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Lawyers, other representatives, expert(s), tribunal’s secretary

Report of the Panel

TABLE OF CASES CITED IN THIS REPORT

Short TitleFull Case Title and Citation
Argentina – Footwear (EC) Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, 515
Argentina – Footwear (EC) Panel Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/R, adopted 12 January 2000, as modified by Appellate Body Report WT/DS121/AB/R, DSR 2000:II, 575
Argentina – Poultry Anti‑Dumping Duties Panel Report, Argentina – Definitive Anti‑Dumping Duties on Poultry from Brazil, WT/DS241/R, adopted 19 May 2003, DSR 2003:V, 1727
Australia – Salmon Appellate Body Report, Australia – Measures Affecting Importation of Salmon, WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, 3327
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007, DSR 2007:IV, 1527
Canada – Wheat Exports and Grain Imports Appellate Body Report, Canada – Measures Relating to Exports of Wheat and Treatment of Imported Grain, WT/DS276/AB/R, adopted 27 September 2004, DSR 2004:VI, 2739
China – GOES Appellate Body Report, China – Countervailing and Anti-Dumping Duties on Grain Oriented Flat-Rolled Electrical Steel from the United States, WT/DS414/AB/R, adopted 16 November 2012
China – GOES Panel Report, China – Countervailing and Anti-Dumping Duties on Grain Oriented Flat-Rolled Electrical Steel from the United States, WT/DS414/R, adopted 16 November 2012, upheld by Appellate Body Report WT/DS414/AB/R
EC – Bed Linen Panel Report, European Communities – Anti‑Dumping Duties on Imports of Cotton‑Type Bed Linen from India, WT/DS141/R, adopted 12 March 2001, as modified by Appellate Body Report WT/DS141/AB/R, DSR 2001:VI, 2077
EC – Bed Linen (Article 21.5 – India) Panel Report, European Communities – Anti‑Dumping Duties on Imports of Cotton‑Type Bed Linen from India – Recourse to Article 21.5 of the DSUby India, WT/DS141/RW, adopted 24 April 2003, as modified by Appellate Body Report WT/DS141/AB/RW, DSR 2003:IV, 1269
EC – Countervailing Measures on DRAM Chips Panel Report, European Communities – Countervailing Measures on Dynamic Random Access Memory Chips from Korea, WT/DS299/R, adopted 3 August 2005, DSR 2005:XVIII, 8671
EC – Fasteners (China) Appellate Body Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011
EC – Fasteners (China) Panel Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/R and Corr.1, adopted 28 July 2011, as modified by Appellate Body Report WT/DS397/AB/R
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135
EC – Salmon (Norway) Panel Report, European Communities – Anti‑Dumping Measure on Farmed Salmon from Norway, WT/DS337/R, adopted 15 January 2008, and Corr.1, DSR 2008:I, 3
EC – Tube or Pipe Fittings Appellate Body Report, European Communities – Anti‑Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/AB/R, adopted 18 August 2003, DSR 2003:VI, 2613
EC – Tube or Pipe Fittings Panel Report, European Communities – Anti‑Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/R, adopted 18 August 2003, as modified by Appellate Body Report WT/DS219/AB/R, DSR 2003:VII, 2701
EU – Footwear (China) Panel Report, European Union – Anti-Dumping Measures on Certain Footwear from China, WT/DS405/R, adopted 22 February 2012
Guatemala – Cement II Panel Report, Guatemala – Definitive Anti‑Dumping Measures on Grey Portland Cement from Mexico, WT/DS156/R, adopted 17 November 2000, DSR 2000:XI, 5295
Japan – DRAMs (Korea) Appellate Body Report, Japan – Countervailing Duties on Dynamic Random Access Memories from Korea, WT/DS336/AB/R and Corr.1, adopted 17 December 2007, DSR 2007:VII, 2703
Korea – Certain Paper Panel Report, Korea – Anti‑Dumping Duties on Imports of Certain Paper from Indonesia, WT/DS312/R, adopted 28 November 2005, DSR 2005:XXII, 10637
Mexico – Anti‑Dumping Measures on Rice Appellate Body Report, Mexico – Definitive Anti‑Dumping Measures on Beef and Rice, Complaint with Respect to Rice, WT/DS295/AB/R, adopted 20 December 2005, DSR 2005:XXII, 10853
Mexico – Corn Syrup Panel Report, Mexico – Anti‑Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States, WT/DS132/R, adopted 24 February 2000, and Corr.1, DSR 2000:III, 1345
Mexico – Olive Oil Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil from the European Communities, WT/DS341/R, adopted 21 October 2008, DSR 2008:IX, 3179
Thailand – H‑Beams Appellate Body Report, Thailand – Anti‑Dumping Duties on Angles, Shapes and Sections of Iron or Non‑Alloy Steel and H‑Beams from Poland, WT/DS122/AB/R, adopted 5 April 2001, DSR 2001:VII, 2701
Thailand – H‑Beams Panel Report, Thailand – Anti‑Dumping Duties on Angles, Shapes and Sections of Iron or Non‑Alloy Steel and H‑Beams from Poland, WT/DS122/R, adopted 5 April 2001, as modified by Appellate Body Report WT/DS122/AB/R, DSR 2001:VII, 2741
US – Corrosion‑Resistant Steel Sunset Review Appellate Body Report, United States – Sunset Review of Anti‑Dumping Duties on Corrosion‑Resistant Carbon Steel Flat Products from Japan, WT/DS244/AB/R, adopted 9 January 2004, DSR 2004:I, 3
US – Countervailing Duty Investigation on DRAMS Appellate Body Report, United States – Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/AB/R, adopted 20 July 2005, DSR 2005:XVI, 8131
US – Hot‑Rolled Steel Appellate Body Report, United States – Anti‑Dumping Measures on Certain Hot‑Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August 2001, DSR 2001:X, 4697
US – Hot‑Rolled Steel Panel Report, United States – Anti‑Dumping Measures on Certain Hot‑Rolled Steel Products from Japan, WT/DS184/R, adopted 23 August 2001 modified by Appellate Body Report WT/DS184/AB/R, DSR 2001:X, 4769
US – Lamb Appellate Body Report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia, WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, DSR 2001:IX, 4051
US – Softwood Lumber VI (Article 21.5 – Canada) Appellate Body Report, United States – Investigation of the International Trade Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of the DSU by Canada, WT/DS277/AB/RW, adopted 9 May 2006, and Corr.1, DSR 2006:XI, 4865
US – Tyres (China) Appellate Body Report, United States – Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China, WT/DS399/AB/R, adopted 5 October 2011
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, and Corr.1, DSR 1997:I, 323

I. INTRODUCTION

1.1.
On 25 July 2011 the European Union requested consultations with the Government of the People's Republic of China ("China") pursuant to Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 ("GATT 1994"), Article 17.3 of the Agreement on Implementation of Article VI of the GATT 1994 ("Anti-Dumping Agreement") and Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") with respect to the imposition of definitive anti-dumping duties on x-ray security inspection equipment from the EU, pursuant to Ministry of Commerce of the People's Republic of China ("MOFCOM"), Notice No. 1 (2011), including its annex1. The consultations were held on 19 September and 18 October 2011. The consultations failed to resolve the dispute.
1.2.
On 8 December 2011, the European Union requested, pursuant to Article 6 of the DSU and Article 17.4 of the Anti-Dumping Agreement that the Dispute Settlement Body (the "DSB") establish a Panel to examine this matter2.
1.3.
At its meeting on 20 January 2012, the DSB established a panel pursuant to the request of the European Union in document WT/DS425/2, in accordance with Article 6 of the DSU.
1.4.
The Panel's terms of reference are the following:

To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by the European Union in document WT/DS425/2 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.

1.5.
On 2 March 2012, the European Union requested the Director-General to determine the composition of the panel, pursuant to Article 8.7 of the DSU. This paragraph provides:

If there is no agreement on the panelists within 20 days after the date of the establishment of a panel, at the request of either party, the Director-General, in consultation with the Chairman of the DSB and the Chairman of the relevant Council or Committee, shall determine the composition of the panel by appointing the panelists whom the Director-General considers most appropriate in accordance with any relevant special or additional rules or procedures of the covered agreement or covered agreements which are at issue in the dispute, after consulting with the parties to the dispute. The Chairman of the DSB shall inform the Members of the composition of the panel thus formed no later than 10 days after the date the Chairman receives such a request.

1.6.
On 12 March 2012, the Director-General accordingly composed the Panel as follows:

Chairman: Mr Eduardo Pérez Motta

Members: Ms Andrea Marie Brown

Mr Gilles LeBlanc

1.7.
Chile, India, Japan, Norway, Thailand and the United States reserved their rights to participate in the Panel proceedings as third parties.
1.8.
The Panel met with the parties on 29-30 May and 11-12 September 2012. It met with the third parties on 30 May 2012. The Panel issued its interim report to the parties on 28 November 2012. The Panel issued its final report to the parties on 18 January 2013.

II. FACTUAL ASPECTS

2.1.
On 28 August 2009, the Chinese producer Nuctech Company Limited (Nuctech) filed an application with MOFCOM requesting the imposition of anti-dumping measures on imports of x-ray security inspection equipment originating in the European Union (Application)3.
2.2.
MOFCOM issued a Notice of Initiation of an anti-dumping investigation on 23 October 20094. MOFCOM fixed a twelve-month Period of Investigation (POI) for dumping, running from 1 January 2008 to 31 December 2008. The POI for MOFCOM's injury investigation covered the period 1 January 2006 to 31 December 2008.
2.3.
Two European Union exporters/producers - Smiths Heimann GmbH and Smiths Heimann SAS - registered to participate as respondents in MOFCOM's investigation. The European Commission also registered as a respondent. Only Smiths Heimann GmbH (Smiths) and the European Commission participated in MOFCOM's investigation.
2.4.
On 16 November 2009, MOFCOM issued a dumping questionnaire. On the same date, MOFCOM's Bureau of Industrial Injury Investigation (BIII) issued a domestic manufacturers questionnaire, a domestic importers questionnaire, and a foreign manufacturers/exporters (injury) questionnaire.
2.5.
Smiths filed its responses to the dumping5 and injury6 questionnaires on 30 December 2009. Nuctech submitted its response to the domestic manufacturers' questionnaire on 19 December 20097. No other exporter, producer or importer filed any questionnaire responses.
2.6.
On 9 June 2010, MOFCOM published a preliminary determination of dumping and injury, and imposed provisional anti-dumping duties on the subject products8.
2.7.
On 29 June 2010, Smiths submitted its comments on MOFCOM's preliminary determination9,10. The European Commission submitted its comments on 25 June 2010.
2.8.
MOFCOM conducted an on-site verification of Smiths' questionnaire responses from 18 to 25 August 2010.
2.9.
On 14 September 2010, MOFCOM disclosed the essential facts that it would use to make a final injury determination (Final Injury Disclosure)11. On 25 September 2010, Smiths submitted its comments on MOFCOM's Final Injury Disclosure12.
2.10.
On 28 December 2010, MOFCOM disclosed the essential facts that it would use to make a final determination of dumping (Final Dumping Disclosure)13. On 7 January 2011, Smiths filed its comments on the Final Dumping Disclosure14. The European Commission filed its comments on 6 January 2011.
2.11.
On 23 January 2011, MOFCOM published its final determination of dumping and injury (Final Determination)15. The Final Determination provides for the imposition of a 33.5% anti-dumping duty on imports of x-ray scanners produced by Smiths. The Final Determination also imposes a residual rate of 71.8% on imports of x-ray scanners from other sources in the European Union.

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

A. THE EUROPEAN UNION

3.1.
In its written submissions, the European Union requests the Panel to find that the measure at issue in this dispute is inconsistent with the following provisions of the Anti-Dumping Agreement:

(a) Articles 3.1 and 3.2 of the Anti-Dumping Agreement, because MOFCOM failed to make an objective examination on the basis of positive evidence of the price effects of dumped imports;

(b) Articles 3.1 and 3.4 of the Anti-Dumping Agreement, since MOFCOM:

· failed to base its evaluation of the relevant factors and indices having a bearing on the state of the domestic industry on positive evidence and thus failed to make an objective examination of the impact of dumped imports on the Chinese industry;

· failed to examine all relevant factors listed in Article 3.4 of the Anti-Dumping Agreement, in particular, the magnitude of the margin of dumping; and

· failed to make a proper evaluation of all injury factors in context and thus failed to reach a reasoned and adequate conclusion with respect to the state of the Chinese industry.

(c) Articles 3.1 and 3.5 of the Anti-Dumping Agreement, since MOFCOM:

· failed properly to examine the causal relationship between dumped imports and injury; and

· failed to examine the relevance of other known factors in its non-attribution analysis.

(d) Articles 6.5.1, 6.4 and 6.2 of the Anti-Dumping Agreement because MOFCOM:

· failed to ensure with respect to certain confidential information submitted by the applicant in the Application and its annexes, and the investigation questionnaire and its annexes, that non-confidential summaries of confidential information were sufficiently detailed to enable a reasonable understanding of the substance of the information submitted; and

· failed to require a statement of reasons explaining exceptional circumstances why summarization was not possible with respect to a statement by the Chinese Public Security Bureau of Civil Aviation Administration (Public Security Bureau).

(e) Articles 6.9, 6.4 and 6.2 of the Anti-Dumping Agreement because MOFCOM:

· failed to provide interested parties with information about the essential facts under consideration for the determination of injury;

· failed to provide interested parties with information about the essential facts under consideration for the determination of normal value and export price;

· failed to provide interested parties with information about the essential facts under consideration for the calculation of the dumping margin for the cooperating producer; and

· failed to provide interested parties with information about the essential facts under consideration for the calculation of the residual duty.

(f) Article 12.2.2 of the Anti-Dumping Agreement because:

· neither in the public notice of the imposition of definitive measures, nor in a separate report, MOFCOM set forth sufficiently detailed explanations for the methodology used in the establishment of the normal value; together with references to the matters of fact and law and reasons which led to arguments being accepted or rejected;

· neither in the public notice of the imposition of definitive measures, nor in a separate report, MOFCOM set forth sufficiently detailed explanations for all the considerations relevant to the injury determinations; together with references to the matters of fact and law and reasons which led to arguments being accepted or rejected; and

· neither in the public notice of the imposition of definitive measures, nor in a separate report, MOFCOM made available the calculations and data used to calculate the margins for Smiths, as well as the calculations and underlying data on which it relied to determine the residual duty.

3.2.
The European Union requests the Panel to recommend that the DSB request China to bring its measure into conformity with its obligations under the Anti-Dumping Agreement.

B. CHINA

3.3.
China requests the Panel to reject the European Union's claims in their entirety.

IV. ARGUMENTS OF THE PARTIES

4.1.
The arguments of the parties are set out in their written submissions, oral statements to the Panel and their answers to questions. Executive summaries of the parties' written submissions, and their oral statements or executive summaries thereof, are attached as addenda to this Report in Annexes A, C, E and F (see List of Annexes, pages vii and viii).

V. ARGUMENTS OF THE THIRD PARTIES

5.1.
The third parties were invited to make written submissions and oral statements to the Panel. Japan and Norway made both written submissions and oral statements. Chile made only an oral statement, while the United States made only a written submission to the Panel. India and Thailand did not make any written or oral representations to the Panel. The third parties' written submissions and oral statements, or executive summaries thereof, are attached as addenda to this Report in Annexes B and D (see List of Annexes, pages vii and viii).

VI. INTERIM REVIEW

A. INTRODUCTION

6.1.
On 28 November 2012, the Panel submitted its Interim Report to the parties. On 12 December 2012, China submitted written requests for review of precise aspects of the Interim Report. The European Union did not submit any request for review of its own, but submitted comments on China's requests on 21 December 2012.
6.2.
Before turning to the substantive issues raised by China's requests, we note that China makes numerous requests that the Panel's summaries of China's arguments be more detailed. In general, the European Union does not provide specific comments on these requests. The European Union's position is that the Panel's summaries of arguments are adequate and do not require the extensive amendments requested by China. The European Union expresses a concern that acceding to China's requests may upset the balance between the presentation of the arguments of each party. However, the European Union ultimately defers to the Panel's judgment regarding whether to accommodate China's requests. As each of China's requested amendments to the summaries is indeed based upon its submissions during the course of the Panel proceedings, we see no harm in accommodating China's requests. Although the European Union notes that acceding to China's requests may upset the balance between the presentation of each party's arguments, we do not think that the amendments are substantial enough to make this a concern.
6.3.
China also makes numerous requests that certain sections of the Panel's evaluation, as opposed to the summaries of the parties' arguments, be supplemented with China's arguments as presented during the course of the proceedings. In general, the European Union objects to these requests, on the basis that the additions are too detailed and are unnecessary. However, if the Panel is inclined to accede to China's requests, the European Union asks that the additions be made to the summaries of China's arguments, rather than to the Panel's evaluation. Given that each of China's requests is based upon its submissions, the Panel has accommodated the requests. However, the Panel has made the additions to China's summaries of arguments, rather than to the Panel's evaluation. This is because the Panel does not consider the additions necessary to its own reasoning, but is prepared to add further detail to the summaries of China's arguments. Where the requested additions were already included in the summaries of China's arguments, the Panel has not accommodated the request.
6.4.
China identified certain information in the Interim Report and in an Annex to the Interim Report which disclosed confidential information. The Panel has removed this information from the Final Report and from the relevant Annex.
6.5.
China also identified several typographical errors in the Interim Report, which we have corrected. We are grateful for China's assistance in this regard.
6.6.
We now turn to the substantive issues raised by China's requests. As explained below, the Panel has modified aspects of its findings in light of the parties' comments where it considered appropriate. Due to these changes, the numbering of certain paragraphs and footnotes in the Final Report has changed from the Interim Report. Unless otherwise specified, the text below refers to the paragraph and footnote numbers in the Interim Report.

B. PRICE EFFECTS OF DUMPED IMPORTS: ARTICLES 3.1 AND 3.2 OF THE ANTI-DUMPING AGREEMENT

1. Paragraph 7.39

6.7.
China requests this paragraph be modified to reflect that Smiths' failure to raise the differences between "low-energy" and "high-energy" scanners in the context of the price analysis relates to why the average unit value methodology was reasonable.
6.8.
The European Union contends that the addition requested by China is unnecessary. However, if the Panel agrees to include it, it should be preceded by "According to China...", to clarify that it represents part of China's argument, rather than the Panel's reasoning.
6.9.
Given that the amendment requested by China, as supplemented by the European Union, does not alter the substance of the Panel's reasoning and is an accurate reflection of China's position, we have acceded to China's request. However, given that the Panel summarises the arguments of China on this point in paragraph 7.38 of the Final Report, we have made the addition to the end of this paragraph, rather than in the middle of the Panel's reasoning in paragraph 7.40 of the Final Report.

2. Paragraph 7.69

6.10.
China requests that paragraph 7.69 be modified to list the energy levels of the subject products produced by Smiths Heimann GmbH, rather than simply stating that all scanners had an energy level of 300 KeV or less. China contends that this will "more precisely reflect the facts".
6.11.
The European Union does not comment on this request.
6.12.
Although the Panel does not consider that the amendment requested by China is necessary to its reasoning, we do not perceive a problem in adding the level of precision requested by China. Consequently, the Panel has added the detail in footnote 82 of the Final Report.

3. Paragraphs 7.80-7.83

6.13.
China requests that the Panel exclude the images of the scanners included within the Interim Report. In China's view, the images are unnecessary and suggest that all scanners produced by Nuctech are similar to those in the images, when in fact the Panel acknowledged elsewhere that "the low-energy market sector represent[ed] a significant part of Nuctech's activities throughout the POI".
6.14.
The European Union objects to China's request. According to the European Union, the images are very useful in illustrating the differences in physical characteristics and uses among the various products covered by the investigation. China has not advanced a convincing reason for removing the images. The Interim Report makes clear that the models are merely examples and it does not suggest that Nuctech sold only high-energy models.
6.15.
The Panel rejects China's request. The images constitute an important part of our analysis. Further, our reasoning clearly indicates that Nuctech produced both "high" and "low-energy" scanners and the use of the images does not suggest otherwise.

4. Paragraph 7.85

6.16.
China notes the Panel's reliance upon the statement in the Final Determination that "[a]lthough X-Ray scanners of a high energy level are usually used to inspect large objects, while X-Ray scanners of a low energy level are used to inspect small objects, these are only variations adopted in accordance with different product designs and market elections". According to China, the Panel has taken the statement out of context. This is because MOFCOM made it as a part of the product scope determination, rather than as a part of the injury determination. Further, MOFCOM also stated that "high-energy scanners can also be used to inspect small objects". Consequently, China argues that the observations made by MOFCOM do not acknowledge differences between "high-energy" and "low-energy" scanners.
6.17.
The European Union objects to China's request. The European Union argues that the Interim Report clearly states the context in which MOFCOM's observations were made.
6.18.
We do not consider it necessary to make any changes to our reasoning in paragraph 7.85 (paragraph 7.86 of the Final Report). The paragraph already provides that MOFCOM made the observations "in the context of considering the scope of the product under investigation". Further, the Panel acknowledges and addresses MOFCOM's observation that "high-energy scanners can be used to detect small objects" in paragraph 7.88 of the Final Report.

5. Paragraph 7.87

6.19.
In stating that the use of "high-energy" scanners to inspect small objects appears to be a theoretical possibility rather than a reflection of "market elections", China argues that the Panel has not taken into account the evidence presented by it to establish that there are scanners with an energy level above 300 KeV that are designed to inspect small objects.
6.20.
The European Union recalls that it has addressed China's arguments in this regard in its submissions to the Panel during the proceedings.
6.21.
The Panel has amended the wording used in paragraph 7.88 of the Final Report, and added footnote 106, in order to clarify that it has indeed taken into consideration the evidence furnished by China relating to the uses of certain "high-energy" scanners.

6. Paragraph 7.89

6.22.
China argues that the Panel relied upon Smiths' assertion about the price differences between "high-energy" and "low-energy" scanners without addressing China's submission that the assertion was not supported by any evidence.
6.23.
The European Union recalls that it addressed China's argument in this regard in its submissions during the course of the Panel proceedings.
6.24.
The Panel has decided to add footnote 112 to paragraph 7.90 of the Final Report in order to clarify its findings regarding Smiths' submissions on the price differences between "high-energy" and "low-energy" scanners.

C. THE STATE OF THE DOMESTIC INDUSTRY: ARTICLES 3.1 AND 3.4 OF THE ANTI-DUMPING AGREEMENT

1. Paragraph 7.142

6.25.
China argues that paragraph 7,142 does not accurately reflect its arguments. According to China, it clarified during the second meeting with the Panel that Nuctech, rather than MOFCOM, adjusted the data originally provided during the verification process, in order to exclude exports. China requests an amendment to the paragraph to reflect this.
6.26.
The European Union submits that the current text is clear and accurate. If the Panel nevertheless agrees with China's suggestion, the European Union requests that the amendment be prefaced with "China contends...".
6.27.
We note that China changed its position, between its first submission and the second meeting with the Panel, regarding whether MOFCOM or Nuctech modified the data to account for exports. In its findings, the Panel has accepted China's revised position, namely that Nuctech itself revised the data. The Panel has amended the summary of China's arguments in paragraph 7,144 of the Final Report to reflect this.

2. Paragraph 7.198

6.28.
China argues that the Panel's finding in this paragraph, namely that MOFCOM assessed the industry's actual profit level by reference to the expected level of profit, is wrong as a matter of fact. According to China, MOFCOM only examined the actual profit level. It found that the domestic industry was making losses and a contrario did not make a profit. Further, according to China, in the context of Article 3.4 of the Anti-Dumping Agreement, an investigating authority is required only to examine the "state" of the domestic industry. Therefore, contrary to the findings of the Panel, MOFCOM was not required to provide an explanation regarding why it expected the domestic industry to be profitable. Finally, China submits that in the Final Determination MOFCOM examined the profit indicator at length.
6.29.
The European Union objects to China's comments. The European Union argues that paragraph 7,198 does not address the level of profit in a vacuum, but in its proper context, which should be measured by a proper counterfactual of the expected profit level. Further, the European Union contends that during the course of the Panel proceedings, China systematically failed to address the European Union's allegation about the "expected level" of profits. Therefore, China's attempt to rebut the Panel's finding at the interim review stage of proceedings should be rejected as a matter of due process.
6.30.
In the Panel's view, it is clear from the Final Determination that MOFCOM did consider the "expected profit" in assessing the state of the domestic industry. The Panel has added footnote 216 to paragraph 7,200 of the Final Report in order to clarify the basis for its view that MOFCOM's analysis of profit was not restricted merely to the absolute levels of profit obtained by the domestic industry, but was also conducted by reference to expected profit levels. The Panel does not consider it necessary to further amend its reasoning in the light of the China's comments.

D. CAUSATION: ARTICLES 3.1 AND 3.5 OF THE ANTI-DUMPING AGREEMENT

1. Paragraphs 7.239-7.244

6.31.
China argues that the Panel has not addressed its arguments summarised at paragraphs 7,231 and 7,232 of the Final Report. China requests the Panel to address them.
6.32.
The European Union does not comment on this request.
6.33.
The Panel notes that the arguments referred to by China relate to the debate between the parties about whether there was a correlation between subject imports and domestic prices, and the relevance of this for the causation analysis. Having reached the conclusion that MOFCOM's causation analysis was not adequate on the basis of other arguments made by the parties, the Panel in the Interim Report did not proceed explicitly to address the arguments regarding correlation. The Panel is prepared to accommodate China's request, in order to make explicit its views regarding the correlation arguments. Consequently, the Panel has added paragraphs 7,246-7.247 to the Final Report.

2. Paragraph 7.269

6.34.
In concluding that MOFCOM did not address Smiths' arguments concerning "product quality" and "technology factors", China submits that the Panel did not consider findings by MOFCOM in this regard on page 16 of the Final Determination.
6.35.
The European Union objects to China's comment. According to the European Union, MOFCOM's conclusions about "physical characteristics" and "technological features" in the context of the likeness analysis on page 16 of the Final Determination are not connected with the proper analysis MOFCOM should have conducted on page 32 of the Final Determination when specifically examining other known factors as a part of the non-attribution analysis.
6.36.
The Panel considers it appropriate to add footnote 281 to paragraph 7,279 of the Final Report in order explicitly to address China's comment and to clarify its reasoning in this regard.

E. MOFCOM'S TREATMENT OF NON-CONFIDENTIAL SUMMARIES: ARTICLES 6.5.1, 6.2 AND 6.4

1. Paragraph 7.346

6.37.
China objects to the Panel's statement that a reply of "yes" or "no" will not necessarily reveal confidential information. China asserts that the Panel effectively takes issue with MOFCOM's initial decision to treat the relevant information as confidential. China suggests that this issue was not before the Panel, since there was no claim by the EU concerning the designation of the relevant information as confidential. Furthermore, China contends that Nuctech considered that the reply to question 19 was not confidential, and therefore that the non-confidential version could reflect the reply ticked in the confidential version as well.
6.38.
The European Union asks the Panel to reject China's remarks. According to the European Union, the Panel does not take issue with whether or not the relevant information can properly be regarded as confidential. According to the European Union, the Panel rightly explains that there is a violation of Article 6.5.1 because there is no summary of the substantive content of the relevant confidential information, nor any evidence that MOFCOM applied the Article 6.5.1 exceptional circumstances mechanism. The Panel then addressed China's argument that summarization should always be considered impossible in the case of "yes" or "no" answers.
6.39.
We are not persuaded by China's arguments. Having found that there was no evidence of any application by MOFCOM of the Article 6.5.1 exceptional circumstances mechanism, we then merely addressed China's argument that a "yes"/"no" answer cannot be summarized because such summary would necessarily reveal confidential information. However, we have amended paragraph 7,350 of the Final Report to clarify that the main reason for rejecting China's argument is MOFCOM's failure to invoke the Article 6.5.1 exceptional circumstances mechanism.

F. DISCLOSURE OF ESSENTIAL FACTS

1. Paragraphs 7.412 and 7.414, and footnote 375

6.40.
China contends that the Panel failed to reflect China's argument that the European Union extended the scope of its claim from an alleged lack of disclosure of the calculations of the dumping margin, normal value and export price to an alleged lack of disclosure of the (underlying) price and adjustments data. China proposes a number of changes to the Panel's description of China's position at paragraphs 7,412 and 7,414, and footnote 375. The European Union denies that it has extended the scope of its claim of violation. According to the European Union, China is confusing the claim with arguments advanced during the course of the Panel proceedings. The European Union contends that its original claim, as set forth in its request for establishment of a Panel, concerned the disclosure of both the calculations and the underlying data.
6.41.
While we have amended paragraph 7,416 and footnote 379 of the Final Report to avoid any risk of misrepresenting China's position, we disagree with China's assertion that the European Union improperly extended the scope of its claim. We have clarified footnote 379 of the Final Report to avoid any uncertainty.
6.42.
We have also amended paragraph 7,418 of the Final Report, to avoid any risk of misrepresenting China's reliance on the Argentina – Poultry Anti-Dumping Duties case.

G. PUBLIC NOTICE

1. Paragraph 7.457 and footnote 406

6.43.
China asks the Panel to amend its findings to prevent any inconsistency with its finding, in footnote 406, that the European Union's claim should not be understood to refer to "information on the underlying facts". The European Union contends that it is clear that the Panel did not fault China for failing to provide information on the underlying facts. The European Union also contends that the Panel is not bound to follow the terminology or legal reasoning advanced by the parties.
6.44.
In our view, all of the elements identified in paragraph 7,457 properly pertain to the explanation of MOFCOM's price effects methodology, and have therefore been properly addressed by the Panel. To avoid any risk of inconsistency with footnote 406, though, we have made certain changes to the text of footnote 410 in the Final Report, and the text of paragraph 7,461 of the Final Report.

2. Paragraphs 7.462, 7.464 and 7.466

6.45.
China claims that the European Union's claim should not be understood to include reference to the reasons why MOFCOM resorted to facts available, and the factual basis for its residual duty determination. According to China, the European Union's claim should be restricted to MOFCOM's failure to publish the calculations and underlying data for the residual duty. The European Union asks the Panel to reject China's argument, stating that all aspects of the European Union's claim were properly included in its request for establishment of a Panel.
6.46.
We uphold China's request insofar as it applies to the reasons justifying MOFCOM's resort to facts available. We agree that such reasons do not form part of the data underlying MOFCOM's residual duty determination. However, we reject China's request in respect of the factual basis for MOFCOM's residual duty determination, since such factual basis does form part of the underlying data for MOFCOM's determination. We have amended paragraph 7,468 of the Final Report accordingly. We do not consider that there is any need for additional changes to other paragraphs of the Final Report.

H. CONCLUSION AND RECOMMENDATIONS

6.47.
In light of its comments on paragraphs 7,462, 7,464 and 7,466 (discussed above), China has also suggested a change to paragraph 8.1. As a result of the Panel's position on the proposed modification by China to paragraph 7,466, there is no need to change paragraph 8.1 in the manner requested by China.

VII. FINDINGS

7.1.
This case concerns the imposition by China of anti-dumping duties on imports of certain x-ray security inspection equipment from the European Union. The European Union claims that the anti-dumping duties imposed by China, and the underlying investigation conducted by the Chinese authorities, are inconsistent with various procedural and substantive provisions of the Anti-Dumping Agreement. China denies the European Union's claims.
7.2.
The European Union has advanced a number of procedural claims under Articles 6.5.1, 6.9 and 12.2.2 of the Anti-Dumping Agreement, and certain substantive claims under Article 3 of the Anti-Dumping Agreement. We shall begin by examining the European Union's substantive claims. Thereafter, we shall turn to the European Union's procedural claims. Before reviewing the European Union's claims, though, we recall a number of general principles regarding treaty interpretation, standard of review and burden of proof in WTO dispute settlement proceedings.

A. GENERAL PRINCIPLES REGARDING TREATY INTERPRETATION, THE APPLICABLE STANDARD OF REVIEW AND BURDEN OF PROOF

1. Treaty Interpretation

7.3.
Article 3.2 of the DSU provides that the dispute settlement system serves to clarify the existing provisions of the covered agreements "in accordance with customary rules of interpretation of public international law". It is generally accepted that the principles codified in Articles 31 and 32 of the Vienna Convention on the Law of Treaties are such customary rules16.

2. Standard of Review

7.4.
Panels generally are bound by the standard of review set forth in Article 11 of the DSU, which provides, in relevant part, that:

[A] panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements. (emphasis added)

7.5.
The Appellate Body has stated that the "objective assessment" to be made by a panel reviewing an investigating authority's determination is to be informed by an examination of whether the agency provided a reasoned and adequate explanation as to: (i) how the evidence on the record supported its factual findings; and (ii) how those factual findings supported the overall determination17.
7.6.
The Appellate Body has also commented that a panel reviewing an investigating authority's determination may not conduct a de novo review of the evidence or substitute its judgment for that of the investigating authority. A panel must limit its examination to the evidence that was before the agency during the course of the investigation and must take into account all such evidence submitted by the parties to the dispute18. At the same time, a panel must not simply defer to the conclusions of the investigating authority. A panel's examination of those conclusions must be "in-depth" and "critical and searching"19.
7.7.
Further to Article 11 of the DSU, Article 17.6 of the Anti-Dumping Agreement sets forth a specific standard of review applicable to anti-dumping disputes, namely:

(i) in its assessment of the facts of the matter, the panel shall determine whether the authorities' establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned;

(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.

3. Burden of Proof

7.8.
The general principles applicable to the allocation of the burden of proof in WTO dispute settlement require that a party claiming a violation of a provision of a WTO Agreement must assert and prove its claim20. Therefore, as the complaining party, the European Union bears the burden of demonstrating that certain aspects of the anti-dumping measure at issue are inconsistent with the Anti-Dumping Agreement. The Appellate Body has stated that a complaining party will satisfy its burden when it establishes a prima facie case, namely a case which, in the absence of effective refutation by the defending party, requires a panel, as a matter of law, to rule in favour of the complaining party21. Finally, it is generally for each party asserting a fact to provide proof thereof22.

B. INTRODUCTION TO INJURY

7.9.
The European Union claims that China acted inconsistently with Articles 3.1, 3.2, 3.4 and 3.5 of the Anti-Dumping Agreement in making its findings regarding whether the dumped imports caused injury to the domestic industry. This section of the Report examines each of the claims in turn.
7.10.
First, the Panel will consider the European Union's claim that MOFCOM's price effects analysis was inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement because it was not an objective examination based on positive evidence. The Panel will examine the European Union's argument that MOFCOM conducted its price effects analysis without taking into account the "considerable differences between the products covered by the investigation"23, in particular between "high-energy" (energy levels above 300 KeV) and "low-energy" (energy levels at or below 300 KeV) scanners.
7.11.
Second, the Panel will consider the European Union's claim under Articles 3.1 and 3.4 of the Anti-Dumping Agreement. The European Union argues that MOFCOM's examination of the impact of the dumped imports on the domestic industry was not based upon "positive evidence"; that MOFCOM did not consider "all relevant economic factors and indices" having a bearing on the state of the industry; and that MOFCOM did not properly evaluate the interaction between the "positive" and "negative" economic factors and indices and consider them in their proper context.
7.12.
Third, the Panel will evaluate the European Union's claim under Articles 3.1 and 3.5 of the Anti-Dumping Agreement. The Panel will consider the European Union's argument that the price effects methodology employed by China under Article 3.2 has a consequent impact upon the validity of MOFCOM's causation findings. The Panel will also evaluate the contention that MOFCOM did not provide a reasoned and adequate explanation in attributing injury to the dumped imports, particularly in circumstances where in the final year of the POI, the price of dumped imports was higher than that of the like domestic product. Finally, the Panel will examine the European Union's argument that MOFCOM did not adequately consider other causes of injury in its non-attribution analysis.

C. PRICE EFFECTS OF DUMPED IMPORTS: ARTICLES 3.1 AND 3.2 OF THE ANTI-DUMPING AGREEMENT

1. Introduction

7.13.
The European Union claims that MOFCOM's price effects findings did not constitute an objective examination based on positive evidence, contrary to the obligations under Articles 3.1 and 3.2 of the Anti-Dumping Agreement. The basis for the European Union's claim is that MOFCOM's price effects methodology was flawed because it involved price comparisons, based on weighted average unit values, in circumstances where MOFCOM did not take into account the "considerable differences" among the products being compared, particularly between "high-energy" and "low-energy" scanners24.

2. Relevant provisions

7.14.
Article 3.1 of the Anti-Dumping Agreement provides:

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.

7.15.
Article 3.2 of the Anti-Dumping Agreement provides:

With regard to the volume of the dumped imports, the investigating authorities shall consider whether there has been a significant increase in dumped imports, either in absolute terms or relative to production or consumption in the importing Member. With regard to the effect of the dumped imports on prices, the investigating authorities shall consider whether there has been a significant price undercutting by the dumped imports as compared with the price of a like product of the importing Member, or whether the effect of such imports is otherwise to depress prices to a significant degree or prevent price increases, which otherwise would have occurred, to a significant degree. No one or several of these factors can necessarily give decisive guidance.

3. Main arguments of the parties

(a) European Union

(i) Comparability of the products included in the price effects analysis

7.16.
The European Union asserts that MOFCOM established the existence of "large"25 and "serious"26 price undercutting using a flawed price comparison methodology, even though no price undercutting had been alleged by Nuctech. Furthermore, the methodology used by MOFCOM to determine price depression/suppression magnified the degree to which Nuctech's prices were depressed/suppressed far beyond the levels that Nuctech itself had alleged, on the basis of its own price data27. The European Union argues that the price analysis methodology applied by MOFCOM, namely a comparison of weighted average unit values for all products, was flawed because it failed to take into account manifest differences between the types of scanner at issue, particularly between the low-energy scanners exported by Smiths and the high-energy scanners that were the main focus of Nuctech's business. According to the European Union, Smiths explained repeatedly during the investigation that low-energy scanners and high-energy scanners have very different physical characteristics, end-uses, technological features, mechanical features, manufacturing processes and prices and do not compete with each other28. Accordingly, due to these differences, Smiths argued that high-energy scanners should be excluded from the product under investigation. The European Union does not pursue this product scope argument in these proceedings. Instead, the European Union contends that, in view of the manifest differences between low-energy and high-energy scanners, it was clearly inadequate for the Chinese authorities to examine the existence of price undercutting and price depression/suppression without taking these differences into account. The European Union acknowledges that Nuctech produced low-energy scanners during the POI, but contends that MOFCOM also failed to take into account the differences between the low-energy scanners produced by Smiths and Nuctech respectively.
7.17.
In response to China's argument that there is "no hard and clear dividing line" between high- and low-energy scanners, but rather a "single continuum of scanners", the European Union argues that this is an unsupported assertion, to which no reference was made in the Final Determination. The European Union acknowledges that while there may be room for debate about whether the dividing line should be drawn precisely at 300 KeV or a somewhat higher level, there is wide and easily recognisable gap between high- and low-energy scanners. The European Union argues that the energy level of scanners used to scan large objects is always much higher than that used to scan small objects, and this is always reflected in very large disparities in price.

(ii) Obligations under Articles 3.1 and 3.2 of the Anti-Dumping Agreement

7.18.
The European Union submits that because MOFCOM used a broad definition of the product under investigation, the obligation to make an objective examination of positive evidence required MOFCOM to take into account the relevant differences between the various types of products covered by the investigation when conducting its price effects analysis. The European Union does not argue that MOFCOM should have used any particular methodology in order to do this. Rather, the European Union notes that MOFCOM failed to do so at all, as explained in the sections below on price undercutting and price depression/suppression.

Price undercutting

7.19.
The European Union recalls that MOFCOM examined the existence of price undercutting by comparing the weighted average unit value of all imports of all the products covered by the investigation to the weighted average unit value of all domestic sales of all the like products made by Nuctech. The European Union accepts that a comparison of weighted average unit values may be an appropriate methodology for considering the existence of price undercutting where the products covered by the investigation are relatively homogeneous and sufficiently comparable. Where the relevant products are heterogeneous, though, the European Union contends that differences in average unit values may merely reflect changes or variations in product mix rather than genuine differences in pricing. In the circumstances of the present case, due to the considerable differences between low-energy and high-energy scanners, the European Union argues that it was manifestly inadequate for MOFCOM to examine the existence of price undercutting by comparing weighted average unit values for all the products under consideration. According to the European Union, the distorting effects of the methodology followed by MOFCOM were exacerbated by the fact that during the POI there were no exports of high-energy scanners from the European Union to China.

Price depression/suppression

7.20.
At the outset, there is a dispute between the European Union and China about whether MOFCOM made a finding of price depression or suppression. The European Union maintains that both its professional translation of the relevant phrase in the Final Determination, and the content of the Final Determination, support its position that MOFCOM made a finding of price depression. The European Union notes that MOFCOM did not state that Nuctech was prevented from increasing its prices in order to reflect cost increases. Rather, MOFCOM found that the dumped imports forced Nuctech to lower its prices by more than the reduction in its unit cost of production. The European Union contends that it is implicit in MOFCOM's reasoning that Nuctech's prices would not have increased in the absence of the dumped imports, given the substantial reduction in Nuctech's unit production cost. Rather, Nuctech's prices would have decreased less. This supports the conclusion that MOFCOM made a finding of price depression rather than suppression.
7.21.
The European Union submits MOFCOM's finding that prices of the domestic like product fell by as much as 72.68% during the POI is nullified by the same flawed methodology that MOFCOM applied in respect of price undercutting. In other words, changes in the average unit values found by MOFCOM were more likely to reflect changes in the product mix of the domestic industry over the POI than changes in the domestic industry's pricing policy.

(b) China

(i) Differences between low-energy and high-energy scanners, and amongst low-energy scanners

Continuum of scanners
7.22.
China disputes that there is a clear-cut distinction between scanners with an energy level at or below 300 KeV ("low-energy") and scanners with an energy level above 300 KeV ("high-energy"). China argues that a scanner's energy level is not determinative of its physical characteristics, uses or prices. Rather, there exists a continuum of scanners, with gradual differences between adjoining models. Therefore, to the extent that certain claims raised by the European Union are based on an alleged distinction between low-energy and high-energy scanners, they should be rejected by the Panel because the distinction is factually incorrect. To support this argument, China provides examples of scanners with an energy level at or below 300 KeV that have the characteristics that Smiths described as belonging to high energy scanners, and vice versa29.

MOFCOM's analysis

7.23.
China submits that Smiths only raised the issue of alleged differences between "low-energy" and "high-energy" scanners to claim that such products were not "like", such that high-energy scanners should be excluded from the scope of MOFCOM's investigation. China asserts that Smiths never referred to such differences in the context of MOFCOM's price effects analysis. China contends that at no point did Smiths claim that MOFCOM should make separate price undercutting and price suppression analyses for "low-energy" and "high-energy" scanners. China submits that if, as claimed by the European Union, it was so essential to conduct a separate price analysis for "low-energy" and "high-energy" scanners, and even for different types of "low-energy" scanners, one would expect that the argument would at least have been raised by Smiths during the investigation. China asserts that this did not occur.
7.24.
China submits that, in comparing Smiths' import prices of the subject product with Nuctech's domestic prices of the like product, MOFCOM properly compared the prices of like products. Furthermore, China submits that it was reasonable for MOFCOM to assess the effects of the prices of dumped imports by using the weighted average methodology. China notes that MOFCOM did not in any way manipulate data or figures since MOFCOM applied the same methodology for both the domestic and imported products and included all data relating to all models. China submits that, in this way, MOFCOM ensured an even-handed treatment of the information and data on the record. China asserts that MOFCOM was aware that prices may differ from model to model or even from transaction to transaction. Indeed, this is a common feature of all anti-dumping investigations worldwide and explains precisely why investigating authorities use averages. According to China, MOFCOM concluded that these price differences were not of a nature to overturn the conclusion that the price undercutting was "significant". In addition, China contends that an average comparison may work to the advantage of the exporter on some occasions, while work against it on others. China submits that as long as the method is applied even-handedly and in an objective manner, it cannot be considered biased.
7.25.
China argues that MOFCOM requested complete pricing data relating to the subject product for the three years of the POI. However, Smiths provided only average figures for certain models for 2008 and no pricing data at all for 2006 and 2007. Therefore, China contends that it was in fact impossible for MOFCOM to perform a model-to-model comparison and that the use of the weighted average methodology was reasonable and appropriate in the circumstances. According to China, the requirement of "objectivity" in Article 3.1 is to be assessed in the light of the specific circumstances of the case, including the information and data available to the investigating authority. In order to conclude that an investigating authority has favoured a particular interested party, it is necessary that the investigating authority had options before it, and chose the option that favoured the interests of a particular party. Further, China argues that there was no need for MOFCOM to make findings pursuant to Article 6.8 of the Anti-Dumping Agreement because Article 3.2 does not prescribe the use of any specific methodology and that it was possible for MOFCOM to use a reasonable comparison methodology on the basis of the data submitted by the parties or gathered from public records.

(ii) Obligations under Articles 3.1 and 3.2 of the Anti-Dumping Agreement

7.26.
China notes that Articles 3.1 and 3.2 of the Anti-Dumping Agreement do not set out any specific methodology that investigating authorities must follow in order to examine the effects of dumped imports on prices in a domestic market. Furthermore, China submits that panels in previous cases have rejected the view that the methodological obligations included in Article 2 of the Anti-Dumping Agreement, relating to the dumping margin determination, apply to the price undercutting analysis of Article 3.2 of the Anti-Dumping Agreement. According to China, there is no obligation in the Anti-Dumping Agreement requiring an investigating authority during the price effects analysis to make adjustments similar to those applicable when making the comparison between normal value and export price under Article 2.4 of the Anti-Dumping Agreement. China notes that there are important differences between the determination of the margin of dumping under Article 2.4 and the price effects analysis under Article 3.2. First, Article 3.2 requires an investigating authority only "to consider", rather than to make a determination on, the effects of dumped imports on domestic prices and does not require any quantification of the degree of undercutting. Second, the price analysis is only one among various elements or factors examined by the investigating authority in determining whether injury is suffered by the domestic industry. As a result of these differences, when interpreting Articles 3.1 and 3.2, the requirement of "objective examination" should not be interpreted to impose obligations that do not flow from it. In EC – Pipe Fittings, the Panel held that the requirement in Article 3.1 to conduct an "objective examination" on the basis of "positive evidence" implies only that the examination must "conform to the dictates of the basic principles of good faith and fundamental fairness" and that the "investigating authority must therefore ensure an even-handed treatment of the information and data on the record of the investigation".

Price undercutting

7.27.
China asks the Panel to reject the European Union's claim that "MOFCOM's finding of price undercutting was reached by following a manifestly inadequate methodology involving the use of weighted average unit values for all the products under investigation"30. Further, China disputes the European Union's argument that the inappropriateness of the methodology used by MOFCOM is evidenced by the fact that neither Nuctech nor Smiths had made any reference to the existence of price undercutting31. China submits that, contrary to the European Union's argument, Nuctech did claim that there was price undercutting32. China also argues that there is no evidence on the record excluding the possibility that either Smiths, its French affiliate or any other European exporter had exported high-energy scanners. Finally, China emphasises that the example provided by the European Union is purely hypothetical.

Price suppression

7.28.
At the outset, China argues that MOFCOM in fact made a finding of price suppression, rather than price depression as stated in the European Union's translation of the Final Determination. China argues that in the Final Determination, MOFCOM found "the rate of the decline of sales price was higher than the rate of production cost reduction by 19.01 percentage points, indicating that the sales price of domestic Like Products failed to remain at a reasonable level as a result of being [suppressed] by the import price of the Subject Product"33. Therefore, according to China, this supports the conclusion that MOFCOM found price suppression rather than price depression, because MOFCOM found that domestic prices were prevented from increasing to a profitable level due to the effects of the low price of the dumped imports. Although in the Final Determination MOFCOM found only price undercutting and price suppression, China argues that in fact a mixed picture of price depression and suppression can be found in this case. The price undercutting and rapid increases in import volume forced the domestic prices down to non-profitable levels and prevented the domestic industry from increasing prices to profitable levels.
7.29.
China denies that there is any inherent bias in the methodology followed by MOFCOM to determine the existence of price suppression. China contends that MOFCOM used the same methodology throughout the POI, and the average price calculation method was applied even-handedly to both imports and domestic products. Further, China argues that price comparability does not arise as an issue when considering price suppression, because it involves a consideration of the prices and costs relating to the domestic product only and does not involve a comparison with the prices of the imported product. According to China, the fact that the product mix varies or may vary over time cannot have any impact on the assessment of price suppression. This is because price suppression depends on whether the prices of a certain product mix have been able to follow changes in costs for the same product mix.

4. Evaluation by the Panel

(a) Introduction

7.30.
The European Union claims that MOFCOM's price effects findings were not based on an objective examination of positive evidence, contrary to the obligations under Articles 3.1 and 3.2 of the Anti-Dumping Agreement. The basis of the European Union's claim is that MOFCOM's price effects methodology was flawed because it involved comparing the weighted average unit values for the entire range of products covered by the investigation, without taking into account the considerable differences among the products, particularly between "high-energy" and "low-energy" scanners. According to the European Union, the distorting effects of the methodology followed by MOFCOM were exacerbated by the fact that during the POI there were no exports of high-energy scanners from the European Union to China.

(b) General approach under Article 3.1 of the Anti-Dumping Agreement

7.31.
In analysing the European Union's claim, it is well established that the Panel's role is not to conduct a de novo review of the evidence or simply defer to the conclusions of the investigating authority. Rather, the Panel must test whether the explanation for the conclusion reached by the investigating authority is reasoned and adequate in the light of other plausible explanations34.
7.32.
Further, in considering the European Union's claims under Article 3.1 of the Anti-Dumping Agreement, and in particular whether the quality of evidence relied upon by MOFCOM met the standard of positive evidence, we recall that in US – Hot Rolled Steel, the Appellate Body held:

The term "positive evidence" relates, in our view, to the quality of the evidence that authorities may rely upon in making a determination. The word "positive" means, to us, that the evidence must be of an affirmative, objective and verifiable character, and that it must be credible.35

The Appellate Body has also agreed that "positive evidence" refers to "evidence that is relevant and pertinent with respect to the issue being decided, and that has the characteristics of being inherently reliable and trustworthy"36.

7.33.
In examining whether MOFCOM conducted an objective examination of the evidence, we note that the Appellate Body has held that this requires an examination that conforms "to the dictates of the basic principles of good faith and fundamental fairness". Further, the investigation must occur in an "unbiased" and "even-handed" manner and must not favour a particular interested party over another37.

(c) What methodology did MOFCOM use in its price effects analysis?

7.34.
The European Union's claim under Articles 3.1 and 3.2 of the Anti-Dumping Agreement is based upon the argument that making price comparisons without ensuring comparability does not amount to an objective examination of positive evidence. Although not explicit in its Final Determination, based upon the explanations provided during consultations, the European Union understands that MOFCOM reached its finding of price undercutting by comparing annual weighted average unit prices of all dumped imports with the annual weighted average unit prices of all domestic sales by Nuctech38. In concluding that domestic prices were suppressed39, MOFCOM also relied upon comparisons of annual weighted average unit prices40. In particular, as will be discussed below, MOFCOM compared domestic average unit values over the course of the POI in order to make an intermediate finding that the prices of the domestic industry had declined by the amount quantified by MOFCOM41. MOFCOM also relied upon its undercutting findings in concluding that the price suppression was an effect of subject imports42.
7.35.
In order to compare the price of subject imports with the price of the domestic like products, China explained:

MOFCOM calculated the average unit price per year of the subject imports as a whole and compared them with the annual averages of the domestic like product. By putting both prices side by side it was obvious if one was higher or lower than the other.43

7.36.
In response to Panel questioning, China clarified that in order to arrive at the annual average unit prices for Nuctech's sales, which were used in its undercutting and suppression analyses, MOFCOM did not request that Nuctech provide transaction specific data or data on a model-by-model basis. Although, on its own initiative, Nuctech provided domestic price data on a model-by-model basis for certain models, MOFCOM did not use this in its price effects analysis. Rather, MOFCOM divided the total domestic sales value of the domestic like product for each year of the POI, as provided by Nuctech in its questionnaire response, by the quantity sold during the corresponding year44. China confirmed that MOFCOM did not know the uses or energy levels for the scanners that were included in these price effects calculations. According to China, MOFCOM did "not consider that differences in energy levels [were] relevant for the price effects analysis under Article 3.2 and it did therefore not take such differences into consideration"45.
7.37.
MOFCOM used customs value data to determine the price of subject imports. In order to calculate their annual average unit prices, China clarified that it did not take data for individual import shipments during a given year and then aggregate it in order to calculate an average unit value for that year. Rather, MOFCOM used the total customs value for the subject product for each year of the POI and divided it by the import quantity of the subject product during the corresponding year46.

(d) What is the relevance of Smiths' failure to raise concerns regarding the price effects analysis during the course of the investigation?

7.38.
China notes that during the course of the investigation, Smiths raised the issue of the alleged differences between "low-energy" and "high-energy" scanners in the context of MOFCOM's decision regarding the scope of products under investigation. China contends that Smiths did not ever refer to the alleged differences between the products in the context of the price analysis conducted by MOFCOM. China argues that if "it was so essential to make a price analysis separately for 'low-energy' and 'high-energy' scanners, one would expect that the argument would at least have been raised by Smiths during the investigation"47. According to China, the fact that the argument was not raised shows that there were no grounds for MOFCOM to consider the use of averages unreasonable.
7.39.
China does not explicitly argue that Smiths' failure to raise the argument about the alleged differences between the products under investigation in the context of the price effects analysis prevents the Panel from making a finding on this issue. If this is what China intends to imply, in our view, China's suggestion is not well-founded. It is well established that a Member bringing a complaint before a panel under the DSU is not limited to those claims that were made during the domestic investigation. The Appellate Body held in US – Lamb, for instance, that:

In arguing claims in dispute settlement, a WTO Member is not confined merely to rehearsing arguments that were made to the competent authorities by the interested parties during the domestic investigation, even if the WTO Member was itself an interested party in the investigation.48

7.40.
China argues that the fact that Smiths did not raise the alleged differences in the product under consideration in the context of the price effects analysis gives an indication that it was not in fact essential for MOFCOM to take these differences into account. However, given that the Appellate Body has held that a Member's claim is not restricted to the arguments made during the course of the relevant investigation, in our view, the merits of the European Union's claim under Articles 3.1 and 3.2 of the Anti-Dumping Agreement are not affected by the fact that the argument was not raised during domestic proceedings.

(e) Has the issue of price comparability under Articles 3.1 and 3.2 of the Anti-Dumping Agreement been considered by other panels or the Appellate Body?

7.42.
Most recently, both the panel and the Appellate Body in China – GOES had cause to consider whether an objective examination of positive evidence had occurred in circumstances where the investigating authority had conducted a price undercutting analysis without considering the need for adjustments to ensure price comparability. The panel concluded that when comparing subject import and domestic prices to establish the existence of price undercutting, an investigating authority must "ensure that the prices it is using for its comparison are properly comparable"50. Further, the panel held that "[a]s soon as price comparisons are made, price comparability necessarily arises as an issue"51. The Appellate Body agreed with the panel's conclusion and stated:

[B]oth [parties] agreed that an investigating authority must ensure comparability between prices that are being compared. Indeed, although there is no explicit requirement in Article 3.2... we do not see how a failure to ensure price comparability could be consistent with the requirement under Article 3.1 … that a determination of injury be based on "positive evidence" and involve an "objective examination" of, inter alia, the effect of subject imports on the prices of domestic like products. Indeed, if subject import and domestic prices were not comparable, this would defeat the explanatory force that subject import prices might have for the depression or suppression of domestic prices. We therefore see no reason to disagree with the Panel when it stated that "[a]s soon as price comparisons are made, price comparability necessarily arises as an issue".52

7.43.
Prior to the decision in China – GOES, two panels considered the extent to which Article 3.2 of the Anti-Dumping Agreement requires an investigating authority to make adjustments to account for differences in the products being considered in the price effects analysis. In EC – Tube or Pipe Fittings, the panel reasoned as follows:

[I]n view of the stark contrast in the text, context, legal nature and rationale of the provisions in Article 2 of the Anti-Dumping Agreement relating to the calculation of the dumping margin and Article 3 relating to the injury analysis, we decline to transpose wholesale the more detailed methodological obligations of Article 2 concerning dumping into the provisions of Article 3 concerning injury analysis.

Furthermore, because in the price undercutting analysis, the investigating authority is examining injury caused by dumped imports, to the extent a product competes with another product and affects domestic sales of that product, there might well be different bases for deciding whether or not to make an adjustment in the context of the dumping and price undercutting analyses. In a dumping determination, one focus of adjustments may be on differences in costs that a producer/exporter might reasonably be expected to reflect in his prices; by contrast, the focus in a price undercutting analysis may be on differences between the imported and domestic like product that have a perceived importance to consumers.53

7.44.
In a similar vein, in EC – Fasteners (China) the panel held:

[T]here is no equivalent requirement under Article 3.2 to that of Article 2.4 of the AD Agreement with respect to "due allowance" for differences affecting price comparability. In our view, while it is clear that the general requirements of objective examination and positive evidence of Article 3.1 limit an investigating authority's discretion in the conduct of a price undercutting analysis, this does not mean that the requirements of Article 2.4 with respect to due allowance for differences affecting price comparability are applicable. Thus, for instance, adjustments in the context of price undercutting analysis may be a useful means of ensuring that the requirements of objective examination of positive evidence in Article 3.1 are satisfied, as might the use of carefully defined product categories for the collection of price information.54

(f) Did MOFCOM's price effects analysis constitute an objective examination of positive evidence?

(i) What were MOFCOM's obligations in relation to its price undercutting analysis?

The obligation "to consider" price undercutting
7.45.
In its submissions before the Panel, China argued that the obligations in Article 3.2 of the Anti-Dumping Agreement must be read in the light of the requirement on an investigating authority only to "consider", rather than to make a determination on, whether there has been significant price undercutting by dumped imports, or whether the effect of such imports is otherwise to depress prices or prevent price increases55. In the Panel's view, the requirement to "consider" price effects does not require a definitive determination regarding the existence of price undercutting, price suppression or price depression. However, although an investigating authority may be required only to "consider" price effects, the consideration must still involve an objective examination of positive evidence. In this regard, we agree with the Appellate Body's statement in China – GOES:

The notion of the word "consider", when cast as an obligation upon a decision maker, is to oblige it to take something into account in reaching its decision. By the use of the word "consider", Article 3.2 … [does] not impose an obligation on an investigating authority to make a definitive determination on the volume of subject imports and the effect of such imports on domestic prices. Nonetheless, an authority's consideration of the volume of subject imports and their price effects pursuant to Article 3.2 … is also subject to the overarching principles, under Article 3.1 … that it be based on positive evidence and involve an objective examination. In other words, the fact that no definitive determination is required does not diminish the rigour that is required of the inquiry under Articles 3.2 …

Furthermore, while the consideration of a matter is to be distinguished from the definitive determination of that matter, this does not diminish the scope of what the investigating authority is required to consider. The fact that the authority is only required to consider, rather than to make a final determination, does not change the subject matter that requires consideration under Article 3.2 … which includes "whether the effect of" the subject imports is to depress prices or prevent price increases to a significant degree.56

7.46.
Consequently, when assessing MOFCOM's obligations in relation to its price undercutting analysis, the obligation to "consider" rather than to make a determination on the existence of price undercutting does not alter the substance or the nature of the enquiry required under Article 3.2 of the Anti-Dumping Agreement.

When conducting a price undercutting analysis, is it necessary to take into account differences in the products being compared?

7.47.
In relation to price undercutting under Article 3.2 of the Anti-Dumping Agreement, the Panel notes that, by its very nature, this involves a comparison of prices, in particular the prices of dumped imports with the prices of the like domestic product. As the Appellate Body noted in China – GOES:

[A]n investigating authority must consider "whether there has been a significant price undercutting by the dumped or subsidized imports as compared with the price of a like product of the importing Member". Thus, with regard to significant price undercutting, Article 3.2 … expressly establish[es] a link between the price of subject products and that of like domestic products, by requiring a comparison be made between the two.57

7.48.
The Panel must decide whether, when conducting such a comparison of prices as part of an undercutting analysis, an investigating authority must take into account differences in the products being compared. In this regard, we note the Appellate Body's statement in China – GOES:

[W]e do not see how a failure to ensure price comparability could be consistent with the requirement under Article 3.1 … that a determination of injury be based on "positive evidence" and involve an "objective examination" of, inter alia, the effect of subject imports on the prices of domestic like products…We therefore see no reason to disagree with the Panel when it stated that "[a]s soon as price comparisons are made, price comparability necessarily arises as an issue".58

7.51.
Consequently, in the Panel's view, when price comparisons are conducted as a part of a price undercutting analysis under Article 3.2 of the Anti-Dumping Agreement, it is necessary for an investigating authority to consider whether the prices are actually comparable. The Panel notes that Article 3.2 does not mandate a specific methodology by which to ensure price comparability. When the issue relates to a lack of comparability due to product differences, including due to differences in market perceptions of the products for example, an investigating authority has multiple options in determining how to proceed. For instance, an investigating authority could make use of "carefully defined product categories for the collection of price information"60. Alternatively, the European Union argued that when it conducted its own investigation of x-ray scanners, its investigating authority accounted for relevant differences by comparing the actual sales prices charged by the exporter, with the prices offered by the domestic producers that submitted bids in the same tendering procedure. According to the European Union, this ensured that the comparison of prices occurred between products with the same specifications, as detailed in the call for bids61. A further example of a way in which to account for differences in the products being compared would be to make relevant adjustments. The Panel does not suggest that the detailed provisions regarding adjustments found in Article 2.4 of the Anti-Dumping Agreement should necessarily be transposed wholly into Article 3.2. This is because there are other ways to ensure price comparability under Article 3.2, apart from making adjustments, as just outlined. Further, the kind of adjustments required in comparing prices for the purpose of establishing a dumping margin may be different to those required in order to ensure an objective examination of price undercutting in the context of the injury and causation analyses62. However, in many instances relevant adjustments will effectively ensure price comparability under Article 3.2.

(ii) What were MOFCOM's obligations in relation to its price suppression analysis?

Did MOFCOM find price depression or price suppression?
7.52.
At the outset, the Panel notes that there is a disagreement between the parties regarding whether MOFCOM made a finding of price depression or price suppression. We recall that MOFCOM made the following finding in its Final Determination:

Although the import price of the Subject Product was slightly higher than the price of domestic Like Products in 2008, it remained at a low level, while the sales price of domestic Like Products decreased by 46.75% from 2008 to 2007, almost down to the unit sales cost, leaving unit gross profit rate at a low level. Other evidence showed that the unit production cost of domestic Like Products decreased by 53.67% from 2006 to 2008 while the sales price of domestic Like Products decreased by 72.68% over the same period, i.e., the rate of the decline of sales price was higher than the rate of production cost reduction by 19.01 percentage points, indicating that the sales price of domestic Like Products failed to remain at a reasonable level as a result of being [depressed/suppressed] by the import price of the Subject Product.63

7.53.
In the Panel's view, it is not necessary to decide whether MOFCOM's finding is best characterised as one of "price suppression" or "price depression". This is because the European Union's challenge does not centre on whether the facts as found by MOFCOM, namely that domestic prices decreased by more than the cost of production, can amount to a finding of price suppression. Rather, the European Union requests that the Panel examine the way in which MOFCOM compared prices in reaching its conclusion. The European Union acknowledges that its claim does not depend on the "label" assigned by China to its findings64.
7.54.
Therefore, if MOFCOM, through China, maintains that it made a finding of price suppression, the Panel is prepared to proceed on the basis of this label. However, in doing so, the Panel makes no comment regarding whether the notion of price suppression can in fact extend to circumstances where "the rate of the decline of sales price was higher than the rate of production cost reduction … as a result of being suppressed by the import price"65. Rather, the Panel needs only to assess whether the price comparison methodology used by MOFCOM to arrive at this conclusion was consistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement.

Did MOFCOM compare prices in making its price suppression finding?

7.55.
In response to the European Union's argument that MOFCOM did not take into account the differences between the scanners under investigation when conducting its price suppression analysis, China argues that price comparability cannot arise as an issue when considering price suppression. According to China, price suppression is "assessed on the basis of data pertaining to the domestic like product only and [does] not involve a comparison with the price of the imported product"66. Contrary to China's argument, in the Panel's view, in its price suppression analysis, MOFCOM relied on price comparisons in two contexts. First, even accepting MOFCOM's ultimate finding was one of price suppression, in reaching this finding MOFCOM made an intermediate finding that domestic prices had declined over the course of the POI. Second, in concluding that prices were suppressed due to the dumped imports, MOFCOM relied upon its price undercutting findings, which themselves relied upon a comparison between the dumped imports and the like domestic product.

- Decline in domestic prices

7.56.
The Panel notes that in reaching its price suppression finding, by comparing the changes in domestic prices with the changes in domestic costs over the POI, MOFCOM first concluded and ultimately relied upon the fact that domestic prices decreased by 72.68% over the course of the POI. This intermediate step involved a comparison of prices of the domestic like product over time. While the European Union does not contest the way in which MOFCOM compared domestic prices and domestic costs, it argues that the intermediate finding of a decrease in prices was not based upon an objective examination of positive evidence because MOFCOM did not take any steps to ensure comparability before proceeding with the comparison of domestic prices over the POI67.
7.57.
The Panel agrees with the European Union that when comparing domestic prices over time, MOFCOM was obliged to ensure that the domestic prices being compared were actually comparable. In particular, when comparing the price of a basket of goods over time, it is necessary to ensure price comparability by considering, and if necessary taking into account, any changes in the proportion of the product types making up the basket each year. Without ensuring comparability in this context, it is possible that an observed decline in the average unit prices may actually be the result of a change in the product mix, for example due to an increased proportion of lower priced domestic products being sold in a particular year, rather than due to a genuine change in domestic prices68.

- Reliance upon undercutting findings

7.58.
China's argument that a price suppression analysis does not involve a comparison between domestic prices and the prices of the imported product is based on an interpretation of Article 3.2 of the Anti-Dumping Agreement that requires only a consideration of the existence of price suppression per se and does not involve a consideration of whether there is a causal relationship between any price suppression found to exist and the dumped imports69.
7.59.
Although China pursues this argument before the Panel, the Panel notes that in MOFCOM's findings, it did in fact draw a link between the dumped imports and the price suppression, and indeed relied upon its findings of price undercutting to conclude that domestic prices were suppressed. This is in line with the Appellate Body's conclusion in China – GOES that it is not sufficient under Article 3.2 of the Anti-Dumping Agreement to consider only the existence of price depression or suppression per se. Rather, in conducting a price suppression analysis, it is necessary to consider whether dumped imports have "explanatory force" for the occurrence of suppression of domestic prices70. In the circumstances of this case, MOFCOM stated:

The import price of the Subject Product remained at a low level, lower than the price of domestic Like Products for most of the time during the POI such that it had an evident… [suppressing] effect on the price of domestic Like Products.71

7.60.
Therefore, it appears to the Panel that in reaching its conclusion that domestic prices were suppressed, MOFCOM did indeed consider the role of subject imports in this regard. In the Panel's view, MOFCOM relied upon its undercutting findings, in particular that the import prices remained lower than domestic prices for most of the POI, in concluding that the imports had a suppressing effect on domestic prices. Therefore, to the extent MOFCOM considered the "explanatory force" of the dumped imports for the price suppression of domestic products by relying on its undercutting findings, then any inconsistencies in MOFCOM's price undercutting analysis, due to a failure to ensure price comparability, will also render MOFCOM's price suppression findings inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement.

(iii) Did MOFCOM ensure price comparability in its price undercutting and price suppression analyses under Article 3.2?

Did MOFCOM take any steps to ensure price comparability?
7.61.
The Panel recalls that MOFCOM's price effects analysis involved the comparison of prices in two different contexts. First, MOFCOM compared the prices of the dumped imports and the like domestic product for the purposes of its price undercutting finding, which it subsequently also relied upon for its price suppression finding. Second, MOFCOM also compared the prices of the like domestic product over the course of the POI in order to reach the intermediate conclusion, for the purpose of its price suppression analysis, that prices of the like domestic product had declined.
7.62.
The record indicates that MOFCOM did not take any steps to ensure that the prices it was comparing for the purposes of its price undercutting and suppression analyses were in fact comparable. In particular, as indicated previously, in response to a Panel question regarding the method by which MOFCOM arrived at the annual average unit values used in its comparison, China clarified that MOFCOM did not ever request transaction specific or model-by-model data from Nuctech. Rather, MOFCOM divided the total domestic sales value of the domestic like product for each year of the POI by the quantity sold during the POI. Further, MOFCOM did not know the uses or energy levels of Nuctech's scanners that were sold during the POI and included in its price comparisons72. Therefore, based on the information that MOFCOM requested from Nuctech, it is clear that from the beginning of the investigation MOFCOM took the decision that any form of evaluation of the specifications or the prices of the products that it was including in its analysis was not necessary. In fact, MOFCOM did not examine any pricing data at all, but merely examined the total sales value of the domestic like product.
7.63.
Similarly, in relation to the data on dumped imports, MOFCOM did not have transaction specific or model-by-model data. Rather, MOFCOM used the total customs value for the subject product for each year of the POI and divided it by the import quantity of the subject product73.
7.64.
According to China, "MOFCOM … concluded that these price differences [between] models were not of a nature to overturn the conclusion that the price undercutting was 'significant'"74. However, without any data before it regarding the actual prices of the dumped imports and the like domestic product, as sold in China during the POI, it would have been impossible for MOFCOM to have reached this conclusion. Indeed, the conclusion is not reflected anywhere in MOFCOM's Final Determination.
7.66.
Consequently, in the Panel's view, MOFCOM's conclusion in the context of considering the scope of the investigation, namely that the domestic product was "like" the product under consideration, does not mean that MOFCOM fulfilled its obligation to ensure price comparability when conducting its price effects analysis under Article 3.2 of the Anti-Dumping Agreement.
7.67.
It is clear that from the start of the investigation, MOFCOM did not take any steps to consider or analyse whether the products it was comparing in its price undercutting and suppression analyses were actually comparable. This is contrary to the notion that "[a]s soon as price comparisons are made, price comparability necessarily arises as an issue"79. Without an examination of price comparability, MOFCOM did not ensure that its price undercutting and suppression analyses constituted an objective examination based on positive evidence.

Was there evidence before MOFCOM to put it on notice that price comparability should be assessed before conducting the price effects analysis?

7.68.
In the Panel's view, price comparability needs to be considered in all price effects analyses to ensure that the injury determination involves an objective examination based on positive evidence. However, in addition, in the circumstances of this case, there was a significant volume of evidence on the record to put MOFCOM on notice that price comparability was an issue and would need to be accounted for before undertaking price comparisons under Article 3.2 of the Anti-Dumping Agreement. This evidence is outlined in the sections below. In summary, based upon its review of the evidence before MOFCOM, the Panel concludes that it was clear that the dumped imports consisted only of "low-energy scanners", while there was no such limit on the energy levels of the domestic like product. Further, even accepting the existence of a "continuum" of scanners80, there was evidence on the record to indicate that there were significant differences between the dumped imports and some of Nuctech's scanners, in terms of uses, physical characteristics and prices, for example. Further, MOFCOM's own findings indicated that "high-energy" and "low-energy" scanners have different uses and are perceived differently by consumers. In the light of this evidence, the Panel is of the view that MOFCOM clearly failed to conduct an objective examination of positive evidence by proceeding with its price effects analysis without even considering, let alone taking into account, these differences in the products being compared. The following paragraphs provide a more detailed account of the evidence that was before MOFCOM.

- The evidence on the record before MOFCOM indicated that all imports were "low-energy" scanners, whereas domestic products were not so limited

7.69.
The evidence on the record supports the European Union's position that during the POI Smiths exported only "low-energy" scanners to China. For example, in its Injury Brief Smiths stated:

Smiths did not export high-energy scanners to China during the POI … Smiths' high-energy scanners could not have injured and did not injure the domestic high-energy scanner industry because Smiths exported only low-energy scanners to China during the POI.81

7.70.
Further, in its questionnaire response, Smiths listed all of the subject products produced by Smiths Heimann GmbH. All of the products were scanners with an energy level of 300 KeV or less82. Although China argues that this questionnaire response did not include information on the models exported to China in 2006 and 2007, the Panel is not convinced by this argument. We note that in its questionnaire response Smiths provided certain pricing information for 2008 only83. However, in other sections of the questionnaire, information for all years of the POI was provided84. In relation to the subject products produced by Smiths Heimann GmbH, the questionnaire stated "See the table below for all models of the Subject Product we produce", followed by the relevant table of information85. There is no indication at all that this information referred only to production in 2008. Further, at no stage in the investigation did either MOFCOM or Nuctech question Smiths' position that its German branch (Smiths Heimann GmbH) exported only "low-energy" scanners.
7.71.
In relation to the possible export of "high-energy" scanners to China by the French affiliate of Smiths Heimann GmbH, namely Smiths Heimann SAS, Smiths stated in its questionnaire response:

Smiths Heimann is the only company which manufactures and exports the Subject Product to China…Smiths Heimann has exported products to China through Smiths Detection (Asia Pacific) Pte Ltd. (Singapore). Other than these two companies, no other companies of Smiths Detection Group Limited have been involved in either production or sale of the Subject Products to China.86

Although China questions the relevance of this evidence in demonstrating that Smiths Heimann SAS did not export the subject product to China, on the basis that Smiths Heimann SAS is not included within "Smiths Detection Group Limited", the Panel notes a number of other statements by Smiths that support the position that Smiths Heimann SAS did not export to China, including:

Only Smiths Heimann GmbH in German[y] and Smiths Detection (Asia Pacific) Pte Ltd. are involved in the production or sale of the Subject Product to China87; and

Smiths Heimann SAS is an important production entity of Smiths Group in the EU, but it did not produce or export any Subject Products during the POI to China88.

7.72.
Further, the evidence before the Panel indicates that MOFCOM's investigation proceeded on the basis that there were no exports from Smiths Heimann SAS to China. In particular, MOFCOM did not ever request supplementary information from Smiths in relation to its statement that only Smiths Heimann GmbH exported to China. Further, MOFCOM did not ever apply facts available against Smiths Heimann SAS, on the basis that it was exporting to China but not cooperating. Finally, in response to a Panel question regarding the way in which MOFCOM used customs value data to determine the price of subject imports, China provided a confidential explanation which, in the Panel's view, confirms that MOFCOM was using customs value data only in relation to imports from Germany, and not from France or elsewhere89. Consequently, in the Panel's view, this confirms that the Smiths' export pricing data on which MOFCOM was relying related only to "low-energy" scanners.
7.73.
With respect to whether there may have been other European companies, apart from those in the Smiths group, exporting high-energy scanners to China, even Nuctech stated in the Application that, to its knowledge "Smiths Heimann is the only one in the EU countries that exports the subject product to China"90. Further, in its questionnaire response, Nuctech reiterated this and stated "[a]s such, the export data from the EU to China is the export data from Smiths Heimann to China"91.
7.74.
Therefore, in the Panel's view, the evidence on the record, which MOFCOM did not question, was that the dumped imports consisted only of scanners with energy levels of 300 KeV or less.
7.75.
In relation to the like domestic product, it is clear that it included both "low-energy" and "high-energy" scanners92. Regarding actual sales of the like domestic product during the POI, the Panel notes that before MOFCOM, Nuctech did not contest, in response to Smiths' arguments on product scope, that it sold both low- and high-energy scanners during the POI93. Consequently, the Panel considers that MOFCOM was on notice that Nuctech's sales were not limited to scanners with an energy level at or below 300 KeV.
7.76.
Therefore, the situation confronting MOFCOM was that the dumped imports consisted only of "low-energy" scanners, while the domestic "like" product consisted of both "low-energy" and "high-energy" scanners.

- Regardless of whether or not there is a "continuum" of scanners, the evidence on the record indicated that there were significant differences between the scanners under investigation

7.77.
The Panel recalls that the parties disagree regarding whether a clear cut-off line between "high-energy" and "low-energy" scanners exists. During the investigation, Smiths argued that there were considerable differences between scanners with an energy level at or below 300 KeV and scanners with an energy level above 300 KeV. Before the Panel, the European Union adopts these arguments but also acknowledges that there may be room for debate regarding whether the dividing line should be drawn precisely at 300 KeV. However, the European Union argues that it is clear that there is a wide and easily recognisable gap between "high" and "low-energy" scanners. In contrast, China argues that there is no clear-cut off line between scanners, but rather a "continuum" of scanners exists.
7.78.
A review of China's second written submission reveals that there is some merit to China's argument that the 300 KeV energy level does not always create a sharp distinction between the physical characteristics, uses, technological features, mechanical features, manufacturing processes and prices of scanners and that examples of overlap regarding these characteristics across the 300 KeV energy level can be found94.
7.79.
Therefore, the Panel acknowledges that the 300 KeV energy level does not necessarily provide a precise means of distinguishing between different types of scanners. However, whether there is a precise cut-off point between two categories of scanners based on energy level, or whether there is a "continuum" of scanners, as argued by China, is not determinative of the issue before the Panel. It is clear that the product under consideration, and consequently the "like" domestic product, were defined very broadly. For example, the like product was defined broadly enough to include scanners for objects such as cargo containers, trucks and railway carriages, and scanners for smaller objects, such as parcels and baggage at airports95. Further, the evidence provided by China in its second written submission to demonstrate that using the 300 KeV energy level as the cut-off point for different types of scanners is not appropriate in fact demonstrates the wide range of physical characteristics of the scanners under consideration96.
7.80.
While the 300 KeV energy level may not necessarily provide a precise cut-off point between product types, and even accepting the existence of a "continuum" of scanners, in the Panel's view, there was evidence on the record before MOFCOM to suggest that there were clear differences in uses and physical characteristics between the Smiths' scanners exported to China and some of Nuctech's scanners. This evidence is outlined below.

- Differences in physical characteristics and uses between the dumped imports and some of Nuctech's scanners

7.81.
Smiths made extensive submissions, in the context of contesting the scope of the product under consideration, to the effect that there are considerable differences between "low" and "high" energy scanners. Indeed, a comparison of Nuctech's scanners and the dumped Smiths' scanners on the Panel's record indicates that some of Nuctech's scanners exhibit very different physical characteristics and uses to the Smiths' scanners that were exported to China. For instance, the following represents a Nuctech scanner with an energy level of either 6MeV or 9 MeV. It is used to "penetrate and inspect fully-loaded railroad vehicles"97.

[SEE IMAGE IN SOURCE DOCUMENT]

7.82.
A further example of a Nuctech scanner with an energy level ranging from 1.5MeV to 6MeV that is used for "inspecting cars, cargo containers, empty containers, container trucks at seaports, border crossings, airports" is shown below98:

[SEE IMAGE IN SOURCE DOCUMENT]

7.83.
In its questionnaire response, Smiths GmbH provided the specifications of all the scanners it produced99. None of them look remotely like the Nuctech scanners shown above. An example of a Smiths scanner is shown below. As is evident from the image, it is used to scan hand luggage and other small items:

[SEE IMAGE IN SOURCE DOCUMENT]

7.84.
While China submits that "[i]t is only by juxtaposing the extremes of the spectrum that the EU is able to create the impression that completely different categories of scanner exist"100, in the Panel's view, there was evidence on the record before MOFCOM to suggest that some of Nuctech's scanners were at a very different place on the spectrum to most of Smiths' exports to China.
7.85.
With such differences in the physical characteristics and uses of the scanners exported by Smiths to China and some of the large scanners produced by Nuctech, it seems clear to us that MOFCOM was on notice of a need at least to consider comparability before conducting its price comparisons for the purposes of its undercutting analysis, and consequently its price suppression analysis, under Article 3.2 of the Anti-Dumping Agreement. Further, given that Nuctech's products included those ranging from small hand-luggage scanners to the large railway and container scanners shown above101, MOFCOM was on notice of the need to consider the product mix of Nuctech's annual sales before comparing domestic prices over time for the purposes of its price suppression analysis. In the Panel's view, for MOFCOM to make an intermediate conclusion of a price decline in Nuctech's products, which included both low- and high-energy scanners, without in some way considering and ensuring comparability of the basket of Nuctech goods over the POI, does not constitute an objective examination because observed changes in the average unit values could be the result of changes in the product mix, rather than genuine changes in prices. The Panel notes that the methodology used by MOFCOM, namely collecting total sales value and dividing it by quantity sold, without examining uses or prices of the imports or the domestic products, makes it clear that MOFCOM did not account for the differences in the products being compared. Rather, MOFCOM simply included all sales in its average unit value calculations. In the Panel's view, this is not consistent with an objective examination of positive evidence for the purposes of the price undercutting and price suppression analyses under Articles 3.1 and 3.2 of the Anti-Dumping Agreement.

- MOFCOM's own findings regarding "low-energy" and "high-energy" scanners support the position that price comparability needed to be considered

7.86.
In addition to the information on the record regarding the very different physical characteristics and uses of the imported products and some of Nuctech's scanners, MOFCOM itself made certain observations, in the context of considering the scope of the product under investigation, which support the notion that MOFCOM should have considered comparability before proceeding with its price effects analysis. In particular, in its Final Determination, MOFCOM stated:

Although X-Ray scanners of a high energy level are usually used to inspect large objects, while X-Ray scanners of a low energy level are used to inspect small objects, these are only variations adopted in accordance with different product designs and market elections.102

7.87.
In its Dumping Disclosure to Smiths, MOFCOM made the same statement, referring to the different uses to which "high-energy" and "low-energy" scanners are put as "variations adopted in accordance with differences in product design and market choice"103. Similarly, in the Dumping Disclosure to the European Commission, MOFCOM stated:

[F]irstly, from the physical characteristics, these two looked different, reflecting the morphological differences in integration, as the manufacturer chose different forms of product integration subject to different customer needs and product design … the difference of the ray source transmitter reflected high and low energy in product design, and the difference in the operating mechanism of the detection system was based on the energy level of detection and the choice of a more appropriate level of detection … Although the high-energy equipment was often used to detect large objects, while low-energy equipment was used to detect small objects, this was just a change based on product design and a different market.104

7.88.
Therefore, even MOFCOM acknowledged that "high-energy" and "low-energy" scanners generally have different uses, are perceived differently by consumers and are in "a different market". Although MOFCOM stated that "high-energy x-ray scanners can also be used to inspect small objects"105, MOFCOM's preceding statement indicates that this is the exception rather than the rule and generally does not reflect the "market elections" earlier referred to by MOFCOM106. Consequently, in the light of MOFCOM's acknowledgement, in the context of considering the scope of the product under investigation, that high-energy and low-energy scanners generally operate in different markets, in the Panel's view MOFCOM should have considered this when deciding upon its methodology for determining price effects under Article 3.2 of the Anti-Dumping Agreement. To be comparing the prices of Smiths' low energy scanners with the prices of a much broader mix of "like" Nuctech products, including products with different uses and which were not perceived by customers to be substitutable, does not constitute an objective examination of positive evidence for the purposes of the price undercutting (and consequently the price suppression) analysis under Articles 3.1 and 3.2 of the Anti-Dumping Agreement107. Further, to analyse the trends in the prices of Nuctech's products, which included both low- and high-energy scanners, without considering and taking into account changes in the product mix each year, does not constitute an objective examination of positive evidence for the purposes of the price suppression analysis.

- There was some evidence on the record before MOFCOM regarding significant differences in the prices of different models

7.89.
In addition to MOFCOM's own conclusions, Nuctech's submissions in its Application also should perhaps have suggested to MOFCOM that price comparability needed to be considered in the context of its Article 3.2 analysis. In particular, in submitting its domestic prices over the POI, Nuctech stated that "[b]ecause the prices of different types of Subject Products vary significantly, the change in the average price cannot show a trend of price change"108. Consequently, Nuctech separated the trends in the prices for two of its models, which together accounted for more than 80% of its sales109. The two models which Nuctech chose for this purpose were both "low-energy" scanners, indicating that in Nuctech's view even an aggregation of prices of "low-energy" models can lead to distorted conclusions when considering pricing trends over time.
7.90.
Smiths also made submissions regarding the price differences between "high" and "low-energy" scanners. In particular, Smiths stated in its Injury Brief that the price difference between its highest-priced low-energy scanner (a 300 KeV scanner) and lowest-priced high-energy scanner (a 2.5 MeV scanner) was approximately ten-fold110. Although before the Panel China submitted an example of two contracts relating to sales of Nuctech scanners in 2011, which demonstrated that a high-energy scanner had been sold at a lower price than a "low-energy" scanner111, the Panel remains of the view that the submissions on the record before MOFCOM regarding the differences in prices across models, including between "low-energy" and "high-energy" models, should at least have prompted MOFCOM to examine, and if necessary take into account, such differences prior to conducting its price effects analysis under Article 3.2112. The Panel notes that the contracts submitted to it by China were not on the record before MOFCOM and, in any event, relate to sales outside the POI. These transactions could therefore not have provided any justification for a conclusion by MOFCOM that there was no need to ensure comparability before making the price comparisons it did in its price undercutting and suppression analyses.

- Other evidence

7.91.
Finally, in addition to the aforementioned evidence before MOFCOM, there were also extensive submissions by Smiths to MOFCOM regarding the different uses, physical characteristics and technical features of "high-energy" and "low-energy" scanners113. The Panel does not consider that MOFCOM's examination of this evidence for the purpose of concluding that both "high-energy" and "low-energy" scanners could be included within the scope of the investigation was sufficient for the purposes of ensuring price comparability under Article 3.2 of the Anti-Dumping Agreement. MOFCOM's conclusions for the purposes of product scope were at a very high-level of generality. For instance, with respect to the functions and uses of the scanners, MOFCOM stated that there were no differences between the various scanners because "all X-Ray scanners were used to detect objects"114. In the Panel's view, the fact that all scanners were used to detect objects is clearly not determinative of whether the prices at issue were comparable for the purposes of the Article 3.2 price effects analysis.

Conclusion

7.92.
The Panel concludes that MOFCOM did not take any steps to ensure price comparability before undertaking its price comparisons as part of its price effects analysis. This was even though there was evidence on the record before MOFCOM to indicate that there were significant differences in the uses, physical characteristics and prices of the products being compared and in circumstances where MOFCOM had itself concluded that "high-energy" and "low-energy" scanners are perceived differently by consumers.

(g) What is the relevance of China's argument that Smiths did not provide the data that would have allowed MOFCOM to conduct a model-to-model price comparison?

7.93.
China argues that MOFCOM requested complete pricing data relating to the subject product for the three years of the POI. However, Smiths provided only average figures for certain models for 2008 and no pricing data at all for 2006 and 2007. Therefore, China contends that it was in fact impossible for MOFCOM to perform a model-to-model price effects analysis and that the use of the weighted average methodology was reasonable and appropriate in these circumstances.
7.94.
The Panel recalls that MOFCOM did not request pricing data from Nuctech, whether on a transaction specific basis or on a model by model basis, but rather requested the total domestic sales value for use in calculating average unit values. Therefore, even if Smiths had provided all of the data requested of it, given that MOFCOM did not request equivalent data from Nuctech, it appears that MOFCOM was not intending to employ a model-to-model price analysis. Consequently, the Panel is not convinced that the reason MOFCOM chose the methodology it did was due to Smiths' failure to provide certain data. Rather, as indicated previously, the data requested of Nuctech indicates to the Panel that MOFCOM decided at the outset to use its average unit value methodology.
7.95.
In any event, the Panel notes that under Article 6.8 and Annex II of the Anti-Dumping Agreement, there are explicit procedures for an investigating authority to follow when an interested party does not provide necessary information. Under specific circumstances, these procedures allow an investigating authority to fill factual gaps in the record with the best information available. The Panel notes that there is no evidence on the record that MOFCOM found Smiths had failed to provide necessary information within the meaning of Article 6.8 of the Anti-Dumping Agreement and had resorted to the facts available procedures under Annex II. In response to a Panel question, China confirms that MOFCOM did not make such a finding under Article 6.8 and did not apply facts available under Annex II115. Whether or not a resort to facts available under Article 6.8 and Annex II could ever justify the type of methodology employed by MOFCOM in this case, it is clear that in the absence of resorting to facts available, the flaws in MOFCOM's analysis cannot be cured by the argument that Smiths did not provide the necessary information. In the Panel's view, MOFCOM's approach was not "reasonable and appropriate"116, but was inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, and the lack of factual information before MOFCOM cannot justify this.
7.96.
In the light of this conclusion, it is not necessary for the Panel to resolve the issue raised by the European Union regarding whether MOFCOM in fact had sufficient information before it to conduct a price effects analysis that took into account the alleged differences between the products under consideration.

(h) Conclusion

7.97.
The Panel concludes that China acted inconsistently with Articles 3.1 and 3.2 of the Anti-Dumping Agreement by failing to ensure that the prices it was comparing as a part of its price effects analysis were actually comparable. In particular, the Panel concludes that MOFCOM's price undercutting and price suppression analyses were inconsistent with Articles 3.1 and 3.2 because they were not based on an objective examination of positive evidence.

D. THE STATE OF THE DOMESTIC INDUSTRY: ARTICLES 3.1 AND 3.4 OF THE ANTI-DUMPING AGREEMENT

1. Introduction

7.98.
The European Union submits that MOFCOM did not base its injury finding on positive evidence. Further, the injury evaluation did not involve an assessment of all relevant economic factors. Finally, the injury analysis ignored the positive state of the domestic industry, instead finding material injury based on a limited number of negative factors, ignoring the overall development and interaction among the positive and negative factors. China asks the Panel to reject the European Union's claim.

2. Relevant provisions

7.99.
Article 3.1 of the Anti-Dumping Agreement is set forth above. Article 3.4 of the Anti-Dumping Agreement provides:

The examination of the impact of the dumped imports on the domestic industry concerned shall include an evaluation of all relevant economic factors and indices having a bearing on the state of the industry, including actual and potential decline in sales, profits, output, market share, productivity, return on investments, or utilization of capacity; factors affecting domestic prices; the magnitude of the margin of dumping; actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments. This list is not exhaustive, nor can one or several of these factors necessarily give decisive guidance.

3. Main arguments of the parties

(a) European Union

(i) MOFCOM's failure to rely on positive evidence

7.100.
The European Union submits that MOFCOM relied on flawed data, contrary to the Article 3.1 obligation to use positive evidence. This argument is based on discrepancies between the data relied on by MOFCOM, and the data submitted by Nuctech. Since the domestic industry was made up only of Nuctech, the European Union contends that the trends found by MOFCOM on the basis of its record evidence should coincide to a great extent with the trends resulting from the data submitted by Nuctech.
7.101.
Although China argues that the data provided by Nuctech was adjusted pursuant to the verifications conducted by MOFCOM, the European Union argues that there is no evidence to support this. At no stage did MOFCOM alert interested parties to the fact that it had found discrepancies in Nuctech's data during verification and had subsequently modified the data.
7.102.
In response to China's explanation regarding the adjustments to the data on cash flow, investments and return on investment, namely that the figures were adjusted to remove information relating to exports and other products, the European Union submits that this is difficult to reconcile with the specific questions addressed to Nuctech. The questions referred to domestic like product and not to other products. The European Union also questions the basis (e.g. quantities, turnover, etc.) upon which MOFCOM made the adjustments.
7.103.
In addition to such alleged discrepancies between the information provided by Nuctech and the data reflected in MOFCOM's Final Determination, the European Union submits that there are other indicia making such data unreliable. In particular, the European Union refers to publicly available data regarding Nuctech's pre-tax profits and employment, which cannot be reconciled with MOFCOM's findings.
7.104.
The European Union notes that MOFCOM addressed the alleged discrepancies between its Final Determination and the publicly available data by stating that the public figures "included the information and data on other products in addition to the Like Products, while the determinations of the instant case only would be based only on the information and data on Like Products"117. The European Union submits that MOFCOM's rationale is questionable, since scanners accounted for approximately 90% of Nuctech's products.

(ii) MOFCOM's failure to examine all Article 3.4 factors

7.105.
The European Union submits that MOFCOM failed to examine the magnitude of the margin of dumping, notwithstanding the inclusion of this factor in Article 3.4 of the Anti-Dumping Agreement. According to the European Union, there is nothing in the Final Determination or on the record showing that MOFCOM evaluated or considered the relevance of this factor. Further, China has confirmed that MOFCOM does not have separate internal reports in which the factor may have been evaluated.

(iii) MOFCOM's failure to take into account differences between low-energy and high-energy scanners

7.106.
The European Union recalls its previous arguments regarding the differences between low-energy and high-energy scanners. The European Union considers that because the investigation covered products that belong to different markets and do not compete with each other, MOFCOM's use of weighted average values, in particular in the evaluation of the factors affecting prices and costs, was manifestly inadequate for considering the existence of material injury and did not constitute an objective examination.
7.107.
In response to China's argument that it would be contrary to Article 3.4 of the Anti-Dumping Agreement to focus on specific segments of the domestic industry, rather than examining the industry as whole, the European Union clarifies it is not arguing that MOFCOM was required to conduct a separate examination per segment of all factors having a bearing on the state of the domestic industry. Rather, the European Union focuses its argument on injury factors relating to prices and costs. The European Union argues that in circumstances where the domestic industry makes two very different products, the combination of price and cost data for both products leads to data which is not representative of, and does not indicate much about, the state of the domestic industry as a whole.

(iv) MOFCOM's failure to make a proper evaluation of the overall development and interaction among injury factors taken together

MOFCOM failed to provide a compelling explanation of whether and how the overwhelming majority of positive movements were outweighed by other factors that may have been moving in a negative direction
7.108.
The European Union submits that MOFCOM failed to provide a compelling explanation of how the overwhelming majority of positive injury factors were outweighed by negative injury factors.
7.109.
The European Union asserts that most injury factors examined by MOFCOM were positive or showed a positive trend. The European Union notes in particular that consumption, output, production capacity, capacity utilisation, sales volume, sales revenue, domestic market share, productivity, and wages experienced a significant increase between 2006 and 2008.
7.110.
Indeed, the European Union notes China agrees that, of the 16 factors considered by MOFCOM, only seven were negative. The European Union argues that MOFCOM disregarded the "trends" observed within factors over the POI. According to the European Union, a factor cannot be considered "negative" for the purpose of the injury analysis simply because there was a negative figure throughout the period or at the end of the period considered.
7.111.
The European Union acknowledges that profits remained negative during the POI. However, the European Union contends that there was nevertheless a positive trend in the domestic industry's profits, indicating that the state of the industry moved positively between 2006 and 2008.
7.112.
The European Union contends that certain other factors which MOFCOM considered to be "negative", namely the rate of return on investment, employment and cash flow, fluctuated up and down during the POI, generally showing a positive trend towards the end of the POI (with the exception of employment). In the European Union's view, these factors cannot correctly be characterised as "negative".
7.113.
With respect to employment, the European Union argues that at a time when wages were increasing and Nuctech's productivity was booming, the fluctuating employment rate cannot be considered negative as such. Further, given that Nuctech was making huge investments in the low-energy scanner market and expanding its production facilities, cash outflow is to be expected. However, the constant increase in the rate of return indicated that Nuctech's investment and cash flow were moving in a positive direction.
7.114.
The European Union submits that only two factors were negative and showed a negative trend for the domestic industry over the whole POI: domestic sales prices and inventories.
7.115.
According to the European Union, therefore, an overwhelming majority of the injury factors examined by MOFCOM were positive and showed a positive trend. Some were negative but showed a positive trend (profits), and others fluctuated showing a positive trend towards the end of the POI (rate of return and cash flow). One factor simply fluctuated up and down (employment), and others remained unclear although MOFCOM appears to have considered that they declined (investments and financing capacity). The only factors that were clearly negative and showed a negative trend for the domestic industry were the domestic sales price (showing constant decline throughout the POI) and inventories (showing an irregular increase throughout the POI).
7.116.
According to the European Union, such positive movements in such a large number of factors required MOFCOM to provide a "compelling explanation" of whether and how, in the light of such apparent positive trends, the domestic industry was, or remained, injured. The European Union submits that MOFCOM did not provide the required "compelling explanation".

MOFCOM's contradictory observations and failure to examine all factors in their proper context

7.117.
The European Union submits that MOFCOM's analysis of certain negative factors was inadequate for the purposes of Articles 3.1 and 3.4 of the Anti-Dumping Agreement, because MOFCOM made contradictory observations in a non-even-handed manner.
7.118.
The European Union submits that in its Final Determination MOFCOM made contradictory observations with regard to sales revenue, pre-tax profits, rate of return of the domestic x-ray security inspection equipment industry, net cash outflow, the domestic industry's financing and investment capacity and the reduction in employment.
7.119.
Aside from the alleged contradictory observations, the European Union submits that MOFCOM failed to examine the injury factors in their proper economic context. According to the European Union, an "evaluation" of a factor is not limited to a mere characterisation of its relevance or irrelevance. Rather, an "evaluation" also implies the analysis of data through placing it in context in terms of the particular evolution of the data pertaining to each factor individually, as well as in relation to other factors. In this regard, the European Union suggests that MOFCOM overlooked the issue of how and why domestic sales prices were decreasing, even in 2008 (by 46.7%), when the price of subject imports consistently increased throughout the period (including 2008, by 14%), and were actually higher than those of the domestic products in 2008118.
7.120.
The European Union submits that MOFCOM also failed to indicate what amount of profits or the domestic industry was "expected", or should normally have been able, to achieve in the expanding market. The European Union contends that, in a competitive market, such as the scanners market, growth and profits will depend on numerous factors, including the growth of other domestic and foreign competitors. MOFCOM did not provide any evidence showing that Nuctech should have been able to realise higher profits and growth than it actually did. The European Union also argues that MOFCOM failed to compare Nuctech's profits and growth to the profits and growth of other domestic and foreign producers, even though such evidence was on the record. The European Union submits that MOFCOM failed to examine Nuctech's expected growth and profits in the light of the growth of other domestic producers, which may also have usurped part of Nuctech's "expected" growth.

MOFCOM failed to take account of all facts and arguments on the record relating to the state of the industry: start-up status and aggressive pricing

7.121.
The European Union contends that MOFCOM failed to consider all facts and arguments on the record relating to the state of the domestic industry. The European Union argues that, in particular, MOFCOM failed to consider two relevant economic factors identified by Smiths that had a bearing on the state of the domestic industry: the start-up status of Nuctech in the low-energy scanners market, and Nuctech's aggressive pricing strategy. The European Union also submits that MOFCOM failed to take into account record evidence indicating that Nuctech was expanding both locally and overseas.

(b) China

(i) MOFCOM's failure to rely on positive evidence

7.122.
China recalls that the burden of proof is on the European Union, which is required, in order to make a prima facie case, to show how and why the evidence relied upon by MOFCOM is not of an affirmative, objective and verifiable character. China claims that the European Union fails to discharge this burden. According to China, the alleged existence of discrepancies between, on the one hand, MOFCOM's findings as reflected in its Final Determination and, on the other hand, the figures reported by Nuctech in its Application and in the Injury Questionnaire Response, cannot by itself demonstrate that the "evidence" on which MOFCOM based itself is not "positive", namely is not of an affirmative, objective and verifiable character.
7.123.
China contends that the findings made by MOFCOM regarding the various injury factors are based on the figures and data provided by Nuctech as adjusted where necessary after careful examination and scrutiny, in particular during the verification, in accordance with Article 6.6 of the Anti-Dumping Agreement. China notes that after verification, Nuctech provided revised data to MOFCOM, which excluded exports of the like product, and (domestic and export) sales of non-like products. China emphasises that the only relevant criterion to determine whether the data used is "positive" is whether such evidence is "of an affirmative, objective and verifiable character". China notes that the findings of the Appellate Body in Thailand – H-Beams clearly invalidate the European Union's position that data only becomes "positive evidence" if investigating authorities inform interested parties that the data has been modified pursuant to verifications. In fact, China contends that the European Union is confusing two different issues, namely whether investigating authorities inform interested parties of which data is used, on the one hand, and whether the investigating authorities base themselves on positive evidence, on the other. China also notes that MOFCOM expressly indicated in its Preliminary and Final Determinations that supplementary evidence and material was provided by Nuctech after verification.
7.124.
China also submits that the additional argument made by the European Union that "there are other indicia making such data unreliable"119 must equally be rejected. China asserts that MOFCOM specifically addressed the issue of differences between the figures provided by Nuctech and those reflected in other publicly available documents (such as the data disclosed by the parent company of the applicant in its annual reports as well as the information and data filed with the Administration for Industry and Commerce)120. In particular, MOFCOM noted that the figures "included the information and data on other products in addition to the Like Products, while the determinations of the instant case [] would be based only on the information and data on Like Products"121. In response to the European Union's attempt to dispute MOFCOM's conclusion on this issue, on the basis that scanners account for approximately 90% of Nuctech's products over the POI, China argues that there is no evidence on the record to support the European Union's position. Although China considered that it was not for it to furnish any evidence on this point, in fact China provided the relevant figures regarding the proportion of Nuctech's products accounted for by scanners, as originally provided by Nuctech and verified by MOFCOM during the course of the investigation. According to China, these figures invalidate the European Union's allegation.

(ii) MOFCOM's failure to examine all Article 3.4 factors

7.125.
China accepts that MOFCOM was required to examine all of the factors set forth in Article 3.4 of the Anti-Dumping Agreement. However, China contends that the Appellate Body in EC – Tube or Pipe Fittings clarified that there does not need to be an "explicit" evaluation of the factors, provided "a panel conducting an assessment of an anti-dumping measure is able to find in the record sufficient and credible evidence to satisfy itself that a factor has been evaluated"122.
7.126.
China submits that MOFCOM examined the "magnitude of the margin of dumping" and found margins that exceeded the "de minimis" threshold of Article 5.8 of the Anti-Dumping Agreement. China asserts that this evaluation is set out clearly in the Final Determination, even though it is not in the part concerning the injury determination. China also submits that MOFCOM expressly examined the dumping margins of the exporting producers and arrived at the following results:

1. Smiths Heimann GmbH 33.5%

2. All Others 71.8%123

7.127.
Accordingly, China contends that it flows from the foregoing that the magnitude of the margin of dumping had been examined and evaluated. China admits that MOFCOM did not expressly characterize such margins as being "significant" or "substantial", but claims that this is unnecessary where it follows from the decision to impose measures that the margins were greater than "de minimis".

(iii) MOFCOM's failure to take account of differences between low-energy and high-energy scanners

7.128.
China asks the Panel to reject the European Union's arguments regarding the impact of alleged differences between low-energy and high-energy scanners on MOFCOM's injury analysis. China asserts that MOFCOM investigated the like product issue raised by Smiths, and found that both "types" of scanners were "almost the same"124.
7.129.
China argues that the European Union's claim lacks any factual basis. This is because China maintains that there is no clear-cut distinction between scanners based upon whether their energy level is above or below 300 KeV.
7.130.
As a matter of law, China submits that the focus of the objective examination for the purpose of determining injury is the domestic industry as defined in accordance with Article 4.1 of the Anti-Dumping Agreement. China submits that MOFCOM was, therefore, required to determine the state of the domestic industry as a whole. Since MOFCOM concluded that the x-ray scanners domestically produced in China and the Subject Product were "like products", the injury determination had to be carried out with respect to the identified "like product" as defined above, i.e., in respect of domestic production of both low-energy and high-energy scanners. According to China, MOFCOM would have failed to act objectively if MOFCOM had focused its injury examination exclusively on "low-energy" scanners. Further, there is no requirement that an investigating authority carry out a separate analysis for allegedly different categories of the "like product". Therefore, by examining the domestic industry as a whole, MOFCOM carried out an objective examination as required by Article 3.1 of the Anti-Dumping Agreement.

(iv) Evaluation of the overall development and interaction among injury factors

MOFCOM's evaluation of the interaction between positive and negative injury factors
7.131.
China submits that there is no factual basis for the European Union's argument that most injury factors examined by MOFCOM were positive and that the only factors that were clearly negative and showed a negative trend for the domestic industry were the domestic sales prices and inventories. According to China, MOFCOM's analysis reveals a negative assessment of a significant number of factors. In this regard, as a preliminary matter China notes the statement by the panel in EC – Fasteners (China) that "a 'negative factor' in the assessment of the condition of the domestic industry is not limited to a factor for which the information demonstrates an actual decline in performance125". According to China, a factor which remains at a low level may be seen as a negative factor and support a finding of injury.
7.132.
Although China acknowledges that MOFCOM found positive developments with respect to certain factors (namely capacity, output, capacity utilisation, sales volume, market share, sales revenue, productivity and wages), China contends that factors that show positive developments do not preclude investigating authorities from making an affirmative determination of injury. According to China, MOFCOM provided a detailed and satisfactory explanation of both how the negative factors supported an affirmative injury determination and why the presence of several factors that showed positive trends could not overturn this conclusion. China argues that the examination carried out by MOFCOM shows an objective examination of positive evidence. MOFCOM's conclusions could reasonably have been reached by an objective decision-maker.

MOFCOM's allegedly contradictory observations and failure to examine all factors in their proper economic context

7.133.
In relation to the European Union's assertion that MOFCOM made contradictory observations "in its evaluation of all factors and the state of the domestic industry"126, China rejects this argument and contends that it is based on a distortion of MOFCOM's findings.
7.134.
Further, China notes the European Union's argument that an "evaluation" of an injury factor also implies the analysis of data through placing it in context in terms of the particular evolution of the data pertaining to each factor individually, as well as in relation to other factors examined127. China understands the European Union to argue that MOFCOM should have provided a logical explanation of how the different factors relate to each other and the economic context.
7.135.
China submits that in conducting its injury analysis, MOFCOM properly considered how the factors related to each other and to the wider economic context. In particular, MOFCOM concluded that Nuctech was forced to lower its prices to a level that could not be compensated for by the cost savings resulting from increased economies of scale: "[t]he increase of capacity, output, sales volume and market share of the domestic industry did not bring the expected profits to the domestic industry. Domestic industry suffered consistent losses throughout the POI"128. In the absence of dumped products, Nuctech would not have been forced to reduce its prices to such a low level and could have compensated price decreases by cost savings. This would in turn have permitted Nuctech to return to profitability.
7.136.
In response to the European Union's argument that the subject imports, which were increasing in price, could not have forced the domestic sales price to go down, China argues that in 2006 and 2007, the subject imports significantly undercut the domestic prices. Even in 2008, although subject import prices were slightly higher than domestic prices, they remained at a low level and continued to prevent Nuctech from becoming profitable. Further, the sales volume of subject imports increased by 88% and captured additional market share in a rapidly expanding market. China refutes the European Union's argument that Nuctech sacrificed profits in order to increase sales and its market share. According to China, this is based on the erroneous view that an industry would voluntarily expose itself to a situation of self-inflicted losses. Similarly, China notes that while in theory economies of scale and higher productivity rates may allow an industry to lower its prices, it is with a view to increasing profits and not to operating at a loss.
7.137.
In relation to MOFCOM's analysis of profits, China underlines that MOFCOM found that the domestic like product sustained serious losses and although losses were less in 2008 than 2007, the domestic industry was not able to turn losses into profits and this constituted a negative factor. China also emphasises that the term "serious" is adequate to describe the reported pre-tax profit figures, which were -34.88%, -31% and -1.84% over the POI. Finally, in response to a Panel question, China notes MOFCOM found that Nuctech did not realize the profit that should have been obtained. According to China, there was no need for MOFCOM to calculate the "expected profit". The important point was that Nuctech expected to be profitable, but was not129.

Whether MOFCOM took account of all facts and arguments on the record relating to the state of the industry: start-up status and aggressive pricing

7.138.
China asks the Panel to reject the European Union's claim that "MOFCOM failed to consider all facts and arguments on the record relevant to or having to do with the state of the domestic industry" and thereby, "failed to make an objective assessment of the impact of the dumped imports on the Chinese industry as required by Articles 3.1 and 3.4 Anti-Dumping Agreement"130.
7.139.
China notes that the European Union's claim concerns MOFCOM's treatment of two economic factors, namely the start-up situation of Nuctech in the low-energy scanners market, and Nuctech's aggressive pricing131. China submits that these are not elements that may potentially describe the state of the industry, but rather elements that may potentially cause the injury, i.e., they explain, rather than describe, the injured state of the industry. According to China, therefore, these factors are clearly not "factors or indices having a bearing on the state of the domestic industry" within the meaning of Article 3.4 of the Anti-Dumping Agreement.
7.140.
Furthermore, even if those indices were considered as "factors" that may have a bearing on the state of the domestic industry, China contends that the European Union has failed to demonstrate that those factors were relevant in assessing the impact of the dumped imports on the state of the domestic industry. According to China, the arguments made by Smiths concerning the alleged start-up situation and pricing policy of Nuctech were pure allegations, unsubstantiated by relevant evidence. China contends that not every factor raised by an interested party needs to be examined by an investigating authority. In the absence of evidence that the considerations raised by Smiths were "relevant economic factors having a bearing on the state of the industry", MOFCOM was not required to examine them in its injury analysis.

4. Evaluation by the Panel

(a) Whether MOFCOM relied on positive evidence

7.141.
The European Union argues that discrepancies between the data cited by MOFCOM in its Preliminary and Final Determinations and (i) data supplied by Nuctech in the Application and in response to the injury questionnaire; and (ii) data in publicly available documents, such in Nuctech's parent company annual reports and data filed with the Administration for Industry and Commerce, demonstrate that MOFCOM's determination was not based upon positive evidence.

(i) Do the alleged differences between the data relied upon by MOFCOM and the data supplied by Nuctech in the Application and in the injury questionnaire suggest that MOFCOM did not rely upon positive evidence?

7.142.
The first element of the European Union's argument that MOFCOM did not base its injury determination on positive evidence arises from alleged discrepancies between the data relied upon by MOFCOM and the data supplied by Nuctech in its Application and in the injury questionnaire132.
7.143.
An examination of the record supports the European Union's assertion, which is uncontested by China, that there are indeed discrepancies between certain findings made by MOFCOM and the information supplied by Nuctech. For example, with respect to cash flow, MOFCOM found cash outflow throughout the POI, although with reduced outflow in 2008133. In contrast, in its Application, Nuctech indicated that the domestic like product experienced cash inflow in 2006 and 2007, and cash outflow in 2008134. Further, in its questionnaire response, Nuctech reported cash inflow for the domestic like product in 2006 and 2007 and a balanced net cash flow of 0 in 2008135.

Did MOFCOM act inconsistently with Articles 3.1 and 3.4 by modifying data at verification without alerting interested parties to this?

7.144.
In response to the European Union's submission, China explains that, in accordance with Article 6.6 of the Anti-Dumping Agreement, MOFCOM conducted an on-site verification to satisfy itself of the accuracy of the information provided by Nuctech. China's initial position was that, as a result of this verification, MOFCOM adjusted the information supplied by Nuctech136. However, during the second meeting with the Panel, China clarified that Nuctech, rather than MOFCOM, performed the necessary adjustments. In particular, during the verification, MOFCOM found that some of the figures provided by Nuctech in its initial questionnaire response incorrectly included exports of the domestic like product. Revised data and information was therefore provided by Nuctech after verification. MOFCOM relied upon this revised data. At various stages of its submissions, China also argues that MOFCOM excluded data relating to sales of products other than the like product137. However, in response to a Panel question, which highlighted that the data provided by Nuctech on cash-flow, investments, return on investments, sales revenue and profits included only the domestic like product138, China refers only to the exclusion of data relating to export sales upon verification and does not press the point that data relating to non-like products was also excluded139.
7.145.
According to the European Union, China's explanation is untenable. The European Union complains that at no stage did MOFCOM alert interested parties, in a letter or in its determinations, to the fact that it had modified the data provided by Nuctech pursuant to an on-site verification. According to the European Union, if MOFCOM's conduct were found acceptable by the Panel, "investigating authorities could completely disregard the figures on the record available to all parties and on the basis of which the parties have based their defence"140.
7.146.
We note that in its Preliminary and Final Determinations, MOFCOM disclosed the injury data upon which it based its findings. We understand that the European Union's complaint is not that MOFCOM failed to disclose the data upon which it was relying, but rather that MOFCOM did not explain that it had modified the data supplied by Nuctech as a result of an on-site verification. In our view, this aspect of the European Union's argumentation appears to blur the lines between the requirement that an injury determination be based upon positive evidence and the requirements regarding disclosure of evidence and reasoning found elsewhere in the Anti-Dumping Agreement, such as in Articles 6 and 12. We would suggest that whether evidence is "positive", in the sense of being affirmative, objective and verifiable, is unrelated to whether an investigating authority has explained or disclosed the way in which it derived the data. In other words, in the reference to "positive evidence", Article 3.1 of the Anti-Dumping Agreement disciplines the substantive adequacy of the evidence relied upon by an investigating authority, rather than imposing procedural obligations in relation to the disclosure of the reasoning or method by which the investigating authority derived the evidence. We find some support for this approach in the Appellate Body's report in Thailand – H-Beams. The specific question before the Appellate Body in that case was whether the investigating authority was required to base its injury determination only upon non-confidential information, on the basis that this was the only evidence disclosed to, or discernible by, parties to the investigation. The Appellate Body made a number of general statements to indicate that the positive evidence requirement in Article 3.1 is concerned with the nature of the evidence, rather than with procedural obligations:

The focus of Article 3 is thus on substantive obligations that a Member must fulfil in making an injury determination…

[T]he ordinary meaning of [positive evidence and objective examination] does not suggest that an investigating authority is required to base an injury determination only upon evidence disclosed to, or discernible by, the parties to the investigation…

Article 12, like Article 6, sets forth important procedural and due process obligations. However, as in the case of Article 6, there is no justification for reading these obligations into the substantive provisions of Article 3.1.141

7.147.
Therefore, in our view, the European Union's complaint that MOFCOM failed to inform interested parties that it had modified certain data supplied by Nuctech as a result of the on-site verification is an argument about the procedural obligations disciplining investigating authorities. It does not bear upon whether the evidence is "positive".
7.148.
The European Union also argues that when collecting information regarding the state of the domestic industry, questionnaires should be drafted in a clear manner so that interested parties know whether information relating only to domestic performance, or both domestic and export performance, is being collected. According to the European Union, the questionnaire sent to Nuctech was vague in this respect142. The Panel agrees that when issuing questionnaires, it is certainly desirable that investigating authorities ensure that they are as clear and unambiguous as possible. However, the Panel can find no basis to conclude that any lack of clarity, resulting in modifications to the data upon verification, bears upon the determination of whether the modified data ultimately relied upon is "positive" or not.

Was the modified data relied upon by MOFCOM positive evidence?

7.149.
Even though the Panel does not consider that MOFCOM's lack of disclosure in relation to the verification process, and its alleged lack of clarity in its questionnaire, creates an inconsistency with respect to Articles 3.1 and 3.4 of the Anti-Dumping Agreement, the question remains whether the evidence relied upon by MOFCOM can be considered "positive". The Panel must determine whether the European Union has established a prima facie case that the evidence upon which MOFCOM relied in making its injury determination was not of an affirmative, objective and verifiable character and was not credible.
7.150.
The European Union's case regarding the evidence relied upon by MOFCOM appears to be based on two main arguments. The first effectively amounts to a suggestion that MOFCOM cannot in fact have modified the data by excluding information relating to exports, while the second is an argument that if MOFCOM did modify the data in this way, the export information upon which it relied was not credible, such that the resulting modified data was not positive evidence.

- Did MOFCOM have the necessary information before it to modify the data in the manner alleged by China?

7.151.
In relation to the first argument, the European Union contends that it is not clear from the public record that MOFCOM asked Nuctech for specific evidence regarding its profitability in the export market, thereby allowing MOFCOM to modify the data to exclude that relating to exports. In making this argument, we surmise that the European Union is suggesting that MOFCOM did not have evidence before it relating to Nuctech's export performance, or at least that the "precise evidence provided directly by Nuctech to MOFCOM was lacking" from the public record143.
7.152.
An examination of the questionnaire lends some support to the European Union's position that MOFCOM did not ask Nuctech a direct question regarding the profitability of its exports. We note that the questionnaire did ask Nuctech to provide information on the volume, sales revenue and prices of its exports144. Apart from the question relating to sales revenue, it does not seem that the requested information would have been adequate to allow MOFCOM itself to adjust the aggregated data on cash flow, investments, return on investments and profits to take account of exports145. However, China's position is not that MOFCOM requested information on exports and then adjusted the aggregate figures itself using this information. Rather, China argues:

[D]uring the verifications, MOFCOM found out that the figures provided in the initial reply to Question 20 of the Questionnaire Response of Nuctech incorrectly included exports of the domestic Like Product. Revised data and information were therefore provided by Nuctech after verification. MOFCOM used the revised data which were part of the record.146

7.153.
Therefore, according to China, upon verification MOFCOM realised that certain data originally provided by Nuctech included information relating to the export of the like domestic product. China's explanation indicates that as a part of the verification process, Nuctech was alerted to this problem and it subsequently provided revised responses. This is corroborated by the existence on the Panel's record of Nuctech's revised questionnaire response to question 20147. It includes data on sales revenue and profits for the like domestic product, excluding that relating to exports.
7.154.
In relation to MOFCOM's conclusion in the Final Determination that "the export of domestic X-ray security inspection equipment increased profits for the domestic industry", China argues that by comparing the original tables of data provided by Nuctech in response to the questionnaire, with the modified tables following verification, MOFCOM obtained the necessary information on profitability of Nuctech's exports of the like product148. The Panel considers this to be a plausible explanation of how MOFCOM was able to draw a conclusion regarding export profitability.
7.155.
Consequently, in the Panel's view, the European Union has not successfully established that MOFCOM, together with Nuctech, did not or could not have adjusted aggregated data to exclude information relating to the export of the like domestic products. Further, the Panel is satisfied that MOFCOM had information before it to draw a conclusion about export profitability in the Final Determination.

- Was the information relied upon by MOFCOM in modifying the original information submitted by Nuctech credible?

7.156.
The second prong to the European Union's argument relates to the credibility of the export data underlying the adjustments to the original data provided by Nuctech. In other words, even accepting that during the verification process Nuctech's data was adjusted to exclude the information relating to exports, the European Union argues that the export data relied upon in this process was not credible.
7.157.
Essentially, the European Union argues that there was evidence on the record suggesting that exports of the like domestic product were having a negative effect on the state of the industry, whereas MOFCOM's findings suggest the opposite. Indeed, in the Final Determination, MOFCOM found:

During the POI, domestic X-Ray security inspection equipment also had export trade in which some products were exported through contract manufacturing. Evidence showed that during the POI, the export of domestic X-Ray security inspection equipment increased profits for domestic industry, while serious losses in sales in the domestic market were the main reason for the difficulties suffered by the domestic industry. Thus, during the POI, the material injury to domestic X-Ray security inspection equipment industry was not caused by the export of domestic Like Products.149

7.158.
Further, in the Application, Nuctech stated:

The export volume of domestic like products continued to increase, and export profit conditions have been relatively good. Thus, the export performance of the domestic industry cannot have had a great effect on the overall injury suffered by the domestic industry. Therefore, the export performance of the domestic industry is not the reason for the injury to the domestic industry.150

7.159.
The changes in certain variables following verification also demonstrate that Nuctech and MOFCOM were relying on data indicating that exports of the like domestic product were having a positive effect on the state of the domestic industry. For instance, in its Application, Nuctech stated that the domestic like product experienced cash inflow in 2006 and 2007, and cash outflow in 2008151. Further, in its questionnaire response, Nuctech reported cash inflow for the domestic like product in 2006 and 2007 and a balanced net cash flow of 0 in 2008152. By contrast, once having adjusted for exports, MOFCOM found cash outflow throughout the POI, although with reduced outflow in 2008153.
7.160.
The European Union's position is that there was evidence on the record to demonstrate that one of the reasons for Nuctech's losses was precisely its losses in the export markets. On this basis, the European Union argues that MOFCOM's figures to the contrary are not positive evidence. In particular, the European Union notes that in its rebuttal to the applicant's comments, Smiths argued:

Numerous public documents filed by the Petitioner's listed parent company, Tsinghua Tongfang, have stated consistently that exports were the cause, not the cure, of its financial difficulties. For example, on page 41 of the annual report, Tsinghua Tongfang states that it experienced a 17% increase in outstanding cash receivable 'because of the expansion of its subsidiaries Nuctech and Taihao Technology, and because of the long implementation cycles of overseas projects'. Tsinghua Tongfang's 2009 filings again stated that 'the pressure faced by [its] security inspection business increased tremendously as an impact of the worldwide financial crisis'. It further stated that Petitioner 'rolled out leasing arrangements in response to the declining purchasing power of overseas customers'.154

7.161.
The European Union also refers to an exhibit attached to Smiths' Injury Brief, in the form of a report in a Chinese magazine, Caijing, which stated that Tongfang's declined financial performance was due to the negative impact of the 2008 global economic crisis on Nuctech's "export-oriented security inspection business"155.
7.162.
For the reasons following, the Panel is not convinced that the evidence cited by the European Union is sufficient to establish a prima facie case that MOFCOM did not rely upon positive evidence:

· Increase in outstanding cash receivable due to "long implementation cycles of overseas projects"

7.163.
In relation to this extract from a Tongfang annual report, China argues that the reference to "long implementation cycles of overseas projects" cannot be taken to mean that Nuctech's export performance was bad. It merely indicates that overseas projects take time to complete"156. The Panel agrees that the term "overseas projects" is somewhat ambiguous and may not necessarily be a reference to export performance. In any event, as argued by China, the report does not indicate whether the overseas projects are those of Nuctech or some other company within the Tongfang group157.

· The pressure faced by [its] security inspection business increased tremendously as an impact of the worldwide financial crisis

7.164.
The Panel notes that this statement is drawn from a filing made by Tongfang in 2009 and therefore, it is not clear whether the pressure increase occurred during the POI, or only after it. In any event, as China notes, the worldwide financial crisis began in mid-2008. China argues that as most export contracts are concluded months in advance, it is logical that the impact of the financial crisis would not be felt in 2008158. In the Panel's view, even if the impact of the financial crisis were felt by Nuctech in the second half of 2008, it is possible that the overall export performance over the course of 2008 (and indeed over the POI) was positive and therefore consistent with the evidence relied upon by MOFCOM159.

· The Applicant rolled out leasing arrangements in response to the declining purchasing power of overseas customers

7.165.
The Panel agrees with China's argument that this statement does not represent direct evidence of "losses"160 in the export market161. In fact, the extract indicates that Nuctech implemented a plan to prevent or react to negative developments in overseas markets. This strategy may well have been successful in maintaining a positive export performance and therefore, the Panel does not consider it to be very strong evidence that Nuctech was performing poorly in the export market. The Panel also notes that the statement is in an extract from a 2009 filing, and therefore it is not clear whether the developments it discusses occurred within the POI or not162.

· Tongfang's declined financial performance was due to the negative impact of the 2008 global economic crisis on Nuctech's "export-oriented security inspection business"

7.166.
Although the Panel considers this to be evidence that Nuctech's exports of the like domestic product suffered due to the 2008 global financial crisis, the Panel again notes that it is not clear that this downturn in exports would have been experienced during the POI163.

Conclusion

7.167.
In the Panel's view, the European Union has not presented adequate evidence to demonstrate that MOFCOM did not rely upon positive evidence in making its determination. In particular, the Panel is not convinced by the European Union's suggestion that the data originally provided by Nuctech in its questionnaire could not have been modified to exclude information relating to exports. Further, accepting that the data provided by Nuctech was modified at verification, the European Union has not established that the export data relied upon to do this was lacking in credibility.

(ii) Are the alleged differences between the data relied upon by MOFCOM and the data in publicly available documents indicia that MOFCOM's data is not "positive evidence"?

7.168.
The European Union argues that discrepancies between the data relied upon by MOFCOM and the data found in Nuctech's parent company annual report as well as data filed with the Administration for Industry and Commerce are indicia that the data reflected in MOFCOM's Final Determination is unreliable164.
7.169.
China does not contest that there are discrepancies between the data cited by MOFCOM in its determinations and data in certain publicly available documents. Indeed, an examination of the evidence reveals that in a report prepared by Nuctech's parent company, Tongfang, the gross profit margins for Nuctech were cited as 25.52% in 2006, 27.42% in 2007 and 25.86% in 2008165. The European Union contends that it is difficult to reconcile these figures with the negative pre-tax profits reported in MOFCOM's Final Determination. Further, in its reports to the Administration for Industry and Commerce, Nuctech reported increasing employment over the POI, whereas in its Final Determination, MOFCOM found fluctuating employment levels166.
7.170.
In the Final Determination, in response to comments from Smiths regarding the discrepancies between the data in the Preliminary Determination and the publicly available data disclosed by Nuctech's parent company, MOFCOM explained:

Upon investigation, we found that the Petitioner also produced other products in addition to the Like Products in the instant case. Both the information and data disclosed by the parent company of the Petitioner in its annual reports as well as the information and data filed with the Administration for Industry and Commerce included the information and data on other products in addition to the Like Products, while the determinations of the instant case only would be based only on the information and data on Like Products.167

7.171.
The European Union disputes the explanation provided by MOFCOM in the Final Determination. The European Union's position is that the like domestic product accounted for a major proportion of Nuctech's production, such that the differences between the data relied on by MOFCOM and that in publicly available documents should not have been so marked. In particular, in its written submissions, the European Union contends that scanners accounted for approximately 90% of Nuctech's production. The European Union explains that this figure represents Smiths' best estimate, based upon its market knowledge at the time168. The European Union also relies upon a number of statements on the record indicating that the domestic like product made up a "significantly high" proportion of Nuctech's production169. For example, the European Union quotes from a report of Nuctech's parent company, which provides "[t]he predecessor of Nuctech was Tsinghua Tongfang nuclear technology company which was founded in 1997, specialized in … the large-container inspection system"170. Further, in its Injury Brief, Smiths extracted a table from Tongfang's 2007 prospectus, which stated that Nuctech's "main products or core businesses" were "container inspection systems"171.
7.172.
The Panel notes that in its first written submission, the European Union also states that "until 2008 Nuctech produced only scanners"172. This seems to suggest that Nuctech's production consisted only of the like domestic product until 2008, because in the same paragraph of its first written submission, the European Union refers to scanners as "the subject products"173. However, in response to a Panel question on this point, the European Union clarifies that "it is not contested that Nuctech made products other than the products concerned in 2007 or 2008"174. Further, the statement "should not be interpreted as a factual assertion indicating that Nuctech did not make products other than scanners until 2008"175. Indeed, the Panel notes that in Attachment 7 to its questionnaire response, Nuctech indicates that its total production and production of the "domestic like product" differed at least as early as 2007176. Consequently, in making its determination regarding whether the differences between the data relied upon by MOFCOM and that in certain public reports indicate that MOFCOM did not rely upon positive evidence, the Panel does not give any weight to the European Union's statement that "until 2008 Nuctech produced only scanners". If the European Union had originally intended to rely upon this statement to suggest that the data used by MOFCOM and that found in the public reports should have been the same at least up until 2008 (subject to the adjustment made by MOFCOM to account for exports), the Panel cannot rely upon it for this purpose, given the European Union's concession that Nuctech was producing goods other than the like product prior to 2008177.
7.173.
Despite China's argument that the European Union had merely asserted a fact without providing proof thereof, and consequently that it was not required to furnish evidence of the proportion of Nuctech's production accounted for by the like domestic product, China ultimately provided to the Panel the relevant confidential figures178.
7.174.
The Panel notes that MOFCOM assessed the injury to the domestic industry caused by subject imports by excluding data relating to exports. Once export revenue is excluded, the proportion of the domestic sales revenue accounted for by the like domestic product is nowhere near the 90% estimate advanced by the European Union179.
7.175.
Consequently, in the Panel's view, the European Union has not made out its case that the discrepancies between the data used by MOFCOM and the data in certain public sources indicate that MOFCOM did not rely on positive evidence. The European Union's submissions relied heavily on an assertion that 90% of Nuctech's production over the POI was accounted for by the like domestic product. Although it is not clear to the Panel that such an assertion was sufficient to establish a prima facie case regarding the lack of positive evidence, in any event the Panel is of the view that in presenting the figures in Nuctech's questionnaire response, as verified by MOFCOM, China has clearly rebutted any such prima facie case. Although there was some evidence on the record that Nuctech's "main products or core businesses" were "container inspection systems"180, once export sales revenue was accounted for, the proportion of Nuctech's sales revenue arising from sales of the like domestic product was very significantly less than suggested by the European Union. In the Panel's view, the European Union has not successfully challenged the explanation provided by MOFCOM in the Final Determination for the differences between the data it relied upon and that found in certain public reports.
7.176.
Therefore, the Panel concludes that the European Union has not established that the discrepancies in the data used by MOFCOM and that found in certain public reports indicate that MOFCOM did not rely on positive evidence.

(iii) Conclusion

7.177.
In conclusion, the European Union has not established that MOFCOM failed to rely upon positive evidence in making its findings on the state of the domestic industry. Therefore, the European Union has not made out its case that in this regard China acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement.

(b) Whether MOFCOM examined all factors listed in Article 3.4 of the Anti-Dumping Agreement

7.178.
The European Union argues that MOFCOM acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement because it did not examine all factors listed in Article 3.4, in particular it failed to examine the "magnitude of the margin of dumping".
7.179.
We note that the Appellate Body and a number of panels have found that it is mandatory for an investigating authorityto evaluate each of the 15 factors listed in Article 3.4 of the Anti-Dumping Agreement181. For instance, in Thailand – H-Beams the Appellate Body stated:

The Panel concluded its comprehensive analysis by stating that "each of the fifteen individual factors listed in the mandatory list of factors in Article 3.4 must be evaluated by the investigating authorities …". We agree with the Panel's analysis in its entirety, and with the Panel's interpretation of the mandatory nature of the factors mentioned in Article 3.4 of the Anti-Dumping Agreement.182

7.181.
In the Panel's view, the text of Article 3.4 of the Anti-Dumping Agreement, namely that the examination "shall" include an evaluation of all relevant economic factors, including the 15 listed in the provision, clearly requires that each of the factors be evaluated. Therefore, the Panel agrees with the reasoning of previous panels and the Appellate Body in this regard.
7.182.
In the circumstances of this case, MOFCOM did not refer to the "magnitude of the margin of dumping" in its Final Determination when conducting its injury analysis and in particular when conducting its "assessment of industry-related economic factors and indicators"184. However, in two sections of the Final Determination, namely in the sections entitled "Dumping and Dumping Margin" and "Final Conclusion upon Investigation", MOFCOM listed the margins of dumping for Smiths and "all others"185. China argues that this constituted an express examination by MOFCOM of the margin of dumping. Further, although MOFCOM did not explicitly characterise the margins as "substantial" or "significant", "it follows from the decision itself to impose measures that the margins were not considered to be de minimis"186.
7.185.
Therefore, the Panel concludes that China has acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement in failing to have evaluated the "magnitude of the margin of dumping".

(c) Whether MOFCOM should have taken into account the differences between low-energy and high-energy scanners in its injury analysis

7.186.
In its first written submission, the European Union argues that the "use of weighted average values in the injury factors is manifestly inadequate for considering the existence of material injury where the investigation covers different types of products with widely different prices that do not compete with each other and thus belong to distinct markets"189. The European Union then proceeds to give examples of aggregated injury factors, namely domestic sales revenue, prices, unit costs of production and the comparison between domestic industry prices and unit costs, that it claims were inadequate for assessing material injury due to the use of weighted average unit values190. In its second written submission, the European Union clarifies that it does not argue that MOFCOM was required to carry out a separate examination of all factors having a bearing on the state of the domestic industry per segment or sector and it does not argue that MOFCOM should have focused its injury examination exclusively on low-energy scanners191. Rather, the European Union "focuses its argument primarily on injury factors relating to prices and costs"192. According to the European Union, MOFCOM was not entitled to aggregate certain data, "in particular relating to prices and costs", as this was not consistent with an objective examination of the state of the industry193.
7.187.
We note that the Appellate Body and a number of panels have interpreted the meaning of the obligation to examine the impact of the dumped imports on the "domestic industry" under Article 3.4 of the Anti-Dumping Agreement. In US – Hot Rolled Steel, the Appellate Body noted that the term "domestic industry" is defined in Article 4.1 of the Anti-Dumping Agreement and refers to "domestic producers as a whole of the like products or to those of them whose collective output of the products constitutes a major proportion of the total domestic production of those products". Therefore, the Appellate Body reasoned that the reference to the "domestic industry" in Article 3.4 indicates that the injury examination must focus on the totality of the "domestic industry" and not simply on one party, sector or segment of it194. Having said this, the Appellate Body noted that in some circumstances it may be "highly pertinent", from an economic perspective, for an investigating authority to undertake an evaluation of particular parts, sectors or segments within a domestic industry in assessing the state of the industry as a whole195. However, any segmented analysis must be conducted in an "objective manner". According to the Appellate Body, this means that where one sector within the domestic industry is examined under Article 3.4, an investigating authority should also examine all other sectors making up the industry, as well as the industry as a whole196. A number of panels have employed the same reasoning as that found within the Appellate Body report197. We note that while the Appellate Body has commented that supplementing an assessment of the state of the entire domestic industry with a segmented analysis may be highly pertinent in some circumstances, the Appellate Body has never been required to consider whether a failure to conduct an analysis by sector may in some circumstances amount to acting inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement.
7.188.
In the circumstances of this case, the Panel does not consider it necessary to resolve whether MOFCOM acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement by making its injury findings on the basis of the industry as a whole and not conducting a segmented analysis based on any distinction between products produced by the domestic industry. In its second written submission, the European Union clarifies that the focus of its concerns under Article 3.4 relates to prices and costs. In particular, the European Union quotes from two sections of the Final Determination, which state that "[the price of domestic Like Products] dropped by 72.68% from 2006 to 2008 and was below or almost as low as unit sales cost" and "the sales price of domestic Like Products decreased by 46.75% from 2008 to 2007, almost down to the unit sales cost"198. An examination of the Final Determination reveals that both of these quotes are taken from sentences or sections of the Final Determination discussing the price comparison between the subject imports and the domestic product or the comparison of domestic prices over the POI. The first sentence is drawn from the following discussion in the Final Determination:

[T]he import price of the Subject Product remained at low levels and was lower than the price of domestic like products for most of the time during the POI. This had obvious undercutting and [suppressing] effects on the price of domestic Like Products, which dropped by 72.68% from 2006 to 2008 and was below or almost as low as unit sales cost.199 (emphasis added)

Similarly, the second discussion of the sales price of the domestic like product quoted by the European Union is drawn from a subsection of the injury determination entitled "the impact of the import price of the Subject Product on the price of domestic Like Products". The quote comes from the following sentence:

Although the import price of the Subject Product was slightly higher than the price of domestic Like Products in 2008, it remained at a low level, while the sales price of domestic Like Products decreased by 46.75% from 2008 to 2007, almost down to the unit sales cost.200 (emphasis added)

7.189.
Therefore, in the Panel's view, there is considerable overlap between the European Union's claim under Articles 3.1 and 3.2 of the Anti-Dumping Agreement and its claim under Articles 3.1 and 3.4. Essentially, the European Union complains that the analysis of domestic prices and costs, in the context of the price effects analysis, should have been disaggregated under Article 3.4. However, the Panel's finding under Article 3.2, namely that MOFCOM erred in failing to take into account the differences between products in its analysis of price undercutting and price suppression, addresses the concerns regarding the aggregation of prices raised by the European Union under Article 3.4. The Panel does not consider it necessary to make a further finding of inconsistency, this time under Article 3.4, in relation to the same aspect of MOFCOM's reasoning. In the light of this, and the fact that the Panel has elsewhere found China to have acted inconsistently with Article 3.4, the Panel exercises judicial economy in relation to this section of the European Union's Article 3.4 claim.

(d) Evaluation of the overall development and interaction among injury factors

7.190.
The European Union argues that MOFCOM failed to make a proper evaluation of the overall development and interaction among injury factors and thereby acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement. In making this argument, the European Union proceeds on the assumption that MOFCOM based its analysis on positive evidence and contends that the manner in which MOFCOM evaluated the evidence was not objective201.
7.191.
The European Union contests three different aspects of MOFCOM's examination of the injury factors, and claims that each gives rise to a violation of Articles 3.1 and 3.4202. First, the European Union argues that MOFCOM did not conduct an objective examination when considering the interaction between positive and negative injury factors; second, MOFCOM failed to examine all factors in their proper context and made contradictory observations; and third, MOFCOM failed to take into account all facts and arguments on the record relating to the state of the industry.
7.192.
In relation to the third aspect of the European Union's argument, the Panel examines this as a part of its Article 3.5 analysis, for the reasons therein explained203.
7.193.
In the Panel's view, there are considerable overlaps between the first and second aspects of the European Union's argument. Therefore, the Panel considers it appropriate to examine the two aspects of the argument together, in an integrated approach, reaching one overall conclusion regarding whether China acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement. The second prong to the European Union's argument, namely that MOFCOM failed to examine all factors in their proper context and made contradictory observations, is itself based on three allegations. The allegations are that MOFCOM made contradictory observations when describing certain injury factors, that MOFCOM did not indicate the basis on which it concluded that profits were below those "expected" and finally, that MOFCOM's finding regarding domestic prices does not support its injury finding. We evaluate the first two allegations as part of the integrated approach to this aspect of the European Union's case. However, with respect to the third allegation, we exercise judicial economy. This is because the third allegation is that MOFCOM "failed to evaluate the relevant data through placing it in context in terms of the particular evolution of the data pertaining to each factor individually, as well as in relation to the other factors examined"204. To support this argument, the European Union focuses on MOFCOM's analysis of domestic prices. In particular, the European Union complains that MOFCOM "failed to address a very important point: how and why domestic sales prices were decreasing, even in 2008 … when the import prices of the Subject Products consistently increased throughout the period … and were higher than those of the domestic products in 2008"205. However, the European Union makes the same argument in the context of its claim under Articles 3.1 and 3.5. The Panel does not consider it necessary to make multiple findings of inconsistency with respect to the same alleged weakness in MOFCOM's analysis. Therefore, we examine this argument once, under Articles 3.1 and 3.5206.

(i) Did MOFCOM evaluate the interaction between positive and negative injury factors and consider their proper economic context?

7.194.
The European Union's argument regarding MOFCOM's explanation for its injury determination consists of two main elements. First, the European Union queries the way in which MOFCOM treated individual injury factors. In particular, the European Union contends that MOFCOM incorrectly characterised certain factors as "negative" by ignoring positive trends exhibited by each of the factors at issue, making contradictory observations and failing to explain the basis for its assertions regarding certain injury indicia. Second, the European Union argues that MOFCOM failed to provide a compelling explanation regarding why the negative factors supported an affirmative injury determination in the light of several factors exhibiting positive trends.
7.195.
At the outset, the Panel notes that a number of other panels have previously considered similar arguments. In particular, in Thailand H – Beams, the panel stated:

While we do not consider that such positive trends in a number of factors during the [POI] would necessarily preclude the investigating authorities from making an affirmative determination of injury, we are of the view that such positive movements in a number of factors would require a compelling explanation of why and how, in light of such apparent positive trends, the domestic industry was, or remained, injured within the meaning of the Agreement. In particular, we consider that such a situation would require a thorough and persuasive explanation as to whether and how such positive movements were outweighed by any other factors and indices which might be moving in a negative direction during the [POI].207

7.196.
In EC – Countervailing Measures on DRAM Chips, a case considering the analogous provision under the Agreement on Subsidies and Countervailing Measures (SCM Agreement), the panel held that the investigating authority had examined all factors both individually and in an overall context and had provided a reasoned and adequate explanation to support its determination. Although a number of factors had grown in absolute terms during the POI, the panel placed considerable emphasis on the fact that the investigating authority had explained that the levels of growth were well below those necessary to remain competitive in the industry at issue. Therefore, while only 3 factors developed negatively over the POI, the investigating authority had taken into account the negative effects on other factors, which had in fact grown in absolute terms208.
7.197.
Finally, in EC – Fasteners (China), the panel considered whether the investigating authority's characterisation of certain injury factors as "negative" was consistent with an objective examination of the evidence. The panel upheld a finding that a profit rate of 4.4% was "low", on the basis that the investigating authority had found that a profit margin of 5% could be expected in the industry in the absence of injurious dumping209. The panel also noted that factors exhibiting a positive trend may be considered "negative" when the increases are significantly less than the expansion in demand210. Finally, the panel noted that a decline with respect to only one injury factor would not necessarily prevent a finding of injury. However, in such a case, "the nature of the product, industry and market, as well as the reasoning of the investigating authority, would be critical considerations for a reviewing panel"211.

MOFCOM's treatment of individual injury factors

7.198.
We commence our analysis by considering the European Union's argument that MOFCOM did not conduct an objective examination of individual injury factors, before turning to the argument that MOFCOM did not properly evaluate the interaction between positive and negative injury factors.

Profits

7.199.
The European Union argues that industry profits should not have been treated as a "negative" factor because profits were increasing and Nuctech was growing well in excess of domestic demand212. For the same reason, the European Union contends that MOFCOM's description of industry losses as "serious" was not even-handed, particularly because Nuctech had almost broken-even by the end of the POI213.
7.200.
With respect to pre-tax profits, MOFCOM found that the industry experienced losses (-34.88%, -31% and -1.84%) throughout the POI. The Panel notes that in many circumstances, a reasonable and objective investigating authority may view three consecutive years of losses as "negative" and "serious". However, the Panel recalls that in reaching its conclusion, MOFCOM did not indicate on what basis it concluded that Nuctech did not realize "expected profits" or "the profits that should have been obtained"214, which was an important element of its reasoning. In response to a Panel question on this point, China stated that "the relevant issue was that the domestic industry did not obtain a profit while the company expected to be profitable. There is no need to calculate or quantify the amount of such 'expected profits'"215. The Panel does not agree with China's position in this regard. In the Panel's view, an objective and even-handed examination of the expected level of profit, by which the industry's actual profit level was assessed, needs to be based on more than an assertion that the "company expected to be profitable". Some form of estimation, calculation or explanation regarding why profitability in the absence of subject imports was a reasonable expectation should have been provided as part of an objective examination216.
7.202.
However, the Panel is not convinced by the European Union's argument that including a discussion of both pre-tax profits and unit gross profit in its injury determination "created confusion" about the state of the domestic industry. Both parties agree that the two measurements of profit constitute different concepts217. Although the European Union argues that referring to two or more different concepts of profit shows "a lack of coherence and internally inconsistent reasoning"218, the Panel is not convinced by this argument. Reading the Final Determination in the knowledge that the two concepts are different, does not lead to any contradictions in the findings of MOFCOM219.
7.203.
Finally, the European Union argues that two statements in the Final Determination regarding profits are inconsistent. In particular, the European Union asserts that the statement that pre-tax profits "[d]uring the POI … first declined and then increased" and the finding that pre-tax profit rates increased over the POI from -34.88%, -31% to -1.84% are inconsistent220. However, the Panel is not convinced that these findings are necessarily inconsistent. As China highlights, the first statement refers to absolute levels of pre-tax profits, while the second refers to pre-tax profit rates221.

Net cash flow, rate of return and employment

7.204.
With respect to each of these factors, the European Union argues that MOFCOM classified them as "negative", without considering their trends over the POI222. Given that there was cash outflow and a negative rate of return throughout the course of the POI, the Panel notes that this could reasonably support a conclusion that these factors contributed to a "negative" state of the industry. However, the Panel is of the view that an objective and impartial examination would have required an acknowledgement and analysis of the fluctuations in the factors over the POI, including the upward trend they both experienced in the final year. Similarly, with respect to employment levels, while an end-to-end comparison indicated a decline in employment over the POI, MOFCOM did not attempt to analyse its fluctuations. The Panel is of the view that this is not consistent with an unbiased examination.

Sales Revenue Growth

7.205.
The European Union queries how MOFCOM could have found "severe" depression in sales revenue growth, in circumstances where sales revenue increased by more than 50% during each year of the POI and where sales volume and domestic output were growing well in excess of domestic demand. China explains that there is no contradiction in MOFCOM's findings in this regard, because in comparison to the growth in sales volume, sales revenue growth was much lower.
7.206.
The Panel is not convinced by the European Union's argument that MOFCOM's findings were not even-handed in this regard. Although in its Final Determination MOFCOM found that sales revenue increased by approximately 55% each year of the POI, MOFOM's statement that there was "severe depression" in sales revenue growth was made in the context of discussing the fast growth in sales volume over the POI:

The sales volume of domestic Like Products grew fast during the POI. However, the import price of the Subject Product remained at low levels and was lower than the price of domestic like products for most of the time during the POI. This had obvious undercutting and depressing effects on the price of domestic Like Products, which dropped by 72.68% from 2006 to 2008 and was below or almost as low as unit sales cost, resulting in severe depression of sales revenue growth.223

Although it would perhaps have been clearer for MOFCOM explicitly to state that the "severe depression" in sales revenue growth was in comparison to sales volume, in the Panel's view, the context in which the statement is found is sufficient for a reader to understand this. This is particularly so in the light of the following page of the Final Determination which provides "the growth rate of sales revenue of the domestic industry [was] significantly lower than the growth rate of their sales volume"224. In the Panel's view, when viewed in the context of the growth in sales volume, MOFCOM's finding that sales revenue was severely depressed did not lack even-handedness or objectivity.

Investment and financing capacity

7.207.
The European Union argues MOFCOM's finding that the domestic industry "saw continued expansion" cannot be reconciled with the finding that the "investment and financial capacity of the Petitioner declined"225.
7.208.
The Panel notes that the terminology used to describe the industry's investment and financial capacity is not as clear as it could be. Further, the explanations provided by China during the course of the Panel proceedings have added to the confusion. In particular, in its first written submission China argues that the "continued expansion" refers to increases in output and sales volume by the domestic industry, suggesting that it is not a reference to investment levels226. However, in response to a Panel question, China states that "MOFCOM found continuous investment over the POI"227. If this is the case, the decline in "investment and financial capacity" perhaps refers to a decline in "investment … capacity", rather than a decline in investment. However, this is not entirely clear from the text of the Final Determination.
7.209.
The Panel does not consider that less than clear drafting in a determination is an indication of a lack of an objective examination. However, in the light of the contrasting explanations provided by China during the course of the panel proceedings, and the lack of clarity surrounding MOFCOM's findings on investment, the Panel is of the view that MOFCOM's finding in this regard was not reasoned and adequate. Consequently, the Panel will weigh this in the balance when making its overall assessment regarding whether MOFCOM acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement in considering individual injury factors and in its evaluation of the interaction between positive and negative injury factors.

MOFCOM's examination of the interaction between positive and negative injury factors

7.210.
The European Union argues that MOFCOM failed to provide a compelling explanation regarding why the negative injury factors supported an affirmative injury determination in the light of several factors exhibiting positive trends.
7.211.
After listing 16 injury factors and stating the trend observed for each over the POI, MOFCOM provided the following explanations for why a number of the injury factors were positive:

The above evidence shows that during the POI, the domestic X-Ray security inspection equipment industry was in a fast growth stage of development with increasing market demand. The apparent consumption of domestic X-Ray security inspection equipment increased by 10.72% from 2006 to 2007 and by 14.17% from 2007 to 2008. Driven by market demand, both industry capacity and output of domestic Like Products grew fast during the POI.

During the POI, thanks to the importance increasingly attached to public security in China, the apparent consumption of domestic X-Ray security equipment registered fast growth, and some economic factors and indicators, such as capacity, output, sales volume and market share, improved correspondingly.228

7.212.
Therefore, MOFCOM explained that the x-ray security inspection industry was in a stage of fast growth, driven by increased consumer demand. Consequently, a number of the indicia of the state of the industry evolved positively.
7.213.
Directly after each of these explanations, MOFCOM explained why the domestic industry was nevertheless injured:

However, the import price of the Subject Product remained at low levels and was lower than the price of domestic like products for most of the time during the POI. This had obvious undercutting and depressing effects on the price of domestic Like Products, which dropped by 72.68% from 2006 to 2008 and was below or almost as low as unit sales cost, resulting in severe depression of sales revenue growth for the domestic X-Ray security inspection equipment industry. Unit gross profit for domestic Like Products was negative in 2006 and 2007 and low in 2008. Domestic Like Products suffered serious losses in pre-tax profits in 2006, which worsened in 2007 by an additional 38.03%; although the losses were reduced in 2008, domestic manufacturers were still unable to turn losses into profits. Pre-tax profit rates remained negative at -34.88%, -31% and -1.84% in 2006, 2007 and 2008, respectively. During the POI, the rate of return for the domestic X-Ray security inspection equipment industry also remained negative, with greatly increased year-end inventory, consistent net cash outflow, diminished investment and financing capacity, deteriorating production and operations, and a 25.08% reduction (despite an initial increase) of workforce from the beginning to the end of the POI, and industry growth was clearly depressed. Accordingly, MOFCOM found material injury to the domestic X-Ray security inspection equipment industry.

However, the price of domestic Like Products declined year by year as a result of the undercutting and depressing effect of the price of the Subject Product, causing the growth rate of the sales revenue of the domestic industry to be significantly lower than growth rate of their sales volume during the POI. Meanwhile, the sales volume of domestic Like Products was far lower than the output during the POI, resulting in significant inventory increase of domestic Like Products. The increase of capacity, output, sales volume and market share of the domestic industry did not bring the expected profits to the domestic industry. Domestic industry suffered consistent losses throughout the POI.229

7.214.
The parties agree that MOFCOM found 9 of the 16 indicia of the state of the industry to be "positive". The European Union's complaint is that rather than explaining why the negative developments in the industry were such as to outweigh the positive developments, MOFCOM merely juxtaposed the positive and negative factors.
7.215.
The Panel recalls that MOFCOM's treatment of certain individual injury factors did not reflect an objective examination of the evidence. In the Panel's view, this consequently affects MOFCOM's overall assessment of the state of the industry. In particular, aside from the question of whether MOFCOM examined and explained the interaction between the positive and negative injury factors, the fact that MOFCOM ignored the trends in certain injury factors and did not explain the basis for some of its conclusions, for instance the basis for "expected profits", undermines the overall assessment of the state of the industry. Further, the Panel notes that aside from listing all 16 injury factors and the trends observed in them over the course of the POI, MOFCOM did not otherwise refer to or explain the developments in capacity utilization, productivity and wages in the descriptive section of its analysis of the industry. In the Panel's view, a more balanced approach would have been explicitly to analyse each of the 16 factors in the description of the state of the industry and to weigh them in the assessment. In the light of these problems with MOFCOM's analysis of the state of the industry, the Panel does not consider it necessary to make a determination regarding whether MOFCOM was obliged to provide a more "compelling explanation" regarding the interaction between the positive and negative injury factors than the one that it did.

(ii) Conclusion

(e) Conclusion on the European Union's claim under Articles 3.1 and 3.4 of the Anti-Dumping Agreement

7.217.
The European Union presented a number of different arguments to support its claim that China acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement. The European Union has not established that MOFCOM failed to rely upon positive evidence. However, the Panel concludes that China acted inconsistently with Articles 3.1 and 3.4 because MOFCOM failed to consider all relevant economic factors, in particular, the "magnitude of the margin of dumping". Further, MOFCOM's examination of the state of the industry, including the trends in individual injury factors, lacked objectivity and was not always reasoned and adequate. Finally, in the light of its findings under Articles 3.1 and 3.2 of the Anti-Dumping Agreement, the Panel exercises judicial economy regarding whether MOFCOM acted inconsistently with Article 3.4 by failing to take into account the differences between high-energy and low-energy scanners.

E. CAUSATION: ARTICLES 3.1 AND 3.5 OF THE ANTI-DUMPING AGREEMENT

1. Introduction

7.218.
The European Union submits that China violated Articles 3.1 and 3.5 of the Anti-Dumping Agreement because MOFCOM failed to make an objective determination, on the basis of all relevant evidence before it, that the dumped imports were, through the effects of dumping, causing injury.

2. Relevant provisions

7.219.
Article 3.1 of the Anti-Dumping Agreement is set forth above. Article 3.5 provides:

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.

3. Main arguments of the parties

(a) European Union

(i) The volume of subject imports

7.220.
The European Union notes MOFCOM's conclusion that the large volume of subject imports, and their lower (dumped) price, caused material injury to the domestic x-ray security inspection equipment industry. The European Union recalls that MOFCOM found the volume of dumped imports rose continuously in comparison to total imports in China and rapidly in absolute terms, and that the growth rate of the volume of dumped imports exceeded the growth rate of apparent consumption. However, according to the European Union, the volume of subject imports was not "large" or "great" when viewed in the context of domestic consumption and domestic sales volume. The European Union argues that a relatively small increase in subject imports in comparison to the much higher increase of domestic production cannot serve as a basis for attributing injury to the subject imports.

(ii) The absence of any imports of high-energy scanners

7.221.
The European Union recalls its earlier argument that MOFCOM improperly relied on a comparison of weighted average unit values that failed to take into account differences between low-energy and high-energy scanners. The European Union submits that, absent a proper distinction between high-energy and low-energy scanners, MOFCOM improperly attributed to the imports of low-energy scanners the injury suffered by a domestic producer of both high-energy and low-energy scanners. The European Union argues that where two categories of a product do not compete with each other, the attribution of the effects found with respect to both categories where only one category was imported is inconsistent with Article 3.5 of the Anti-Dumping Agreement.

(iii) The price effects of subject imports

7.222.
The European Union argues that dumping by subject imports did not prevent Nuctech from raising its prices, since subject imports – albeit dumped – were still priced higher than domestic products. In addition, the European Union contends that the absence of any correlation between subject import prices (going up by almost 10% over POI) and domestic prices (going down by 73% over the POI) meant that MOFCOM was required to provide a very compelling analysis of why causation was still present230.
7.223.
In response to China's contention that Nuctech was forced to maintain its prices at low levels in order to be able to compete with Smiths, the European Union argues that this is not what MOFCOM found. Rather, MOFCOM found that Nuctech increased its market share every year, beyond any increase in the market share of subject imports in relative terms. It also found that Nuctech increased its sales volume and sale revenue every year by more than 50%. The European Union argues that in circumstances where subject import prices were constantly increasing, MOFCOM's finding that such prices forced the domestic sales prices to maintain their downward trend does not meet the compelling, reasoned and adequate explanation required under Article 3.5 of the Anti-Dumping Agreement.

(iv) MOFCOM's consideration of other known factors: non-attribution

7.224.
The European Union submits that MOFCOM's evaluation of known factors other than the allegedly dumped imports as possible causes of injury was inconsistent with Articles 3.1 and 3.5 Anti-Dumping Agreement.
7.225.
The European Union contends that MOFCOM limited itself to collecting evidence with respect to a pro-forma list of other factors set forth in MOFCOM's Injury Questionnaire. In relation to certain causal factors that it did explicitly examine, namely Nuctech's export performance and "product quality and technology factors", the European Union argues that MOFCOM failed to consider several arguments made by Smiths.
7.226.
Further, the European Union submits that MOFCOM ignored other "known factors" that were raised by interested parties and that were relevant in the present case. The European Union refers in this regard to arguments raised by Smiths concerning the impact of the global financial crisis in 2008, Nuctech's start-up situation, Nuctech's aggressive pricing policy, Nuctech's aggressive business expansion, and the "fair" competition between Nuctech and other producers. According to the European Union, these other known factors adequately explained the reduction in sales price, the losses of pre-tax profit, the negative rate of return, the increased inventory, the workforce reduction, and the failure to recover huge investment. The European Union asserts that MOFCOM failed to examine these factors. According to the European Union, therefore, MOFCOM failed to separate and distinguish the injurious effects of other causal factors from those of the dumped imports, contrary to the non-attribution requirement of Article 3.5.

(v) Violations of Articles 3.1, 3.2 and 3.4 of the Anti-Dumping Agreement

7.227.
Finally, the European Union submits that the abovementioned alleged violations of Articles 3.1, 3.2 and 3.4 of the Anti-Dumping Agreement further render MOFCOM's non-attribution determination inconsistent with Article 3.5 Anti-Dumping Agreement.

(b) China

(i) The volume of subject imports

7.228.
China submits that the European Union's argument that MOFCOM's consideration of the volume of dumped imports as "large" or "great" was improper "when seen in the context of domestic consumption and domestic sales volume"231, must be rejected. This is because it relates to the existence rather than the cause of injury. According to China, the examination and assessment of the "import volume" factor takes place in the context of the injury determination made pursuant to Articles 3.1 and 3.2 of the Anti-Dumping Agreement, rather than the assessment of causation under Article 3.5.
7.229.
On substance, China contends that an unbiased and objective investigating authority could properly have described the volume of dumped imports as "large" or "great" on the basis of the record evidence. China notes that MOFCOM examined the trends in the volume of dumped imports over the POI first in absolute terms, then in relation to the total import volume in China, and finally in relation to domestic consumption. It is clear that the evidence before MOFCOM was such that an unbiased and objective authority could reach the conclusion that the volume of dumped imports was "large" and "great". China submits that there is no obligation under Articles 3.2 or 3.5 of the Anti-Dumping Agreement to consider the volume of dumped imports in absolute terms and relative to production and consumption. China argues that the use of the word "or" in Article 3.2 clearly shows that the examination of one or the other is sufficient. There is no requirement to compare the rate of increase of the dumped imports with the rate of increase of the sales of domestic like products.

(ii) The absence of any imports of high-energy scanners

7.230.
China asks the Panel to reject the European Union's claim that MOFCOM wrongly attributed the observed effects on the domestic industry to the dumped imports since MOFCOM combined information relating to high-energy and low-energy scanners232. China submits that injury and causation must be assessed in relation to the "domestic industry" as a whole, as defined pursuant to Article 4.1 of the Anti-Dumping Agreement. According to China, there is no requirement to distinguish between different product "segments" or "sectors" of the domestic industry. In any event, China argues that the factual premise on which the European Union bases its argument is incorrect, namely that there are "considerable differences"233 between categories of scanners. China maintains that there is no clear-cut distinction between scanners with an energy level below 300 KeV and those with an energy level above 300 KeV.

(iii) The price effects of subject imports

7.231.
Regarding the European Union's argument that MOFCOM did not provide a reasoned explanation of the impact of the prices of subject imports on the prices of the like domestic product, China notes that the European Union wrongfully claims that there was no price undercutting, although it is clear that MOFCOM found price undercutting in 2006 and 2007. Further, while there was no finding of price undercutting in 2008, MOFCOM did find price suppression throughout the POI. According to China, the European Union appears to ignore that the negative effect of import prices on domestic prices may take a form different from price undercutting, namely it may take the form of price depression or price suppression.
7.232.
China also challenges the factual premise of the European Union's claim that "there was no correlation between import prices (going up) and domestic prices (going down)"234. China suggests that the European Union appears to consider that import prices and domestic prices should follow the same trends in order to have a correlation. However, according to China, the relevant point is not the trend followed by the import prices and the domestic prices as such, but the interaction between the subject import prices and the domestic prices. What investigating authorities need to consider is whether import prices "undercut" domestic prices or "depressed/suppressed" domestic prices. China submits that MOFCOM provided a reasoned explanation of the impact of the price of subject imports on the price of the domestic like product. MOFCOM clearly indicated the temporal correlation between, on the one hand, the rapidly increasing subject imports at very low (albeit slightly increasing) prices over the POI and, on the other hand, the domestic prices that sharply declined over the POI. China argues that the fact that there was no undercutting in 2008 does not mean that dumped imports did not have negative effects on domestic prices in the form of price suppression/depression. Further, China argues that what matters is the existence of a general coincidence between the overall trends in imports and the overall trends in the injury factors. According to China, MOFCOM established the existence of such a coincidence.

(iv) MOFCOM's consideration of other known factors: non-attribution

7.233.
China rejects the European Union's assertion that "MOFCOM limited itself to collecting evidence with respect to a pro-forma list of other factors contained in its Injury Questionnaire"235. China notes the European Union's contention that MOFCOM failed to consider Smiths' arguments when assessing the effect of Nuctech's export performance and "product quality and technology factors". However, China submits that Smiths' arguments were properly and fully examined in the Final Determination.
7.234.
China also notes the European Union's argument that MOFCOM failed to consider "factors such as the impact of the global crisis in 2008, Nuctech's aggressive business expansion, the fair competition between Nuctech and other producers"236, and "the start-up situation of Nuctech and its aggressive pricing policy"237. China contends that before an authority is required to "examine" other factors, Article 3.5 requires that the factor at issue be "known" to the investigating authority, be a factor other than the dumped imports, and be injuring the domestic industry at the same time as the dumped imports. Although in response to a Panel question China clarifies that it does not argue that the factors were not "known" to MOFCOM, it does submit that to the extent the factors referred to by the European Union were presented by Smiths without appropriate evidence, they cannot be regarded as constituting other known factors within the meaning of Article 3.5.
7.235.
China submits that, in any event, it did not violate Article 3.5 of the Anti-Dumping Agreement with respect to the factors listed in the European Union's first written submission, since either they were examined by MOFCOM during the investigation, or there was no need to examine them because they rested on a factual assumption that had already been rejected by MOFCOM.

(v) Violations of Articles 3.1, 3.2 and 3.4 of the AD Agreement

7.236.
China submits that there are no inconsistencies with Articles 3.1, 3.2 and 3.4 of the Anti-Dumping Agreement, such that this purely consequential element of the European Union's claim under Article 3.5 should be dismissed.

4. Evaluation by the Panel

7.237.
The European Union argues that MOFCOM attributed the injurious state of the domestic industry to subject imports on the basis of a flawed volume effects analysis and a flawed price effects analysis. Further, MOFCOM's non-attribution analysis was inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement because MOFCOM disregarded the actual causes for any negative condition of the domestic industry.
7.238.
The following sections of this report examine the European Union's claims in relation to MOFCOM's price effects, volume and non-attribution analyses respectively.

(a) MOFCOM's analysis of the prices of the subject imports

(i) Is MOFCOM's causation analysis inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement on the basis that MOFCOM did not consider the differences between the products under consideration in its price effects analysis?

(ii) Did MOFCOM provide a reasoned and adequate explanation of the causal link between the prices of the dumped imports and the injury to the domestic industry?

(b) MOFCOM's analysis of the volume of the subject imports

7.249.
The European Union argues that MOFCOM's characterisation of the import volume of subject imports as "large" or "great" in the context of its analysis under Article 3.5 of the Anti-Dumping Agreement was improper, partial and not even-handed. According to the European Union, this is because, although MOFCOM considered the volume of imports in absolute terms and in comparison to total imports and to total domestic consumption, it did not consider it in relation to total domestic production, which was exhibiting a "skyrocket trend"245.
7.250.
The Panel does not consider it necessary to determine whether MOFCOM's volume effects analysis was inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement. This is because even if the Panel were to conclude in China's favour in this regard, given our findings regarding the flaws in MOFCOM analysis of the effect of import prices on the like domestic product under Articles 3.1 and 3.2 and consequently under Article 3.5, the Panel in any event would not be able to uphold MOFCOM's causation findings.
7.251.
Article 3.5 of the Anti-Dumping Agreement requires an investigating authority to demonstrate that the "dumped imports are, through the effects of dumping, as set forth in paragraphs 2 and 4, causing injury", where paragraph 2 sets out the requirements for analysing the volume and price effects of the dumped imports. In its causation determination, MOFCOM relies upon both the "great volumes" of subject imports, as well as their "low" prices to conclude that "these factors had evident undercutting and [suppressing] effects on the prices of domestic Like Products"246. MOFCOM also states that "the EU exported X-ray security inspection equipment to China in large volumes and at lower prices, causing serious effects on the production and operations of domestic security inspection equipment"247. Therefore, both the volume and the prices of subject imports were integral to MOFCOM's findings on price suppression and undercutting and also to its causation analysis. There is nothing in the Final Determination to indicate how these two factors interacted or operated independently to cause price effects in relation to the domestic like product or to cause injury to the domestic industry. Consequently, there is nothing in the Final Determination that would allow the Panel to conclude that either the price or the volume of dumped imports alone could sustain MOFCOM's findings on price effects under Article 3.2 or its consequent finding on causation under Article 3.5. In these circumstances, the Panel considers that MOFCOM's findings regarding the prices of subject imports were so central to its price effects and causation analyses that even if we were to find MOFCOM's volume effects analysis were consistent with Article 3.5, the flaws in MOFCOM's findings regarding the impact of the prices of subject imports on the prices of domestic products would in any event invalidate MOFCOM's overall causation finding248. Indeed, China does not argue that MOFCOM's causation analysis could be sustained on the basis of volume effects alone.
7.252.
Consequently, the Panel does not consider it necessary to make a finding regarding whether MOFCOM's characterisation of the import volume as "large" or "great" was inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement on the basis that it was not an objective examination of positive evidence.

(c) MOFCOM's examination of the relevance of other "known factors" causing injury to the domestic industry

(i) Should MOFCOM's consideration of Nuctech's alleged start-up situation, aggressive pricing policy and business expansion be considered under Article 3.4 or Article 3.5 of the Anti-Dumping Agreement?

7.253.
The European Union argues that MOFCOM acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement by failing to consider all facts and arguments on the record relevant to or having to do with the state of the domestic industry. In particular, the European Union contends that MOFCOM did not consider Nuctech's alleged start-up situation, aggressive pricing policy or business expansion. In the event the Panel considers that these factors have an effect on the state of the industry, rather than factors indicative of the state of the industry, the European Union argues in the alternative that MOFCOM did not consider these factors as a part of its causation analysis under Articles 3.1 and 3.5 of the Anti-Dumping Agreement249.
7.254.
In relation to whether the claim is best characterised as falling under Article 3.4 or 3.5 of the Anti-Dumping Agreement, the Panel notes that Article 3.4 requires an examination of "the impact of the dumped imports on the domestic industry" and an evaluation of all relevant factors and indices "having a bearing on the state of the industry". In China – GOES, the Appellate Body held that Article 3.4 requires "an examination of the explanatory force of subject imports for the state of the domestic industry". However, it does not require a demonstration that subject imports are causing injury to the domestic industry. Rather, the latter analysis occurs under Article 3.5, which also requires a non-attribution analysis relating to all factors causing injury to the domestic industry250.
7.255.
In the Panel's view, Nuctech's alleged start-up situation, business expansion and aggressive pricing strategy are best considered as potential causes of an industry's condition, rather than factors indicative of the state of the industry akin to those listed in Article 3.4 of the Anti-Dumping Agreement. This is evident even from the way in which the European Union describes these factors in its submissions. For example, in relation to Nuctech's alleged start-up situation, the European Union argues:

Nuctech only recently started to catch up in the high-end market sector of low-energy scanners. To this purpose, Nuctech made huge investment which did pay off in terms of increased sales, production and domestic market share while at the same time losses, return of investment and cash flow gradually improved towards break-even.251

7.256.
Therefore, by the European Union's own description, the alleged start-up situation had consequent effects on many of the indicators of the state of the industry listed in Article 3.4 of the Anti-Dumping Agreement.
7.257.
Similarly, the European Union discusses the alleged business expansion of Nuctech in terms of its effect upon inventories:

Nuctech's increased inventories did not reflect the state of an industry that could not sell, but an industry that was expanding and growing and that, as a result, needed to increase its stocks.252

7.258.
Again, this seems to support our view that Nuctech's alleged business expansion was a factor having an effect upon certain indicia of the state of the industry found in Article 3.4 of the Anti-Dumping Agreement, rather than a factor which itself gave an indication of whether the industry was injured.
7.259.
In relation to the alleged aggressive pricing policy pursued by Nuctech, the European Union argues that MOFCOM failed to consider this as an "other" factual indicator under Article 3.4 of the Anti-Dumping Agreement, rather than alleging that it fell within one of the listed factors in the provision. In particular, the European Union does not appear to contend that the pricing policy falls within "factors affecting domestic prices" listed in Article 3.4. In this regard, we agree with the panel's statement in EC – Tube or Pipe Fittings that:

[T]his requirement [of an evaluation of "factors affecting domestic prices"] is inextricably linked to the requirements of Articles 3.1 and 3.2 to conduct an objective examination of the effects of dumped imports on prices in the domestic market for like products …We see no basis in the text of the Agreement for [the] argument that would require an analysis of factors affecting domestic prices beyond an Article 3.2 price analysis, and observe that certain of the factors potentially affecting price may be more in the way of causal factors to be analysed under Article 3.5 rather than under Article 3.4.253

7.260.
Consequently, in the Panel's view, any alleged pricing strategy pursued by Nuctech is better characterised as a possible cause of injury, rather than a factor indicative of the state of the industry. A pricing strategy may affect the level of price undercutting, suppression or depression or certain other factors listed in Article 3.4, such as sales, profits and market share. Indeed, the European Union's own submissions regarding the alleged pricing policy support this characterisation of the issue:

[T]he only possibility for Nuctech to compete with Smiths was to adopt an aggressive pricing practice. And its strategy of maintaining low domestic prices was proven successfulsince Nuctech's market share increased.254

Further, in Smiths' submissions to MOFCOM, it stated:

[C]ertain data in the Disclosure Letter strongly support the Company's previously-stated argument that Petitioner in recent years has increasingly been selling at low prices in the domestic market to gain market share.255

Thanks to its aggressive price strategy, Petitioner's market share increased…These facts suggest that Petitioner cut prices to gain market share during the POI256.

7.261.
These statements support the Panel's view that the pricing strategy allegedly pursued by Nuctech may cause changes in certain factors listed in Article 3.4, but that it is not in itself indicative of whether the domestic industry is injured.
7.262.
Therefore, the Panel concludes that the factors at issue are best characterised as having the potential to affect the state of the industry, rather than factors indicative of the state of the industry.
7.263.
The Panel recalls that in China – GOES the Appellate Body found that Article 3.4 of the Anti-Dumping Agreement requires an examination of the impact of subject imports on the domestic industry, but that the obligation to conduct a non-attribution analysis of all factors causing injury to the domestic industry falls under Article 3.5 of the Anti-Dumping Agreement. Although in many circumstances it may not be possible to undertake a meaningful examination of the impact of subject imports on the domestic industry without conducting some form of non-attribution analysis, it is clear that the explicit obligation to conduct such an analysis falls under Article 3.5. Therefore, because the Panel considers that Nuctech's alleged start-up situation, aggressive pricing policy and business expansion are factors that may cause injury to the domestic industry, rather than being themselves indicia of injury, the Panel considers it most appropriate to examine MOFCOM's treatment of them under Article 3.5 rather than 3.4257.

(ii) Did MOFCOM fail to examine the relevance of certain known factors raised by Smiths and was MOFCOM's examination of certain factors pro forma?

7.264.
The European Union argues that in its causation determination, MOFCOM's non-attribution analysis was limited to collection of data for a list of pro-forma factors, which MOFCOM succinctly dismissed as not causes of injury. According to the European Union, MOFCOM failed to consider arguments made by Smiths, in particular in relation to the "effect of exports" and "product quality and technology factors". The European Union also argues that MOFCOM ignored five other "known factors" raised by interested parties, namely (i) the impact of the global financial crisis; (ii) fair competition between Nuctech and other producers; (iii) Nuctech's aggressive business expansion; (iv) Nuctech's aggressive pricing policy; and (v) Nuctech's start-up situation258. For the reasons explained below, the Panel will analyse the European Union's arguments about MOFCOM's consideration of the "effect of exports" together with the "impact of the global financial crisis" and its consideration of the "product quality and technology factors" together with "fair competition"259.
7.265.
In relation to the European Union's argument that MOFCOM ignored certain "known factors", we recall that in EC – Tube or Pipe Fittings, the Appellate Body stated:

Critical to the effective operation of the non-attribution obligation, and indeed, the entire causality analysis, is the requirement of Article 3.5 to "examine any known factors other than the dumped imports which at the same time are injuring the domestic industry", for it is the "injuries" of those "known factors" that must not be attributed to dumped imports. In order for this obligation to be triggered, Article 3.5 requires that the factor at issue:

(a) be "known" to the investigating authority;

(b) be a factor "other than dumped imports"; and

(c) be injuring the domestic industry at the same time as the dumped imports.260

7.266.
In response to a Panel question, China clarifies that it does not contend that the five factors at issue were not "known" to MOFCOM261. In our view, it is also clear that the five factors were "other than dumped imports". However, China argues that before an investigating authority is required to conduct a non-attribution analysis in relation to a particular factor, there must be relevant evidence before it to demonstrate that the factor is causing injury to the domestic industry. In relation to a number of the five factors which are the subject of the European Union's claim, China argues that Smiths did not present such evidence to MOFCOM and therefore, MOFCOM was not obliged to conduct a non-attribution analysis for such factors.
7.268.
The European Union contends that MOFCOM did not examine Smiths' argument that "Nuctech's declined financial performance in 2008 was due to the negative impact of the global economic crisis", in particular because Nuctech is "an exporter focused on selling container scanners in the overseas market"262.