RESTRICTED
WORLD TRADE G/ADP/W/66
25October 1995
ORGANIZATION(95-3267)
Original: Spanish Committee onAnti-Dumping Practices
REPLIES TOQUESTIONS POSED BYTHE EUROPEAN COMMUNITIES1
CONCERNING THE NOTIFICATION OFMEXICAN LAWS
AND REGULATIONS2
Thefollowing communication, dated 15September 1995, hasbeenreceived fromthePermanent
Mission ofMexico.
_______________
Questions bytheEuropean Union Concerning theImplementation byMexico
ofthe1994 Anti-Dumping Agreement under itsDomestic Legislation
Reply toquestion 1
Article 133ofthePolitical Constitution oftheUnited Mexican States specifies thatthe
Constitution andthelawsenacted bytheCongress oftheUnion, together withtreaties inkeeping with
theConstitution, concluded bythePresident oftheRepublic, withtheapproval oftheSenate, will
betheSupreme Lawofthewhole oftheUnion.
InMexico, treaties aredirectly applicable, inother words, theydonotstand inneedofa
legislative actafter theyhave been promulgated inorder forthem toapply; theyaredirectly
incorporated inthedomestic legalsystem and,accordingly, the1994 ADAgreement, which fulfils
therequirements indicated intheprevious paragraph, hasformed partofourlegislation onunfair
practices sinceitsentry intoforce on1January 1995and,therefore, itsprovisions, together withthose
oftheForeign Trade Act,must beobserved bytheMexican authorities.
Itisimportant topoint outthat,intheevent ofanyinconsistency between theprovisions of
theseenactments, Article 2oftheForeign Trade Actstipulates thattheprovisions oftheADAgreement
willprevail.
However, Mexico isatthepresent timepreparing therequisite reforms toadapt thewhole
ofitslegislation onanti-dumping andsubsidies, soastomake itclearer andtoavoid unnecessary
confusion. These reforms willbeproposed totheExecutive nextyear.
Reply toquestion 2
Asstated, Mexico isatthepresent timepreparing reforms todomestic legislation onthese
matters soastoprevent possible inconsistencies withtheGATT 1994 Agreements. Secondly, as
1G/ADP/W/13.
2G/ADP/N/1/MEX/1 andG/SCM/N/1/MEX/1.G/ADP/W/66
Page2
indicated intheprevious reply, inthecaseofthepresent question theinvestigating authority mustapply
therules setoutinfootnote 2ofArticle 2.2oftheADAgreement. Itisimportant toemphasize that
thetextoftheruleinquestion doesallow exceptions byrecognizing that5percentisthepercentage
thatwillapply normally. Consequently, fromfootnote 2itselfitisclearthat,inspecial circumstances,
representativeness maybeestablished onthebasis ofpercentages other than5percent.
Reply toquestion 3
Article 46.IX oftheRegulations relates tocosts suchasrestructuring expenses. These are
recognized inagiven yearandtherefore, from apurely accounting standpoint, formpartofthetotal
production costforthatyear. However, from aneconomic standpoint, including "once-for-all"
restructuring expenses incostsproduces distorting effects. Firstly, theresulting costsaresohighthat
alldomestic salesseem tobemade ataloss. Secondly, theconstructed values obtained bycumulation
ofsuchcosts aresohighthatallexport operations seem tobe"dumped". Thefactisthatproducers
cannot setsufficiently highselling prices toabsorb totalrestructuring expenses because, iftheydid
so,theywould bepriced outofthemarket.
Theabove ruleallows restructuring expenses tobeallocated overtime, inasimilar wayto
depreciation, sothattheperiod ofinvestigation endsupbyabsorbing onlytheamortization forthat
year(forexample, 1/15ofthetotalrestructuring expenses, when theperiod ofamortization is15years).
However, ifonlytherestructuring expenses incurred intheperiod ofinvestigation were taken into
account, theabove rulewould always benefit theexporter: restructuring expenses fortheperiod of
investigation would byallocated between thatperiod andthesubsequent periods, sothattheestimated
totalcostofproduction forthefirstperiod would invariably bereduced.
Tomake surethattheeffects ofapplying theruleinquestion areneutral, restructuring expenses
incurred before theperiod ofinvestigation arealsotaken intoconsideration. Forexample, theperiod
ofinvestigation mayendupbyabsorbing 1/15oftherecognized restructuring expenses inthatperiod,
1/15oftherestructuring expenses recognized fiveyears earlier, and1/15oftheexpenses recognized
10years back. Itwillbeseenthatthisisaruleintended toensure impartial treatment oftheparties
involved intheproceedings.
Thisruleisperfectly consistent withArticle 2.2.1.1 oftheADAgreement, which states that
"costs shallbeadjusted appropriately forthose non-recurring items ofcostwhich benefit future and/or
current production".
Reply toquestion 4
Before answering thisquestion, itmustbepointed outthatthetranslation isamistake. The
textofArticle 46.XI oftheRegulations doesnotinclude theterm"efectos transitorios". Actually the
textinquestion says"cuando ...(el)margen deutilidad ...norefleje unacondición delargo plazo,
sinounasituación transitoria ocoyuntural": (inEnglish "when ...(the)profit margin ...doesnot
reflect along-term condition, butasituation which istemporary innature".
Thebasis intheADAgreement fordisregarding dataon"asituation which istemporary in
nature" isArticle 2.2.2 oftheCode, although itisworth pointing outthat,inthesituation provided
forinArticle 46.XI oftheRegulations, actual dataarenotdisregarded; onthecontrary, theyare
supplemented byadditional financial information (obviously information from theexporter under
investigation) fortheperiod ofinvestigation.G/ADP/W/66
Page3
Reply toquestion 5
Trading enterprises, generally speaking, sellnotonthedomestic market butonlyonexport
markets. Ifatrading company onlybuys products below cost(clearance sales, forexample, or
remainders), itsresale prices toforeign markets would tendtobethesame, orthedifference between
oneexport price andanother would benegligible. Thismeans that,ifthenormal value forsuch
enterprises isfixed according toanexport price toathirdcountry, thisnormal value would tendto
beverysimilar totheexport price totheMexican market, which would make thedumping margins
veryclose tozeroorevennegative. Thisresult, however, would beillogical, because allthegoods
inquestion would havebeensoldoriginally ataloss.
Inconformity withtherulecontained inArticle 47oftheRegulations, thenormal value cannot
beestablished onthebasisoftheresale prices ofproducts acquired below cost. Thisposition isperfectly
compatible withArticle 2.2.1.1. oftheADAgreement, which states thattheprices involved in
determining thenormal value "shall normally becalculated onthebasisofrecords keptbytheexporter
...provided thatsuchrecords ...reasonably reflect costs associated withtheproduction andsaleof
theproduct under consideration".
Reply toquestion 6
Selling between related parties maymean thatexport prices areunusually loworunusually
high. Inthecaseoftheformer, theseller would prefer torecord itsprofits intheimporting country
instead oftheexporting country, sotheprice tonon-related parties intheimporting country would
behigher thanthepricefromonecountry toanother. Theotherpossibility isthattheproduct inquestion
isexported from onecountry toanother atnon-dumping prices, butthispractice occurs atthetime
ofthesale,when theproduct hasalready entered theimporting country. Thisisthe"hidden dumping"
alluded tointhesupplementary provision toArticle VIoftheGeneral Agreement contained inAnnex I
oftheAgreement. Inthese circumstances, theexport price would behigher thantheselling price in
theimporting country, sothatthedistributor would incur aloss. Over thelongterm, thislosscould
notbesustained unless itwasabsorbed bytheparent company intheexporting country. Thisisthe
compensatoryarrangementreferredtoinArticle50oftheRegulations.Thepointisthatmereassociation
between theexporter andtheimporter isnotenough topresume thattheselling prices ofeither one
canbetrusted.
Reply toquestion 7
Thetextestablishes that,when construction oftheexport price affects comparability withthe
normal value, thenormal value canbeadjusted ataleveloftradeequivalent tothatoftheexport price.
Thissituation canariseinvarious ways. Forexample, when alldomestic salesaremade toassociated
parties, sothatnoneofthemqualifies asatransaction intheordinary course oftrade. Forthepurposes
ofcalculating thenormal value, theprice ofsuchsales could bereplaced bytheconstructed value.
However, asfarasestimating themargin ofdumping isconcerned, thiswould result incomparing
aconstructed value toanadjusted export price, although thesalesonbothmarkets havebeenmade
inidentical circumstances (sales toassociated parties). Inthiscase, under theterms ofArticle 2.4
oftheADAgreement, thedomestic price could beadjusted inasimilar waytotheexport price (the
domestic price would alsobeconstructed onthebasis oftheselling price tothefirstnon-associated
client), sothatbothprices arecompared oncomparable bases.G/ADP/W/66
Page4
Reply toquestion 8
Article 36oftheForeign Trade Actspecifies thatprice adjustments shallbe"thenecessary"
adjustments. Foritspart,Article 2.4oftheCode states that"dueallowance shallbemade ineach
case, onitsmerits, fordifferences which affect price comparability". Itwillbeseenthatbothphrases
aresimilar. Furthermore, therulestopermit adjustments assetoutindetail inArticles 54(adjustments
fordifferences inconditions ofsale), 55(differences inquantity) 56(differences inphysical
characteristics) and57(differences intaxcharges) oftheRegulations under theForeign Trade Act.
Reply toquestion 9
Article 55relates toadjustment forquantities. Thetextitself isself-explanatory. However,
tomake forabetter understanding, thefollowing explanation isprovided. Paragraph IoftheArticle
establishes thatwhen there isapattern ofprices thatdiffer depending onthevolume ofthepurchase,
themarginofpricediscriminationshouldbeestablishedbylevels(bycategoriesofvolume),forexample,
high-volume normal values compared withhigh-volume export prices. Paragraph IIoftheArticle
indicates that,incases inwhich certain domestic salesarenotforquantities similar toexport quantities,
theprices ofsuchsalesmustbeadjusted todomestic prices thatarecomparable, interms ofvolume,
toforeign sales. Forexample, ifthere arenolow-volume export sales, theprices oflow-volume
domestic salesmustbeadjusted totheprices ofhigh-volume domestic sales(assuming thatallexport
salesareatthislevel).
Paragraph IIIoftheArticle establishes certain rulesofverification. Paragraph III.Aconcerns
fictitious markets. Under paragraph III.B, thepattern ofprices differentiated byvolume mustapply
inaconsistent manner; inother words, ithastobeshown thattheprices ofhigh-volume salesare
always lower thantheprices oflow-volume sales. Acopy ofthefinalresolution relating tothe
anti-dumping investigation intobond paper isattached. Thiscasefullyillustrates theapplication of
thevarious provisions contained inArticle 55oftheRegulations.
Reply toquestion 10
Thegeneral costsarethesame forallproducts. Consequently, evenifdifferences inphysical
characteristics didaffect thegeneral costs, these differences would notmean thatprices would differ
from oneproduct toanother.
Reply toquestion 11
Article 58oftheRegulations isconsistent withArticle 2.4.1 ofthe1994ADAgreement, which
nonetheless contains more specific rules about making currency conversions oradjustments.
While theMexican Regulations setoutageneral ruleanddonotcover exceptions orinclude
more specific rules, thisdoesnotsignify incompatibility withtheADagreement, fortheCode forms
partofMexican lawandmust beobserved bytheMexican authorities.
Reply toquestions 12and13
Therules contained inArticle 5.4ofthe1994 ADAgreement must beobserved bythe
investigating authority, forthereasons setoutinthereply toquestion 1.
Forthepurposes oftheapplication ofArticle 62oftheRegulations, itisnecessary fordomestic
producers whodeem theyhavethecapacity toactasrequesting parties toshow totheinvestigating
authority whether ornottheyhavesuchstanding. Furthermore, thelastparagraph oftheArticle clearlyG/ADP/W/66
Page5
states that"theapplication ofthisprovision shall beconsistent withMexico 'sobligations under
international treaties orconventions", anditistherefore wholly compatible withtheprovisions ofthe
ADAgreement.
Reply toquestion 14
While Article 64.III oftheRegulations doesnotcontain theconcept of"magnitude ofthemargin
ofdumping", Article 3.4ofthe1994 ADAgreement does, andforthereasons setoutinthereply
toquestion 1,itmust beobserved bytheinvestigating authority.
Reply toquestion 15
WhileArticle67oftheRegulationsdoesnotsetoutthedeminimisstandardondumpingmargins
orvolume ofimports established inArticles 3.3and5.8ofthe1994ADAgreement, thisshortcoming
ismade upforbyArticles 3.3and5.8oftheADAgreement itself, which mustbeobserved bythe
Mexican authorities forthereasons setoutinthereply toquestion 1.
Reply toquestion 16
Theterminology usedinArticle 68oftheRegulations coincides withtheterminology in
Article 3.7ofthe1994ADAgreement, inasmuch asthe"determination ofathreat ofmaterial injury
shallbebased onfactsandnotmerely onallegation, conjecture orremote possibility".
Inpractice, Mexico hasalways applied thecriteria setoutinArticle 68oftheRegulations,
sotheentry intoforce oftheADAgreement andtheSCM Agreement donotsignify major changes
ininvestigations.
The"well-founded probability" referred toinArticle 68oftheRegulations means thatthe
authority haselements toinferthatthereisapossibility thatallthesituations referred toinArticles 42.I
and42.IIoftheActaswellasinArticle 3.7oftheADAgreement andArticle 15.7oftheSubsidies
Agreement apply.
Article 68oftheRegulations under theForeign Trade Actiswholly compatible withArticle 3.7
oftheADAgreement. ThefactthatArticle 68oftheregulations mentions "well-founded probability"
isnogreat problem; itsimply means thatthe"probability" mustbedetermined onobjective bases.
Reply toquestion 17
Thetextofthelastparagraph ofArticle 75oftheRegulations isconsistent withthetextof
Article 5.9ofthe1994ADAgreement, sincetheymean exactly thesame thing, forwhich reason there
isnoinconsistency whatever andnochange whatever isnecessary.
Reply toquestion 18
Itisimportant tonotethattheobligation tonotify thegovernment oftheexporting Member
concerned before initiating theinvestigation issetoutinArticle 5.5ofthe1994 ADAgreement.
TheArticles oftheForeign Trade ActandtheRegulations thatarementioned donotinclude
thisobligation, butforthereasons given inthereplytoquestion 1,theMexican authorities mustobserve
Article 5.5ofthe1994 ADAgreement.G/ADP/W/66
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Inaddition, Article 53oftheForeign Trade Actcomplies with Article 6.1.3 ofthe
ADAgreement, intheterms established therein.
Reply toquestion 19
Article 76oftheRegulations empowers theinvestigating authority toextend theperiod oftime
oftheinvestigation, where deemed necessary. Iftheauthority tookthisdecision andacountervailing
dutywasimposed, thedutywould bebased onthefindings bothintheoriginal period andintheextended
period. Obviously, exercise ofthispower mustbedulysubstantiated andsupplementary information
fortheperiod willberequired oftheparties.
Reply toquestions 20and21
Article 12.1.1 oftheADAgreement, specifically insubparagraphs (iii)and(iv),states that
apublic notice oftheinitiation ofaninvestigation shallcontain "thebasisonwhich dumping isalleged
intheapplication" and"asummary ofthefactors onwhich theallegation ofinjury isbased". Similarly,
under Article 80.IIoftheRegulations, apublic notice oftheinitiation ofaninvestigation mustcontain
"thegrounds andreasoning justifying thedecision". Theterm"reasoning" refers toallthosearguments,
reasons, factsandfactors thatwere considered bytheinvestigating authority inorder, inthatcase,
toinitiate theinvestigation. Such arguments, reasons, factsandfactors include allthose persuasive
elements thatserved asthegrounds forinitiating aninvestigation, regardless ofwhether theywere
provided bytheapplicants orobtained bytheauthority byother means.
Theinvestigating authority, before publishing theinitiation oftheinvestigation, verifies whether
thisrequirement hasbeenmet,aswellasanyother requirement under theapplicable lawinorder to
initiate aninvestigation, inother words, atthetimeofpublication oftheinitiation oftheinvestigation,
theadministrative filealready contains evidence oftherepresentativeness ofthedomestic producers.3
Reply toquestions 22and23
There appears tobesome confusion onthispoint, since thetechnical information meetings
areintended toprovide details ofthecalculations andthemethodology usedbytheinvestigating authority
inarriving atitsdetermination.
Therequest fortechnical meetings must bemade bytheinterested party within fivedays
following publication ofapreliminary orfinalresolution.
Failure toattend suchmeetings doesnotaffect theexporter, because itistheparties whorequest
suchmeetings.
Reply toquestions 24and25
Todatenoconciliation meetings havebeenformally held.
Reply toquestions 26,27and28
Unlike theEUlegislation, which establishes thattheanti-dumping duty"...shallbe"lower
thanthemargin ifitisadequate toremove theinjury totheindustry, theForeign Trade Actandthe
1994 ADAgreement statethat"Countervailing duties maybelessthanthemargin ..."inthecaseof
3Seeanyresolution issued bytheMinistry ofTrade andIndustrial Development.G/ADP/W/66
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theformer andthat"itisdesirable ...thatthedutybelessthanthemargin ..."inthecaseofthelatter;
inother words, theimposition ofadutylessthanthemargin isnotcompulsory. However, Mexico
hasdevised various rulestoapply thisprovision. Theyaredescribed briefly inthefollowing paragraphs.
Theprinciple underlying therulesforimposing adutylessthanthemargin isthefollowing:
theprices ofdumped exports mayaffect theprices ofdomestic products, either driving them down
orrestraining theminrelation toanundistorted international price; ifthisisthecase,current domestic
prices arelower thanthelevelatwhich theyought tobeintheabsence ofdumping.
IftheMexican investigating authority makes thisfinding, anestimate ismade oftheamount
ofthecountervailing dutysufficient tosetthedumped export price attherelevant international price
onthedomestic market.
Toestablish theamount needed toremove theinjury caused bythedumping, arelevant
international price(theundistorted international priceinMexico) isdetermined andusedasareference
fortheprices ofthedomestic product ifthere werenodumping. Theinvestigating authority assesses
whether, intheabsence ofdumping, theprices ofthedomestic product would beanexport price in
Mexico equivalent tothenormal value intheexporting country, tothedumped export price, orto
aprice falling between thetwo,sothat:
(i) Iftherelevant international price isthesame asthenormal value, adutyequivalent
tothemargin ofdumping hastobefixed. Again, ifitisnotpossible toidentify an
undistorted international price, thenormal value fortheexporter under investigation
would betaken astherelevant international priceand,consequently, thecountervailing
dutywould bethesame asthemargin ofdumping.
(ii) Iftherelevant international price isbetween thenormal value andthedumped export
price, acountervailing dutymustbeimposed thatisenough tosetthedumped export
price attheinternational price (lesser duty rule applied insuch cases as
diiodohydroxyquinolene/India, Sodium tripolyphosphate/Spain).
(iii) Iftherelevant international price isidentical totheexport price, thenthedumping
doesnotcause injury; exporters whouseprice discrimination enter theinternational
market atthesame prices asexporters whodonot,andconsequently thedomestic
industry faces prices itwould havetocompete withinanycase(forexample, fish
meal/Chile, bond paper/United States).
Thelimitation tothisapproach liesinthedifficulty inidentifying therelevant international
price. Inthecaseofcommodities, thedecision isrelatively easy, sotheprices oftransactions are
based onnarrow ranges andquotations oninternational exchanges canbeused, butthisisnotthecase
withdifferentiated products. Accordingly, thelackofadefinition ofrelevant international price for
differentiated products isveryoften oneofthemajor hindrances inusing thisapproach.
Furthermore, international price references areobviously useful onlyonmarkets where there
aremore orlessnegligible distortions; forexample, theinvestigating authority would notusethe
international price ofsugar ordairy products asarelevant international price.
Inregard toquestion 28,itwillbeseenfrom theabove explanation, thatthedetermination
ofadutylower thanthemargin necessarily means thatitisbased onaspecific price level and,
consequently, ona"depressed orcompressed pricemargin" ofthelikedomestic product (Mexico does
notrefertothisprice differential, asdoestheEU,inother words "margin ofinjury").G/ADP/W/66
Page8
Reply toquestions 29,30and31
Tobeginwith,theinitiationoftheproceedingsispublishedintheDiarioOficialdelaFederación
(Official Journal). Immediately afterwards, theparty orparties intheproceedings or,ifapplicable,
theforeigngovernmentconcerned,arenotified.Withinamaximumperiodof60workingdaysfollowing
thepublication oftheinitiation, theparties involved mustexercise theirrighttomake representations.
Subsequently, within amaximum period of130working daysfollowing theinitiation oftheproceedings,
theauthority must publish thefinalresolution intheDiario Oficial delaFederación andnotify the
interested parties known toit.
Therequirements regarding extension oftheapplication ofacountervailing dutyarethree in
number: (i)cases inwhich partsorcomponents areintroduced intoMexican territory forthepurpose
ofassembly onMexican territory ofgoods subject toprovisional orfinalduties, withaviewtoeluding
payment ofsuchduties; (ii)cases inwhich partsorcomponents areassembled inathirdcountry and
thefinished product isintroduced intoMexican territory forthepurpose ofeluding payment ofsome
countervailing duty; and(iii)casesoftheexportation ofgoods withrelatively slight physical differences
incomparison withthose subject toprovisional orfinalcountervailing duties, forthepurpose ofeluding
payments ofsuchduties.
Theactofeluding payment ofcountervailing duties isinvestigated onlyifoneofthesituations
setoutinArticle 71oftheActarises.
While there isnocomparable provision intheinstruments thatform partoftheFinal Act
Embodying theResults oftheUruguay Round ofMultilateral Trade Negotiations, neither isthere any
provision thatcontradicts orprohibits theterms ofArticle 71oftheActandArticle 96ofthe
Regulations. Itshould bepointed outthatthismatter isstillpending intheWorld Trade Organization,
forinaccordance withtheDecision onAnti-Circumvention, itwasreferred totheCommittee on
Anti-Dumping Practices forresolution. Accordingly, onceasolution hasbeenfound, Mexico will
keeptoitasithasdonewithallother precepts oftheWorld Trade Organization.
Reply toquestion 32
Neither theForeign Trade ActnortheRegulations contain aprovision related toArticle 9.5
ofthe1994ADAgreement. However, forthereasons setoutinthereplytoquestion 1,theinvestigating
authority willhavetoobserve thatprovision inconducting reviews fornewexporters.
Regardless oftheabove, theMinistry isworking onthenecessary changes tobring theForeign
Trade ActandtheRegulations intolinewiththeADandSCM Agreements.