European Union – Anti-Dumping measures on biodiesel
from argentina

AB-2016-4

Report of the Appellate Body

Table of Contents

1   Introduction.. 12

2   Arguments of the Participants. 17

3   Arguments of the third participants. 17

4   issues raised.. 17

5   Background and overview of the measures at issue. 18

5.1   The EU anti-dumping measure on biodiesel from Argentina. 19

5.2   The second subparagraph of Article 2(5) of the Basic Regulation. 21

6   Analysis of the Appellate Body. 24

6.1   Claims concerning the EU anti-dumping measure on imports of biodiesel from Argentina. 24

6.1.1   Determination of dumping. 24

6.1.1.1   Article 2.2.1.1 of the Anti-Dumping Agreement 24

6.1.1.1.1   Introduction. 24

6.1.1.1.2   The Panel's findings. 25

6.1.1.1.3   The second condition in the first sentence of Article 2.2.1.1 of the Anti‑Dumping Agreement 27

6.1.1.1.4   Whether the Panel erred in its interpretation and application of Article 2.2.1.1 of the Anti-Dumping Agreement 31

6.1.1.1.5   Conclusions. 38

6.1.1.2   Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. 39

6.1.1.2.1   Introduction. 39

6.1.1.2.2   The Panel's findings. 40

6.1.1.2.3   Whether the Panel erred in its interpretation of Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. 41

6.1.1.2.4   Whether the Panel erred in its application of Article 2.2 of the Anti‑Dumping Agreement to the anti-dumping measure at issue. 44

6.1.1.2.5   Conclusions. 45

6.1.1.3   Article 2.4 of the Anti-Dumping Agreement 45

6.1.2   Imposition of anti-dumping duties: Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994. 48

6.1.2.1   The Panel's findings. 48

6.1.2.2   Whether the Panel erred in its interpretation of Article 9.3 of the Anti-Dumping Agreement 49

6.1.2.3   Whether the Panel erred in its application of Article 9.3 of the Anti-Dumping Agreement 52

6.1.2.4   Conclusions. 53

6.1.3   Non-attribution analysis in causation determination: Articles 3.1 and 3.5 of the Anti-Dumping Agreement 54

6.1.3.1   Relevant background and the Panel's findings. 54

6.1.3.2   Relevant provisions. 57

6.1.3.3   Whether the Panel erred in its interpretation of Articles 3.1 and 3.5 of the Anti‑Dumping Agreement 58

6.1.3.4   Whether the Panel erred in concluding that the EU authorities did not rely on the revised data  59

6.1.3.5   Whether the Panel erred in failing to distinguish overcapacity from capacity utilization and in failing to note the inconsistency of the EU authorities' conclusion in light of the evidence before them.. 61

6.1.3.6   Conclusions. 62

6.2   Claims concerning the second subparagraph of Article 2(5) of the Basic Regulation. 63

6.2.1   Introduction. 63

6.2.2   The assessment of the meaning of municipal law.. 64

6.2.3   Article 2.2.1.1 of the Anti-Dumping Agreement 65

6.2.3.1   The Panel's findings. 66

6.2.3.2   Whether the Panel erred in ascertaining the meaning of the second subparagraph of Article 2(5) of the Basic Regulation. 67

6.2.3.3   Whether the Panel acted inconsistently with Article 11 of the DSU. 75

6.2.3.4   Conclusions. 78

6.2.4   Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. 78

6.2.4.1   The Panel's findings. 79

6.2.4.2   The assessment of a complaint that a measure is inconsistent "as such" with WTO obligations  81

6.2.4.3   Whether the Panel erred in ascertaining the meaning of the second subparagraph of Article 2(5) of the Basic Regulation. 83

6.2.4.4   Whether the Panel acted inconsistently with Article 11 of the DSU. 90

6.2.4.5   Whether the Panel erred by employing an erroneous legal standard to find that Argentina had not established that the second subparagraph of Article 2(5) of the Basic Regulation is inconsistent "as such" with Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. 91

6.2.4.6   Conclusions. 95

6.2.5   Article XVI:4 of the WTO Agreement and Article 18.4 of the Anti‑Dumping Agreement 96

7   Findings And Conclusions. 96

7.1   Claims concerning the EU anti-dumping measure on imports of biodiesel from Argentina. 96

7.1.1   Determination of dumping. 97

7.1.1.1   Article 2.2.1.1 of the Anti-Dumping Agreement 97

7.1.1.2   Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. 97

7.1.1.3   Article 2.4 of the Anti-Dumping Agreement 97

7.1.2   Imposition of anti-dumping duties: Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994. 98

7.1.3   Non-attribution analysis in causation determination: Articles 3.1 and 3.5 of the Anti-Dumping Agreement 98

7.2   Claims concerning the second subparagraph of Article 2(5) of the Basic Regulation. 99

7.2.1   Article 2.2.1.1 of the Anti-Dumping Agreement 99

7.2.2   Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. 99

7.2.3   Article XVI:4 of the WTO Agreement and Article 18.4 of the Anti‑Dumping Agreement 100

7.3   Recommendation. 100

ABBREVIATIONS USED IN THIS report

PANEL EXHIBITS CITED in this report

cases cited in this report

World Trade Organization

Appellate Body

1  Introduction

1.1.  The European Union and Argentina each appeals certain issues of law and legal interpretations developed in the Panel Report, European Union – Anti-Dumping Measures on Biodiesel from Argentina^[1] (Panel Report). The Panel was established on 25 April 2014 to consider a complaint by Argentina with respect to two measures of the European Union^[2]: (i) the anti-dumping measure imposed by the European Union on imports of biodiesel originating in Argentina^[3]; and (ii) the second subparagraph of Article 2(5) of Council Regulation (EC) No. 1225/2009 of 30 November 2009 on protection against dumped imports from countries not members of the European Community^[4] (Basic Regulation).^[5]

1.2.  The anti-dumping measure on biodiesel challenged by Argentina was adopted upon conclusion of an investigation on imports of biodiesel originating in Argentina and Indonesia.^[6] The European Commission initiated the investigation on 29 August 2012, following a complaint submitted by the European Biodiesel Board (EBB).^[7] Provisional anti-dumping duties were imposed on 29 May 2013 through the Provisional Regulation, and definitive anti-dumping duties on 27 November 2013 through the Definitive Regulation.^[8] With regard to the Argentine producers/exporters, the rates of the provisional anti-dumping duties applied were equal to the dumping margins ranging from 6.8% to 10.6%.^[9] In the Definitive Regulation, the EU authorities^[10] confirmed the provisional findings of dumping and injury, and calculated dumping margins ranging from 41.9% to 49.2%. As these dumping margins exceeded the injury margins calculated by the EU authorities, which ranged from 22% to 25.7%, the EU authorities applied duties corresponding to the injury margins.^[11]

1.3.  Argentina claimed before the Panel that the anti-dumping measure on biodiesel is inconsistent with several provisions of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement) and the General Agreement on Tariffs and Trade 1994 (GATT 1994) relating to the dumping margin determination, the injury and causation determinations, and the imposition of duties. Specifically, Argentina alleged that the European Union acted inconsistently with: (i) Article 2.2.1.1 of the Anti‑Dumping Agreement by failing to calculate the cost of production of the product under investigation on the basis of records kept by the Argentine producers^[12], and by including costs not associated with the production and sale of biodiesel in the calculation of the cost of production; (ii) Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by failing to construct the normal value of the exports of biodiesel on the basis of the cost of production in the country of origin^[13]; (iii) Articles 2.2 and 2.2.2(iii) of the Anti-Dumping Agreement by failing to base the profit-margin component of the constructed normal value on a reasonable method within the meaning of Article 2.2.2(iii); (iv) Article 2.4 of the Anti-Dumping Agreement by failing to make due allowance for differences affecting price comparability and thus precluding a fair comparison between the normal value and the export price; (v) Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994 by imposing anti-dumping duties in excess of the margins of dumping that should have been established under Article 2 of the Anti‑Dumping Agreement; (vi) Articles 3.1 and 3.4 of the Anti-Dumping Agreement with regard to the EU authorities' injury determination; and (vii) Articles 3.1 and 3.5 of the Anti-Dumping Agreement with regard to the EU authorities' non‑attribution analysis and finding that the injury suffered by the EU domestic industry did not result from factors other than dumped imports.^[14]

1.4.  Furthermore, Argentina claimed before the Panel that the second subparagraph of Article 2(5) of the Basic Regulation is inconsistent "as such" with: (i) Article 2.2.1.1 and, as a consequence, Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by providing that the authorities shall reject or adjust the cost data in the records of producers or exporters under investigation when those costs reflect prices that are "abnormally or artificially low" as a result of an alleged market distortion^[15]; (ii) Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by providing that the costs shall be adjusted or established in certain cases "on any other reasonable basis, including information from other representative markets"^[16]; and, as a consequence, (iii) Article XVI:4 of the Marrakesh Agreement Establishing the World Trade Organization (WTO Agreement) and Article 18.4 of the Anti-Dumping Agreement.^[17]

1.5.  The European Union requested the Panel to reject Argentina's claims in their entirety.^[18] In addition, the European Union submitted a request for a preliminary ruling, arguing that certain claims in Argentina's panel request fell outside the Panel's terms of reference because: (i) the panel request failed to identify the specific measures at issue; (ii) the panel request failed to meet the requirement in Article 6.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) to "provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly"; and/or (iii) they were not included in Argentina's request for consultations.^[19] The Panel declined to issue the ruling requested by the European Union; finding, instead, that Argentina's panel request fulfils the requirements of Article 6.2 of the DSU^[20], and that "the claims in the panel request may reasonably be said to have evolved from those in the request for consultations".^[21] The Panel therefore ruled that the claims subject to the European Union's request for a preliminary ruling fell within the Panel's terms of reference.^[22]

1.6.  In the Panel Report, circulated to Members of the World Trade Organization (WTO) on 29 March 2016, the Panel found that:

a.    With respect to Argentina's claims concerning the anti-dumping measure imposed by the European Union on imports of biodiesel from Argentina:

i.      The European Union acted inconsistently with Article 2.2.1.1 of the Anti-Dumping Agreement by failing to calculate the cost of production of the product under investigation on the basis of the records kept by the producers^[23];

ii.     The European Union acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by using a "cost" for inputs that was not the cost prevailing "in the country of origin", namely, Argentina^[24];

iii.    Argentina had not established that the European Union acted inconsistently with the requirement under Article 2.4 of the Anti-Dumping Agreement to make a "fair comparison"^[25];

iv.   Argentina had not established that the European Union acted inconsistently with Articles 2.2.2(iii) and 2.2 of the Anti-Dumping Agreement in its determination of the amount for profits applied in the construction of the Argentine producers' normal value^[26];

v.    The European Union acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994 by imposing anti-dumping duties in excess of the margins of dumping that should have been established under Article 2 of the Anti-Dumping Agreement and Article VI:1 of the GATT 1994, respectively^[27];

vi.   The European Union acted inconsistently with Articles 3.1 and 3.4 of the Anti‑Dumping Agreement in its examination of the impact of the dumped imports on the domestic industry, insofar as such examination related to production capacity and capacity utilization^[28]; and

vii.  Argentina had not established that the European Union's non-attribution analysis was inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement.^[29]

b.    With respect to Argentina's claims concerning the EU Basic Regulation:

i.      Argentina had not established that the second subparagraph of Article 2(5) is inconsistent "as such" with Article 2.2.1.1 of the Anti-Dumping Agreement and, as a consequence, Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994^[30];

ii.     Argentina had not established that the second subparagraph of Article 2(5) is inconsistent "as such" with Article 2.2 of the Anti-Dumping Agreement and with Article VI:1(b)(ii) of the GATT 1994^[31]; and, therefore

iii.    Argentina had not established that the second subparagraph of Article 2(5) is inconsistent "as such" with Article XVI:4 of the WTO Agreement and Article 18.4 of the Anti-Dumping Agreement.^[32]

1.7.  On 20 May 2016, the European Union notified the Dispute Settlement Body (DSB), pursuant to Articles 16.4 and 17 of the DSU, of its intention to appeal certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel, and filed a Notice of Appeal^[33] and an appellant's submission pursuant to Rule 20 and Rule 21, respectively, of the Working Procedures for Appellate Review^[34] (Working Procedures). On 25 May 2016, Argentina notified the DSB, pursuant to Articles 16.4 and 17 of the DSU, of its intention to appeal certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel, and filed a Notice of Other Appeal^[35] and an other appellant's submission pursuant to Rule 23 of the Working Procedures. On 7 June 2016, the European Union and Argentina each filed an appellee's submission.^[36] On 10 June 2016, Australia, China, Colombia, Indonesia, Mexico, Russia, Saudi Arabia, and the United States each filed a third participant's submission.^[37] On the same day, Norway and Turkey each notified its intention to appear at the oral hearing as a third participant.^[38]

1.8.  By letter of 1 June 2016, the participants and third participants were informed that, in accordance with Rule 15 of the Working Procedures, the Appellate Body had notified the Chair of the DSB of its decision to authorize Appellate Body Member Mrs Yuejiao Zhang to complete the disposition of this appeal, even though her second term was due to expire before the completion of the appellate proceedings.

1.9.  On 30 June 2016, the Appellate Body Division hearing this appeal received two letters from the European Union. In the first letter, the European Union requested a period of 50 minutes to deliver its oral statement at the hearing. The European Union expressed the view that there is "an unusual volume of third participant submissions in this appeal", and that these submissions "refer to a number of points that have not been raised by Argentina". The European Union asserted that it needed to have a full opportunity to address these additional points on its "own motion" and "in an appropriately structured way". In the second letter, the European Union requested that additional procedures be adopted for: (i) public observation of the oral hearing; and (ii) viewing of a recording of the oral hearing by third participants. On 1 July 2016, the Division invited Argentina and the third participants to comment on these requests by 12 noon on Tuesday, 5 July 2016. In response, Argentina, China, Mexico, and the United States submitted comments.

1.10.  Having received comments on the request made by the European Union in its first letter^[39], on 6 July 2016, pursuant to Rule 28(1) of the Working Procedures, the Division invited the European Union to submit an additional memorandum by 11 July 2016 to identify the precise points referred to by the third participants that allegedly had not been raised by Argentina, and to explain the reasons for its concerns with these points. In the same letter, the Division also invited Argentina and the third participants to respond in writing, if they so wished, by 14 July 2016.^[40] By the deadlines set out above, the European Union submitted a "non-exhaustive list" of arguments raised by certain third participants that it claimed had not been developed in Argentina's written submissions, and Argentina and China each provided a written response.^[41] By letter dated 15 July 2016, the Division informed the participants and third participants that they would be accorded, respectively, 35 minutes each and 7 minutes each for their oral statements at the hearing. With respect to the requests made by the European Union in its second letter, the Division received comments from Argentina, China, Mexico, and the United States.^[42] On 11 July 2016, the Division issued a Procedural Ruling in which the Division declined the European Union's request to adopt additional procedures: (i) to allow public observation of the oral hearing, and (ii) to enable the third participants to view a video recording of the oral hearing. The Procedural Ruling can be found in Annex D-2 of the Addendum to this Report.

1.11.  By letter of 19 July 2016, the Chair of the Appellate Body notified the Chair of the DSB that the Appellate Body would not be able to circulate its Report within the 60-day period pursuant to Article 17.5 of the DSU, or within the 90-day period pursuant to the same provision.^[43] The Chair of the Appellate Body explained that this was due to a number of factors, including the number and complexity of the issues raised in this and concurrent appellate proceedings, the demands on the WTO Secretariat's translation services, the shortage of staff in the Appellate Body Secretariat, as well as the scheduling difficulties arising from a substantial workload of the Appellate Body, with several appeals proceeding in parallel, and overlap in the composition of the Divisions hearing the different appeals. On 9 August 2016, the Chair of the Appellate Body informed the Chair of the DSB that the Report in these proceedings would be circulated no later than 6 October 2016.^[44]

1.12.  The oral hearing in these appellate proceedings was held on 21-22 July 2016.^[45] The participants and nine third participants (Australia, China, Colombia, Indonesia, Mexico, Norway, Russia, Saudi Arabia, and the United States) made oral statements and/or responded to questions posed by the Members of the Appellate Body Division hearing the appeal.

2  Arguments of the Participants

2.1.  The claims and arguments of the participants are reflected in the executive summaries of their written submissions provided to the Appellate Body.^[46] The Notices of Appeal and Other Appeal, and the executive summaries of the participants' claims and arguments, are contained in Annexes A and B of the Addendum to this Report, WT/DS473/AB/R/Add.1.

3  Arguments of the third participants

3.1.  The arguments of the third participants that filed a written submission are reflected in the executive summaries of those submissions provided to the Appellate Body^[47], and are contained in Annex C of the Addendum to this Report, WT/DS473/AB/R/Add.1.

4  issues raised

4.1.  The following issues are raised in this appeal with respect to the anti-dumping measure on biodiesel:

a.    in respect of the determination of dumping:

i.      whether the Panel erred in its interpretation and application of the second condition in the first sentence of Article 2.2.1.1 of the Anti‑Dumping Agreement in finding that the European Union acted inconsistently with this provision when constructing the normal value by failing to calculate the cost of production of the product under investigation on the basis of the records kept by the investigated producers (raised by the European Union);

ii.     whether the Panel erred in its interpretation and application of Article 2.2 of the Anti‑Dumping Agreement in finding that the European Union acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by not using the cost of production in Argentina (raised by the European Union); and

iii.    whether the Panel erred in its interpretation and application of Article 2.4 of the Anti‑Dumping Agreement in finding that Argentina had not established that the European Union failed to make a "fair comparison" between the normal value and the export price within the meaning of this provision (raised by Argentina);

b.    whether the Panel erred in its interpretation and application of Article 9.3 of the Anti‑Dumping Agreement in finding that the European Union acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and, consequently, Article VI:2 of the GATT 1994 by imposing anti-dumping duties in excess of the margins of dumping that should have been established under Article 2 of the Anti-Dumping Agreement and Article VI:1 of the GATT 1994, respectively (raised by the European Union); and

c.    whether the Panel erred in its interpretation and application of Articles 3.1 and 3.5 of the Anti-Dumping Agreement in finding that Argentina had not established that the EU authorities' non-attribution analysis, insofar as it related to the allegation of "overcapacity" as an "other factor" causing injury to the EU domestic industry, is inconsistent with these provisions (raised by Argentina).

4.2.  The following issues are raised in this appeal with respect to the second subparagraph of Article 2(5) of the EU Basic Regulation:

a.    whether, in finding that Argentina had not established that the second subparagraph of Article 2(5) of the Basic Regulation is inconsistent "as such" with Article 2.2.1.1 of the Anti‑Dumping Agreement, the Panel erred in ascertaining the scope and meaning of the second subparagraph of Article 2(5) and thereby erred in its application of Article 2.2.1.1 of the Anti‑Dumping Agreement, and acted inconsistently with Article 11 of the DSU (raised by Argentina);

b.    whether, in finding that Argentina had not established that the second subparagraph of Article 2(5) of the Basic Regulation is inconsistent "as such" with Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994, the Panel:

i.      erred in its interpretation of Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 in finding that these provisions do not "prohibit an authority resorting to sources of information other than producers' costs in the country of origin" (raised by Argentina);

ii.     erred in ascertaining the meaning of the second subparagraph of Article 2(5) and thereby erred in its application of Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994, and acted inconsistently with Article 11 of the DSU (raised by Argentina); and

iii.    applied an erroneous legal standard for assessing whether the second subparagraph of Article 2(5) is inconsistent "as such" with the relevant provisions of the covered agreements (raised by Argentina); and

c.    whether the Panel erred in finding that Argentina had not established that the second subparagraph of Article 2(5) of the Basic Regulation is inconsistent "as such" with Article XVI:4 of the WTO Agreement and Article 18:4 of the Anti‑Dumping Agreement (raised by Argentina).

5  Background and overview of the measures at issue

5.1.  Before addressing the issues of law and legal interpretation raised in this dispute, we provide an overview of the measures challenged by Argentina, as well as certain background information. We begin by summarizing the aspects of the anti-dumping measure on biodiesel from Argentina that are relevant to these appellate proceedings, before briefly describing the second subparagraph of Article 2(5) of the Basic Regulation and other relevant aspects of this Regulation.

5.1  The EU anti-dumping measure on biodiesel from Argentina

5.2.  The investigation underlying the anti-dumping measure on biodiesel was initiated by the EU authorities on 29 August 2012^[48], following a complaint lodged on 16 July 2012 by the EBB.^[49] The European Union published the Provisional Regulation on 28 May 2013, imposing provisional anti‑dumping duties on imports of biodiesel originating in Argentina.^[50] On 1 October 2013, the EU authorities issued a Definitive Disclosure and proposal for definitive anti-dumping duties, and invited comments from the interested parties.^[51] On 26 November 2013, the Definitive Regulation was published in the Official Journal of the European Union.^[52]

5.3.  The investigation on dumping and injury covered the period from 1 July 2011 to 30 June 2012 (investigation period, or IP), and the examination of trends relevant for the assessment of injury covered the period from 1 January 2009 to 30 June 2012 (period considered).^[53] The EU authorities defined the product concerned as biodiesel originating in, inter alia, Argentina, and found that soybeans are "the main raw material purchased and used in the production of biodiesel" in Argentina.^[54] It is undisputed that the cost of raw materials is the largest cost component in producing biodiesel.^[55]

5.4.  In the Provisional Regulation, the EU authorities found that the biodiesel market in Argentina was heavily regulated by the State, and considered that, under these circumstances, domestic sales of biodiesel were not made in the ordinary course of trade.^[56] As this meant that the prices paid for biodiesel in domestic sales could not form the basis for the determination of the normal value, the EU authorities decided to construct the normal value for the investigation period on the basis of the Argentine producers' own production costs in their records^[57], the selling, general and administrative expenses incurred, and a profit margin of 15% based on turnover.^[58]

5.5.  In constructing the normal value in the Provisional Regulation, the EU authorities noted the allegation by the EBB in relation to the Differential Export Tax (DET) system. Under this system, Argentina imposes differential taxes on exports of soybeans, soybean oil, and biodiesel, and the taxes imposed on exports of raw materials are higher than the taxes imposed on exports of the
finished product.^[59] The EBB alleged that the DET system depresses the domestic price of soybeans and soybean oil, and therefore distorts the costs of production of biodiesel producers in Argentina.^[60] The EU authorities considered, however, that, due to a lack of information for purposes of deciding the most appropriate way to address this allegation, the question as to whether the Argentine biodiesel producers' records reasonably reflect the costs associated with the production of biodiesel would be further examined at the definitive stage, as well as in the parallel countervailing duty investigation.^[61] Thus, despite the EBB's allegation, the EU authorities used the actual costs of soybeans reported in the Argentine producers' records in calculating the constructed normal value in the Provisional Regulation.^[62] On the basis of the constructed normal value and the relevant export price, the EU authorities established dumping margins ranging from 6.8% to 10.6% for the Argentine producers/exporters.^[63] Having concluded that the dumped imports had caused material injury to the domestic biodiesel industry of the European Union, and that the injury margins exceeded the dumping margins^[64], the EU authorities imposed provisional duties at rates equal to the above dumping margins.^[65]

5.6.  Subsequently, in both the Definitive Disclosure and Definitive Regulation, the EU authorities found that the DET system in Argentina depressed the domestic price of soybeans and soybean oil to an artificially low level that, as a consequence, affected the costs of the Argentine biodiesel producers.^[66] The EU authorities noted that, on the one hand, the amount of the export tax on soybeans and soybean oil was calculated on the basis of a "reference price" that "reflect[ed] the level of international prices"^[67], namely, the daily FOB price for soybeans and soybean oil published by the Argentine Ministry of Agriculture, Livestock and Fisheries.^[68] On the other hand, the domestic prices of soybeans and soybean oil reflected the prevailing conditions in the Argentine domestic market, and followed the trends of the international prices.^[69] The EU authorities established that "the difference between the international and the domestic price of soya beans and soya bean oil is the export tax on the product and other expenses incurred for exporting it."^[70] In other words, the domestic prices of soybeans and soybean oil, albeit set according to supply and demand in the Argentine market, were essentially equivalent to the international prices minus exporting expenses and the amount of the export tax.

5.7.  The EU authorities concluded that "the domestic prices of the main raw material used by biodiesel producers in Argentina were … lower than the international prices due to the distortion created by the Argentine export tax system and, consequently, the costs of the main raw material were not reasonably reflected in the records kept by the Argentinean producers under investigation in the meaning of Article 2(5)" of the Basic Regulation.^[71] The EU authorities therefore decided to revise the construction of the normal value in the Provisional Regulation and "disregard the actual costs of soya beans (the main raw material purchased and used in the production of biodiesel) as recorded by the companies concerned in their accounts".^[72] Instead, such actual costs were replaced by "the average of the reference prices of soya beans published by the Argentine Ministry of Agriculture for export FOB Argentina"^[73], "minus fobbing costs"^[74], during the investigation period. In this Report, we refer to this replacement used by the EU authorities in the Definitive Regulation as the "surrogate price for soybeans".^[75]

5.8.  As the Panel found, the surrogate price for soybeans used by the EU authorities as part of its construction of the normal value was based on "the reference price used by the Argentine government for the calculation of the export tax on soybeans"^[76], that is, a "reference price" that "reflected the level of international prices".^[77] At the same time, the EU authorities considered that this surrogate price for soybeans "would have been the price paid by the Argentine producers in the absence of the export tax system".^[78] On the basis of, inter alia, the revised constructed normal value, the EU authorities calculated dumping margins ranging from 41.9% to 49.2% for the Argentine exporters/producers.^[79]

5.9.  The Definitive Regulation confirmed the provisional findings of injury and causation^[80], although certain aspects of the findings were modified. In particular, the figures relating to two of the macroeconomic indicators examined by the EU authorities – the production capacity and capacity utilization rate of the EU industry – were modified in light of revised data submitted by the EBB subsequent to the Provisional Regulation. The EBB claimed that the data previously submitted regarding the total EU production capacity included "idle capacity" and should therefore be reduced.^[81] The EU authorities accepted the revised data on production capacity submitted by the EBB, which led to a downward adjustment to the production capacity figures and an upward adjustment to the capacity utilization rates in the Definitive Regulation.^[82]

5.10.  Finally, the EU authorities found that the injury margins, at rates ranging from 22% to 25.7%, were lower than the dumping margins. The EU authorities applied the "lesser duty rule", and imposed definitive anti-dumping duties on imports of biodiesel from Argentina at rates equal to the injury margins.^[83]

5.2  The second subparagraph of Article 2(5) of the Basic Regulation

5.11.  The Basic Regulation is the basic EU legal instrument on the protection against dumped imports from countries that are not member States of the European Union.^[84] It contains language identical or similar to that used in the Anti-Dumping Agreement, together with additional provisions and details that have no direct counterpart in the Anti-Dumping Agreement.^[85] Article 2 of the Basic Regulation, entitled "Determination of dumping", contains provisions setting out rules relating to normal value, export price, comparison between normal value and export price, and dumping margin. The rules relating to normal value are set out in Articles 2(1) through 2(7). Of particular relevance to this dispute are Articles 2(3) and 2(5). The second subparagraph of the latter provision is the only provision of the Basic Regulation that Argentina has challenged "as such" in this dispute.

5.12.  The first subparagraph of Article 2(3) of the Basic Regulation, which contains language similar to Article 2.2 of the Anti-Dumping Agreement, sets out two methods for determining the normal value "[w]hen there are no or insufficient sales of the like product in the ordinary course of trade, or where because of the particular market situation such sales do not permit a proper comparison".^[86] In such circumstances, "the normal value of the like product shall be calculated on the basis of the cost of production in the country of origin plus a reasonable amount for selling, general and administrative costs and for profits, or on the basis of the export prices, in the ordinary course of trade, to an appropriate third country, provided that those prices are representative."^[87]

5.13.  Article 2(5) of the Basic Regulation contains four subparagraphs. It begins with a subparagraph that largely replicates the language in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement, providing that "[c]osts shall normally be calculated on the basis of records kept by the party under investigation, provided that such records are in accordance with the generally accepted accounting principles of the country concerned and that it is shown that the records reasonably reflect the costs associated with the production and sale of the product under consideration."^[88] The text of the second subparagraph of Article 2(5) does not directly correspond to any specific provision of the Anti-Dumping Agreement. It provides that, "[i]f costs associated with the production and sale of the product under investigation are not reasonably reflected in the records of the party concerned, they shall be adjusted or established on the basis of the costs of other producers or exporters in the same country or, where such information is not available or cannot be used, on any other reasonable basis, including information from other representative markets."^[89]

5.14.  The following table juxtaposes the above-mentioned provisions of the Anti-Dumping Agreement and the Basic Regulation, with the provision subject to Argentina's challenge – the second subparagraph of Article 2(5) of the Basic Regulation – underlined.

Table 1    Juxtaposition of certain provisions of the Anti-Dumping Agreement and the EU Basic Regulation

Source: Anti-Dumping Agreement and Basic Regulation (Panel Exhibit ARG-1). (underlining added)

6  Analysis of the Appellate Body

6.1  Claims concerning the EU anti-dumping measure on imports of biodiesel from Argentina

6.1.1  Determination of dumping

6.1.  In this section, we address the claims of error raised by both the European Union and Argentina relating to the determination of dumping under Article 2 of the Anti‑Dumping Agreement and Article VI of the GATT 1994. These claims of error are closely related and concern the Panel's findings under Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement regarding the EU authorities' calculation of the cost of production in constructing the normal value of biodiesel, and under Article 2.4 of the Anti-Dumping Agreement regarding the comparison between that normal value and the export price of biodiesel. The European Union and Argentina disagree on whether Article 2.2.1.1 allows an investigating authority to disregard the records of a producer under investigation if the authority determines that the costs in such records are not "reasonable". The European Union and Argentina also disagree on whether Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 allow an investigating authority to use certain evidence other than the records kept by the investigated producer, in particular information from outside the country of origin, when determining the cost of production in the country of origin under Article 2.2. Finally, the European Union and Argentina disagree on the circumstances in which Article 2.4 requires due allowance to be made where the investigating authority has constructed the normal value on the basis of costs that are not those in the records kept by the investigated producer.

6.2.  We begin by examining the European Union's and Argentina's claims of error regarding the Panel's findings under Article 2.2.1.1 of the Anti-Dumping Agreement. We then turn to the European Union's claims of error under Article 2.2 of the Anti-Dumping Agreement. In that section, we also examine Argentina's claim of error regarding the Panel's interpretation of Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994.^[90] Finally, we examine Argentina's claims of error under Article 2.4 of the Anti-Dumping Agreement.

6.1.1.1  Article 2.2.1.1 of the Anti-Dumping Agreement

6.1.1.1.1  Introduction

6.3.  The European Union appeals the Panel's finding that "the European Union acted inconsistently with Article 2.2.1.1 of the Anti-Dumping Agreement by failing to calculate the cost of production of the product under investigation on the basis of the records kept by the producers".^[91] In the view of the European Union, the Panel erred in its interpretation and application of the second condition in the first sentence of Article 2.2.1.1, in particular by finding that this condition refers to the actual costs incurred by the specific exporter or producer under investigation^[92], and that this condition does not include a general standard of "reasonableness".^[93] The European Union requests us to reverse the findings in paragraphs 7.247-7.249 and 8.1.c.i of the Panel Report, and further argues that we should not complete the analysis.^[94] In contrast, Argentina requests us to uphold the Panel's findings at issue. In the event that we reverse the Panel's findings under Article 2.2.1.1, Argentina requests us to complete the legal analysis and find that the European Union acted inconsistently with Article 2.2.1.1.^[95]

6.4.  Before examining the European Union's claim of error on appeal, we summarize the relevant Panel findings with respect to Article 2.2.1.1 of the Anti-Dumping Agreement. We then set out our understanding of the second condition in the first sentence of Article 2.2.1.1. Thereafter, we turn to examine the merits of the European Union's claim that the Panel erred in its interpretation and application of this provision.

6.1.1.1.2  The Panel's findings

6.5.  The Panel first recalled that, in certain situations where domestic sales do not permit a proper comparison, the normal value may be constructed on the basis of the "cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits".^[96] To the Panel, the opening phrase in Article 2.2.1.1 of the Anti‑Dumping Agreement — "For the purpose of paragraph 2" – indicates that Article 2.2.1.1 elaborates on how the "cost of production in the country of origin" referred to in Article 2.2 is to be determined in constructing the normal value. Moreover, the first sentence of Article 2.2.1.1 establishes the records of the investigated exporter or producer as the preferred source of information for determining the costs of production. The Panel noted that the term "shall" in the first sentence of Article 2.2.1.1 indicates that it establishes a mandatory rule in this respect, whereas the term "normally" suggests that this rule may be derogated from under certain conditions. In this regard, the Panel considered that, in the two conditions that it sets out, the first sentence of Article 2.2.1.1 expressly provides for two circumstances in which an investigating authority need not follow the general rule to calculate costs on the basis of the records kept by the exporter or producer under investigation.^[97]

6.6.  Regarding the second of these conditions – that the records kept by the exporter or producer under investigation reasonably reflect the costs associated with the production and sale of the product under consideration – the Panel observed that the focus of this condition is on the specific exporter or producer under investigation, and what is contained in its records.^[98] Since it is the "records" that must reasonably reflect the costs of production and sale of the product, and given that "reflect" connotes the faithful and accurate depiction of information and that "reasonably reflect" concerns the degree or manner of reflection of costs in the records, the Panel considered that "reasonably reflect" in Article 2.2.1.1 means that the records of an exporter or producer must depict all the costs it has incurred in a manner that is – within acceptable limits – accurate and reliable.^[99]

6.7.  To the Panel, the context provided by the first condition in the first sentence of Article 2.2.1.1, namely, that the records be "in accordance with the generally accepted accounting principles of the exporting country", suggests that the first sentence of Article 2.2.1.1 is concerned with the reasonable reflection of the costs that producers actually incur in the production of the product at issue.^[100] In addition, the Panel took the view that, under Article 2.2 of the Anti‑Dumping Agreement, the purpose of calculating the cost of production and constructing the normal value on the basis of the cost is to identify an appropriate proxy for the price of the like product in the ordinary course of trade in the domestic market of the exporting country when such price cannot be used. It flows from this purpose that the "costs associated with the production and sale of the product under consideration" are those that a producer actually incurred, "since these would yield such a proxy more accurately".^[101] The Panel did not consider that the arguments made by the parties pertaining to the object and purpose of the Anti-Dumping Agreement shed light on the interpretative question before it, and thus did not examine those arguments in detail.^[102]

6.8.  On this basis, the Panel understood that the second condition in the first sentence of Article 2.2.1.1 relates to whether the costs set out in a producer's or exporter's records "correspond – within acceptable limits – in an accurate and reliable manner[] to all the actual costs incurred by the particular producer or exporter for the product under consideration".^[103] In its view, this calls for a comparison between, on the one hand, the costs as reported in the records kept by the producer or exporter and, on the other hand, the costs actually incurred by that producer or exporter. To the Panel, this does not mean that an investigating authority must automatically accept whatever is reflected in the records. Rather, it is free to examine the reliability and accuracy of the costs reported in the records and, thus, whether those records reasonably reflect the costs associated with the production and sale of the product under consideration. In the Panel's view, however, the examination of the records for purposes of determining whether they "reasonably reflect" costs within the meaning of Article 2.2.1.1 does not involve an examination of the "reasonableness" of the reported costs themselves, as proposed by the European Union. The Panel considered that the object of the comparison is to establish whether the records reasonably reflect the costs actually incurred, and not whether they reasonably reflect some hypothetical costs that might have been incurred under a different set of conditions or circumstances and which the investigating authority considers more "reasonable" than the costs actually incurred.^[104]

6.9.  The Panel found support for its understanding in previous panel reports. After conducting a detailed examination of the findings of the panels in US – Softwood Lumber V^[105], Egypt – Steel Rebar^[106], and EC – Salmon (Norway)^[107], the Panel considered that the reasoning in each of those reports suggests that Article 2.2.1.1 focuses on the actual costs of production of the exporter or producer under investigation.

6.10.  Turning to the anti-dumping measure at issue, the Panel noted that the EU authorities decided not to use the cost of soybeans in the production of biodiesel in Argentina because "the domestic prices of the main raw material used by biodiesel producers in Argentina were found to be artificially lower than the international prices due to the distortion created by the Argentine export tax system".^[108] The Panel considered that this did not constitute a sufficient basis under Article 2.2.1.1 for concluding that the producers' records do not reasonably reflect the costs associated with the production and sale of biodiesel.^[109] Thus, the Panel found that the European Union acted inconsistently with Article 2.2.1.1 of the Anti-Dumping Agreement by failing to calculate the cost of production of the product under investigation on the basis of the records kept by the producers.^[110]

6.1.1.1.3  The second condition in the first sentence of Article 2.2.1.1 of the Anti‑Dumping Agreement

6.11.  The European Union's appeal calls for us to examine the second condition in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement. The European Union claims that the Panel erred in considering that this condition calls for an assessment of costs actually incurred by the producer at issue.^[111] The European Union contends that this condition permits an examination of the "reasonableness" of the reported costs themselves.^[112] The European Union's arguments highlight the interconnected nature of the various provisions of Article 2 of the Anti‑Dumping Agreement as a whole. In its view, these provisions are imbued with a general standard of "reasonableness", which endows an investigating authority with discretion, under Article 2.2.1.1, to disregard the records kept by the exporter or producer when the authority considers that the costs recorded therein are not reasonable.^[113] Argentina's arguments focus on the constraints that the text of Article 2.2.1.1 places on an investigating authority's determinations. Argentina also emphasizes that other interpretative elements do not support the general standard of "reasonableness" posited by the European Union.^[114]

6.12.  We observe that Article 2.2.1.1 of the Anti-Dumping Agreement forms part of the disciplines concerning the determination of dumping in Article 2 of the Anti-Dumping Agreement. Article 2.1 of the Anti‑Dumping Agreement provides that a product is being dumped when it is "introduced into the commerce of another country" at an export price that is "less than its normal value".^[115] The other provisions of Article 2 then set out the rules regarding the determination of normal value and export price, and the comparison to be made between the two for purposes of determining the margin of dumping.

6.13.  Article 2.2 of the Anti‑Dumping Agreement identifies the circumstances in which an investigating authority need not determine the normal value on the basis of domestic sales.^[116] Article 2.2 further provides that, in such circumstances, the margin of dumping shall be determined by comparison with a comparable price of the like product when exported to an appropriate third country, "or with the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits".

6.14.  Articles 2.2.1, 2.2.1.1, and 2.2.2 of the Anti‑Dumping Agreement, in turn, further elaborate on various aspects of Article 2.2. Article 2.2.1 sets forth rules concerning when sales of the like product in the domestic market or to a third country may be treated as not being in the ordinary course of trade and disregarded in determining the normal value. Article 2.2.2 regulates the determination of the amounts for administrative, selling and general costs and for profits.

6.15.  Article 2.2.1.1 and footnote 6 of the Anti-Dumping Agreement provide:

For the purpose of paragraph 2, 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 the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration. Authorities shall consider all available evidence on the proper allocation of costs, including that which is made available by the exporter or producer in the course of the investigation provided that such allocations have been historically utilized by the exporter or producer, in particular in relation to establishing appropriate amortization and depreciation periods and allowances for capital expenditures and other development costs. Unless already reflected in the cost allocations under this sub‑paragraph, costs shall be adjusted appropriately for those non‑recurring items of cost which benefit future and/or current production, or for circumstances in which costs during the period of investigation are affected by start‑up operations.[*]^[117]

^{_______________}

[*fn original]⁶ The adjustment made for start-up operations shall reflect the costs at the end of the start-up period or, if that period extends beyond the period of investigation, the most recent costs which can reasonably be taken into account by the authorities during the investigation.

6.16.  In examining the second condition in the first sentence of Article 2.2.1.1, we first analyse the structure of that sentence and the obligation contained therein. Thereafter, we examine the specific wording of the second condition in the first sentence, which is italicized in the above quotation and is at issue in this dispute. Subsequently, we turn to the other relevant interpretative elements.

6.17.  Article 2.2.1.1 of the Anti‑Dumping Agreement begins with the phrase: "For the purpose of paragraph 2". "[P]aragraph 2" refers to Article 2.2 of the Anti‑Dumping Agreement, which provides that, where the normal value cannot be determined on the basis of domestic sales, it shall instead be determined using one of two alternative bases, one of which is the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits.^[118] Accordingly, Article 2.2.1.1 includes rules pertaining to the calculation of the "cost of production" for purposes of determining the normal value under Article 2.2. The first sentence of Article 2.2.1.1 further provides that "costs shall normally" be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records meet two conditions. The reference to the records kept by the exporter or producer under investigation indicates that this sentence is concerned with establishing the cost for the specific exporter or producer under investigation. This is confirmed by the fact that the subject of both conditions in the first sentence of Article 2.2.1.1 is the records kept by the exporter or producer.

6.18.  Article 2.2.1.1 thus identifies the records of the investigated exporter or producer as the preferred source for cost of production data^[119], and directs the investigating authority to base its calculations of costs on such records when the two conditions are met.^[120] The second condition that triggers the obligation in the first sentence of Article 2.2.1.1 is that the records "reasonably reflect the costs associated with the production and sale of the product under consideration". On the basis of the relevant dictionary definitions^[121], we understand that the term "records" refers to a written or documented account of facts or past events, and that the term "costs" refers to the price paid or to be paid to acquire or produce something.

6.19.  The term "costs" in the second condition in the first sentence of Article 2.2.1.1 is followed by the phrase "associated with the production and sale of the product under consideration". From the relevant dictionary definitions^[122], the phrase "associated with" can be understood as connected to, or united with. In the first sentence of Article 2.2.1.1, the phrase "associated with" thus makes a connection, and recognizes a relationship, between the "costs", on the one hand, and the "production and sale of the product under consideration", on the other hand. We see the phrase "product under consideration" as a reference to the product at issue in the anti‑dumping investigation.^[123] Thus, the phrase "costs associated with the production and sale of the product under consideration" refers to the costs that have a relationship with the production and sale of the specific product from the exporting Member with respect to which dumping is being assessed. In our view, when this text is read together with the reference to "records kept by the exporter or producer under investigation", it is clear that this condition refers to those costs incurred by the investigated exporter or producer that have a relationship with the production and sale of the product under consideration.

6.20.  The phrase "costs associated with the production and sale of the product under consideration" in the first sentence of Article 2.2.1.1 is preceded by the phrase "reasonably reflect". Relevant dictionary definitions^[124] suggest that the term "reasonably reflect" means to mirror, reproduce, or correspond to something suitably and sufficiently. In Article 2.2.1.1, the term "reasonably" qualifies the reproduction or correspondence of the costs. Given the structure of the first sentence of Article 2.2.1.1, and in particular the fact that "reasonably reflect" refers to "such records", it is clear that it is the "records" of the individual exporters or producers under investigation that are subject to the condition to "reasonably reflect" the "costs".

6.21.  Turning to the relevant context for the interpretation of the second condition in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement, we note that the first condition specified in that sentence is that the "records [be] in accordance with the generally accepted accounting principles of the exporting country". The generally accepted accounting principles (GAAP) refer to principles, standards, and procedures that are commonly used, within a specific jurisdiction, for financial accounting and reporting purposes. Thus, the first condition in the first sentence of Article 2.2.1.1 relates to whether the records of a specific exporter or producer conform to the accounting principles, standards and procedures that are generally accepted and apply to such records in the relevant jurisdiction – i.e. the exporting country. This is a condition that concerns the general accounting and reporting practices of the exporter or producer. In contrast, the second condition in the first sentence of Article 2.2.1.1 concerns the records' reasonable reflection of the costs associated with the production and sale of the product under consideration in a specific anti‑dumping proceeding.^[125] Indeed, conformity with the GAAP does not necessarily ensure that the records "reasonably reflect the costs associated with the production and sale of the product under consideration"^[126] because the manner in which costs are recorded in financial statements in general may not necessarily correspond to how the product under consideration is defined for purposes of a specific anti-dumping investigation.^[127]

6.22.  Our understanding of the second condition in the first sentence of Article 2.2.1.1 is confirmed by the second and third sentences of Article 2.2.1.1, and footnote 6 of the Anti‑Dumping Agreement. These provisions set out rules for an investigating authority's allocation and adjustment of costs. These rules recognize that certain types of expenses have effects beyond the period in which the costs are incurred. They also imply that it may be inappropriate to attribute certain company costs entirely to the production and sale of the product under consideration.^[128] These provisions reinforce the understanding that the inquiry envisaged under Article 2.2.1.1 is one relating to the circumstances of each investigated exporter or producer in the exporting country. The cost allocations and adjustments contemplated in the second and third sentences of Article 2.2.1.1 and footnote 6 allow an investigating authority to obtain a more precise calculation of the costs associated with the product under consideration for the specific exporter or producer by ensuring or verifying that there is a genuine relationship between the costs reflected in the exporter's or producer's records and the costs associated with the production and sale of the specific product under consideration. This context supports the understanding that the second condition in the first sentence of Article 2.2.1.1 relates to whether the records of the exporter or producer suitably and sufficiently correspond to or reproduce the costs that have a genuine relationship with the production and sale of the specific product under consideration.

6.23.  Furthermore, Article 2.2 of the Anti‑Dumping Agreement refers to "the cost of production in the country of origin". In our view, given the fact that Article 2.2.1.1 starts with the phrase "[f]or the purpose of paragraph 2", the interpretation of the term "costs" in Article 2.2.1.1, for purposes of calculating the costs of production, must be consistent with how the term "cost" is understood in Article 2.2. Thus, insofar as the cost of production is concerned, the costs "calculated on the basis of records kept by the exporter or producer" under Article 2.2.1.1 must lead to a cost "in the country of origin". The context provided by Article 2.2 suggests that the second condition in the first sentence of Article 2.2.1.1 should not be interpreted in a way that would allow an investigating authority to evaluate the costs reported in the records kept by the exporter or producer pursuant to a benchmark unrelated to the cost of production in the country of origin.

6.24.  In addition, in our view, Article 2.2 of the Anti-Dumping Agreement concerns the establishment of the normal value through an appropriate proxy for the price of the like product in the ordinary course of trade in the domestic market of the exporting country when the normal value cannot be determined on the basis of domestic sales.^[129] The costs calculated pursuant to Article 2.2.1.1 of the Anti-Dumping Agreement must be capable of generating such a proxy. This supports the view that the "costs associated with the production and sale of the product under consideration" in Article 2.2.1.1 are those costs that have a genuine relationship with the production and sale of the product under consideration. This is because these are the costs that, together with other elements, would otherwise form the basis for the price of the like product if it were sold in the ordinary course of trade in the domestic market.

6.25.   Looking beyond the relevant context, we turn to the object and purpose of the Anti‑Dumping Agreement. We first note that the Anti-Dumping Agreement does not contain a preamble to guide the inquiry into its object and purpose. The object and purpose of this Agreement can, nonetheless, be discerned from its content and structure. The Anti‑Dumping Agreement defines the concept of "dumping"^[130] and the remedies available to Members whose domestic industries are injured by such "dumping".^[131] At the same time, the Anti‑Dumping Agreement conditions the right to apply such remedies to counteract dumping on the demonstrated existence of three substantive conditions — dumping, injury, and a causal link between the two^[132] — as well as on compliance with certain procedural and additional substantive rules. Taken as a whole, the object and purpose of the Anti-Dumping Agreement is to recognize the right of Members to take anti-dumping measures to counteract injurious dumping while, at the same time, imposing substantive conditions and detailed procedural rules on anti-dumping investigations and on the imposition of anti-dumping measures.^[133] The understanding we have derived from the text and context of the second condition in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement is, in our view, consistent with such object and purpose.

6.26.  Thus, interpreting the condition in the first sentence of Article 2.2.1.1 of the Anti‑Dumping Agreement that the "records … reasonably reflect the costs associated with the production and sale of the product under consideration", in accordance with the ordinary meaning of the terms in their context and in light of the object and purpose of the Anti‑Dumping Agreement, we understand this condition as referring to whether the records kept by the exporter or producer 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. With this understanding in mind, we turn to examine the European Union's claim that the Panel erred in its interpretation and application of Article 2.2.1.1 of the Anti-Dumping Agreement.

6.1.1.1.4  Whether the Panel erred in its interpretation and application of Article 2.2.1.1 of the Anti-Dumping Agreement

6.27.  The European Union contends that, in finding the biodiesel anti-dumping measure at issue to be inconsistent with Article 2.2.1.1 of the Anti-Dumping Agreement, the Panel erred in its interpretation and application of the second condition in the first sentence of this provision.^[134] The European Union submits that the Panel failed to conduct a holistic and proper interpretation of Article 2.2.1.1 consistent with Article 31 of the Vienna Convention on the Law of Treaties^[135] (Vienna Convention). The European Union alleges multiple discrete errors by the Panel and contends that each of them amounts to error requiring reversal of the Panel's ultimate finding of inconsistency.^[136] We first examine the two main arguments of the European Union, namely, that the Panel erred in finding that the second condition in the first sentence of Article 2.2.1.1 refers to the "actual" costs incurred by the specific exporter or producer under investigation, and that this condition does not include a general standard of "reasonableness".^[137] Thereafter, we turn to the European Union's remaining arguments.

6.28.  The first main argument made by the European Union is that the Panel erred in finding that the second condition in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement refers to the actual costs incurred by the specific exporter or producer under investigation.^[138] The European Union submits that the phrase "associated with the production and sale" in this condition is drafted in relatively general and abstract terms, and cannot be interpreted to mean "actual" costs of production and sale.^[139] The European Union adds that the Panel erred by failing properly to interpret the term "associated".^[140] In the European Union's view, a proper interpretation of the term "associated" leads to the conclusion that "the European Union was fully entitled to consider which costs would pertain [or relate] to the production and sale of biodiesel in normal circumstances, i.e. in the absence of the distortion caused by Argentina's differential export tax system."^[141] In their third participant's submissions, Australia and the United States express views similar to that of the European Union, and consider that the condition at issue should not be interpreted as referring to the actual costs incurred by the producer or exporter under investigation.^[142]

6.29.  Argentina submits that the term "costs" in the second condition in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement refers to charges or expenses that have actually been incurred by a given producer for the production and sale of the product under consideration. To Argentina, the Panel correctly concluded that this condition is concerned with the reasonable reflection of the costs that producers actually incur in the production of the product at issue.^[143] In their third participant's submissions, China, Indonesia, and Saudi Arabia also argue that the condition at issue refers to an investigated producer's actual costs of producing the product under consideration.^[144]

6.30.  As explained above, we understand the phrase "costs associated with the production and sale of the product under consideration" in the first sentence of Article 2.2.1.1 of the Anti‑Dumping Agreement to refer to costs incurred by the investigated exporter or producer that are genuinely related to the production and sale of the product under consideration. We do not consider that the Panel's interpretation conflicts with our understanding of this phrase. Although Article 2.2.1.1 does not explicitly refer to "actual" costs, the Panel stated that the condition at issue relates to whether the costs set out in a producer's or exporter's records "correspond – within acceptable limits – in an accurate and reliable manner[] to all the actual costs incurred by the particular producer or exporter for the product under consideration".^[145] To the Panel, this "calls for a comparison between, on the one hand, the costs as they are reported in the producer['s]/exporter's records and, on the other, the costs actually incurred by that producer."^[146] When comparing the two conditions in the first sentence of Article 2.2.1.1, the Panel considered that, "while the costs in the records might be consistent with GAAP, they may still not accord with how they would need to be considered in the context of an anti-dumping investigation, such as in respect of the proper allocation of costs for depreciation or amortization or the relevant time periods."^[147] In addition, when examining the panel findings in EC – Salmon (Norway), the Panel noted that the panel in that case focused on the actual costs of production incurred by the producers, "because the panel tested whether there existed, in actuality, a rational relationship between the costs allocated and the production activities".^[148] Reading the Panel's use of the word actual in light of the broader reasoning of the Panel findings, we understand the Panel to have considered that the second condition in the first sentence of Article 2.2.1.1 concerns the costs incurred by the producer under investigation that are genuinely related to the production and sale of the product under consideration in a particular anti-dumping investigation. Thus, we do not consider that the Panel's use of the word "actual" is in error. Nor do we consider, as the European Union argues, that the condition at issue allows the EU authorities to consider which costs would pertain to the production and sale of biodiesel in normal circumstances, i.e. in the absence of the alleged distortion caused by Argentina's export tax system. Rather, we agree with Argentina that such interpretation would add words to the condition at issue that are not present in Article 2.2.1.1, namely, the costs that "would pertain" and "in normal circumstances".^[149]

6.31.  The European Union also submits that, because the first condition in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement already instructs companies to record costs that they have actually incurred, the second condition in that sentence must be interpreted to mean something more than that.^[150]

6.32.  Argentina submits that the GAAP are merely a set of rules for accounting and financial reporting, and that, even when records conform to such rules, those records may not reasonably reflect the costs incurred by the producer or exporter in relation to the product under consideration in a particular anti-dumping investigation.^[151]

6.33.  We do not consider that the first condition in the first sentence of Article 2.2.1.1 of the Anti‑Dumping Agreement renders the second condition in that sentence^[152] superfluous or meaningless because, as noted above, while the first condition concerns the activity of the exporter or producer generally, the second condition is specific to the costs associated with the production and sale of the product under consideration. In this regard, we agree with the Panel that records that are GAAP‑consistent^[153] may nonetheless be found not to reasonably reflect the costs associated with the production and sale of the product under consideration. This may occur, for example, if certain costs relate to the production both of the product under consideration and of other products, or where the exporter or producer under investigation is part of a group of companies in which the costs of certain inputs associated with the production and sale of the product under consideration are spread across different companies' records, or where transactions involving such inputs are not at arm's length.^[154] Thus, we do not consider that the Panel erred in this respect.

6.34.  The European Union also takes issue with the Panel's statement that "the context provided by Article 2.2.2 [of the Anti-Dumping Agreement] suggests to [it] that, as a general principle, the actual data of producers/exporters is to be preferred in constructing the normal value"^[155], and disputes that this supports the Panel's interpretation of Article 2.2.1.1. The European Union suggests that the Panel erroneously imported the word "actual" from Article 2.2.2 without considering that this provision refers to "actual data" pertaining to production and sale "in the ordinary course of trade" of the like product. To the European Union, it would be arbitrary to import the word "actual" while at the same time excluding the phrase "in the ordinary course of trade".^[156] To us, however, it is clear from the Panel Report that, in making this statement, the Panel was addressing, and rejecting, the European Union's reliance on Article 2.2.2 as context to argue that "the express reference to the 'actual data' of the producer/exporter in that provision relates only to production and sales in the ordinary course of trade, and a contrario, their actual data need not be used where the like product is not sold in the ordinary course of trade."^[157] In the Panel's view, contrary to the European Union's argument, "the structure of Article 2.2.2 indicates a preference for the actual data of the exporter and like product in question, with an incremental progression away from these principles before reaching 'any other reasonable method' in Article 2.2.2(iii)".^[158] In our view, the Panel's reading of Article 2.2.2 is consistent with the overall structure and logic of this provision.

6.35.  The second main argument raised by the European Union is that the Panel erred in finding that the second condition in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement does not include a general standard of "reasonableness".^[159] The European Union submits that the Panel failed to recognize that Article 2.2.1.1 is informed by a standard of "reasonableness" that permits an investigating authority to disregard the records kept by the exporter or producer if the authority determines that the costs in such records are not reasonable.^[160] The European Union argues that the costs referred to in the second condition in the first sentence of Article 2.2.1.1 "must themselves be 'reasonable' if the records are to reasonably reflect them".^[161] The European Union considers that a standard of "reasonableness" informs not only the term "reflect", but also the determination of the costs associated with the production and sale of the product under consideration.^[162] In its third participant's submission, Australia submits that an investigating authority should be permitted to consider whether the costs in the records are reasonable and, where they are not, to adjust or replace those costs in an appropriate manner.^[163]

6.36.  Argentina submits that there is no textual basis for the European Union's argument that a standard of "reasonableness" informs the determination of the costs associated with the production and sale of the product under consideration under Article 2.2.1.1. Argentina also notes that the word "reasonably" is an adverb that qualifies the verb "reflect" and not the word "costs".^[164] Similarly, in their third participant's submissions, China, Indonesia, and Saudi Arabia contend that Article 2.2.1.1 does not allow an investigating authority to assess whether the recorded costs meet some general standard of "reasonableness" through a comparison with hypothetical costs that might prevail in a hypothetical market, free from government regulation.^[165]

6.37.  We fail to see any textual support in Article 2.2.1.1 of the Anti-Dumping Agreement for the argument made by the European Union. Indeed, we observe that the European Union itself accepts that the adverb "reasonably" modifies the verb "reflect" in a phrase where the subject of the sentence is the producer's or exporter's "records".^[166] In our view, the plain meaning of the terms used in the condition at issue, as well as the structure of the first sentence of Article 2.2.1.1, do not support the European Union's reading of the term "costs" in the second condition of this provision. To the extent that costs are genuinely related to the production and sale of the product under consideration in a particular anti-dumping investigation, we do not consider that there is an additional or abstract standard of "reasonableness" that governs the meaning of "costs" in the second condition in the first sentence of Article 2.2.1.1.

6.38.  The European Union further contends that the relationship among Articles 2.2, 2.2.1, and 2.2.1.1 of the Anti‑Dumping Agreement supports its interpretation of the second condition in the first sentence of Article 2.2.1.1 as containing a standard of "reasonableness" that informs the determination of "costs". Specifically, the European Union contends that the calculation of costs pursuant to Article 2.2.1.1 is relevant not only for constructing the normal value under Article 2.2, but also in determining whether domestic sales or sales to a third country are not in the ordinary course of trade by reason of price under Article 2.2.1. The European Union submits that, in order to determine whether, under Article 2.2.1, sales of the like product are "below per unit … costs of production plus administrative, selling and general costs", an authority must first establish the "costs" pursuant to Article 2.2.1.1.^[167] Thus, in the European Union's view, the word "costs" in the first sentence of Article 2.2.1.1 refers to "all costs"^[168], which includes not only the cost of production but also administrative, selling and general costs. Given that the amount of "administrative, selling and general costs"^[169] must, pursuant to Article 2.2, be "reasonable", the European Union contends that it would be internally inconsistent to interpret the second condition in the first sentence of Article 2.2.1.1 as meaning that a standard of "reasonableness" informs the determination of the costs associated with sales, but not those associated with production.^[170] In this respect, the European Union notes the "repeated use" of the term "reasonable" in Articles 2.2, 2.2.1, 2.2.1.1, 2.2.2, 2.3, and 2.4, and footnote 6 of the Anti‑Dumping Agreement, which, in the European Union's view, supports its interpretation of the second condition in the first sentence of Article 2.2.1.1.^[171]

6.39.  We understand the European Union to contend that Article 2.2.1.1 contains a standard of "reasonableness" pertaining to "administrative, selling and general costs" that is present more generally in the Anti-Dumping Agreement, and in particular in Articles 2.2, 2.2.1, and 2.2.2. Again, we do not find support in these provisions for the European Union's argument that Article 2.2.1.1 contains a general standard of "reasonableness" that informs not only the reflection of the costs in a producer's records, but also the "costs" themselves. The adverb "reasonably" in the second condition of the first sentence of Article 2.2.1.1 modifies the verb "reflect", rather than the word "costs". Moreover, none of the references to "reasonable" in the provisions cited by the European Union suggests that the investigating authority enjoys unfettered discretion to define subjectively, and to apply, a benchmark of "reasonableness" for purposes of assessing whether the costs in a producer's or exporter's records are "unreasonable".^[172]

6.40.  The European Union also characterizes the Panel as having found that "no matter how unreasonable the production (or sale) costs in the records kept by the investigated firm would be when compared to a proxy or benchmark consistent with a normal market situation, there is nothing an investigating authority can do."^[173]

6.41.  We do not subscribe to the European Union's reading of the Panel Report. We note that, to the Panel, the second condition in the first sentence of Article 2.2.1.1 of the Anti‑Dumping Agreement requires a comparison between the costs in the producer's or exporter's records and the costs incurred by such producer or exporter. The Panel emphasized that "the object of the comparison is to establish whether the records reasonably reflect the costs actually incurred, and not whether they reasonably reflect some hypothetical costs that might have been incurred under a different set of conditions or circumstances and which the investigating authority considers more 'reasonable' than the costs actually incurred."^[174] In this connection, the Panel explained that its understanding of this condition does not imply that "whatever is recorded in the records of the producer or exporter must be automatically accepted."^[175] To the Panel, an investigating authority is "certainly free to examine the reliability and accuracy of the costs recorded in the records of the producers/exporters" to determine, in particular, whether all costs incurred are captured; whether the costs incurred have been over- or understated; and whether non-arms-length transactions or other practices affect the reliability of the reported costs.^[176] The Panel further stated that "Article 2.2.1.1 does not involve an examination of the 'reasonableness' of the reported costs themselves, when the actual costs recorded in the records of the producer or exporter are otherwise found, within acceptable limits, to be accurate and faithful."^[177] In light of these statements, we consider the Panel's interpretation of Article 2.2.1.1 to be more nuanced than the European Union's argument suggests.

6.42.  We now turn to address the multiple discrete errors that the European Union alleges that the Panel made in interpreting the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement. The European Union claims that the Panel erred in stating that the opening phrase — "For the purpose of paragraph 2" — in Article 2.2.1.1 makes clear that this provision elaborates on how the cost of production in the country of origin in Article 2.2 is to be determined in constructing the normal value.^[178] The European Union submits that the purpose of Article 2.2 is to "elaborate rules for determining a value that is normal, or a normal value".^[179] The European Union argues that the Panel's statement erroneously narrows the purpose of Article 2.2, arbitrarily excluding the other aspects of this provision.^[180]

6.43.  Argentina underlines that the claim it raised before the Panel concerned the determination of the "cost of production" for the purpose of constructing the normal value for the Argentine producers in the anti-dumping measure on biodiesel. Argentina considers that the Panel's statement is correct in view of the claim that Argentina raised in this dispute.^[181]

6.44.  We do not consider that the Panel statement challenged by the European Union erroneously narrows the purpose of Article 2.2 of the Anti‑Dumping Agreement. In our view, this statement does not address what other costs, in addition to costs of production, may also be governed by Article 2.2.1.1. Rather, the Panel's statement comports with our understanding, explained above, that the calculation of "cost of production", for purposes of determining the normal value under Article 2.2, is subject to Article 2.2.1.1 of the Anti-Dumping Agreement. Thus, we do not consider that the Panel erred in making this statement.

6.45.  The European Union also takes issue with the Panel's observation that "[t]he first sentence of Article 2.2.1.1 … establishes the records of the investigated producer as the preferred source of information for the establishment of the costs of production."^[182] The European Union points out that this language is not used in the first sentence of Article 2.2.1.1.^[183] Argentina submits that the Panel did not err in its description of the first sentence of Article 2.2.1.1, and that the Panel's observation reflects the fact that the records of the producer shall normally be used, provided that the conditions in the first sentence are fulfilled.^[184]

6.46.  We agree with this observation by the Panel. By requiring that costs normally be calculated on the basis of the records kept by the exporter or producer under investigation, "Article 2.2.1.1 identifies the 'records kept by the exporter or producer under investigation' to be the preferred source for cost of production data", as the Appellate Body explained in EC – Tube or Pipe Fittings.^[185]

6.47.  The European Union points to the contextual significance of Article 2.4 of the Anti‑Dumping Agreement for interpreting Article 2.2.1.1 of the Anti‑Dumping Agreement. According to the European Union, there is an overlap between Articles 2.2 and 2.4 in the sense that adjustments will be justified pursuant to the latter provision only to the extent that they have not already been made pursuant to the former provision. Thus, the European Union argues that, if a tax adjustment would be justified under Article 2.4, such adjustment could, alternatively, be made under Article 2.2.^[186]

6.48.  To us, the European Union's argument risks conflating the obligations in Article 2.2.1.1 and Article 2.4 of the Anti‑Dumping Agreement.^[187] The manner in which the normal value is calculated pursuant to Article 2.2 of the Anti‑Dumping Agreement may inform the types of adjustments required under Article 2.4. This, however, does not mean that any adjustment envisaged under Article 2.4 – in particular adjustments for taxation – may instead be taken into account in determining the normal value pursuant to Article 2.2. Rather, Article 2.2.1.1 and Article 2.4 serve different functions in the context of determinations of dumping: the former assists an investigating authority in the calculation of costs for purposes of constructing the normal value; whereas the latter concerns the fair comparison between the normal value and the export price. Thus, we do not consider that Article 2.4 supports the European Union's interpretation of the first sentence of Article 2.2.1.1.

6.49.  Referring to Article XI of the GATT 1994, the European Union also argues that, because export taxes are not covered by this provision, other disciplines must be interpreted so as to permit a reasonable and appropriately calibrated response to the existence of such discriminatory and highly trade-distorting measures.^[188] We do not see the European Union's argument that export taxes are not prohibited by Article XI of the GATT 1994 to be contextually relevant to the interpretation of Article 2.2.1.1 of the Anti‑Dumping Agreement.

6.50.  Finally, the European Union submits that the Panel made certain erroneous statements as to the object and purpose of the Anti-Dumping Agreement.^[189] After briefly summarizing the arguments made by Argentina and the European Union pertaining to the object and purpose of the Anti‑Dumping Agreement, the Panel stated:

The Anti‑Dumping Agreement does not contain a preamble or an explicit indication of its object and purpose. Moreover, we do not consider that an interpretation of the text of Article 2.2.1.1 in context leaves its meaning equivocal or ambiguous. We therefore do not consider that arguments pertaining to the object and purpose of the Anti‑Dumping Agreement shed light on the meaning of the particular question of interpretation before us, and we therefore do not examine those arguments in detail.^[190]

6.51.  The European Union reads these sentences as a statement by the Panel that, because the Anti‑Dumping Agreement contains no preamble, considerations of the object and purpose of the Anti-Dumping Agreement are not relevant.^[191] We note, however, that the Panel stated only that "[t]he Anti‑Dumping Agreement does not contain a preamble or an explicit indication of its object and purpose", referring to an Appellate Body report where the same statement is found.^[192]

6.52.  The European Union also reads the above sentences as embodying the view that, because the interpretation of Article 2.2.1.1 does not leave the meaning of the condition at issue equivocal or ambiguous, the object and purpose of the Agreement at issue is irrelevant. The European Union submits that, in adopting such a view, the Panel erroneously relegated the object and purpose to a supplementary means of interpretation.^[193]

6.53.  It is true that it would be incorrect to treat the object and purpose of an agreement as a supplementary means of interpretation. Rather, examining the terms of a treaty in light of the object and purpose of that treaty is part of the interpretative exercise under Article 31(1) of the Vienna Convention. This is because Article 31(1) provides that "[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose."^[194] We, however, do not share the European Union's reading of the sentences of the Panel Report quoted above. The Panel simply made the observation that it "[did] not consider that an interpretation of the text of Article 2.2.1.1 in context leaves its meaning equivocal or ambiguous".^[195] The Panel further stated that the "arguments pertaining to the object and purpose of the Anti‑Dumping Agreement" did not shed light on the particular interpretative question before it.^[196] The Panel then concluded that, for this reason, it was not necessary to engage in an in-depth analysis of those arguments.^[197]

6.54.  We now turn to the European Union's claim that the Panel erred in its application of the second condition in the first sentence of Article 2.2.1.1 of the Anti‑Dumping Agreement to the anti‑dumping measure on biodiesel.^[198] The Panel noted that the EU authorities determined not to use the cost of soybeans in the production of biodiesel because "the domestic prices of the main raw material used by biodiesel producers in Argentina were found to be artificially lower than the international prices due to the distortion created by the Argentine export tax system".^[199] To the Panel, this was not a sufficient basis under Article 2.2.1.1 for concluding that the producers' records do not reasonably reflect the costs associated with the production and sale of biodiesel. For this reason, the Panel found that the European Union acted inconsistently with Article 2.2.1.1 by failing to calculate the cost of production of the product under investigation on the basis of the records kept by the producers.^[200]

6.55.  Concerning its claim that the Panel erred in applying Article 2.2.1.1, the European Union does not advance any argument that is separate and different from its arguments concerning the alleged errors in the Panel's interpretation of Article 2.2.1.1 of the Anti‑Dumping Agreement. In light of our understanding of Article 2.2.1.1, explained above, we agree with the Panel's statement that the EU authorities' determination that domestic prices of soybeans in Argentina were lower than international prices due to the Argentine export tax system was not, in itself, a sufficient basis under Article 2.2.1.1 for concluding that the producers' records do not reasonably reflect the costs of soybeans associated with the production and sale of biodiesel, or for disregarding those costs when constructing the normal value of biodiesel. For this reason, we agree with the Panel's finding that the European Union acted inconsistently with Article 2.2.1.1 by failing to calculate the cost of production of the product under investigation on the basis of the records kept by the producers.^[201]

6.1.1.1.5  Conclusions

6.56.  In sum, we consider that the second condition in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement – that the records kept by the exporter or producer under investigation reasonably reflect the costs associated with the production and sale of the product under consideration – relates to whether the records kept by the exporter or producer under investigation 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. The Panel's interpretation, which is more nuanced than the European Union's arguments on appeal suggest, does not conflict with our understanding of this provision. In our view, the Panel did not err in rejecting the European Union's argument that the second condition in the first sentence of Article 2.2.1.1 includes a general standard of "reasonableness". With respect to the application of Article 2.2.1.1 to the anti-dumping measure on biodiesel, we agree with the Panel that the EU authorities' determination that domestic prices of soybeans in Argentina were lower than international prices due to the Argentine export tax system was not, in itself, a sufficient basis for concluding that the producers' records did not reasonably reflect the costs of soybeans associated with the production and sale of biodiesel, or for disregarding the relevant costs in those records when constructing the normal value of biodiesel.

6.57.  We therefore find that the Panel did not err in its interpretation and application of the second condition in the first sentence of Article 2.2.1.1 of the Anti‑Dumping Agreement. Consequently, we uphold the Panel's finding, in paragraphs 7.249 and 8.1.c.i of its Report, that the European Union acted inconsistently with Article 2.2.1.1 of the Anti-Dumping Agreement by failing to calculate the cost of production of the product under investigation on the basis of the records kept by the producers. Having upheld this Panel finding, the condition for Argentina's request for completion of the legal analysis is not fulfilled. Thus, we do not examine this request.

6.1.1.2  Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994

6.1.1.2.1  Introduction

6.58.  We now turn to the Panel's interpretation and application of Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. The European Union and Argentina^[202] each appeals different aspects of the Panel's interpretation of these provisions. The European Union also appeals the Panel's application of these provisions to the anti-dumping measure on biodiesel. Argentina, for its part, appeals the Panel's application of Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 to the second subparagraph of Article 2(5) of the Basic Regulation.^[203] We deal with this latter part of Argentina's appeal in section 6.2 below.

6.59.  The European Union claims that the Panel erred in its interpretation of Article 2.2 of the Anti‑Dumping Agreement and, in particular, in its understanding of the phrase "cost of production in the country of origin" in this provision.^[204] The European Union further claims that the Panel erred in finding that the European Union acted inconsistently with Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by not using the cost of production in Argentina when constructing the normal value in the anti-dumping measure on biodiesel.^[205] The European Union contends that the soybean prices used by the EU authorities reflected the soybean costs that the producers of biodiesel would pay in Argentina absent the distortion caused by the Argentine DET system. For this reason, the European Union argues that these prices were costs "in the country of origin" within the meaning of Article 2.2.^[206] The European Union requests us to reverse the Panel finding at issue^[207], but maintains that we should not complete the analysis.^[208] In contrast, Argentina requests us to uphold the Panel's application of Article 2.2 to the anti-dumping measure on biodiesel, contending that the Panel correctly found that the EU authorities did not rely on the cost of production in Argentina when constructing the normal value.^[209] Should we reverse the Panel's finding under Article 2.2, Argentina requests us to complete the legal analysis and find that the European Union acted inconsistently with Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 with respect to the anti‑dumping measure on biodiesel.^[210]

6.60.  Argentina claims that the Panel erred in its interpretation of Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 when stating that these provisions neither "limit the sources of information that may be used in establishing the costs of production", nor "prohibit an authority [from] resorting to sources of information other than producers' costs in the country of origin", but do "require that the costs of production established by the authority reflect conditions prevailing in the country of origin".^[211] Argentina requests us to reverse the Panel's interpretation.^[212] In Argentina's view, these provisions do not permit the use of any information other than the producers' costs in the country of origin.^[213] The European Union submits that we should reject Argentina's claim because Argentina has not demonstrated that the Panel erred in its interpretation of Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 in making the above statements.^[214]

6.61.  Before examining the claims of error on appeal, we first summarize the Panel's interpretation and application of Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994. We then examine the participants' claims that the Panel erred in its interpretation of these provisions. Subsequently, we turn to consider the European Union's claim that the Panel erred in its application of Article 2.2 of the Anti-Dumping Agreement to the anti‑dumping measure on biodiesel. Thereafter, we consider Argentina's request for us to complete the legal analysis.

6.1.1.2.2  The Panel's findings

6.62.  In assessing Argentina's claim that the second subparagraph of Article 2(5) of the Basic Regulation is inconsistent "as such" with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994, the Panel made certain statements expressing its understanding of these provisions. The Panel noted that it was not in dispute between the parties that Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 require the construction of the normal value on the basis of the "cost of production" "in the country of origin". The parties disagreed, however, as to whether these provisions permit the use of information from outside the country of origin in constructing the cost of production. The Panel explained:

Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 do not limit the sources of information that may be used in establishing the costs of production; what they do require, however, is that the authority construct the normal value on the basis of the "cost of production" "in the country of origin". While this would, in our view, require that the costs of production established by the authority reflect conditions prevailing in the country of origin, we do not consider that the two provisions prohibit an authority resorting to sources of information other than producers' costs in the country of origin.^[215]

6.63.  Later in its Report, the Panel addressed Argentina's claim that the European Union acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 in the anti-dumping measure on biodiesel by failing to construct the normal value on the basis of the cost of production in Argentina. The Panel recalled that the EU authorities had found domestic prices of soybeans in Argentina to be "artificially lower" than international prices due to the distortion created by the Argentine DET system. For this reason, the EU authorities did not use the "average actual purchase price of soybeans during the [investigation period]"^[216], i.e. the cost of soybeans as reflected in the producers' records. Instead, the EU authorities replaced this cost with the average reference price of soybeans for export published by the Argentine Ministry of Agriculture, minus fobbing costs^[217] (which we have defined above as the surrogate price for soybeans).^[218] The Panel also noted that the EU authorities considered that the surrogate price for soybeans reflected the level of international prices and that the Argentine producers would have paid prices at that level in the absence of the DET system.^[219] In the view of the Panel, however, the surrogate price for soybeans used by the EU authorities did not represent the cost of soybeans in Argentina for domestic purchasers of soybeans, including the Argentine producers and exporters of biodiesel under investigation.^[220] For these reasons, the Panel found that the European Union acted inconsistently with Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by using, in the construction of the normal value, a "cost" that was not the cost prevailing "in the country of origin", namely, Argentina.^[221]

6.1.1.2.3  Whether the Panel erred in its interpretation of Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994

6.64.  Like the Panel finding at issue, the European Union's arguments before the Panel and on appeal distinguish between "cost", on the one hand, and "information" or "evidence", on the other hand.^[222] To the European Union, the cost of production to be determined under Article 2.2 of the Anti-Dumping Agreement is that of the country of origin, but this provision does not forbid the use of information from countries other than the country of origin in the calculation of such cost of production.^[223]

6.65.  Argentina submits, however, that the distinction made by the European Union and the Panel is artificial, given that "cost of production" refers to expenses incurred in the production of the product concerned in the country of origin, which necessarily implies that the information and evidence used are those from the country of origin. Argentina thus argues that Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 do not permit the use of information other than the producers' costs in the country of origin.^[224]

6.66.  The interpretative question on appeal concerns the phrases "cost of production in the country of origin" in Article 2.2 of the Anti-Dumping Agreement and "cost of production of the product in the country of origin" in Article VI:1(b)(ii) of the GATT 1994. Specifically, the participants disagree as to whether these phrases encompass information or evidence from outside the country of origin.

6.67.  Article 2.2 of the Anti-Dumping Agreement provides:

When there are no sales of the like product in the ordinary course of trade in the domestic market of the exporting country or when, because of the particular market situation or the low volume of the sales in the domestic market of the exporting country, such sales do not permit a proper comparison, the margin of dumping shall be determined by comparison with a comparable price of the like product when exported to an appropriate third country, provided that this price is representative, or with the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits. ^[225]

6.68.  Article VI:1(b)(ii) of the GATT 1994 provides:

1.    The Members recognize that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of the products, is to be condemned if it causes or threatens material injury to an established industry in the territory of a Member or materially retards the establishment of a domestic industry. For the purposes of this Article, 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

       …

(b) in the absence of such domestic price, is less than either

       …

(ii) the cost of production of the product in the country of origin plus a reasonable addition for selling cost and profit.

6.69.   As noted above, the definition of the term "cost" refers to the expenses paid or to be paid for something. This definition does not include a reference to information or evidence. The term "cost" in both Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 is followed by "of production" and then by "in the country of origin". On the basis of the text of Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994, the phrase "cost of production […] in the country of origin" may be understood as a reference to the price paid or to be paid to produce something within the country of origin.

6.70.  We observe that Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 do not contain additional words or qualifying language specifying the type of evidence that must be used, or limiting the sources of information or evidence to only those sources inside the country of origin. An investigating authority will naturally look for information on the cost of production "in the country of origin" from sources inside the country. At the same time, these provisions do not preclude the possibility that the authority may also need to look for such information from sources outside the country. The reference to "in the country of origin", however, indicates that, whatever information or evidence is used to determine the "cost of production", it must be apt to or capable of yielding a cost of production in the country of origin. This, in turn, suggests that information or evidence from outside the country of origin may need to be adapted in order to ensure that it is suitable to determine a "cost of production" "in the country of origin".^[226]

6.71.  Turning to the relevant context, we recall that Article 2.2.1.1 of the Anti-Dumping Agreement identifies the "records kept by the exporter or producer under investigation" as the preferred source for cost of production data to be used in such calculation.^[227] We do not see, however, that the first sentence of Article 2.2.1.1 precludes information or evidence from other sources from being used in certain circumstances. Indeed, it is clear to us that, in some circumstances, the information in the records kept by the exporter or producer under investigation may need to be analysed or verified using documents, information, or evidence from other sources, including from sources outside the "country of origin".^[228] While such documents, information, or evidence are from outside the country of origin, they would, nonetheless, be relevant to the calculation of the cost of production in the country of origin. These considerations support the understanding that the determination of the "cost of production in the country of origin" may take account of evidence from outside the country of origin.

6.72.  The second sentence of Article 2.2.1.1 of the Anti-Dumping Agreement provides that the authorities "shall consider all available evidence on the proper allocation of costs". Argentina considers that this sentence does not assist in understanding the meaning of "cost" in Article 2.2, because the evidence referred to in this sentence relates only to the "proper allocation of costs" and not to the costs themselves.^[229] We, however, read the sentence above as suggesting that the "evidence" used to establish a "cost" can be different from that cost itself. This is because this sentence refers separately to "evidence" and to "cost".

6.73.  We further observe that, while both obligations apply harmoniously when an investigating authority constructs the normal value, the scope of the obligation to calculate the costs on the basis of the records in the first sentence in Article 2.2.1.1 is narrower than the scope of the obligation to determine the cost of production in the country of origin in Article 2.2. In circumstances where the obligation in the first sentence of Article 2.2.1.1 to calculate the costs on the basis of the records kept by the exporter or producer under investigation does not apply, or where relevant information from the exporter or producer under investigation is not available^[230], an investigating authority may have recourse to alternative bases to calculate some or all such costs. Yet, Article 2.2 does not specify precisely to what evidence an authority may resort. This suggests that, in such circumstances, the authority is not prohibited from relying on information other than that contained in the records kept by the exporter or producer, including in-country and out-of-country evidence. This, however, does not mean that an investigating authority may simply substitute the costs from outside the country of origin for the "cost of production in the country of origin". Indeed, Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 make clear that the determination is of the "cost of production […] in the country of origin". Thus, whatever the information that it uses, an investigating authority has to ensure that such information is used to arrive at the "cost of production in the country of origin". Compliance with this obligation may require the investigating authority to adapt the information that it collects.^[231] It is in this sense that we understand the Panel to have stated that Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 "require that the costs of production established by the authority reflect conditions prevailing in the country of origin".^[232]

6.74.  In light of our examination above of the phrases "cost of production in the country of origin" in Article 2.2 of the Anti-Dumping Agreement and "cost of production … in the country of origin" in Article VI:1(b)(ii) of the GATT 1994, we consider that these provisions do not limit the sources of information or evidence that may be used in establishing the costs of production in the country of origin to sources inside the country of origin.^[233] For this reason, we do not consider that Argentina has demonstrated that the Panel erred in stating that these provisions "do not limit the sources of information that may be used in establishing the costs of production", and do not "prohibit an authority [from] resorting to sources of information other than producers' costs in the country of origin" but do "require that the costs of production established by the authority reflect conditions prevailing in the country of origin".^[234]

6.75.  In its appeal, although it "partially agrees" with the Panel's interpretation of Article 2.2 of the Anti-Dumping Agreement^[235], the European Union nevertheless claims that the Panel erred in its interpretation of this provision. This is because, according to the European Union, the Panel failed to recognize that "Article 2.2.1.1 does not preclude an investigating authority from having regard to evidence relating to matters outside the country of origin, if to do so would be helpful in determining the costs associated with the production and sale of the product under consideration; and in then determining what data to use to reject/replace/adjust the records kept by the investigated firm".^[236] The European Union does not identify any particular passage in the Panel Report that reveals the Panel's alleged error in interpreting Article 2.2. Nor do we see that the European Union's argument accurately describes the Panel's analysis and understanding of Article 2.2.1.1. In any event, we understand the European Union's argument to mean that its claim of error under Article 2.2 is dependent upon its claim that the Panel erred in its interpretation of Article 2.2.1.1. As we have found that the Panel did not err in its interpretation of Article 2.2.1.1, we reject the European Union's claim challenging the Panel's interpretation of Article 2.2 of the Anti-Dumping Agreement.

6.1.1.2.4  Whether the Panel erred in its application of Article 2.2 of the Anti‑Dumping Agreement to the anti-dumping measure at issue

6.76.  We now turn to the European Union's claim that the Panel erred in its application of Article 2.2 of the Anti-Dumping Agreement to the anti-dumping measure at issue in finding that the European Union acted inconsistently with this provision by not using the cost of production in Argentina when constructing the normal value of biodiesel.^[237]

6.77.  The Panel observed that the EU authorities replaced the "average actual purchase price of soybeans during the [investigation period], as reflected in the producers' records" with the surrogate price for soybeans.^[238] The Panel also noted that the EU authorities considered that the surrogate price for soybeans reflected the level of international prices and that this would have been the price paid by the Argentine producers in the absence of the DET system.^[239] The Panel, however, was not persuaded that the surrogate price for soybeans used by the EU authorities represented the cost of soybeans in Argentina for producers or exporters of biodiesel, and highlighted that "the EU authorities selected this cost precisely because it was not the cost of soybeans in Argentina."^[240] For these reasons, the Panel found that the European Union acted inconsistently with Article 2.2 of the Anti-Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by using a "cost" that was not the cost prevailing in Argentina when constructing the normal value of biodiesel.^[241]

6.78.  In challenging these Panel findings on appeal, the European Union first argues that they "are based upon and vitiated by [the Panel's] legally erroneous findings with respect to Article 2.2.1.1, and for this reason alone, with the reversal of the latter, the former should also be reversed".^[242] Given, however, that we have already found that the European Union has not established that the Panel erred in its interpretation or application of the second condition in the first sentence of Article 2.2.1.1 of the Anti-Dumping Agreement, we reject this argument by the European Union.

6.79.  The European Union further argues that the Panel failed to recognize that: (i) a price derived from a price at the border can, by definition, be characterized as both an international price and a price in Argentina; and (ii) the subtraction of the fobbing costs from the published reference price renders the surrogate price for soybeans used by the EU authorities a reasonable proxy for the undistorted price of soybeans in Argentina.^[243] The European Union contends that the surrogate price for soybeans used by the EU authorities reflected the soybean costs that would have existed in Argentina in the absence of the distortion caused by the Argentine DET system, and thus constituted the "cost of production in the country of origin" within the meaning of Article 2.2 of the Anti‑Dumping Agreement.^[244]

6.80.  Argentina emphasizes that the European Union itself considered that the reference price for soybeans, which was the basis for the surrogate price for soybeans used by the EU authorities, reflected the level of international prices. It follows, for Argentina, that the Panel correctly concluded that the surrogate price for soybeans was not "the cost of production in the country of origin" because it was not the cost of soybeans in Argentina.^[245] Argentina contends that the European Union cannot argue that the surrogate price for soybeans used by the EU authorities constituted the "cost of production" in Argentina merely by claiming that this would be the price that Argentine producers of biodiesel "would pay domestically" in the absence of the Argentine DET system.^[246]

6.81.  As noted earlier, when relying on any out-of-country information to determine the "cost of production in the country of origin" under Article 2.2 of the Anti-Dumping Agreement, an investigating authority has to ensure that such information is used to arrive at the "cost of production in the country of origin", and this may require the investigating authority to adapt that information.^[247] In our view, domestic prices may reflect world prices and, in such circumstances, a price at the border could, as the European Union argues, be simultaneously characterized as both an international and a domestic price. We do not consider, however, that the Panel failed to take such considerations into account. Rather, the Panel's analysis focused on the EU authorities' understanding of the surrogate price for soybeans. In line with the Panel's understanding, we consider that the mere fact that a reference price is published by the Argentine Ministry of Agriculture does not necessarily make this price a domestic price in Argentina.^[248] In addition, we note, as the Panel did, that the EU authorities considered that the reference price published by the Argentine Ministry of Agriculture reflected the level of international prices of soybeans.^[249] Other than pointing to the deduction of fobbing costs, the European Union has not asserted, either before the Panel or before us, that the EU authorities adapted, or even considered adapting, the information used in their calculation in order to ensure that it represented the cost of production in Argentina. On the contrary, the EU authorities specifically selected the surrogate price for soybeans to remove the perceived distortion in the cost of soybeans in Argentina. As the Panel stated, the EU authorities selected and used this particular information precisely because it did not represent the cost of soybeans in Argentina.^[250] Thus, we agree with the Panel that the surrogate price for soybeans used by the EU authorities did not represent the cost of soybeans in Argentina for producers or exporters of biodiesel.^[251] Accordingly, we do not consider that the European Union has established that the Panel erred in its application of Article 2.2 of the Anti-Dumping Agreement in finding that the European Union acted inconsistently with Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by not using the cost of production in Argentina when constructing the normal value of biodiesel.

6.1.1.2.5  Conclusions

6.82.  In sum, we consider that the phrases "cost of production in the country of origin" in Article 2.2 of the Anti-Dumping Agreement and "cost of production … in the country of origin" in Article VI:1(b)(ii) of the GATT 1994 do not limit the sources of information or evidence that may be used in establishing the cost of production in the country of origin to sources inside the country of origin. When relying on any out-of-country information to determine the "cost of production in the country of origin" under Article 2.2, an investigating authority has to ensure that such information is used to arrive at the "cost of production in the country of origin", and this may require the investigating authority to adapt that information. In this case, like the Panel, we consider that the surrogate price for soybeans used by the EU authorities to calculate the cost of production of biodiesel in Argentina did not represent the cost of soybeans in Argentina for producers or exporters of biodiesel.

6.83.  We therefore find that the Panel did not err in its interpretation of Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994, and that the European Union has not established that the Panel erred in its application of these provisions to the biodiesel measure at issue. Consequently, we uphold the Panel's finding, in paragraphs 7.260 and 8.1.c.ii of its Report, that the European Union acted inconsistently with Article 2.2 of the Anti‑Dumping Agreement and Article VI:1(b)(ii) of the GATT 1994 by not using the cost of production in Argentina when constructing the normal value of biodiesel. Having upheld this finding, the condition for Argentina's request for completion of the legal analysis is not fulfilled. Thus, we do not examine this request.

6.1.1.3  Article 2.4 of the Anti-Dumping Agreement

6.84.  Argentina appeals the Panel's finding that Argentina did not establish that the European Union acted inconsistently with the requirement to make a "fair comparison" under Article 2.4 of the Anti-Dumping Agreement by failing to make "[d]ue allowance" for "differences which affect price comparability" within the meaning of this provision.^[252] Argentina alleges that the Panel erred in its interpretation and application of Article 2.4.^[253] According to Argentina, the Panel's "general proposition" – that "differences arising from the methodology applied for establishing the normal value cannot, in principle, be challenged under Article 2.4 as 'differences affecting price comparability'" – is not supported by the text of Article 2.4 or relevant Appellate Body findings in past disputes.^[254] Argentina further contends that the Panel erred in finding that the "difference" identified by Argentina, which resulted from the EU authorities' use of the surrogate price for soybeans in constructing the normal value, was not a difference affecting price comparability within the meaning of Article 2.4.^[255] On this basis, Argentina requests us to reverse the Panel's finding under Article 2.4 of the Anti-Dumping Agreement, and to find, instead, that the difference at issue is a "difference[] affecting price comparability" under Article 2.4, and that the European Union acted inconsistently with this provision.^[256] The European Union considers that the Panel did not err in its analysis, and requests us to uphold the relevant Panel findings.^[257]

6.85.  We recall that, in constructing the normal value, the EU authorities replaced the actual costs of soybeans in the Argentine producers' records with the surrogate price of soybeans.^[258] As a result, "the level of distortion mitigated by the [EU] authorities more or less amounted to the level of the export tax" on soybeans, given that the difference between the surrogate price of soybeans and actual costs of soybeans "roughly equalled the export tax".^[259] In its comments on the Definitive Disclosure, the Association of Argentine Biodiesel Producers (CARBIO) argued that the EU authorities effectively compared a normal value that reflected the inclusion of the export tax on soybeans with an export price that did not take into account such tax, and hence did not make a fair comparison between the normal value and the export price.^[260] The EU authorities rejected this argument by CARBIO, finding, instead, that "[t]he fact that from a pure numerical point of view the result is similar does not mean that the methodology applied by the Commission consisted in simply adding the export taxes to the costs of the raw material."^[261] Before the Panel, Argentina alleged that, by constructing the normal value on the basis of the surrogate price for soybeans, the EU authorities introduced a difference between the normal value and export price that affected price comparability within the meaning of Article 2.4 of the Anti-Dumping Agreement, for which "due allowance" should have been made.^[262]

6.86.  In analysing Argentina's claim, the Panel began by noting that the third sentence of Article 2.4 of the Anti-Dumping Agreement elaborates on the means of ensuring that the "comparison" between the normal value and the export price is "fair" by requiring "[d]ue allowance" to be made "for differences which affect price comparability".^[263] In the Panel's view, such "differences" are those in the characteristics of the compared transactions that have an impact, or are likely to have an impact, on the prices involved in the transactions.^[264] Turning to the anti-dumping measure on biodiesel, the Panel considered that the "difference" alleged by Argentina under Article 2.4 arose from the decision of the EU authorities to construct the normal value by, inter alia, using what it considered to be the undistorted price for the main raw material input.^[265] In the Panel's view, this difference is not a difference which affects price comparability within the meaning of Article 2.4 because it does not "represent[] a tax – or some other identifiable characteristic – that was incorporated into the constructed normal value; by the EU authorities".^[266] Rather, "the alleged 'difference' is one that arose exclusively from the methodology used to construct the normal value … a matter that is primarily governed by Article 2.2 of the Anti‑Dumping Agreement."^[267] The Panel then stated that its conclusion, in this respect, is consistent with the view of the Appellate Body in EC – Fasteners (China) (Article 21.5 – China).^[268] Specifically, the Panel read the Appellate Body's findings in that dispute "as consistent with the general proposition that differences arising from the methodology applied for establishing the normal value cannot, in principle, be challenged under Article 2.4 as 'differences affecting price comparability'".^[269]

6.87.  We observe that, in referring to the "general proposition" after having reached its conclusion under Article 2.4, the Panel was supplementing its earlier analysis as to why the difference at issue does not fall within the scope of the "differences" under Article 2.4 of the Anti-Dumping Agreement. The Panel's statement, in which it referred to the "general proposition", merely expresses its understanding of the Appellate Body's findings in EC – Fasteners (China) (Article 21.5 — China). We do not share this understanding. The Appellate Body report in EC – Fasteners (China) (Article 21.5 – China) does not contain any such "general proposition". The reasoning in that report is tailored to the circumstances of that dispute, in which the analogue country methodology was used. The Appellate Body explained that Article 2.4 of the Anti-Dumping Agreement had to be read in the context of the second Ad Note to Article VI:1 of the GATT 1994 and Section 15(a) of China's Accession Protocol.^[270] Neither of those provisions is relevant for purposes of this dispute. Moreover, we would have serious reservations regarding what the Panel referred to as the "general proposition". The text of Article 2.4 itself makes clear that "[d]ue allowance shall be made in each case, on its merits".^[271] This indicates that the need to make due allowance must be assessed in light of the specific circumstances of each case.

6.88.  In any event, we recall the Panel's findings that, in constructing the normal value, the EU authorities acted inconsistently with Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement.^[272] At the oral hearing, the European Union expressed the view that, should we uphold the Panel's findings under Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement, there would be no need to further examine the Panel's finding under Article 2.4 of the Anti-Dumping Agreement.^[273] In contrast, Argentina contended that the errors it alleged under Article 2.4 of the Anti-Dumping Agreement would remain relevant even if we were to uphold the Panel's findings under Articles 2.2.1.1 and 2.2.

6.89.  We have upheld the Panel's findings that the EU authorities acted inconsistently with Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement in constructing the normal value for the reasons set out above.^[274] Given these findings, and notwithstanding our reservations about certain aspects of the Panel's analysis under Article 2.4 of the Anti-Dumping Agreement, we do not consider it fruitful, in the particular circumstances of this dispute, to examine further whether the EU authorities also failed to conduct a "fair comparison" in comparing the constructed normal value to the export price. We therefore find it unnecessary to rule on Argentina's claim on appeal regarding the Panel's finding under Article 2.4 of the Anti-Dumping Agreement.

6.1.2  Imposition of anti-dumping duties: Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994

6.90.  The European Union requests us to reverse the Panel's finding that "[t]he European Union acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994 by imposing anti-dumping duties in excess of the margins of dumping that should have been established under Article 2 of the Anti-Dumping Agreement and Article VI:1 of the GATT 1994, respectively".^[275] The European Union contends that the Panel erred in its interpretation and application of Article 9.3 of the Anti-Dumping Agreement by: (i) considering that Article 9.3 of the Anti-Dumping Agreement calls for a comparison between the amount of duties and the dumping margins that should have been calculated consistently with Article 2 of that Agreement^[276], and that a violation of Article 2 automatically results in a violation of Article 9.3^[277]; and (ii) relying on the margins of dumping calculated in the Provisional Regulation in applying Article 9.3 to the facts of this dispute.^[278] Argentina maintains that the European Union's appeal of the Panel's findings under Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994 is without merit and should be dismissed.^[279]

6.91.  We begin with a brief overview of the relevant Panel findings before considering the interpretation of Article 9.3 of the Anti-Dumping Agreement and whether the Panel erred in reaching its findings.

6.1.2.1  The Panel's findings

6.92.  Argentina alleged before the Panel that, as a result of its erroneous construction of the normal value and the consequent unduly high margin of dumping, the European Union imposed and levied anti-dumping duties in excess of the margin of dumping that should have been established in accordance with Article 2 of the Anti-Dumping Agreement, and thereby acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994.^[280]

6.93.  In addressing Argentina's claim, the Panel considered that the question before it was whether the phrase "margin of dumping as established under Article 2" in Article 9.3 of the Anti‑Dumping Agreement "refers to the margin of dumping that an investigating authority would have established in the absence of any errors or inconsistencies with [Article 2]".^[281] Analysing the text of Article 9.3, the Panel considered that the term "margin of dumping" in Article 9.3 "relates to a margin that is established in a manner subject to the disciplines of Article 2 and which is therefore consistent with those disciplines".^[282] The Panel added that an error or inconsistency under Article 2 "does not necessarily or automatically mean that the anti-dumping duty actually applied will exceed the correct margin of dumping", and hence be inconsistent with Article 9.3.^[283] This is because, even in situations in which the dumping margin is not determined consistently with Article 2, the actual anti-dumping duty rate could still be lower than the correct margin of dumping, for example, due to the application of the lesser duty rule.^[284]

6.94.  The Panel recalled its finding that the European Union acted inconsistently with Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement and with Article VI:1(b)(ii) of the GATT 1994 in establishing the dumping margins in the Definitive Regulation due to the "use of surrogate input prices in the construction of each investigated Argentine producer's normal value".^[285] The Panel contrasted this with the EU authorities' use of actual input prices when constructing the normal value and calculating dumping margins at the provisional stage. The Panel also noted that Argentina highlighted that the duties imposed in the Definitive Regulation are "two to three times higher" than the dumping margins calculated in the Provisional Regulation.^[286] While acknowledging that it could not "infer the exact dumping margins that would have been established had the determinations been done in accordance with Article 2", the Panel nevertheless expressed the view that "the dumping margins established in the Provisional Regulation provide a reasonable approximation of what margins calculated in accordance with Article 2 of the Anti-Dumping Agreement might have been."^[287] To the Panel, the fact that the anti‑dumping duties imposed in the Definitive Regulation were substantially higher than the dumping margins calculated in the Provisional Regulation suggested that the definitive anti‑dumping duties "exceeded what the dumping margins could have been had they been established in accordance with Article 2".^[288]

6.95.  The Panel therefore concluded that Argentina had made a prima facie case that the European Union had acted inconsistently with Article 9.3 of the Anti-Dumping Agreement. Applying its reasoning under Article 9.3 of the Anti-Dumping Agreement, mutatis mutandis, to Argentina's claim under Article VI:2 of the GATT 1994, the Panel found that the European Union also acted inconsistently with the latter provision. On the basis of the foregoing, the Panel found that the European Union acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994 by imposing anti‑dumping duties in excess of the margin of dumping that should have been established under Article 2 of the Anti-Dumping Agreement.^[289]

6.1.2.2  Whether the Panel erred in its interpretation of Article 9.3 of the Anti-Dumping Agreement

6.96.  Article 9 of the Anti-Dumping Agreement contains several provisions relating to the imposition and collection of anti-dumping duties. Article 9.3, in particular, provides that "[t]he amount of the anti‑dumping duty shall not exceed the margin of dumping as established under Article 2." The words "shall not exceed" indicate that Article 9.3 sets a ceiling for the maximum amount of the anti-dumping duty that may be imposed and collected. This maximum level is "the margin of dumping as established under Article 2".^[290] The phrase "as established under" is immediately followed by the reference to "Article 2". Article 2, in turn, sets out detailed rules that govern various aspects of a dumping determination, including the determination of the normal value and the export price and their comparison, for purposes of calculating the margin of dumping. Read in light of the detailed rules on dumping determinations set out in Article 2, the phrase "as established under Article 2" indicates that the "margin of dumping" in Article 9.3 is a margin that is established in a manner consistent with these rules. We therefore share the Panel's understanding that the "'margin of dumping' referred to in Article 9.3 relates to a margin that is established in a manner subject to the disciplines of Article 2 and which is therefore consistent with those disciplines".^[291]

6.97.  Furthermore, we note that Article 9.3 is the chapeau to three provisions concerning the assessment and collection of anti-dumping duties.^[292] All three provisions are "subject to the overarching requirement in Article 9.3 that the amount of anti‑dumping duty 'shall not exceed the margin of dumping as established under Article 2'" of the Anti-Dumping Agreement.^[293] The "margin of dumping" referred to in Article 9.3 thus provides the benchmark against which the consistency of the amount of the anti-dumping duty with Article 9.3 must be examined under any of the duty assessment systems envisaged in Articles 9.3.1 to 9.3.3. In our view, it would frustrate the benchmark function of Article 9.3 if the margin of dumping were itself inconsistent with the Anti‑Dumping Agreement. We also note that, pursuant to Article 9.2 of the Anti-Dumping Agreement, "[w]hen an anti‑dumping duty is imposed in respect of any product, such anti‑dumping duty shall be collected in the appropriate amounts in each case".^[294] Read in light of Article 9.2, the benchmark provided by Article 9.3 is one specific demarcation of when the amounts of anti-dumping duties will be appropriate.

6.98.  Our understanding of the phrase "margin of dumping as established under Article 2" is supported by the context provided by Article VI:2 of the GATT 1994. This Article provides that a WTO Member "may levy on any dumped product an anti-dumping duty not greater in amount than the margin of dumping in respect of such product". It further states that, "[f]or the purposes of this Article, the margin of dumping is the price difference determined in accordance with [Article VI:1]."^[295] As the Panel correctly pointed out, the term "in accordance with" in the second sentence of this provision "makes it clear … that Article VI:2 prohibits the levying of anti‑dumping duties in excess of the dumping margin determined consistently with Article VI:1 of the GATT 1994 in the same way as the phrase 'as established under Article 2' does in Article 9.3."^[296]

6.99.  The Appellate Body's findings in past disputes under Article 9.3 of the Anti‑Dumping Agreement further support the interpretation above. In US — Zeroing (EC), the Appellate Body took note of the reference in Article 9.3 to Article 2. The Appellate Body considered that it followed from this reference that, under Article 9.3, the amount of the assessed anti‑dumping duties may not exceed the relevant margin of dumping, namely, a margin that has been established consistently with Article 2.^[297]

6.100.  Similarly, in US – Zeroing (Japan), having found that margins of dumping calculated using zeroing in original investigations are margins of dumping inconsistent with Article 2 of the Anti‑Dumping Agreement^[298], the Appellate Body disagreed with that panel's view that the term "margins of dumping" can have different meanings under different provisions of the Anti-Dumping Agreement.^[299] That panel had relied, in support of its view, on the differences between the retrospective and prospective duty assessment systems referred to under Article 9.3. The Appellate Body, however, noted that "the introductory clause of Article 9.3 applies equally to prospective and retroactive duty assessment systems."^[300] The Appellate Body emphasized that, under either system, "the authority is required to ensure that the total amount of anti-dumping duties collected … does not exceed the total amount of dumping … calculated according to the margin of dumping established for that exporter or foreign producer without zeroing"^[301] and that, "[u]nder any system of duty collection, the margin of dumping established in accordance with Article 2 operates as a ceiling for the amount of anti-dumping duties that could be collected in respect of the sales made by an exporter."^[302]

6.101.  In our view, therefore, the Panel properly considered that the Appellate Body's findings in US – Zeroing (EC) and US – Zeroing (Japan) confirm that Article 9.3 prohibits the amount of the anti-dumping duties from exceeding a dumping margin that is determined consistently with Article 2 of the Anti-Dumping Agreement.^[303]

6.102.  The European Union acknowledges that "[i]t is undisputed that the ordinary meaning of the phrase 'the margin of dumping as established under Article 2' is that of a margin of dumping established in accordance with the provisions of Article 2."^[304] The European Union nonetheless asserts that, contrary to the Panel's interpretation, "what the text of Article 9.3 requires is merely a comparison between the anti-dumping duties actually imposed and the dumping margin actually calculated by the investigating authority, irrespective of the investigating authority's possible errors when calculating the dumping margin."^[305] We have difficulty reconciling these two statements of the European Union. We fail to see how a dumping margin "actually calculated" by the investigating authority, which nonetheless contains "errors" in light of the requirements of Article 2, could at the same time be a margin "established in accordance with the provisions of Article 2".

6.103.  The European Union contends that the WTO‑consistency of the calculation of the margin of dumping under Article 2, on the one hand, and the comparison called for in Article 9.3, on the other hand, are "two different stages in the analysis", and the finding of a WTO-inconsistency in one stage should not automatically lead to a finding of WTO-inconsistency in the other stage.^[306] At the oral hearing, the European Union further clarified that it takes issue with the Panel's understanding that an inconsistency with Article 2 automatically leads to an inconsistency with Article 9.3.^[307] The Panel, however, did not interpret Article 9.3 in this way. To the contrary, the Panel explicitly made clear that "[a]n error or inconsistency under Article 2 does not necessarily or automatically mean that the anti‑dumping duty actually applied will exceed the correct margin of dumping."^[308] According to the Panel, "it is possible that an anti-dumping duty could be applied at a rate that is lower than the WTO‑inconsistent dumping margin."^[309] The Panel referred, by way of example, to the lesser duty rule under Article 9.1 of the Anti-Dumping Agreement.^[310] According to the Panel, where the lesser duty rule is applied, it is conceivable that the final duties imposed will "not only be lower than the WTO-inconsistent dumping margin, but also lower than the dumping margin that would have been established in accordance with Article 2"^[311], and hence not inconsistent with Article 9.3 of the Anti-Dumping Agreement.

6.104.  We agree with the above analysis of the Panel. Indeed, understanding the "margin of dumping" referred to in Article 9.3 as one established consistently with Article 2 of the Anti‑Dumping Agreement does not mean that any error in the calculation of the dumping margin will necessarily lead to a violation of Article 9.3. The application of the lesser duty rule provides one example of when this may not be the case. Moreover, because Article 9.3 is concerned with the maximum amount of anti-dumping duties that may be collected, the errors under Article 2 that matter for purposes of Article 9.3 are those that result in a higher dumping margin than the one that would have been calculated had the authority acted consistently with Article 2. Not all breaches of Article 2 will invariably or predictably entail such a result. In this respect, we also share the European Union's understanding that a complainant "must show something more than a simple erroneous calculation of normal value" in order to succeed with a claim under Article 9.3.^[312] In our view, the complainant must show that anti-dumping duties are imposed at a rate that is higher than the dumping margin that would have been established had the authority acted consistently with Article 2.

6.105.  In some cases, such a showing may be straightforward. For example, in the disputes concerning "zeroing" discussed above, it was clear that the use of zeroing, which is inconsistent with Article 2 of the Anti-Dumping Agreement, led to higher margins of dumping. Furthermore, the lesser duty rule was not applied in the anti-dumping proceedings at issue in those disputes. Under such circumstances, the fact that the duties were imposed at rates equal to the margins of dumping established with the use of zeroing necessarily meant that those duties were in excess of the margins that would have been established had the margins been calculated consistently with Article 2 (i.e. without "zeroing"), and hence inconsistent with Article 9.3 of the Anti-Dumping Agreement. We emphasize, however, that what is required for a complainant to meet its burden of proof under Article 9.3 will depend on the specific circumstances of each dispute.

6.1.2.3  Whether the Panel erred in its application of Article 9.3 of the Anti-Dumping Agreement

6.106.  The European Union advances two sets of arguments alleging that the Panel erred in its application of Article 9.3 of the Anti-Dumping Agreement. First, the European Union contends that the Panel "erred when it inferred from its previous findings" under Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement that the European Union also breached Article 9.3 of that Agreement.^[313] In the European Union's view, because the Panel's interpretations of Articles 2.2.1.1 and 2.2 are flawed and should be reversed, we should also reverse the Panel's finding under Article 9.3. As we have upheld the Panel's findings under Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement^[314], we reject the European Union's contention that the Panel erred under Article 9.3 as a consequence of the alleged errors in its findings under Articles 2.2.1.1 and 2.2.

6.107.  Second, the European Union maintains that the Panel erred by seeking to rely on the dumping margins calculated in the Provisional Regulation, "effectively implying that this is what the [dumping margin] determination should have been".^[315] In doing so, the European Union argues, the Panel exceeded "the authority vested in it pursuant to the DSU and the special or additional rules" under Article 17.6(i) of the Anti-Dumping Agreement, pursuant to which "the Panel should have limited itself to determining if the investigating authority's evaluation of the facts was unbiased and objective".^[316]

6.108.  As noted above^[317], in applying Article 9.3 to the facts of the case, the Panel began by recalling its findings that "the EU authorities acted inconsistently with Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement … in their establishment of the dumping margins in the Definitive Regulation due to their use of surrogate input prices in the construction of each investigated Argentine producer's normal value."^[318] The Panel further recalled that, "[b]y contrast, at the provisional stage, the EU authorities had used each Argentine producer's actual input prices when constructing the normal value used in calculating that producer's dumping margin."^[319] The Panel then noted that "Argentina contrast[ed] the margins calculated in the Provisional Regulation, ranging from 6.8% to 10.6%, with the duties imposed by the EU authorities in the Definitive Regulation, which ranged from 22.0% to 25.7%, i.e. two to three times higher."^[320]

6.109.  Contrary to the European Union's argument, the Panel did not "effectively imply[]" that the dumping margins calculated in the Provisional Regulation constituted "what the determination should have been".^[321] Rather, the Panel was careful not to draw such a conclusion, observing that "[w]e cannot infer the exact dumping margins that would have been established had the determinations been done in accordance with Article 2."^[322] Rather, the Panel considered that the dumping margins in the Provisional Regulation served as a "reasonable approximation" for what the margins "might have been".^[323] The Panel further stated that "[t]he substantial difference between the margins calculated at the provisional stage and the duties imposed in the Definitive Regulation suggests that the [definitive anti-dumping duties] exceeded what the dumping margins could have been had they been established in accordance with Article 2."^[324]

6.110.  In our view, the Panel's reliance on the margins calculated in the Provisional Regulation was appropriate in light of the specific circumstances of this case. As noted, the change in the basis for constructing the normal value that the EU authorities made between the Provisional and Definitive Regulations is exactly the one found to be inconsistent with Articles 2.2.1.1 and 2.2 of the Anti-Dumping Agreement. More specifically, in the Definitive Regulation, the EU authorities replaced the actual purchase price of soybeans as reflected in the producers' records, which was used in calculating the cost of production at the provisional stage, with the surrogate price for soybeans.^[325] This change significantly increased the cost of production determined by the EU authorities, hence the normal value and the corresponding margin of dumping, for each of the Argentine producers in comparison to the provisional stage.^[326] As Argentina showed before the Panel, definitive duties were imposed at rates "two to three times higher" than the dumping margins in the Provisional Regulation.^[327] Furthermore, even though the lesser duty rule was applied in the Definitive Regulation, the duty rates applied were still substantially higher than the margins of dumping calculated in the Provisional Regulation on the basis of a constructed normal value whose consistency with Article 2 has not been questioned.^[328]

6.111.  In this respect, we recall the European Union's contention that a complainant "must show something more than a simple erroneous calculation of normal value in order to put forward a successful claim under Article 9.3 of the Anti-Dumping Agreement".^[329] As Argentina rightly points out, "[t]his is precisely what Argentina did" in this dispute.^[330] Specifically, in addition to demonstrating error in the construction of the normal value, Argentina also showed that the amount of the definitive anti-dumping duties "exceeded what the dumping margins could have been had they been established in accordance with Article 2."^[331] Accordingly, and in light of the specific circumstances of this dispute, we find that the Panel did not err in finding that "Argentina has made a prima facie case that the European Union acted inconsistently with Article 9.3 of the Anti-Dumping Agreement, which the European Union has failed to rebut."^[332]

6.1.2.4  Conclusions

6.112.  In sum, we consider that the Panel correctly interpreted Article 9.3 of the Anti-Dumping Agreement in stating that the "'margin of dumping' referred to in Article 9.3 relates to a margin that is established in a manner subject to the disciplines of Article 2 and which is therefore consistent with those disciplines."^[333] Furthermore, in our view, the Panel did not err in considering that, in light of the specific circumstances of this dispute, "Argentina has made a prima facie case that the European Union acted inconsistently with Article 9.3 of the Anti-Dumping Agreement, which the European Union has failed to rebut."^[334] We also agree with the Panel that the same considerations that guided its assessment of Argentina's Article 9.3 claim apply mutatis mutandis to its assessment of Argentina's claim under Article VI:2 of the GATT 1994.^[335]

6.113.  For these reasons, we uphold the Panel's finding, in paragraphs 7.367 and 8.1.c.vii of its Report, that the European Union acted inconsistently with Article 9.3 of the Anti-Dumping Agreement and Article VI:2 of the GATT 1994 by imposing anti‑dumping duties in excess of the margin of dumping that should have been established under Article 2 of the Anti-Dumping Agreement and Article VI:1 of the GATT 1994, respectively.

6.1.3  Non-attribution analysis in causation determination: Articles 3.1 and 3.5 of the Anti-Dumping Agreement

6.114.  Argentina appeals the Panel's finding that Argentina failed to establish that the EU authorities' treatment of "overcapacity" as an "other factor" causing injury to the EU domestic industry was inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement.^[336] Specifically, Argentina alleges that the Panel erred in its interpretation of these provisions in considering that it was relevant to examine whether the revised data on production capacity submitted by the EBB had "a significant role" in the EU authorities' non-attribution analysis on overcapacity.^[337] Argentina further claims that the Panel erred in its application of Articles 3.1 and 3.5 by: (i) concluding that the EU authorities' non-attribution analysis regarding overcapacity was not based on or affected by the revised data^[338]; (ii) failing to distinguish overcapacity from capacity utilization^[339]; and (iii) failing to note the inconsistency of the EU authorities' conclusion in light of the evidence before them.^[340] Argentina requests us to reverse the Panel's finding under Articles 3.1 and 3.5 of the Anti‑Dumping Agreement, and to find that the European Union acted inconsistently with these provisions in its non-attribution analysis relating to overcapacity.^[341]

6.115.  The European Union responds that Argentina's claims regarding the Panel's alleged errors should be dismissed.^[342] The European Union emphasizes the Panel's "clear findings" that the revised data did not have a role in the EU authorities' conclusion on overcapacity^[343], and endorses the Panel's observation that overcapacity and capacity utilization are two logically related concepts.^[344] The European Union requests that we uphold the Panel findings challenged by Argentina.^[345]

6.116.  In addressing Argentina's appeal, we begin by briefly recalling the relevant factual background regarding the EU authorities' determinations of injury and causation, as well as the Panel findings relevant to Argentina's appeal. We then address the provisions at issue in this dispute. Finally, we examine each of Argentina's claims regarding the Panel's alleged errors.

6.1.3.1  Relevant background and the Panel's findings

6.117.  In assessing injury to the domestic industry, the EU authorities evaluated certain macroeconomic indicators in the Provisional and Definitive Regulations, including production capacity and capacity utilization.^[346] Following the issuance of the Provisional Regulation, the EBB claimed that the total EU production capacity data that it had previously submitted to the EU authorities were too high because they included "idle capacity". Accordingly, the EBB submitted revised production capacity data excluding "idle capacity", which the EU authorities accepted "after close scrutiny".^[347] This led to a downward adjustment to the production capacity figures, and an upward adjustment to the capacity utilization rates. In turn, the revised findings in the Definitive Regulation stated that production capacity had decreased and capacity utilization had increased during the period considered^[348], which marked a contrast from the findings in the Provisional Regulation that production capacity had increased and capacity utilization had decreased during the same period.^[349] Portions of the tables in the Provisional and Definitive Regulations regarding the production capacity, production volume, and capacity utilization figures are reproduced below.^[350]

Table 2    Macroeconomic indicators from the Provisional Regulation

Table 3    Macroeconomic indicators from the Definitive Regulation^[351]

6.118.  In addressing causation, the EU authorities undertook a non-attribution analysis regarding several "other factors" that were allegedly causing injury to the domestic industry at the same time as the dumped imports. Of particular relevance to this appeal, under the heading "Capacity of the Union industry", the EU authorities identified, in the Provisional Regulation, an argument that had been raised by CARBIO that the injury to the EU industry was "due to overcapacity caused by over-expansion … without a commensurate increase in demand".^[352] In responding to this argument, the EU authorities observed that, while the domestic industry became less profitable during the period considered, capacity utilization remained low and stable throughout the period. The EU authorities therefore found that there appeared to be no causal link between low capacity utilization and injury to the domestic industry.^[353] This conclusion was confirmed in the Definitive Regulation.^[354]

6.119.  Before the Panel, Argentina challenged the EU authorities' analysis of several indicators of injury as being inconsistent with Articles 3.1 and 3.4 of the Anti-Dumping Agreement.^[355] Argentina also challenged the EU authorities' analysis of causation, contending that the EU authorities failed to separate and distinguish appropriately the injurious effects of overcapacity from those of the dumped imports, as required by Articles 3.1 and 3.5.^[356] In particular, Argentina contended that the EU authorities acted inconsistently with these provisions in their non-attribution analysis by relying on the revised figures on production capacity and capacity utilization in the Definitive Regulation.^[357] In addition, Argentina maintained that, in such analysis, the EU authorities confused overcapacity as an "other factor" causing injury with capacity utilization as an injury indicator, and erred in focusing on the capacity utilization rates rather than overcapacity in absolute terms.^[358]

6.120.  The Panel began by recalling its finding that the EU authorities' treatment of the revised production capacity data submitted by the EBB was inconsistent with Articles 3.1 and 3.4 of the Anti-Dumping Agreement.^[359] The Panel then considered whether this finding of inconsistency should render the EU authorities' non-attribution analysis with regard to overcapacity inconsistent with Articles 3.1 and 3.5 for the same reasons.^[360] Having reviewed certain recitals in the Provisional and Definitive Regulations, the Panel considered that the revised data "did not taint the EU authorit[ies'] determination on overcapacity as an 'other factor' causing injury to the domestic industry, as this determination was not based on or affected by the revised data".^[361] In the Panel's view, the revised data "did not have a significant role in the EU authorities' conclusion in the Definitive Regulation on overcapacity as an 'other factor' causing injury".^[362] Consequently, the Panel concluded that the fact that the EU authorities' evaluation of capacity and capacity utilization was inconsistent with Articles 3.1 and 3.4 of the Anti-Dumping Agreement did not, in and of itself, render the EU authorities' non-attribution analysis of overcapacity inconsistent with Articles 3.1 and 3.5 thereof.^[363]

6.121.  The Panel then examined, and rejected, Argentina's argument that the EU authorities improperly focused on capacity utilization as opposed to the increase in overcapacity in absolute terms. The Panel considered that capacity utilization is logically related to overcapacity, in the sense that the rate of capacity utilization reflects the amount of excess capacity of the domestic industry in relative terms. The Panel disagreed with Argentina that focusing on the increase in overcapacity in absolute terms, rather than on trends in capacity utilization rates, would have altered the conclusion reached by the EU authorities in this regard. Moreover, the Panel saw no basis in Article 3 of the Anti-Dumping Agreement to support the proposition that an investigating authority must give priority to the evolution of the domestic industry's overcapacity in absolute terms as opposed to its evolution in relative terms.^[364]

6.122.  After rejecting several other arguments advanced by Argentina^[365], the Panel considered that the EU authorities' conclusion with respect to overcapacity is one that an unbiased and objective investigating authority could have reached in light of the facts before it.^[366] Consequently, the Panel rejected Argentina's allegations that the European Union acted inconsistently with Articles 3.1 and 3.5 of the Anti-Dumping Agreement in rejecting overcapacity as an "other factor" of injury to the EU domestic industry.^[367]

6.1.3.2  Relevant provisions

6.123.  Before turning to Argentina's claims, we discuss briefly the relevant provisions of the Anti‑Dumping Agreement. Articles 3.1 and 3.5 of the Anti-Dumping Agreement provide:

Article 3

Determination of Injury^[368]

3.1  A determination of injury for purposes of Article VI of GATT 1994 shall be based on positive evidence and involve an objective examination of both (a) the volume of the dumped imports and the effect of the dumped imports on prices in the domestic market for like products, and (b) the consequent impact of these imports on domestic producers of such products.

…

3.5  It must be demonstrated that the dumped imports are, through the effects of dumping, as set forth in paragraphs 2 and 4, causing injury within the meaning of this Agreement. The demonstration of a causal relationship between the dumped imports and the injury to the domestic industry shall be based on an examination of all relevant evidence before the authorities. The authorities shall also examine any known factors other than the dumped imports which at the same time are injuring the domestic industry, and the injuries caused by these other factors must not be attributed to the dumped imports. Factors which may be relevant in this respect include, inter alia, the volume and prices of imports not sold at dumping prices, contraction in demand or changes in the patterns of consumption, trade restrictive practices of and competition between the foreign and domestic producers, developments in technology and the export performance and productivity of the domestic industry.^[369]

6.124.  Article 3.1 of the Anti-Dumping Agreement "is an overarching provision that sets forth a Member's fundamental, substantive obligation" concerning the injury determination and "informs the more detailed obligations in the succeeding paragraphs" of Article 3.^[370] The Appellate Body has interpreted the term "positive evidence" as focusing on the facts underpinning and justifying the injury determination.^[371] The term relates to the quality of the evidence that an investigating authority may rely on in making a determination, and requires that such evidence be "affirmative, objective, verifiable, and credible".^[372] Furthermore, the Appellate Body has found that an "objective examination" requires an authority to conduct an investigation "in an unbiased manner, without favouring the interests of any interested party, or group of interested parties, in the investigation".^[373]

6.125.  Article 3.5 requires that the determination of a causal relationship between the dumped imports and the injury to the domestic industry be based on "an examination of all relevant evidence before the authorities". Article 3.5 also requires an investigating authority to "examine any known factors other than the dumped imports which at the same time are injuring the domestic industry" and to ensure that "the injuries caused by these other factors [are not] attributed to the dumped imports".^[374] The non-attribution language in Article 3.5 calls for an assessment that involves "separating and distinguishing the injurious effects of the other factors from the injurious effects of the dumped imports"^[375] and requires "a satisfactory explanation of the nature and extent of the injurious effects of the other factors, as distinguished from the injurious effects of the dumped imports".^[376]

6.126.  With the above-mentioned considerations in mind, we turn to consider Argentina's claims that the Panel erred in its interpretation and application of these provisions.

6.1.3.3  Whether the Panel erred in its interpretation of Articles 3.1 and 3.5 of the Anti‑Dumping Agreement

6.127.  We begin with the interpretative error that, according to Argentina, is found in the first sentence of paragraph 7.466 of the Panel Report, which states:

We therefore conclude that the revised data did not have a significant role in the EU authorities' conclusion in the Definitive Regulation on overcapacity as an "other factor" causing injury.

6.128.  In Argentina's view, the Panel erred in considering that it was relevant to examine whether the revised data concerning production capacity "[did or] did not have a significant role in the EU authorities' conclusion in the Definitive Regulation on overcapacity as an 'other factor' causing injury".^[377] For Argentina, the obligation to make an injury determination, including of the other known factors causing injury, on the basis of "positive evidence" and involving an "objective examination" is an "absolute" one.^[378] Argentina refers to the following statements by the Appellate Body in EC – Bed Linen (Article 21.5 – India) in support of its argument:

These obligations are absolute. They provide for no exceptions, and they include no qualifications. They must be met by every investigating authority in every injury determination.^[379]

6.129.  In Argentina's view, to the extent that the EU authorities relied, even partly, on evidence that was not "positive" and did not involve an "objective examination", the EU authorities' non‑attribution analysis of overcapacity is inconsistent with Articles 3.1 and 3.5 of the Anti‑Dumping Agreement.^[380] The European Union considers that Argentina's argument should be dismissed on the basis of the Panel's "clear findings" in the paragraphs immediately preceding the statement challenged by Argentina, which indicate that the EU authorities did not rely on the revised data in their non-attribution analysis.^[381]

6.130.  As a preliminary matter, we are not persuaded that the Appellate Body's statements in EC – Bed Linen (Article 21.5 – India) support Argentina's position. In our view, the Appellate Body's statement that "[t]hese obligations are absolute" concerns the fundamental nature of the obligations imposed by Articles 3.1 and 3.2, in the sense that "[t]hey must be met by every investigating authority in every injury determination."^[382] These statements of the Appellate Body do not speak to the issue of whether the extent to which certain evidence plays a role in an injury determination is relevant in assessing the WTO-consistency of that determination.

6.131.  In any event, reading the Panel's statement in paragraph 7.466 in its context, we do not consider that the Panel intended to articulate or apply an interpretation of Articles 3.1 and 3.5.^[383] Rather, in making the impugned statement in paragraph 7.466, the Panel merely affirmed the view that it had expressed in the preceding paragraphs of its Report regarding the irrelevance of the revised data to the specific non-attribution analysis undertaken by the EU authorities in the investigation on biodiesel from Argentina.

6.132.  More specifically, the Panel considered that it was "clear" from the EU authorities' findings that their conclusions regarding overcapacity in the Provisional and Definitive Regulations "were not dependent on, or even affected by, the use of the revised vs. the initial data and/or the trends associated with these data, as in either case, the data showed a low rate of capacity utilization".^[384] The Panel therefore found that the revised data did not "taint" the EU authorities' determination on overcapacity as an "other factor" causing injury to the domestic industry, as this determination "was not based on or affected by the revised data".^[385] Finally, in examining Argentina's argument concerning a specific statement in Recital 165 of the Definitive Regulation, the Panel considered that "this statement does not convince us that the EU authorities' conclusion with respect to the issue of overcapacity was based on, or affected by, the revised data."^[386] After conducting the analysis above, the Panel made the statement challenged by Argentina, namely, that "the revised data did not have a significant role in the EU authorities' conclusion in the Definitive Regulation on overcapacity as an 'other factor' causing injury."^[387]

6.133.  Thus, even though the Panel did not use exactly the same words in the first sentence of paragraph 7.466 as it did in the preceding paragraphs of its Report, the totality of the Panel's analysis makes it clear that the Panel found that the EU authorities' non-attribution analysis was not based on or affected by the revised data. Therefore, contrary to Argentina's argument, we do not consider the Panel to have articulated a standard whereby it is relevant to examine whether the revised data played a significant role in the EU authorities' non-attribution analysis.^[388] We thus do not find an error of interpretation in the Panel's analysis under Articles 3.1 and 3.5 of the Anti‑Dumping Agreement. Rather, we consider that Argentina's appeal regarding the Panel's analysis of the relevance of the revised data concerns the Panel's alleged errors in its application of Articles 3.1 and 3.5, to which we now turn.

6.1.3.4  Whether the Panel erred in concluding that the EU authorities did not rely on the revised data

6.134.  Argentina claims that, "even if the Appellate Body were to conclude that the Panel was right in examining the role played by the revised data in the determination of the EU authorities, … the Panel did not correctly apply Article 3.1 when concluding that 'the issue of overcapacity was [not] based on, or affected by, the revised data.'"^[389] Argentina refers to two instances, Recitals 165 and 170 of the Definitive Regulation, in which the EU authorities referred to the revised data in connection with their analysis of whether the injury to the EU industry was caused by the alleged overcapacity of the EU industry, as opposed to dumped imports of biodiesel. In Argentina's view, these references demonstrate that the EU authorities relied on the revised data.^[390] The European Union considers it unnecessary, in light of the Panel's "clear finding" that the non‑attribution analysis was not "based on, or affected by, the revised data"^[391], to engage in a comparative analysis of the evolution of production capacity, capacity utilization, and overcapacity in the Provisional and Definitive Regulations.^[392]

6.135.  We observe that Recital 165 of the Definitive Regulation states:

In addition, following the inclusion of the revised data on capacity and utilisation, the Union industry decreased capacity during the period considered, and increased capacity utilisation, from 46% to 55%. This shows that the capacity utilisation of the Union industry would be significantly higher in the absence of dumped imports than the 53% mentioned above.

6.136.  Argentina contests the Panel's characterization of the first sentence of Recital 165 as "a subsidiary point made by the EU authorities in response to a specific argument [described in Recital 163] that even in the absence of any imports from Argentina and Indonesia, capacity utilization would have been low at 53% during the [investigation period]."^[393] Rather, for Argentina, the first sentence constitutes a response to an interested party's argument, which pointed out that, based on the original data in the Provisional Regulation, "the increase in production capacity from 2009 to the end of the [investigation period] … has led to a reduction in capacity utilisation during the period under consideration".^[394]

6.137.  We note that, in addressing Argentina's argument concerning Recital 165, the Panel reviewed not only Recitals 163 and 165, but also Recital 164. In this recital, the EU authorities rejected the interested party's comment in Recital 163 because "no evidence was provided to support the view that the low capacity utilization rate was causing injury to such an extent as to break the causal link between dumped imports and the injury".^[395] The EU authorities then added that fixed costs represented only a small proportion of the total production costs, explaining that low capacity utilization was only one factor causing injury, but not a decisive one.^[396] In making these observations, the EU authorities did not make reference to the revised data. Rather, the authorities referred generally to the phenomenon of "low capacity utilization" that, in their view, existed at both the provisional and definitive stages. The Panel emphasized that "[i]t is only after making these points that the EU authorities posited [in Recital 165] that, in view of the revised capacity utilization rates, in the absence of any dumped imports, capacity utilization would have been significantly higher than the 53% figure cited by the interested parties."^[397]

6.138.  Reading Recitals 163, 164, and 165 together, we concur with the Panel that the first sentence of Recital 165, which refers to the revised data, constitutes "a subsidiary point" in response to the interested party's argument that capacity utilization would have been low even in the absence of imports. In our view, therefore, the Panel did not err in stating that the reference to the revised data in Recital 165 does not demonstrate that the EU authorities' conclusion regarding overcapacity was based on the revised data.^[398]

6.139.  Argentina further highlights that, in Recital 170 of the Definitive Regulation, the EU authorities noted that "[t]he revised macroeconomic indicators also show that companies were during the period taking capacity out of possible use, and closer to the end of the [investigation period] were starting a process of closing plants that are no longer viable."^[399] We note that, during the Panel proceedings, neither Argentina nor the Panel specifically addressed this recital in considering whether the EU authorities relied on the revised data in their non-attribution analysis.^[400] Furthermore, apart from quoting the sentence above, Argentina has not provided us with additional arguments as to why a mere reference to the revised data in Recital 170 supports the view that the non-attribution analysis was based on the revised data. Such passing reference does not change the fact that the conclusion regarding overcapacity in the Provisional Regulation remained unchanged in the Definitive Regulation, despite the revised capacity utilization rates.

6.140.  In light of the above, we do not consider that Argentina has established that the Panel erred in its application of Articles 3.1 and 3.5 of the Anti-Dumping Agreement in considering that the EU authorities' non-attribution analysis concerning overcapacity in the Definitive Regulation was not "based on" or "affected by" the revised data.^[401]

6.1.3.5  Whether the Panel erred in failing to distinguish overcapacity from capacity utilization and in failing to note the inconsistency of the EU authorities' conclusion in light of the evidence before them

6.141.  As noted above, Argentina makes two additional claims of error regarding the Panel's application of Articles 3.1 and 3.5 of the Anti-Dumping Agreement, namely, that the Panel erred in failing to distinguish overcapacity from capacity utilization and in failing to note the inconsistency of the EU authorities' conclusion in light of the evidence before them.^[402]

6.142.  First, Argentina claims that the Panel erred in considering that the EU authorities did not improperly focus on capacity utilization as opposed to the increase in overcapacity in absolute terms during the period considered. In Argentina's view, the Panel failed to acknowledge that "overcapacity" and "capacity utilization" are two distinct concepts when it stated that the concepts are "logically related".^[403] Argentina submits that, while "overcapacity" refers to a situation where a producer has capacity larger than what is required by the demand in a particular market, "capacity utilization" refers to the actual production as a percentage of the total capacity.^[404] For its part, the European Union considers that the Panel was correct in stating that capacity utilization is "logically related" to overcapacity and that an objective and unbiased investigating authority may examine overcapacity on the basis of capacity utilization.^[405]

6.143.  We recall that, in rejecting Argentina's argument that the EU authorities improperly focused on capacity utilization, as opposed to the increase in overcapacity in absolute terms, the Panel considered that the concepts of "overcapacity" and "capacity utilization" are "logically related … in the sense that the rate of capacity utilization reflects the amount of excess capacity of the domestic industry in relative terms."^[406] This statement by the Panel is consistent with the way in which the concepts of "overcapacity" and "capacity utilization" were used in the investigation at issue. Specifically, both terms were used in a complementary manner to refer to the same phenomenon, namely, a situation in which production capacity exceeds production volume, resulting in excess or unused capacity. While "overcapacity" describes, in absolute terms, the production capacity that the EU domestic industry had not used, "capacity utilization" describes, in relative terms, the production capacity that the EU domestic industry had used. Moreover, both the "overcapacity" figures referred to by Argentina and the "capacity utilization" rates shown in the Provisional Regulation were derived from the same data, namely, the original data concerning production volume and production capacity. Thus, contrary to Argentina's contention, we do not consider that the Panel failed to distinguish between overcapacity and capacity utilization. Rather, as the Panel found, "an objective and unbiased investigating authority may well have proceeded to examine the issue of overcapacity on the basis of capacity utilization rather than in terms of the evolution of the domestic industry's overcapacity."^[407]