Recently the Supreme Court of Appeal heard an appeal on the International Trade Administration Commission‘s (“ITAC”) perceived duty to investigate a country’s or industry’s market economy status. Previously the North Gauteng High Court ruled that ITAC failed to apply its mind in determining the market economy status of the tyre industry in the People’s Republic of China (“PRC”).

The South African Tyre Manufacturers Conference (“SATMC”), acting on behalf of four tyre manufacturers brought an application for the imposition of anti-dumping duties, which ITAC duly initiated, but recommended that the investigation be terminated. The recommendation was based on the fact that the some of the PRC tyres were not found to be dumped and that those tyres that were being dumped did not cause injury to the South African manufacturers.

SATMC relied on the PRC’s WTO Accession Protocol (“Accession Protocol”) which provides in article 15 that a member country is permitted to refuse the use of China’s domestic prices in determining the normal value unless the Chinese producers can clearly show that it has market economy status. In other words, the Chinese producers must show that market economy conditions prevail, otherwise ITAC may construct the normal value or use the highest comparable price of the like product when exported. This alternative determination of the normal value is also contained in s32(2)(b)(ii) of the International Trade Administration Act  (“ITA Act”). Both the constructed normal value and the highest comparable price will inevitably be higher than the actual domestic selling prices. This means that the normal value will be much higher than the export price and hence a higher anti-dumping duty will be imposed than would have been the case had the domestic selling prices been used.  It is therefore obviously of interest to South African applicants to allege that an industry has non-market economy status. The vice versa is true for foreign manufactures as they would like to show that they are operating under market economy conditions without government intervention.

The judgment rightly states, which SATMC accepted, that South Africa is entitled to accept the advantages that the Accession Protocol provides if implemented in South African legislation, but it has not done so and even if South Africa has done so, private citizens cannot derive any rights therefrom. Furthermore, since the Accession Protocol is not part of international law, the ITA Act and the regulations cannot be interpreted with reference to the Accession Protocol under section 233 of the Constitution.

Although SATMC did not provide the domestic selling prices in the PRC but  instead relied on export prices to Chinese Taipei (the “surrogate country”), it never claimed to be utilising s32(2)(b)(ii). In turn, although ITAC initiated the investigation based on the dumping margin calculated using the surrogate country normal value and the export price, it never indicated that it is relying on section 32(4) (which holds that ITAC may consider the information of a surrogate country when it evaluates an application and finds that free market principles are not at play in an industry). SATMC argued that due to the fact that ITAC initiated the investigation based on the surrogate country information it accepted that the Chinese exporters did not have market economy status and as such they carried the burden of proof to show that it must be granted market economy status. Thus SATMC assumed that because of the Accession Protocol, it had certain rights (which it did not) and ITAC had certain duties (which were not contained in the ITA Act or regulations). Indeed the North Gauteng High Court also erroneously held that the most important aspect of ITAC’s investigations was to determine whether the economy is a free market economy of not and only if this was found to be the case could ITAC proceed to determining the normal prices in the ordinary course of business (normal value).

The Supreme Court of Appeal overturns this position as it finds that section 32 does not require an investigation into whether a country has a free market economy or not. Neither does the section entitle any application for anti-dumping duties to prescribe the method which ITAC has to adopt when it determines the normal value. In fact section 32 provides ITAC with a discretion in that it ‘may’ apply to those goods a normal value established in respect of a surrogate country. It ‘may’ only do so if the price is representative (and not the country). In addition it overturns the North Gauteng High Court’s factual finding that ITAC did not investigate the free market economy principles as it had in fact investigated 13 factors in order to determine whether it should invoke section 32(4).
The case is welcomed as it correctly clarifies the situation around market economy status which was left muddled after the North Gauteng High Court decision. As such all parties involved in anti-dumping investigations should now be more certain in the positions they have to adopt to show the existence of market economy status where this is alleged.

To read our earlier article on the North Gauteng High Court decision, kindly click here.

Rian Geldenhuys
© Trade Law Chambers 2011