India achieved a significant victory at the WTO on December 8, 2014, as the Appellate Body has held that the Countervailing Duty (CVD) measures imposed by the United States against certain Hot Rolled Carbon Steel Flat Products are inconsistent with the provisions of the Agreement on Subsidies and Countervailing Measures (ASCM) of the WTO.
The Appellate Body has emphatically endorsed India's position that public sector undertakings (PSUs) do not constitute 'public bodies' capable of providing a subsidy merely for the reasons that the government has a majority shareholding in them and directors to the Boards of the PSUs are appointed by the government. This ruling provides significant relief to exporters from India who buy raw materials from PSUs such as SAIL or National Mineral Development Corporation (NMDC). The ruling also has worldwide implications on how the WTO disciplines on subsidies can be applied against alleged financial contributions from state-owned enterprises.
The Appellate Body also agreed with India that the United States applied a wrong methodology while calculating the benefit, and consequently while determining subsidy-margin, in the case of sale of iron ore by NMDC. The Appellate Body confirmed the Panel's reasoning that proxies indicating domestic prices cannot be ignored in determining benchmarks under the ASCM.
On a point of law, the Appellate Body has held that cumulation of non-subsidized imports with subsidized imports while determining injury in a CVD investigation is inconsistent with the WTO law. The Appellate Body has held that the United States’ law contained in 19 USC 1677(7)(G)(iii) is 'as such' inconsistent with ASCM. This ruling has raised serious questions about the WTO compatibility of several other CVD investigations conducted or being conducted by the United States.
On the aspect of determining an appropriate benchmark to determine benefit, it has now been clarified that investigating authorities cannot presumptively reject government-related prices as relevant benchmark; in applying adverse inferences against non-cooperating parties, investigating authorities cannot arbitrarily choose to apply any inference, but instead have to account for all substantiated facts; and in selecting one fact over another in such cases, the finding is to be supported by proper reasoning and evaluation.
Further, the Appellate Body has ruled that investigating authorities do not have the unfettered right to add new subsidies in the course of reviews of existing CVD measures. Only new subsides that are closely linked to subsidies examined earlier can be added in a review proceeding.
Lakshmikumaran & Sridharan handled the case at all levels right from the consultation phase and upto the Appellate Body. Previously, L&S assisted the Indian Government in the dispute DS428 in which India challenged the Safeguard measures imposed by Turkey on imports of cotton yarn (other than sewing thread). Pursuant to the formal consultations and without resorting to full-fledged litigation, the measures were withdrawn by Turkey.