February 24, 2004: USTR Statement Regarding the 1916 Act Arbitration Award

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON, D.C.
20508

USTR PRESS RELEASES ARE AVAILABLE ON THE USTR WEBSITE AT
www.ustr.gov.

For Immediate Release
February 24, 2004

Contact: Neena Moorjani
(202) 395-3230

Statement of Richard Mills
USTR Spokesman
February 24, 2004

Regarding the 1916 Act Arbitration Award

"We're pleased that a World Trade Organization (WTO) arbitrator agreed with the United States today that the EU has no current right to retaliate against the 1916 Act. The arbitrator rejected the EU's argument that it could apply a regulation resembling the 1916 Act to an unlimited amount of imports from the United States.

"The Administration has been and will continue to work with Congress to fully comply with U.S. WTO obligations in the 1916 Act dispute. Today's award will not change that.

"While the award leaves open the possibility that the EU could retaliate in the future if there are quantifiable 1916 Act judgments or settlements against EU companies, we do not believe this will pose a problem. If Congress continues to make progress and repeals the 1916 Act, this matter will be resolved.

"Legislation repealing the 1916 Act is pending in both the U.S. House of Representatives and the U.S. Senate. On January 29, 2004, one such bill, HR 1073, was reported favorably out of the Committee on the Judiciary of the U.S. House of Representatives."

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Background:

The 1916 Act generally prohibits the importation of a good into the United States at prices substantially less than the market value of the good in a foreign market with the intent of destroying, injuring or monopolizing an industry in the United States. Violators are subject to treble damages and various penalties, including imprisonment.

On March 31, 2000, a WTO panel found that, by providing for the imposition of treble damages, fines and imprisonment and by not providing a number of procedural safeguards, the 1916 Act is inconsistent with Article VI of the General Agreement on Tariffs and Trade 1994, with Articles 1, 4 and 5.5 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the "Anti-Dumping Agreement"), and with Article XVI:4 of the Marrakesh Agreement Establishing the World Trade Organization. The Appellate Body upheld these findings on August 28, 2000. On September 26, 2000, the WTO adopted these findings.

The United States was given until December 20, 2001, to bring the 1916 Act into conformity with the WTO agreements. On January 7, 2002, the EU requested WTO authorization to retaliate against the United States for failing to bring the 1916 Act into conformity with the WTO agreements. Specifically, the EU sought to adopt a regulation that would allow the EU to impose on U.S. companies found to dump their products in the EU additional duties corresponding to three times the amount of damage suffered by companies in the EU "when certain specific intents analogous to those required under the 1916 Act are established." The EU refused to recognize any limitation as to how it would apply this retaliatory measure. The United States objected to this request, and the matter was referred to arbitration. Under WTO rules, the arbitrator was to determine whether the level of retaliation proposed by the EU was "equivalent" to the level of harm suffered by the EU as a result of the 1916 Act.

In February, 2002, however, the EU and the United States requested the Arbitrator to suspend the arbitration proceeding while the U.S. Congress considered a proposal to repeal the 1916 Act. The EU and the United States agreed that the arbitration proceeding could be reactivated at the request of either party after June 30, 2002. On September 19, 2003, the EU requested the reactivation of this arbitration proceeding.

In its February 24 award, the arbitrator found that the United States met its burden of proving that the "level of suspension" (i.e., amount of retaliation) proposed by the EU is not equivalent to the "level of nullification or impairment" (i.e., economic harm to the EU that results from the 1916 Act). Article 22 of the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes requires such equivalence. The arbitrator found that the level of nullification or impairment can be determined by adding (a) the value of "final judgments" against EU entities as a result of the 1916 Act and (b) the value of settlement awards being paid by EU entities as a result of 1916 Act litigation.

However, to date, final judgements against EU entities under the 1916 Act had been "zero" and recent settlement values cannot be considered because the parties involved in those settlements have kept the terms of those settlements confidential. Therefore the amounts of those settlements are not quantifiable, thus making them "too remote", "too speculative," and "not meaningfully quantified." The arbitrator also found that the EU failed to demonstrate that the 1916 Act had a "chilling effect" on trade.

The U.S. submissions in this proceeding are available on USTR's Web site.