SICE-DISPUTE-NAFTA - MEX-USA-98-1904-01

(Continuation)

III. ANALYSIS AND RESOLUTIONS OF THE PANEL ABOUT THE REMAND REPORT

56. As established before, the Claimants argue that the analysis provided by the IA in the new Determination of November 23, 2001 is a reiteration and repetition of the arguments used in the two previous Determinations (January 23, 1998 and September 20, 2000) and, therefore, the arguments filed by the IA in the Determination of November 23, 2001 do not prove, as the arguments contained in the Revised Determination of September 20, 2000 did not prove that the threat of injury is a direct cause of imports, and thus articles 39 and 42 of the FTC were violated

57. The Claimants allege that a careful comparison of the First and Second Revised Determinations reveals that the latter has only included the section of additional background in paragraphs 1-28 and some new paragraphs, i.e., paragraphs 55-57 and 163-165 have repeated textually and with some changes in edits the First Revised Determination in paragraphs 29-54, 58-162 and 166-188. According to the Claimants, the new paragraphs 55-57 and 163-165 simply repeat information and analysis that has been included in the First Revised Determination.

58. The IA considers that the threat of injury to domestic production was duly proven in the Remand Report of November 23, 2001, which is demonstrated with the information that forms part of this review.

59. This Panel wants to point out that in its Final Decision, it clearly established that it granted the IA the option to re-evaluate what basis and justification -if any- there is for its finding of threat of injury, consistent with the findings of this Panel, and in light of the multiple proceedings already completed, it proceed accordingly. (emphasis added by the Panel)

60. In order to determine in which measure the Remand Report is a new evaluation consistent with the findings of this Panel in its Final Decision, the Panel considers important to analyze how the IA responded in its Remand Report to the principal violations of the AA and the domestic legislation that the Panel identified in the Revised Determination regarding threat of injury. In this analysis the Panel will decide whether the IA effectively carried out a new analysis and corrected the principal deficiencies discovered by the Panel in its Revised Determination. The Panel will then proceed to make this analysis and determination based on each one of the issues identified in the previous section of this Decision.

III.A Imports Subject to Price Discrimination and Export Capacity

61. A first issue that the Panel considers important to point out is that while making a comparison between paragraphs 29 to 59 of the Remand Report regarding imports subject to price discrimination and the correlative paragraphs 34 to 54 and 58 to 61 of the Revised Determination of September 20, 2000, this Panel corroborates that in effect paragraphs 29 to 59 of the Remand Report have repeated with slight changes the text of paragraphs 34 to 54 and 58 to 61 of the Revised Determination, as argued by the Claimants. Likewise, the Panel found that in the section Imports Subject to Price Discrimination, while making its projection about the future volume on imports, the IA derived its conclusions from the same assumptions it made while preparing the Revised Determination and that this Panel found were not legally grounded.

62. In paragraph 53 of the Remand Report, for instance, the IA newly assumed that the supposed restraint agreement would allow the soft drink bottlers to consume 350,000 tons of HFCS. In effect, paragraph 53 of the DR states:

63. The Claimants argue that the IA in this paragraph and in the other paragraphs of the Remand Report simply reiterate the amount of 350,000 tons without explaining where the IA obtained such figure and without offering proofs that it has inquired more about the Restraint Agreement. Therefore, this Panel must declare this assumption is equally not legally grounded in the Remand Report.

64. The IA answers that this allegation of the Claimants is inadmissible because paragraph 53 of the Remand Report clearly indicates where the figure of 350,000 tons comes from, i.e., Record 1912 of the administrative record index containing the working papers of the DGADS, within which are included the projections of consumption of total sugar for 1997 and 1998, and so the source of the information where the figure of 350,000 tons has been obtained is specified. The IA also mentioned some newspaper notes filed by the CRA during the investigation and a partial photocopy of an Economic Report prepared by Grupo Financiero Bancomer on October, 1997.

65. In other words, unlike the Revised Determination, the IA in its Remand Report tries to support the validity of its assumption that the supposed restraint agreement would allow the soda bottlers to consume 350,000 tons of HFCS by the fact that in the Remand Report the IA includes concrete references to the AR where according to the IA such figure is found, that is, Record 1912 of the Administrative Record, identified as the working papers of the DGADS.

66. It should be also recognized that the IA in its DR also included a paragraph that did not exist in the reviewed resolution in which it presumes to sustain the premise that the soft drink bottlers could consume the 350, 000 tons of HFCS. In effect, paragraph 57 of the DR states the following:

Furthermore, the growth in the utilization of high fructose corn syrup of the soft drink bottlers is sustained in the growing tendency observed in the sales to such users during the investigating period January-December, 1996, as well as in the information available in the administrative record of the investigation in respect of the predictions of high fructose corn syrup consume of such users, which are based in the estimated dynamism of the soft drinks production, and nowtherfore, in the demand sweetener. Particularly of high fructose corn syrup. In support of the above, in the administrative record were included two studies of recognized specialist in the sweeteners industry about a perspectives of demand of high fructose corn syrup in Mexico by the soft drinks industries. See the Comments, Information and/or Evidences, Technique Industrial Expert Testimony of Gustavo Emilio Basurto and Eduardo Barzana García respectively, folios 9703376and 9703377, both of September 30, 1997, nonproprietary version, volume 37, pages 373 and 471, proprietary version, volume 151, records 1206 and 1208 of the administrative record index.

67. This Panel, however, as it was clearly stated in paragraph 24 of this Decision, does not accept nor take into account any reference made by the IA in its Remand Report to Record 1912, since such record is not before the Panel. In other words, all the questions related to such information cannot be considered as capable of proof. Regarding the newspaper notes filed by the CRA during the investigation and a partial photocopy of an Economic Report prepared by Grupo Financiero Bancomer on October, 1997, this Panel clarifies that the IA in its response to the motions in opposition to the Remand Report expressly stated that the 350,000 tons figure was obtained from the mentioned Economic Report discussing the restraint agreement whose existence has been denied by the IA. Therefore, this Panel considers that since the existence of such an agreement has not been proven, and has been denied by the IA, the IA cannot take into consideration the figure of 350,000 tons as the limit to the consumption of the soda bottles since it is based on a document whose content the same Authority has denied.

68. Regarding paragraph 57 of the Remand Report the IA only reproduce some asserts that had been pointed out in other sections of the Revised Determination and nonetheless in the Remand Report are references to the technical reports from the experts Gustavo Emilio León Basurto and Eduardo Barzana García, a strict analysis of them shows that this reports were carried out to answer some questions such as products similarity, technical substitutes, and in general price ranges. In opinion of this Panel this reports do not prove that the assumed restriction agreement shall let the soft drinks bottlers purchase 350,000 tons of HFCS.

69. In sum, by virtue of the foregoing and the fact that the IA in its DR once again neither explains nor offers any new evidence that the IA tried to identify or investigate the terms of the restraint agreement, this Panel finds, once again, that this first assumption is unsustainable.

70. As can be derived from paragraph 53 of the Remand Report, the IA again adopted the second assumption that it had accepted in its Revised Determination, that is, that the amount of 350,000 tons would be acquired directly from domestic producers.

71. The Claimants allege that the IA repeats in the Remand Report the same that was said in its Revised Determination but it does not provide new evidence that the national producers of HFCS could produce 350,000 tons. The IA argues that this allegation of the Claimants is also inadmissible because in Record 1912 of the administrative record index in which the working papers of the DGADS are identified, there is evidence of the production increase of HFCS domestic producers and its capacity to produce 350,000 tons. The IA, likewise, mentioned the minutes of the verification visit to Arancia in which the installed capacity of such enterprise was supposedly established.

72. Regarding the possible capacity of domestic producers to produce 350,000 tons and the evidence that supposedly is found in Record 1912, the Panel does not accept and does not take into account such reference, since all the information referred to in such Record is not before the Panel and therefore, the issues related to such information cannot be proven. About the minutes of the verification visit to Arancia, this Panel does not consider that such minutes constitute enough evidence to support the assumption that the domestic producers may produce 350,000 tons.

73. By virtue of the foregoing, the Panel considers such second assumption as unsustainable.

74. Finally and as set forth in paragraphs 51, 52, 53 and 54 of the Remand Report, the IA also takes into consideration the third assumption contained in the Revised Determination, that is, that imported (i.e., dumped) HFCS would be purchased entirely by Mexican industries different from soft drink bottlers.¹⁵

75. The Claimants allege that once more the IA simply reiterates its surprising figures for the increased HFCS consumption (334,000-350,000 in 1997-1998) by industries different from soft drink bottlers and that the IA does not provide new information in the Remand Report that may explain this incredible figure and why these other industries may suddenly use HFCS.

76. The IA in its Remand Report, states that the information provided by consumers, different from soft drink bottlers, demonstrate the incorporation of HFCS in their production processes and the degree of substitution of sugar by HFCS.¹⁶ Additionally, the IA alleges that the probability of the increase in use of HFCS by industries different from soft drink bottlers was supported by the observed purchases of such industries during 1996.

77. This Panel, after reviewing the information and supposed evidence cited by the IA in its Remand Report to support its third assumption that imported (i.e., dumped) HFCS would be purchased entirely by Mexican industries different from soft drink bottlers, reaches the same conclusion that it had reached while reviewing this issue in the Revised Determination due to the following reasons.

78. The IA again in its Remand Report assumes that industries such as candy, baked goods and others, which consumed 77,472 tons of HFCS in 1996,¹⁷ would consume the entire volume of imported HFCS, which the IA projected to be 334,000-350,000 tons. The IA tries to support this assumption in the observed sales of Arancia and ALMEX during 1994-1996. However, this Panel considers that the rate of sales of such enterprises cannot justify the assumption that there would be an increase of 80 percent in sales, accompanied in the same year by a 67 percent loss of the pre-existing market, sales to the soft drink bottlers industry, which in 1996 acquired 67 percent of the volume of HFCS imports to Mexico.

79. Second, the IA in its Remand Report continues to say, without explaining why, that industries different from soft drink bottlers would suddenly consume HFCS in such large quantities. The IA, as it did in its Revised Determination, again points out how, but not why HFCS consumption would increase. In this way, the IA in its Remand Report makes no reference to the questions raised by the Panel about costs and technological impediments to the use of HFCS in place of sugar, short shelf life, conversion of equipment, etc. In the other hand, the IA again makes reference to a survey¹⁸ it conducted which, according to what this Panel stated in its Final Decision, was based on a non-representative sample¹⁹ that never included the question whether there was real interest of other industries to substitute sugar by HFCS.

80. In sum, in view of the fact that the IA once again neither explains nor offers evidence that would answer why industries different from soft drink bottlers would suddenly consume HFCS in such large amounts, this Panel considers this third assumption as unsustainable.

III.B Price Analysis

81. The IA carried out its examination about the behavior of prices of HFCS imports coming from the United States of America and of sugar prices of domestic production in paragraphs 77 through 123 of the Remand Report. According to the IA such prices demonstrated the negative effect of dumped imports during the period of investigation based on a detailed analysis of the month-to-month behavior of sugar prices and HFCS prices, the sub-valuation prices and dumping prices calculated for the investigated imports, a statistical causal nexus proof, the prevailing economic background and, especially, the existence of a natural gap between the two product’s prices.

82. On the contrary, the Claimants allege that in the Remand Report the IA simply ignores the observations made by the Panel in its Final Decision over the projections of sugar prices made by the IA for 1997 and adopted the same analysis of the Revised Determination. In this manner, without any explanation or additional analysis, according to the Claimants, the IA in its Remand Report continues predicting a 9% decline of the average prices of sugar in the domestic market. Likewise, the IA does not take into consideration the observations of the Panel regarding the sub-valuation and the natural gap of the two prices.

83. This Panel agrees with the Claimants that the IA in its Remand Report conducted a similar analysis to the one it carried out in its Revised Determination and failed to take into consideration the observations made by the Panel in its Final Decision on the analysis of prices issue.

84. In this regard, nowhere in the Remand Report does the IA explain why it did not take into consideration the observations made by the Panel, such as the ones regarding the effect on sugar prices of the roughly 300,000 tons of additional domestic production of HFCS that it projected in its Revised Determination and that it projected again in its Remand Report. Or the one regarding how it is possible to reconcile its conclusion that HFCS imports would have a negative impact over sugar prices when during the period of investigation (1996), although the volume of HFCS imported increased sharply, the HFCS prices increased at the same time, and sugar prices increased considerably more, both actually and relatively. In other words, based in what logic is it possible to assume that a great increase in HFCS imports which represent a 4% of the market would necessarily depress sugar prices, this is, the price of the remaining 96% market, when this has not occurred during the period of investigation? These inconsistencies were never resolved by the IA in its Remand Report, notwithstanding the Panel’s instructions to the IA that in the event it decided to make a new evaluation, it must address the Panel’s determinations.

85. In its decision, this Panel clearly established that there were questions about the IA's analysis that were especially problematic and that there were important omissions in the same analysis, such as the fact that in its Revised Determination the IA never makes it clear how it arrived at its projected 9% decline in sugar prices for 1997. For all that appears, even a large increase in the volume of HFCS might not have a serious adverse effect on sugar prices, as the 1995-1996 experience shows. Notwithstanding the above observation made by the Panel, the IA in its Remand Report omits this important consideration in its analysis without any explanation or justification.

86. Likewise, the Panel pointed out that one of the major factors not taken into account by the IA's price analysis was that the Mexican soft drink industry was experiencing tremendous growth during the period of investigation. Assuming the restraint agreement would freeze these bottlers' consumption of HFCS, there would be room for a major expansion of sugar sales with its consequent effect on prices. Notwithstanding the observation made by the Panel, the IA in its Remand Report omits this important factor in its analysis without any explanation or justification.

87. By virtue of the foregoing considerations, this Panel considers that the assumption of the IA that HFCS imports would have a negative effect in sugar prices is unsustainable.

III.C Impact on Domestic Industry

88. As part of its Remand Report, the IA analyzed the impact of the dumped goods on domestic industry and argues that it carried out a complete analysis of the indices and economic and financial factors of domestic production. It concludes that due to the behavior of profit sensibility, potential effects of benefits, income-yield capacity, level of indebtedness and the ability to raise capital, the sales incomes of industry would decline significantly as a reflex to a reduction in prices and sales volumes of sugar as a consequence of the dumped HFCS imports. Thus, as a result there will be a profit reduction, reduced return on investment and the ability to raise capital, while the t capacity to reduce the indebtedness of the industry will be impaired.

89. The Claimants argue that again the IA in its Remand Report simply carried out a similar analysis to the one done in its Revised Determination and repeated, for instance, the same positive indicators of the domestic industry status and made the same wrong projections, notwithstanding that this Panel had stated its doubts about the feasibility and transparency of such projections regarding the health of the sugar industry. Likewise, they argue that in the Remand Report, the IA again does not offer enough explanation about why HFCS imports are the cause of the supposed injury to the sugar domestic industry.

90. This Panel, after reviewing carefully the sections of the Remand Report where the IA analyses the impact on domestic industry of dumped HFCS imports and the evidence referred to in the AR, has reached the conclusion that the IA, on this issue, once again conducted a similar analysis to the one the IA carried out before in its Revised Determination, without taking into consideration the observations made by this Panel in its Final Decision.

91. In effect, an analysis of each and every indices and economic and financial factors of the domestic industry that the IA reviewed in its Remand Report reveals that they are similar to the ones taken into account in its Revised Determination. In this way, the IA finds again, as it found in its Revised Determination, that the domestic industry's market²⁰ share declined and the domestic sales²¹ declined, but at the same time, the IA noted that there were indicators that revealed a health status of domestic industry such as inventory increases and productivity improves²². While salaries may have declined, there was an increase in the number of people employed and capacity utilization increased²³.

92. Likewise, about financial indicators, the IA in its Remand Report found the same positive indicators as it had found in its Revised Determination, such as increases in operating margins and net margins²⁴ and an increase in return on investment²⁵. In other words, the IA found again, in its Remand Report as it did in its Revised Determination, that even though imports increased and the sales in dumped conditions increased, the domestic industry health improved as a whole based on the operating margins, net operating margins, return on investment and capacity utilization.

93. Notwithstanding the foregoing, and the fact that the Panel clearly established in its Final Decision that the analysis which the IA used in its Revised Determination to establish threat of injury on domestic industry was not acceptable, since in the same analysis the IA demonstrated a healthy status of the domestic industry notwithstanding HFCS import increases and the dumped sales conditions, the IA in its Remand Report reaches the same conclusion again, under the same circumstances and without offering new evidence or an adequate explanation.

94. Indeed, the IA in its Remand Report and notwithstanding the improvement of domestic industry, re-determined that the projected increase on dumped HFCS would cause material injury to that domestic industry. As part of its analysis, the IA again projected price levels and domestic industry sales that would decline in 1997²⁶, and concluded that the domestic industry would need to lower sugar prices in the domestic market to respond to dumped imports. This, it argued, would lead to a negative impact on operating profits and margins²⁷, as well as an inability to service debt or attract capital²⁸.

95. In sum, this Panel considers that the analysis carried out by the IA in its Remand Report is supported basically by the same rationale as the Revised Determination and that the IA does not provide an adequate explanation as to why the dumped imports would then negatively impact the domestic industry. By virtue of the foregoing, the Panel determines that the analysis of the probable impact of dumped goods on domestic industry offered to sustain the determination of threat of injury is not consistent with Articles 3.1, 3.4 and 3.7 of the Antidumping Agreement, or Articles 39 and 42 of the FTC and Article 68 of the FTCR.

96. For all the above reasons, this Panel finds that the IA has not demonstrated the existence of a threat of sufficient imminent material injury to justify the imposition of countervailing duties and, as a consequence, it issues the following:

ORDER

Based on Articles 14 and 16 of the Political Constitution of the United Mexican States; Articles 1904 and 1911, and Annex 1911 of the North American Free Trade Agreement; Rules 2, 3, 4, 7, 17, 41, 44, 45, 63, 72, 73 of the North American Free Trade Agreement Article 1904 Rules of Proceeding; Articles 5, 19, 237 (as applicable) and Article 238 of the Federal Fiscal Code; Articles 2, 3, 4, 5, 6, and 12 of the Agreement Related to the Application of Article VI of the 1994 General Agreement on Tariffs and Trade; Articles 39, 40, 42, 49, 50, 51, 52, 53, 54, 55, 59, 61, 80, 82, 85, 88, and 97 of the Foreign Trade Code; Articles 19, 37, 60, 61, 62, 63, 68, 69, 75, 76, 77, 78, 80, 81, 84, 85, 86, 87, 88 and 160 of the Regulations of the Foreign Trade Code; and all other legal provisions, and on the bases contained in same, issues the following: Order:

Whereas:

1. The IA has had multiple opportunities to both review the material in the administrative record and to expand upon it as a result of the first review by the WTO-DSB; and

2. The IA has twice failed to demonstrate to this Panel that the administrative record supports its conclusion that imports of HFCS from the United States pose a threat of injury to the Mexican sugar market; and

3. Under the terms of NAFTA Chapter 19, panel review of these determinations is to be based exclusively on the administrative record.

4. That there exists no support in the combined record resulting form the original investigation and from the investigation carried out by the IA regarding its Original Decision, for the conclusion of the IA that imports of HFCS from the United States pose a threat of injury to the Mexican sugar industry, rendering the three determinations adopted by the IA inconsistent to international provisions and applicable laws.

5. As a result of this determination, this Panel also finds that the imposition and collection of the antidumping duties posed to HFCS imports coming from the United States of America had been and continue being inconsistent to international provisions and applicable laws, inasmuch as they were the result of the unlawful conclusion of the IA regarding threat of injury also inconsistent to international provisions and applicable laws.

Now, therefore, it orders the following:

This Panel remands this matter to the IA to take action consistent with the Panel's Decision that the duties have been imposed and collected contrary to law, no later than 30 days following the entry of this decision.

Issued on April 15, 2002.

Signature:		Date:

Víctor Blanco Fornieles		April 11, 2002.
Víctor Blanco Fornieles		Date

Héctor Cuadra y Moreno		April 11, 2002.
Héctor Cuadra y Moreno		Date

Howard N. Fenton		April 11, 2002.
Howard N. Fenton		Date

Saul L. Sherman
Saul L. Sherman		Date

Gustavo Vega Cánovas		April 11, 2002.
Gustavo Vega Cánovas (Chairman)		Date