EUROPEAN COMMUNITIES – ANTI-DUMPING DUTIES ON MALLEABLE CAST IRON TUBE OR PIPE FITTINGS FROM BRAZIL
Document: Communication from the European Communities
Date: 23 March 2004
Document codes: WT/DS219/13
Complainant: Brazil
Respondent: EU
Third parties: Chile, Japan, Mexico, U.S.
Dispute stage: Appellate Body
Agreements cited: Art. 1, 2, 3, 4, 5, 6, 7, 9, 11, 12, 15  Anti-dumpingArt. I, VI  GATT 1994

EUROPEAN COMMUNITIES – ANTI-DUMPING DUTIES ON
MALLEABLE CAST IRON TUBE OR PIPE FITTINGS FROM BRAZIL

Communication from the European Communities

 The following communication, dated 17 March 2004, from the delegation of the European
Commission to the Chairman of the Dispute Settlemen t Body, is circulated at the request of that
delegation.

 On 18 August 2003, the Dispute Settlement Body ("DSB") of the
("WTO") adopted an Appellate Body Report ("ABR") and a Panel Report ("PR") as modified by the
ABR on the case "".

 It should be recalled that the Reports, as above , requested the European Communities to bring
the measure that had been challenged into conf ormity with the WTO Agreement on Implementation
of Article VI of the General Agreement on Tari ffs and Trade 1994 ("ADA") as regards the following
aspects:

 (i) Article 2.4.2 of the ADA: in "zeroing" negative dumping margins in its dumping
determination.

 (ii) Articles 12.2 and 12.2.2 of the ADA: failure to make directly discernible, from the
published provisional or definitive determin ations, that the European Communities
addressed, or explained the lack of significance, of the following injury factors listed
in Article 3.4 of the ADA: wages, productiv ity, return on investments, cash flow,
ability to raise capital and magnitude of the actual margin of dumping.

 (iii) Article 6.2 and 6.4 of the ADA: failure to disclose to the interested parties during the
anti-dumping investigation the informati on on injury factors listed above under
point (ii).

 Pursuant to Article 21.3(b) of the DSU, the European Communities and Brazil agreed that the
reasonable period of time for the European Co mmunities to implement the recommendations and
rulings of the DSB would be 7 months, thus e xpiring on 19 March 2004. The European Communities
reassessed its findings related to the contested measure by taking fu lly into account the findings and
conclusions set out in the Panel and Appellate Body Reports, as explained in the Council Regulation
(EC) No 436/2004 of 8 March 2004 attached herewith. It has, thus, fully complied with the DSB
rulings and recommendations in this dispute a nd within the deadline agreed upon between the
disputing parties.

COUNCIL REGULATION (EC) No 436/2004

of 8 March 2004

amending Regulation (EC) No 1784/2000 imposing a definitive anti-dumping duty and
collecting definitively the provisional duty imposed on imports of certain malleable cast iron
tube or pipe fittings originating in Brazil, the Czech Republic, Japan, the People's Republic of
China, the Republic of Korea and Thailand

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 133
thereof,

Having regard to Council Regula tion (EC) No 1515/2001 of 23 July 2001, on the measures that may
be taken by the Community following a report adopted by the WTO Dispute Settlement Body
concerning anti-dumping and anti-subsidy matters
1,

Having regard to Council Regulation (EC) No 384/96 of 22 December 1995 on protection against
dumped imports from countries not members of the European Community ('the Basic Regulation')
2,

Having regard to the proposal made by the Commission after consultation of the Advisory
Committee,

Whereas:

A. EXISTING MEASURES

(1) The Council, by Regulation (EC) No 1784/2000 of 11 August 2000 imposed a definitive anti-
dumping duty on imports of certain malleable cast iron tube or pipe f ittings originating in
Brazil, the Czech Republic, Japan, the People's Re public of China, the Republic of Korea and
Thailand (the 'Definitive Regulation')
3. The Definitive Regulation was preceded by
Commission Regulation (EC) No 449/2000 of 28 February 2000 imposing a provisional anti-
dumping duty on imports of certain malleable cast iron tube or pipe f ittings originating in
Brazil, the Czech Republic, Japan, the People's Re public of China, the Republic of Korea and
Thailand and accepting an undertaking offered by an exporting producer in the Czech
Republic (the 'Provisional Regulation')4.

B. REPORTS ADOPTED BY THE DISPUTE SETTLEMENT
BODY OF THE WTO

(2) On 18 August 2003, the Dispute Settlement B ody ('DSB') of the World Trade Organisation
('WTO') adopted an Appellate Body report ('ABR' ) and a Panel report ('PR') as modified by
the ABR on the case 'European Communities (E C) – anti-dumping duties on malleable cast

1 OJ L 201, 26.7.2001, p. 10.
2 OJ L 56, 6.3.1996, p. 1. Regulation as last amended by Regulation (EC) No 1972/2002 (OJ L 305,
7.11.2002, p. 1).
3 OJ L 208, 18.8.2000, p. 8.
4 OJ L 55, 29.2.2000, p. 3.

iron tube or pipe fittings from Brazil' 5 (the ABR and PR are hereinafter referred to as the
'Reports').

(3) The Reports requested the Eu ropean Communities to bring the measure into conformity with
the WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994 ('ADA') as regards the following aspects:

(i) Article 2.4.2 of the ADA: in 'zeroing' negative dumping margins in its dumping
determination.

(ii) Articles 12.2 and 12.2.2 of the ADA: failure to make directly discernible, from the
published provisional or definitive determin ations, that the European Communities
addressed, or explained the lack of significance, of the following injury factors listed
in Article 3.4 of the ADA: wages, productiv ity, return on investments, cash flow,
ability to raise capital and magnitude of the actual margin of dumping.

(iii) Article 6.2 and 6.4 of the ADA: failure to disclose to the interested parties during the
anti-dumping investigation the informati on on injury factors listed above under
point (ii).

(4) The Commission reassessed the findings by taking into account the recommendations set out
in the Reports on the basis of information whic h was collected in the original investigation
which took place in 1999/2000. Unless otherw ise stated, the assessment made in the
Definitive Regulation remains valid. The reass essment shows that injurious dumping still
exists although at a slightly lower level.

C. PROCEDURE

(5) Following the adoption of the ABR by the DSB th e interested parties in this proceeding, i.e.
the Brazilian exporting producer and the Community industry ('CI'), received disclosure of
the facts and considerations on the dumping ca lculation and the injury factors mentioned
under recital 3(ii). All parties were informed of the essential facts and considerations on the
basis of which it was intended to amend and co nfirm the Definitive Regulation. They were
also granted a period within which to make repr esentations subsequent to this disclosure. All
interested parties were granted an opportunity to be heard by the Commission. However, no
such hearing was requested by any interested party.

(6) All comments submitted by the interested pa rties were considered and, where appropriate,
reflected in the amended findings.

(7) It is recalled that the investigation of dumping covered the period from 1 April 1998 to 31
March 1999 (investigation period 'IP'). The investig ation relating to the trends relevant in the
context of the injury assessment covered the pe riod from 1 January 1995 up to the end of the
IP (i.e. 31 March 1999). This period will be referred to as 'the period considered'.

5 Document WT/DS219/10 of 27 August 2003.

D. AMENDED AND CONFIRMED FINDINGS

1. PRODUCT UNDER CONSIDERATION AND LIKE PRODUCT

(8) The product concerned is thread ed malleable cast iron tube or pipe fittings which are joined
by a screwing joining system, falling within CN-code ex 7307 19 10 (TARIC code 7307 19 10 11 and
7307 19 10 19). The Reports do not affect the findings set out in the Definitive Regulation as regards
the product under consideration and like product.

2. DUMPING

2.1. Introduction

(9) The following will detail the reassessed finding s based on the recommendations in the
Reports concerning the practice of 'zeroing' wh en establishing the weighted average dumping
margin.

(10) All other calculation methods applied are those used in the original investigation. For further
details, reference is made to the Provisional and Definitive Regulation.

2.2. Brazil

(11) It is recalled that during the original inv estigation Indústria de F undição Tupy Ltda was the
only known exporting producer of the product concerned in Brazil.

(12) As to the findings concerning normal valu e, the export price and adjustments made in
accordance with Article 2(10) of the Basic Regul ation, no changes have been necessary. For
further details, reference is made to recitals 20 to 31 and 35 to 49 of the above mentioned
Provisional and to recitals 24 to 27, 30, 31, 38 to 43, 46 to 48 and 51 to 54 of the Definitive
Regulation.

(13) As in the Provisional and Definitive Regula tions, the weighted average normal values of each
type of the product concerned exported to the European Community were compared to the
weighted average export price of each corresponding type of the product concerned. In
compliance with the recommendations of the Re port, no 'zeroing' was applied in calculating
the overall dumping margin.

(14) The revised dumping margin expressed as a percentage of the cif import price at the
Community frontier is:

Indústria de Fundição Tupy Ltda: 32 %.

(15) The level of cooperation wa s high. Consequently, the revised residual dumping margin is set
at the same level as for Indústria de Fundição Tupy Ltda, i.e. 32 %.

2.3. Disclosure

(16) The above revised findings on dumping were discl osed to all interested parties subject to the
present investigation which were granted the possibility to present their views and comments
and to be heard by the Commission.

(17) None of the parties concerned objected to the Commission findings on dumping.

3. DEFINITION OF THE COMMUNITY INDUSTRY

(18) The findings concerning the definition of the CI, summarised in recitals 65 to 68 of the
Definitive Regulation remain unaffected by th e recommendations and conclusions set out in
the Reports.

4. INJURY

4.1. Imports from the countries concerned and price undercutting

(19) The findings set out in recitals 69 to 94 of the Definitive Regulation remain unaffected by the
recommendations in the Reports.

4.2. Situation of the Community industry

4.2.1. Preliminary remark

(20) This part sets out the reassessed findings based on the recommendations in the Reports
concerning the injury analysis. The Reports conclude that the Community acted inconsistently
with Articles 12.2 and 12.2.2 of the ADA by failing to make directly discernible from the
published provisional or definitive determinations that the European Community addressed or
explained the lack of significance of the following injury factors listed in Article 3.4 of the
ADA: wages, productivity, return on investme nts, cash flow, ability to raise capital and
magnitude of the actual margin of dumping. It is recalled that these injury factors have been
examined during the original investigation. Howe ver, as they were at the time considered not
to be significant, and were therefore not include d in the analysis made available to the public,
they were only laid down in an internal note to the file.

4.2.2. Situation of the Community industry as set out in the Provisional and Definitive
Regulations

(21) It is recalled that in rec itals 160 and 161 of the Provisiona l Regulation it was concluded that
the CI suffered material injury within the meani ng of Article 4(1) of the Basic Regulation. It
was found that the situation of the CI deterior ated during the IP, in particular because of a
decline in production, production capacity, sales and market share. Moreover, the CI suffered
a significant loss of employment and a declin e in investments, as well as an increase of
stocks. As to the capacity utilisation, its in crease is explained by the reduced production
capacity.

4.2.3. Re-examination of the injury findings in the light of the recommendations and ruling
of the DSB

(22) In addition to the injury factors as set out in recitals 150 to 159 of the Provisional Regulation,
i.e. production, production capacity, capacity u tilisation, sales volume, market share, sales
prices, stocks, profitability, employment and i nvestments, the following injury factors were
analysed, and, following the Reports recommendations, are now set out in detail below.

4.2.3.1. Wages

(23) Wages, expressed as the total annual labour co st for the production of the product concerned
developed as follows:

Table 1

Wages

 1995 1996 1997 1998 IP
Total annual labour costs
(EUR '000) 44 730 48 479 48 375 46 995 47 132
Index 100 108 108 105 105
Source: Annual accounts of the CI.

(24) Wages increased by around 5 % between 1995 and the IP. When taking 1996 as a starting
point, the wages decreased by around 3 %.

(25) This factor follows roughly the general development of wages in the sector and the
movements in employment observed for the CI. Between 1996 and the IP this factor declined
by 3 %, which was in line with the developments of employment mentioned at recital (158) of
the Provisional Regulation (decrease of 6 % between 1995 and IP, slight decline of around
1 % between 1996 and IP).

4.2.3.2. Productivity

(26) Productivity, measured as the output of persons employed, developed as follows:

Table 2

Productivity

 1995 1996 1997 1998 IP
Production in tonnes per employee 21,58 19,47 19,76 20,84 20,82
Index 100 90 92 97 96
Source: Verified questionnaire replies of the CI.

(27) Productivity fluctuated over the period exam ined but an overall fall of 4 % was experienced
over the period 1995 to the IP. Productivity increased by around 7 % between 1996 and the
IP. This factor is in line with employmen t and production figures which were already
mentioned at recitals 150 and 158 of the Provisional Regulation.

4.2.3.3. Return on investments ('ROI')

(28) ROI, which is calculated by dividing the CI financial result (profit or loss) by the amount of
investments, developed as follows:

Table 3

ROI

 1995 1996 1997 1998 IP
ROI – 6,55 % 3,72 % – 2,78 % – 0,70 % – 2,72 %
Source: Verified questionnaire replies of the CI and their annual accounts.

(29) ROI developed from -6,55 % to -2,72 % be tween 1995 and the IP. However it is recalled,
that, as explained at recital 157 of the Provisiona l Regulation, the financial result of the CI
was negatively affected, in an exceptional way, by costs associated with a plant closure in
1995. Moreover, that year was also marked by restructuring efforts of two producers included
in the definition of the CI, in particular w ith the aim of production rationalisation and of
investments required to implement the Community's environmental legislation. This also had
a negative impact on the financial r esult of the CI. On this basis, it is considered that the year
1995 was unrepresentative of the situation of the CI and cannot be considered as a meaningful
basis for analysing trends on ROI.

(30) This remark also applies to other injury f actors which include the financial results of the CI,
e.g. cash flow as explained at recital 33 below.

(31) When comparing the year 1996 to the IP, ROI decreased by 6,4 percentage points, from
3,72% to -2,72 %. The negative development of ROI was broadly in line with the negative
development of profitability, which decreased by 2,3 percentage points during the same
period.

4.2.3.4. Cash flow

(32) Cash flow developed as follows:

Table 4

Cash flow

 1995 1996 1997 1998 IP
Cash flow
(EUR '000) 10 522 12 799 19 339 12 236 12 205
Index 100 122 184 116 116
Index 100 151 96 96
Source: Annual Accounts of the CI.

(33) It should be noted that the turnover of the product concerned has always represented over
50 % of the total turnover of all the activities of the CI, as reported in the audited accounts.
The above table shows the cash flow for the product concerned calculated on the basis of a
turnover allocation for the years from 1995 to 1998. Given that audited accounts were not
available for the IP, cash flow was calculate d on the basis of the total turnover and the
turnover for the product concerned verified dur ing the investigation. As explained in

recital (29), the financial result achieved by th e CI in 1995 was negatively affected in an
exceptional way by costs associated with a plant closure and restructuring and therefore that
year cannot be considered as a meaningful re presentative basis for analysing trends on cash
flow. Between 1995 and 1998 cash flow increased by around 16 % and remained stable
during the IP. When taking 1996 as a starting point cash flow decreased by around 4 % up to
the end of the IP. It was found, that the negative development of cash flow was broadly in line
with the negative development of profitability.

4.2.3.5. Ability to raise capital

(34) During the original investigation there was no claim from the CI (nor any indication), that it
encountered problems to raise the capital needed for its activity. However, it is clear that the
significant deterioration in the financial situation of the CI (see in particular profitability, cash
flow and ROI), may negatively affect the ability to raise capital in the near future.

4.2.3.6. Magnitude of the actual margin of dumping

(35) As concerns the impact on the CI of the ma gnitude of the actual margin of dumping, given the
volume and the prices of the imports from the countries concerned, this impact cannot be
considered negligible. This finding remains valid notwithstanding the reduction of the
dumping margin for one of the exporters as explained in recital 14.

(36) The Brazilian exporting producer objected to th e Commission's finding that the impact of the
magnitude of the actual dumping margin on the Community industry was not negligible.
According to the Brazilian producer, the diffe rence of almost 50 % between the dumping
margin and the underselling margin was evidence of a very large difference in the cost of
production of the Community producers on th e one hand and the Brazilian exporter on the
other hand. Therefore, it was claimed that even if dumping were totally eliminated the
imports from Brazil would still substantially undercut the non-injurious price of the
Community industry. The Brazilian exporting produc er argued finally that in the context of a
highly sensitive price market, the impact of the actual margin of dumping would thus clearly
be negligible, contrary to the Commission's findings.

(37) It has to be recalled that according to Article 3(5) of the Basic Regulation, the factor
'magnitude of the actual margin of dumping' is examined in the framework of the analysis of
the state of the domestic industry. In this context, it is the Community's consistent practice to
set the actual dumping margin in relation to the state of the domestic industry taking into
account the volume and the prices of the imports from the country concerned. An analysis as
the one proposed by the Brazilian exporter, i.e. a comparison of the dumping margin with the
underselling margin leading to conclusions with respect to a difference in cost of production
between exporting producers and the Community industry would by far exceed the
framework set by Article 3(5) of the Basic Regulation and would bring in an element of
causal link into such an analysis. This is clearly not required by Article 3(5) of the Basic
Regulation and would wipe out the distinction between the analysis of the state of the
Community industry on the one hand and the causal link between dumping and injury on the
other hand, which is in any event considered separately. In this context it should be also noted
that the underselling margin is calculated fo r the purpose of applying the 'lesser duty rule'
according to which the anti-dumping duty is set at the level of either the dumping or the
injury margin whichever is lower. It has to be underlined that the application of the 'lesser
duty rule' and thus the calculation of the under selling margin is not a WTO obligation. Even
assuming – for the sake of argument and withou t recognising the substance of the Brazilian
exporter's claim – that a comparison between the cost of production of the exporting producer
and Community producers were warranted in this context, such an analysis could only be

based on a comparison of the dumping margin with the undercutting (not the underselling)
margin. The levels of both margins are however comparable. Therefore, without dumping, the
price difference between imports from Brazil and the sales of the Community industry would
be minimal.

(38) Therefore, the argument had to be rejected.

4.2.4. Comments of the exporting producer on certain injury factors

(39) The Brazilian exporting producer claimed that for certain injury factor s (profitability, ROI,
cash flow, ability to raise capital) the year 19 95 had not been considered for the trend's
analysis. It was claimed that 1995 was disregar ded for those factors which otherwise would
have demonstrated a positive development. A ccording to the Brazilian exporting producer
this constitutes an inconsistent and discrim inatory approach and does not fulfil the
requirement of an objective and unbiased examina tion contrary to Articles 3.1 and 17.6 (i) of
the ADA.

(40) Firstly it should be noted, that with regard to profitability, no new determination has been
made for the purpose of implementing the Reports. It has to be recalled that in the framework
of the dispute settlement proceedings, Brazil put forward exactly the same arguments as the
ones referred to above concerning profitabilit y. The arguments were turned down by the
Panel and no recommendation at all was made with regard to this factor. The factor
'profitability' has therefore not been reassessed.

(41) Secondly, it should be noted that — in line w ith the original investigation — the trends with
regard to the injury indicators which had been analysed but which had not been made public
during the original investigation, have been analysed as from 1995. This also relates to the
factor 'ability to raise capital'. In particular for two injury factors (ROI and cash flow) it has
been considered that the year 1995 was an exceptional year and could thus not be considered
meaningful for the reasons set out in detail at r ecitals 29 and 33. In fact it is recognised by
several Panel and AB reports that the assessment of the injury factors is not limited to a rigid
comparison of the beginning and the end of the years of the period considered. It should also
be noted that the Brazilian exporting producer has not contested the substance of the
reasoning set out in recital 29.

(42) As to the alleged inconsiste ncy of the approach, the following has to be noted. It is precisely
for reasons of consistency with the analysis of the original investigation, that it is necessary –
for the purpose of implementing the Reports – to analyse cash flow and ROI, which are
directly derived from profitability, on the sa me basis as profitability in the original
investigation for which 1995 could reasonably be excluded from the trend analysis according
to the conclusions of the Reports. The approach chosen by the EC authorities was therefore
consistent and objective.

(43) Therefore, the arguments had to be rejected.

4.2.5. Conclusion on injury

(44) Based on the above analysis, it is concl uded that the findings in respect of wages,
productivity, return on investments and cash flow were in line with certain other factors
analysed and made public during the original in vestigation. As regards the ability to raise
capital, there was no claim that the CI encounter ed any difficulty to raise the capital needed
for its activity. This factor, however, should be seen in the light of the continuous degradation
of the financial situation of the CI. As regard s the margin of dumping, it is concluded that,

given the volume and the prices of the impor ts from the countries concerned, its impact
cannot be considered negligible.

(45) Based on the above, it is confirmed that th e Community industry suffered material injury
during the period considered.

5. CAUSATION

(46) The contents and conclusions reached in recitals 101 to 114 of the Definitive Regulation
remain unaffected by the Reports and the re-examined injury analysis.

(47) The Brazilian exporter contended that the in jury of the Community industry was not caused
by dumped imports, but by the lack of productivity of the Community industry as evidenced
by the almost 50 % difference between the dum ping margin and the underselling margin and
by the fact that the Community industry had undergone restructuring efforts in 1995 with the
aim of rationalising production. The similarity of this argument with the one made with
regard to the magnitude of the dumping margin re ferred to above at recital 36 is evident. The
Brazilian exporter claimed in addition that while the Commission had analysed the difference
in cost of production, it had however limited th is analysis to differences regarding energy
consumption linked to the difference of qualit y and production processes between black heart
and white heart fittings.

(48) It has to be recalled that in the framework of the dispute settlement proceedings, Brazil put
forward exactly the same arguments as the ones referred to above. The arguments were turned
down by the Panel and the Appellate Body a nd no recommendation at all was made with
regard to the causal link analysis.

(49) Therefore, the arguments mentioned in recital 47 had to be rejected.

6. COMMUNITY INTEREST

(50) The contents and conclusions reached in r ecitals 178 to 186 of the Provisional Regulation and
115 to 117 of the Definitive Regulation rema in unaffected by the Reports and the re-
examined injury analysis.

7. AMENDED MEASURES

(51) As shown above, a full examination of the f acts established and the conclusions reached in
the original investigation, taking account of the recommendations and rulings set out in the
Reports, demonstrates that imports from Brazil were still injuriously dumped, although at a
slightly lower level,

HAS ADOPTED THIS REGULATION:

Article 1

The table in Article 1(2) of Regulation (EC) No 1784/2000 is hereby amended as follows for products
originating in Brazil:

Country Definitive duty
(%) TARIC additional code
Brazil 32,0 –

Article 2

This Regulation shall enter into force on the day following its publication in the Official Journal of
the European Union.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 8 March 2004.

 For the Council
 The President
 D. AHERN