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 China in document WT/DS437/2 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.³

Chairperson: Mr Mario Matus

Members: Mr Scott Gallacher

Mr Hugo Perezcano Díaz

a. In connection with the alleged provision of input goods for less than adequate remuneration:

i. The USDOC's findings of financial contribution are inconsistent with Article 1.1(a)(1) of the SCM Agreement, because the USDOC incorrectly determined, or did not have a sufficient basis to determine, that certain SOEs are "public bodies" within the meaning of that provision in the input subsidy investigations listed in CHI-1;

ii. The "rebuttable presumption" established and applied by the USDOC in respect of whether SOEs can be classified as "public bodies" is, as such, inconsistent with Article 1.1(a)(1) of the SCM Agreement;

iii. The USDOC's initiation of countervailing duty investigations in respect of allegations that SOEs confer countervailable subsidies through their sales of inputs to downstream producers, in the absence of sufficient evidence in the petition to support an allegation that SOEs constitute "public bodies" within the meaning of Article 1.1(a)(1) of the SCM Agreement, and in the absence of a sufficient review of the petition by the USDOC in respect of this allegation, is inconsistent with Articles 11.2 and 11.3 of the SCM Agreement in the Steel Cylinders, Solar Panels, Wind Towers, and Steel Sinks investigations;

iv. The USDOC's findings of benefit are inconsistent with Article 1.1(b) and Article 14(d) of the SCM Agreement, because the USDOC improperly found that the alleged provision of goods for less than adequate remuneration conferred a benefit upon the recipient, and improperly calculated the amount of any benefit allegedly conferred, including, inter alia, its erroneous findings that prevailing market conditions in China were "distorted" as the basis for rejecting actual transaction prices in China as benchmarks in the input subsidy investigations listed in CHI-1;

v. The USDOC's findings of specificity are inconsistent with Articles 2.1 and 2.4 of the SCM Agreement, because the USDOC failed to make a proper determination on the basis of positive evidence that the alleged provision of inputs for less than adequate remuneration was specific to an enterprise or industry or group of enterprises or industries in the input subsidy investigations listed in CHI-1;

vi. The USDOC's initiation of countervailing duty investigations in respect of the alleged provision of inputs for less than adequate remuneration, in the absence of sufficient evidence in the petition to support an allegation that any such subsidy would be specific under Article 2 of the SCM Agreement, and in the absence of a sufficient review of the petition by the USDOC in respect of this allegation, is inconsistent with Articles 11.2 and 11.3 of the SCM Agreement in the input subsidy investigations listed in CHI-1.

b. In connection with all of the identified countervailing duty investigations in which the USDOC has issued a preliminary or final countervailing duty determination:

i. The USDOC's use of so-called "adverse facts available" to support its findings of financial contribution, specificity, and benefit is inconsistent with Article 12.7 of the SCM Agreement in the instances identified in CHI-2 because the USDOC did not rely on facts available on the record.

c. In connection with the alleged provision of land and land-use rights for less than adequate remuneration:

i. The USDOC's findings of specificity are inconsistent with Articles 2.2 and 2.4 of the SCM Agreement, because the USDOC failed to make a proper determination on the basis of positive evidence that the alleged subsidy was specific to an enterprise or industry or to a group of enterprises or industries in the land specificity investigations listed in CHI-1.

d. In connection with export restraints allegedly maintained by China:

i. The USDOC's initiation of countervailing duty investigations in respect of these allegations is inconsistent with Articles 11.2 and 11.3 of the SCM Agreement in the Magnesia Bricks and Seamless Pipe investigations;

ii. The USDOC's determination that export restraints provided a "financial contribution" is inconsistent with Article 1.1(a) of the SCM Agreement in the Magnesia Bricks and Seamless Pipe investigations.

[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.

4. … Any request for consultations shall be submitted in writing and shall give the reasons for the request, including identification of the measures at issue and an indication of the legal basis for the complaint.

7. If the consultations fail to settle a dispute within 60 days after the date of receipt of the request for consultations, the complaining party may request the establishment of a panel. The complaining party may request a panel during the 60-day period if the consulting parties jointly consider that consultations have failed to settle the dispute.

2. 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.

The measures include the determination by the USDOC to initiate the identified countervailing duty investigations, the conduct of those investigations, any preliminary or final countervailing duty determinations issued in those investigations, any definitive countervailing duties imposed as a result of those investigations, as well as any notices, annexes, decision memoranda, orders, amendments, or other instruments issued by the United States in connection with the countervailing duty measures identified in Appendix 1.⁴²

1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:

(a)(1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as "government")

… a 'public body' in the sense of Article 1.1(a)(1) connotes an entity vested with certain governmental responsibilities, or exercising certain governmental authority.⁸⁶

… being vested with, and exercising, authority to perform governmental functions is a core feature of a 'public body' in the sense of Article 1.1(a)(1).⁸⁷

A public body within the meaning of Article 1.1(a)(1) of the SCM Agreement must be an entity that possesses, exercises or is vested with governmental authority.⁸⁸

What matters is whether an entity is vested with authority to exercise governmental functions, rather than how that is achieved.⁸⁹

The essence of "government" is, therefore, that it enjoys the effective power to "regulate", "control" or "supervise" individuals, or otherwise "restrain" their conduct, through the exercise of lawful authority. This meaning is derived, in part, from the functions performed by a government and, in part, from the government having the powers and authority to perform those functions. A "government agency" is, in our view, an entity which exercises powers vested in it by a "government" for the purpose of performing functions of a "governmental" character, that is, to "regulate", "restrain", "supervise" or "control" the conduct of private citizens.⁹³

The Department considers firms that are majority-owned by the government to be "authorities" within the meaning of section 771(5)(B) of the Act. This treatment is reflected in the CVD Preamble,[135] which identifies "treating most government-owned corporations as the government itself" as a longstanding practice. It is also reflected in numerous determinations in which the Department has treated government-owned firms providing such goods and services as electricity, water, natural gas, and iron ore as authorities without any discussion of the matter or any questioning of this treatment by the parties to the proceeding.[136]

[ORIGINAL FOOTNOTES]

135 See CVD Preamble, 63 Fr at 65402.

136 See, e.g., Final Magnesium from Canada at "Exemption from Payment of Water Bills; Steel Products from Argentina at Regional Tariff Zones for Natural Gas); Steel Sheet and Strip from Korea at Electricity Discounts Under the Requested Load Adjustment Program; and Hot-Rolled Steel from India at Iron Ore.

However, in certain cases, including certain instances involving firms with majority government ownership, the Department has considered additional relevant information to support its determination that firms should be treated as authorities for purposes of the countervailing duty law. Because our approach to analyzing whether a firm is an authority has become a recurring issue particularly in CVD investigations of imports from the PRC, we are taking this opportunity to clearly state our policy in this regard.

One of the earliest instances in which the Department was faced with the issue of whether a business (as opposed to a ministry or policy bank) should be treated as a government entity was in a 1987 investigation of fresh cut flowers from the Netherlands.[137] Specifically, in that investigation, we considered whether Gasunie, a firm that was fifty percent owned by the government, was conferring a subsidy through its provision of natural gas to the flowers growers.

[ORIGINAL FOOTNOTE]

137See Flowers from Netherlands.

Because the government did not have a controlling interest in Gasunie, the Department looked to other indicators and determined that the government provided subsidies through Gasunie. In some subsequent cases, where it was unclear whether a firm was an authority based on ownership information alone, the Department examined broadly similar indicators as in the flowers case, namely: 1) government ownership; 2) the government's presence on the entity's board of directors; 3) the government's control over the entity's activities; 4) the entity's pursuit of governmental policies or interests; and 5) whether the entity is created by statute.

Commerce does not analyze each of these "five factors" for every firm in every case, however. In most instances, majority government ownership alone indicates that a firm is an authority. Indeed, a careful examination of the five factors reveals that when a government is the majority owner of a firm, factors one through four are largely redundant. If the government owns a majority of the firm's shares, then the government would normally appoint a majority of the members of the firm's board of directors who, in turn, would select the firm's managers, giving the government control over the entity's activities.

It has been argued that government-owned firms may act in a commercial manner. We do not dispute this. Indeed, the Department's own regulations recognize this in the case of government owned banks by stating that loans from government-owned banks may serve as benchmarks in determining whether loans given under government programs confer a benefit. However, this line of argument conflates the issues of the "financial contribution" being provided by an authority and "benefit". If firms with majority government ownership provide loans or goods or services at commercial prices, i.e., act in a commercial manner, then the borrower or purchaser of the good or service receives no benefit. Nonetheless, the loans or good or service is still being provided by an authority and, thus, constitutes a financial contribution within the meaning of the Act.

For the reasons given above, it normally is not necessary for the Department to apply the five factor analysis in situations where the provider of the financial contribution is majority government owned. This does not preclude parties from arguing that firms with majority government ownership are not authorities, but to succeed in such an argument a party must demonstrate that majority ownership does not result in control of the firm. Such situations may exist, but they are rare. Where majority ownership does not exist, the Department will consider all relevant information regarding the control of the firm, including, where appropriate and necessary, some or all of the five factors discussed above, in determining whether the firm should be treated as an authority.

In this investigation, the GOC holds a majority ownership position in certain of the wire rod producers that supply Wire King. Consistent with the policy explained above, we are treating these producers as "authorities" and, hence, the wire rod they provide to Wire King confers a countervailable subsidy to the extent that it is sold for LTAR and is specific.[138]

[ORIGINAL FOOTNOTE]

138 See Memorandum Accompanying the Final Determination, "Analysis Concerning Authorities" dated July 20, 2009 ("Authorities Memorandum")

a. Is the rebuttable presumption/Kitchen Shelving discussion a "measure" susceptible to WTO dispute settlement?

b. Can the rebuttable presumption/Kitchen Shelving discussion be challenged "as such"?

i. Wire Strand: "following the reasons set forth in Racks from the PRC, we have continued to treat majority state-owned input producers as GOC authorities capable of providing wire rod for LTAR."¹⁵³

ii. Aluminum Extrusions: "following the reasons set forth in Racks from the PRC, we have continued to treat majority state-owned input producers as GOC authorities capable of providing primary aluminum for LTAR."¹⁵⁴

iii. Print Graphics: "Having determined that ownership/control is central to deciding whether an enterprise is an authority, the Department looks to whether the enterprise is majority owned or not. … [F]or majority government-owned companies, respondents can rebut the presumption that majority ownership results in control, and the GOC has not done so here. For enterprises that are less than majority-owned by the government, including private companies and FIEs, the Department sought information to ascertain whether those companies are, nonetheless, controlled by the government."¹⁵⁵

iv. OCTG: "In [Kitchen Shelving], the Department explained with respect to the five factors test that majority-government-owned firms are normally treated as [public bodies]. Thus, determining the ownership of a company is a threshold matter in our investigations. In the instant investigation, the [Government of China] has identified numerous steel rounds suppliers as SOEs and the information submitted in [Government of China] FIS shows that the state holds a majority ownership position in these firms. As explained further in Comment 9, we are treating these suppliers as [public bodies]."¹⁵⁶

v. Seamless Pipe: After initially recalling that "[i]n [Kitchen Shelving], we have established a rebuttable presumption that majority-government-owned enterprises are [public bodies]", the USDOC goes on to find that: "Having determined that ownership and control is central to deciding whether an enterprise is [a public body], the Department looks to whether the enterprise is majority-government-owned or not. As explained above, for majority-government-owned companies, respondents can rebut the presumption that majority ownership results in control, and the [Government of China] has not done so here. For enterprises that are less than majority-owned by the government … the Department sought information to ascertain whether those enterprises are, nonetheless, controlled by the government. While the [Government of China] provided certain ownership information for these companies, it failed to provide the full information needed. Accordingly, … all steel round suppliers are being treated as [public bodies]."¹⁵⁷

vi. Steel Cylinders: the USDOC does not expressly refer to Kitchen Shelving but rather to an earlier decision (OTR Tires) that reflects the same substantive "rebuttable presumption" and concludes that "the Department determined that majority government ownership of an input producer is sufficient to qualify it as [a public body]. Thus, we determine these suppliers (sic) are [public bodies]."¹⁵⁸

vii. Solar Panels: "For each producer in which the GOC was a majority owner [we stated that] the GOC needed to provide the following information that is relevant to our analysis of whether that producer is an "authority". […] documents that demonstrate the producer's ownership during the POI", etc. … [and] "[a]ny other relevant evidence the GOC believes demonstrates that the company is not controlled by the government."¹⁵⁹

viii. Drill Pipe: "with respect to the specific companies that produced the steel rounds purchased by the respondents, we asked the [Government of China] to provide particular ownership information for these producers so that we could determine whether the producers are [public bodies]. Specifically, we stated in our questionnaire that the Department normally treats producers that are majority owned by the government or a government entity as [public bodies]. Thus, for any steel rounds producers that were majority government-owned, the GOC needed to provide the following ownership information if it wished to argue that those producers were not authorities: … Any relevant evidence to demonstrate that the company is not controlled by the government, e.g., that the private, minority shareholder(s) control the company."¹⁶⁰

[R]egarding the DSB's reports in the DS 379 proceeding, we note that, while we have reached section 129 final determinations in the four investigations at issue in that dispute, the decisions of the panel and the appellate body regarding whether a producer is an authority (a "public body" within the WTO context) were limited to those four investigations.¹⁶¹

a. Whether the policy obliges the USDOC to consider majority-ownership as a sufficient basis for a public body finding

b. Whether the policy restricts the USDOC to consider evidence other than majority-ownership

11.2 An application under paragraph 1 shall include sufficient evidence of the existence of (a) a subsidy and, if possible, its amount, (b) injury within the meaning of Article VI of GATT 1994 as interpreted by this Agreement, and (c) a causal link between the subsidized imports and the alleged injury. Simple assertion, unsubstantiated by relevant evidence, cannot be considered sufficient to meet the requirements of this paragraph. The application shall contain such information as is reasonably available to the applicant on the following:

…

(iii) evidence with regard to the existence, amount and nature of the subsidy in question;

…

11.3 The authorities shall review the accuracy and adequacy of the evidence provided in the application to determine whether the evidence is sufficient to justify the initiation of an investigation.

In the Panel's view, the obligation upon Members in relation to the sufficiency of evidence in an application finds expression in Article 11.3 of the SCM Agreement, which provides that an investigating authority must assess the accuracy and adequacy of the evidence in an application to determine whether it is sufficient to justify initiation. The obligation in Article 11.3 must be read together with Article 11.2 of the SCM Agreement, which sets forth the requirements for "sufficient evidence". If an investigating authority were to initiate an investigation without "sufficient evidence" before it, this would be inconsistent with Article 11.3. Given this interpretation, the Panel considers it appropriate to make findings under Article 11.3 with respect to the 11 programmes at issue. The Panel will reach its conclusions by reference to the requirements for "sufficient evidence" set forth in Article 11.2, but does not consider it necessary to reach separate conclusions under this provision.¹⁸²

1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:

(a)(1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as "government"), i.e. where:

…

(iii) a government provides goods or services other than general infrastructure, or purchases goods;

…

and

(b) a benefit is thereby conferred.

For the purpose of Part V, any method used by the investigating authority to calculate the benefit to the recipient conferred pursuant to paragraph 1 of Article 1 shall be provided for in the national legislation or implementing regulations of the Member concerned and its application to each particular case shall be transparent and adequately explained. Furthermore, any such method shall be consistent with the following guidelines:

…

(d) the provision of goods or services or purchase of goods by a government shall not be considered as conferring a benefit unless the provision is made for less than adequate remuneration, or the purchase is made for more than adequate remuneration. The adequacy of remuneration shall be determined in relation to prevailing market conditions for the good or service in question in the country of provision or purchase (including price, quality, availability, marketability, transportation and other conditions of purchase or sale).

The GOC has reported that SOEs accounted for approximately 46.12 percent of the wire rod production in the PRC during the POI. The GOC further reported that 1.85 percent of wire rod producers were classified as "collectives." In the final determination of LWRP from the PRC, the Department affirmed its decision to treat collectives as government authorities. Therefore, we find that the GOC has direct ownership or control of at least 47.97 percent of wire rod production. While this is not a majority of the production, the substantial market share held by the SOEs shows that the government plays a predominant role in this market. (emphasis added)

"GOC authorities" play a significant/predominant role (respectively) in the PRC market for steel rounds and billets and the prices actually paid in the PRC for this input during the POI are not an appropriate tier one benchmark under section 351,511(a)(2)(i) of our regulations.

The Department has preliminarily determined that all the producers of polysilicon purchased by the respondents during the POI are ‘‘authorities'' within the meaning of section 771(5)(B) of the Act. Because the GOC did not provide the production volumes for any of the polysilicon producers in the PRC, the Department cannot determine, on the basis of production volumes, what percentage of total domestic production or total domestic consumption is accounted for by the producers determined to be "authorities". Therefore, we have determined whether polysilicon consumption in the PRC is dominated by the GOC based on the number of producers that are "authorities". In addition to the 30 producers determined to be "authorities", the GOC reports it maintains an ownership or management interest in another seven, bringing to 37 the number of producers through which the GOC influences and distorts the domestic market for polysilicon, out of a total universe of 47 producers in the PRC. Therefore, we determine that the GOC is the predominant provider of polysilicon in the PRC and that its significant presence in the market distorts all transaction prices. As such, we cannot rely on domestic prices in the PRC as a ‘‘tier-one'' benchmark. For the same reasons, we determine that import prices into the PRC cannot serve as a benchmark.

[…] the Panel nevertheless acknowledged that "it will in certain situations not be possible to use in-country prices" as a benchmark, and gave two examples of such situations, neither of which is found to be present in the underlying countervailing duty investigation: (i) where the government is the only supplier of the particular goods in the country; and (ii) where the government administratively controls all of the prices for those goods in the country. In these situations, the Panel reasoned that the "only remaining possibility would appear to be the construction of some sort of a proxy for, or estimate of, the market price for the good in that country.²⁵¹

Considering that the situation of government predominance in the market, as a provider of certain goods, is the only raised on appeal by the United States, we will limit our examination to whether an investigating authority may use a benchmark other than private prices in the country of provision in that particular situation.²⁵²

2.1 In order to determine whether a subsidy, as defined in paragraph 1 of Article 1, is specific to an enterprise or industry or group of enterprises or industries (referred to in this Agreement as "certain enterprises") within the jurisdiction of the granting authority, the following principles shall apply:

(a) Where the granting authority, or the legislation pursuant to which the granting authority operates, explicitly limits access to a subsidy to certain enterprises, such subsidy shall be specific.

(b) Where the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions governing the eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that the eligibility is automatic and that such criteria and conditions are strictly adhered to. The criteria or conditions must be clearly spelled out in law, regulation, or other official documents, so as to be capable of verification.

(c) If, notwithstanding any appearance of non-specificity resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the subsidy may in fact be specific, other factors may be considered. Such factors are: use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, the granting of disproportionately large amounts of subsidy to certain enterprises…In applying this subparagraph, account shall be taken of the extent of diversification of economic activities within the jurisdiction of the granting authority, as well as of the length of time during which the subsidy programme has been in operation. (footnotes omitted)

2.4 Any determination of specificity under the provisions of this Article shall be clearly substantiated on the basis of positive evidence.

a. Application of the subparagraphs of Article 2.1 of the SCM Agreement

b. Identification of a subsidy programme