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

Report of the Panel

CASES CITED IN THIS REPORT

Short titleFull case title and citation
Argentina – Ceramic Tiles Panel Report, Argentina – Definitive Anti-Dumping Measures on Imports of Ceramic Floor Tiles from Italy, WT/DS189/R, adopted 5 November 2001, DSR 2001:XII, p. 6241
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, p. 1727
Australia – Apples Appellate Body Report, Australia – Measures Affecting the Importation of Apples from New Zealand, WT/DS367/AB/R, adopted 17 December 2010, DSR 2010:V, p. 2175
Brazil – Desiccated Coconut Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut, WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, p. 167
China – Autos (US) Panel Report, China – Anti-Dumping and Countervailing Duties on Certain Automobiles from the United States, WT/DS440/R and Add.1, adopted 18 June 2014, DSR 2014:VII, p. 2655
China – Cellulose Pulp Panel Report, China – Anti-Dumping Measures on Imports of Cellulose Pulp from Canada, WT/DS483/R and Add.1, adopted 22 May 2017
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, DSR 2012:XII, p. 6251
China – GOES Panel Report, China – Countervailing and Anti-Dumping Duties on Grain Oriented Flat-Rolled Electrical Steel from the United States, WT/DS414/R and Add.1, adopted 16 November 2012, upheld by Appellate Body Report WT/DS414/AB/R, DSR 2012:XII, p. 6369
China – GOES (Article 21.5 – US) Panel Report, China – Countervailing and Anti-Dumping Duties on Grain Oriented Flat-Rolled Electrical Steel from the United States – Recourse to Article 21.5 of the DSU by the United States, WT/DS414/RW and Add.1, adopted 31 August 2015
China – HP-SSST (Japan) / China – HP-SSST (EU) Appellate Body Reports, China – Measures Imposing Anti-Dumping Duties on High-Performance Stainless Steel Seamless Tubes ("HP-SSST") from Japan / China – Measures Imposing Anti-Dumping Duties on High-Performance Stainless Steel Seamless Tubes ("HP-SSST") from the European Union, WT/DS454/AB/R and Add.1 / WT/DS460/AB/R and Add.1, adopted 28 October 2015
China – HP-SSST (Japan) / China – HP-SSST (EU) Panel Reports, China – Measures Imposing Anti‑Dumping Duties on High-Performance Stainless Steel Seamless Tubes ("HP‑SSST") from Japan / China – Measures Imposing Anti-Dumping Duties on High-Performance Stainless Steel Seamless Tubes ("HP‑SSST") from the European Union, WT/DS454/R and Add.1 / WT/DS460/R, Add.1 and Corr.1, adopted 28 October 2015, as modified by Appellate Body Reports WT/DS454/AB/R / WT/DS460/AB/R
China – Raw Materials Appellate Body Reports, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, adopted 22 February 2012, DSR 2012:VII, p. 3295
China – X-Ray Equipment Panel Report, China – Definitive Anti-Dumping Duties on X-Ray Security Inspection Equipment from the European Union, WT/DS425/R and Add.1, adopted 24 April 2013, DSR 2013:III, p. 659
Dominican Republic – Import and Sale of Cigarettes Appellate Body Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/AB/R, adopted 19 May 2005, DSR 2005:XV, p. 7367
EC – Approval and Marketing of Biotech Products Panel Reports, European Communities – Measures Affecting the Approval and Marketing of Biotech Products, WT/DS291/R, Add.1 to Add.9 and Corr.1 / WT/DS292/R, Add.1 to Add.9 and Corr.1 / WT/DS293/R, Add.1 to Add.9 and Corr.1, adopted 21 November 2006, DSR 2006:III, p. 847
EC – Bananas III Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, p. 591
EC – Bed Linen Appellate Body Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/AB/R, adopted 12 March 2001, DSR 2001:V, p. 2049
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, p. 1269
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, DSR 2011:VII, p. 3995
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, DSR 2011:VIII, p. 4289
EC – Fasteners (China) (Article 21.5 – China) Appellate Body Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China – Recourse to Article 21.5 of the DSU by China, WT/DS397/AB/RW and Add.1, adopted 12 February 2016
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, p. 135
EC – Selected Customs Matters Appellate Body Report, European Communities – Selected Customs Matters, WT/DS315/AB/R, adopted 11 December 2006, DSR 2006:IX, p. 3791
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, p. 2613
Guatemala – Cement I Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998, DSR 1998:IX, p. 3767
India – Patents (US) Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, p. 9
Japan – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, p. 97
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, p. 3
Mexico – Corn Syrup (Article 21.5 – US) Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the DSUby the United States, WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001:XIII, p. 6675
Mexico – Steel Pipes and Tubes Panel Report, Mexico – Anti-Dumping Duties on Steel Pipes and Tubes from Guatemala, WT/DS331/R, adopted 24 July 2007, DSR 2007:IV, p. 1207
Russia – Commercial Vehicles Panel Report, Russia – Anti-Dumping Duties on Light Commercial Vehicles from Germany and Italy, WT/DS479/R and Add.1, circulated to WTO Members 27 January 2017, adopted 9 April 2018, as modified by Appellate Body Report WT/DS479/AB/R
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, p. 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, p. 2741
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany, WT/DS213/AB/R and Corr.1, adopted 19 December 2002, DSR 2002:IX, p. 3779
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application of Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009, DSR 2009:III, p. 1291
US – Countervailing and Anti-Dumping Measures (China) Appellate Body Report, United States – Countervailing and Anti-Dumping Measures on Certain Products from China, WT/DS449/AB/R and Corr.1, adopted 22 July 2014, DSR 2014:VIII, p. 3027
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, p. 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, p. 4697
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, p. 4051
US – Oil Country Tubular Goods Sunset Reviews Appellate Body Report, United States – Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, WT/DS268/AB/R, adopted 17 December 2004, DSR 2004:VII, p. 3257
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, p. 4865
US – Steel Safeguards Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Certain Steel Products, WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R, adopted 10 December 2003, DSR 2003:VII, p. 3117
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, DSR 2011:IX, p. 4811
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/DS166/AB/R, adopted 19 January 2001, DSR 2001:II, p. 717
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, p. 323
US – Zeroing (Japan) (Article 21.5 – Japan) Appellate Body Report, United States – Measures Relating to Zeroing and Sunset Reviews – Recourse to Article 21.5 of the DSU by Japan, WT/DS322/AB/RW, adopted 31 August 2009, DSR 2009:VIII, p. 3441

ABBREVIATIONS

AbbreviationDescription
Anti-Dumping Agreement Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
BCI Business confidential information
CKD CKD Corporation
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
GATT 1994 General Agreement on Tariffs and Trade 1994
Korean Investigating Authorities Korea Trade Commission and Office of Trade Investigation
KCC KCC Co., Ltd.
KRW South Korean Won
KTC Korea Trade Commission
KTC's Preliminary Resolution KTC, Resolution of Preliminary Determination on Dumping and Injury to the Domestic Industry of Valves for Pneumatic Transmissions from Japan (26 June 2014), (Exhibit JPN-1)
KTC's Final Resolution KTC, Resolution of Final Determination on Dumping and Injury to Domestic Industry of Valves for Pneumatic Transmissions from Japan (20 January 2015), (Exhibits JPN-4 (public version) and KOR-1 (BCI))
MOSF Minister/Ministry of Strategy and Finance
OTI Office of Trade Investigation
MOSF's Decree No. 498 MOSF, Decree No. 498, Regulation Concerning the Imposition of Anti-Dumping Duties on Valves for Pneumatic Transmissions originating from Japan (19 August 2015), (Exhibit JPN-6)
MOSF's Public Announcement MOSF, Public Announcement No. 2015-156, Decision to Apply Anti-Dumping Duties on the Pneumatic Transmissions Valves from Japan (19 August 2015), (Exhibit KOR-3 (BCI))
OTI's Preliminary Report OTI, Preliminary Report on Dumping and Injury to Domestic Industry of Valves for Pneumatic Transmissions imported from Japan (26 June 2014), (Exhibit JPN‑2)
OTI's Interim Report OTI, Interim Investigation Report on Dumping and Injury to Domestic Industry of Valves for Pneumatic Transmissions from Japan (23 October 2014), (Exhibit JPN-3)
OTI's Final Report OTI, Final Report on Dumping and Injury to Domestic Industry of Valves for Pneumatic Transmissions Imported from Japan (20 January 2015), (Exhibits JPN-5 (public version) and KOR-2 (BCI))
POI Period of investigation
R&D Research and development
SG&A Selling, general, and administrative (costs)
SMC SMC Corporation
Toyooki Toyooki Kogyo Co., Ltd.
TPC TPC Mechatronics Corporation
Vienna Convention Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969, 1155 UNTS 331; 8 International Legal Materials 679
WTO World Trade Organization

1 INTRODUCTION

1.1 COMPLAINT BY JAPAN

1.1.
On 15 March 2016, Japan requested consultations with Korea pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Article XXIII:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994), and Articles 17.2 and 17.3 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement), with respect to the measures and claims set out below.1
1.2.
Consultations were held on 28 April 2016. These consultations failed to settle the dispute.2

1.2 PANEL ESTABLISHMENT AND COMPOSITION

1.3.
On 9 June 2016, Japan requested the establishment of a panel pursuant to Articles 4.7 and 6 of the DSU, Article XXIII of the GATT 1994, and Article 17.4 of the Anti-Dumping Agreement, with standard terms of reference.3 At its meeting on 4 July 2016, the Dispute Settlement Body (DSB) established a panel pursuant to the request of Japan in document WT/DS504/2, in accordance with Article 6 of the DSU.4
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 Japan in document WT/DS504/2 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.5

1.5.
On 22 August 2016, Japan requested the Director-General to determine the composition of the panel, pursuant to Article 8.7 of the DSU. On 29 August 2016, the Director-General accordingly composed the Panel as follows:

Chairperson: Mr Mateo Diego-Fernández

Members: Ms Leora Blumberg

Mr Dennis Francis

1.6.
Brazil, Canada, China, Ecuador, the European Union, Norway, Singapore, Turkey, the United States, and Viet Nam notified their interest in participating in the Panel proceedings as third parties.

1.3 PANEL PROCEEDINGS

1.3.1 General

1.7.
After consultation with the parties, on 15 November 2016, the Panel adopted its Working Procedures, as well as additional Working Procedures concerning Business Confidential Information (BCI)6, and timetable. The Panel revised its timetable, after consulting the parties, on 21 June and 20 July 2017.
1.8.
The Panel held a first substantive meeting with the parties on 1 and 2 March 2017. A session with the third parties took place on 2 March 2017.
1.9.
The Panel held a second substantive meeting with the parties on 30 and 31 May 2017.
1.10.
On 20 July 2017, the Panel issued the descriptive part of its report to the parties.
1.11.
The Panel issued its Interim Report to the parties on 10 October 2017.The Panel issued its Final Report to the parties on 23 November 2017.

1.3.2 Preliminary ruling request

1.12.
On 24 November 2016, Korea filed a request for the Panel to issue a preliminary ruling that Japan's claims under Articles 3.1, 3.2, 3.4, 3.5, and 4.1 of the Anti-Dumping Agreement are outside the Panel's terms of reference for this dispute. Korea asserted that, with respect to these claims, Japan's panel request fails to "provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly", as required by Article 6.2 of the DSU.7
1.13.
At the invitation of the Panel, Japan submitted a written response to Korea's request on 16 December 2016. Korea responded to Japan's views in its first written submission filed on 6 January 2017. The European Union and the United States provided their views on Korea's request in their respective third-party submissions filed on 13 January 2017. The Panel posed questions concerning Korea's request to the parties and third parties after the first substantive meeting, to which the parties and certain third parties (Ecuador, the European Union, and the United States) responded in writing. Further, both Japan and Korea filed additional comments regarding the sufficiency of Japan's panel request under Article 6.2 of the DSU in their respective second written submissions. The Panel posed further questions to the parties concerning Korea's request after the second substantive meeting, to which the parties submitted written responses and comments on each other's responses.
1.14.
On 7 July 2017, the Panel informed the parties that, in view of the circumstances of the case, and the extraordinary scope of Korea's request, which involved seven of the 13 claims raised by Japan in this dispute, the Panel had decided not to issue a separate ruling on the matter of the sufficiency of Japan's panel request under Article 6.2 of the DSU, indicating that it would instead address the matter in its final report.8

1.3.3 Objections to the accuracy of translations

1.15.
On 2 March 2017, Japan raised objections concerning the accuracy of 12 specific aspects of the English translation of exhibits submitted by Korea with its first written submission. Having heard the views of both parties, on 28 March 2017 the Panel informed them that: (a) two of the objections raised by Japan were valid and the translation of the original exhibits should be read as corrected by Japan; and (b) four of the objections raised by Japan were rejected as they constituted minor changes in language that did not affect the substance of the translation provided by Korea. With respect to the six remaining objections raised by Japan, the Panel invited the parties to seek to provide mutually acceptable translations. On 18 April 2017, Korea proposed alternative translations for these discrepancies, which Japan accepted in a communication dated 21 April 2017.
1.16.
On 6 April 2017, Korea raised objections concerning the accuracy of ten specific aspects of the English translation of exhibits submitted by Japan with its first written submission. Having heard the views of both parties, on 20 April 2017 the Panel rejected Korea's objections as they were submitted outside of the deadline established in paragraph 8 of the Panel's Working Procedures and without any showing of good cause for granting an exception to the deadline.

2 FACTUAL ASPECTS

2.1.
This dispute concerns anti-dumping duties imposed by Korea on imports of valves for pneumatic transmissions (pneumatic valves) originating from Japan, as described in the Resolution of Final Determination on Dumping and Injury to Domestic Industry of Valves for Pneumatic Transmissions from Japan adopted by the Korea Trade Commission (KTC) (Final Resolution)9 and the Report by the KTC's Office of Trade Investigation (OTI) (Final Report)10, both dated 20 January 2015.
2.2.
The investigation was initiated by the KTC based on an application filed on 23 December 2013 by TPC Mechatronics Corporation (TPC) and KCC Co., Ltd. (KCC).11 The notice of initiation of the investigation was published in the Official Gazette on 21 February 2014.12 The investigation was conducted by the KTC and its OTI (the Korean Investigating Authorities).13 The period of investigation (POI) for the examination of dumping was from 1 April 2012 to 31 March 2013, and the POI for the examination of injury was from 1 January 2010 to 31 December 2013.14
2.3.
On 26 June 2014, the KTC made a preliminary determination that there was sufficient evidence to presume the existence of dumping of pneumatic valves from Japan and of material injury suffered by the domestic industry caused by the dumped imports. The KTC did not recommend the imposition of provisional anti-dumping duties on imports of pneumatic valves from Japan.15 The Korean Minister of Strategy and Finance (MOSF) did not impose provisional anti‑dumping duties. On 23 October 2014, the OTI issued an Interim Investigation Report.16
2.4.
On 20 January 2015, based on the OTI's Final Report of the same date, the KTC issued its Final Resolution, determining that the Korean domestic industry producing the like product was materially injured by reason of the dumping of pneumatic valves from Japan and recommending the imposition of anti-dumping duties on such imports for five years at the following rates: (a) for SMC Corporation (SMC) and exporters of its products, 11.66%; and (b) for CKD Corporation (CKD) and exporters of its products, Toyooki Kogyo Co., Ltd. (Toyooki) and exporters of its products, and other suppliers of Japan, 22.77%.17 The OTI's Final Report and the KTC's Final Resolution were notified to domestic producers, importers, and consumers on 17 March 2015.18
2.5.
On 19 August 2015, based on the KTC's Final Resolution, the MOSF adopted Decree No. 498, which contains the Regulation Concerning the Imposition of Anti-Dumping Duties on Valves for Pneumatic Transmissions originating from Japan. Decree No. 498 imposes anti-dumping duties for five years on the imports of pneumatic valves from Japan at the following rates: (a) for SMC and persons exporting its products at 11.66%; and (b) for CKD and Toyooki and persons exporting its products, and other suppliers, at 22.77%.19

3 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

3.1.
Japan requests that the Panel find that Korea's measures imposing anti-dumping duties on pneumatic valves from Japan are inconsistent with Korea's obligations under the following provisions of the Anti-Dumping Agreement and the GATT 1994:

a. Articles 3.1 and 3.2 of the Anti-Dumping Agreement, because Korea's analysis of a significant increase of the imports under investigation did not involve an objective examination based on positive evidence;

b. Articles 3.1 and 3.2 of the Anti-Dumping Agreement, because Korea's analysis of the effect of the imports under investigation on prices in the domestic market for like products did not involve an objective examination based on positive evidence; and because Korea failed to properly consider whether the effect of the imports under investigation was to depress prices to a significant degree or prevent price increase, which otherwise would have occurred, to a significant degree;

c. Articles 3.1 and 3.4 of the Anti-Dumping Agreement, because Korea's analysis of the impact of the imports under investigation on the domestic industry at issue did not involve an objective examination based on positive evidence, including an evaluation of all relevant economic factors and indices having a bearing on the state of the domestic industry at issue;

d. Articles 3.1 and 3.5 of the Anti-Dumping Agreement, because Korea failed to demonstrate that the imports under investigation were, through the effects of dumping, causing injury to the domestic industry based on an objective examination of the alleged causal relationship between the imports under investigation and the alleged injury to the domestic industry, on the basis of all relevant positive evidence before the authorities;

e. Articles 3.1 and 3.5 of the Anti-Dumping Agreement, because Korea failed to consider adequately all known factors other than the imports under investigation that were injuring the domestic industry at the same time and therefore incorrectly attributed injury caused by these other factors to the imports under investigation;

f. Articles 3.1 and 3.5 of the Anti-Dumping Agreement, because Korea's demonstration of causation lacks any foundation in its analyses of the volume of the imports under investigation, the effects of the imports under investigation on prices, and/or the impact of the imports under investigation on the domestic industry at issue, irrespective and independent of whether Korea's flawed analysis of the volume and/or flawed analysis of the effects of the imports under investigation on prices, on the one hand, and Korea's flawed analysis of the impact of the imports under investigation on the domestic industry on the other, would be inconsistent with, respectively, Articles 3.1 and 3.2 of the Anti‑Dumping Agreement and Articles 3.1 and 3.4 of the Anti-Dumping Agreement;

g. Articles 3.1 and 4.1 of the Anti-Dumping Agreement, because Korea failed to make an objective examination based on positive evidence in defining the domestic industry producing the like product and consequently in making a determination of injury;

h. Article 6.5 of the Anti-Dumping Agreement, because Korea treated allegedly confidential information provided by the interested parties as confidential without good cause shown;

i. Article 6.5.1 of the Anti-Dumping Agreement, because Korea: (i) failed to require the applicants to furnish non-confidential summaries of their submissions, questionnaire responses, and amendments thereof; and (ii) where such summaries were provided, they were not in sufficient detail to permit a reasonable understanding of the substance of the information submitted in confidence;

j. Article 6.9 of the Anti-Dumping Agreement, because Korea failed to inform the interested parties of the essential facts under consideration which formed the basis for the decision to impose definitive anti-dumping measures;

k. Article 12.2 of the Anti-Dumping Agreement, because Korea failed to provide in sufficient detail the findings and conclusions reached on all issues of fact and law considered material by the investigating authorities;

l. Article 12.2.2 of the Anti-Dumping Agreement, because Korea failed to make available all relevant information on the matters of fact and law and reasons which have led to the imposition of final measures; and

m. Article 1 of the Anti-Dumping Agreement and Article VI of the GATT 1994, as a consequence of the breaches of the Anti-Dumping Agreement described above.

3.2.
Japan further requests, pursuant to Article 19.1 of the DSU, that the Panel recommend that Korea bring its measures into conformity with its obligations under the GATT 1994 and the Anti‑Dumping Agreement.
3.3.
Japan requests that the Panel make findings with respect to each of Japan's claims under Articles 3.1, 3.2, 3.4, and 3.5 of the Anti-Dumping Agreement without exercising judicial economy, because findings with respect to each claim could influence Korea's implementation measures and therefore be necessary to secure the prompt resolution of the dispute.20
3.4.
Korea requests that the Panel determine that Japan's claims under Articles 3.1, 3.2, 3.4, 3.5, and 4.1 of the Anti-Dumping Agreement are outside the Panel's terms of reference for this dispute, and reject Japan's remaining claims. Alternatively, Korea requests that the Panel reject the entirety of Japan's claims in this dispute and find that the challenged measures are not inconsistent with Korea's obligations under the GATT 1994 and the Anti-Dumping Agreement.

4 ARGUMENTS OF THE PARTIES

4.1.
The arguments of the parties are reflected in their executive summaries, provided to the Panel in accordance with paragraph 17 of the Working Procedures adopted by the Panel (see Annexes B-1, B-2, C-1, and C-2).

5 ARGUMENTS OF THE THIRD PARTIES

5.1.
The arguments of Brazil, Canada, Ecuador, the European Union, and the United States are reflected in their executive summaries, provided in accordance with paragraph 17 of the Working Procedures adopted by the Panel (see annexes D-1, D-2, D-3, D-4, and D-5). China, Norway, Singapore, Turkey, and Viet Nam did not submit written or oral arguments to the Panel.

6 INTERIM REVIEW

6.1.
On 10 October 2017, the Panel issued its Interim Report to the parties. On 24 October 2017, Japan and Korea each submitted written requests for the Panel to review aspects of the Interim Report. Neither party requested an interim review meeting. On 31 October 2017, both parties submitted comments on the other party's requests for review.
6.2.
The parties' requests made at the interim review stage as well as the Panel's discussion and disposition of those requests are set out in Annex A-3.

7 FINDINGS

7.1 INTRODUCTION

7.1.
This dispute concerns anti-dumping duties imposed by Korea on imports of pneumatic valves from Japan, as described in the KTC's Final Resolution21 and in the OTI's Final Report22, both dated 20 January 2015. On 19 August 2015, based on the recommendations contained in the KTC's Final Resolution, the Korean MOSF adopted Decree No. 498, imposing anti-dumping duties for five years on imports of pneumatic valves from Japan at the following rates: (a) for SMC and persons exporting its products, 11.66%; and (b) for CKD and Toyooki and persons exporting its products, and other suppliers, 22.77%.23
7.2.
Japan claims that Korea's anti-dumping duties on pneumatic valves from Japan are inconsistent with Korea's obligations under Articles 1, 3.1, 3.2, 3.4, 3.5, 4.1, 6.5, 6.5.1, 6.9, 12.2, and 12.2.2 of the Anti-Dumping Agreement and Article VI of the GATT 1994.
7.3.
Korea requests that the Panel determine that Japan's claims under Articles 3.1, 3.2, 3.4, 3.5, and 4.1 of the Anti-Dumping Agreement are outside the Panel's terms of reference. Korea also invites the Panel to examine ex officio whether Japan's remaining claims (under Articles 1, 6.5, 6.5.1, 6.9, 12.2, and 12.2.2 of the Anti-Dumping Agreement and Article VI of the GATT 1994) are within the Panel's terms of reference. For all claims that the Panel considers to be within its terms of reference, Korea requests the Panel to reject Japan's claims and find that the challenged measures are not inconsistent with Korea's obligations under the GATT 1994 and the Anti‑Dumping Agreement.
7.4.
In addressing the issues raised in this dispute, the Panel will first set out the relevant principles guiding its review. It will then address the issues related to the Panel's terms of reference. The Panel will subsequently examine, as appropriate, whether the measures challenged by Japan are inconsistent with the cited provisions of the Anti-Dumping Agreement and the GATT 1994. The Panel will finalize by setting forth its conclusions and recommendation.

7.2 STANDARD OF REVIEW, TREATY INTERPRETATION, AND BURDEN OF PROOF

7.2.1 Standard of review

7.5.
Panels are bound by the standard of review set forth in Article 11 of the DSU, which provides, in relevant part:

[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.24

7.6.
In addition, Article 17.6 of the Anti-Dumping Agreement sets forth a specific standard of review applicable to disputes under the Anti-Dumping Agreement:

(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.

7.7.
Thus, Article 11 of the DSU and Article 17.6 of the Anti-Dumping Agreement together establish the standard of review the Panel will apply with respect to both the factual and the legal aspects of the present dispute.
7.8.
It is well understood that:

[T]he task of a WTO panel is to examine whether the investigating authority has adequately performed its investigative function, and has adequately explained how the evidence supports its conclusions. It follows from the requirement that the investigating authority provide a "reasoned and adequate" explanation for its conclusions that the entire rationale for the investigating authority's decision must be set out in its report on the determination. This is not to say that the meaning of a determination cannot be explained or buttressed by referring to evidence on the record. Yet, in all instances, it is the explanation provided in the written report of the investigating authorities (and supporting documents) that is to be assessed in order to determine whether the determination was sufficiently explained and reasoned.25

7.9.
Moreover, 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 dispute.26 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".27
7.10.
A panel must limit its examination to the evidence that was before the investigating authority during the course of the investigation28 and must take into account all such evidence submitted by the parties to the dispute.29 A panel's examination in that regard is not necessarily limited to the pieces of evidence expressly relied upon by an investigating authority in its establishment and evaluation of the facts in arriving at a particular conclusion.30 Rather, a panel may also take into consideration other pieces of evidence that were on the record and that are connected to the explanation provided by the investigating authority in its determination. This flows from the principle that investigating authorities are not required to cite or discuss every piece of supporting record evidence for each fact in the final determination.31 That notwithstanding, since a panel's review is not de novo, ex post rationalizations unconnected to the investigating authority's explanation – even when founded on record evidence – cannot form the basis of a panel's conclusion.32

7.2.2 Treaty interpretation

7.11.
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". As noted above, Article 17.6(ii) of the Anti-Dumping Agreement similarly requires panels to interpret that Agreement's provisions in accordance with the 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 are such customary rules.33

7.2.3 Burden of proof

7.12.
The general rule in WTO dispute settlement is that the burden of proof rests upon the party, whether complaining or defending, who asserts the affirmative of a particular claim or defence.34 Following this principle, the Appellate Body has explained that the complaining party in any given dispute should establish a prima facie case of inconsistency of a measure with a provision of the WTO covered agreements, before the burden of showing consistency with that provision or defending it under an exception must be assumed by the defending party.35 In other words, "a party claiming a violation of a provision of the WTO Agreement by another Member must assert and prove its claim".36
7.13.
Therefore, as the complaining party, Japan bears the burden of demonstrating that the measures at issue are inconsistent with the provisions of the covered agreements that Japan has invoked. If the Panel finds that Japan has made out its prima facie case, it is for Korea to provide rebuttal arguments and evidence that is needed to support that rebuttal.

7.3 PANEL'S TERMS OF REFERENCE

7.3.1 Introduction

7.14.
On 24 November 2016, Korea filed a request for the Panel to issue a preliminary ruling that Japan's claims under Articles 3.1, 3.2, 3.4, 3.5, and 4.1 of the Anti-Dumping Agreement are outside the Panel's terms of reference for this dispute. Korea asserted that, with respect to these claims, Japan's panel request fails to "provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly", as required by Article 6.2 of the DSU.37 Korea subsequently invited the Panel, in addition, to examine ex officio whether the remaining claims (under Articles 1, 6.5, 6.5.1, 6.9, 12.2, and 12.2.2 of the Anti-Dumping Agreement and Article VI of the GATT 1994) are within the Panel's terms of reference.38
7.15.
Korea's challenge thus extends to all 13 claims that Japan set out in its panel request. Both parties addressed the sufficiency of Japan's panel request in their written submissions, as well as in their responses to questions posed by the Panel and comments on each other's responses. Some third parties (Ecuador, the European Union, and the United States) also offered their views on the issue in their written submissions and in their responses to questions posed by the Panel.
7.16.
In view of the extraordinary scope of Korea's challenge, and the particular provisions at issue in this dispute, the Panel decided not to issue a separate ruling on the matter of the sufficiency of Japan's panel request under Article 6.2 of the DSU, and informed the parties that it would instead address this issue in its final report.39
7.17.
In this section of our Report, we set out general considerations regarding Korea's challenge. We will subsequently address whether Japan's panel request has provided the requisite brief summary of the legal basis of the complaint sufficient to present the problem clearly, as required by Article 6.2 of the DSU, with respect to each of the specific claims in turn.

7.3.2 Legal background

7.18.
Article 6.2 of the DSU provides that:

The request for the establishment of a panel shall be made in writing. It shall indicate whether consultations were held, identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.

7.19.
The "matter" referred to a panel for consideration consists of: (a) the measures at issue; and (b) the specific claims advanced by the complaining party.40 The identification of the specific measures at issue and the legal basis of the complaint serves a dual function: (a) it forms the basis for a panel's terms of reference under Article 7.1 of the DSU; and (b) it informs other WTO Members of the nature of the dispute, which in turn allows the respondent to prepare its defence and allows other Members to assess whether they have an interest in the matter, for example, to decide whether to participate as third parties.41 The Appellate Body has observed that, since a panel request is usually approved automatically at the DSB meeting following that at which the request first appears on the DSB's agenda, and therefore the request is normally not subject to detailed scrutiny by the DSB, "it is incumbent upon a panel to examine the request for the establishment of the panel very carefully to ensure its compliance with both the letter and the spirit of Article 6.2 of the DSU".42
7.20.
Compliance with the requirements of Article 6.2 must be demonstrated on the face of the panel request. Defects in a panel request cannot be cured in subsequent submissions. However, in considering the sufficiency of a panel request, a panel may consider submissions and statements made by the parties in order to: (a) confirm the meaning of the words used in the panel request; and (b) assess whether the ability of the respondent to defend itself was prejudiced.43
7.21.
In the present case, Korea's challenge concerns the identification of the legal basis of the complaint as described in Japan's panel request, as opposed to the identification of the measures. The term "legal basis of the complaint" in Article 6.2 of the DSU refers to the "claims" made by the complaining party.44 In turn, a claim refers to the allegation "that the respondent party has violated, or nullified or impaired the benefits arising from, an identified provision of a particular agreement".45
7.22.
In examining the sufficiency of a panel request, a distinction must be drawn between "claims" and "arguments". A claim sets forth the complainant's view that the respondent party has violated, or nullified or impaired the benefits arising from, an identified provision of a particular agreement. By contrast, "arguments" are statements put forth by a complaining party to demonstrate that the responding party's measure does indeed infringe upon the identified treaty provision.46 A panel request must identify the claims put forward by the complainant, but need not identify the complainant's arguments, which may be set out and progressively clarified in the course of the proceedings though the parties' submissions and statements.47
7.23.
Article 6.2 of the DSU requires only a summary of the legal basis of the complaint, and it may be a brief one. The summary must, however, be one that is "sufficient to present the problem clearly". Accordingly, for purposes of Article 6.2, it is not enough that "the legal basis of the complaint" is summarily identified; the identification must "present the problem clearly".48
7.24.
It is well understood that, in order to present the problem clearly, a panel request must plainly connect the challenged measures with the provisions of the covered agreements claimed to have been infringed, so that the respondent party is aware of the basis for the alleged nullification or impairment of the complaining party's benefits. Only by such connection between the measures and the relevant provisions can a respondent know what case it has to answer, and begin preparing its defence.49 The narrative of a panel request functions to explain succinctly how or why the measure at issue is considered by the complaining Member to be violating the WTO obligations in question.50
7.25.
As a minimum requirement, a complainant must list, in the panel request, the provisions of the covered agreements claimed to have been violated. The identification of the treaty provisions claimed to have been violated by the respondent is always necessary and is a minimum prerequisite if the legal basis of the complaint is to be presented at all.51
7.26.
There are, however, situations in which a "mere listing" of treaty provisions does not satisfy the standards of clarity in the statement of the legal basis of the complaint required by Article 6.2. This is the case, for example, where the provisions listed in the panel request establish not one single, distinct obligation, but rather multiple obligations.52 To the extent that a provision contains multiple obligations, a panel request must specify which of them is being challenged.
7.27.
Whether the listing of treaty provisions allegedly violated is sufficient to constitute a "brief summary of the legal basis of the complaint sufficient to present the problem clearly" depends on the circumstances of each case, and in particular on the extent to which mere reference to a treaty provision sheds light on the nature of the obligation at issue.53

7.3.3 The requirement for an objective examination based on positive evidence under Article 3.1 of the Anti-Dumping Agreement

7.28.
Of the 13 claims set out in Japan's panel request, seven relate to Korea's injury determination. In each of these seven claims, Japan's panel request invokes Article 3.1 of the Anti‑Dumping Agreement together with another subparagraph of Article 3, or, in one claim, Article 4.1 of the Anti-Dumping Agreement. In five of these claims, Japan's panel request paraphrases the language in the first part of Article 3.1 and asserts that the Korean Investigating Authorities' analysis was not based on positive evidence and did not involve an objective examination, with respect to the obligation in the other provision set out in the claim.
7.29.
We will address the sufficiency of Japan's panel request for each of the individual claims set out therein. We note that previous decisions of panels and the Appellate Body have elaborated on the meaning of the different paragraphs of Article 3 referred to in Japan's claims. In this context, we find it useful to explain our understanding of the legal framework for injury determination, in order to provide the context for our consideration of whether the claims raised by Japan are properly before the Panel and, if so, for our consideration of Japan's claims regarding Korea's injury determination.
7.30.
Article 3 of the Anti-Dumping Agreement is entitled "Determination of Injury" and its provisions require an investigating authority to consider, examine, and evaluate a broad range of factors, and to demonstrate that dumped imports are causing injury to the domestic industry. The provisions of Article 3 are interrelated in the sense that the consideration, examination, and evaluation of the required elements all contribute to the explanation of the ultimate determination whether dumped imports are causing injury to the domestic industry of the importing Member.54
7.31.
Article 3.1 establishes the basic principles that a determination of injury for purposes of Article VI of GATT 1994:

[S]hall 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.

7.32.
The reference in Article 3.1 to "positive evidence" refers to "the facts underpinning and justifying the injury determination"55, and to "the quality of the evidence that an investigating authority may rely upon in making a determination".56 "Positive" suggests that the evidence should be "affirmative, objective, verifiable, and credible".57 The reference to an "objective examination" relates to the investigative process itself, and requires that the process "conform to the dictates of the basic principles of good faith and fundamental fairness", and be conducted "in an unbiased manner, without favouring the interests of any interested party, or group of interested parties, in the investigation".58
7.33.
Article 3.1 "is a fundamental and substantial obligation that functions as a chapeau, and informs the rest of Article 3".59 It is "an overarching provision that sets forth a Member's fundamental, substantive obligation [with respect to the determination of injury]. Article 3.1 informs the more detailed obligations in succeeding paragraphs".60 The basic principles in Article 3.1 "do not … establish independent obligations which can be judged in the abstract, or in isolation and separately from the substantive requirements set out in the remainder of Article 3. Instead, they inform the application of all the provisions of Article 3".61 There is no doubt that a determination of injury may be challenged, so that a panel may be required to review it, and decide whether the investigating authority complied with the relevant substantive and procedural obligations, consistently with the fundamental principles set out in Article 3.1. This does not, however, mean that a claim of inconsistency with Article 3.1 can normally be made independently from other obligations in the Anti-Dumping Agreement.62
7.34.
The requisite degree of specificity and clarity in a panel request may depend on the particular circumstances of each case, and must be examined on a case-by-case basis. As noted by the Appellate Body:

Whether or not a general reference to a treaty provision will be adequate to meet the requirement of sufficiency under Article 6.2 is to be examined on a case-by-case basis, taking into account the extent to which such reference sheds light on the nature of the obligation at issue.63

7.35.
Having said that, merely to mention the first part of Article 3.1, or use the language of that provision (i.e. a determination shall be "based on positive evidence" and involve an "objective examination"), in a panel request will not in itself normally suffice to present a problem clearly with respect to an allegation of violation of the Anti-Dumping Agreement. Such mention in itself would not explain how or why a complainant considers the measure at issue to be inconsistent with a specific obligation under the Anti-Dumping Agreement. It would not be precise enough to serve the dual function of a panel request, which we recall is: (a) to define the basis for the panel's terms of reference under Article 7.1 of the DSU; and (b) to inform other WTO Members, including the respondent, of the nature of the dispute. An allegation in a panel request that an investigating authority's determination was not based on positive evidence and did not involve an objective examination requires some additional information with respect to the alleged inconsistency, in order to provide the summary of the legal basis of the complaint sufficient to present the problem clearly required by Article 6.2 of the DSU.
7.36.
As noted above, this does not mean that the complainant is required to set out its arguments in the panel request. "Article 6.2 of the DSU requires that the claims, but not the arguments, must all be specified sufficiently in the [panel request] in order to allow the defending party and any third parties to know the legal basis of the complaint".64 Although Article 6.2 demands only a summary of the legal basis of the complaint, and that summary may be a brief one, the summary must be sufficient to present the problem clearly.65
7.37.
We shall be guided by the considerations expressed above in our assessment of whether each of the claims of inconsistency with obligations under the WTO Agreements raised by Japan in this dispute has been properly identified in Japan's panel request in accordance with Article 6.2 of the DSU, and is therefore appropriately before the Panel. We shall also examine each of the allegations that the Korean Investigating Authorities' determination did not involve an objective examination or were not based on positive evidence in order to assess whether the panel request has properly explained how and why in Japan's view the determination breached the specific treaty obligations.

7.4 DEFINITION OF THE DOMESTIC INDUSTRY

7.4.1 Introduction

7.38.
Japan claims that the KTC's definition of the domestic industry was not based on an objective examination of positive evidence as required by Articles 3.1 and 4.1 of the Anti‑Dumping Agreement.
7.39.
Korea argues that Japan's claim concerning the definition of the domestic industry is outside the Panel's terms of reference because Japan's panel request does not comply with the requirements under Article 6.2 of the DSU with respect to this claim. In the alternative, Korea asks the Panel to reject Japan's claim.

7.4.2 Main arguments of the parties

7.4.2.1 Japan

7.40.
In its panel request, Japan asserts that Korea's measures are inconsistent with Articles 3.1 and 4.1 of the Anti-Dumping Agreement:

[B]ecause Korea failed to make an objective examination based on positive evidence in defining the domestic industry producing the like product and consequently in making a determination of injury[.]66

7.41.
As articulated over the course of the proceedings, Japan claims that Korea acted inconsistently with Articles 3.1 and 4.1 of the Anti-Dumping Agreement by failing to ensure that the process of defining the domestic industry did not give rise to a material risk of distortion.67 Japan contends that the term "a major proportion" under Article 4.1, when the domestic industry is defined based on the major proportion of the total domestic production, requires both qualitative and quantitative assessments.68 According to Japan, the following circumstances in the present case lead to a risk of distortion:

a. the KTC defined the domestic industry to include only two domestic producers representing about half of the total domestic production of the like product (55.4%), leaving aside seven other producers representing "the other half of the industry";

b. the KTC defined the domestic industry to include the applicants only, introducing a substantial risk of bias and distortion, and failed to provide an adequate explanation as to why such risk was disregarded;

c. the KTC did not make an effort to collect information from domestic producers other than the applicants, or to collect data from other sources known to the Government of Korea or from other publicly available information69;

d. the two producers included in the definition of the domestic industry are not representative of the total domestic production because they produce a wide range of models both individually and as part of pneumatic systems, whereas other smaller producers apparently do not sell a wide range of products, make only limited sales as part of systems, and do not cover the same broad range of industries70; and

e. the KTC did not consider objectively the available evidence on the level of production of Korean producers because it allowed the petitioners to provide the data on the level of production of other domestic producers and did not resolve the conflicting evidence regarding figures on domestic production.71

7.42.
Japan argues in addition that the KTC's discussion of certain information regarding two domestic producers that were not formally included in the definition of the "domestic industry" was not adequately reasoned, and failed to resolve the material risk of distortion.72 Japan also asserts that the KTC, ignoring contentions of Japanese respondents, defined the domestic industry based on unverified data regarding the production levels of each domestic producer other than the petitioners.73 Japan argues that, in the particular circumstances of the present case, the KTC should have instead defined the domestic industry as follows:

First, when the KTC received the questionnaire responses from only the two petitioning firms, the KTC should have assessed whether those two firms were sufficiently representative of the total domestic production. Second, if the KTC could not ensure, based on positive evidence, that the two petitioning firms alone were sufficiently representative of the total domestic production, then, the KTC should have included more domestic producers (regardless of whether they were willing to cooperate at that point of time) in the domestic industry definition so that the definition would be sufficiently representative. Finally, the KTC should have preceded the investigation with that sufficiently representative domestic industry definition.[*] For those firms that would continue to be uncooperative with the investigation, the KTC should have resorted to "facts available" in accordance with Article 6.8 [of the Anti-Dumping Agreement].74

[*fn original]191 Japan Response to Panel Q60, para. 117.

7.4.2.2 Korea

7.43.
Korea argues that Japan's claim under Articles 3.1 and 4.1 of the Anti-Dumping Agreement, with respect to the definition of the domestic industry, is outside of the Panel's terms of reference and that it should therefore be rejected by the Panel.75
7.44.
Alternatively, Korea argues that Article 4.1 of the Anti-Dumping Agreement does not stipulate any specific proportion for evaluating whether a certain percentage constitutes a major proportion of the total domestic production. In Korea's view, the proportion of production represented by the domestic producers that were included in the definition of the domestic industry (i.e. 55.4%) was "relatively high" and, as determined by the KTC, constituted a major proportion of the total domestic production.76 The two domestic producers are genuinely representative of the total domestic production from a qualitative point of view, in terms of the range of the models produced, sales methods, distribution channels, and end-user industries.77 Moreover, Korea asserts that:

There is no basis in the text of the Agreement or in WTO jurisprudence for Japan's argument that a domestic industry definition is consistent with Article 4.1 only when the producers included in the domestic industry defined as "a major proportion" are qualitatively similar to the other producers which are not part of the domestic industry. The major proportion requirement is not a sampling situation but rather concerns, quantitatively, whether the producers included in the definition produce a significant, notable, important and thus "major" proportion of total production and qualitatively whether the process by which the industry was defined was objective and not biased.78

7.45.
Korea submits that there is no evidence that the process by which the KTC defined the domestic industry was in any way biased or gave rise to a material risk of distortion. The KTC invited all domestic producers to participate and each of them received questionnaires. As explained in the KTC's Final Resolution, only two producers responded in full to the questionnaires; two other producers informed the KTC that they were not in a position to respond to the questionnaires due to lack of personnel, but indicated that they too had suffered material injury as a result of the dumped imports; and the remaining producers did not respond at all.79 In Korea's view, Japan's allegation that those producers who did not join the application for anti-dumping measures "may well have viewed the market and competitive dynamics differently than the applicants" is unsubstantiated speculation.80 Korea submits that, in any event, there is no requirement in the Anti-Dumping Agreement for an investigating authority to ensure that its definition of the domestic industry includes producers with different views about the application. Korea adds that the OTI found no alternative source of reliable data, such as industry associations or research institutions, to assess the state of the domestic industry of pneumatic valves.81

7.4.3 Relevant facts

7.46.
The application for the initiation of an investigation and the imposition of anti-dumping duties on imports of pneumatic valves from Japan was filed on 23 December 2013 by TPC and KCC.82 The application noted that there were some ten domestic companies producing pneumatic valves in Korea, most of which were small to mid-sized companies; TPC was the leading domestic producer.83 The applicants declared that their volume of production fulfilled the representativeness requirements stipulated in the Korean domestic legislation, that they had not imported the products at issue within the six months previous to the filing of the application, and that they had no affiliation or special relationship with suppliers (exporters) or importers of the products at issue.84
7.47.
In its Preliminary Report, citing the application and the responses from the domestic industry, the OTI found that there were 11 domestic producers of the like product, including the two applicants; it also noted that only the applicants submitted responses.85 Based on the fact that they "were included in the range of domestic industry" (including the fact that one of the applicants (TPC) had no recent history of importing the product under investigation and that the other applicant (KCC) had imported only a small quantity of the product), and the percentage of the total domestic production constituted by "[their] aggregate production quantity of [the] like product", the OTI considered that the two applicants were "regarded to take a significant portion of the total production in [Korea]". Accordingly, the OTI recommended that "in the examination for whether there was injury to domestic industry … 'domestic industry' [be] regarded as 'the total production by TPC Mechatronics and KCC'".86 Noting the OTI's statements, the KTC determined that it was appropriate to include the two applicants (TPC and KCC) in the scope of the domestic industry, and that the collective production of the like product of these two companies constituted "a major proportion of the total domestic production" so that it was "appropriate to set the term 'domestic industry' as 'the production of like product by TPC Mechatronics and KCC' for the investigation of injury to domestic industry".87
7.48.
In its Interim Report, citing the application, the responses from the domestic industry, and the confirmation of the competent ministry, the OTI again referred to the existence of 11 domestic producers of the like product, including the two applicants; it also noted that only the applicants submitted responses. The OTI noted that the production quantity of the two applicants constituted 51% of the total domestic production of the like product. The OTI indicated that of the nine domestic producers other than the applicants, eight expressed their support for the application, while one producer did not respond.88 The OTI also indicated that two domestic producers (Yonwoo Pneumatic and Shin Yeong Mechatronics) confirmed their respective quantities of production of the like product as reported.89 The OTI indicated that the two applicants should be "included in the range of domestic industry", that their "aggregate production quantity of like product … constituted 51% of the total domestic production", and that therefore they should be "regarded to take a significant portion of the total production in the country". The OTI concluded that, accordingly, "[i]n the examination for whether there was injury to domestic industry in this investigation, 'domestic industry' [should be] regarded as 'the total production of like product by TPC Mechatronics and KCC'".90
7.49.
In its Final Report, citing the application and the responses from the domestic industry, the OTI referred to the existence of nine domestic producers of the like product, including the two applicants. The OTI stated that two of the producers that supported the application and were included as part of domestic production at the initial stage of the investigation (Hyoshin Electronic and A-one Tech) produced two-port valves which were subsequently excluded from the product under investigation; accordingly, these two producers were also excluded from the list of domestic producers. The OTI noted that the production quantity of the two applicants constituted 55.4% of the total domestic production of the like product.91 The OTI indicated that questionnaires were sent to all nine domestic producers that produced the like product, but only the applicants submitted responses. Two additional producers expressed their support for the investigation but indicated that, due to the lack of accounting personnel, they had difficulty responding to the questionnaires.92 Accordingly, since it "did not have any reliable source from which it could obtain accurate production data of domestic producers of the pneumatic valves", the OTI calculated the production volume of the other five domestic producers based upon the data provided by the applicants93. After the public hearing on 23 October 2014, one of the two domestic producers that supported the investigation but which did not submit a questionnaire response (Yonwoo), submitted that its production in 2013 was [[***]] units, and its sales volume was "similar". The OTI used the same number ([[***]] units) both as Yonwoo's sales volume and production volume94, but it was not able to verify Yonwoo's statement that Yonwoo's sales volumes were similar to its production volumes.95 The OTI also noted that one of the applicants (TPC) had purchased an insignificant amount of the products under investigation from a firm that it had no special relationship with. The other applicant (KCC) had imported a small amount of products that had been excluded from the scope of the product under investigation. The OTI suggested that the two applicants were "within the scope of the domestic industry" and, since their combined production volume accounted for 55.4% of the total domestic production of the like product, they accounted for "a considerable portion of the total domestic production". Accordingly, the OTI suggested that, "[f]or the purpose of the investigation into the injury to the domestic industry … the 'domestic industry' is defined as the 'total of TPC's and KCC's businesses producing a like product'".96
7.50.
In the Final Report, the OTI noted the Japanese respondents' argument that, for the purpose of assessing the injury to the domestic production, the Investigating Authority should take into account "all identified domestic producers based on various data and information available to the Commission". The OTI responded that:

It is desirable to include all domestic producers for the purpose of analyzing the industrial injury if it is possible to obtain the relevant data, however, if it is impossible to obtain such data on the entire domestic industry despite the relevant efforts of the investigation authorities, and if the companies whose data are available account for a majority proportion of the domestic industry, it is appropriate and reasonable to analyze the injury to the domestic industry only based on the data from such companies given the WTO regulations or the general investigative practices of other investigation authorities.97

7.51.
The OTI added that it had sent questionnaires to all identified domestic producers that produced the like product, but only the applicants submitted responses; "[t]herefore, the [OTI] could not objectively figure out the status of such producers that failed to respond". Also, "[s]ince most domestic producers [were] small and medium sized companies with no associations, groups or research institutions in connection with the pneumatic valve industry", the OTI found it "impossible to obtain reliable materials on the business conditions of the overall domestic industry, such as the indicators of production, sales and profit, etc.". Accordingly, the OTI deemed the production of the two applicants "as the scope of the domestic industry".98
7.52.
Since the respondents had referred to the specific cases of two domestic producers (other than the applicants) "to support [their] argument that no injury has been inflicted on the domestic industry, the [OTI] conducted an additional investigation into the two companies above to an available extent and then included the results thereof in its report".99 In response to the specific arguments advanced by the respondents with respect to changes in profit, the OTI "conducted an additional analysis of subjects including data of some domestic producers who [had] not participated in the investigation to an available extent".100 In this respect, the OTI noted that the respondents argued that the two domestic producers in question, which did not participate in the investigation, enjoyed increased profits during the POI, and that there would be no injury to the domestic industry if those producers that did not participate in the investigation were included in that industry. In order to verify the respondents' argument, the OTI examined the status of these two companies and found that both showed changes in indicators similar to those of the applicants during the POI as they recorded improved sales and operating profits in 2011, but showed deteriorated sales and operating profits in 2012 and 2013. The operating profit ratio of these two companies was relatively good compared to that of the applicants, which the OTI attributed mainly to the fact that "the two companies spent a relatively small amount of [selling, general, and administrative (SG&A)] expenses as their sales focused on regular customers and they maintained smaller sales forces".101
7.53.
Upon review of the investigation as described in the OTI's Final Report, the KTC issued its Final Resolution determining that the domestic industry producing the like product was materially injured by the dumping of pneumatic valves from Japan and recommending that the MOSF impose on suppliers of such pneumatic valves anti-dumping duties at the following rates for five years: (a) for SMC and exporters of its products, 11.66%; and (b) for CKD and exporters of its products, Toyooki and exporters of its products, and other suppliers of products from Japan, 22.77%.102
7.54.
The KTC's Final Resolution noted the OTI's finding that there were nine domestic producers of the like product, including the two applicants, and that the OTI sent questionnaires to all nine producers, but only the applicants submitted responses.103 The KTC also noted the respondents' argument that both TPC and KCC had imported the product under investigation. The KTC concluded, however, that there was no reason to exclude either of these companies from the scope of the domestic industry, since TPC was not in a special relationship with the supplier and had bought only a small volume and KCC had not, in fact, imported the product under investigation.104 The KTC considered therefore that the two applicants were properly included in the scope of the domestic industry and that their total production of the like product amounted to 55.4%, which was "a substantial portion of the gross domestic production". The KTC concluded that "in investigating an injury to the domestic industry caused by dumping in the present case, the 'domestic industry' [would be] defined as the 'total of TPC's and KCC's business producing the like product' in accordance with Article 59, Paragraph 2 of the Enforcement Decree of the Customs Act ('Enforcement Decree')".105 The KTC also noted that, in analysing profit indicators, the OTI had "conducted an additional analysis by including some producers mentioned by the Respondents among the domestic producers who did not participate in the investigation, to the extent that data related thereto were available".106
7.55.
With respect to the respondents' argument that the domestic industry should not be limited to the two applicants but should include all domestic producers based on available data and information, the KTC indicated that, when it is impossible to obtain data of the entire domestic industry despite the efforts of the investigating authorities and the companies whose data are available account for a majority of the domestic production, analysing the injury to the domestic industry based only on the data from such companies would not violate WTO obligations nor applicable domestic laws and regulations, and would be "reasonable even compared to the general investigative practices of other investigating authorities".107 The KTC noted that the OTI conducted an "additional investigation into the business status of [two domestic producers different from the applicants (Yonwoo Pneumatic and Shin Yeong Mechatronics)] with the cooperation of the two companies and found that the sales volume and operating profit of both companies increased in 2011 but the trends similar to the business indicators of the Applicants occurred in 2012 and 2013, with their sales volume and sales amount decreasing and the operating profit worsening".108 The KTC also noted that the operating profit of the two companies in question had a significant decrease in 2013 "due to the adverse impact of the sharp increase in the import of the dumped products and the significant decrease in the sales price thereof". The KTC concluded that the inclusion of these companies "would not significantly change the overall trends of the injury indicators of the domestic industry".109

7.4.4 Panel's terms of reference

7.4.4.1 Main arguments of the parties

7.56.
Korea argues that Japan's claim under Articles 3.1 and 4.1 of the Anti-Dumping Agreement with respect to the definition of the domestic industry is outside of the Panel's terms of reference. According to Korea, "Japan's panel request does not provide a brief summary of the complaint [as required by Article 6.2 of the DSU] but merely paraphrases the legal obligation contained in the articles alleged to have been violated".110
7.57.
Korea argues that Article 4.1 "especially when read in the light of relevant WTO jurisprudence … has many different aspects … [it] effectively contains a multi-layered set of obligations and exceptions to such obligations that could be the basis for a multi-layered set of challenges".111
7.58.
In Korea's view, "Japan's panel request … is extremely short and completely uninformative when it comes to the identification of the claim in respect of the Korean investigating authority's definition of the domestic industry".112 Korea asserts that "Japan's panel [request] fails to connect the relevant aspects of the investigating authority's determination or the underlying investigation with the specific aspects of the provision alleged to have been violated".113 Korea adds that "Japan's panel request fails to identify the specific concern that Japan has with the definition of the domestic industry and does not provide any narrative that would allow Korea to understand the case it has to answer so that it can start preparing its defence".114 According to Korea, Japan's panel request "merely mentions that KTC 'failed to make an objective examination based on positive evidence in defining the domestic industry'", and "does not mention anything about the 'proportion' of the domestic industry in the overall domestic producers or any potential 'distortion'".115
7.59.
In response, Japan argues that its "claim under Articles 3.1 and 4.1 is consistent with the requirement of Article 6.2 of the DSU".116 In Japan's view, Korea is "suggesting that Japan should have advanced detailed legal arguments about the interpretation of the provision in the Panel Request in order to comply with Article 6.2 of the DSU".117 Japan asserts that this is "contrary to the Appellate Body's interpretation of Article 6.2 of the DSU that it does not require a panel request to present the arguments in support of the claim".118 Japan argues that the panel request "clearly points to Korea's definition of 'the domestic industry' that was used in the anti-dumping investigation at issue, and plainly connects it with the obligation under Articles 3.1 and 4.1 to ensure that the investigating authority's definition of 'domestic industry' complies with the specified requirements based on positive evidence and objective examination".119 According to Japan, this approach sufficiently provides a brief summary of the legal basis of the complaint sufficient to present the problem clearly, as required by Article 6.2 of the DSU.120 Japan also argues that,"[a]s the author of the measures, with access to the full record for many months, Korea had a more than sufficient idea of the problems in this dispute and how to prepare a response to them. … That Japan had not yet presented its arguments did not limit Korea's understanding of the claims themselves".121

7.4.4.2 Evaluation by the Panel

7.60.
We will start by examining the sufficiency of Japan's panel request with respect to Japan's claim under Articles 3.1 and 4.1 of the Anti-Dumping Agreement regarding the definition of the domestic industry. We will consider in this regard whether, with respect to this claim and in accordance with Article 6.2 of the DSU, Japan's panel request provides a brief summary of the legal basis of the complaint which is sufficient to present the problem clearly. We will keep in mind in this regard the double function of a panel request: (a) to set the terms of reference for the Panel under Article 7.1 of the DSU and define the scope of the dispute; and (b) to serve the due process objective of notifying the respondent and the other WTO Members of the nature of the complainant's case.122 If Japan's panel request fails to explain succinctly how or why the measures at issue are considered by Japan to be inconsistent with the WTO obligations in question, it does not fulfil the requirement of Article 6.2 of the DSU. In that case, we will conclude that Japan's claim under Articles 3.1 and 4.1 with respect to the definition of the domestic industry is not within the scope of the Panel's terms of reference.
7.61.
As noted above, in its panel request, Japan asserts that Korea's measures are inconsistent with Articles 3.1 and 4.1 of the Anti-Dumping Agreement, "because Korea failed to make an objective examination based on positive evidence in defining the domestic industry producing the like product and consequently in making a determination of injury".123 With respect to the claim concerning the definition of the domestic industry, Japan's panel request paraphrases the language in the first part of Article 3.1 (i.e. a determination shall be "based on positive evidence" and involve an "objective examination"). On its face, the panel request does not provide any indication or suggestion as to how or why Korea's definition of the domestic industry is allegedly inconsistent with the obligations in Articles 3.1 and 4.1 of the Anti-Dumping Agreement.
7.62.
We recall that Article 3.1 "is a fundamental and substantial obligation that functions as a chapeau, and informs the rest of Article 3".124 However, the basic principles in Article 3.1 "do not … establish independent obligations which can be judged in the abstract, or in isolation and separately from the substantive requirements set out in the remainder of Article 3. Instead, they inform the application of all the provisions of Article 3".125 Accordingly, a claim that a measure is inconsistent with the principles contained in Article 3.1 cannot normally be made in isolation from other obligations in the Anti-Dumping Agreement.126
7.63.
In other words, Article 3.1 establishes basic principles that inform other provisions in the Agreement setting out more detailed requirements for injury determinations. The obligation in the first part of Article 3.1 that an injury determination "shall be based on positive evidence and involve an objective examination" does not in itself establish an independent obligation with respect to the definition of the domestic industry in an anti-dumping investigation.
7.64.
On its face, with respect to the definition of the domestic industry, Japan's panel request asserts that Korea's measures are inconsistent with Articles 3.1 and 4.1 of the Anti-Dumping Agreement, "because Korea failed to make an objective examination based on positive evidence in defining the domestic industry producing the like product and consequently in making a determination of injury". In our view, this general reference to the language in Article 3.1 is not sufficient to present the problem clearly. Merely paraphrasing the language in the first part of Article 3.1, and asserting that "Korea failed to make an objective examination based on positive evidence" does not explain how or why Japan considers the measures at issue to be inconsistent with the specific obligations in Articles 3.1 and 4.1 of the Anti-Dumping Agreement, with respect to the definition of the domestic industry. More specifically, it does not explain how or why Japan considers that the Korean Investigating Authorities' definition of the domestic industry did not involve an objective examination or was not based on positive evidence. Japan's claim is essentially generic – nothing in the panel request links the claim to the particular circumstances of the investigation at issue.
7.65.
Accordingly, Japan's panel request, with respect to the claim under Articles 3.1 and 4.1 of the Anti-Dumping Agreement, is not precise enough to serve the dual function of: (a) defining the basis for the Panel's terms of reference under Article 7.1 of the DSU; and (b) informing other WTO Members, including the respondent, of the nature of the dispute.
7.66.
Our conclusion is confirmed when we take into account the broad and diverse scope of the allegations concerning the alleged inconsistency in the definition of the domestic industry advanced in Japan's submissions: (a) that the Korean Investigating Authorities defined the domestic industry to include only two domestic producers representing about half of the total domestic production of the like product, and left aside other producers representing the other half of the domestic industry; (b) that the Korean Investigating Authorities defined the domestic industry to include the applicants only, introducing a substantial risk of bias and distortion, and failed to provide an adequate explanation as to why such risk was discarded; (c) that the Korean Investigating Authorities made no effort to collect information from domestic producers other than the applicants, or to collect data from other sources; (d) that the two producers included in the definition of the domestic industry are not representative of the total domestic production; (e) that the Korean Investigating Authorities did not consider objectively the available evidence on the level of production of Korean producers; and (f) that the Korean Investigating Authorities' discussion of information regarding two domestic producers that were not formally included in the definition of the "domestic industry" was not adequately reasoned, and failed to resolve the material risk of distortion.
7.67.
For the reasons explained above, we conclude that Japan's claim under Articles 3.1 and 4.1 of the Anti-Dumping Agreement, concerning the definition of the domestic industry, is not properly within the Panel's terms of reference, and we will neither consider it further nor resolve it.

7.5 VOLUME OF THE DUMPED IMPORTS

7.5.1 Introduction

7.68.
Japan claims that the KTC's consideration of the volume of the dumped imports was not based on an objective examination of positive evidence as required by Articles 3.1 and 3.2 of the Anti-Dumping Agreement. According to Japan:

a. the KTC improperly concluded that there was a "significant increase" of the dumped imports;

b. the KTC failed to demonstrate a competitive relationship between the dumped imports and the domestic like product;

c. the KTC improperly included in its volume analysis the effect of imports which were held in inventory and were not competing with domestic producers; and

d. the KTC improperly found displacement by the dumped imports.

7.69.
Korea argues that Japan's claim concerning the volume of dumped imports is outside the Panel's terms of reference because Japan's panel request does not comply with the requirements under Article 6.2 of the DSU with respect to this claim. In the alternative, Korea asks the Panel to reject Japan's claim.

7.5.2 Main arguments of the parties

7.5.2.1 Japan

7.70.
In its panel request, Japan asserts that Korea's measures are inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, "because Korea's analysis of a significant increase of the imports under investigation did not involve an objective examination based on positive evidence".127
7.71.
As articulated over the course of the proceedings, Japan asserts that the KTC improperly concluded that there was a "significant increase" of the dumped imports despite the fact that: (a) imports decreased during the first two years of the three-year period of trend analysis (2011 and 2012); and (b) when considering the full period of trend analysis, the dumped imports increased only slightly, by [[***]]% on an absolute basis, and decreased relative to domestic consumption and production.128 According to Japan, "the KTC never said how much subject imports increased over the full period, or explained why that increase should be considered a 'significant increase'".129
7.72.
Japan argues that the KTC failed to consider the existence of a competitive relationship between the dumped imports and the domestic like product, in conjunction with the margins of dumping.130 According to Japan, "[t]he consistent and significant overselling, the diverging price trends, the differing magnitudes of price changes were all consistent with the lack of meaningful competitive relationship".131
7.73.
Japan asserts that the KTC improperly included in its volume analysis the effect of imports which were held in inventory in Korea and were not competing with domestic producers. In Japan's view, imports in inventory have a different commercial impact and should not be taken into account in determining whether there is a "significant increase" under Article 3.2.132
7.74.
Japan argues that the KTC improperly found displacement by the dumped imports notwithstanding that:

a. domestic industry market share was still higher at the end of the period than in 2010 despite falling in 2013;

b. the volume of domestic sales actually increased in 2013 when compared with 2012; and

c. the KTC provided no supporting analysis or factual context for its assertion that there were instances of "aggressive marketing" by Japanese exporters, and it failed to explain to what degree this factor affected domestic sales.133

7.75.
Japan argues that the increase in dumped imports, when considered in the context of the increasing demand, was due to growth of the domestic Korean market, and did not occur at the expense of domestic sales.134

7.5.2.2 Korea

7.76.
Korea asserts that Japan's claim under Articles 3.1 and 3.2 with respect to the volume analysis is outside the Panel's terms of reference and that it should therefore be rejected. With respect to the substance of Japan's arguments, according to Korea, the KTC properly explained how it found a significant increase in the volume of the dumped imports in absolute and relative terms. The KTC stated that the volume of dumped imports sharply increased by 78.9% in 2013 alone, and by nearly [[***]]% over the whole POI. Similarly, the KTC stated that the volume of the dumped imports increased by [[***]]% relative to domestic production in 2013. Finally, the market share of dumped products increased in 2013 by [[***]]% from the year before, while the market share of the domestic like product decreased by [[***]]%. Korea submits that 2013 was the most significant year for the anti-dumping investigation because it was the POI for dumping purposes.135 In response to an allegation by Japan, Korea asserts that the KTC set out the amount of the end-point to end-point increase in dumped imports in the confidential version of the KTC's Final Resolution, although it was redacted for confidentiality reasons from the non-confidential version.136
7.77.
Korea contends that Japan failed to substantiate its allegation that it was "not at all obvious why this modest increase over the entire period [of [[***]]%] should be considered a 'significant increase'".137 In Korea's view, an increase of nearly 10% on an end-point to end-point basis, together with a sharp increase of [[***]]% in absolute terms and [[***]]% relative to domestic production during the year when dumping occurred "is an important, notable or consequential increase under any standard".138 The fact that the market share of the dumped imports reached a level that was below the 2010 starting point of the period of trend analysis does not undermine the KTC's overall finding. Rather than looking at the end-point to end-point comparison of the dumped import's market share in isolation, the KTC considered the intervening trends, which showed a declining dumped import market share from 2010 to 2012, and a dramatic reversal to increase in 2013 when dumping occurred.139
7.78.
Korea rejects Japan's assertion that the KTC improperly assumed a competitive relationship between the domestic products and the dumped imports. In Korea's view, Japan's arguments concerning interchangeability in this context are the same as those Japan made with respect to price effects. Referring to its arguments in that context140, Korea asserts that the Korean Investigating Authorities "thoroughly examined and assessed the degree of substitutability and competition between the dumped imports and the like product" and concluded that there was sufficient overlap between the two groups, "all of which pointed to the existence of a competitive relationship".141
7.79.
Korea disagrees with Japan's position that it was improper for the KTC to include in its volume analysis dumped imports that went into inventory after importation. According to Korea, there is no provision in the Anti-Dumping Agreement that an investigating authority must exclude from its import volume analysis dumped imports that are held in inventory. Korea argues that, in any event, there was no evidence before the KTC that imports were being held as part of an inventory build-up in line with a change of the safety-stock policy.142
7.80.
Finally, Korea rejects Japan's view that the KTC improperly found displacement of domestic like product in the market by dumped imports even though domestic shipments were actually increasing. Korea argues that there is no provision in the Anti-Dumping Agreement requiring an investigating authority to conduct a causation and non-attribution analysis in the context of its volume consideration under Article 3.2. Korea notes that the market share of the dumped imports decreased from 2010 to 2012 but increased sharply in 2013, thereby displacing domestic like product in the market in the context of an expansion of domestic consumption. The fact that the dumped imports' market share were at 2010 levels in 2013 does not vitiate the KTC's observation that displacement occurred in 2013.143

7.5.3 Relevant facts

7.81.
In the underlying investigation, the KTC considered whether there was a significant increase in dumped imports in absolute terms, relative to domestic consumption, and relative to domestic production. The KTC found that, from each of these three perspectives, the volume of dumped imports decreased from 2010 to 2012, and then increased sharply from 2012 to 2013. With respect to the trends in market share, the KTC found that the decreasing trend from 2010 to 2012, reversed into a sharp increase in 2013; on an end-point to end-point basis from 2010 to 2013, however, the market share of the dumped imports decreased. In its ultimate determination, the KTC relied upon the significant increase in dumped imports from 2012 to 2013 as a factor in suppressing and depressing domestic prices, which in turn lead to a deterioration of the state of the domestic industry.
7.82.
In its Final Resolution, the KTC stated, concerning the volume of the dumped imports:

According to the [OTI's] Investigation Report[*], the import volume of the product under investigation ("dumped products") decreased from [[***]] units in 2010, to [[***]] units in 2011, to [[***]] units in 2012, a decline of 9.8% and 32.0% year on year, and then increased to [[***]] units in 2013, an increase of 78.9% year on year. The import volume of 2013 represented an increase of [[***]]% from that of 2010.

The market share of the dumped products in the domestic market also decreased from [[***]]% in 2010 to [[***]]% in 2011, to [[***]]% in 2012 and then sharply increased to [[***]]% in 2013. The ratio of the import volume of the dumped products to the domestic production of the like product also decreased from [[***]]% in 2010 to [[***]]% in 2011, to [[***]]% in 2012 and then remarkably increased to [[***]]% in 2013.

Hence, the import of the dumped products decreased both in absolute and relative terms until 2012 and then sharply increased in 2013. Although the market share of the dumped products in 2013 did not reach that of 2010, it is clearly shown that the decreasing trend until 2012 was reversed into a sharp increase of imports in 2013.

On the contrary, the domestic market share of the like product was on continuous rise from [[***]]% in 2010 to [[***]]% in 2011, to [[***]]% in 2012 and then plummeted to [[***]]% in 2013, a similar level to 2010. The sudden decrease of the market share in 2013 appears to have been affected by the dumped products given that the import volume of the dumped products largely increased and their price greatly fell in the same year.144

[*fn original]19 Investigation Report, pp. 46-51[.]

7.83.
During the investigation, interested parties had argued that in considering the volume of the dumped imports, the KTC should not include dumped imports held in inventory in Korea by the related importer of the exporting producers. In response, the KTC stated, in its Final Resolution:

Respondent SMC argued that the import of the dumped products increased in 2013 because SMC Korea increased imports to secure inventories due to a change of its inventory policy, and that the actual sales after importation did not increase as much as the increase of imports.

With respect to this, the Commission confirmed that under the Customs Act or the WTO Antidumping Agreement, for the examination of increase of import volumes, it is sufficient to examine the increase of import volumes in absolute and relative terms, and that it is not necessary to consider the purpose of imports or actual sales after importation.145

7.84.
In the Final Report, the OTI found that [[***]]'s inventory consisted of products that "are likely to be sold in the near future".146 The OTI further stated:

[[***]]147

7.5.4 Panel's terms of reference

7.5.4.1 Main arguments of the parties

7.85.
In its panel request, Japan asserts that Korea's measures are inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, "because Korea's analysis of a significant increase of the imports under investigation did not involve an objective examination based on positive evidence".148
7.86.
Korea argues that Japan's claim under Articles 3.1 and 3.2 of the Anti-Dumping Agreement with respect to the analysis of the increase in dumped imports is outside of the Panel's terms of reference.149 According to Korea, "Japan's panel request does not provide a brief summary of the complaint [as required by Article 6.2 of the DSU] but merely paraphrases the legal obligation contained in the articles alleged to have been violated".150 In Korea's view, Japan's panel request:

[S]imply refers to the general obligation of Article 3.1 of making an objective determination of injury based on positive evidence concerning the increase in imports without connecting any aspect of the challenged measures with this obligation.151

7.87.
Korea argues that "Articles 3.1 and 3.2 contain different legal obligations" and "Japan's panel request does not provide any information on which of these legal obligations it considers to have been violated". According to Korea, "it is not even clear if Japan is alleging a violation of Article 3.2 since it paraphrases only the legal obligation of Article 3.1".152 Korea asserts that, with Japan's panel request, it "is left to guess 'how or why' the measures are alleged to be violating Articles 3.1 and 3.2".153
7.88.
Japan argues that Article 3.1 "sets forth an overarching obligation that should be read together with the other paragraphs of Article 3 of the Anti-Dumping Agreement".154 "[T]he first sentence of Article 3.2, read together with Article 3.1, provides for a single obligation to 'consider whether there has been a significant increase in dumped imports' based on 'positive evidence' and 'objective examination'".155 In Japan's view:

The language of this claim plainly connects the challenged measure ("Korea's analysis of a significant increase") with a single specific obligation under Articles 3.1 and 3.2, first sentence. The "problem" being addressed by this claim is Korea's failure to make a proper finding of volume. This language refers specifically to the "legal basis" for the claim – the failure to make a proper assessment of whether there was a "significant increase" as required by Article 3.2. This language also refers to the two specific provisions at issue, and refers to the specific part of Article 3.2 that is at issue. The claim regarding volume has been distinguished from the claim regarding price effects under Article 3.2 … This language is "sufficient to present the problem clearly" and to avoid any possible confusion about which of multiple obligations under Article 3.2 are at issue for this specific claim.156

7.5.4.2 Evaluation by the Panel

7.89.
We will first examine the sufficiency of Japan's panel request with respect to Japan's claim under 3.1 and 3.2 of the Anti-Dumping Agreement regarding the Korean Investigating Authorities' consideration of the volume of the dumped imports. We will consider in this regard whether, with respect to this claim and in accordance with Article 6.2 of the DSU, Japan's panel request provides a brief summary of the legal basis of the complaint which is sufficient to present the problem clearly. We will keep in mind in this regard the double function of a panel request: (a) to set the terms of reference for the Panel under Article 7.1 of the DSU and define the scope of the dispute; and (b) to serve the due process objective of notifying the respondent and the other WTO Members of the nature of the complainant's case.157 If Japan's panel request fails to explain succinctly how or why the measures at issue are considered by Japan to be violating the WTO obligations in question, it would not fulfil the requirement of Article 6.2 of the DSU. In that case, Japan's claim under Articles 3.1 and 3.2 with respect to the consideration of the volume of the dumped imports would not be within the scope of the Panel's terms of reference.
7.90.
As noted above, Article 3.1 "is a fundamental and substantial obligation that functions as a chapeau, and informs the rest of Article 3".158 The basic principles in Article 3.1 "do not … establish independent obligations which can be judged in the abstract, or in isolation and separately from the substantive requirements set out in the remainder of Article 3. Instead, they inform the application of all the provisions of Article 3".159 Accordingly, a claim that a measure is inconsistent with the principles contained in Article 3.1 cannot normally be made in isolation from other obligations in the Anti-Dumping Agreement.160
7.91.
On its face, Japan's panel request asserts that Korea's analysis of a significant increase of the imports under investigation is inconsistent with the obligations contained in Articles 3.1 and 3.2 of the Anti-Dumping Agreement because it "did not involve an objective examination based on positive evidence". The panel request does not contain any additional narrative description of the problem or problems Japan considers constitute this alleged inconsistency. In our view, this general reference to the language in Article 3.1 is not sufficient to present the problem with respect to an alleged violation of Article 3.2 clearly. Merely paraphrasing the language in the first part of Article 3.1, and asserting that "Korea failed to make an objective examination based on positive evidence" does not explain how or why Japan considers the measures at issue violate the specific WTO obligations in question, namely those in Articles 3.1 and 3.2 of the Anti‑Dumping Agreement, with respect to the consideration of the volume of imports. More specifically, it does not explain how or why Japan is of the view that the Korean Investigating Authorities' consideration of whether there had been a significant increase in the imports did not involve an objective examination or was not based on positive evidence. Japan's panel request does not go beyond a mere reference to the requirements of Article 3.1, which is not sufficiently precise to mark out the parameters of the case of alleged inconsistency with Article 3.2 that it advances in this dispute. Japan's claim is essentially generic – nothing in the panel request links the claim to the particular circumstances of the investigation at issue.
7.92.
Therefore, we conclude that the language used in Japan's panel request is not precise enough to serve the dual function of a panel request: (a) to define the basis for the Panel's terms of reference under Article 7.1 of the DSU; and (b) to inform other WTO Members, including the respondent, of the nature of the dispute.
7.93.
The conclusion above is confirmed when we take into account the scope of the allegations concerning volume effects advanced in Japan's submissions: (a) that the KTC failed to find an increase in the volume of dumped imports that was "significant"161; (b) that the KTC improperly assumed a competitive relationship between domestic products and dumped imports162; (c) that the KTC improperly considered the effect of dumped imports that were still in inventory163; and (d) that the KTC failed to consider that no domestic volume had been displaced by the dumped imports.164
7.94.
For the reasons explained above, we conclude that Japan's claim under Articles 3.1 and 3.2 of the Anti-Dumping Agreement, concerning the volume of the dumped imports, is not properly within the Panel's terms of reference, and we will neither consider it further nor resolve it.

7.6 EFFECT OF THE DUMPED IMPORTS ON PRICES

7.6.1 Introduction

7.95.
Japan claims that the KTC's analysis of price effects was inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement. In its written submissions, Japan challenges the KTC's analyses of price depression, price suppression, and price comparability between specific products or product segments of the dumped imports and the domestic like product.
7.96.
Korea argues that Japan's claim concerning price effects is outside the Panel's terms of reference because Japan's panel request does not comply with the requirements under Article 6.2 of the DSU with respect to this claim. In the alternative, Korea asks the Panel to reject Japan's claim.

7.6.2 Main arguments of the parties

7.6.2.1 Japan

7.97.
In its panel request, Japan asserts that Korea's measures are inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, "because Korea's analysis of the effect of the imports under investigation on prices in the domestic market for like products did not involve an objective examination based on positive evidence; and because Korea failed to properly consider whether the effect of the imports under investigation was to depress prices to a significant degree or prevent price increase, which otherwise would have occurred, to a significant degree".165
7.98.
According to Japan, as articulated over the course of the proceedings, the KTC failed to conduct objective analyses of price depression and suppression because it:

a. ignored "dramatically diverging price trends" between dumped imports and domestic products, evidenced by the fact that the prices of dumped imports and the domestic like product moved in opposite directions from 2011 to 2012, and the rate of change in dumped import and domestic prices differed by large magnitudes from 2012 to 2013166;

b. overlooked the fact that dumped import prices were consistently and significantly higher than the prices of the domestic like product, and relied instead on circumstantial evidence of isolated cases of pricing behaviour167; and

c. failed to consider whether the alleged price depression and price suppression effects of dumped imports were significant.168

7.99.
Specifically with respect to the KTC's price suppression analysis, Japan alleges two additional errors:

a. the KTC failed to explain its "reasonable sales price" methodology. Moreover, the fact that the "reasonable sales price" estimated by the OTI followed similar trends to those of the domestic industry's prices undermines the KTC's finding of price suppression169; and

b. the KTC's finding of price suppression was based on an isolated consideration of domestic prices and costs of production in 2013 only. The KTC failed to explain how higher prices for the dumped imports could have suppressed lower domestic prices. Japan also argues that the overall trends in the price-cost relationship suggest that there was no price suppression in 2011 and 2012 and that, although domestic prices went down in 2013, these trends did not support the KTC's finding of price suppression for that year. Moreover, the absence of price suppression in earlier years offsets the price suppression in 2013.170

7.100.
Japan also argues that the KTC failed to consider the counterfactual question of how prices and volumes might have been different in the absence of dumping.171 According to Japan, such a counterfactual analysis is required for considering whether there are "truly price effects".172 Japan asserts that this exercise requires the investigating authority to consider the competitive relationship between the dumped imports and the domestic like product in conjunction with the dumping margins at issue.173
7.101.
Finally, Japan asserts that, in its price effect analysis, the KTC failed to ensure comparability between the prices of specific products or product segments of the dumped imports and the domestic like product. Dumped imports consisted of a wide variety of models that were very different in terms of their physical characteristics, consumer preferences, end-uses, prices, and other factors. However, according to Japan, the KTC assumed, without any basis, that the dumped imports and the domestic like product could be used interchangeably.174 Japan argues that the obligation of the investigating authority under Article 2.6 of the Anti-Dumping Agreement when defining "like product" is fundamentally different from its obligation with respect to the price effects analysis under Article 3.2.175 Japan further argues that even a finding of the existence of some competitive relationship between the dumped imports and the domestic like product is not sufficient for purposes of an Article 3.2 price effects analysis because the requisite consideration of market interaction requires the examination of the competitive relationship in conjunction with the dumping margins at issue.176

7.6.2.2 Korea

7.102.
Korea asserts that Japan's claim under Articles 3.1 and 3.2 with respect to price effects is outside of the Panel's terms of reference and that it should therefore be rejected by the Panel. With respect to the substance of Japan's arguments, Korea responds that the KTC's consideration of price effects was based on an objective examination of positive evidence.177 According to Korea, in its price effects analysis, the KTC objectively considered the existence of a competitive relationship between the dumped imports and the domestic like product through "model to model" and "segment to segment" comparisons of the physical characteristics and customer evaluations of the valves. The KTC also evaluated the trends in the prices of the domestic like product and the dumped imports by using both a simple average sales price per unit and a price fluctuation index proposed by the Japanese respondents. The KTC found price suppression and depression on the basis of the "fierce competition" from the dumped imports, evidenced by a number of instances where the dumped imports were offered at prices lower than those of the domestic like product to compete for customers.178
7.103.
Korea rejects Japan's argument that divergent price trends for the dumped imports and the domestic like product undermine the KTC's finding of "market interaction".179 Korea makes four arguments in this respect.
7.104.
First, Korea asserts that the KTC considered the price trends of the dumped imports and the domestic like product on both an end-point to end-point and a year-on-year basis. Although prices moved in different directions in 2012, the difference in trends was too small to invalidate the price effects of the dumped imports found by the KTC.180 In Korea's view, the different magnitudes of domestic and dumped import price decreases in 2013 did not contradict but instead corroborated the KTC's findings of price depression and price suppression. The drop in the prices of dumped imports narrowed the gap between those prices and the prices of the domestic like product, resulting in a depression of the domestic prices even though the cost of production of the domestic like product increased.181 Furthermore, as the KTC explained, domestic prices decreased only slightly in 2013 because there was no more scope for further decreases in light of the operating loss suffered by the domestic industry.182
7.105.
Second, Korea argues that the "average import price" trend alone cannot explain the full effect of dumped imports on prices in the domestic market because: (a) changes in the average import price may simply be the result of changes in the product mix of dumped imports; and (b) the related importers of the Japanese exporters engaged in low pricing behavior when they actually sold the imported products in the domestic market. For these reasons, the KTC compared the "representative models" of the dumped imports which competed directly with the "representative models" of the domestic like product. This comparison showed that the average prices of the representative models of the dumped imports and the average prices of the representative models of the domestic like product followed the same trends.183
7.106.
Third, the KTC noted that the "resale prices" of the dumped imports charged by a related entity of the exporting producer showed the same trends as the prices of the domestic like product.184
7.107.
Fourth, according to Korea, the verified instances in which the dumped imports were offered to customers at prices similar to or lower than the prices of the domestic like product demonstrate "market interaction" between the dumped imports and the domestic like product.185
7.108.
Korea maintains that the KTC properly addressed the fact that the average price of dumped imports was higher than that of the domestic like product. The KTC found that the fact that the average sales price of the dumped imports was higher than that of the like product did not undermine its conclusion that the dumped imports suppressed and depressed the prices of the domestic like product because the average price overselling was caused by "price differentiation in accordance with models, option details or customers". Korea also states that the KTC additionally found that the "strengthened marketing activities" of [[***]] contributed to suppressing and depressing the prices of the domestic like product.186 Korea points to passages of the KTC's Final Resolution and the OTI's Final Report where in its view the KTC and the OTI specifically discussed this fact.187
7.109.
Korea contends that the "reasonable sales price" the KTC considered in the context of price suppression is an expected price reflecting the actual cost of production and a reasonable operating profit.188 According to Korea, in this case the difference between the "reasonable sales price" and the actual domestic price (equivalent to approximately [[***]]% of the actual domestic price) shows that in the absence of dumping the domestic industry could have achieved a reasonable profit by raising its prices.189 Korea argues that the relevance of this type of methodology is confirmed by WTO jurisprudence.190 However, in Korea's view, the KTC was not required by Article 3.2 of the Anti-Dumping Agreement to explain how the price increase would have happened in the absence of dumping.191
7.110.
In response to Japan's argument that there was no price suppression in 2011 and 2012 and that this undermined the finding of price suppression in 2013, Korea asserts that an investigating authority is not required under Article 3.2 to find price suppression for each and every year of its analysis. The KTC's price suppression analysis considered price trends over the entire period of trend analysis. In that context, the fact that domestic prices decreased despite the rising costs of production in 2013, the year in which the dumping and injury periods of investigation overlapped and during which dumping occurred, was highly relevant to the KTC's finding of price suppression.192
7.111.
Korea argues that the KTC "thoroughly examined and assessed the degree of substitutability and competition between the dumped imports and the like product" and concluded that there was sufficient overlap between the two groups, all of which pointed to the existence of a competitive relationship. In Korea's view, its authorities properly ensured price comparability between the dumped imports and the like product.193

7.6.3 Relevant facts

7.112.
The KTC's consideration of price effects in the Final Resolution can be summarized as follows:

a. On the basis of average sales prices, there was no price undercutting during the period of trend analysis. However, the extent of the "overselling" by the dumped imports narrowed in 2013 as compared to 2012.

b. On the basis of the price fluctuation index194, the prices of dumped imports dropped to a larger extent than those of the domestic like product from 2010 to 2013. This seems to be because the domestic products were sold at prices lower than the "reasonable sales price" and because the domestic industry was already suffering from operating losses and could not decrease prices as much as those of the dumped imports.

c. As a result of "fierce competition with the dumped products that had strong dominance in the domestic market", domestic like product prices were prevented from increasing to a reasonable level from 2010 to 2013195, and actually decreased in 2012 and 2013.

d. In 2013, the significant decrease in the price of the dumped products apparently depressed the price of the like product despite strong factors warranting an increase of the sales price, such as the increase in the manufacturing cost of the like product.

e. Average price overselling by the dumped imports was caused by the differential pricing of the dumped imports depending on the models, options or customers. However, lower dumped import prices for certain products or customers for which there was a high degree of competition with the domestic industry and strengthened marketing activities of SMC Korea depressed the domestic industry's prices or prevented the domestic industry from raising its prices.196

f. The sharp increase in the import volume of the dumped products in 2013, coupled with the sharp decrease in the sales price of the dumped products in the same year, also had the effect of suppressing and depressing the price of the domestic like product.197

7.113.
In considering price undercutting, the KTC compared average dumped imports prices and average domestic like product prices ("average to average comparisons"), and concluded that dumped products had not been sold at lower prices than the like product.198 In considering price suppression and depression, the KTC compared, inter alia, individual resale transaction prices for dumped imports and average prices of the domestic like product ("transaction to average comparisons"), and concluded that "sales price of the dumped products was much lower than the average sales price in the case of certain products or customers for which the degree of competition with the domestic industry was fierce".199
7.114.
With respect to the transaction to average comparisons, in its Final Report, the OTI reported price comparisons for certain transactions involving two models of dumped imported valves and the corresponding domestic like product models.200 The OTI stated that there were nine other models for which SMC Korea allegedly engaged in price discrimination.201 The OTI did not state whether all of these nine models showed any "price undercutting" comparisons. Exhibit KOR‑57, which is a list of 115,524 transactions, shows comparisons of the prices of all of the resale transactions of the Japanese respondent SMC Korea during 2013 with the average price of the corresponding models of the domestic like product. There is no reference in the Final Report or the Final Resolution to Exhibit KOR-57. However, the data source for the price comparisons of the two models in the Final Report indicates that the comparisons were based on actual sales data submitted by the respondents and the applicants. Moreover, in its Onsite Verification Report202, the OTI stated that, as a follow-up measure, it would "[a]nalyze the system sale data (to substantiate the competition between product models of the applicants and the respondents)".203 Subsequently, the KTC requested and received from the importers of the Japanese respondents complete resale data for the dumped imports during the POI.204
7.115.
In addition, the KTC examined "strengthened marketing activities" of the related importer of the Japanese respondents. During the investigation, the OTI received [[***]] customer statements testifying that [[***]] engaged in aggressive marketing activities by offering lower prices in order to get new customers.205 All but five of these statements was accompanied by sample transaction documents. The KTC's Final Resolution states, in relevant part:

The Commission finds that the dumped products suppressed price increases of the like product and caused decreases thereof, although the average sales price of the dumped products was higher than that of the like product.

The average sales price of the dumped products was higher due to their price differentiation in accordance with models, option details or customers, but it was found that the sales price of the dumped products was much lower than the average sales price in the case of certain products or customers for which the degree of competition with the domestic industry was fierce, which had the effect of suppressing increases in the price of the like product or causing decreases thereof. It was investigated that SMC Korea [[***]] strengthened marketing activities of SMC Korea, which consistently expanded its sales organizations and used its dominant position to attract distribution agents or discourage defections of its distribution agents, and thus the domestic industry had to respond to such strengthened marketing activities of SMC Korea and become forced to decrease the sales price or refrain from increasing prices.206

7.116.
The "reasonable sales price" is a target domestic industry price constructed by the OTI. In its Final Report, the OTI appended two explanatory notes regarding the calculation of the reasonable sales price to the table reporting comparisons between the actual price and the reasonable sales price:

Note 1) Reasonable sales price = (manufacturing cost per unit + SG&A expenses per unit)/(1-reasonable operating profit ratio)

Note 2) [[***]][.]207

7.117.
In considering price suppression, the KTC referred to the difference between the "reasonable sales price" and the actual average domestic prices in the Final Resolution:

The average sales price per unit of the like product required price increase because the price it was lower than the reasonable sales price by KRW [[***]] in 2010, by KRW [[***]] in 2011, by KRW[[***]] in 2012 and by KRW [[***]] in 2013. However, the average sales price was not increased and on the contrary, it even decreased in 2012 and 2013. Such suppression of the price increase as well as the decrease in the price appears to have been caused by the fierce competition with the dumped products that had strong dominance in the domestic market.208

7.6.4 Panel's terms of reference

7.6.4.1 Main arguments of the parties

7.118.
In its panel request, Japan asserts that Korea's measures are inconsistent with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, "because Korea's analysis of the effect of the imports under investigation on prices in the domestic market for like products did not involve an objective examination based on positive evidence; and because Korea failed to properly consider whether the effect of the imports under investigation was to depress prices to a significant degree or prevent price increase, which otherwise would have occurred, to a significant degree".209
7.119.
Korea argues that Japan's claim under Articles 3.1 and 3.2 of the Anti-Dumping Agreement with respect to the analysis of the price effects is outside of the Panel's terms of reference.210 According to Korea, "Japan's panel request does not provide a brief summary of the complaint [as required by Article 6.2 of the DSU] but merely paraphrases the legal obligation contained in the articles alleged to have been violated".211 In Korea's view, Japan's panel request:

[M]erely paraphrases the general obligation of Article 3.1 without specifically linking what aspect of the challenged measures is supposedly not based on "positive evidence" and/or an "objective examination". It is totally unclear from reading Japan's panel request whether the problem under Article 3.1 that it identifies is an "evidence" or data problem or rather an "examination" and evaluation problem. Nor does Japan's panel request provide any indication on what aspect of the determination it considers to be problematic under either aspect of this claim.

In addition, Japan merely paraphrases the obligation in Article 3.2 about the need to consider the price effects of the dumped imports without explaining what it considers to be the problem that allegedly vitiates the price effects analysis of the investigating authority. Japan's panel request merely states that Korea violated the obligation in Article 3.2 to consider whether there has been a significant price suppressing or depressing effect but does not identify the concern it has with the investigating authority's analysis in light of this obligation. …

Korea can only speculate about the nature and scope of the claim of Japan in respect of the Korean investigating authority's price effects analysis since Japan's panel request fails to provide the "how and why" of these allegations.212

7.120.
In response, Japan argues that Article 3.1 "sets forth an overarching obligation that should be read together with the other paragraphs of Article 3 of the Anti-Dumping Agreement".213 Japan adds that:

As with the first sentence, the second sentence of Article 3.2 provides for a single obligation to consider "the effect of the dumped imports on prices". … The text then sets forth several different ways in which the authority might meet this obligation. The use of "or" between "price undercutting" and "depress prices" and "prevent price increases" makes clear these are not separate obligations that all must be met, but rather different aspects of the same core obligation[.] …

Thus, the second sentence of Article 3.2, read together with Article 3.1, provides a single obligation to consider whether there have been the relevant price effects of the dumped imports on the domestic like products based on "positive evidence" and "objective examination".214

7.121.
In Japan's view, the text of the panel request "plainly connects Korea's price effects analysis with the single obligation under Articles 3.1 and 3.2 'to consider whether the effect of the imports … was to depress prices to a significant degree or prevent price increase, which otherwise would have occurred, to a significant degree' based on 'positive evidence' and 'objective examination'".215
7.122.
Japan also asserts that:

The claim regarding volume has been distinguished from the claim regarding price effects under Article 3.2[.] … This language is "sufficient to present the problem clearly" and to avoid any possible confusion about which of multiple obligations under Article 3.2 are at issue for this specific claim.216

7.6.4.2 Evaluation by the Panel

7.123.
We will first consider the sufficiency of Japan's panel request with respect to Japan's claim under 3.1 and 3.2 of the Anti-Dumping Agreement regarding the Korean Investigating Authorities' consideration of the effect of the dumped imports on prices. We will consider in this regard whether, with respect to this claim and in accordance with Article 6.2 of the DSU, Japan's panel request provides a brief summary of the legal basis of the complaint which is sufficient to present the problem clearly. We will keep in mind in this regard the double function of a panel request: (a) to set the terms of reference for the Panel under Article 7.1 of the DSU and define the scope of the dispute; and (b) to serve the due process objective of notifying the respondent and the other WTO Members of the nature of the complainant's case.217 If Japan's panel request fails to explain succinctly how or why the measures at issue are considered by Japan to be violating the WTO obligations in question, it would not fulfil the requirement of Article 6.2 of the DSU. In that case, Japan's claim under Articles 3.1 and 3.2 with respect to the consideration of the price effects would not be within the scope of the Panel's terms of reference.
7.124.
As set out in the panel request, Japan's claim under Articles 3.1 and 3.2 concerning the KTC's price effects analysis contains two elements:

a. Korea's analysis of the effect of the imports under investigation on prices in the domestic market for like products did not involve an objective examination based on positive evidence; and

b. Korea failed to properly consider whether the effect of the imports under investigation was to depress prices to a significant degree or prevent price increases, which otherwise would have occurred, to a significant degree.218

7.125.
The first element of the claim paraphrases the language in the first part of Article 3.1, alleging that the KTC's consideration of price effects "did not involve objective examination based on positive evidence". We recall our view that a general reference to the language in Article 3.1 in itself is not normally sufficient to present the problem clearly.219 This formulation does not explain how or why Japan considers the measures at issue to be violating the specific WTO obligations in question, including that in Article 3.1 of the Anti-Dumping Agreement. We consider that the language used by Japan is not precise enough to serve the dual function of a panel request: (a) to define the basis for the Panel's terms of reference under Article 7.1 of the DSU; and (b) to inform other WTO Members of the nature of the dispute, including the respondent as well as other WTO Members.
7.126.
The second element of the claim paraphrases the language of the second sentence of Article 3.2, with two notable differences. First, Japan's price effects claim specifically refers to two of the three price effects mentioned in the second sentence of Article 3.2, price suppression and price depression. It is clear to us on the face of the panel request, therefore, that Japan challenges only the KTC's consideration of price depression and price suppression, and not its consideration of price undercutting. Second, the use of the word "properly" indicates that Japan takes issue with the manner in which the KTC considered price suppression and price depression, which would include the extent of the alleged price suppression and depression. However, Japan's panel request falls short of explaining "how or why" it considers the KTC's consideration of price suppression and price depression to be "improper" and consequently inconsistent with Articles 3.1 and 3.2. The propriety of an investigating authority's consideration of complex economic issues is a broad concept. The true nature of the complaint cannot be presented clearly without some additional identification of the main elements of the alleged violation(s).
7.127.
We note in this regard that both parties have referred to prior Appellate Body rulings concerning the standard of clarity in a panel request in support of their respective positions.220 On the one hand, Korea emphasizes the Appellate Body's statements that a panel request must "explain succinctly how or why the measure at issue is considered by the complaining Member to be violating the WTO obligation in question"221, and that the respondent must be put in a situation where it can "know what case it has to answer … so that it can begin preparing its defence".222 Conversely, Japan recalls the distinction between claims and arguments223 and asserts that Korea's challenge amounts to a requirement that a panel request should lay out the complainant's arguments.
7.128.
In practice, especially in cases alleging violations of provisions governing complex economic issues such as those in the Anti-Dumping Agreement, in which, in addition, the measures at issue rest on a series of intermediate considerations involving such issues and ultimate determinations resting on those considerations, the boundary between a claim and an argument may not be entirely clear. The requisite degree of specificity and clarity sufficient to satisfy Article 6.2 of the DSU thus necessarily will depend on the particular circumstances of each case, and must be examined on a case-by-case basis. This typically requires a panel to consider the language of a panel request to determine whether it contains sufficiently clear allegations so as to allow WTO Members, including the responding Member, to understand the material elements of the alleged inconsistency. In the words of the Appellate Body, the language used in the panel request must "'plainly connect' the challenged measure(s) with the provision(s) [of the covered agreements] claimed to have been infringed".224 Where a complainant claims that an investigating authority's analysis "did not involve an objective examination based on positive evidence" or that the contested analysis was "improper" or "unreasonable", the inclusion in the panel request of some additional identification of the main elements of the alleged violation(s) may be necessary. That does not mean that the complainant is required to set out its arguments in the panel request.225 The statement of the claim may be as short as the nature of the alleged violation reasonably allows. At the same time, it must set forth sufficiently clear allegation(s) explaining how or why the measure is inconsistent with a particular treaty provision. In some cases, the description of the material elements of the alleged inconsistency may overlap with some of the complainant's arguments. We note in this regard that:

Nothing in Article 6.2 prevents a complainant from making statements in the panel request that foreshadow its arguments in substantiating the claim. If the complainant chooses to do so, these arguments should not be interpreted to narrow the scope of the measures or the claims.226

7.129.
On its face, with respect to this second element of its claim under Articles 3.1 and 3.2, Japan's panel request asserts that Korea failed to properly consider whether the effect of the imports under investigation was to depress prices or to prevent price increases, to a significant degree, inconsistently with the obligations in those provisions. The panel request does not contain any additional narrative description of the problem or problems considered by Japan to constitute the alleged inconsistency. In our view, this general reference to the text of Article 3.2 is not sufficient to present the problem clearly in the circumstances. Merely paraphrasing the language in the second part of Article 3.2 does not explain how or why Japan considers the measures at issue to be inconsistent with the specific WTO obligations in question, Articles 3.1 and 3.2 of the Anti‑Dumping Agreement, with respect to the consideration of the effect of the dumped imports on prices. More specifically, it does not explain how or why Japan considers that the Korean Investigating Authorities' consideration of price effects was improper. Japan's claim is essentially generic – nothing in the panel request links the claim to the particular circumstances of the investigation at issue.
7.130.
This conclusion is confirmed when we take into account the scope of the allegations advanced in Japan's submissions. As articulated in the course of the proceedings, Japan claims that the KTC failed to properly consider price depression and price suppression, inconsistently with Articles 3.1 and 3.2 of the Anti-Dumping Agreement, because:

a. the KTC ignored the diverging price trends, different physical characteristics, consumer opinions, and other evidence that suggested the lack of a competitive relationship between dumped imports and the domestic like product, which would have been required to establish price comparability which is necessary when assessing price effects227;

b. the KTC also ignored the implications of the "dramatically diverging price trends" between dumped imports and domestic products for its analysis of price depression228;

c. with respect to the KTC's consideration of price suppression, the KTC: (a) failed to explain its "reasonable sales price" methodology and then ignored the consequences of the "reasonable sales price" estimated by the OTI229; and (b) the KTC's findings ignored the lack of evidence of price suppression in 2011 and 2012 and the fact that the absence of price suppression in earlier years offset the price suppression in 2013 and failed to explain how higher prices for the dumped imports could have suppressed lower domestic prices230; and

d. with respect to its consideration of price depression and price suppression, the KTC: (i) ignored the fact that dumped import prices were consistently and significantly higher than the prices of the domestic like product, as well as the implications of this fact for its analysis of price depression and price suppression231; (ii) failed to consider whether the alleged price depression and price suppression effects of dumped imports were "significant"232; and (iii) failed to consider the counterfactual issue of how prices and volumes might have been different in the absence of dumping.233

7.131.
For the reasons explained above, we find that, although the language of Japan's panel request is capable of identifying the subject matter of its complaint, it is not sufficiently precise to present the problem clearly as required by Article 6.2 of DSU. Accordingly, we conclude that Japan's claim under Articles 3.1 and 3.2 of the Anti-Dumping Agreement, with respect to the consideration of the effect of the dumped imports on prices, is not properly within the Panel's terms of reference, and we will neither consider it further nor resolve it.

7.7 IMPACT OF THE DUMPED IMPORTS ON THE DOMESTIC INDUSTRY

7.7.1 Introduction

7.132.
Japan claims that Korea's measures are inconsistent with Articles 3.1 and 3.4 of the Anti‑Dumping Agreement, "because Korea's analysis of the impact of the imports under investigation on the domestic industry at issue did not involve an objective examination based on positive evidence, including an evaluation of all relevant economic factors and indices having a bearing on the state of the domestic industry at issue". Japan challenges the KTC's examination of the impact of the dumped imports on the state of the domestic industry in four respects: (a) failure to link its analysis of volume and price effects with the alleged consequent impact from the dumped imports; (b) failure to demonstrate any "explanatory force" of the dumped imports on the state of the domestic industry; (c) failure to examine two economic factors explicitly listed in Article 3.4 of the Anti-Dumping Agreement: the ability to raise capital or investments and the magnitude of the margin of dumping; and (d) failure to properly take into account positive trends during the period of trend analysis with respect to several economic factors.
7.133.
Korea argues that Japan's claim concerning the impact of the dumped imports on the state of the domestic industry is outside the Panel's terms of reference because Japan's panel request does not comply with the requirements of Article 6.2 of the DSU with respect to this claim. In the alternative, Korea asks the Panel to reject Japan's claim.

7.7.2 Main arguments of the parties

7.7.2.1 Alleged failure to link findings on volume and price effects with findings on the state of the domestic industry

7.7.2.1.1 Japan

7.134.
Japan argues that the KTC failed to establish any logical link between its findings on volume and price effects under Article 3.2 and its findings on the state of the domestic industry under Article 3.4, in particular with respect to its evaluation of sales, production volume, market share, factors affecting domestic prices, and profits.234
7.135.
Japan asserts that the KTC did not clearly address the volume of dumped imports in its discussion of domestic sales volume, and addressed the volume of dumped imports in its discussion of domestic production volume "only in passing". According to Japan, evidence in the record suggested that the consequent impact of the volume of dumped imports on the domestic industry was negligible.235
7.136.
Japan also asserts that the KTC failed to consider the decrease in the domestic industry's market share from 2012 to 2013 in the context of: (a) an overall increase in the domestic industry's market share from 2010 to 2013; (b) the export orientation of the domestic industry in 2013; and (c) the impact of the increase in the market share of third country imports (even though this increase might be negligible in absolute terms). Furthermore, the KTC failed to discuss the relationship between the increase in the volume of domestic sales and the decrease in their market share.236
7.137.
Japan submits that, in its evaluation of the trends of domestic prices, the KTC failed to discuss how the fact that the prices of dumped imports were consistently higher than domestic prices affected its analysis of the impact of those imports on the state of the domestic industry, as well as its analyses of price effects and causation.237
7.138.
According to Japan, the trend in the domestic industry's profits was largely unrelated to dumped imports. Japan asserts that the KTC failed to explain:

a. why the operating losses of the domestic industry expanded in 2012 at a time when the volume of dumped imports decreased and the prices of those imports increased;

b. why the effects of dumped imports on profits were different in 2012 and 2013, including why those imports had an effect in 2013 when they did not have an effect earlier in the period; and

c. why the dumped imports would have an impact on the domestic industry when their prices were significantly higher than the domestic prices and even though the volume of domestic shipments increased in 2013.238

7.139.
Japan also argues that in the absence of a proper consideration of the dumped imports' effects on the domestic like product as a whole, the impact examination in the present case is necessarily inconsistent with Article 3.4 of the Anti-Dumping Agreement.239

7.7.2.1.2 Korea

7.140.
Korea responds that Article 3.4 of the Anti-Dumping Agreement does not require an investigating authority to link its examination of each and every economic factor in this provision with its consideration of the price and volume effects under Article 3.2. The focus of this examination should be on all relevant economic factors having a bearing on the state of the domestic industry, and not on demonstrating that the dumped imports were causing injury to the domestic industry. Article 3.4 requires the examination of the impact of the dumped imports "as a whole" on the domestic industry, based on the evaluation of "all relevant economic factors and indices having a bearing on the state of the industry". Korea argues that, in this sense, Japan's argument that the KTC's impact analysis was inconsistent with Article 3.4 because it failed to "link" each of the indices or factors it addressed specifically to the volume or price effect of the dumped imports, is unavailing. In addition, according to Korea, the obligation under Article 3.4 is to examine the impact of dumped imports on the domestic industry, not to demonstrate that dumped imports are causing injury to the domestic industry. Similarly, in its examination of Article 3.4 economic factors, an investigating authority is not required to conduct a fully-fledged non‑attribution analysis, as Japan's arguments seem to suggest.240

7.7.2.2 Alleged failure to examine the explanatory force of the dumped imports on the state of the domestic industry

7.7.2.2.1 Japan

7.141.
Japan argues that the KTC failed to meaningfully examine the explanatory force of dumped imports on the state of the domestic industry under Article 3.4 of the Anti-Dumping Agreement. According to Japan, the KTC did not engage in a meaningful examination of whether the state of the domestic industry could be connected to the effect of dumped imports. Japan asserts that factors other than the dumped imports have explanatory force on the state of the domestic industry:

a. the decline in consumption in 2012 has more explanatory force for the decrease of domestic sales in 2012 than the dumped imports which also decreased in 2012;

b. the domestic industry's loss of market share in 2013 was caused by the sharp increase of consumption in 2013, rather than by dumped imports which were a less important explanatory factor;

c. the fact that dumped import prices are higher than domestic prices undermines the explanatory force of those imports for the decrease in the prices of the domestic like product in 2013;

d. competition between the two applicants, as a result of the increase in their respective capacity, has more explanatory force than the dumped imports for the trends in the prices of the domestic industry; and

e. the explanatory force of the dumped imports for the decrease of domestic like product prices is undermined by the fact that domestic prices decreased by 3.6% in 2012 whereas dumped import prices increased by 7%, and domestic prices decreased by only 1.2% in 2013, when dumped import prices fell by 31.1%.241

7.7.2.2.2 Korea

7.142.
Korea maintains that Article 3.4 of the Anti-Dumping Agreement does not require an investigating authority to determine causation. Korea asserts that the KTC examined and adequately explained the relationship between the dumped imports and the state of the domestic industry. In Korea's view, Article 3.4 does not require an investigating authority to establish the "explanatory force" of the dumped imports for each factor individually. Korea argues, however, that the KTC did examine and adequately explain "the relationship between [dumped imports] and the state of the domestic industry" and, as such, derived an understanding of the impact of dumped imports.242 Korea states that in its Final Resolution, the KTC specifically included analysis explaining the impact of the dumped imports on the relevant economic factors.243
7.143.
Korea also states that Japan's specific arguments concerning the lack of explanatory force of the dumped imports, such as the lack of "market interaction", price overselling, and others, are simply recasting arguments previously made by Japan under the price effects analysis.244

7.7.2.3 Alleged failure to examine relevant economic factors listed in Article 3.4 of the Anti-Dumping Agreement

7.7.2.3.1 Japan

7.144.
Japan argues that the KTC failed to adequately examine the following two factors explicitly listed in Article 3.4 of the Anti-Dumping Agreement:

a. concerning the ability to raise capital or investments, the KTC provided a conclusory statement that the domestic industry's funding ability had deteriorated due to continuous operating losses and increasing liability, without any factual support. Moreover, the KTC's conclusion was contradicted by evidence in the record that there was massive investment in new facilities in 2011 and 2012 when the domestic industry was incurring losses245; and

b. concerning the magnitude of the margin of dumping, the KTC merely stated that "the margin was not small" and that "dumping influenced much on the selling price". This conclusion has no factual support, and is contradicted by the fact that the prices of the dumped imports were consistently higher than domestic like product prices.246

7.7.2.3.2 Korea

7.145.
Korea maintains that Article 3.4 does not require a comprehensive analysis of whether the dumped imports caused injury. In Korea's view, the KTC examined the two factors identified by Japan, and the basis for its findings was explained adequately in its Final Resolution and in the OTI's Final Report. According to Korea:

a. concerning the ability to raise capital, the KTC found that the domestic industry's ability to raise capital was negatively affected because of its operating losses and its increasing indebtedness, on the basis of evidence contained in the audited reports. The fact that the domestic industry raised capital in 2011 and 2012 does not undermine the common sense conclusion that persistent operating losses and increasing debt were detrimental to the domestic industry's ability to raise capital; and

b. concerning the magnitude of the margins of dumping, the KTC considered the actual figures for the margin of dumping (11.66% to 31.61%) and found that the magnitude was not insignificant and had a significant impact on the prices of the dumped imports and those of the domestic industry like product.247

7.7.2.4 Alleged failure to properly take into account positive trends

7.7.2.4.1 Japan

7.146.
Japan argues that the KTC attached a high degree of importance to economic factors showing negative trends for the domestic industry and disregarded or downplayed factors showing positive trends. The KTC also failed to explain the weight attributed to any given factor, as well as to explain the inferences it drew from those factors showing positive trends for the domestic industry, such as domestic sales and new investments.248
7.147.
Japan asserts that the volume of domestic sales increased in two out of the three years that were part of the period of trend analysis, and increased by 14% over the full period. However, the KTC focused on the fact that the 7.6% increase in domestic sales in 2013 was only a "slight increase" and was "not much".249 The KTC failed to explain why this increase in 2013 was harmful.250
7.148.
According to Japan, the KTC focused on the negative trend in investment in an unbalanced manner. The KTC failed to discuss the fact that the domestic industry dramatically expanded capacity over the period, which reflected a positive trend, albeit one that came with risks. Instead, the KTC's statement that in 2013 the dumped imports "started dominating the domestic market"251 ignores the full period of trend analysis and is not supported by the facts. In Japan's view, in 2013 the dumped imports were merely returning to the market following a decrease in volume in 2011 and 2012 when overall consumption declined.252

7.7.2.4.2 Korea

7.149.
Korea responds that Japan failed to substantiate its argument that the KTC improperly disregarded certain positive economic factors. According to Korea, the KTC's determination on the state of the domestic industry was based on a comprehensive review of all relevant economic factors. The KTC's overall conclusion is not undermined by the fact that a few economic factors do not necessarily indicate injury, because neither one nor several of these economic factors necessarily give decisive guidance.253
7.150.
With respect to the two economic factors referred to by Japan, Korea argues that:

a. the KTC evaluated the trend in the domestic industry's sales. The KTC explained that the slight increase in sales in 2013 was disappointing when viewed in the context of increased costs and the loss of market share amid the expansion of consumption; and

b. the KTC also evaluated the sharp increase of investment in the beginning of the period of trend analysis, and its positive impact on the domestic industry's manufacturing costs. Nevertheless, the KTC found that that investment could not offset the overall injury to the domestic industry.254

7.7.3 Relevant facts

7.151.
The Korean Investigating Authorities' evaluation of all of the economic factors set out in Article 3.4 in its examination of the impact of the dumped imports on the state of the domestic industry is set out in the Final Resolution of the KTC255 and the Final Report of the OTI.256
7.152.
Concerning market share of the domestic industry, the KTC stated in its Final Resolution:

The domestic market share of the like product increased from [[***]]% in 2010 to [[***]]% in 2011 and to [[***]]% in 2012 and then rapidly decreased in 2013 to [[***]]%, a similar level with 2010.

In 2011, when domestic consumption decreased by 3.3%, the like product expanded its market share by increasing domestic sales by13.4%; in 2012, when domestic consumption decreased by as much as 22.9%, the decrease in the domestic sales of the like product was by only 6.6%, while its market share expanded by [[***]]%. Such expansion of the domestic market share by the domestic industry appears to have been enabled by suppressing the increase of, or decreasing, the sales price of the like product through cost reduction.

However, in 2013, when domestic consumption soared by 52.8%, the market share of the like product decreased [[***]]%, while domestic sales thereof increased by 7.6%. This indicates that the like product was materially injured when its market share was lost significantly despite the slight increase in the sales volume.257

7.153.
The KTC concluded that the loss in market share despite a slight increase in sales indicated that the domestic industry was materially injured. Moreover, the domestic industry was not able to further reduce its sales price in 2013 to compete with the dumped imports (whose prices declined significantly in 2013) because of the deterioration in operating profit.258 As a consequence, the domestic industry lost a significant portion of its market share during this period:

The sharp increase in the imports of the dumped products caused the domestic companies to lose their market share which they had struggled to expand until 2012, and in terms of the price, the price of the domestic like product was suppressed from increases, or was reduced, in response to the decrease in the price of the dumped products. This clearly inflicted material injury to the domestic industry including the continued operating losses.259

7.154.
In its Final Report, the OTI stated:

The market share of the like products rose from [[***]]% in 2010 to [[***]]% in 2011 to [[***]]% in 2012 and then fell to [[***]]% in 2013.

Throughout the entire period of investigation, the market share thereof remained unchanged.

During the entire period of investigation, the like products undermined the domestic market share of the dumped products until 2012 and then lost most of the two-year increase in the market share in 2013.

The domestic industry appears to have increased its market share until 2012 as it endeavored to secure the market by enhancing its price competitiveness through reduction of manufacturing costs, etc. under the circumstances that domestic demand was on the decrease and the import of the dumped products decreased.

In 2013, under the circumstances that domestic demand considerably increased, the import of dumped products increased as much as 78.9% and the dumped products recovered most of their lost market share through substantial price reduction and aggressive marketing activities.

On the contrary, despite a drastic increase in domestic consumption, the like products appear to have lost the increased market share due to the difficulties in reducing prices additionally because of their operating deficits.

During the period of investigation, SMC Korea, the importer of SMC products, was confirmed to have strived to expand its market share through a variety of aggressive marketing activities.260

7.155.
Concerning domestic industry prices, the KTC stated:

The average sales price of the like product increased by 5.9% from KRW [[***]] in 2010 to KRW [[***]] in 2011, but decreased by 3.6% to KRW [[***]] in 2012, and by 1.2% to KRW [[***]] in 2013; in sum, the average sales price of the like product increased by 0.8% from 2010 to 2013.

The review of the changes in the price based on the price fluctuation index, which takes into consideration the changes in the composition of the products being sold, shows that, assuming the price of 2010 to be 100, the price index stood at 100.3 in 2011, 98.6 in 2012 and 96.5 in 2013, indicating that the sales price of the like product decreased by [[***]]% throughout the entire period of investigation.261

7.156.
Concerning investment, the KTC stated:

According to the [OTI's] Investigation Report, the investment in facility by the domestic industry was KRW [[***]] in 2010, KRW [[***]] in 2011, KRW [[***]] in 2012 and KRW [[***]] in 2013, showing a sharp increase in 2011 and 2012. As discussed previously, the domestic industry expanded its investment in facility, in the expectation that economic recovery and the expansion of investment in automation would increase demand, but the domestic and international demand significantly decreased in 2012 due to the fiscal crises in Europe, etc. and the dumped products largely dominated the domestic market, resulting in the failure to increase output in accordance with the expansion of the production capacity.

Accordingly, the domestic industry's demand for investment in facility is expected to shrink significantly for the time being, and it appears that the dumped products are having potentially adverse impact on the domestic industry's investment in facility.262

7.157.
Concerning the domestic industry's funding ability, the KTC observed that the domestic industry research and development (R&D) expenditure increased since 2011 despite operating losses, but noted at the same time that the ratio of R&D expenditure to sales increased only in 2011 and decreased continuously thereafter. The KTC stated:

The domestic industry is making efforts for technological development, e.g., by spending more than KRW [[***]] per year since 2011 despite the operating losses, but the ratio of R&D spending to the sales amount increased only in 2011 and has since decreased continuously.

Due to the continued operating loss, the domestic industry's internal capability for investment is dwindling and the demand for investment in facility is shrinking as the capacity utilization of facilities and the market share decrease due to the rapid growth in the import of the dumped products. In sum, it appears that the overall growth of the domestic industry has been significantly undermined.

The continuing operating loss of the domestic industry is weakening its internal capital raising capacity, and the increase in debt caused by such operating loss is weakening the external capital raising capacity as well.263

7.158.
With respect to its evaluation of the magnitude of the margin of dumping, the KTC stated:

As discussed previously, the final dumping margins of the dumped products were ranged between 11.66% and 31.61%, which means the size of dumping margin is not insignificant. Accordingly, such dumping appears to have had significant impact on the sales price of the dumped products and that of the like product.264

7.159.
With respect to sales, the KTC stated:

According to the Investigation Report, the domestic shipment of the like product indicated yearly fluctuations, increasing by 13.4% from [[***]] units in 2010 to [[***]] units in 2011, decreasing by 6.6% to [[***]] units in 2012, and increasing again by 7.6% to [[***]] units in 2013. As such, the shipment in 2013 was [[***]]% higher than that of 2010.

However, in 2013, when domestic consumption soared by 52.8%, the market share of the like product decreased [[***]]%, while domestic sales thereof increased by 7.6%. This indicates that the like product was materially injured when its market share was lost significantly despite the slight increase in the sales volume.265

7.160.
With respect of the domestic industry's profitability, the KTC found that the domestic industry recorded negative growth over the entire period of trend analysis. The KTC attributed the deterioration of the operating profit after having improved in 2011 to the decreasing prices and increasing costs of the domestic industry:

The operating profit from domestic sales by the domestic industry remained in deficit during the period of investigation, and the operating loss rate decreased from [[***]]% in deficit in 2010 to [[***]]% in deficit in 2011 and the loss rate widened again to [[***]]% in deficit in 2012 and to [[***]]% in deficit in 2013. As the operating loss continued, the domestic industry's return on investment as a percentage of the assets invested in the production of the like product recorded negative growth throughout the entire period of investigation.

The deterioration of the operating profit in 2012, after improving in 2011, was a result of the price reduction of the like product and the increase in the operating cost in response to the competition with the dumped products.266

7.7.4 Panel's terms of reference

7.7.4.1 Main arguments of the parties

7.161.
In its panel request, Japan asserts that Korea's measures are inconsistent with Articles 3.1 and 3.4 of the Anti-Dumping Agreement, "because Korea's analysis of the impact of the imports under investigation on the domestic industry at issue did not involve an objective examination based on positive evidence, including an evaluation of all relevant economic factors and indices having a bearing on the state of the domestic industry at issue".267
7.162.
Korea argues that Japan's claim under Articles 3.1 and 3.4 of the Anti-Dumping Agreement with respect to the analysis of the impact of the imports under investigation on the domestic industry is outside of the Panel's terms of reference.268 According to Korea, "Japan's panel request does not provide a brief summary of the complaint [as required by Article 6.2 of the DSU] but merely paraphrases the legal obligation contained in the articles alleged to have been violated".269 In Korea's view, Japan's panel request:

[M]erely paraphrases the obligations of Article 3.1 on positive evidence and an objective examination and copies the first part of the first sentence of Article 3.4 asserting that Korea's analysis did not involve an objective examination based on positive evidence "including an evaluation of all relevant economic factors and indices having a bearing on the state of the domestic industry".270

7.163.
Korea argues that:

Article 3.4 establishes multiple obligations that must be complied with in an anti‑dumping investigation … However, Japan's panel request in relation to this third claim under Article 3.4 does not explain which of these obligations included in Article 3.4 it considers to have been violated, nor does it identify the specific aspects of the anti‑dumping investigation or resulting final determination that it considers to be flawed in light of these obligations. There is no narrative of any kind to assist Korea, the third parties or the Panel for that matter to understand the complaint of Japan … Korea is left to guess what the concern of Japan is and which aspect of the challenged measures it considers to violate the many obligations set forth in Article 3.4.271

7.164.
In response, Japan argues that Article 3.4 of the Anti-Dumping Agreement "provides for a single obligation for an investigating authority to conduct the integrated examination of the impact of the dumped imports on the domestic industry which 'shall include an evaluation of all relevant economic factors and indices'". The different factors listed in Article 3.4 "must all be considered as part of the single obligation to examine the impact of dumped imports on the domestic industry". "[R]ead with Article 3.1, Article 3.4 provides for a single obligation to examine 'the impact of the dumped imports on the domestic industry' based on 'positive evidence' and 'objective examination'".272

7.7.4.2 Evaluation by the Panel

7.165.
We will first examine the sufficiency of Japan's panel request with respect to Japan's claim under Articles 3.1 and 3.4 of the Anti-Dumping Agreement regarding the examination of the impact of the imports under investigation on the domestic industry. We will consider in this regard whether, with respect to this claim and in accordance with Article 6.2 of the DSU, Japan's panel request provides a brief summary of the legal basis of the complaint which is sufficient to present the problem clearly. We will keep in mind the double function of a panel request: (a) to set the terms of reference for the Panel under Article 7.1 of the DSU and define the scope of the dispute; and (b) to serve the due process objective of notifying the respondent and the other WTO Members of the nature of the complainant's case.273 If Japan's panel request fails to explain succinctly how or why the measures at issue are considered by Japan to be violating the WTO obligations in question, it would not fulfil the requirement of Article 6.2 of the DSU. In that case, Japan's claim under Articles 3.1 and 3.4 with respect to the examination of the impact of the imports under investigation on the domestic industry would not be within the scope of the Panel's terms of reference.
7.166.
With respect to the claim at issue, the first part of the relevant paragraph paraphrases the first part of Article 3.1, asserting that the KTC's examination of the impact of the dumped imports on the state of the domestic industry "did not involve an objective examination based on positive evidence". The second part of the paragraph refers to the alleged failure to conduct "an evaluation of all relevant economic factors and indices having a bearing on the state of the domestic industry at issue".
7.167.
As mentioned above, a general reference to the language in Article 3.1 in itself is not normally sufficient to present the problem clearly.274 This formulation does not explain how or why Japan considers the measures at issue to be violating the specific WTO obligations in question, including that in Article 3.1 of the Anti-Dumping Agreement.
7.168.
Accordingly, we must consider the second part of the paragraph, i.e. the assertion of an alleged failure to conduct "an evaluation of all relevant economic factors and indices having a bearing on the state of the domestic industry at issue". We recall in this regard that the text of 3.4 of the Anti-Dumping Agreement requiring that "[t]he examination of the impact of the dumped imports on the domestic industry concerned shall include an evaluation of all relevant factors and indices having a bearing on the state of the industry, including …"275 sets forth a mandatory list of relevant factors which must be evaluated in every case. The list of factors and indices in Article 3.4 is therefore not merely indicative or illustrative, and the examination of each of them is necessary for compliance with the provision.276
7.169.
Japan's panel request refers to whether, in examining the impact of the dumped imports on the domestic industry, the Korean Investigating Authorities properly evaluated each of the relevant factors and indices listed in Article 3.4. In this respect, on its face Japan's panel request suggests that the failure by the KTC to evaluate one or more of these factors constitutes a violation of Articles 3.1 and 3.4 of the Anti-Dumping Agreement. This formulation indicates how or why Japan considers the measures at issue to be inconsistent with the specific WTO obligations in question, namely those in Articles 3.1 and 3.4 of the Anti-Dumping Agreement.
7.170.
The allegations in Japan's submissions that the KTC failed to evaluate two of the specific factors listed in Article 3.4 (the ability to raise capital or investments, and the magnitude of the margin of dumping) may be viewed as arguments seeking to demonstrate the claim set out in the panel request. Accordingly, we consider these allegations to be within our terms of reference.
7.171.
With respect to this claim, the language used by Japan is precise enough to serve the dual function of a panel request: (a) to define the basis for the Panel's terms of reference under Article 7.1 of the DSU; and (b) to inform other WTO Members, including the respondent, of the nature of the dispute.
7.172.
In the course of the proceedings, Japan has advanced other allegations of violation of Articles 3.1 and 3.4 of the Anti-Dumping Agreement, specifically that: (a) the KTC did not establish a logical link between its findings on the volume and price effects under Article 3.2 and its finding of adverse impact under Article 3.4; (b) with respect to certain factors listed in Article 3.4, the KTC failed to demonstrate any explanatory force of dumped imports for understanding domestic industry trends; and (c) the KTC attached a high degree of importance to the relevant factors highlighting negative aspects, while disregarding or downplaying without any explanation the factors suggesting that the Korean industry was not suffering injury.
7.173.
On its face, the panel request does not indicate or suggest that Japan's claim regarding Korea's analysis of the impact of the imports under investigation on the domestic industry extends to include these allegations. With respect to these allegations, as mentioned above, a general reference to the language in Article 3.1 in itself is not sufficient to present the problem concerning the KTC's examination of the impact of the dumped imports on the state of the domestic industry clearly. Japan's assertion that Korea failed to conduct "an evaluation of all relevant economic factors and indices having a bearing on the state of the domestic industry at issue" does not cover these three additional allegations, which do not refer to any failure to evaluate relevant economic factors and indices. There is no indication in Japan's panel request that these allegations are part of the how or why Japan considers the measures at issue to be violating the specific WTO obligations in question, namely those in Articles 3.1 and 3.4 of the Anti-Dumping Agreement.
7.174.
With respect to these allegations, the language used by Japan is not precise enough to serve the dual function of a panel request: (a) to define the basis for the Panel's terms of reference under Article 7.1 of the DSU; and (b) to inform other WTO Members, including the respondent, of the nature of the dispute.
7.175.
Accordingly, we find that Japan's claim concerning the state of the domestic industry, under Articles 3.1 and 3.4 of the Anti-Dumping Agreement, is limited to the allegation that the KTC failed to evaluate two of the specific factors listed in Article 3.4. We conclude that all other allegations of inconsistency with Article 3.4 argued by Japan are not properly within the Panel's terms of reference, and we will neither consider them further nor resolve them.

7.7.5 Alleged failure to examine two economic factors listed in Article 3.4 of the Anti‑Dumping Agreement

7.176.
Having concluded that Japan's claim that the KTC failed to evaluate two of the specific factors listed in Article 3.4 is properly before us, we now turn to examine this claim.

7.7.5.1 Relevant provisions

7.177.
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.

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.

7.178.
Article 3.4 does not require merely an examination of the state of the domestic industry in the abstract. Rather, it contemplates that an investigating authority must also "derive an understanding of the impact of subject imports" on the basis of an examination of the relationship between dumped imports and the state of the domestic industry.277
7.179.
Article 3.4 requires that the examination of the impact of the dumped imports on the domestic industry shall include an evaluation of all relevant economic factors, including each of the fifteen listed in that provision.278 Article 3.4 does not require an investigating authority to make a determination regarding the impact of dumped imports, but rather to examine that impact. The fact that no determination need be made makes it clear that no particular outcome is a necessary prerequisite for going on to address and resolve the "ultimate question" of injury caused by dumped imports.279 Neither Article 3.4 nor any other provision of the Anti-Dumping Agreement provides any guidance regarding a specific methodology on how these factors and indices shall be evaluated. The evaluation of the relevant factors must respect, however, the overarching principle set out in Article 3.1 concerning the objective examination of positive evidence. An "evaluation" of each of the factors in Article 3.4 requires a process of analysis and assessment of the role, relevance and relative weight of each factor in the particular investigation. In addition, if an investigating authority concludes that a particular factor listed in Article 3.4 is not relevant, this conclusion must be explained.280

7.7.5.2 Evaluation by the Panel

7.180.
With respect to its assertion that the KTC failed to examine the ability to raise capital or investments and the magnitude of the margin of dumping, Japan's argument is not that the KTC did not examine these factors at all, but rather that the KTC did not adequately or properly examine these factors.281 We recall that neither Article 3.4 nor any other provision of the Anti‑Dumping Agreement provides any methodology on how these factors and indices shall be evaluated, apart from the overarching principle set out in Article 3.1 concerning the objective examination of positive evidence.282 Moreover, as discussed, no determination is required in the context of the Article 3.4 examination of factors. In this situation, it seems to us that, since the ultimate question is whether there is injury caused by dumped imports regardless of any outcomes of the Article 3.4 examination, the only issue that remains to be decided is whether the KTC's evaluation of these two factors, in the context of its overall examination of the impact of dumped imports on the state of the domestic industry, was that of a reasonable and objective investigating authority in light of the evidence and arguments that were before the KTC.

7.7.5.2.1 Ability to raise capital or investments

7.181.
Japan argues that the KTC's statement that the domestic industry's funding ability had deteriorated due to continuous operating losses and increasing liability was "contradicted" by evidence in the record that the domestic industry engaged in massive investment in new facilities in 2011 and 2012 at the same time when it was incurring losses.283 Japan also argues that continued operating loss does not always negatively affect the domestic industry's ability to raise capital. Japan contends that "[t]he markets are full of examples of companies and industries that have had continuing operating losses and are nevertheless eagerly sought out by investors and able to raise large amounts of capital".284 For this reason, Japan argues that it is not sufficient for the KTC to state in its evaluation of the domestic industry's ability to raise capital that "the continuing operating loss of the domestic industry is weakening its internal capital raising capacity, and the increase in debt caused by such operating loss is weakening the external capital raising capacity as well". Korea argues that the KTC evaluated the domestic industry's ability to raise capital. Korea contends that the KTC has reached its conclusion on the basis of the audited reports of the domestic producers.285
7.182.
The KTC stated, with respect to its evaluation of investment:

According to the [OTI's] Investigation Report, the investment in facility by the domestic industry was KRW [[***]] in 2010, KRW [[***]] in 2011, KRW [[***]] in 2012 and KRW [[***]] in 2013, showing a sharp increase in 2011 and 2012. As discussed previously, the domestic industry expanded its investment in facility, in the expectation that economic recovery and the expansion of investment in automation would increase demand, but the domestic and international demand significantly decreased in 2012 due to the fiscal crises in Europe, etc. and the dumped products largely dominated the domestic market, resulting in the failure to increase output in accordance with the expansion of the production capacity.

Accordingly, the domestic industry's demand for investment in facility is expected to shrink significantly for the time being, and it appears that the dumped products are having potentially adverse impact on the domestic industry's investment in facility.

The domestic industry is making efforts for technological development, e.g., by spending more than KRW [[***]] per year since 2011 despite the operating losses, but the ratio of R&D spending to the sales amount increased only in 2011 and has since decreased continuously.

Due to the continued operating loss, the domestic industry's internal capability for investment is dwindling and the demand for investment in facility is shrinking as the capacity utilization of facilities and the market share decrease due to the rapid growth in the import of the dumped products. In sum, it appears that the overall growth of the domestic industry has been significantly undermined.

The continuing operating loss of the domestic industry is weakening its internal capital raising capacity, and the increase in debt caused by such operating loss is weakening the external capital raising capacity as well.286

7.183.
The parties do not disagree that, as the KTC observed, investment expanded in 2011 and 2012. The KTC itself characterized the expansion as a "sharp increase" in investment. Japan essentially takes issue with the relative weight the KTC gave to this expansion in its overall evaluation of the domestic industry's ability to raise investments. In Japan's view, the fact that investment expanded in those two years contradicts the KTC's overall evaluation of the domestic industry's ability to raise capital.
7.184.
We are not persuaded by Japan's arguments. Having found that investment increased sharply from 2011 to 2012, the KTC went on to analyse the reasons for the increase in the first place, and the impact of the fiscal crisis-led contraction in demand on investment. The KTC did not find any actual decline in investment, but referred to a potential decline in investment, noting "the domestic industry's demand for investment in facility is expected to shrink significantly for the time being". Concerning the domestic industry's funding ability, the KTC again observed that the domestic industry's R&D expenditure increased after 2011 despite operating losses, but noted that the ratio of R&D expenditure to sales increased only in 2011 and decreased continuously thereafter.
7.185.
In order to demonstrate that the KTC acted inconsistently with Articles 3.1 and 3.4, Japan bears the burden of persuading us that the KTC's analysis was not objective and that a reasonable and unbiased investigating authority could not have evaluated the ability of the domestic industry to raise capital as the KTC did. The mere allegation that an increase in investment expansion during one part of the period of trend analysis somehow contradicts the KTC's finding that investment is expected to shrink due to over-investment and low capacity utilization is not sufficient in this regard. In the context of declining demand for the product in the domestic market and operating losses in the domestic industry, we do not see a necessary contradiction between the fact that investment increased in the first two years of the period examined and the KTC's overall evaluation that the industry's ability to fund investment decreased by the end of the period. Moreover, we are not persuaded that the KTC's view that the continued operating losses weakened the domestic industry's ability to raise capital is one that no reasonable and unbiased investigating authority could have reached. While we agree that it is possible that a loss-making enterprise may still be able to raise capital on the market by taking a loan or selling its shares, under normal market conditions, a company's ability to raise capital is strengthened if it is profit making, and is weakened when it is loss making. Japan has not pointed to any facts on the record that would suggest that in this case, it was unreasonable for the KTC to consider that the normal situation prevailed.
7.186.
In light of the above, Japan has not demonstrated that the KTC's evaluation of the investment and funding ability of the domestic industry is not one that a reasonable and objective investigating authority could make in light of the evidence and arguments before it.

7.7.5.2.2 Magnitude of the margin of dumping

7.187.
Japan argues that the KTC's conclusion regarding the magnitude of the margin of dumping has no factual support and is contradicted by the fact that the dumped imports oversold the domestic like products.287
7.188.
In its Final Resolution, the KTC stated, with respect to its evaluation of the magnitude of the margin of dumping:

As discussed previously, the final dumping margins of the dumped products were ranged between 11.66% and 31.61%, which means the size of dumping margin is not insignificant. Accordingly, such dumping appears to have had significant impact on the sales price of the dumped products and that of the like product.288

7.189.
Article 3.4 does not require that the magnitude of the margin of dumping be evaluated in any particular manner or be given any particular weight. However an evaluation of the magnitude of the margin of dumping in the assessment of the impact of dumped imports on the domestic industry must "be undertaken as a substantive matter".289 "[A]n investigating authority is required to evaluate the magnitude of the margin of dumping and to assess its relevance and the weight to be attributed to it in the injury assessment."290 Simply listing of the margins of dumping, whether in the application for the initiation of the investigation291, in the context of the determination of dumping in the investigation report292, in the consideration of whether a cumulative assessment under Article 3.3 of the Anti-Dumping Agreement is appropriate293, or in the consideration of whether margins of dumping are more than de minimis within the meaning of Article 5.8 of the Anti-Dumping Agreement294, is not sufficient to demonstrate that the magnitude of the margin of dumping was evaluated within the meaning of Article 3.4.
7.190.
In the present case, the KTC did more than merely list or indicate the existence of margins of dumping of a particular magnitude in its determination. Rather, it observed that the dumping margins were significant, and consequently that dumping had had a significant impact on prices of both the dumped product and the domestic like product. There is no dispute as to the actual information regarding the magnitude of the margins of dumping evaluated. Japan simply disagrees with the KTC's observations as to the import of those margins.
7.191.
We recall that there is no guidance in the Anti-Dumping Agreement regarding methodology for the evaluation of economic factors in the context of Article 3.4. We fail to see any textual basis for Japan's argument that, in order to evaluate the magnitude of the margins of dumping, an investigating authority is required to undertake some form of counterfactual analysis, specifically in this case by adding the dumping margin to the actual prices of the dumped imports, or comparing the magnitude of the dumping margin with the level of overselling.295 Japan itself acknowledges that an investigating authority is not always required to conduct a counterfactual analysis in order to evaluate the magnitude of the margins of dumping. Rather Japan suggests that such an analysis may be of particular importance depending on the specific factual circumstances of a case.296 However, even assuming that such an analysis might be relevant, a question which is for an investigating authority to consider in the first instance, Japan has failed to demonstrate what specific factual circumstances made such an analysis obligatory in this case. In our view, the KTC's statement in its Final Resolution is sufficient to demonstrate that it evaluated the magnitude of the margins of dumping "as a substantive matter".

7.7.5.3 Conclusion

7.192.
Accordingly, we conclude that, to the extent its claim is within the Panel's terms of reference, Japan has failed to establish that the Korean Investigating Authorities acted inconsistently with Articles 3.1 and 3.4 of the Anti-Dumping Agreement with respect to the examination of the impact of the dumped imports on the state of the domestic industry.

7.8 CAUSATION

7.8.1 Introduction

7.193.
Japan brings three separate claims under Articles 3.1 and 3.5 of the Anti-Dumping Agreement.297 According to Japan: (a) the KTC's causation analysis is undermined by its flawed price effects and volume analyses under Article 3.2, and by its flawed impact analysis under Article 3.4, "irrespective and independent of" whether the Panel finds these three analyses to be inconsistent with Articles 3.2 and 3.4; (b) the KTC failed to properly establish a causal link between the dumped imports and the alleged injury298; and (c) the KTC failed to conduct a proper non-attribution analysis.
7.194.
Korea argues that Japan's claims under Articles 3.1 and 3.5 are all outside the Panel's terms of reference because Japan's panel request does not comply with the requirements of Article 6.2 of the DSU with respect to these claims. In the alternative, Korea asks the Panel to reject Japan's claims.

7.8.2 Main arguments of the parties

7.8.2.1 Japan

7.8.2.1.1 First claim: "independent" causation claim

7.195.
Japan argues that the KTC's causation determination was undermined by its flawed analyses of the volume of the dumped imports, the price effects and the impact of the dumped imports on the state of the domestic industry, "irrespective and independent" of whether the Panel finds the KTC's analyses of volume, the price effects and impact to be inconsistent with Articles 3.2 and 3.4 of the Anti-Dumping Agreement.299

7.8.2.1.2 Second claim: Alleged failure to properly establish a causal link

7.196.
Japan asserts that the KTC failed to demonstrate the existence of a causal link between the dumped imports and the state of the domestic industry. In Japan's view, the absence of sufficient correlation between the trends in volumes, prices, and the domestic industry's profits casts doubt on the existence of any causal link:

a. Insufficient correlation in the key volume trends: The fact that the volume of dumped imports decreased from 2010 to 2012 (i.e. during most of the period of trend analysis), and the fact that the domestic industry's market share remained stable on an end-point to end-point basis undermine the existence of a causal link.

b. Insufficient correlation in the key price trends: The diverging price trends in 2012 and 2013 do not suggest the necessary causal link: (i) prices of dumped imports increased in 2012 while the prices of the domestic like product decreased; and (ii) prices of the dumped imports fell sharply in 2013 while the prices of the domestic like product only decreased slightly.

c. Insufficient correlation in the trends of the profits of the domestic industry: The domestic industry incurred losses from 2010 to 2012, when the prices of dumped imports increased and their volumes decreased. When the prices of dumped imports increased in 2012, and their volumes and market share decreased, the domestic industry should have been in good health. Instead, the declining profits of the domestic industry in 2012 and 2013 show that the domestic industry was incurring losses regardless of the trends in the dumped imports' volumes and prices.

d. Finally, the KTC failed to consider the cumulative effects of the above-mentioned inconsistencies in its reasoning.300

7.197.
Japan contends that, although the OTI's Final Report documented the above-mentioned diverging trends and inconsistencies, the KTC's Final Resolution largely overlooked them and, in its "overall evaluation" section, focused on the year 2013 in isolation.301

7.8.2.1.3 Third claim: Alleged failure to conduct a proper non-attribution analysis

7.198.
Japan argues that the KTC failed to conduct an objective analysis of certain known factors other than the dumped imports allegedly causing injury to the domestic industry at the same time as dumped imports, and failed to examine at all some other known factors. According to Japan, the following factors were inadequately considered by the KTC: (a) third country imports; (b) trends in domestic consumption; and (c) exports by the Korean industry. The following factors allegedly were not considered at all: (a) the extent to which Korean producers other than the applicants were gaining volume and market share; (b) the extent to which Korean producers other than the applicants were affecting domestic prices; and (c) the competition between the two applicants.302
7.199.
Japan asserts that the KTC failed to explain its finding that third country imports played almost no role in the injury suffered by the domestic industry. The OTI mentioned in its Final Report that third country imports were minimal in absolute terms, but the KTC failed to make this point in its Final Resolution. Moreover, the KTC failed to address the impact of the 62.2% decrease in the prices of third country imports on the prices of the domestic industry. The KTC failed to examine the impact on the domestic industry of dumped imports and third country imports (both of which were priced higher than the domestic like product) consistently.303 Japan argues that the KTC failed to compare the rates of change in the volumes of dumped imports and third countries imports, and to compare the sizes of the increased quantities of the dumped imports and the third country imports. In Japan's view, the KTC also failed to compare the changes in market share of the dumped imports and third country imports.304
7.200.
Japan submits that, by finding that it is uncertain whether the decrease in domestic consumption from 2010 to 2012 had a negative impact on the domestic industry, the KTC failed to conduct a proper non-attribution analysis. Japan makes the following arguments in support of this assertion:

a. The KTC "misleadingly cited" a 5.9% increase in domestic industry sales from 2010 to 2012 when consumption declined during the same two-year period.305 The KTC's reliance on this increase, which covers the two-year period from 2010 to 2012, is contradicted by the decrease in the domestic industry's sales by 6.6% from 2011 to 2012.306

b. The KTC "misleadingly cited" an increase in the domestic industry's market share in 2012. The domestic industry's market share increased because the volume of dumped imports decreased much more than did the domestic industry's sales. Therefore the increase in domestic industry market share does not support the KTC's conclusion that the domestic industry was not adversely affected by the sharp decline in consumption.307

c. The KTC failed to consider the impact of the decline in consumption on the decline in domestic industry prices in 2012.308

d. The KTC's finding that the consumption hike in 2013 brought no positive impact is undermined by the fact that the domestic industry's sales increased by 7.6% following the 52.8% increase in consumption in 2013.309

e. The KTC focused on quantities, but failed to examine the impact of consumption on the domestic industry's sales by value. When measured by value, the trends strongly indicate that the domestic industry's sales performance was significantly affected by the changes in consumption.310

7.201.
Japan also argues that the KTC failed to conduct a proper non-attribution analysis concerning the impact of the domestic industry's export performance. The decline in the domestic industry's exports contributed to the adverse conditions in the industry in 2012, such as the decline in sales and the increased operating losses. According to Japan, the weak performance of the domestic industry in 2013 was also due to weak exports in that year.311
7.202.
Japan submits that the KTC entirely failed to conduct a non-attribution analysis of the impact of the domestic producers not part of the domestic industry on the sales, prices, and market share of the domestic industry. In Japan's view, these producers may have had some effect on market prices, and may have gained sales and market share from the domestic industry. Japan argues that the KTC had partial data from at least two such domestic producers (Yonwoo Pneumatic and Shin Yeong Mechatronics). Despite the fact that information concerning these producers was limited, the KTC should have examined the trends of sales and market share for all four of these domestic producers as well as the extent to which the producers not part of the domestic industry were affecting domestic prices, instead of limiting its analysis to the two applicants only.312
7.203.
Japan also argues that the KTC failed to conduct a proper non-attribution analysis of the impact of possible competition between the two applicants themselves. The expansion of the domestic industry's capacity in 2011 and a sharp decline in consumption in 2012 set the stage for more intensive competition between these two domestic producers, leading to a decline in domestic industry sales and prices in 2012.313
7.204.
Finally, Japan argues that the KTC also failed to consider the cumulative effect of all known factors. Even if some of these known factors in isolation do not break the causal link, several of these factors collectively may have broken this link.314

7.8.2.2 Korea

7.8.2.2.1 First claim: "independent" causation claim

7.205.
Korea argues that Japan's "independent" causation claim is entirely consequential, and should be rejected for the same reasons it elaborated concerning Japan's claims with respect to the KTC's volume, price effects, and impact analyses.315

7.8.2.2.2 Second claim: Alleged failure to establish a causal link

7.206.
Korea responds that the KTC examined and explained the basis for its finding of a causal relationship between the dumped imports and injury to the domestic industry by finding coincidence and correlation in trends between the dumped imports and the injury factors.316
7.207.
Concerning the volume trends, Korea argues that the fact that the domestic industry's market share in 2013 returned to its 2010 level does not in and of itself undermine the KTC's finding of correlation between the key volume trends. The correlation between the dumped imports' volume and the market share of the domestic industry is established by the fact that when the dumped imports' volume decreased in 2011 and 2012, the market share of the domestic industry increased; when the volume of the dumped imports increased in 2013, the domestic industry's market share fell sharply.317
7.208.
Concerning the price trends, Korea reiterates its view that Japan's argument, that there was a diverging trend between dumped imports and the domestic like product, is without foundation.318
7.209.
In response to Japan's argument that the domestic industry's operating loss was unaffected by the dumped imports, Korea argues that the KTC adequately explained its assessment of the domestic industry's operating loss in 2012.319
7.210.
In response to Japan's argument that the KTC's causation determination was based on the situation in 2013 in isolation, Korea argues that the KTC did not focus on 2013 in isolation but rather examined trends over the period of trend analysis, including 2013, when dumping occurred. Korea further argues that Japan was incorrect to focus only on the KTC's Final Resolution. In Korea's view, the OTI's Final Report was available to all parties and contains important analyses of facts upon which the KTC based its determination.320

7.8.2.2.3 Third claim: Alleged failure to conduct a proper non-attribution analysis

7.211.
Korea argues that the KTC properly examined the effect of imports from third countries. The KTC examined the volume of those imports both in absolute terms and in terms of market share. The KTC also examined the price effects of the third country imports, observing that those prices were the highest in the domestic market. In light of the small market share of imports from countries other than Japan, i.e. [[***]]%, the KTC properly concluded that third country imports "had almost no adverse impact on the domestic industry".321
7.212.
Korea notes that Japan takes issue with certain KTC findings relating to developments in 2011 and 2012. Korea argues, however, that the KTC's injury determination was primarily based on the trends in 2013, when the domestic industry lost significant market share, despite a sharp increase in consumption. For this reason, the KTC found that changes in domestic consumption did not affect the injury suffered by the domestic industry in 2013. The KTC also concluded that for the period between 2010 and 2012, the negative impact of decreased consumption on the domestic industry's condition was not clear because during this period both the sales and the market share of the domestic industry increased.322
7.213.
Korea also argues that the KTC examined the impact of the domestic industry's export performance by quantifying the impact of the export volume vis-à-vis the domestic industry's capacity utilization, and found that the export volume did not affect domestic prices in light of the low capacity utilization. The KTC also examined the correlation between the domestic industry's export performance and the development of major indicators having a bearing on the state of the domestic industry, and concluded that the fluctuations in export performance did not coincide with the overall trends of the state of domestic industry.323
7.214.
Finally, Korea rejects Japan's assertion that the KTC should have considered the impact of competition between domestic producers. According to Korea, the issue of domestic competition was not a "known" factor because it was not "clearly raised" before the investigating authority.324 Korea argues that WTO jurisprudence confirms that only factors that are "clearly raised" before an investigating authority and that are properly substantiated with evidence of injury caused to the domestic industry must be examined by investigating authorities as part of the non-attribution analysis.325 According to Korea, there is no obligation under Article 3.5 for investigating authorities to seek out and examine on their own initiative the effects of all possible factors.326

7.8.3 Panel's terms of reference

7.8.3.1 Japan's first claim under Articles 3.1 and 3.5 of the Anti-Dumping Agreement

7.8.3.1.1 Main arguments of the parties

7.215.
In its panel request, Japan asserts that Korea's measures are inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement:

[B]ecause Korea's demonstration of causation lacks any foundation in its analyses of the volume of the imports under investigation, the effects of the imports under investigation on prices, and/or the impact of the imports under investigation on the domestic industry at issue, irrespective and independent of whether Korea's flawed analysis of the volume and/or flawed analysis of the effects of the imports under investigation on prices, on the one hand, and Korea's flawed analysis of the impact of the imports under investigation on the domestic industry on the other, would be inconsistent with, respectively, Articles 3.1 and 3.2 of the AD Agreement and Articles 3.1 and 3.4 of the AD Agreement[.]327

7.216.
In its preliminary ruling request, Korea argues that this claim:

[I]s unclear at even the most general level and is clearly insufficient to present the problem clearly and to allow Korea to start preparing its defence. … Japan's panel request seems to suggest that Article 3.5 would be violated as a consequence of the allegedly flawed volume, price effects and overall injury analysis even if the Panel were to reject all of the relevant challenges that Japan brought under Articles 3.1, 3.2 and 3.4. Korea is left wondering whether this claim sets forth a new "claim" and if so what the legal basis of this claim would be. Is Japan's claim that a WTO consistent volume, price and overall injury analysis cannot be the basis of a WTO consistent causation analysis? Or is the claim that there was a consequential violation of Article 3.5 because the alleged flaws identified by Japan were perhaps not sufficient to establish a WTO violation under the respective legal provision but still sufficiently problematic to have a consequential impact on the causation determination? It is simply impossible to tell from Japan's panel request[.]328

7.217.
Japan contends that it set forth an "independent [claim] of violation of Article 3.5 with respect to Korea's flawed volume, price effects, and impact analyses, even if the Panel should find that those flaws do not constitute violations of Articles 3.2 and 3.4". According to Japan, the Appellate Body has "clarified the distinction between a consequential claim and an independent claim under Article 3.5. … Thus, a panel may reach a conclusion that an investigating authority has violated Article 3.5 due to the flaws in its volume, price effects, and impact analyses, even if these analyses are consistent with Articles 3.2 and 3.4, but in order for a panel to address such possibility, the complaining Member must make it clear that it is advancing independent claims under Article 3.5".329

7.8.3.1.2 Evaluation by the Panel

7.218.
On its face, Japan's panel request alleges that Korea's demonstration of causation lacks any foundation in its analyses of volume of dumped imports, effects of imports on prices, and the impact of those imports on the domestic industry, "irrespectively and independently" of whether Korea's analyses are found to be inconsistent with Articles 3.1, 3.2, and 3.4 of the Anti-Dumping Agreement. Article 3.5 requires an investigating authority to demonstrate that "the dumped imports are, through the effects of dumping, as set forth in [Articles 3.2 and 3.4], causing injury" to the domestic industry. In our view, the narrative in Japan's panel request, albeit brief, is sufficiently precise on its face to present the problem clearly, namely that, in Japan's view, the KTC's causation determination is undermined by certain aspects of its volume, price effects, and impact analyses whether or not those aspects are inconsistent with Article 3.1, 3.2, or 3.4 of the Anti-Dumping Agreement.
7.219.
Korea argues that the term "irrespectively and independently" in Japan's panel request makes it unclear whether this allegation sets forth a new "claim" and if so what the legal basis of this claim would be. In our view, Japan's "independent claim" is contingent in nature. If we were to find that the KTC's consideration of volume and price effects and examination of impact are inconsistent with Articles 3.1, 3.2, and/or 3.4, such inconsistencies would support finding a consequential violation of Articles 3.1 and 3.5, and there would be no need to go on to consider Japan's independent claim of inconsistency with Articles 3.1 and 3.5. However, if we were to reject all of Japan's allegations of inconsistency under Articles 3.1, 3.2, and 3.4, in light of the "irrespectively and independently" language, we would need to go on to examine whether the KTC's determination of a causal relationship is inconsistent with Article 3.5 because of the alleged flaws in the KTC's analysis of volume, price effects, and impact in that determination.
7.220.
The first decision scenario described above is easy to understand. Panels have found consequential violations of Article 3.5 following findings of inconsistency in an investigating authority's consideration of volume and price effects and examination of impact under Articles 3.1, 3.2, and 3.4, to the extent that the investigating authority relied on these analyses in finding a causal relationship.330 This aspect of Japan's claim is clear on the face of the panel request, and is confirmed by Japan's written submissions.331
7.221.
The nature of the independent claim in the second decision scenario is less evident. Although a WTO-consistent consideration of volume and price effect, or examination of impact cannot lead to a finding of consequential violation of Article 3.5, we cannot preclude the possibility that an investigating authority's determination of causation may be inconsistent with Article 3.5 due to inadequacies in its analysis of the volume, price effects, or impact of dumped imports, even if these do not demonstrate a violation of Articles 3.2 and/or 3.4. Japan's claim seems to rest on the following premises:

a. certain aspects of the KTC's volume, price effects, and impact analyses were "flawed";

b. these "flaws" were either unrelated to the obligations under Articles 3.1, 3.2, and 3.4, or did not, in themselves, constitute violations of Articles 3.1, 3.2, and 3.4; and

c. these "flaws" nevertheless have a sufficient impact on the KTC's causation determination to require the conclusion that that determination is inconsistent with Articles 3.1 and 3.5.

7.222.
In order to confirm our understanding of the nature of Japan's claim, we carefully reviewed its written submissions. We have found that Japan's arguments in the context of its independent claim are the same as those in support of its allegations of inconsistency with Articles 3.1, 3.2, and 3.4. While its claim may be independent, Japan makes no new, separate or additional arguments in support of that claim, simply referring back to certain of the arguments it made in support of its claims under Articles 3.1, 3.2, and 3.4 to support its independent claim of inconsistency with Articles 3.1 and 3.5.
7.223.
In its first written submission, with respect to volume, Japan argues that the following two elements "disprove" the existence of a causal relationship between the dumped imports and the injury to the domestic industry:

a. dumped imports decreased in two out of the three years of the period of trend analysis; and

b. the volume of dumped imports increased only modestly in absolute terms and decreased in market share in 2013 compared with 2010.332

7.224.
With respect to price effects, Japan argues that the following two elements "disprove" the existence of a causal relationship between the dumped imports and the injury to the domestic industry:

a. dumped import prices consistently and significantly oversold domestic prices;

b. there is a lack of parallelism in the price trends of the dumped imports and domestic like product; and

c. there is no competitive relationship between the dumped imports and the domestic like product.333

7.225.
With respect to impact, Japan argues that the following three elements "disprove" the existence of a causal relationship between the dumped imports and the injury to the domestic industry:

a. there is no logical connection between the effects of the dumped imports and the condition of the domestic industry;

b. the KTC failed to examine two factors specifically required by the Anti-Dumping Agreement; and

c. the KTC ignored certain positive trends.334

7.226.
In the circumstances of the present case, it is clear that Japan has asserted an independent claim that aspects of the KTC's consideration of the volume and price effects, and examination of the impact, of dumped imports preclude the finding of a causal relationship consistently with Articles 3.1 and 3.5 of the Anti-Dumping Agreement. We therefore conclude that the independent causation claim advanced by Japan is within the Panel's terms of reference.
7.227.
We note, however, that Japan made a variety of arguments in support of its claims under Articles 3.1, 3.2, and 3.4, but has only referred to a selected few of those arguments in support of its independent causation claim. We will limit our examination of Japan's independent causation claim to those specific aspects of the KTC's consideration of the volume and price effects, and examination of the impact, of dumped imports identified by Japan in its submissions as independently demonstrating the inconsistency of the KTC's determination of causation. Further, we recall that we have concluded that Japan's claims under Articles 3.2 and 3.4 are outside the Panel's terms of reference in this dispute335, and we will therefore not consider any arguments made in connection only with those claims in our examination of Japan's independent causation claim.

7.8.3.2 Japan's second claim under Articles 3.1 and 3.5 of the Anti-Dumping Agreement

7.8.3.2.1 Main arguments of the parties

7.228.
In its panel request, Japan asserts that Korea's measures are inconsistent with Articles 3.1 and 3.5 of the Anti-Dumping Agreement, "because Korea failed to demonstrate that the imports under investigation were, through the effects of dumping, causing injury to the domestic industry based on an objective examination of the alleged causal relationship between the imports under investigation and the alleged injury to the domestic industry, on the basis of all relevant positive evidence before the authorities".336
7.229.
In its preliminary ruling request, Korea argues that Japan's panel request:

[S]imply refers to the challenged measures and the general obligations of Articles 3.1 and 3.5 to demonstrate the existence of a causal relationship and to conduct a non‑attribution analysis without connecting any specific aspect of the challenged final determination with a specific obligation contained in these provisions. Article 3.5 is a multi-faceted provision[.] … However, nothing in Japan's panel request allows Korea to know which of these legal obligations Japan's complaint is related to and "how and why" it considers that the Korean investigating authority acted inconsistently with these legal obligations.337

7.230.
In response, Japan argues that its panel request comprises three separate and distinct claims related to Article 3.5. The claim at issue relates "to the first two sentences of Article 3.5 that both relate to the core obligation of demonstrating the 'causal relationship'". According to Japan, its panel request "plainly connects Korea's failure to demonstrate the causal relationship with the specific obligation of the demonstration of the causal relationship".338

7.8.3.2.2 Evaluation by the Panel

7.231.
Japan's panel request with respect to its second causation claim alleges that Korea's measures are inconsistent with Articles 3.1 and 3.5 because:

Korea failed to demonstrate that the imports under investigation were, through the effects of dumping, causing injury to the domestic industry based on an objective examination of the alleged causal relationship between the imports under investigation and the alleged injury to the domestic industry, on the basis of all relevant positive evidence before the authorities[.]339

This formulation paraphrases the language of the first part of Article 3.1 ("a determination of injury … shall be based on positive evidence and involve an objective examination") and the first two sentences of Article 3.5.