Emilio Arteaga Vázquez
Vázquez Tercero & Zepeda, Mexico City
emilio@vtz.mx

Guillermo Sanchez Chao
Chevez Ruiz Zamarripa, Mexico City
chao@chevez.com.mx

Introduction

Despite not having amended the International Trade Law since 2006, or its regulations since 2014, Mexico has recently developed new practices in its trade remedy investigations. The International Trade Practices Unit (UPCI – Spanish acronym) of the Ministry of Economy has been surprising practitioners with its determinations within their antidumping investigations and/or orders on a wide array of matters, including whether a foreign business chamber is an interested party, that sunset reviews cannot serve to modify duties with ‘fresh’ dumping margins, restricting access to confidential information, and very ‘sophisticated’ dumping methodologies.

While all these trends and practices are outside the scope of this piece, below we highlight those we consider most relevant to discuss the consideration of China as a market economy and the use of foreign costs. For instance, Mexico has considered China both as a market economy and non-market economy (NME) in original antidumping investigations and sunset reviews, and when considering China or a specific industry as a market economy, the UPCI has used ‘costs’ data from the Mexican domestic industry to reconstruct the normal value of the exporting country.

This practice of using domestic costs has been applied in recent investigations, notably in the determination regarding Wind Towers from China (concluded) and the probe into Steel Slab imports from Russia and Brazil (preliminary determination pending).

Finally, this article also addresses the issue companies face when challenging antidumping determinations either in Mexican courts or other dispute settlement mechanisms.

China: a market economy or a non-market economy?

As the last country to accept China’s accession to the World Trade Organization (WTO), it comes as no surprise that Mexico is still tough on China, particularly in antidumping investigations. Unlike some WTO members that have a list of NMEs, Mexico has a unique approach in determining whether a country like China is or is not a market economy per its laws and regulations. The International Trade Law provides a definition of what constitutes an NME and refers to the regulations, which define a non-market economy as well as a market economy.

Mexico automatically treated China as an NME in all its antidumping investigations, resorting to the surrogate country methodology for normal value purposes. Chinese producers/exporters and importers have questioned the UPCI’s evolving rationale for selecting, for instance, Brazil, India, or Colombia as the surrogate country. The UPCI defends its position by submitting that the surrogate country determination is valid as long as the decision is reasonable, regardless of whether there is a ‘more’ reasonable or suitable comparable country.

The Federal Administrative Court (FAC) has declared surrogate country determinations illegal in at least three cases. It is still unclear whether the grounds are due to the highly questionable ‘reasonableness’ criteria but, surprisingly, the FAC has determined in at least two cases that the Ministry failed to justify that the surrogate country was a market economy.

Post-2016, the UPCI shifted its practice, after it decided that paragraph 15(d) of China’s Protocol of Accession no longer served to automatically justify China as an NME. The UPCI now holds that the Mexican domestic industry has the burden of proof to show that China or the industry under investigation is an NME. If the onus is met, then the burden of proof shifts to the Chinese producers.

In most antidumping proceedings, domestic industries continue to claim that China is an NME, and the UPCI has mostly accepted such claims, as noted in the chart below:

Table 1: Chinese Normal Value in Mexican Antidumping Investigations

Overall, Chinese upstream industries or intermediate product industries (eg, chemicals, steel products, polyester products, etc) are more likely to be considered NMEs. For instance, the domestic industry can submit information on state-owned enterprises that are within these industries. This is precisely what happened in Polyester Staple Fibres from China, the first Mexican antidumping investigation where a Chinese industry sought to revert its NME status, contesting every single criterion provided in the Regulations of the International Trade Law. In the end, the UPCI agreed with the domestic industry in all NME factors, giving particular weight to the theory that a state-owned enterprise distorted the polyester staple fibres market. On the other hand, Chinese downstream industries or final product industries are more likely to be considered as market economies.

In the event that China is deemed a market economy, one may assume that the UPCI will, or should, accept the normal value and costs stipulated by the industries implicitly considered as market economies. However, this was not the case in the probe into Wind Turbines from China, as noted below.

Using Mexican costs in the constructed normal value

The concept of ‘particular market situation’, as stated in Art 2.2 of the Antidumping Agreement (ADA), has played a significant role in recent WTO cases, where the Appellate Body and Panels have interpreted this and related provisions. The concept is applied by the investigative authority (IA) in order to justify that domestic sales are not in the ordinary course of trade and, thus, resort to a constructed normal value (CNV) methodology. IAs have then used ‘international’ costs of inputs in the CNV.

In the case of EU – Biodiesel,^[1] the Appellate Body determined that the specific circumstances in Argentina were not a sufficient basis to disregard the cost records of the exporters in their CNV (as per Art 2.2.1.1, ADA). Accordingly, the investigative authority must analyse if the records kept by the exporter are suitable and sufficiently correspond to the costs incurred for manufacturing the investigated product. However, in a particular market situation, the investigative authority is not limited to the sources of the exporting country to calculate the cost of production; it can use ‘international’ sources (prices) in the CNV, but must ‘fit’ such foreign sources to the cost of production in the country of origin. Failure to ‘fit’ the foreign source to the cost of production in the investigated country means the IA has to use the exporter’s costs records per article 2.2.1.1 ADA.

In Australia – Antidumping Measures on A4 Copy Paper^[2] Indonesia unsuccessfully challenged the particular market situation determination. Nevertheless, the panel found that the investigative authority was obliged to undertake the necessary additional examination to determine whether or not, because of the particular market situation, the domestic sales of the individual exporters permitted a proper comparison of the domestic and export prices.

In Mexican antidumping procedures, such as Wind Towers from China and Steel Slabs from Brazil and Russia, the UPCI disregarded the aforementioned WTO precedents, among others. Interestingly, the UPCI has not expressly stated that there is a particular market situation in the exporting country.

In Wind Towers from China, the Chinese exporters proposed a CNV methodology, instead of domestic prices, because these products are ‘tailor made’ and do not have comparable sales. Nevertheless, the UPCI determined (without an extensive explanation) that the Chinese exporters failed to provide the ‘necessary’ information to calculate the CNV. As a result, the UPCI rejected all the Chinese exporter’s records and resorted to ‘international’ and ‘Mexican’ prices for the CNV.

It is clear that the UPCI’s position is contrary to the WTO’s interpretation of particular market situation and, in particular, its underlying obligations. Namely, the UPCI has completely disregarded the information provided by the exporters to determine a CNV, arguing that it was insufficient. Even if that is the case, the UPCI is obliged to analyse and take into account the exporter’s records for the CNV, provided that they are suitable and sufficiently correspond to the production cost of the investigated product (and records follow generally accepted accounting principles). The UPCI did not make such claims. Indeed, the UPCI may use other sources for the analysis, but this article argues that it must determine a particular market situation and ensure to fit ‘foreign’ information to the cost of production in the exporting country.

In the Notice of Initiation of steel slabs from Russian and Brazilian producers, the UPCI used the cost structures of the domestic industry to determine the CNV; the question is, thus, whether UPCI will accept their accounting records to determine the normal value, or will they face a similar fate as the Chinese wind turbine producers (i.e. resorting to foreign sources for CNV)?

Challenging final antidumping determinations in Mexico

An interested party has two legal remedies to challenge a final determination, and if the origin of the goods is from the United States or Canada, a special and unique mechanism is provided for in the United States–Mexico–Canada Agreement (USMCA).

The traditional legal challenge is to submit an administrative remedy before the Ministry of Economy. Currently, the Ministry does not issue a decision, meaning the interested party must wait three months to file an admissible judicial claim before the Specialized International Trade Chamber of the Federal Administrative Court (FAC). The dossier is eventually remitted to the FAC’s Superior Chamber, normally confirming the final determinations (save for the surrogate country claims). The claimant (or a third-party) may then ‘appeal’ the judgment with an amparo challenge. Under normal circumstances, this process takes about two to three years, notwithstanding the compliance proceedings (if successful).

Finally, trade remedy amparos are now within the jurisdiction of the Federal Circuit Court Specialized in Anti-Trust and Telecommunications, instead of sitting with the ‘traditional’ administrative courts. This is due to a recent – and questionable – precedent from the Mexican Supreme Court. (It is unclear whether these courts will improve the quality of the judgments.)

The second option against antidumping final determinations is an ‘extraordinary’ or constitutional challenge, which is called an (indirect) amparo. In addition to any legality or due process claims, it is imperative to include at least one ‘pure’ constitutional claim in order to be admissible; for instance, that a provision of the Foreign Trade Law contradicts the Antidumping Agreement or the Constitution. A Federal Judge Specialized in Anti-Trust and Telecommunications will hear the case and, if challenged, the respective Specialized Circuit Court will review legality issues, while the Supreme Court may assess novel constitutional issues. Before Covid-19, the whole amparo process, including compliance, took about four years.

Finally, a Bi-National Panel, as outlined in Chapter 10, USMCA (previously, Chapter 19 of the North American Free Trade Agreement (NAFTA)), is a third option when an antidumping determination covers US or Canadian goods. The five-member ad-hoc panel must apply the standard of review governing the FAC’s judgments. In comparison with the NAFTA, Bi-National Panels are open to invoke WTO Panels or Appellate Body reports in their decisions, since treaties are self-executing in Mexico, while the domestic courts rarely refer to such reports.

Notwithstanding, the quality of Bi-National Panel decisions may vary significantly from case to case, particularly if there are no antidumping law experts among the five-member panel. The NAFTA system was far from perfect, and it was not subject to significant changes in the USMCA. For instance, the appointment of panelists could take up to two years, hearings were delayed, and Panels did not respect deadlines for rendering their decision.

The USMCA seeks to overcome these issues, but the system will fail again if the roster of panelists is not updated constantly. The last NAFTA Bi-National Panel reviewing a Mexican antidumping determination is still ongoing after more than five years, and is currently in the ‘compliance’ phase.

Conclusion

In sum, exporters and importers suffer not only from delays, but also from poor-quality judgments when challenging antidumping determinations in Mexican courts or Bi-National Panels. From our point of view, the best approach is to resort to the WTO, even though the Appellate Body is not functional. If Mexico’s practices are not challenged in the WTO, the UPCI will continue its questionable practices, and domestic courts will most likely confirm their validity.