KTC ' S ALLEGED FAILURE TO MAKE A FAIR COMPARISON BETWEEN NORMAL VALUE AND EXPORT PRICE

G. KTC ' S ALLEGED FAILURE TO MAKE A FAIR COMPARISON BETWEEN NORMAL VALUE AND EXPORT PRICE

1. Arguments of Parties

  (a)

  Indonesia 7.132 Indonesia notes that Indah Kiat and Pindo Deli made their domestic sales through CMI

  whereas they exported directly to their customers in Korea. Indonesia asserts that CMI rendered certain additional sales-related services in the Indonesian market, which were not rendered in Indah

  Kiat's and Pindo Deli's exports to Korea. According to Indonesia, the [] 186 that CMI charged over the prices of Indah Kiat and Pindo Deli in the Indonesian market was evidence of the fact that it

  rendered additional marketing services. It follows that the KTC should have made an adjustment under Article 2.4 of the Agreement for this difference that affected price comparability in the investigation at issue. By failing to do so, the KTC acted inconsistently with Article 2.4.

  (b)

  Korea 7.133 Korea acknowledges that the Sinar Mas Group companies argued during the investigation at

  issue that additional sales-related activities undertaken by CMI in the Indonesian market deserved an adjustment under Article 2.4 of the Agreement. According to Korea, however, the involvement of CMI in the domestic sales did not automatically necessitate an adjustment under that article. Korea asserts that the Sinar Mas Group never demonstrated that the involvement of CMI in the domestic sales gave rise to a difference that affected price comparability as set out under Article 2.4.

2. Arguments of Third Parties

  (a)

  United States 7.134 The United States submits that, contrary to Indonesia's assertion, not all differences

  necessitate an adjustment under Article 2.4. For an adjustment to be made under Article 2.4 of the

  Agreement for differences in levels of trade, it has to be shown that the alleged difference affects price comparability.

3. Evaluation by the Panel

  7.135 We note, at the outset, that parties agree that the levels of trade of the Sinar Mas Group companies' domestic and export sales were the same in that the sales in both markets were made to the

  same categories of customers. 187 We are therefore not faced with a claim regarding an alleged difference in the levels of trade per se. Indonesia contends that CMI performed certain marketing

  activities with respect to Indah Kiat's and Pindo Deli's domestic sales, which were not carried out by these companies in their exports to Korea. These additional activities by CMI necessarily gave rise to additional costs, which constituted a factor that affected price comparability within the meaning of Article 2.4 of the Agreement. It follows that the KTC should have made an adjustment with respect

  to this difference. According to Indonesia, the fact that CMI charged a [] 188 in the domestic sales was evidence of this difference that affected price comparability.

  7.136 Korea concedes that the Sinar Mas Group companies made a request for an adjustment under Article 2.4 with respect to the alleged additional costs stemming from CMI's involvement in the domestic sales. Korea asserts, however, that they never provided sufficient evidence to prove that such involvement necessarily gave rise to additional costs that had to be removed in comparing the normal values and export prices for these companies. According to Korea, the fact that these expenses were incurred by CMI, rather than the exporters themselves, did not automatically mean that they deserved an adjustment under Article 2.4.

  7.137 We note that the relevant part of Article 2.4 of the Agreement provides:

  "A fair comparison shall be made between the export price and the normal value. This comparison shall be made at the same level of trade, normally at the ex-factory level, and in respect of sales made at as nearly as possible the same time. Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are also demonstrated to affect price comparability." (footnote omitted, emphasis added)

  7.138 We note that Article 2.4 of the Agreement, which generally requires the IA to carry out a fair comparison between the normal value and the export price, specifically mentions levels of trade as one possible item for which an adjustment may be needed. In addition to providing a non-exhaustive list of items for which adjustments may be needed, Article 2.4 also generally stipulates that necessary adjustments have to be made with respect to any other factor which affects price comparability. Consequently, to make a prima facie case, Indonesia has to demonstrate to the Panel that there was (1)

  a difference (2) that affected price comparability between the normal value and the export price for which the KTC failed to make an adjustment.

  7.139 We note that Indonesia cited two items as the factors that affected price comparability in the investigation at issue: the [] 189 charged by CMI in its sales to independent buyers in Indonesia

  and the SGA and interest expenses added by the KTC in the constructed normal values for Indah Kiat and Pindo Deli to account for CMI's expenses related to the sale of the subject product in Indonesia.

  7.140 However, we do not understand Indonesia to assert that the KTC should have made an adjustment for both of these two factors. Indonesia generally argues that the fact that CMI charged a

  [] 190 in its sales to independent buyers is evidence of the fact that there was a difference between the normal value and the export price, which affected price comparability. 191 As to the quantification

  of the adjustment, we note that the Sinar Mas Group put forward a two-fold argument during the investigation, as shown in the quotation in paragraph 7.142 below: the Group argued that if the KTC bases its normal value determinations on CMI's selling prices submitted by the respondents, account should be taken of CMI's [] 192 . If, however, the KTC constructs the normal values, then the

  expenses added to the constructed normal values for CMI should be removed at the fair comparison stage.

  7.141 We recall that the KTC did not use CMI's selling prices, but decided to construct the normal values for Indah Kiat and Pindo Deli. In its construction of these two normal values, the KTC added

  [] 195 per cent for SGA and [] per cent for interest expenses for CMI. Given that the record clearly demonstrates that the KTC used constructed normal values for Indah Kiat and Pindo

  Deli, we understand Indonesia to argue that the KTC should have made an adjustment to remove the SGA and the interest expenses added to account for CMI's involvement in the domestic sales of the subject product. In other words, Indonesia's argument is that these two expenses added to the normal values to account for CMI's costs should have been removed when comparing the normal values with export prices in order to make a fair comparison as required under Article 2.4 of the Agreement. In any event, we do not consider this distinction regarding the quantification of the adjustment to have an important bearing on our legal reasoning with respect to this claim because, no matter on what basis the claimed adjustment should have been calculated by the KTC, the issue is whether or not there was in fact such a difference that affected price comparability and for which an adjustment should have been made. In other words, the issue is whether or not domestic sales of the subject product made through CMI in Indonesia contained certain additional expenses stemming from the services rendered by CMI with respect to domestic sales, which were not rendered in exports to Korea.

  7.142 Turning to the record of the investigation at issue, as stated above, we note that in its construction of the normal values for the three Sinar Mas Group companies, the KTC added additional SGA and interest expenses for CMI's re-sales of the subject product. It is also clear that the Sinar Mas Group requested that an adjustment be made to the normal values for Indah Kiat and Pindo Deli to account for these expenses which, in their view, affected price comparability and that the KTC declined that request. The Sinar Mas Group raised this issue at least three times during the investigation. The letter by the Sinar Mas Group dated 9 April 2003 reads in relevant parts:

  "[[]]" 196 7.143 The Sinar Mas Group's letter dated 4 July 2003 reads in pertinent parts:

  "[[]]" 197 7.144 The Sinar Mas Group's letter dated 12 September 2003 reads in relevant parts:

  "[[]]" 198 190 Ibid.

  191 Response of Indonesia to Question 16 from the Panel Following the Second Meeting. 192 Korea requests that the data in square brackets be treated as confidential. 193 Ibid.

  7.145 In response to these requests by the Sinar Mas Group, the KTC's Final Dumping Report reads in pertinent parts:

  "7) Adjustments for the Difference in the Level of Trade Opinion of the Respondents Respondents requested to take into consideration the difference in the level of trade in

  determining the normal value, as the products are sold to independent domestic merchants in the domestic market through CMI, the sales company, while the exports to Korea are directly made to Korean importers, thus making the level of trade different for the domestic sale in Indonesia and the exports to Korea.

  Review Opinion of the Office of Investigation First, in order for the difference in the level of trade to be recognized as an adjustment

  factor of the normal value, the domestic sale in Indonesia must have one more level of trade than exports. Second, such difference in the level of trade must affect the difference between the export price to Korea and the domestic sales price.

  - CMI, the sales company, is an affiliated company of Respondent, and thus, forms one economic entity with Respondent. Therefore, the domestic sale in Indonesia does not have one more level of trade than exports.

  - Further, for fair comparison, Respondents are required to establish the impact of such difference in the level of trade on the prices of exports and domestic sales. However, Respondents failed to submit such evidence to the Office of Investigation during the on the spot investigation, thereby failing to prove the impact of the difference in the level of trade on the price of exports to Korea and the domestic sales price.

  - Therefore, for the above reasons, Respondents' arguments are not acceptable." 199

  7.146 The crux of Indonesia's claim, and the main line of reasoning put forward by the Sinar Mas Group in the course of the investigation at issue, is that the involvement of CMI in the domestic sales chain necessarily meant that an adjustment should have been made to make a fair comparison. The

  fact that CMI charged a [] 200 over the prices of Indah Kiat and Pindo Deli is, in Indonesia's view, evidence of this fact. Evidence on which Indonesia relies in this regard has also to do with the

  involvement of CMI in domestic sales. For instance, Indonesia refers to the fact that CMI had to pay its employees who were carrying out sales-related work in addition to the work done by the employees of Indah Kiat and Pindo Deli. Indonesia also mentions that there were two price negotiations in domestic sales: One between Indah Kiat or Pindo Deli and CMI and the other between CMI and independent buyers. Consequently, two sets of sales-related documents were issued with

  respect to domestic sales. 202 That is why CMI charged a [] and why the KTC added SGA and interest expenses for CMI in the constructed normal values for Indah Kiat and Pindo Deli.

  7.147 We note that in a given investigation there may be differences with respect to sales-related expenses in the export and domestic markets for a variety of reasons. It may also be the case that these differences may affect price comparability. If so, the IA has to make an adjustment to account for the effect of such differences in order to ensure a fair comparison between the normal value and the export price, consistently with Article 2.4 of the Agreement. This may be the case irrespective of whether or not there is a trading company, such as CMI in this investigation, involved in the distribution of the subject product either in the export or the domestic market. In other words, the fact that a trading company handles domestic or export sales of the subject product does not in and of itself mean that there is a difference that affects price comparability and that an adjustment has to be made under Article 2.4. The interested party claiming such an adjustment has to demonstrate that the involvement of the trading company gives rise to a difference that affects price comparability. We note that, just as the Sinar Mas Group did during the investigation at issue, in these proceedings Indonesia repeatedly referred to the costs incurred by CMI as the trading company handling domestic sales of Indah Kiat and Pindo Deli. This, in our view, is not enough to demonstrate that CMI's involvement created a difference between the normal values and the export prices of Indah Kiat and Pindo Deli which affected price comparability. We are not convinced that there were sales-related services rendered by CMI with respect to domestic sales of Indah Kiat's and Pindo Deli's products in the Indonesian market which were not rendered in these two companies' export sales to Korea. Indonesia has failed to make a prima facie case in this regard. We therefore reject Indonesia's claim.