Written by Mia Howard
Introduction
Recently, the Department of Commerce’s (“Commerce”) use of adverse facts available (“AFA”) has become one of the most controversial aspects of the United States’ trade remedies regime.[1] Under Sections 776(a)(1) and 776(a)(2)(A)-(D) of the Tariff Act of 1930 (“the Act”), Commerce may apply AFA after determining a party to the investigation failed to provide requested information, provided deficient information, or was unable to respond to Commerce’s requests “to the best of its ability.”[2] When these conditions are met, Commerce will fill the gaps in the record created by the missing or deficient information with information otherwise available that is adverse enough “to ensure that the party does not obtain a more favorable result by failing to cooperate than if it had.”[3]
This Blog Post explores Commerce’s use of AFA against SBU Azot and PJSC Azot in the anti-dumping (“AD”) investigation regarding urea ammonium nitrate solutions (“UAN”) from Russia. Specifically, it will consider whether Commerce’s use of AFA complied with the World Trade Organization’s (“WTO”) requirements under Article 6.8 and Annex II of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (“AD Agreement”). First, it will provide relevant factual background information on the use of AFA in UAN from Russia and the requirements for applying AFA under the WTO schema. Then it will analyze whether the use of AFA in UAN from Russia complied with the WTO requirements. Finally, Part IV will offer a brief summation and some concluding remarks.
Application of AFA in UAN from Russia
On June 30, 2021, CF Industries Nitrogen, LLC filed an AD petition regarding Russian imports of UAN solutions into the United States market.[4] On July 21, Commerce sent quantity and value (“Q+V”) questionnaires to the four producers and exporters referenced in the petition, including SBU and PJSC, and noted that the responses were due on August 4, 2021.[5] On July 27, Commerce received confirmation that SBU and PJSC received the Q+V questionnaires on that same day.[6] Commerce received an email from PJSC regarding the investigation and questionnaires on August 6.[7] An International Trade Compliance Analyst replied to PJSC on August 12, informing them that their email was not properly submitted to the record and that the Q+V questionnaire responses were due August 4.[8] However, no Q+V questionnaire responses from either SBU or PJSC Azot were ever recorded due to SBU Azot and PJSC’s failure to respond in a timely manner.[9] As a result, Commerce determined that SBU and PJSC did not adequately respond to Commerce’s requests for information under Section 776(b) of the Act and that it was appropriate to apply AFA.[10]
In applying AFA, Commerce first looked at the highest dumping margin alleged in the petition, 391.65%, and, because this was derived from secondary information, considered whether that rate could be corroborated.[11] However, because the dumping margins alleged in the Petition were “significantly higher than the mandatory respondent’s highest calculated transaction-specific dumping margins,” Commerce determined they were unable to be corroborated.[12] Furthermore, even when Commerce applied a “component approach” comparing “the normal values and net U.S. prices underlying the…margins alleged…to the range of [normal values] and net U.S. prices calculated for the mandatory respondents,” they still found that they were unable to corroborate the alleged margins.[13] Therefore, Commerce preliminarily assigned “the highest non-aberrational individual transaction-specific dumping margin calculated for either mandatory respondent” as SBU Azot and PJSC Azot’s AFA rate.[14] Commerce noted that because these rates were not based on secondary information and but rather on information obtained during the investigation, it was not required to corroborate this rate.[15] In the Final Affirmative Determination, Commerce calculated this dumping margin to equal 122.93%, with a cash deposit rate of 122.84%. This rate was over eight times higher than the “all others rate” of 14.91%.
Application of AFA under the WTO Scheme
Article 6.8 of the AD Agreement governs investigating authorities’ application of facts available (“FA”) “where an interested party refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation.”[16] The WTO has found that Article 6.8 only allows investigators to use FA or AFA when an “interested party” (a) “refuses access to, or otherwise does not provide, necessary information within a reasonable period of time”; or, (b) “significantly impedes the investigation.”[17] Article 6.8 is subject to Annex II of the AD Agreement, which governs the procedures WTO members must follow when applying facts otherwise available.[18] However, AFA specifically are not mentioned in the AD Agreement.[19] Instead, the U.S. bases its application of AFA on paragraph 7 of Annex II, which explains: “if an interested party does not cooperate and thus relevant information is being withheld from the authorities, this situation could lead to a result which is less favourable (sic) to the party than if the party did cooperate.”[20] Although the WTO has found that the United States’ general use of AFA is not per se invalid, it has also found that the selection of facts available must not “be aimed at punishing a non-cooperating party.”[21] The two main issues regarding Commerce’s use of AFA are when and how investigators may use AFA under the WTO scheme.
When Commerce May Resort to AFA under the WTO Scheme
The WTO has determined that paragraph 7 of Annex II does not provide Commerce with a carte blanche, allowing them to disregard relevant information and apply AFA simply because they have found that an interested party did not sufficiently cooperate with information requests.[22] Specifically, in US– Hot-Rolled Steel, a WTO Appellate Body held, that facts available, and therefore AFA as well, may only be applied if the information at issue is not “verifiable,” able to be used without “undue difficulties,” “supplied in a timely fashion,” or “supplied in a medium or computer language requested by authorities.”[23] Additionally, absent a showing of non-cooperation, the Appellate Body determined that there is “no basis under…Annex II for a result which is less favorable than would have been…[if]…the party had cooperated.”[24] However, the application of AFA does not turn on cooperation alone, and under paragraph 5, Annex II, investigating authorities may not reject submitted information that is unideal if the party has cooperated to the best of its ability.[25]
In terms of cooperation, paragraphs 2 and 5 of Annex II make clear that cooperation is a two-way street, requiring investigations to assist or make certain accommodations for parties attempting to submit information.[26] Thus, investigators must consider legitimate difficulties interested parties experience when attempting to submit information.[27] As a result, investigators must “specify in detail” the information requested, the submission deadlines, and notify respondents of deficiencies in their answers that may result in AFA.[28]
Furthermore, Commerce may only resort to AFA and reject submitted information if it cannot be verified, is not supplied in a timely fashion, or cannot be used without “undue difficulties.”[29] Generally, information is “verifiable” if its reliability and accuracy can be objectively assessed through examination.[30] Additionally, information cannot be used “without undue difficulties” if the difficulties that investigators encounter are outside the norm of what is experienced in an investigation.[31] This is a fact-specific inquiry, which must be conducted while remembering that cooperation requires effort from both the investigator and respondent.[32] Furthermore, where domestic laws regulate the submission requirements, the WTO is more likely to find that deficient information is not properly submitted.[33] In terms of timeliness, even if the information is submitted late, it may still be timely “if…submitted within a reasonable period.”[34] However, the WTO has given investigators broad discretion to set deadlines and will generally defer to them in determining if the information was submitted in a timely manner.[35]
Finally, the WTO generally defers to investigators’ determinations regarding whether information is necessary.[36] It has recognized that this determination is a fact-specific based on the specific circumstances of the investigation.[37] For example, “even information that is only needed to prepare for verification might still be treated as necessary.”[38] Thus, arguments that information is unnecessary are rarely successful before the WTO.[39]
How Commerce May Use AFA under the WTO Scheme
Generally, “the process of identifying the ‘facts available’ should be limited to identifying replacements for the ‘necessary information’ that is missing from the record.”[40] In other words, there must be a connection between the missing necessary information and the AFA that are used in the determination.[41] When applying AFA, investigators are limited by three basic requirements. First, they must use the best information available under Article 6.8 and Annex II of the AD Agreement.[42] Second, investigators must corroborate any information obtained from secondary sources, such as the petition, to ensure reliability and accuracy.[43] Lastly, investigators must ensure that the AFA employed is based on facts rather than assumptions or inferences.[44]
The “best facts available” requirement stems directly from Annex II of the AD Agreement.[45] The goal of both “Article 6.8 and Annex II…is to ensure that the conduct of investigat[ors]… aims to select the best information available to fill the…void resulting from the missing necessary information.”[46] Determining the best facts available requires investigators to employ a two-pronged comparative analysis.[47] First, authorities must consider all the facts provided even if the submitted information is incomplete.[48] Second, authorities must only apply AFA that can reasonably replace the missing information.[49] Furthermore, the selection and application of AFA cannot be punitive because AFA that are aimed at punishing a respondent could lead to an inaccurate determination.[50] Finally, what qualifies as “best information available” depends on the specific circumstances surrounding the investigation. Thus, a comparative evaluation may not be necessary, for example, “when there is only one set of reliable [alternative] information on the record.”[51]
In terms of corroboration, paragraph 7 of Annex II requires authorities to check AFA chosen from secondary sources against information from “independent sources…such as published price lists, official import statistics[,]…customs returns, and…information obtained from other interested parties[.]”[52] In other words, investigators must determine the reliability and accuracy of the chosen AFA for themselves.[53] This requirement is generally not difficult to meet and simply requires an investigating authority to “show the information provided is not completely out of line with the data provided by other companies.”[54] However, the WTO has rebuked authorities for failing to meet it.[55]
Finally, investigators must show that their AFA selection is based on a “factual foundation.”[56] Underlying the requirement to apply the best facts available is the more fundamental requirement that “facts must be used,” meaning investigators cannot base their determinations on non-factual inferences, speculation, or assumptions [57] The critical inquiry here is what would an objective and impartial investigator use to make their determination.[58] Thus, like the corroboration requirement, although the standard for basing determinations on facts is not particularly hard to meet, it is crucial in applying AFA.
Application of AFA in UAN from Russia
Although Commerce’s decision to apply AFA to SBU and PJSC complied with the WTO scheme, how they applied AFA was not. Specifically, Commerce violated Article 6.8 and Annex II of the AD Agreement by selecting AFA for punitive reasons and not basing their use of AFA on a sufficient factual foundation.
Commerce’s Decision to Apply AFA to SBU Azot and PJSC Azot
In the case at hand, Commerce cited SBU and PJSC’s failure to submit their Q+V questionnaire responses promptly as the basis for the application of AFA. However, based on the publicly available record, it is unclear if this information was never submitted, or just submitted beyond the August 4th deadline. Regardless, Commerce was correct in determining that the information was not submitted in a timely fashion or within a reasonable period after the deadline because over a week after the deadline, it appears Commerce still had yet to receive any responses from either SBU or PJSC.[59] Furthermore, because the Q+V Questionnaire responses were not submitted in a timely fashion, despite reminders from Commerce, and thus never included in the record, Commerce was not able to use this information without undue difficulties. Finally, the Q+V questionnaire responses were “necessary information” under Article 6.8 because without that information, Commerce could not determine whether SBU and PJSC should be named mandatory respondents. Additionally, the WTO defers to investigators’ determinations of whether information is “necessary” or not.[60] Thus, under Article 6.8 and Annex II of the AD Agreement for Commerce, it was proper to resort to AFA in determining the dumping margins for SBU Azot and PJSC Azot.
How Commerce Applied AFA to SBU Azot and PJSC Azot
The use of AFA in UAN from Russia becomes problematic in how Commerce applied them to SBU and PJSC. Although Commerce met the corroboration requirement for AFA application, it did not meet the best information available or factual basis prongs. Thus, the use of AFA here did not comply with Article 6.8 or Annex II of the AD Agreement.
The only element of the WTO rules governing the application of AFA that Commerce adhered to was the corroboration requirement. Originally, Commerce planned to rely on the highest dumping margin alleged in the Petition, a secondary source. Commerce attempted to corroborate this rate by comparing it to the dumping margins calculated for mandatory respondents and by applying a component approach comparing the “normal values and net U.S. prices calculated for the mandatory respondents.”[61] However, it was unable to be done via either method.[62] Thus, Commerce decided to use the “highest non-aberrational individual transaction-specific dumping margin calculated for either mandatory respondent” instead.[63] Because this rate was based on information obtained from the mandatory respondents instead of secondary information, corroboration was not necessary.[64]
In terms of “best facts available,” it appears that a comparative evaluation was required to determine that the replacement information selected was both accurate and reliable because there were multiple alternative data sets (i.e. Acron and EuroChem’s responses) to choose from.[65] However, it does not appear that this comparative evaluation was done. In applying the “highest non-aberrational transaction margin calculated for either mandatory respondent,” Commerce did not determine which mandatory respondent’s transaction margin is the most accurate and reliable regarding SBU and PJSC, respectively.
Furthermore, it is unclear how Commerce determined that the highest non-aberrational transaction margin is the most accurate and reliable replacement for SBU and PJSC’s margins compared to, for example, the average of their transaction margins. Additionally, the WTO has clarified that, although the selection of replacement facts may not necessarily benefit the unresponsive party, it cannot be punitive. However, it appears that was precisely Commerce’s intent, as evinced by their insistence that “Commerce may employ an adverse inference to ensure that the party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully.”[66] In fact, when selecting which replacement information to choose from, Commerce determined that either the “highest corroborated dumping margin alleged in the petition” or “the highest calculated rate of any respondent” would be “sufficiently adverse to ensure that an uncooperative party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully.”[67] Thus, it is clear that Commerce did not satisfy the best available information requirement in applying AFA to SBU and PJSC because they did not perform a comparative analysis and chose the “highest non-aberrational individual transaction-specific dumping margin calculated for either mandatory respondent” for punitive reasons.
Finally, it appears that Commerce did not meet the “factual basis” requirement because it relied on “non-factual assumptions” and speculation. As discussed above, Commerce applied the “highest non-aberrational individual transaction-specific dumping margin calculated for either mandatory respondent” without explaining: (1) which mandatory respondents’ rate should apply to SBU and PJSC, respectively, and (2) why it felt the highest of the mandatory respondents’ transaction-specific margins was appropriate.[68] Instead, Commerce assumed that the highest of either EuroChem or Acron’s margins would be a sufficient replacement for SBU and PJSC’s rates. However, given that EuroChem and Acron both have annual revenues of over $5 billion, compared to SBU’s $5.3 million and PJSC Azot’s $670.7 million, it is unclear how their margins could be a factually sufficient replacement.[69] Undoubtedly, the idea that SBU and PJSC, whose revenues are hundreds of millions of dollars less than the mandatory respondents’, could have similar dumping margins to Acron and EuroChem is pure speculation based on non-factual assumptions. Thus, it is clear that Commerce’s selection of AFA was not based on fact and was thus in violation of Article 6.8 and Annex II of the AD Agreement.
Conclusion
In sum, Commerce’s application of AFA to SBU Azot and PJSC Azot in UAN from Russia was not in compliance with Article 6.8 of the AD Agreement under WTO scheme. Although Commerce’s use of the APA was appropriate, its application was not. Specifically, Commerce did not apply the best information available when selecting AFA because it did not conduct a comparative analysis and chose the relevant replacement facts for punitive reasons. Secondly, for the reasons discussed above, it is not clear that Commerce’s selection of AFA was based on fact versus assumptions or inferences. For these reasons, how Commerce applied AFA to SBU Azot and PJSC Azot was not in compliance with Article 6.8 of the AD Agreement and was thus improper.
Works Cited
[1] Ragan Updegraff, Striking a Balance Between Necessity and Fairness: The Use of Adverse Facts Available in Dumping and Subsidies Investigations, 49 Geo. J. Int’l Law 709, 709 (2018).
[2] Id.; 19 U.S.C. § 1677m(e).
[3] SAA, H.R. Doc. 103-316, vol 1 (1994) at 870.
[4] Decision Memorandum for the Preliminary Determination in the Less-Than-Fair-Value Investigation of Urea Ammonium Nitrate Solutions from the Russian Federation A-821-831, 3 (January 26, 2022) [hereinafter Decision Memo UAN].
[5] Id.; Email Correspondence, Less-Than-Fair-Value Investigation of Urea Ammonium Nitrate Solutions from the Russian Federation A-821-831, 1, 1-2 (August 12, 2021) [hereinafter Email Correspondence].
[6] Quantity and Value Questionnaire Delivery Confirmations, Urea Ammonium Nitrate Solutions from Russia A-821-831, 1, 4, 6 (July 27, 2021) [hereinafter Delivery Confirmations].
[7] Email Correspondence, supra note 5, at 1 (this correspondence was not properly filed and, as result, did not make it into the official record).
[8] Id. at 2.
[9] Decision Memo, supra note 4, at 4.
[10] Id. at 5-6.
[11] Id. at 6.
[12] Id. at 7.
[13] Id.
[14] Id.
[15] Id.
[16] Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade art. 6.8, Annex II, April 15, 1994, 1867 U.N.T.S. 187 [hereinafter AD Agreement].
[17] Panel Report, United States– Anti-Dumping and Countervailing Duties on Certain Products and the Use of Facts Available, 30, WTO Doc. WT/DS53/R (adopted January 21, 2021) (quoting AD Agreement, art. 6.8) [hereinafter US– Use of AFA].
[18] AD Agreement, art. 6.8, Annex II; Updegraff, supra note 1, at 770.
[19] Updegraff, supra note 1, at 770.
[20] AD Agreement, Annex II:7.
[21] Panel Report, United States–Anti-Dumping and Countervailing Measures on Steel Plate from India, ¶ 7.99, WTO Doc. WT/DS206/R (adopted July 29, 2002) [hereinafter US–Steel Plate]; US-Use of AFA, supra note 5, at 31.
[22] Updegraff, supra note 1, at 772.
[23] Appellate Body Report, United States–Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, ¶¶ 80-81, WTO Doc. WT/DS184/AB/R (adopted August 31, 2001) [hereinafter US–Hot-Rolled Steel] (citing Annex II, ¶ 3).
[24] Id. ¶ 7.73 (citing Annex II, ¶ 7).
[25] Updegraff, supra note 1, at 773; US– Hot-Rolled Steel, supra note 11, ¶ 100.
[26] US – Hot Rolled Steel, supra note 13, ¶ 101-104.
[27] Id.
[28] AD Agreement, Annex II:1; Updegraff, supra note 1, at 776; Appellate Body Report, Mexico–Definitive Anti-Dumping Measures on Beef and Rice from the United States, ¶¶ 259-61, WTO Doc. WT/DS295/AB/R (adopted December 20, 2005) [hereinafter Mexico–Beef and Rice] (found that because Mexico applied AFA to a U.S. exporter without ever notifying them about the investigation or requesting the information from them, it had violated paragraph 1 of Annex II); Panel Report, China–Anti-Dumping and Countervailing Duty Measures on Certain Automobiles from the United States, ¶¶ 7.136-140, WTO Doc. WT/DS440/R (adopted June 18, 2014) [hereinafter China– Automobiles] (determined that notice needs to do more than ask an unknown exporter to identify itself and report the quantity and value of its subject product exports.[28]
[29] Updegraff, supra note 1, at 777 (referencing US– Hot Rolled Steel, supra note 11).
[30] Panel Report, United States–Anti-Dumping and Countervailing Measures on Steel Plate from India, ¶ 27-27, WTO Doc. WT/DS206/R (adopted July 29, 2002) [hereinafter US– Steel Plate].
[31] Id., ¶ 7.72.
[32] Id.
[33] Updegraff, supra note 1, at 779 (internal quotations omitted).
[34] US– Hot-Rolled Steel, supra note 13, ¶¶ 81-83.
[35] Updegraff, supra note 1, at 779-80.
[36] See e.g., Panel Report, Egypt–Definitive Anti-Dumping Measures on Steel Rebar from Turkey, ¶ 7.217 WTO Doc. WTO/DS211/R (adopted October 1, 2002) [hereinafter Egypt–Steel Rebar].
[37] Panel Report, Korea–Anti- Dumping Duties on Imports of Certain Paper from Indonesia, ¶ 7.43, WTO Doc. WT/DS312/R (adopted November 28, 2005) [hereinafter Korea–Certain Paper].
[38] Panel Report, China–Countervailing and Anti-Dumping Duties on Grain Oriented Flat-Rolled Electrical Steel from the United States, ¶ 7.291, WTO Doc. WT/DS414/R (adopted November 16, 2012) [hereinafter China–GOES].
[39] Updegraff, supra note 1, at 780.
[40] US-Use of AFA, supra note 5, at 31 (quoting Appellate Body Report, United States–Countervailing Measures on Certain Hot Rolled Carbon Steel Flat Products from India (Carbon Steel (India)), ¶¶ 4.416, WTO Doc. WT/DS436/AB/R (adopted December 19, 2014) [hereinafter US–Carbon Steel (India)].
[41] Id. at 31.
[42] See generally, AD Agreement art. 6.8, Annex II; Updegraff, supra note 1, at 781.
[43] Korea–Certain Paper, supra note 29, ¶ 7.126; Updegraff, supra note 1, at 781.
[44] US– Carbon Steel (India), supra note 43, ¶ 4.417.
[45] AD Agreement, Annex II.
[46] US- Use of AFA, supra note 5, at 32 (internal quotations omitted).
[47] Mexico– Beef and Rice, supra note 17, at 294; Updegraff, supra note 1, at 782.
[48] Mexico– Beef and Rice, supra note 17, at 294; Updegraff, supra note 1, at 782.
[49] Mexico– Beef and Rice, supra note 17, at 294; Updegraff, supra note 1, at 782.
[50] US– Use of AFA, supra note 5, at 31, 32, 34;; Updegraff, supra note 1, 783; US– Carbon Steel (India), supra note 43, ¶¶ 4.468..
[51] US– Carbon Steel (India), supra note 43, ¶ 4.435; see also US–Use of AFA, supra note 5, at 36.
[52] Updegraff, supra note 1, at 784.
[53] Mexico– Rice and Beef, supra note 17, ¶ 289
[54] Updegraff, supra note 1, at 785.
[55] See Korea– Certain Paper, supra note 29, ¶ 7.124.
[56] China– GOES, supra note 41 ¶ 284.
[57] Id.; US– Carbon Steel (India), supra note 43, ¶ 4.417.
[58] See e.g., China – GOES, supra note 41, ¶ 7.310 (finding that an impartial and objective authority’ would not have ignored the available 10-K report). For example, in China– Boiler Product, a WTO Panel found that the 105.4% all others rate, based on FA, which was more than double the rate for any cooperating respondent, that China had calculated lacked any “logical relationship with the facts on the record,” and thus violated article 6.8 of the AD Agreement. ADD CITATION.
[59] Email Correspondence, supra note 5, at 2.
[60] Egypt– Steel Rebar, supra note 39, ¶ 7.217
[61] Decision Memo UAN, supra note 4, at 7.
[62] Id.
[63] Id.
[64] AD Agreement, Annex II.
[65] US– Carbon Steel (India), supra note 43, ¶ 4.435; see also US–Use of AFA, supra note 5, at 36.
[66] Decision Memo UAN, supra note 4, at 5 (internal quotations omitted).
[67] Id. at 6.
[68] Id. at 7.
[69] EuroChem Group, ZoomInfo.com (2023) https://www.zoominfo.com/c/eurochem-group/369077411; SBU Azot, ZoomInfo.com (2023) https://www.zoominfo.com/c/sbu-azot/431563633; Acron Group, ZoomInfo.com (2023) https://www.zoominfo.com/c/acron-group/372139524; PJSC Azot, ZoomInfo.com (2023) https://www.zoominfo.com/c/azot-pjsc-ostchem-group/345673556.