimes in place today did not.  There 
was plenty of work to be done in this area in ot her fora, and it should not be a primary focus at the 
WTO. In order to avoid tests that would involve the WTO in areas which were outside its traditional 
competence, the proposal focused on the economic tests of costs and revenues.  As for the distinction  TN/RL/M/14 
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between the these tests and the existing language on be nefit, there was indeed a large overlap.  There 
could however be subsidies which did not have cost  or revenue impacts and were not of a commercial 
nature.  The sponsor saw merit in further examini ng the relationship between those sorts of tests and 
the existing language in the ASCM. 
D. OTHER BUSINESS  
28. The Chairman announced that the next meeting of the Group will be held on 7 & 8 June 2004.  
This meeting would be comprised of both formal an d informal components.  The deadline for further 
informal elaborated proposals for consideration at  that meeting would be 24 May 2004, close of 
business.  
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