G/ADP/Q1/EU/11  
G/SCM/Q1/EU/11  
 
9 October 2018 
(18-6249) Page: 1/8 
Committee on Anti -Dumping Practices  
Committee on Subsidies and Countervailing Measures  Original: English  
 
 
NOTIFICATION OF LAWS  AND REGULATIONS UND ER 
ARTICLE S 18.5 AND 32.6 OF THE AGREEMENT S 
REPLIES TO QUEST IONS1 POSED BY THE KINGDOM OF SAUDI ARABIA  REGARDING  
THE NOTIFICATION OF THE EUROPEAN  UNION2 
The following communication, dated 8 October 2018, is being circulated at the request of the 
delegation of the European Union . 
 
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Question 1  
 
The new Article 2(6a)(a) of the EU Basic Anti -Dumping Regulation provides that "the 
normal  value shall be constructed exclusively on the basis of costs of production and 
sale reflecting undistorted prices or benchmarks" whenever "significant distortions" are 
found to exist. Saudi Arabia notes that Article 2.2 of the Anti -Dumping Agreement does 
not refer to the possibility of constructing normal value in the event of "significant 
distortions". Given this apparent lack of legal basis, please explain the EU's rationale 
and justification for nevertheless permitting the construction of normal value a lso in 
cases of "significant distortions".  
 
Question 2  
 
In EC – Tube or Pipe Fittings (DS219), the Appellate Body found that Article 2.2 of the 
Anti-Dumping Agreement allows for a departure from the general rule for the 
establishment of the normal value wh ere one of three conditions exists: (a) there are no 
sales in the exporting country of the like product in the ordinary course of trade; (b) 
sales in the exporting country's market do not "permit a proper comparison" because of 
"the particular market situa tion"; or (c) sales in the exporting country's market do not 
"permit a proper comparison" because of their low volume.3 Since "significant 
distortions" is not listed as one of these three conditions, please clarify which of the 
above three conditions ident ified by the Appellate Body, if any, would nevertheless 
permit a construction of the normal value in case of significant distortions.  
 
Question 5  
 
In EU – Biodiesel (DS473) , the Appellate Body found that the information used for 
constructing the normal value must concern the "cost of production in the country of 
origin", and that this means that any "out -of-country" information needs to be adapted 
to the country in question. The Appellate Body clarified that an investigating authority 
may not simply subs titute the costs from outside the country of origin for the cost of 
production in the country of origin.4 Given that the text of the new Article 2(6a)(a) does 
not provide for such adaptation and instead appears to provide for a direct substitution 
of costs , please explain how the EU will ensure consistency with its WTO  obligations.  
                                                
1 G/ADP/Q1/EU/ 6-G/SCM/Q1/EU/6 . 
2 G/ADP/N/1/EU/3/Suppl.2 -G/SCM/N/1/EU/2/Suppl.2.  
3 Appellate Body Report, EC – Tube or Pipe Fittings , para. 94. 
4 Appellate Body Report, EU – Biodiesel , paras . 6.73, 6.81.  G/ADP/Q1/EU/11 • G/SCM/Q1/EU/11  
 
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  Question 7  
 
Please explain how the EU's new methodology, providing that recorded costs and prices 
of investigated exporters/producers must be rejected whenever "significant disto rtions" 
are found to exist, is consistent with the Appellate Body Report in EU – Biodiesel 
(DS473) where it was explained that the records of investigated exporters/producers 
are the preferred source of information and must be used as long as the records 
"suitably and sufficiently correspond to or reproduce those costs incurred by the 
investigated exporter or producer that have a genuine relationship with the production 
and sale of the specific product under consideration".5 
 
Reply to questions 1, 2, 5 and 7 
 
It should be emphasized at the outset that the new rules were introduced into EU's law taking 
account of the applicable WTO law (including relevant jurisprudence).  It goes without saying that 
the EU respects all its relevant obligations under the WTO law and, indeed, we are confident that 
there is no conflict between the EU's new dumping calculation rules and the Covered Agreements. 
The EU is therefore pleased to hav e this opportunity today to explain a number of substantive and 
procedural elements of the new EU legislation in reply to the question raised by Members. At the 
same time, today's meeting is not the right forum to enter into comprehensive legal discussion of 
some core concepts of the Anti -Dumping Agreement.  
 
Question 3  
 
The new Article 2(6a)(a) of the EU Basic Anti -Dumping Regulation provides that the 
normal value shall be constructed on the basis of costs of production and sale reflecting 
"undistorted pric es or benchmarks" and indicates that the "sources" the European 
Commission "may use" include (a) cost of production and sale in an "appropriate 
representative country" provided the data are readily available; (b) "undistorted 
international prices, costs or  benchmarks"; or (c) domestic costs, but only to the extent 
that they are "positively established not to be distorted". As "significant distortions" 
may be found to result from a number of factors, please explain the criteria that will be 
used to determine  which of these "sources" will be used and whether there is any 
hierarchy between these sources. Also, please clarify if the European Commission 
intends to justify the appropriateness of the sources used to calculate the normal value 
in each case.  
 
Reply  
 
The choice of a country with  a "similar level of economic development " will primarily be based on 
international statistics, in particular on the per capita gross national income. However, other 
criteria may be taken into account, such as the overall recent  economic development of the 
potentially representative third countries.  
Art. 2(6a)(a) of the Regulation introduces a list of sources which the Commission may use when 
constructing the normal value. The list is not closed and therefore other sources could be used. 
However, it is likely that in most cases, the Commission will rely on sources included in the list. 
The identification of the relevant source to be used in any given investigation will be decided on 
the basis of the assessment of the evidence on t he file, including the facts and arguments 
presented to the Commission by interested parties in the course of any given investigation. The 
choice between sources falling under the first and second indent would in particular depend on the 
availability of re levant and reliable data meeting the conditions explained in the relevant 
provisions. Thus, for instance, if for any given case, there is no corresponding cost information 
readily available in a third country presenting a similar level of economic developm ent as the 
exporting country under investigation, the source identified in the first indent will not as a practical 
matter be available. In short, the analysis will be case specific and there are no rules which apply 
a priori, irrespective of the circumsta nces prevailing in the particular case.  
 
                                                
5 Appellate Body Report, EU – Biodiesel , para .6.56.  G/ADP/Q1/EU/11 • G/SCM/Q1/EU/11  
 
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  Question 4  
 
In the context of new Article 2(6a)(a) of the EU Basic Anti -Dumping Regulation, please 
clarify how the European Commission determines what are "undistorted prices or 
benchmarks". Specifically, please exp lain the thresholds and metrics that will be used 
for distinguishing an "undistorted" price or benchmark from one that is allegedly 
distorted . 
 
The references to "undistorted prices or benchmarks" as well as to an "undistorted amount for 
administrative, se lling and general costs and for profit" should be read in the context of the entire 
text of Art. 2(6a) of the EU Basic Anti -dumping Regulation. This provision stipulates essentially 
that prices and costs affected by significant distortions are not appropri ate for establishing the 
normal value. Applying the premise that the elements used for the construction of the normal 
value must be free of distortions, Art. 2(6a) consistently makes the use of various sources 
conditional upon absence of distortions (see t he four instances in which the provision refers to 
absence of distortions - "undistorted prices or benchmarks", "undistorted international prices, 
costs, or benchmarks", "domestic costs positively established not to be distorted" and "undistorted 
SGA & pro fit"). 
The use of the words "undistorted" and "reasonable" is not interchangeable. While "undistorted" is 
to be understood as free of distortions as explained earlier, "reasonable" represents a separate 
criterion. The notion of reasonableness informs many provisions of the anti -dumping agreement 
and should be understood as such.  
Question 6  
 
The new Article 2(6a)(a) of the EU Basic Anti -Dumping Regulation provides that "where 
there is more than one such [appropriate representative] country, preference shall be 
given, where appropriate, to countries with an adequate level of social and 
environmental protection". Given that the Anti -Dumping Agreement does not concern 
"social and environmental protection", please explain when this consideration will be 
"appropri ate" and why the level of social and environmental protection would be 
relevant for determining "undistorted" costs. Also, please describe in detail the 
methodology for determining the "adequate level of social and environmental 
protection" of a country.  
 
Reply  
Under the amended legislation, the issue of compliance with core social and environmental 
standards is relevant where there may be more than one appropriate representative country from 
which the Commission could source the undistorted benchmarks for calculating normal value.  
Where that is the case, the Commission will, where appropriate, give preference to a country with  
adequate social and environmental standards. The aim is to ensure that dumping calculations 
preferably rely on data from a country t hat abides by core labour and environmental standards, 
where that is possible.  
In this context, when assessing whether countries have an adequate level of social and 
environmental standards, regard will be paid to the ratification of and compliance with t he core 
labour rights UN/ILO conventions such as :  
-  Freedom of Association and Protection of the Right to Organise Convention, 1948  
-  Right to Organise and Collective Bargaining Convention, 1949  
-  Forced Labour Convention, 1930   
-  Minimum Age Conve ntion, 1973   
and environmental conventions, such as:  
-  Montreal Protocol on Substances that Deplete the Ozone Layer (1987)  
-  Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and 
Their Disposal (1989)  
-  The United Nations Framework Convention on Climate Change (1992)  
-  Kyoto Protocol to the United Nations Framework Convention on Climate Change (1998)  G/ADP/Q1/EU/11 • G/SCM/Q1/EU/11  
 
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  Question 8  
The new Article 2(6a)(b) of the EU Basic Anti -Dumping Regulation provides that 
"significant distortions are thos e distortions which occur when reported prices or costs, 
including the costs of raw materials and energy, are not the result of free market forces 
because they are affected by substantial government intervention". Please define the 
term "free market forces " and describe the EU's approach for determining that there is 
"substantial government intervention".  
 
Question 9  
 
In the context of the new Article 2(6a)(b) of the EU Basic Anti -Dumping Regulation, 
please clarify how the EU assesses the "significance" of a distortion found to exist. 
Specifically, please identify the thresholds and metrics that will be used for 
distinguishing a "distortion" from a "significant distortion".  
 
Reply to questions 8 and 9  
The terminology of Art. 2(6a)( b) of the EU Basic AD Regulation takes into account the presence of 
various entities in the operation of a given economy. A system where economic competition 
between market operators prevails is likely to be driven by free market forces, and prices and 
costs are likely to be set at a competitive level.  
At the same time, markets do not exist in a vacuum. There is always some degree of government 
intervention, e.g. by setting framework conditions or by interfering more directly into the market. 
Such interfer ences can take various forms (e.g. discriminatory taxation, administrative price 
setting, industrial policy setting, presence of government representatives in corporate bodies and 
their personal involvement in operational business decisions) and can disrup t the market forces to 
a higher or lower degree.  
Art. 2(6a)(b) reflects this interplay between the government intervention and the resulting 
distortions of free market forces by  stressing that the government intervention must be 
"substantial" and the dist ortions "significant". Consequently, the domestic prices  or costs will not 
be considered appropriate for establishing the normal value only in those specific instances where 
the government intervention will reach a magnitude sufficiently great to distort t he normal 
economic operations (and thus the prices or costs concerned) to a considerable extent and in a 
material way. Interventions falling short of these criteria will not render the domestic prices and 
costs inappropriate (see also reply to Question 11 by Russia concerning list of elements to be 
considered distortions)  
Question 10  
 
Please define the terms "raw materials and energy" as used in the new Article 2(6a)(b) 
of the EU  Basic Anti -Dumping Regulation.  
 
Reply  
 
There is no definition in the legislati on regarding the terms  'raw materials and energy'. The terms 
relate to inputs in the costs of production for the product concerned by an investigation. Given that 
each and every investigation may relate to different products and production processes, an 
abstract definition of these terms is not possible as they will vary from case to case.   
 
Question 11  
 
The new Article 2(6a)( b) of the EU Basic Anti -Dumping Regulation provides that in 
assessing the existence of "significant distortions" regard shall be had to a number of 
elements such as whether "the market in question [is] being served to a significant 
extent by enterprises wh ich operate under the ownership, control or policy supervision 
or guidance of the authorities of the exporting country". Please clarify how the EU 
determines that the export market in question is being served "to a significant extent" 
by enterprises operat ing under state ownership, control or policy supervision or G/ADP/Q1/EU/11 • G/SCM/Q1/EU/11  
 
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  guidance. Specifically, please clarify the thresholds and metrics that will be used in this 
respect.  
 
Reply  
The purpose of the amended legislation is to ensure that dumping calculations are based on a 
reliable normal value which reflects normal market conditions. The prices or costs used for the 
calculation of normal value must not be distorted by reason of state interference in the economy. 
One of the elements, from a non -exhaustive list, which wi ll be considered in this assessment, is 
the extent to which the market in question is being served to a significant extent by enterprises 
which operate under the ownership, control or policy supervision or guidance of the authorities of 
the exporting count ry. This is only one of the elements which may be taken into account in 
assessing the extent of significa nt distortions in an economy. Given that the facts underlying each 
and every case may be different both in terms of the nature and degree of distortion s, it is not 
appropriate, or useful, to quantify a threshold for the impact of any one of the elements described 
in Art. 2(6a)(b) on an individual basis.   
It is only when all the elements taken together reach a magnitude sufficiently great that domestic 
prices and costs will be considered inappropriate for establishing the normal value.  
Question 12  
 
Please explain why the EU's new anti -dumping methodology focusing on "significant 
distortions" due to state interference is necessary when the SCM Agreement alr eady 
provides for a remedy to address injurious effects of distortions resulting from financial 
contributions by governments or public bodies that confer a benefit.  
 
Reply  
The Anti -dumping and Anti -subsidy legislation pursue different objectives. The anti -dumping 
instrument deals with the effects of injurious dumping while the anti -subsidy legislation deals with 
advantages granted by governments under certain conditions. The EU's new anti -dumping rules 
focus on identifying significant distortions due to sta te interference that affect  domestic prices or 
costs that in turn are relevant for the calculation of the normal value and hence for a dumping 
calculation. In the context of the EU's amended legislation the elements which can be taken into 
account in deter mining substantial government intervention which has a distorting effect in the 
market are not exhaustive. In any event, Article VI:5 of the GATT ensures that the two 
instruments are not used to compensate for the same situation of dumping or subsidization . 
 
Question 13  
 
Please explain how the EU's new anti -dumping methodology focusing on "significant 
distortions" due to state interference is consistent with the legal nature of the 
Anti-Dumping Agreement that focuses on private -pricing behavior of investigated 
exporters/producers, and is not concerned with the behavior or policies of 
Governments.  
 
Reply  
 
The new dumping calculation rules are not concerned with behaviour or policies of governments as 
such. Their sole purpose remains to provide a meth od for establishing a comparable normal value 
in specific situations, namely when it has been determined that domestic prices or costs are 
affected by significant distortions. While the significant distortions will indeed originate from 
government interven tion as described in Article 2(6a)(b) of the Regulation, the new rules will not 
apply because of government intervention in abstracto, but because the significant distortions 
affect prices or costs of the product concerned. Moreover, any investigation will  always also 
examine evidence that aims at demonstrating that costs or prices of a party remain undistorted, 
despite the existence of government distortions.  
 G/ADP/Q1/EU/11 • G/SCM/Q1/EU/11  
 
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  Question 14  
 
The new Article 2(6a)(c) of the EU Basic Anti -Dumping Regulation provides that 
"[w]h ere the Commission has well -founded indications of the possible existence of 
significant distortions as referred to in point (b) in a certain country or a certain sector 
in that country, and where appropriate for the effective application of this Regulatio n, 
the Commission shall produce, make public and regularly update a report describing the 
market circumstances referred to in point (b) in that country or sector". Given the active 
role that the European Commission is required to play in preparing reports on 
distortions that may favor the position of certain interested parties, please explain how 
this provision would be consist with the requirement of Article 17.6 (i) of the Anti -
Dumping Agreement that the investigating authority evaluate the facts in an "u nbiased 
and objective" manner.  
 
Reply  
 
It is not the existence of the reports but the fact that domestic prices or costs cannot be used for 
the calculation of normal value, due to distortions affecting prices and costs, which triggers the 
application of the new rules. Therefore, the reports are  one possible source of information which 
may be considered in investigating the existence of distortions in the country concerned.  Other 
evidence regarding the existence and impact of distortions that comes to light in the context of the 
initiation of a case or the subsequent investigation will also be taken into account, if relevant.  
The reports take the form of European Commission Staff working documents, meaning that they 
are of a technical nature.   When it comes to drafting these reports, the legisl ator did not provide 
for the possibility of consulting outside stakeholders. One of the reasons for this is that, in fact 
there is no need for consulting stakeholders. The report does not have any separate and self -
standing legal value – determinations on distortions affecting prices and costs will only be made in 
the context of a specific anti -dumping investigation where they have been invoked.  
 
The reports set out the factual circumstances prevailing in a given country. In order to ensure that 
the reports  are unbiased they are based on primary sources of information such as legislation, 
plans, policy documents etc. from whichever country is under review.   This information is in turn 
supplemented with data and studies from reputed international institution s, e.g. OECD, World 
Bank etc.  
The reports will be placed on the file of any case for which this is pertinent, and will become  part 
of the relevant evidence in the investigation.  As is the case with any evidence in an anti -dumping 
investigation on which findings are based, interested parties may consult the information, provide 
comments, submit rebuttals or any additional material and information which may be relevant in 
the context of exercising their rights. The decision will then be based on the totali ty of the 
evidence.  
 
Question 15  
 
In the context of the new Article 2(6a)(c) of the EU Basic Anti -Dumping Regulation, 
please explain how the EU will ensure that its new methodology on "significant 
distortions" is not applied in a discriminatory manner when  the European Commission is 
instructed to publish reports on alleged distortions in specific countries and industry 
sectors only, based on its own determination of the "well -founded" nature of certain 
indications to this effect.  
 
Reply  
 
The rules on the calculation of normal value in case of 'significant distortions' are applicable to all 
WTO members.  The existence of a report is not a pre -condition for the use of these rules.  
Significant distortions may be demonstrated in other ways.  Where the European C ommission finds 
that domestic prices or costs are unusable due to significant distortions, it will apply these rules, 
and where this is not the case, it will not apply them.  
 
Question 16  
 
The new Article 2(6a)(e) provides that where the European Commission  finds that there 
is sufficient evidence of significant distortions, the notice of initiation shall specify that G/ADP/Q1/EU/11 • G/SCM/Q1/EU/11  
 
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  fact and provides that the parties to the investigation shall be informed promptly after 
initiation about the relevant sources that the Europea n Commission intends to use for 
the purpose of determining normal value. It also states that interested parties "shall be 
given 10 days to comment". Given that the Anti -Dumping Agreement requires that 
interested parties be given "ample opportunity to prese nt in writing all evidence which 
they consider relevant" and a "full opportunity for the defence of their interests", please 
explain the basis for the EU's apparent view that 10 days suffices for commenting on a 
key aspect of the investigation.  
 
Reply  
The new Article 2(6a)(e) of EU basic Anti -Dumping Regulation requires the European Commission 
to inform interested parties promptly after initiation about the relevant sources that it intends to 
use for the purpose of determining normal value pursuant to point  (a) of Article 2(6a) and to give 
them 10 days to comment. This is only an intermediate step whereby the European Commission 
seeks comments on the possible sources that it intends to use and by no means it prejudges the 
final decision on the sources the Co mmission will actually use for determining the normal value. 
Last but not least, in full respect of the procedural rights of parties, interested parties will be given 
sufficient time to provide comments on the actual sources used by the Commission in the 
provisional disclosure or, if not applicable, in the final disclosure before the respective decision by 
the Commission has been taken.  
 
Question 17  
 
The amended Article 10(7) of the EU Basic Anti -Subsidy Regulation relates to the ability 
of the EU to counte rvail "additional" subsidy programs that were only "identified" during 
the course of an investigation. It provides that "[i]f the additional subsidies are not 
covered by the notice of initiation, the notice of initiation shall be amended" and that 
"[a]ll i nterested parties shall be given additional and sufficient time to comment". 
Please clarify the deadline for "identifying" new subsidy programs and amending the 
notice of initiation given the requirement in Article 11.11 of the SCM Agreement that 
investiga tions shall be concluded within one year and in no case more than 18 months 
after their initiation.  
 
Reply  
Article 10(7) of the Basic anti -subsidy regulation sets out the procedure that will be followed in 
case new subsidies are discovered during the cours e of an anti -subsidy investigation.  There is no 
time frame set out as regards when these additional subsidies may be identified and this will vary 
subject to the particular circumstances of each individual case.  However, this will need to be 
sufficiently e arly in an investigations to ensure that due process can be respected including holding 
consultations where warranted.  The legislative deadlines foreseen for the completion of anti -
subsidy investigations will continue to be respected in all cases.  
 
Questio n 18 
 
In the context of amended Article 10(7) of the EU Basic Anti -Subsidy Regulation, please 
clarify whether the EU intends to send out new questionnaires with respect to the 
amended notice of initiation and what the EU considers to be "sufficient time to 
comme nt" on this amended notice of initiation. In particular, please clarify the deadlines 
that will apply for commenting taking into consideration the requirement of Article 12.1 
of the SCM Agreement to give interested parties "ample opportunity" to present 
evidence and the related requirement in Article 12.1.1 of t he SCM  Agreement to give at 
least 30 days to reply to questionnaires.  
 
Reply  
  
Depending on the nature of any additional subsidy schemes found in the course of an 
investigation, the European Commissi on intends to issue an amendment to the Notice of Initiation 
and seek further consultations with the government of the exporting country , if appropriate. In full 
respect of the procedural rights of parties, ample time will be granted to provide any additio nal or G/ADP/Q1/EU/11 • G/SCM/Q1/EU/11  
 
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  supplementary information which may be required. This will be determined taking into account the 
specificities and circumstances arising in each case.  
 
 
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