Federal Court homes in on Anti-Dumping Commission's calculation of duties on Chinese steel imports

In brief

In a rare appellate court decision dealing with anti-dumping law, the Full Court of the Federal Court of Australia has clarified that the Anti-Dumping Commission's ability to calculate hypothetical amounts for the purposes of determining normal value is not at large, and must conform strictly with anti-dumping legislation. Partner Louise Jenkins, Associate Chadwick Wong and Law Graduate Oliver Lloyd report on what this means for future anti-dumping investigations, in the context of an increasing global focus on barriers to free trade.

Background

Dumping duties are imposed on imported goods by the Minister where the export of those goods into Australian markets is at a price below the 'normal value'. The normal value is essentially the price paid for 'like goods' sold in the domestic market of the country of origin, in arm's length transactions and in the ordinary course of trade. In circumstances where the Commission considers this price is unsuitable for determining whether dumping has occurred – eg because of foreign government subsidies that distort the sale price in the domestic market – it can construct a price based on methods set out in the legislation. Some of these methods require the determination of hypothetical production costs and profits.

These hypothetical elements have traditionally meant that the Commission has had broad discretion to determine the constructed normal value. This is significant for importers and manufacturers because a higher normal value means a higher margin between the normal value and the actual export price, leading to a higher dumping duty being imposed.

In July 2012, the Commission used such a constructed methodology to calculate the normal value of the import of certain steel pipes. The Minister then imposed a dumping duty of 13.4 per cent on the import of those goods, which were manufactured by Dalian Steelforce Hi-Tech Co Ltd and imported by Steelforce Trading Pty Ltd.

The key issue in dispute was the method used by the Commission to construct the normal value of the steel pipes.

The Commission calculated the hypothetical profit by reference to production costs from a previous period, which were lower than the actual cost of production. This resulted in a higher calculation of hypothetical profit. Steelforce argued that the hypothetical profit must be determined on the basis of the actual production costs, and not an estimation based on inaccurate production costs.

The decision

In a majority decision, the Full Court of the Federal Court accepted Steelforce's argument on this point.

Most importantly, the decision clarifies the limits of the Commission's discretion in determining the hypothetical elements, confirming that it must strictly adhere to the legislative requirements when calculating dumping duties. In this instance, it must make an attempt to identify real world production costs, even for the purposes of its hypothetical profit figures.

Ultimately, the Commission's report and recommendations were overturned and it had to reconsider its findings.

What does this decision mean for anti-dumping investigations?

This decision comes at a time in which barriers to trade, and the imposition of tariffs and duties, are at the forefront of domestic and international policy making. The Commission's recent investigations, especially its imposition of (sometimes substantial) anti-dumping duties on steel imports, have faced increasing scrutiny from the business sector and media, particularly in the context of the global focus on free trade.

Within this broader context, the Full Court's decision is important in ensuring the Commission's exercise of power adheres strictly to the law. Four significant takeaways from the Full Court's decision are:

• The Commission's ability to calculate hypothetical amounts for the purposes of determining normal value is not at large, and must be tied strictly to the legislative wording.
• Submissions by interested parties during anti-dumping investigations can be very influential. In this case, the Commission changed its mind on a critical point following a submission from an interested party.
• The Commission may decide not to take into account the exporting country's comparative advantage in looking at foreign pricing as a benchmark for production costs, if it is too difficult to calculate adjustments accurately.
• The court may increasingly look to World Trade Organization jurisprudence for assistance with its interpretation of anti-dumping legislation.

With the current global focus on barriers to free trade, this area of law will, no doubt, continue to develop rapidly over the course of the year. There is already another judicial review application concerning imports from China awaiting hearing in the Federal Court.² It remains to be seen whether this decision will embolden importers and manufacturers to challenge the imposition of duties.